Scenario Planning: Strategy When the Future is Uncertain
Interest rates, energy prices, and investment appetite cannot be predicted — but strategy can be made robust. Here is scenario planning for Danish SMEs with six steps, four scenarios for an SME, and the early indicators you should monitor.
Published · 7 min read
In short
- Start with the decision the scenarios should support.
- Cross the two most important uncertainties to get four future scenarios.
- Sort initiatives into robust actions, conditional actions, and options.
- Each conditional action gets a trigger, an owner, and a reaction time.
What is Scenario Planning?
Scenario planning is a method for making strategic choices when the future is uncertain. Instead of a single forecast, you describe three to four plausible future scenarios and assess how your strategy performs in each of them. The goal is not to predict correctly, but to be prepared.
For Danish SMEs, uncertainty is concrete: interest rates, energy prices, wage development, supply chains, new legislation, and customer investment appetite. An external analysis tells you what's happening. Scenarios tell you what to do if things move in one direction or another.
The method is typically used once a year in conjunction with budget and strategy planning, and revisited if one of the identified early indicators is triggered.
Scenario Planning in Six Steps
One three-hour workshop with management is enough for the first version.
1. Formulate the decision the scenarios should support
“Should we invest DKK 4 million in new capacity by 2028?” is useful. “What does the future look like?” is not. Without a decision, scenarios become entertainment.
2. List the uncertainties
From your external analysis, list 10-15 factors that could affect the decision. For each, mark: its significance and its level of uncertainty.
3. Choose the two most important axes
Take the two factors with high significance and high uncertainty, e.g., demand (weak/strong) and cost level (low/high). They create four quadrants.
4. Describe each scenario in half a page
Give the scenario a name, describe the market, customers, prices, and your finances within it. Concrete figures make it useful: revenue, gross margin, liquidity.
5. Test the strategy against all four
For each strategic goal and major project: does it hold up in this scenario? Mark the choices that only hold up in one scenario — these are the risky ones.
6. Choose robust actions and set early indicators
Robust actions are implemented now because they make sense in all scenarios. Conditional actions are described with a trigger: “if order intake falls for two consecutive quarters, the investment is postponed.”
Example: Four Scenarios for an SME in the Construction Industry
The axes are demand and cost level. Note that the action differs in each quadrant.
| Scenario | Assumptions | Strategic Implication |
|---|---|---|
| Headwind | Weak demand, high costs. | Protect liquidity, halt capacity investment, increase service sales to existing customers. |
| Price Pressure | Strong demand, high costs. | Price indexing in contracts, focus on the most profitable order types, purchasing agreements. |
| Consolidation | Weak demand, low costs. | Gain market share, consider acquiring a smaller player, maintain price discipline. |
| Tailwind | Strong demand, low costs. | Expand capacity and staffing, but don't lock in fixed costs too quickly. |
Three Types of Strategic Actions
Sort your initiatives into these three groups — that's the entire benefit of the exercise.
Robust Actions
Make sense in all scenarios. Implemented now and adopted as strategic goals.
Examples: Improved data foundation, service agreements, reduced key person dependency.
Conditional Actions
Prepared now, triggered by a defined indicator. Document trigger, owner, and reaction time.
Examples: Capacity expansion, new market area, extra shift.
Options
Small investments that buy the right to act later without committing you.
Examples: Pilot project in a new segment, negotiated but unused lease agreement.
Early Indicators You Can Monitor Quarterly
An indicator must be measurable with data you actually have and have a clear threshold.
Order Intake and Quote Pipeline
The fastest leading indicator of demand for most SMEs.
Examples: Quote pipeline below 8 weeks of production for two months.
Quote Hit Rate
If the hit rate falls at an unchanged price level, the competitive situation has changed.
Examples: Hit rate below 25% in a quarter.
Purchase Prices and Wage Development
Drives the cost axis and thus the choice between price pressure and tailwind.
Examples: Purchase index +6% year-over-year.
Liquidity Buffer
Determines how long you can sustain an investment in a headwind scenario.
Examples: Liquidity buffer below three months of fixed costs.
Common Mistakes
- Four scenarios that are really just “good, medium, and bad” — the same story in three versions.
- No central decision, so the scenarios have no consequence.
- Scenarios are written, but the strategy is never tested against them.
- No early indicators, so no one notices which scenario is actually unfolding.
- Only the most probable scenario is budgeted, without a plan for the others.
- The exercise is never repeated — scenarios are worthless when assumptions are a year old.
Frequently asked questions
What is scenario planning?
+
Scenario planning is a method where you describe three to four plausible future scenarios and test your strategy against all of them, instead of planning based on a single forecast. The goal is robust choices and prepared reactions, not precise predictions.
How many scenarios should one work with?
+
Three to four. Two becomes a choice between optimism and pessimism, and management cannot keep more than four distinct. Four quadrants naturally arise when crossing the two most important uncertainties.
How do you choose the right uncertainties?
+
Assess each factor based on its significance for the decision and its degree of uncertainty. Choose the two with a high score on both. Factors with high significance but low uncertainty belong in the strategy's assumptions, not on the axes.
What is an early indicator?
+
A measurable factor with a defined threshold that shows which scenario is emerging — e.g., quote pipeline below eight weeks of production. The indicator is linked to a conditional action with an owner and reaction time.
How often should scenarios be updated?
+
Once a year along with the strategy plan and budget, and additionally when an early indicator is triggered. Assumptions are the part that becomes outdated most quickly.
Related guides
These guides are closely connected to scenario planning and are natural next steps in your strategy work.
- PESTEL analysis: model and templateSix external factors that shape your market, with practical examples.
- Business risk analysisRisk categories, risk matrix and a template with owner and deadline.
- Strategy plan: template and contentWhat a usable strategy plan contains — and what to leave out.
- Growth strategy for SMEsFour growth paths, risk, growth engine and KPIs for tracking growth.
More strategy guides
Analysis and environment
Goals, KPIs and performance
Strategy process and planning
Monitor Early Indicators Automatically
Create a free account and keep scenarios, risks, KPIs, and decisions organized, so you react in time rather than afterwards.