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What If? Tools for Analyzing Possible Management Outcomes

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Gift

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This post is part of a series called Fundamentals of Go/No-Go Project Decisions.
Getting Started With Go/No-Go Decision Making
Can We Really Do It? How to Conduct a TELOS Feasibility Study

What if I said “yes” to this project today—what would happen? Would the outcomes be positive or negative? What are the possible impacts the decision would have on our business, our employees, and our bottom line?

What if we launched this product in a month? When would we start making money? What would happen if the competition decided to launch a similar project a month later?

It’d be great to have the answers to all these sorts of questions—but short of a crystal ball, none of us has the means to peer into tomorrow and provide an accurate forecast for what will or might be. Luckily, however, there are tools for analyzing what could happen, given various different types of variables. These tools, of course, are not foolproof. But they have proven to be surprisingly accurate and effective, which is why they’re used by businesses, universities, and even international aid organizations to imagine, plan, and manage risk.

What If Chart/Decision Matrix

What If Analysis uses a matrix-style chart to help you figure out what might happen in a particular situation if a particular issue arose or a particular questions were asked. For example, imagine that you are planning to go out to dinner with your team. Should you pick the Italian place? Or would you be better off with Chinese? You can set up a chart in which you look at the probable responses of each individual on the team to think through the options.

Scenario Analysis

Scenario Analysis is a more in-depth process that requires stakeholders to help think through possible outcomes given a variety of variables. It involves a little bit of storytelling, and quite a bit a research. At the end of the process, you should have meaningful and descriptive information about just what MIGHT happen if you made various strategic or financial decisions. Scenario Analysis can also be a strictly mathematical exercise that uses tools like Microsoft Excel to analyze possible financial outcomes given different price points, dates of launch, production costs, and other important factors.

How to Create What If Charts (Decision Matrices)

Let’s look at the simplest tool first: What If charts (sometimes called Decision Matrices). As I mentioned, What If charts are really intended to help you make quick, relatively simple decisions. That means they’re most useful when you have the information you need at your fingertips—or when that information is readily available. There are two ways to put together these charts; one is with a simple scoring method, and the other is with descriptive words (good, better, best, or loves, tolerates, hates, etc.).

How Do You Use a What if Chart?

While you can use the chart for many more serious decisions, let’s go back to the question of which restaurant to choose for dinner. When you ask that question, what you’re really asking is: “What if I chose a Chinese, TexMex, American, or Italian restaurant? How would individual members of my team respond?” The chart or matrix is a handy visual tool for quickly determining the answer.

Imagine that you have four good local restaurant options: Chinese, Italian, TexMex, or basic American cuisine. You have four team members, and you know their preferences.

To create your chart or matrix, you list your options in columns across the top of the chart, and your team members in rows along the left side of the chart. Then you fill in the blanks, based on the knowledge you can easily acquire.

As it turns out, Mary likes Italian and TexMex, will tolerate Italian, but is bored by American. Bill likes American and Italian, but draws the line at TexMex. Gary just loves TexMex, but is pretty much okay with any other choice. And so it goes. When you’re done, your chart will look something like this:

Mary

Bill

Gary

Daphne

TexMex

likes

dislikes

likes

neutral

Chinese

neutral

neutral

neutral

dislikes

Italian

likes

likes

neutral

likes

American

dislikes

likes

neutral

neutral

Just by glancing at the chart, it becomes clear that Italian is really the only viable choice!

What If charts are particularly useful for situations in which information is readily available and a decision involves a limited number of options. The tool is not especially useful for predicting complex or multi-layered outcomes, so it’s not appropriate for an organization-wide strategic choice. 

You might use this tool, for example, when choosing a vendor, selecting a venue, or choosing office décor. In such cases, your variables along the left might include price, reliability, convenience, and other key points. 

There are more sophisticated tools that can help you with exploring scenarios and making complex management decisions.

Exploring Scenario Analysis

Scenario Analysis, unlike the What If Chart, is neither quick nor easy. Its purpose is to determine what could happen in the event of many different possible variables—and it may be organized as a matrix or (when the question is purely financial) as an Excel-style model. Less often, the results are presented as a set of branching options, such as:

Process of scenario analysis branching.

