Before the economy spiraled downward in 2008, most companies exclusively focused on a strategic planning process to determine real estate goals. But strategic, goal-focused planning is by nature a linear thought process that can lead to a dead end. The financial crisis and ensuing Great Recession caused forward-looking decision-makers to transition from strategic planning to scenario planning, which provides a more non-linear, tactical approach to doing business.
Scenario planning provides multiple options for avoiding dead-ends and enables firms to achieve a new equilibrium when thrown off track, exercise flexibility to handle changing circumstances, maximize return-on-investments, and minimize risk. The process also permits companies to allow for adjustments to employment options, expand paradigms about how to work, enable quicker decision-making, and increase organizational options.
Also a structured process of thinking that anticipates the unknown future, scenario planning’s objective is to examine possible future developments that could affect organizations, societies, or individuals, and provide direction that is proactive and optimistic, yet also defensive and even preemptive. This methodological approach defines salient possibilities and permits the assignment of probability to those possibilities with the objective of identifying and exploring useful plans of action (strategies) under various circumstances.
Scenario planning takes into account the many forces driving change in the current business environment: politics, economic volatility, changing demographics, the integration of technology, sustainability, and the evolution of work. It also deals with the key challenges facing decision-makers at most organizations today: reducing costs, providing effective environments, consolidating facilities, managing risk, maintaining and building brand, optimizing real estate portfolios, leveraging services and service providers, and demonstrating corporate responsibility. Such planning also helps firms respond to current trends and anticipate future trends.
As a tactical methodology, scenario planning also prompts an organization to know itself in terms of corporate culture, survival needs, and stakeholders’ demands and expectations. An organization that wants to plan for the future will do more than “guesstimate.” Using scenario planning, it will prepare for and take advantage of opportunities for beneficial change.
In the case study above, all of the scenarios will be treated seriously, but the CEO singles out the second scenario as the most appropriate for the firm’s situation and thinks it could work out like this:
The firm’s lease will expire in four years. The CEO will exercise an option to lease an adjacent suite at a favorable rental rate. In the new suite, tenant improvement money and some cash reserves will be used to build out a new workplace that reflects employee responses to a series of surveys and workshops about how staff works and would like to work in the future. The new suite design incorporates hoteling, flexibility, mobile technology, and direct daylight views for all employees. If this design works (for example, productivity and service quality improve along with morale), the firm may expect an increase in the value produced, which will lead to higher revenues.
The key is that there are defined goals: improve productivity, improve morale, and enhance revenues. Each of these can be more tightly defined through the application of metrics. For example, improve productivity by 5 percent, improve morale measured by fewer employees leaving within a year, and improve revenue by 7 percent. The CEO will also need to evaluate and measure the costs associated with the scenario against the goals that define success.
Wise leaders must assume some risk and choose a scenario that appears to offer the greatest likelihood of success. Reducing risk and increasing rewards are always the rational goal of any business plan. Scenario planning helps decison-makers to avoid the irrational by looking at future possibilities and avoiding decisions that could lead to the most negative consequences.
This article is an excerpt from Kay Sargent’s White Paper “Scenario Planning: A Tactical Approach to Planning for Tomorrow and Beyond.” Read the full PDF report at www.contractdesign.com/IAScenarioPlan.