Critically Discuss the Importance of Scenario Planning to Develop Risk Management and Crisis Management Plans

Critically discuss the importance of scenario planning to develop Risk Management and Crisis Management plans

1. Introduction

Scenario planning plays an important role in developing risk management and crisis management plans. A good scenario planning always helps organizations to see possible futures and deal with crisis and risk successfully when emergencies happen. Consequently, most companies would like to spend amount of time and efforts in a formal, value scenario planning, so that they could get a clear futures and take appropriate decisions. This essay aims at the discussion on relationship between scenario planning and risk and crisis management plans, especially in how scenario planning improves or limits the developing of risk and crisis management plans. The whole assay involves three main concerns. At the first, briefly clarify the significant of the scenario planning, including the definition and characteristics. And then, introduce the risk and crisis management and the plans used to deal with them. Last but not the least, analyses the function of scenario planning for risk and crisis management plans. There are also some company examples to support the argument.

2. Scenario planning

In recent years, scenario planning is increasingly popular with organizations who consider it as a basis method in the strategic management process. A recent survey in UK showed that over 30 percent of organizations use scenario planning in their strategic process (Hodgkinson, et al., 2006), and earlier reports have shown the use of scenario planning have almost extended to mainland Europe (Malaska, 1985) and the USA (Linneman and Klein, 1983). Scenario planning, also called scenario analysis or scenario thinking, is a way to predict possible futures that organizations have applied to a great range of risk and crisis. It is not only a clear picture of tomorrow, but also the way of thinking and an ongoing strategic supplement for futures. In this way, managers could discuss objectively in full, and make strategy more flexible. It requires decision makers to be more sensitive on the signals of revolution. Just like an excellent chess player, he always could think out the next few steps and form a chain of reactions in his brain. If managers could imagine scenario occurs, they will be able to resolve it with more calm and careful. The characteristics of scenario planning are mainly system thinking, improvement of mental models and the ambition, vision and imagination exciting (Chermack, et al., 2001). As a management tool, scenario planning is different from the strategic planning which basis on the clear goal and faith. People could see the trend of development and also the system structure that would influence this trend through the method. In the meantime, it is not only the description of future scenario, but also some changes on mental models of organizations (Godet and Fabrice, 1996). If the scenario planning cannot impact mental models for decision makers, or lead to a revolution, it will hardly create the real value. Although there are still too many unknowns in future, it is still possible to simulate the decision-making on a series of credible, potential future scenarios and validate repeatedly, that is the significant of the scenario planning. In this case when these future scenarios really happen, managers could use the decisions which have been validated many times to avoid panic brought by unexpected accidents and increase the possibility of exploiting opportunities.

3. Crisis and Risk management plans

Crisis and risk management as situation-based management system can be defined as “systematic process of identifying, analyzing and responding to project risk” (Irimia-DiA©guez, et al., 2014, p2). The project risk could happen in the process of development cycle or be caused by the changes in the external environment when implement the projects. Dey (2012) indicates that it contains six steps: planning, risk identification, qualitative risk analysis, quantitative risk analysis, risk response planning, risk monitoring and control. The aim of crisis and risk management is to be well prepared for emergency, and show a correct, timely approach to respond. As the result of that, it is much easier to deal with the crisis and risk and get them terminated without any losses. Efficient crisis and risk management could help organizations to make decisions correctly and ensure the safety and integrity of asset (Irimia-DiA©guez, et al., 2014). Moreover, the efficient crisis and risk management needs a perfect plan as guidance, so that the crisis and risk management could be implemented smoothly, that is the crisis and risk management plans. The plans focus on the strategy for identifying, analyzing and slowing risk and also the responsibility for crisis management (Dey, 2012). Besides that, it will provide a completed guideline that refers to how to carry out the crisis and risk management in process of the project. The original intent of the crisis and risk management is to avoid the risk and minimize loss, however, with the help of the risk management plans, organizations could expect attain greater rewards (Dey, 2012). In a word, it is essential to draw up a crisis and risk management plans during the whole process of a project.

4. Good plans forCrisis and Risk management

As mentioned before, good plans will improve the process of crisis and risk management greatly. The purpose of the risk management plan is to set up the framework that is used for identifying risks and developing strategies, so those risks could be mitigated or even avoided. Having a good plan could help managers deal with emergencies when they occur and, hopefully, prevent them before they occur (Horton, 2002). From another perspective, risks could be positive that may result in some good things happening, usually called ‘opportunities’. And sometimes a good plan would be the kind of catalyst which makes the transition from risks to opportunities. In the meanwhile a good plan should also list the detail information related to the potential crisis and risk and clarify how to respond to them. The topics addressed in a risk management plan usually include methodology, roles and responsibilities, budget and schedule (Horton, 2002). In particularly, some volatility categories must be considered, just like market, financial, technology, employee and so on. As a top management, they should learn the core of crisis and risk management before starting a plan, such as ‘What could happen?’, ‘How likely is it to happen’, and ‘how can you reduce the probability’. So it is more like a list of adverse situations with their answers rather than a plan. There are other things managers should pay more attention, which the risk management plans need to be done at the first stage in project management and adjusted or updated at any time. As well known, Shell had the most to gain due to the crisis and risk management plans. In the early 1970s, the professional planners in Shell started to research and discuss the risk management and then they formed their own risk management plan. This plan mainly focused on the issue like ‘what will we be like in the next 20-30 years?’ and ‘how to make people discuss the things that cannot be imagined?’ In 1972, under the leadership of Pierre.Wacker, the team drew up a plan to cope with the energy crisis that could happen in some days. They were afraid of that one day oil companies in western countries would lose controls on oil supplements. And they should plan what will happen and how to struggle with it. Sure enough, the 1970s oil shocks transformed the world economy. When OPEC announced the policy of oil embargo, most oil companies suffered huge losses, but Shell became the only one that could resist this crisis because of its well prepared. Since then, Shell has jumped to the second of the biggest oil companies. In 1986, before the price of oil collapse, Shell saw the crisis again and planned to give up the acquisition on other small oil companies, stop expanding their production. After the price of oil decline, Shell spent the least money in buying a large number of oil fields. A series of risk management plans kept Shell maintaining the price advantage in the next 20 years. However, Motorola is not so lucky. As a leader of phone makers, it has been history. It is the lack of plans to cope with challenges in the market that leads to the failure. Motorola got over-confident without any sense of crisis or risk management plans. When other competitors rushed into the market with their high-tech productions, Motorola was not prepared for this transformation, and still insisted on their own way. Actually, it would be an opportunity if foreseen the 3G mobile phone, but Motorola was not be aware of that. Finally they cannot avoid this crisis or turned this threat into advantage and started to falter.

5. Scenario planning and Crisis and Risk management plans

Scenario planning and crisis and risk management plans have been discussed separately, so the relationship between them would be the next topic. Scenario planning as a way of predicting the future is a basis for developing crisis and risk management plans. To finish a risk management plan, managers must do scenario planning to foresee the possible risks. Each possible future scenario could be listed, including both risk and opportunity, analyses their probabilities and then discuss on how to deal with them (Irimia-DiA©guez, et al., 2014). Once it is done, the initial risk management plan has been developed. In other words, the scenario planning is more like a tool of risk management plan. There is another role for the scenario planning that is a link between business strategy and risk management plan (Coppendale, 1995). Combined with the existing strategy and intrinsic properties, it is easier to target the real crisis and risk that may happen in future, and develop a practical crisis and risk management plan. So the scenario planning is the binder for business strategy and risk management plan. Most organizations would pay more attentions on ‘How to develop crisis and risk management plans’. Of course, under the help of scenario planning, it will do more with less. There are mainly four steps to develop the crisis and risk management plans. Firstly, indentify risks from the discussion of scenario planning regarding future events. Meanwhile, it is necessary to indicate the potential events might hurt or enhance a particular project in a risk management plan. Secondly, analyses risks using repeated questions and responses just like brainstorming that is the same way as scenario planning do (Eberlein, et al., 2002). So it is much easier to analyses accurately if refer to the conclusion from scenario planning. Please note that it would be better if rank the risks. A list marked with high or low priority for potential risks will help teams create a professional risk management plan (Irimia-DiA©guez, et al., 2014). And then make strategies for these risks that have been listed, including mitigation measures and emergency measures. The mitigation measure is to reduce the possibility of risk, while the emergency measure aims at minimizing losses when risk occurs. The scenario planning could be used for evaluating the mitigation or emergency measures and rearranging the risks. At the end, a project manager need to monitor risks in the process of projects, and the specific steps used for monitoring project risks should be recorded in a risk management plan, such as assignments to risk managers and responsibility for status updates (Coppendale, 1995). Whether scenario planning or risk management plans, the purpose of them is to help organizations to take their appropriate decisions. In this way, managers could achieve the goals that minimize potential negative risks, at the same time, maximize potential positive risks. However, everything always works two sides: scenario planning also has limitations of itself. Scenarios are just some ideas, and ideas are difficult to communicate with other people (Ringland and Schwartz, 1998). Without effective communication, it is hard to implement in practice. Implementation is the soul of each plan. If the scenario planning is completely out of an implementation, it is just a planning or even a sweet dream. In addition, the use of analytical tools has limitations, showing up in data collected and the subjective nature. Both internal and external environment are changing fast, so the limitations of current knowledge and technology are hampers for forecasting the marketing. Moreover, to research market and collect data will inevitable cost much time and manpower that cannot be afforded by some small companies. There is another concern that if anything goes wrong or any potential risks unforeseen, it would shock the company heavily. As the organizations thought they had been well prepared for facing each crisis and risk, the over-confident makes them careless when the market is changing out of control. It is difficult to be aware of non-sensible subconscious for the organizations. A better choice is to link scenario to strategic planning (Ringland and Schwartz, 1998) and risk management planning. By standing on the point of whole company strategy, put scenario planning into practice together with strategic planning. Although the scenario planning is an idea discussed by the project teams, it is not visionary or a game. So the scenario planning is just considered as a tool for both strategic planning and risk management plan that indicate the clear assignment and responsibility. With a clear assignment and responsibility, it is much easier to implement in practice for managers and communicate with his team members (Ringland and Schwartz, 1998). Furthermore, as a successful executive officer, it is very essential to keep thinking refresh. Either scenario planning or risk management plans is not invariable. They need to be adjusted and updated as the developing of market, especially in a dynamic information technology sector. For those small companies, they could hire some professional teams to accomplish the scenario planning or risk management plans. The low-cost is beneficial for the development of those fledgling. The last point is that keep a clear head and never slip at any time. ‘Be vigilant in peace time’ is always a proverb for most organizations.

