Alternative reality

We are all wondering when the economy will get back to "normal." There’s just one little problem; this is normal. Recessions are regular occurrences, and as business leaders we should not be shocked.

Even so, after several years, this displaced Californian is still surprised when I ’discover’ that Montana gets downright Arctic every winter. In the same way, it seems we forget the cyclical nature of our economy. Therefore, it’s a good bet that many business plans do not account for this cycle at all, tending toward an optimistic outlook. How can we better plan for these long-term changes that we know happen with greater regularity than we like to admit?

One of the tools available to all types of businesses is scenario-based forecasting. It also goes by other names such as role-playing, wargaming, or management simulation, but the exact form is less important than the concepts used. The methods should be tailored to your industry and business culture, but there are valuable insights available to those who invest the time to do it right. It is not necessarily a last resort or silver bullet, but it may provide the needed push to get you moving in the right direction. Such exercises allow teams to envision aspects of the business that may rely on too many variables to effectively quantify.

Rather than outline specific methods, consider the following: Imagine that you are in a management meeting back in January 2008, with your business exactly as it was then—same clients, same revenue, same staff (remember, before the layoffs?). Your team is perhaps considering its strategy for the coming year, deciding whether to pursue a big project, or contemplating additional staff. News of the slackening housing market is making its way across the country, but most firms are somewhat removed from its effects. Now imagine that your team stands alone from the rest of the world and has absolute knowledge that the bottom will fall out in exactly 12 months. It is fully aware that, all other things being equal, it will lose half of its revenue. What do you do?

Of course, there is no single answer, and each decision becomes a link in a long chain that can lead to success or failure. Do you cut costs immediately, hire a critical skill set, lower prices, seek new clients? By breaking apart the various options and using the team itself as actors in a compressed version of reality, you can start to sense how those decisions may influence each other. For example, perhaps one of the team represents a major client, another represents the city council, while a third plays the part of a competitor. As decisions are made, each party reacts in a way that estimates the myriad external factors that are so hard to quantify. Done properly, especially with a facilitator, the team can begin to predict some of the possible futures. Further, they now have additional insight to interpret others’ actions as well.

A great driving force of our economy is our ability to predict the future, or rather, to take advantage of the fact that some have better predictive abilities than others. But now, our frame of reference is skewed and our short-term memories do not serve us in this "new" environment. We concentrate on history (recent, visceral history especially) to determine the likely future. Most of us now have no suitable memories from which to chart a course. No matter how many times we hear that this is just one of many economic lows we have experienced, we have not only reacted with shock and awe, but have arrived here partly because we failed to prepare since the last time. We must continue to take risks, but we must also be ready to act immediately the next time we reach the top. Try playing with some alternative futures, and begin setting a course to reach the best one.

Jason Burke, P.E., works for Allied Engineering in Billings, Mont.

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Posted in Uncategorized | January 29th, 2014 by

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