Future-Proof Your Strategies with Scenario Modeling

No amount of crystal balls or tea leaves can predict the future – as much as we wish it were that simple. What we do know for certain is that change is the only constant, and we need to be prepared for any situation that may come up. This is a crucial part of Project Portfolio Management (PPM) as you try to balance demands and keep everything on track.

But with so many moving parts, it’s not enough to just imagine a few likely outcomes. Scenario modeling gives you the tools to explore the many possibilities and prepare various plans of action.

Table of Contents

• What is Scenario Modeling?
• Can Scenario Modeling Forecast Positive Outcomes?
• How to Get Started with Scenario Modeling
• What Are the Types of Scenarios? – Some Real Life Examples
• Scenario Simulations with Meisterplan
• Best Practices for Successful Scenario Modeling
• Conclusion

What is Scenario Modeling?

Scenario modeling is the process of using computer software to simulate the impact of changes on your portfolio – without actually making changes or affecting anything concrete. You can do this by selecting variables, such as time or resources, in a simulated version of your portfolio. Then adjust them to see how the proposed plan would play out. These are not set-in-stone predictions; they are simply representations of assumptions based on your data and industry trends.

Many companies prefer to use purely financial models in scenario simulations, but including other KPIs such as capacity utilization, can be highly beneficial. You can not only identify monetary risks, but also human resource requirements to prevent staff shortages. Meisterplan is a resource-centric software that helps you avoid running too many projects at a time, or perhaps even entirely wrong projects, by understanding who is needed when. A huge plus to running resource-related scenario simulations? Finding ways to reduce project delays while ensuring resources aren’t being overbooked and overloaded.

Naturally, a huge benefit of scenario modeling is being prepared for potential future events so that you can avoid (or least) failure and losses by having contingency plans already in place. This means avoiding the dreaded analysis paralysis and staying level-headed in times of uncertainty.

Can Scenario Modeling Forecast Positive Outcomes?

Of course, identifying and preparing for risks and the negative impacts of changes is crucial, but surely nobody wants to only dwell on the negatives. Scenario modeling is equally useful to identify opportunities and see the positive impacts of changes.

Scenario modeling is the perfect way to unlock potential. This way, you can explore possibilities and there’s no need to rearrange your plans on a hunch. Only modify your real portfolio when you’ve found a satisfactory course of action to take.

How to Get Started with Scenario Modeling

First and foremost, make sure you have suitable software to simulate scenario models. Organizations run multiple projects simultaneously, with tons of resources to keep track of at all times. Due to this complexity, managing everything in spreadsheets is inefficient and time consuming. We highly recommend using specialized software that can help you understand your scenarios using graphs and tables. If you’re searching for something along these lines, Meisterplan might be a perfect fit.

To begin the process of scenario modeling, ask “what-if” questions to explore scenarios based on hypothetical situations, problems and solutions. For example, let’s say you run a lemonade stand. You might ask:

• What if the weather is unseasonably cold?
• What if I move my stand to a different location?
• What if I raise my prices?
• What if I increase my offerings, such as introducing pink lemonade in addition to the regular kind?
• What if I introduce different cup sizes?

These “what-if” questions are getting at some more specific details about the way you run your business. You need to think about the effects of each event or action on your daily sales and whether extra costs would be worth the investment in the long run. Only then can you develop effective strategies and optimize the performance of your lemonade stand.

Consider the Different Factors

Some things, like cold weather, are outside of your control but might affect your sales. (I don’t know about you, but I don’t often find myself craving lemonade on a brisk day.) On the other hand, factors like introducing a pink lemonade option are your choice to make – it would increase production costs, but with the possibility of also increasing sales. However, this means you also run the risk of not increasing your sales, effectively raising your production costs for nothing.

There are endless questions you could ask, and each question invites several potential outcomes for you to weigh. That’s why it’s important for you to home in on the ones that really matter. Collect assumptions based on current facts and estimates to make informed decisions on which variables could change. Then, examine which changes would be the most likely and the most significant for your organization. Here, it’s important to consider both positive and negative outcomes.

Some Tips from Us

• Ask yourself, what uncertainties are you trying to address? Do they align with your strategic goals?
• Collect and analyze your current project data, including timelines, budgets and expected outcomes.
• Check your resource availability and understand the possible constraints.
• Do market research to get a broader view of market trends, customer demands, competitor actions and industry forecasts. This will help you predict some likely events and changes.

What Are the Types of Scenarios? – Some Real Life Examples

The lemonade stand example is easy to conceptualize as an introduction, but scenario modeling is rarely used for something so simple. Now that you’re interested in testing out some scenarios, where should you begin with your real-life situations? Let’s get started by walking through the four main types of scenarios:

1. Base Scenario

This is what you expect will happen if everything goes according to the existing plans, prior to any changes. The base scenario is your starting point as you adjust variables and adapt the plan to create new scenarios.

