‘What if’, scenario planning can foster useful discussion on the kind of future can you expect. Such planning helps a organisation decide whether it should take actions now, in anticipation of various potential futures. Those actions might involve considering; innovation, efficiency and resource focus for greater impact.
Unfortunately, in the not for profit sector, many scenarios entail acute pressures on resources, whether; funding, supplier expertise, staff, supply chains or inventory (temporary accommodation, hospital beds, food banks). How quickly can adjustments to each be made? How rapidly will a future threat hit your organisation and if fast, what options will help the organisation play for time, or buy more time?
Some scenarios involve breath of threat – will it hit a number of your resources simultaneously? Or instead, be a deep attack on a narrow aspect of your activities. For example, a charity fraud event involving payment diversion fraud.
Some scenarios may involve an existential threat to your brand and business model – AI and extreme climate events (or energy-reduction targets) perhaps being examples.
Closely linked to scenario planning is business continuity planning (BCP) and Risk Register management. Does your scenario planning process lead directly to BCP actions for improved resilience? If not, then perhaps now is the time to strengthen that linkage. A step-change in risk management is to plan risk mitigations for future scenarios. Not just review current mitigations against current risks!
Scenario planning ought to inform your plans to improve adaptability (evolution via innovation) and agility (tactically controlling speed and pivoting). But there is another aspect of business flexibility that can help – consciously building a suite of real options (an ‘options portfolio’), ideally to cope multiple scenario threats.
Consciously building an options portfolio can be expensive or cheap. Such a portfolio can aid innovation, impact and efficiency. Deliberately building an options portfolio may look to the unenlightened like inefficient ‘padding’. Or resource accumulation for a rainy day. However, options enable stronger risk management. They also directly and indirectly, lead to bigger future impact.
Given future uncertainty, it’s worth choosing options that will be of value under multiple scenarios, to ensure sustainability.
Building up cash reserves is a popular and obvious foundation for an options portfolio. But some scenarios it can’t help with; price wars, cyber-attacks, border/shipping canal closures, loss of customer relevance and hostile takeovers being some examples. In other words, the core options portfolio needs to be more diverse than simply accumulating cash.
Options portfolios have some characteristics in common with investment portfolios, preferred supplier lists, project teams and functional depts. There may be an over-riding goal that the mix needs to satisfy. Seeking the most efficient coverage & yield can prove elusive. Yet conscious design will still triumph over random mixes and it’s generally worth reaching for the right tool, for the job at hand.
As with investment portfolios or functional departments, there are limits to the range of components available. However, in the construction of an options portfolio, as with construction of an investment portfolio (or set of functional departments), good design goes a long way towards success.
A key difference between an investment portfolio and an options portfolio is that investment portfolio performance is the sum of the parts. An options portfolio operates more like the human body in 2 ways: (1) Capable of many things when circumstances demand it. But a set of attributes otherwise not forced to act constantly and concurrently. (2) Able to strengthen itself from repeat application. Two business examples of the later are using customer input to improve database functionality (functionality is the option) and investing in the ‘goodwill bank’ with external parties. Within reason, the more you invest and accumulate customer input & goodwill, the more valuable the underlying option becomes.
A couple of final parting thoughts. (1) If the future remains uncertain, ‘charity fitness’ needs to incorporate flexibility to cope with uncertainty, not just invest to run faster and further in the same direction. (2) Will the first quarter century of the 21st Century be known for quarterly earnings obsession and the rest of the century be known for options management?
Sleicest-consulting.org.uk is available to advise on a tailored options portfolio for your organisation.
Simon Leicester
Consultant