Strategic scenario planning for COVID-19

A deep recession in New Zealand now looks inevitable. COVID-19 is already having a significant impact on our tourism and air travel sectors, driven by many factors, including border restrictions, decreased domestic demand and working capital pressures. There will be further negative effects stemming from lower consumer spending and decreased demand that will extend far beyond what we’re currently seeing.

The speed that we recover from these effects will be influenced by our progression through the NZ COVID-19 Alert Levels, the effectiveness of the Government support and stimulus package, and the potency of the policy settings that will support the economic restart. As a small exporting nation, New Zealand is also far more reliant than most others on the effectiveness of the health and economic response in other countries.

Making the right decision at the right time has never been more important. But decision making has also never been harder. The easy availability of contradictory information and opinions can create paralysis. While nobody can be certain about what the future holds, it is important to consider what the future could look like in different scenarios so that we can make the best strategic choices.
Many organisations are enacting crisis response plans to mitigate the impact of the pandemic. To prepare for the next weeks and months, it is imperative for strategic decision makers to think about “what’s next?” and “How do we position our organisation to recover and thrive in the new normal?”

Making the right choices in the face of a pandemic is a daunting challenge, but there are benefits to being proactive and bold. Organisations that act decisively can minimise the damage and position themselves to seize new opportunities. A framework of five steps can guide organisations to think through how to best position themselves for an uncertain future.

• Step 1: describe the impact that COVID-19 is having on your organisational performance and prospects

• Step 2: identify and prioritise the critical uncertainties that are likely to shape your future operating environment

• Step 3: using combinations of these critical uncertainties, create scenario narratives that describe differing versions of the future

• Step 4: identify the opportunities and risks in each scenario, and create resilience by confirming the strategic choices you would make in each scenario, before confirming the scenarios most likely to eventuate

• Step 5: identify the choices you can make confidently given you would make that choice in multiple scenarios, and then plan accordingly.

Deloitte will continue to support you with the approaches that allow you to respond, recover and thrive. Our experts for strategic scenario planning are Chris Rodgers, Adithi Pandit and David Lovatt. Our experts for financial and economic scenario modelling are Alan Dent and Liza van der Merwe.