Reactionary Scenario Planning
Once the pandemic became real, every company that’s still in business quickly came up with multiple scenarios for how the impacts of coronavirus would affect the lives of their employees, the lives of their customers, and the life of their business. We took the information they had (which back in March 2020 wasn’t very much) and created financial plans. Most people had three scenario plans ranging from “short-term recovery” to “multi-year recession” though we all hoped for the best.
We took those scenario plans and we compiled a set of actions: What we would do if that particular scenario came to be the right one. Short-term recovery? Minimize discretionary spending. Year-long economic hit? Stop our least profitable products and locations. Multi-year recession? Stop everything that isn’t making money, cut costs dramatically, and determine how long until the money runs out.
And then the data started coming in. The economic dip was deeper and faster than 90% of the predictions anyone made, so we revised our scenarios down. The economic recovery after the massive drop was faster than 99% of the predictions, so we revised our scenarios up. COVID-19 turned out to be more deadly, longer-lasting, with cases and deaths coming in multiple waves, so we extended our scenarios around recovery. The vaccines were developed and approved faster than any in history, so we allowed for scenarios with faster resumptions of more traditional spending and economic activity.
2020 was a year of – to coin a new term I hope doesn’t catch on – Reactionary Scenario Planning. The CFO of Coca-Cola called it “Scenario Management.” Yes, we were coming up with possible scenarios, but only in response to events. We were looking ahead by responding to what had already happened. We spent 2020 reacting to the world. Things happened to us; we did not happen to things.