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VUCA Scenario Planning for Climate Risk Management

May 28, 2020 | FEE Content, FEE Posts

 

By Bob Leonard and David Ross

 

The uncertainty and complexity associated with our climate crisis makes it difficult for many companies to figure out how to tackle it. What is the way forward? In a Volatile, Uncertain, Complex and Ambiguous world, we have little confidence in how to proceed. Scenario Planning helps us develop confidence by working through a number of plausible futures to see what the implications are for each.

 

 

Scenario planning is a technique for visualizing multiple potential futures. It combines imagination with robust analysis. With those insights, we are able to design adaptable, flexible plans for different directions to take… and have more than one Plan B for unknown eventualities. Better decisions can be made today if we spend time imagining the potential outcomes of current trajectories.

 

Systems Thinking and Creativity

 

Most of the skills required for successful scenario planning can be found in systems thinking and creativity – two different yet not unrelated skill sets. And both can be developed.

 

Systems thinking helps us to see the important relationships between diverse pieces in a puzzle that are vital to the overall health of the system. Many systems are obvious (e.g. education, transportation, energy). Others are more difficult to recognize, but are becoming increasingly apparent, such as the complex relationship between biodiversity and our food production system. If we can envisage the interconnected systems we are operating in, we have a better chance of developing scenarios that improve resilience, adaptability and a capacity to manage the unexpected.

 

Creativity and imagination are attributes we are all born with and use easily as children. Unfortunately, our educational systems and our society do not value these qualities and they are allowed to atrophy. Now is the time to rebuild our creative capabilities, not just in business, but across education and all of our social systems.

 

A starting point for reintroducing imagination is the classic innovation question ‘what if?’. After compiling a comprehensive list of trends (in all aspects of society that may impact the business), we can use that list to start the creative process. By asking ‘what if?’ questions of a diverse set of stakeholders, we can create a number of potential futures. Then, we can borrow a device used by improvisational actors: “Yes, and…” to develop a number of potential scenarios.

 

Scenario Planning incorporates social, cultural, technological, environmental, economic and political aspects to develop plausible futures. These futures are not predictions, but they give insight as to what we should anticipate. With this insight, organizations can determine strategies now to optimize future challenges and opportunities. Scenario Planning is a process that requires time and interaction, but if done correctly, the results are improved plans for resiliency, and better preparedness for foreseeable and unforeseeable changes.

 

Scenario Planning is a Team Sport

 

Diverse teams are better suited to scenario planning than a single individual, board or department. With clear guidelines and a documented process to follow, the information collected is more comprehensive and more likely to contain valuable insights. Actively seek out differing opinions. Those that do not reflect reality will be weeded out by the process. Other opinions will provide new and valuable insights.

 

By involving people in scenario planning and strategy work, they develop trust in the process and the organization. This trust results from an increase in transparency and because people feel they have a voice. Involving a broad array of stakeholders increases the usefulness of the exercise. Each stakeholder will have a different perspective on how their part of the organization will be impacted. An authentic commitment by the C-suite to the strategies developed from scenario planning ensures the allocation of necessary resources for effective implementation. One of the clearest benefits of this scenario-based approach is that it makes climate effects tangible to people (C-suite and otherwise).

 

Climate Risk Management

 

People are becoming more aware of the increasing frequency and intensity of climate events, and corporations are slowly responding to this increased awareness. When will our climate crisis become a C-suite issue? When will organizations start to take concrete actions? Soon. Regulatory measures and evolving consumer attitudes are forcing the issue.

 

The main challenge in developing long-term risk management strategies is the high level of uncertainty and complexity inherent in our climate crisis. Scenario planning should examine how the various components of risk will evolve in response to climate issues. It is important to understand that scenarios should not focus solely on the risks inherent in our climate crisis. Scenario planning must simultaneously take into account changing consumer trends, technological developments, changes in regulations, and more.

 

Comprehensive research leveraging diverse perspectives can not only proactively manage risks, but often reveal business opportunities. Adaptation to climate risks requires a high level of investment and the right tools. From a physical risk perspective, simply relying on historical data (e.g. frequency of severe weather events, building design codes) is highly unreliable for climate planning purposes. Our climate crisis is an unprecedented phenomenon and there are no historical references.

 

This is exacerbated by living in a VUCA world, where the speed of change has an adverse influence. Scenarios are alternative maps to the assumed future we already have. Scenarios are composed of integrated narratives of how the future may unfold. They must be coherent and plausible stories. They are not strategy (what you could do), they are about what could happen.

 

(Note: We will address how to develop strategies based on generated scenarios in our next article.)

 

Help in Addressing Company Culture Issues

 

All organizations can and should develop scenarios to help anticipate the best way forward to address climate challenges. There is an absolute need for genuine depth to our scenario discussions. Businesses should also consider “what do we have to do to facilitate each of these scenarios?”. That requires deliberation around external and internal hurdles.

 

Key internal hurdles include organizational culture… whether collaboration with key stakeholders is valued, whether employees throughout the organization are engaged, whether they have the capabilities that will be required, and what systems are needed. Linked with culture is the need to consider whether an organization has the appropriate leadership style in place to address climate issues. Staff members throughout the organization can be enablers of climate strategy success, or they can be stumbling blocks. Leaders must genuinely contemplate their own worldviews, dominating mindsets and values… and whether these are aligned with a proactive approach to climate risks. 

 

Effective scenarios flesh out the implications of climate change not only for the organization, but also its leaders. Delivering a strategy in line with a preferred scenario means ensuring that leadership style has the right “fit” with the strategy. Consider the leadership style necessary, particularly within the C-suite, to successfully deliver a climate change strategy that meets the needs of the organization and its key stakeholders.

 

Actionable Epiphanies

 

Once you have examined your organization’s dominant culture and leadership style, actionable epiphanies should result. If they don’t, you need to take a second look.

 

After collecting the information, hold debates and discussions around your findings. Every time future trends emerge, or specific events occur, a new conversation should be launched. Eliciting and evaluating arguments, asking the right questions, being open-minded about alternative viewpoints – these are all important components of scenario planning in a VUCA world.

 

Our next post will examine how scenarios can be used to develop business strategies designed for a VUCA world. 

 

 

 

 

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