Regardless of how you present your finding, the process of building a scenario analysis involves four steps:

  1. First, choose a focus for your analysis. This can be expressed as a what if question—for example, "What if we were to launch the new build your own solar heating system system in September?"
  2. Next, determine and define the most important forces likely to impact that decision. For example, these might be competition, economic conditions, changes in price of and access to fossil fuels, and attitudes toward green energy.
  3. Now select three or four possible scenarios that are researched, plausible, and based on the forces you’ve selected. Some of the most popular scenarios include “status quo” (nothing changes), “revolution” (an unexpected development or product changes your expectations), “major trends continue” (the trends you see continue in the same direction with no end in sight), and “trends continue and then change.”
  4. Finally, flesh out those scenarios with narrative and details.

Each of these steps, as you can imagine, takes some work to complete. To start with, your team needs to agree on a focus, which means agreement on a particular goal. Hopefully, this step should be relatively painless—though you may hear such objections as “what difference does it make? We have to launch in September to meet our distributors’ requirements, so why even ask the question?”

Once you’ve overcome objections and completed step one, you have some work to do in the form of determining the most important forces likely to impact your decision. This may sound simple, but in fact it takes a fair amount of research. For example, let’s say that you’ve decided that your solar energy system’s success will depend in part, upon changes in attitudes toward green energy. In order to realistically devise a set of scenarios, you need to understand what attitudes are today, how those attitudes are trending, what issues are impacting those trends, and how your other selected driving forces are likely to interact with those trends.

Now, based on your research, you can begin to build scenarios—both positive and negative. For example, one scenario might look at a situation in which gas and oil prices soar as a result of tensions in Russia and the Middle East. Competition increases as interest in alternative energy soars, while economic conditions are generally poor. This might lead to a high growth scenario, with the caveat that it will be important to maintain a relatively low price point while staying on top of the competition.

Step four involves expansion of your scenarios to include details of just what might happen. It’s important, of course, to stay focused on your product—and not to wander into the realms of science fiction.

One way of visualizing your scenarios is to create a simple four-part matrix with boxes for each of your scenarios. Describe each scenario appropriately and list just the most important details. 

Four Part Scenario Analysis Matrix: exploring the question of solar kit launch timing.

Alternatively, you can create a more elaborate presentation with narrative and storyline.

A completely different approach involves a numbers-only approach to modeling—an approach that’s supported by Excel, among other products. Based on research, you enter a number of variables into the model—in this case, for example, varying production costs, price points, items sold, marketing costs, and any other relevant variables—and then run the models to determine what the financial outcomes might be under different circumstances. This approach allows you to actually determine whethe—and to what degree—certain scenarios could harm your corporate bottom line.

Why Bother With Scenario Analysis?

What’s the point of doing so much hard work to develop possible scenarios that may or may not come to pass? There are quite a few advantages:

  • Scenarios can help your organization to assess risks. If the scenarios are well researched, you may discover potential problems that can be addressed before it’s too late.
  • Scenarios can help galvanize your organization to act for change. A positive and realistic scenario can inspire your employees to make changes for the better—with a concrete vision for desirable outcomes.
  • Scenarios can provide clarity as to which indicators really matter for your organization. Perhaps you’ll find that the competition is less important than, for example, the demographics of your region.
  • Scenarios can help you to determine what departments, products, or messages are most likely to help you succeed in the near future.

The World Bank website offers a positive story of change through scenario analysis in the State of New Jersey:

In the mid-1990s, the State of New Jersey used a participatory scenario process to develop a vision for the future that would help it deal with intransigent transportation issues. The core decision was whether to focus on sustaining existing roads, expanding the highway system, or building more light rail. To develop the scenarios, the scenario team looked at the likelihood of regional and national economic growth, citizen priorities, environmental pressures and political will. Research, which included a values survey of a cross-section of citizens and businesses, studies of existing travel and commerce patterns, and a study of conventional forecasts, was carried out as part of the process. In addition, consultations were held in communities across the state.

The final outcome was impressive: New Jersey leveraged federal funds to develop a long-term plan for mixed road-rail development.

While your Scenario Analysis may not (or may!) result in a major federal grant, it certainly has the potential to help you plan intelligently for the future. It may even stop you from making serious mistakes, or encourage you to take an exciting risk.

Resources

Graphic Credit: Fork designed by Dmitry Baranovskiy from the Noun Project.


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