Using scenario planning to prepare for 2030’s risks

Preparing for emerging risks can be helped with strong scenario planning, says Hans Læssøe, former senior director, strategic risk management, founder of Aktus and member of Risk Leadership Network’s advisory board.

In this blog, I will use scenario thinking to explore four plausible futures and based on these, pinpoint a range of issues to address in the world’s path to the next decade. 

The process is to define two uncertainty drivers and from these make a 2x2 set of scenarios (described below).

As the first driver, I look at the parameter of “power”: who will make decisions in the world, the few or the masses?

• Power of the few: this means that policy and development decisions are largely made by politicians and/or the executives of large corporations. The world will see the heads of ever larger entities discuss and decide how to proceed in the world. The World Economic Forum, United Nations, World Trade Organization, ASEAN, G70 and others are examples of such ‘a world’. Here, artificial intelligence, surveillance systems, big data and other technologies – including some yet to be invented – will be used to sustain the power of the few who have no intention of sharing power with the masses.
• Power of the masses: this refers to social networks and supporting technologies that enable people to drive issues forward and hamper other developments. Individuals ‘vote’ with their wallets by buying products and services from companies that they respect. The 99% movement and numerous Facebook groups, as well as the so-called ‘Arab Spring’ movement are examples of such a trend. Here, technology increases transparency and actionability, whereby political and corporate decisions are directly or indirectly (but promptly) subject to mass approval, or doomed to fail in implementation.

I believe both of these directions are plausible. But I do not place the same likelihood to them – but that is less relevant.

The second parameter – which I believe is independent of the above – is ‘value’. What do humans most value in the world? 

• Money is value: this means decisions made and actions taken are driven by the desire to create or sustain financial wealth. Having enough money is seen as a prerequisite for freedom and happiness, and people will work hard and long hours to create more wealth in their pursuit of happiness. The negative side of this is that greed becomes a driver of actions for many, who unless regulated, will sacrifice emphatical and ethical norms to generate more wealth. On the positive side, it drives entrepreneurship if/when there is a financial prospect in sight.
• Time is value: this means that an ever-larger, and decisive share of the population will look beyond money and find that time is key. Having free time is seen as the prerequisite for happiness, and people will make do with the reasonable financial conditions that they have to enable more freedom. On the negative side, this may lead to a severe decrease in productivity, especially as the most productive people are likely to be the first to deliberately ‘slow down’.  On the positive side, it will hamper the greed and open for a more even distribution of wealth as one cannot have more than 168 hours of free time in a week (whereas fiscal wealth is technically unlimited).

As for the power uncertainty, I believe both of these are plausible – but not equally likely. I also believe that one parameter can change independently of the other.

Combining the two sets of uncertainties, we get four plausible yet systematically different scenarios – A through D (see figure 1 below). Please be aware, that as an offset, no one scenario is inherently better or easier than any other. As stated by former Liberian President and Nobel Peace Prize winner, Ellen Johnson Sirleaf, “If your dreams don’t scare you, they are not big enough”.

Figure 1: four scenarios

Something similar can be said about each of these scenarios. They may be defined as not very different from what we know, and ‘comfortable’ to some extent. And if this is our perception, then they are not taken to their needed extremes. Just look at how different things are today as compared to 12 years ago, i.e. before the financial crisis in 2006 where most believed that the world was on a roll.

The scenarios are described by a few key characteristics. Note that this description is nowhere near exhaustive (see figure 2).

Figure 2: scenario examples

Issues to address

The optimal list of issues to address will depend very much on what organisation are leading. Something similar can be said about the scenarios, which I chose to be generic.

Given the timeframe, any one issue can be an opportunity that we may wish to pursue. If not an opportunity then it may be a risk we opt to mitigate, and if the risk materialises and we haven’t done anything, it may be a problem that affects our performance.

Addressing these issues means we need to define these as potential risks or opportunities, prioritise them and define how we address them. We have little or no data and as humans, we are biased. Hence, we need a very simple 2x2 scale as more granularity is probably unfounded. 

