Considering potential outcomes and scenarios can build resilience and flexibility in your teams and infrastructure. Don’t let there be “cold showers” in your company.
With the arrival of the COVID-19 pandemic, my business travel fell off a cliff. In 2019, I flew well over 100 airline segments and had a similar number of hotel nights, yet over the next two years, those numbers fell to less than a dozen. However, I have slowly ventured out in the past couple of months, taking a trip here and there for work or pleasure, and it has been interesting seeing the changes to travel wrought by highly variable volumes.
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Airplanes seem full once again, yet hotels seem less occupied in many regions. An interesting consequence of these decreased volumes is an extended wait for hot water during my morning shower. I’ve had hotel showers take a few minutes to warm up pre-pandemic. As an “accidental morning person” who forces himself out of bed early despite bodily protestations, a 4 a.m. flight might prompt a few minutes of cold water.
This seems to have become a routine occurrence with lower guest volumes, even when rolling out of bed at a more civilized hour. On my most recent trip to visit family, it seems we must have been the only room occupied on an entire floor (or at least the first people awake), as it took a good five minutes for the water to transition from icy to somewhat comfortable, an unfortunate waste of clean water.
The water heater was clearly in some distant part of the hotel and presumably a huge unit designed to service the demand of dozens of rooms on multiple floors. At normal hotel occupancy levels, demand likely kept enough hot water circulating through the pipes on each floor that typical waits for hot water were low, and the large, centralized unit was more efficient than multiple hot water heaters on each floor.
A flawed assumption
Obviously, the water heating systems of most hotels assume some base level of occupancy, and thus hot water demand, and ignored the scenario in which only one or two rooms on an entire floor might be occupied. Perhaps an occasional dip in occupancy and the associated costs of wasted water were assumed to be far lower than a system that better coped with low demand.
While a cold shower based on a flawed assumption is not a big deal, we’ve all witnessed the impact of other faulty fundamental assumptions as our supply chains have faltered, our real estate use has dramatically shifted and the job market is still operating well outside historical norms. Companies that canceled supplier orders in early 2020 or outsourced production to save a couple of percentage points of cost are likely regretting a decision that cost many companies billions of dollars in lost sales.
Testing the extremes
The military invests significant resources into what’s effectively scenario planning, running large-scale drills and simulations. Some of the best military planners aim to create scenarios that identify and exploit critical assumptions of their adversary. For example, if a strategy relies on air superiority, they might create a scenario in which aircraft are immediately disabled to determine how their forces react.
Considering various potential scenarios might have helped these companies (and my hotel shower) to design more resilient processes, systems and policies. Scenario planning is certainly not new but is a discipline many companies have ignored due to the incredible reliability and resilience of most organizations before the pandemic.
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The primary reason many companies avoid scenario planning is that it can feel like a futile exercise of attempting to predict the future and then creating elaborate plans for events that are unlikely to pass. However, effective scenario planning should be less about predicting the future than testing assumptions and potential extreme scenarios.
For example, one need not have designed elaborate scenarios for global pandemics, asteroid strikes or hordes of zombies in 2019 to ask what would happen if a critical component for a product was suddenly in severely limited supply. Similarly, there were dozens of scenarios that might trigger a tight labor market. Rather than attempting to guess whether it might be due to the metaverse or a Martian invasion, simply asking the question “what happens if it’s difficult to get talent” would lead to some thoughtful investigation and potential mitigations.
Impact drives insurance
Look for areas in your organization where an assumption, process or resource is critical to effective continued operations. Play out a scenario where this asset is disabled and measure the impact. If this impact is significant, some insurance in the form of backup assets or alternative processes suddenly becomes an easily justified investment. Automakers who lost billions due to chip shortages would likely happily trade a few million dollars of profit for safety stock.
By developing thoughtful scenarios that question basic assumptions about how you acquire, create and deliver your company’s products and services, you’ll identify potential weaknesses. If there are cost-effective “insurance policies” that mitigate a significant negative outcome, consider investing in those areas first.
With some forethought and tools like scenario planning, your organization might avoid outcomes far worse than a cold shower.