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Making High-Impact Decisions in Uncertain Times (Part 1 of 2)

NOTE: This blog was written in April 2020.
From the Coronavirus pandemic to Saudi Arabia’s oil price cut, bond market liquidity issues and the stock market correction, this week’s events have presented scenarios that we probably didn’t plan for.
It’s natural to be feeling anxious about what’s next.

Our clients, who are responsible for other people’s investment capital, are being called on to make level-headed, high-impact decisions despite this uncertainty.

Right now, we are running scenario analysis for clients negotiating M&A transactions and talking with other investors about supporting financial planning and analysis for their portfolio companies.

In these situations, we use a scenario thinking checklist to help us do our work better. It reminds us what we need to pay attention to throughout the process, and keeps us from accidentally leaving out important steps. We are sharing our scenario thinking checklist below, because it might be useful to you, too.

1. Scenario thinking is not planning. The goal is to understand resilience across a wide variety of possible outcomes, not to predict the future.

2. To create insight, address all four elements of scenario learning:

  1.  Develop plausible alternatives that challenge conventional wisdom.
  2.  Create structured time for discussion and dialogue.
  3.  Quantify the potential impact; don’t just describe it in words.
  4.  Link lessons to their impact on specific decisions, whether by augmenting understanding, reframing existing decisions, identifying contingent decisions or adding new decisions to the agenda.

    3. Use the building blocks of good scenario development to reveal assumptions and assess plausibility:

    1.  The current trend
    2.  Driving forces that can shift the trend (and be monitored)
    3.  The logic for what kind of change could happen
    4.  The time frame
    5.  The end state

    4. Identify the biases implicit in baseline plans. Assumptions that might not have seemed to require examination benefit from clear articulation.

    5. Repeat the process, improving through practice. Or, when pressed for time, ask advisors who have applied scenario thinking in other contexts.

    Be safe. Care for your communities. Call if you feel we can help you or someone you know with high-impact decisions in these uncertain times.

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