6. Conclusions

Scenario planning is popular with more and more companies. Most of them would like to hold a regular discussion conference to imagine scenarios that may happen in future. The teams will list each risk or opportunity and think out different strategies to copy. So the scenario planning is a basis for crisis and risk management and help organizations to be equipped before a war. There should also be a risk management plan, so that crisis and risk management could go well. Refers to the scenarios, the risk management plans could identify and analyses crisis better. Please note that not all risks need to be eliminated. With the help of a good plan, the risks could also be transformed into opportunities. In addition, the assignments and responsibilities must be clarified clearly in this plan, besides crisis and risks may face. In summary, scenario planning is an effective way for organizations to sensibly consider possible futures and to take appropriate decisions, and there is also no doubting its importance to develop the crisis and risk management plans, although there are some limitations. As an excellent manager, the sense of crisis and risk is essential. The more important is to use this skill in ‘the right time’ with right way. References Chermack, T. J.and Susan, A. L. and Wendy, E. A. R. (2001). "A Review of Scenario Planning Literature." Futures Research Quarterly, 72, p.7-32. Coppendale, J. (1995). Manage risk in product and process development and avoid unpleasant surprises[J]. Engineering Management Journal, 5(1), p.35 - 38. Dey, P. K. (2012). Project risk management using multiple criteria decision-making technique and decision tree analysis: A case study of Indian oil refinery. Production Planning & Control, 23(12), p.903-921. Eberlein, E. and Kallsen, J. and Kristen, J. (2002). “Risk Management Based on Stochastic Volatility[J]. Journal of Risk, 2(6), p.247–262. Godet, M. and Fabrice, R. (1996). "Creating the Future: The Use and Misuse of Scenarios." Long Range Planning, 29-2, p.164-71. Hodgkinson, G. P. R. and Whittington, G. J. and Schwarz, M. (2006). ‘The role of s trategy workshops in strategy development processes: Formality, communication, coordination and inclusion’. Long Range Planning, 39, p.479–496. Horton, T. (2002). Risk management plan can prevent accidents, litigation[J]. Golf Course News, (4), p.8-9. Irimia-DiA©guez, A. I. and Sanchez-Cazorla, A. and Alfalla-Luque, R. (2014). Risk Management in Megaprojects. Procedia - Socials&sbehavioral Sciences, (J), p.407–416. Linneman, R. E. and Klein, H. E. (1983). ‘The use of multiple scenarios by united-states industrial companies: A comparison study, 1977–1981. Long Range Planning, 16, p.94–101. Malaska, P. (1985). ‘Multiple scenario approach and strategic behavior in European companies’. Strategic Management Journal, 6, p.339–355. Ringland, G. and Schwartz, P. (1998). Scenario Planning: Managing for the Future. London: MA©moire Du Xxe SiA¨cle Sur La Prospective Linnovation Et Les Territoires.

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