Scenario planning for the non-profit sector

20 May 2014 | Anja Lubbe and Sarah Hallier | Insight

Scenario planning should not be viewed as a tool that can only be used by large corporates: it is a useful tool for strategy planning for non-profit organisations (NPOs).

The themes that should be examined for scenario planning are remarkably similar for both for-profit entities and NPOs; after all, any factor that affects the profit of a corporate may affect the funding that flows down to NPOs.

Scenario planning involves the construction of various hypotheses, allows for the examination of the most outrageous and the most conceivable hypotheses, and finds a middle ground of possible occurrences. Some events are highly plausible and predictable, for example improved medical research. Other events are highly improbable and unpredictable, for example events such as the Marikana massacre.

Scenario planning makes organisations ask, What if? It allows organisations to plan for events that would affect their ability to conduct business as usual. Scenarios must be extreme enough to affect the business, but still plausible. For example, while a tornado destroying half of South Africa would certainly affect your organisation, is this a realistic scenario?

By planning how your organisation will respond to certain situations, both positive and negative, your organisation will be better equipped to either leverage a positive situation, such as an unexpected financial windfall, or will have a contingency plan in place should a negative scenario materialise.

Scenario planning is useful for any NPO that relies on external funding from Social Investment for its survival. A large percentage of Social Investment in South Africa is contributed by companies in the finance, mining and construction sector. Therefore, any factor that may influence the profits of an organisation, and in turn, its Social Investment budget, may affect NPOs relying on Social Investment.

In addition to financial scenarios, political, economic, reputational, legal and social factors may all affect the way in which non-profits do business. These factors are discussed in more detail below.

For scenario planning to be successful a variety of drivers of change need to be considered, as one factor rarely changes in isolation. This type of analysis is useful for consolidating data and assessing the impact of multiple changes occurring at once.

The consideration of a variety of scenarios also acts as an early warning system, it provides checkpoints of what is likely to occur on a particular course of action, and it signals deviations from a planned course of action. This allows time to mitigate risks or redirect the organisation. Scenarios make it easy for a business to reroute its plan when an external change makes the current course of action no longer possible.

Scenario planning can aid in the development of business strategies and shape a business plan for moving forward in the uncertain economic, political and social environment in South Africa.

Scenarios are meant to encourage out-of-the-box thinking. However, all individuals are constrained by their personal biases and especially in the case of the non-profit sector, by emotional biases. The effect of biases can be mitigated by including a variety of stakeholders, from diverse backgrounds, in the scenario formulation process.

Steps for scenario planning

Step 1: compile a scenario team with a diverse group of individuals. Many NPOs do not have the resources or capacity to assign a scenario planning team and develop scenarios. The Dinokeng Scenarios can be used as a basis for the development of scenarios for organisations that operate in South Africa.

The Dinokeng Scenarios were formulated to discuss and develop possible future scenarios to address the challenges currently being faced in South Africa, which include education, health, safety and security, unemployment and poverty. The Dinokeng Scenarios team consisted of 35 South Africans from diverse backgrounds and was facilitated by six high-profile South Africans. The scenarios were developed over two phases, the first with the scenario team and the second phase involved engaging the broader public.

These scenarios provide an analysis of the external operating environment in South Africa and therefore organisations can assess the best course of action given the external uncertainties and certainties at play.

Step 2: host a workshop/brainstorming session to examine these external themes and how they may shape your business. Some examples of external key themes are:

  • Political

Example: decrease in social grants provided, which results in higher reliance on NPOs
Service delivery protests/strikes

  • Economic

Example: increase in unemployment may result in more people relying on shelter, soup kitchens, etc.

  • Reputational

Example: misuse of funding, or winning awards, attracting more funding

  • Legal

Example: change in tax laws

  • Social

Example: a decline in people dying of AIDS. What does it mean for your organisation? (Examples here are of hospices: what will they do? Will they respond to another social need, or simply shut down?)

Step 3: identify the focal question or key issue.

Step 4: identify key drivers of change, and assess the impact and uncertainty of each consideration.

Perform site visits and call on experts for input where necessary.

Step 5: build a scenario matrix (see the illustration above). Scenarios should be grouped according to how important, and how uncertain, they are. A potential response to each scenario can also be drafted in this scenario matrix.

An example of how scenario planning can be used is the Dinokeng Scenarios. Three scenarios were developed by Dinokeng:

1.  “Walk Apart”, the worst-case scenario. All challenges (as mentioned above) are aggravated by a global economic crisis. If the country does not address the criticality of these issues, its future does not look promising.

2.  “Walk Behind” focuses on the role of government and how without capacity, it cannot drive development. In order to develop capacity, government needs to encourage the participation of the private sector and civil society.

3. “Walk Together”, the most desirable future scenario for South Africa. In this scenario the country works together to address challenges, and to ensure government delivers and is accountable.

NPOs experience high levels of external dependency. Scenario planning can thus be a crucial management tool that prepares them not only for the worst-case scenario, but also for the best case.