Imagine you run an ice cream truck business. You’re stocking the freezer, fixing that squeaky axle, and, as a smart small business owner, you’re also planning for the season ahead, figuring out your pricing, your costs, and what might impact your margins.
Let’s say you’re building out your summer sales forecast and trying to understand how changes in fuel prices, labor costs, or ice cream supply could impact your profitability. This is where sensitivity analysis comes in. You’re testing variations in key assumptions, exploring which variables have the most significant impact to your business model.
But now imagine the questions get bigger. What if the city imposes new restrictions on where food trucks can operate? Or a national dessert chain launches its own mobile trucks and starts parking near your best locations? Or new dietary trends shift consumer preferences away from what you’ve been selling?
Those aren’t tweaks. They force you to reconsider core parts of your business model—what you sell, how you sell it, and who you compete with. This is where scenario planning comes in. It’s not about fine-tuning assumptions. It’s about asking: what if the landscape changes altogether?
The key difference? Sensitivity analysis asks how much your current plan can flex within a known frame. Scenario planning helps you consider when the frame itself might no longer fit. It assists you in recognizing when the environment changes enough that you may need to make more significant adjustments.
Understanding the Tools
Sensitivity Analysis: Testing Your Known Model
This approach works when your business model is stable but you want to test how changes in key assumptions affect outcomes. It helps you identify risks, refine forecasts, and make sound, data-informed decisions. But it assumes continuity. If the world around you shifts dramatically, it won’t help you rethink the model.
Scenario Planning: Preparing for a New Operating Environment
Scenario planning helps you imagine how external forces, such as regulatory shifts, market changes, and environmental disruptions, could reshape your risks, opportunities, and even your primary goals. It’s not about predicting the future, but rather, about being flexible and ready, no matter which version of the future comes to be.
Not every scenario is disruptive. Some are aspirational. You might be testing a growth strategy, exploring a new market, or expanding your fleet. Scenario planning gives you a chance to simulate that future and test your assumptions before making decisions.
At other times, scenario planning is key to finding resiliency in challenging situations. This is the primary benefit we have experienced using scenario planning with our clients in recent months. It is remarkable to witness the fresh thinking and resiliency that emerge from collaborating with trusted peers to tackle problems.
Strategic planning makes use of both tools, and often together.
Looking forward
Scenario planning is a powerful, low-cost, high-impact intervention. At Spring Street Exchange, we integrate it into nearly every engagement, whether we're doing strategic planning, growth strategy, or risk management. If you’ve ever done this work with us, you know that we have refined the process with continual learning over the past decade to make it meaningful and even energizing.
There’s no faster way to align leaders and transform a room than the purposeful use of creative, strategic thinking to explore what’s next. When this all comes together to align action, the moment is nothing short of magical. Effective use of strategic planning becomes another superpower.
And, just like running a great ice cream truck, planning for the future is best when it’s done in good company, with creativity, and maybe a few unexpected flavors (pineapple-cilantro sorbet, anyone?) Here's to navigating the road ahead together.
With you in goodness,
Nancy