The prioritisation is not based on impact or importance – all identified issues are inherently of high importance, and we cannot state anything else. The parameters are likelihood and speed, amd further explained below:

• Likelihood: this is a simple choice of, do we believe or expect that this issue will materialise by 2030 or is the case that we don’t believe it will but recognize it may materialise? I.e low and high likelihood.
• Speed: this is slightly more complicated. Slow speed means that if the issue materialises, we presume we will have the capability to address this as and when it happens – even unprepared. Fast speed means that if the issue materialises, we cannot handle the risk unless we are fully prepared for it (ready made plans, early warning indicators and the like).

Making this in a 2x2 matrix enables us to define a generic strategic response/action on the issue – a response, which will then be defined specifically for each issue. The priority approach is known as a ‘PAPA’ – Park, Adapt, Prepare, Act – as the one shown in figure 3.

Park: issues which are not expected to materialise. If they do, we are able to accommodate these effectively as they evolve. These issues are known as  ‘parked’. This means that no actions are needed at present. An example of this could be complying to EU legislation (which is invariably slow).

Adapt: issues are expected to occur, and hence some actions must be taken to accommodate and benefit from these. Yet, these are gradual developments as materialisation is slow. It is all about defining how to monitor the trends and being aware of how to meet them. An example of this could be changed demographics with whatever impact that will have on the organisation.

Prepare: These issues are not expected to materialise, but if they do, the organisation will be unable to address them if they are not prepared. Here are where the strategic risks and opportunities lie. The organisation will benefit from thinking through the materialisation and describing the potential consequences, and plan (but not necessarily execute) how to handle them. This is close to strategic risk management in its approach, and most issues will already have been seen by companies doing systematic strategic risk management.

If the issue is negative, the company may take actions to reduce the likelihood. And if positive, they may wish to enhance the likelihood of it. An example could be a new technology that totally eradicates the value of your core product (think digitalisation versus VHS machines and then streaming versus  DVD machines).

Act: these issues are expected to happen within the timeframe between now and 2030. Furthermore, they are expected to have effects so fast that if we do not start acting on these now, we will probably be losing value due to these issues.

Here, the organisation needs to plan and execute and be clear on whether to pursue it or view it a risk. Then, who does what by when and how do we monitor this? An example could be the impact of the shared economy, where every user does not have to own or buy the product to benefit from it.

I have run dozens of scenario sessions and found that normally, the leadership team will come up with about a handful of issues in each of the four quadrants, probably with few ‘park’ issues, and a reasonably even spread among the others.

Needless to say that the leaders who identified a handful of ‘act’ issues, plus some ‘prepare’ and ‘adapt’ issues – which they hadn’t thought about before – regarded the session as highly valuable.

Figure 3: the PAPA model

As stated, these are merely generic examples. For any organisation, be they a for-profit industrial, a university, a government or a health service – can define its own driving uncertainties, scenarios and prioritised issue lists.

I have some experience doing this as a workshop, which takes 4 hours. These are 4 hours of fun, hard work and strategic thinking in combination. The above scenarios and issues are generated out of the insights of one person. Just imagine what may be the outcome of 5 or more top executive discussions about the world from their joint perspective – and focusing on ensuring the sustainability and perspectives for their organisations.

Looking at my example issues, do I believe leaders of the world have to address the ‘act’ issues listed? Certainly! If they do not, I believe they will be ‘sleeping in class’ and miss massive opportunities, as well as run significant risks.

Then again, are any of these big surprises to you? Probably not! In my experience that does not, however, mean that you and your organisation are already addressing these with explicit actions. The question is, why not? (If you are systematically addressing all of them and more, please accept my apologies).

Closing comments

There is plenty of evidence that shows that the future is not defined by extrapolating the past. So, to prepare for the future, one must be ready to address changes in the world. When defining a strategy to meet some strategic aspiration there are always implicit and/or explicit assumptions about the future in which the strategy is assumed to be effective.

This scenario workshop is designed to explicitly address the consequences of these assumptions as being wrong, as the world starts changing in a different way than what was expected.

That is prudent strategic planning as well as intelligent risk taking.

We recently held a private Member meeting on scenario planning where members from across the globe shared their perspectives and approaches. We are in the process of creating a series on scenario planning and would love to hear from you! If you’d like to get involved in shaping the agenda and attending our series of meetings, get in touch: kin.ly@riskleadershipnetwork.com

Are you an in-house risk manager who could benefit from access to a global network of risk leaders? Talk to us about becoming a Member today.