2. Best-Case Scenario

Just as the name suggests, this is the scenario where everything goes according to the most optimistic plans. This means you’ve asked multiple “what-if?” questions, and just about all of them pointed to the best outcome. Although it might be unrealistic to expect that absolutely everything will go perfectly, this helps you to set ambitious goals and promote out-of-the-box thinking to exceed expectations.

For example, instead of a lemonade stand, now let’s say you run a construction company. A possible best-case scenario could be an infrastructure boom due to population growth and urbanization. Your company would be able to secure long-term contacts at favorable rates, resulting in higher profit margins. To prepare for this possibility, you would need to ensure materials, equipment and employees with the relevant skills are readily available to accelerate project timelines and take on more projects. If this scenario were to play out, you would need to continue to monitor closely for potential risks of overextension and project delays.

3. Worst-Case Scenario

You can’t have a best-case scenario without also considering the worst-case scenario, where multiple obstacles come up. Do break-even analyses to determine the minimum amount needed of each variable to keep things running – and then determine what would happen if one or more variables do not reach those minimums. By preparing for the worst-case possibilities in advance, you can develop contingency plans to mitigate risk and ensure the impact of challenges is as minimized as possible.

In our construction company example, this could be a global supply chain disruption, leading to shortages of key materials. This would cause delays in your project timelines and increased costs for materials, which would impact project budgets. In preparation for this worst-case scenario, you might choose to add additional buffers to monetary and time budgets.

4. Most-Likely Scenario

This is the most realistic outcome based on current data. It falls somewhere in between the best-case and worst-case scenarios. Balance both the risks and opportunities that could arise to make practical decisions and set achievable goals.

At our hypothetical construction company, the most-likely scenario would be stable growth and sustained demand. This means skilled labor and materials remain at the current market rates, and your portfolio stays a healthy mix of projects with all standard risks accounted for. When things appear to be smooth sailing, make sure to monitor your portfolio and invest in ongoing training for employees. This is also a good time to explore opportunities for further innovation and efficiency.

Scenario Simulations with Meisterplan

Meisterplan makes it simple to create scenarios and perform simulations. Just make a copy of your existing base scenario (called the Plan of Record) and make changes to the copy in order to create new scenarios. It’s also possible to use our scenario simulation feature to create backups of your current portfolio before changes are made, giving you the option to restore an old plan if needed.

With our Scenario Comparison feature, it’s also easy to evaluate different possibilities against each other in addition to seeing how they compare to the Plan of Record (i.e., your base scenario). You’ll be able to view not only numbers and KPIs, but also graphical representations that make understanding large amounts of data a breeze.

And that’s only scratching the surface of what you can accomplish with Meisterplan. Get all the features you need to successfully manage your project portfolio, beyond just scenario modeling. With different views and functionalities for each role, you can be sure that planning is collaborative and as accurate as possible.

Best Practices for Successful Scenario Modeling

The biggest mistake organizations make with scenario modeling is failing to integrate it into their regular decision-making process. While scenario modeling is incredibly useful in looking for ways to avert crises, the important part is to keep it up even when things appear calm. Rather than constantly fighting fires, you can find ways to prevent them from catching in the first place.

Or, even better, discover opportunities for improvement instead of only scouring for risks and danger. Find the perfect balance between optimism and pessimism, so that you can hope for the best, prepare for the worst and expect the most likely. Use scenario models to present plans for the next quarter (or whatever time increment you normally plan for) to show upper management the risks and benefits of proposed actions.

Unexpected Outcomes? Don’t Panic!

But what should you do if a scenario happens that you didn’t plan for? Scenario modeling is still possible in a pinch! Use the same techniques to model scenarios and find the best possible path in the given circumstances. It may not be ideal, but you already have the tools to quickly spot a suitable solution.

Don’t Forget Your Resources

Finally, we here at Meisterplan would like to remind you of the most important factor of all your plans: the people. It’s easy to get caught up in financial models, thinking primarily about budgets and operating costs. But what about the resource aspect? Meisterplan is the perfect tool to help you focus on capacity utilization, so you can be confident that the right employees are available when you need them.

Conclusion

Scenario modeling serves as a powerful tool for navigating uncertainty and anticipating potential futures for your organization. So, it really doesn’t take a clairvoyant to stay two steps ahead. It does take a commitment to prudent planning and consistent analyses. Whether it’s monthly, quarterly, or annually – regularly running scenario simulations is an excellent practice to keep. You just need to make sure you have the right software to facilitate that work.

If you need support with scenario modeling, our experts here at Meisterplan are always happy to lend a hand.