This is the second in our series of special reports on mitigating the risks and improving corporate strategic planning regarding the drought in the US. The first is the OODA Special Report: How Drought In The US Should Impact Your Mid To Long Range Strategic Planning.  This report expands on the mid to long term scenario planning methodology and provides more insights into best practices in scenario planning as a strategic practice and pointers on how to get started ‘building’ your scenario.

Background

If your vertical industry or government agency is impacted by the climate emergencies which are a result of the severe drought conditions in the Western United States, or if it has markets in these regions, scenario planning can help mitigate risks and position your firm for the future.

When we reference scenario planning we mean the formal, rigorous methodologies for examining potential futures to inform decisions today.  Shell Oil and the U.S. Department of Defense (DoD)  are examples of organizations which have long standing, sophisticated institutional knowledge built on scenario planning techniques. The product of scenario planning is a list of potential futures that examine issues of interest to decision makers today. Scenario planning identifies potential future decision points and raises issues to act on today to enable optimal actions tomorrow.

Tips For Applying Scenario Planning to Mitigate Drought Risks and Understand Opportunities

If scenario planning is new to your organization there are many lessons learned which can be applied to kickstarting your activities, and no need to recreate the wheel in starting your efforts. These are considerations we recommend keeping top of mind in your scenario planning for drought:

Do Not Overlook Opportunities: Usually it is fear that drives scenario planning. If you let it drive you you may overlook the opportunity side of the equation. The information and events we are all digesting feel exponential and existential.  They are disruptions of the highest order: on the ground, they are devastating at a deeply human level – unnerving really. But always bear in mind, the scenario planning/foresight strategy discipline is not net negative, cup half empty, dystopian, or concerned only with fear, uncertainty, and doubt.  The same scenario narratives from which you derive an assessment of negative impacts are also how you surface new opportunities and sources of innovative value creation. For some organizations and institutions, bold transformation (operations, business model, etc.) will emerge as the only clear-eyed strategic response.

Use STEEP Methodologies: STEEP stands for societal, technological, economic, and political factors. Use STEEP to describe the driving forces behind scenarios and ensure your scenarios are as realistic as possible.

Anecdote is not evidence:  To keep the scenario planning naysayers engaged, ground your scenarios in the real world.  Generate stories anchored by quantitative data that validates compelling scenario narratives.  Secondary sources should be built around concrete data points. Sometimes quick and dirty extreme sampling is necessary.  The more primary research and datasets your organization generates, the best. The fact always remains rigorous, data-driven arguments are evidentiary, not anecdotal.

Confusing correlation with causation:  Climate change is complex. To validate the external forces and critical uncertainties in your scenarios, cite examples with clear causation and drill down to the data which substantiates that causation. Do not use assertive, conclusive language for anything which still reads as correlation or is not a definitive cause and effect.  Climate headlines are cropping up left and right.  Iterate through scenario narratives confidently but carefully and with an attention to detail.

Beware confirmation bias:  Confirming pre-existing beliefs and rejecting incongruous perspectives are an anathema to the scenario planning practice.  Put mechanisms in place to guard against your own biases towards the narratives at hand.  To start, work with a co-worker who you know disagrees with you on virtually everything.  When assembling a team to do scenario work, choose people from a different disciplines, functions, and personal backgrounds.

Do Not Confuse Scenario Planning With Futurism: For some, scenario planning is synonymous with “futurist”, at which point some decision makers and stakeholders mistakenly hear “crystal ball” or “predictions of the future”, and long ago decided that the approach is not quantitative or concrete enough to be of any business value. Scenario planning is neither a mystic ritual nor a predictive exercise.  Your initial challenge is to shift this mindset if it exists in your organization, so that over time the scenario planning practice is more clearly synonymous with pattern recognition, sense-making, and strategic narratives.

Involve All Key Stakeholders: The best, most actionable scenario planning involves real inputs from across the organization. This can also help mitigate classic roadblocks.

Your next step? As outlined in our post on How Drought In The US Should Impact Your Mid To Long Range Strategic Planning, use the scenario matrix below to get started:

 

Then contextualize the following four scenarios for your organization:

Moderate Impact for One Year: Water will remain available for manufacturing and most agriculture. Wildfires will remain dangerous and loss to property and lives will be high, but perhaps only double a normal year and then within a year return to a more normal level of devastation.

Moderate Impact for Multi-Years: Water will remain available for manufacturing at first, but the need to conserve over time will cause shutdowns of some manufacturing and movement of plants to other states or countries. The agricultural sector will be impacted and crop loss will be significant, but prioritization will allow some agriculture to survive (decisions will have to be made on what types of agriculture will continue and which will not). Wildfires will remain dangerous and loss to property and lives will be high, but perhaps only double a normal year. Impact on water shortages on energy production will contribute to fragility of power grid and increase rate of outages, especially in hottest months.

High Impact for A Year: Devastation greater than that of the 2020 wildfires will cause extended stay in place orders and return to lockdown. Death rates due to pollution from fires and lack of water will be much higher for a limited period. Loss of one year’s crop will cause many farms to suffer and require bailout to survive. Food production will be hurt since California is in many ways the nation’s most important food producer, but recovery will come the next year and losses will be made up by purchases of food products on the global market. Impact of drought on energy production will cause increase in power outages impacting business and quality of life. Manufacturing in Western states will see limited interruption that is reflected in production numbers but not of significant impact. Impact of the drought on all citizens of Western states will seek opportunities to move to other regions in the hope they never face this significant crisis again.

High Impact for Multi-Years: This is the scenario no one wants, worst case. It will involve widespread failure of crops, significantly reducing the amount of US produced vegetables, fruits, meat and dairy. Besides the roughly $50 Billion dollar loss to the agricultural industry, consumers around the nation will be impacted by more limited choices in food and will pay far more for what they get. Manufacturing in the Western US will be impacted because of widespread forest fires and extreme restrictions on water use. Impact of drought on energy production will make it harder to deliver stable electricity to businesses and homes, making periodic outages a routine occurrence, especially in hotter months.  A widespread health crisis will be reflected in increased death due to pollution from fires and lack of sanitary water. Entire towns will be burned in fire. Downward spiral of the economy in the West will impact businesses across the nation and will also result in migration out of Western states to the East in search of respite from the drought and, hopefully, jobs.  Higher education in the West will suffer from lack of students, lack of educators and lack of safe spaces.

For those that are just starting out reach out to us at OODA and we will help you put a program in place that accelerates your scenario planning.