The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

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What Is 'Scenario Planning'?

Scenario Planning means constructing hypothetical situations, then Mentally Simulating what you would do if they occur.

By coming up with as many courses of action for that potential circumstance, you'll develop several responses to any imaginable situation.

Scenario Planning is the key to effective strategy. Instead of focusing on one option, your business becomes more flexible and Resilient.

Don't waste time with unknowable futures. Focus on the most likely scenarios and you'll be well prepared if they actually occur.

Josh Kaufman Explains 'Scenario Planning'

No one can predict what will happen tomorrow, let alone 10 years from now. That's a problem when your plans and goals depend on things completely outside of your Locus of Control.

What can you do to prepare for an Uncertain future?

Scenario Planning is the process of constructing a series of hypothetical situations, then Mentally Simulating what you would do if they occur.

You may not be a seer, but Counterfactual Simulation gives us a powerful capability: imagining things that might occur, then figuring out what we would do if they did.

Scenario Planning is essentially detailed, thorough, and systematic Counterfactual Simulation applied to major decisions.

Scenario Planning always starts with a simple question: 'what would I do if?' The "what if" part is the Counterfactual, and it's what kicks your planning brain into gear, helping you imagine possible responses.

By writing down all of your potential courses of action in that circumstance, it's possible to develop several potential courses of action to any situation you can imagine.

Scenario Planning is the essence of effective strategy.

Trying to base your actions on predictions of interest rates, oil prices, or stock values is a fool's game. Instead of relying on your non-existent ability to predict the future with 100% accuracy, scenario planning allows you to prepare for many different possible futures.

Instead of rigidly focusing on only one option, scenario planning makes your business more flexible and resilient, improving your ability to change and adapt to a changing world.

Most large businesses use Scenario Planning as the basis of a practice called "hedging:" purchasing various forms of Insurance to reduce the risk of unfavorable future events.

For example, manufacturers care about oil prices because they increase the cost of importing raw materials and shipping finished products to their customers, both of which decrease their Profit Margins. By purchasing financial instruments called "futures," the businesses can make money if the price of oil goes up, which helps to offset the loss of more expensive shipping.

Scenario Planning is easy to skip, particularly if you already have a lot of work to do. The time you spend in scenario planning can be some of the most valuable time you spend building your business, but it's easy to overlook if you're constantly struggling to simply keep your head above water. Regularly setting non-negotiable time to step back and plan what you'll do is always time well spent.

Don't try to predict an unknowable future-construct the most likely scenarios and plan what you'll do if they occur, and you'll be prepared for whatever actually happens.

Questions About 'Scenario Planning'


"A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences."

The Bible, Proverbs 27:12


From Chapter 11:

Understanding Systems


https://personalmba.com/scenario-planning/



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The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

Buy the book:


About Josh Kaufman

Josh Kaufman is an acclaimed business, learning, and skill acquisition expert. He is the author of two international bestsellers: The Personal MBA and The First 20 Hours. Josh's research and writing have helped millions of people worldwide learn the fundamentals of modern business.

More about Josh Kaufman →