How to Use Scenario Planning for Your Construction Company

Is your construction firm forward-thinking? Today’s shifting landscape demands scenario planning.

If your firm had a plan three years ago for operating during a worldwide economic meltdown, how valuable would it have been?

How beneficial would it be to have a plan right now that would help you succeed during a slow-moving economic recovery?

These are contingency plans and can be developed when using scenario planning, either as a stand-alone process or as an integral part of strategic planning. Traditional planning processes tend to focus on visualizing the ideal future and listing the actions that should be taken to reach that goal. But when unexpected shifts change the marketplace and that ideal future suddenly moves out of reach, using the traditional planning process does not work.

In the past, it was sufficient to simply know your clients, keep an eye on competitors and review your strategic plan every few years to decide if you should open a new office, enter a new geographic area or drop an unproductive line of work. Today, business owners deal with a landscape that shifts daily.

What is Scenario Planning?

Scenario planning is the process of looking at how current trends and projected future trends may develop over time and what might happen if some play out more strongly than others. Several drivers must be considered and viewed at many levels (from local impacts to international trends) – economic, political, environmental, social, global and technological.

Everyone has a different opinion about these drivers and how the current level of uncertainty will shape them going forward. And most firms do not have the skills needed to build usable scenarios.

Some firms have tried using a shortcut to determine the best-case and worst-case scenarios and have planned for both. But as the forces behind the drivers develop in the world and marketplace, the future will not be black and white. Creating these plans based on only two alternative futures will not likely offer a sufficient, robust framework for strategic planning.

Forward-thinking firms must use true scenario planning based on a variety of possible future situations that have been predicted from actual trends. The major difficulties firms face with this type of planning is the expense and time investment needed to create the scenarios.

Firms tend to have thorough knowledge about their own markets, clients and local or regional conditions. But they do not have staff trained to do macro- or fine-grained analyses of national and international trends and predict the significant impacts these trends can have on their businesses.

To mitigate this situation, FMI’s Re­search Services Group brought together more than 50 leaders from design and construction firms, academia, clients and industry organizations to develop a set of base scenarios for planning use. The resulting four scenarios (see page 2) are designed specifically for design and construction firms to use in their planning process. These scenarios were created in 2009 by in-depth analyses of trends and key drivers and the entire team’s assumptions and expert projections through 2020. The scenarios explore four possible directions the future will take, reflecting the complexity and changeable nature of the real world.

Four Key Scenarios

These four key scenarios were developed by FMI Corporation during the AEC Futures Research Project. Firms can adapt these scenarios to their unique situations.

Perfect World

In 2020, the world economy has fully recovered from the Great Recession of 2008 to 2009 and rebounded beyond expectations. A global, interdependent marketplace flourishes, in which private investment, low-cost capital, expertise and goods and services flow readily across market segments and national borders. Levels of innovation and collaboration are high, with government and private enterprises working to build each nation’s unique brand.

Experts of various nationalities work together to design and build projects to the highest degree of sustainability through a set of integrated project delivery practices that leverage technology to both accelerate the speed of design/construction and reduce risks. Our collective best minds attack common design/construction problems and develop leading-edge solutions to both global and local design and construction challenges, sparking worldwide interest in creating better, more sustainable, functional communities and infrastructure.

Struggle for Stability

It took longer than expected to recover from the Great Recession. Globalization has stalled as both businesses and governments focus on rebuilding their local economies. Fears of “too big to fail” have led communities and governments to take a somewhat protectionist stance. As a result, companies harbor local jobs, expertise, materials and resources, bracing for the next lean cycle.

Through continued government stimulus efforts and resulting public infrastructure investments, local pockets of prosperity emerge and grow, but the overall economy struggles to stabilize. Private capital flows slowly back into the design and construction market as the permitting and approval process is now diverted through both federal bureaucracies and local politicians, raising the risk to financiers.

Design and construction firms have become more lean and competitive. Nonetheless, innovative project approaches and partnerships provide some market participants with work that firms never would have realized otherwise. Recessions tend to spark new business and innovation, and the Great Recession is no exception.

Building Walls

The Great Recession’s weakened economy established itself as the new norm, with small gains unraveled by repeated monetary crises. Defense and survival have become the focus of every country, community, city and corporation. As the walls of protectionism go up, partnerships and alliances within industries and across borders fall apart. Resources of all types are in short supply, and competition for them is fierce. As a result, governments throw themselves into defense spending and secure their borders to protect assets and demonstrate power and authority.

Within the design and construction industry, business relationships are tense and litigious, with owners placing tremendous pressure on design and construction firms to develop low-cost solutions. As a result, many design and construction firms have lowered their standards, taken on more risk and developed creative ways to deliver projects with fewer resources. Unethical business practices are now considered standard.

Controlled Environment

Governance and capitalism become redefined in the new millennium. In response to the fallout from the days of laissez-faire deregulation, national governments across the globe have seized control of pillar industries to reduce national deficits and stabilize local economies. Under these circumstances, the design and construction sector is considered key to influencing economic and development policies.

The latest 10-year stimulus plan contains directives on what gets planned, designed and built, as well as when, where and by whom. Unfortunately, an inevitable increase in bureaucracy slows production on the majority of design and construction projects, all of which must satisfy stringent government requirements for technology platforms, design specifications, materials, labor and cost. The scale of projects and developments constructed through forced collaboration is impressive to say the least. However, lateral thinking is not appreciated in a world where government knows best.

How Scenario Planning Works

Using the scenarios for planning is a multistage process. It can help firms identify a list of strategies for their unique situation to achieve future growth, and contingency plans can be created for the less likely scenarios.

To start this process, your firm’s planning team must gain a strong understanding of the scenarios, including the trends they represent and why they might occur. The planning team should then identify the implications the scenarios could have on your direct business environment over time.

The next step involves using these implications to adapt the scenarios to your firm’s needs, taking into account your current markets, specific geographic issues, client pressures, etc. By using the scenarios as the foundation, planning groups can quickly build firm-specific scenarios.

With firm-specific scenarios, the planning team should brainstorm potential strategies to achieve success if any of the scenarios occur. Once strategies have been determined for each scenario, the team should compare each strategy to find any commonalities. The strategies most effective give the most flexibility and responsiveness and can become key elements in your primary strategic plan.

The next step is to build a more detailed implementation plan based on those common strategies.

The final step for firms with multiple offices, business units or practice areas is to adapt the corporate strategic and implementation plans to fit each unit’s or geography’s specific needs and resources.

By examining how various strategies may occur over time, you can analyze how shifting trends could affect performance and adjust strategies as needed. 

Flexibility and adaptability are key to future success and are an intrinsic part of the scenario planning process.

Part of the intent behind scenario planning is to develop skills for handling ambiguity. This process offers firms new levels of comfort in dealing with the uncertainties of our current environment.

Traditional, deterministic strategic planning that firms have grown comfortable with does not fulfill the need of the volatile environment we now face.

In this 21st century, we must plan for a world where firms are flexible and react appropriately to a variety of significant, continuously evolving drivers.

The scenario planning process offers the opportunity to practice responding to changing drivers. It also gives business owners the opportunity to build strategies and plans that will help them set their company’s direction, grow confidence in their abilities to compete effectively and respond quickly to changes in the world.

Construction Business Owner, August 2011