Scenario Planning and Horizon Scanning for Strategic Risk Management

1. Scenario Planning and Horizon Scanning for Strategic Risk Management www.samiconsulting.co.uk Robust decisions in uncertain times SAMI Consulting 2006

2. Agenda • Defining our terms • Strategic Risk • Horizon Scanning • Scenarios • Example – a project for the City of London: 5 stages • Horizon scanning • Scenarios • Analysis • Decisions • Implementation • 5 Questions to ask • before starting on Scenario Planning or Horizon Scanning SAMI Consulting 2006

3. The Risk Map Reputation Risk Organisational Risk Political fragmentation Climate change Pandemics Global change Business cycles Demographics Nuclear proliferation Religious Fundamentalism Operational Country/Region Organisational Risk Financial/markets Legal & intangibles External Risk Political/regulatory Strategic Risk SAMI Consulting 2006

4. Horizon Scanning in context External Signals Futures Trends Internal Signals Internal Futures Scenarios or Forecasts Implement- ation Options Decisions Synthesis Analysis Horizon Scanning Decision-making

5. Scenarios • Scenarios are • “an internally consistent view of what the future might be”, • “not a forecast but one possible future outcome” • Professor Michael Porter, Harvard Business School Forecasts Scenarios SAMI Consulting 2006

6. Definitions – and questions • A strategic risk • Is one which threatens the organisation in potentially massive ways • Horizon Scanning • Provides advance warning to the organisation • Scenario Planning • Provides futures that “real people” can relate to • Allows an organisation to move to decision and implementation • Why is this difficult? • Problems of urgent vs important • Different types of thinkers SAMI Consulting 2006

7. Why it is difficult Horizon Synthesis Analysis Decision Implementation Scanning maker Horizon scanner Scenarios Strategist Corporate Line manager manager “843” trends Alternate Ideas & Portfolio Early indicators interconnected futures systems management Timescales Planning Decisions Resources SAMI Consulting 2006

8. Agenda • What are • Strategic Risk • Horizon Scanning • Scenarios • Example – a project for the City of London • Horizon scanning • Scenarios • Analysis • Decision makers • Implementation • 5 Questions to ask • before starting on Scenario Planning or Horizon Scanning SAMI Consulting 2006

9. City of London project • SAMI project to explore the impact of China and India on Financial Services in the City of London • Used scenarios • Developed by Oxford Analytica • Three scenarios for China in 2015 • Three scenarios for India in 2015 • Workshops across the City • Interviews with key players • Report due this month SAMI Consulting 2006

10. Horizon scanning • Sources: • Oxford Analytica reports, based on the daily brief • Oxford Analytica network of academics • Challenge Forum! Database • Conferences, seminars, books, articles • Deciding on relevance & accuracy • Dilemna is “boil the ocean” vs ignore weak signals • How would it affect FS – direct, indirect • In what timescale would it have an effect • Framework for analysis SAMI Consulting 2006

11. Framework for Horizon Scanning SAMI Consulting 2006

12. Scenarios • First cut developed in a one day workshop • Oxford Analtyica staff, experts, SAMI staff, experts • Decide main drivers and axes of uncertainty • Story line developed by a small team • Evolution path for the three possible quadrants • Critique within initial group • Plausibility, coherence • Pull out timelines, early indicators • Decide on names • Set in context of global trends • Write executive summary SAMI Consulting 2006

13. Centralised system of governance The Elephant Breaks its Chains Liberalisation is reversed Liberalisation accelerates The Elephant Lumbers along Federal, subsidiary style of governance Retreat to the Woods Now Three Scenarios for India in 2015

14. Analysis • What are the implications for the City of London’s Financial Services? • Workshops for regulators, insurance industry, asset managers, retail banks, BoE, LSE, etc • Use a mixture of presentation and group discussion – both to allow participants to think through the implications and to allow us to capture their ideas. • Global trends & SWOT of City • India scenarios & implications • China scenarios and implications • Comparing China and India • Over 60 people consulted SAMI Consulting 2006

15. Framework for analysis stage • A report in the City of London series • 120 page report • Containing detailed scenarios • Importantly recommendations • Report to describe method & rationale behind the recommendations • Workshops designed to provide the recommendations in the report • Cover the range of FS organisations in the city • Engage in structured discussion • Provide a stimulating event for participants SAMI Consulting 2006

16. Decision makers • Report reaches all the decision makers in the City • Conference planned to present results • Core conclusion is that the balance of the world order is changing and that the key threat is complacency • Some of recommendations cover some ways in which the City can create more ongoing relationships with Chinese and Indian decision makers • City institutions • Government bodies • Universities • Professional bodies SAMI Consulting 2006

17. Framework for decisions • What types of decisions could be outcomes? • Who are decision makers? • Influencers, blockers • What is decision process? • Timescale, critical stages • One organisation or many involved? • Are there key protagonists • eg role models, early adopters? • How will you know when a decision has been made • Who will do what? SAMI Consulting 2006

18. Implementation • The City of London project is about implementation • Through recommendations on opportunities, sectors and timescales are reasonably focused • In other projects we have designed benchmarks or targets which led to implementation eg • Affordable housing in Surrey –new cross- county body • Arts Marketing Association – Arts Olympics • Legal & General – create a Marketing Department • Scenarios for Scotland – change investment focus from MNCs to growing Scottish entrepreneurs SAMI Consulting 2006

19. Agenda • What are • Strategic Risk • Horizon Scanning • Scenario Planning • Criteria for success • Example – a project for the City of London • Horizon scanning • Scenarios • Analysis • Decision makers • Implementation • 5 Questions to ask before commissioning a futures project SAMI Consulting 2006

20. 5 questions to ask • What implementation do you want as a result of the project? • eg combating terrorism, higher % of China and India FS trade • Who are the decision makers? How to communicate to them? • eg corporate managers, politicians: reports, seminars --- • How to explore the implications of the scenarios • Stakeholders, contributors, brain power, decision makers--- • How to get away from standard thinking? • Outsiders, remarkable people, young high flyers, competitors • How to avoid boiling the ocean in horizon scanning • Use of a framework & methodology for prioritisation SAMI Consulting 2006

21. The end! www.samiconsulting.co.uk Robust decisions in uncertain times SAMI Consulting 2006