A scenario, in the context of business planning and strategy, is a potential event or combination of events that could be relevant to the organization -- typically because it could create a significant risk or provide a significant opportunity.
Scenario modeling and scenario planning allow a business to anticipate potential events and create strategies to deal with them to best effect. Here are a few historical examples illustrating how companies have used scenario planning to enable them to respond quickly to events:
- Xerox anticipated the convergence of printers and copiers.
- Royal Dutch / Shell anticipated a drop in oil prices in 1986.
- American Express anticipated the replacement of travelers' checks by credit cards.
In each case, preparedness ensured that the companies were not caught off guard, which meant that they were better prepared to deal with those scenarios than competitors.
Tools such as what if scenario analysis (WISA) can help automate some of the processes of scenario planning.
See a video explanation of scenario planning: