Jan Richards

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How to create an “edge of cliff” scenario analysis to prevent big problems from occurring

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“I’m afraid of what I don’t know,” the CEO of the rapidly growing company said to me as I advised him one day.

“And I’m afraid of what I can’t see.”

He feared dire circumstances could occur and wipe out his thriving company.

This CEO was worried enough that he longed for a good early warning system he could use…if there were a way to create one.

I created an early warning system for him, one we ended up calling the “edge of cliff analysis” because it addressed his key fears for his company…and a few others he had not thought about.

It was a tool he and the company reached for, and used, for years afterwards.

To create the “edge of cliff analysis,” and to make sure it worked well for them, I worked with a wide range of people at the company to understand serious and unexpressed fears they had for their company.

It was like uncovering and understanding a high-risk puzzle, and then providing an action-oriented dashboard to guide them.

It helped them prioritize improvements that would reduce the most likely risks to the company, while providing them significant measures, and the ability to use them well, in order to help them know if problems were starting to emerge.

And then we made sure the decision-making and prioritization framework is one that people inside the company could and would use. (And they continued to reach for and use it, I heard through the grapevine, for years afterwards).

Do you, too, long for a sense of command in otherwise challenging and unpredictable circumstances?

Do you ever wish for an early warning system such as this CEO did?

If so, here are the basic steps we used to create this rapidly growing company’s early warning system:

– Start with your fears

We called this the “edge of cliff” analysis, and started with the CEO’s greatest fears.

He had lived with heavy but ambiguous worry for some time.

He hadn’t yet articulated his fears clearly, and this step alone, of articulating his worries, helped turn them into something actionable, and something positive.

– Turn them into scenarios

We considered his worst-case scenarios and the probable consequences of each for his clients and company.

We also considered best-case scenarios (they are so much more fun to think about…and we needed those, too, for a bit of relief in this work).

And then we considered what would happen if the best scenarios turned out, in real life, to be even better than we dreamt. We also considered situations where something far, far worse than the worst that he feared happened.

This stretched our sense of what the early warning system needed to accommodate, and to flag for preventative, or adaptive action.

–  Make your early warning system goal clear

Identify what you want your early warning system to do for you.

Next, consider who will use the information, and what they will hopefully do with it.

Check in with the future users of the information to see what they need in order to make the information easy for them to use to identify and take the right actions.

– Gather external information

In this client project, I had to find a proxy for customer satisfaction and frustrations, in lieu of talking directly to their customers.

I looked to see what promises the company made, or implied, to their customers through their marketing and advertising materials.

This told me what processes inside the company had to work flawlessly, under all different circumstances, no matter what was happening outside the company.

– Synthesize

Working with the leadership team, I verified and clarified which processes had to be top-notch in order for them to continue to thrive.

We mapped this to the most likely scenarios they might face, and identified which processes put them at highest risk, if they were not strengthened and improved.

– Organize and communicate

We organized and simplified the work, making it easy to understand and use.

We had no interest in creating a system that just looked good on paper. We wanted one that would be successful in real life and real business.

Next, we trained people, helping them see what valuable part they played in making the early warning system work successfully, and do what it was intended to do to keep the company safe and thriving.

The early warning system turned out to be a combination of crystal ball, fire drill, and strategic change management system all rolled into one.

If you’d like more information about how to do a scenario analysis, or how to do an “edge of cliff” analysis for your business, let me know.

 

Here’s another post you may be interested in:

You place your bets when you set strategy

The best way to manage business risk: go toward it

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What’s the best way to manage business risk?

Go toward it.

Sounds risky, itself…walking toward the thing you fear?

It can be.

The alternative, however? Far worse.

Real business risks, ignored…well…it’s not pretty.

Remember, first, that not all risk is the cliff diving, high-flying, life-defying kind.

Circumstances that bring these types of extreme risk are, frankly, circumstances you can’t control anyway.

The national and world economy, for example is something you can’t do a lot about, individually.

Devastating acts of nature…same thing. You just have to be ready to adapt well to circumstances such as these, however things work out.

If these are the risks you worry most about, scenario analysis is a tool that could be helpful to you. I’ll tell you more about that in a post later this week.

Second, the real risks in business are often things you can do something about. 

And these risks are not far away. They’re often already inside your company.

They’re the risks that you either created (often unwittingly) or that you perpetuate by not addressing problems fully and directly.

Any of the following situations are a risk to your company. And these are all circumstances you can do something about:

– Lack of focus

– Inattention to important details (the details your customers care most about)

– Lack of clear and complete communication

– Inaction or ineffective action when a problem is discovered

– Confusing, inconsistent and ineffective ways of getting work done

– Ineffective and frustrating hiring, onboarding, training, managing and mentoring practices

The signs of potential risks and trouble can be subtle…or glaring.

And because you’re in the middle of the situation, you may not really see or grasp problems until they’ve been festering for a long time. You may have simply become used to them, and think that’s the way things are, and the way things will always be.

Start to remove risks inside your business in these ways:

1. Brainstorm

Start by considering the parts of your business that feel in control.

What gives you confidence that these things are working well?

Next, think about what feels out of control.

Which of these worry you the most, and why?

Be specific as you create both the “working well” and “worrisome” lists.

2. Pay attention

Don’t assume that all is as it seems.

What assumptions are you making that you need to check? (Often, you’re either very right, or very wrong in assumptions that you make).

What data and information do you have, or wish you had…and can get…to monitor and manage the things you’re most concerned about?

If risks prove to be real, the information you wish you had is information you’ll want to figure out how to gather and put to work.

3. Go toward the risk, and test to see if it’s real

Work to understand what’s really going on before you jump into action to prevent, mitigate or manage perceived risks.

Observe, research, inquire, test in whatever ways you can to start to see if the risks are real, or they’re worries that are unwarranted.

By the way, people may say, “Our work is different. We can’t possibly measure and manage what we do.”

I’m here to tell you, as a former operational analyst and process auditor at Apple and elsewhere, that there are ALWAYS things you can do to see how things are really working, compared to how you think they’re working, or how you wish they were.

The information you gain in this way is always clarifying. Usually, it helps make things work better for everyone involved. And that, when it happens, is good for employee morale, customer satisfaction, and, as a result, profits.

In addition, get to know people who can advise or teach you. They may quickly see potential problems that you’re blind to or are purposely avoiding. They can also help you figure out how best to address problems you might have missed.

5. Chunk the action

If changes are necessary, once you understand the risks that are present, break the change into a series of achievable actions.

You’re more likely to do the work if you “chunk” it into manageable projects and tasks.

Suddenly, big goals that were daunting or immobilizing become accessible and motivating as you make steady, observable, and felt progress, step by step.

How to simplify in the extreme

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Sometimes you’re thrown into a situation that makes a mess of your well-laid plans.

And sometimes you’re suddenly in a chaotic situation that’s one hundred times more complicated than that.

Just one current example? You know where this story is going…

It’s the COVID-19 pandemic experience we share.

In chaotic times what do you do to simplify the chaos?

And not just simplify, but simplify in the extreme?

Try one or more of these four steps:

1. Focus on one priority. 

Yes, just ONE.

When you’re trying to right a world that has turned upside down, you don’t need the drag and drama of trying to juggle multiple goals.

Like a laser beam, narrow your focus to a single point. Make that your sole priority for now.

2. Let go. Say no.

The only way you’re going to let go is to say no.

And if that’s not easy for you, well, frankly, that’s tough.

You need to be able to clear out the underbrush. You have to let go of what is extraneous for now.

What was once important may be again someday.

Now, it it not.

Practice the word, “No,” until you can say it with the calm confidence you need to back it up. And then live your fully-owned “no.”

3. Pay attention.

You need information that’s easy to gather and use in order to know if you’re getting back on track, and staying there.

Select a few key indicators you can count on.

Then pay attention to the information it is providing you.

Use it simply, consistently.

4. Follow up.

Take the time to see how things are working, and if they could work better.

And if things aren’t working, face the facts.

If you need to adjust your plans and actions, do it.

Your work and the world will right itself, with time, but in the meantime, it needs your help.

The best way to start?

Simplify, in the extreme.

 

Here’s another post you may be interested in:

How to lead successfully through uncertainty

12 questions that can keep you from falling into bad management habits

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You want to be a good leader, and manager. 

And you’re trying to do your best.

Yet you wonder how well things are going when situations like these happen:

SCENARIO ONE

You hear laughter at work. Curious, you walk toward it.

There’s lots of work to do (always), but you’re human.

A little levity might help brighten a difficult day, you think as you walk toward the lightheartedness.

Suddenly, as you turn the corner, and the crowd sees you coming, the laughter stops.

Loud silence fills the space.

Everyone freezes…then quickly scatters, amid a variety of mumbled excuses about looming deadlines, contacts they need to make, experiments they need to test…

…anything but continuing to banter when you are present.

SCENARIO TWO

You’re leading a meeting.

The goal: engaging and involving your team in finding ways to meet suddenly more challenging performance targets.

You look out over the group assembled before you.

It’s a sea of bored faces and the tops of people’s heads.

They’re doing their best to be anywhere but here as they daydream, text, tweet, and scan the internet.

SCENARIO THREE 

Performance evaluations are due. You dread this time of year (and members of your team do, too).

Even so, you try to provide good, meaningful feedback to each employee who reports to you.

Your fellow managers tease you, saying that your good intentions and all the time you take on the evaluations are poorly-invested.

“You know that all your employees want to know is, ‘How much? And why not MORE?'” your peers explain, with an amused and cynical smile, entertained by what they think is your naivete.

You get back to work, wondering if they’re right, but continue to work hard to provide the best feedback you can, anyway.

As these scenarios show, the management role, and road, is sometimes a lonely and frustrating one.

When you get right down to it: 

– It’s hard to get people on the same page.

– Then it’s hard to get them moving forward as a well-functioning team.

– And then there is the constant need to keep individuals and the team positive and forging ahead through the many challenges, chores, and circumstances you face…many of which you may not be able to predict or fully be prepared to address.

In the midst of all that, bad management practices can slip in and quickly become entrenched, like it or not.

If you want to avoid (or get out of) the trap of bad management habits, start by thinking of your work as a game. 

Make sure you help your team to:

  • See and understand the game and goals
  • Understand how you customers measure success, and as a result, how you measure success, and progress toward it
  • Learn and practice the skills they need, individually and collectively, to win the game you’re all engaged in
  • Manage their work to desired quality outcomes, deadlines and budgets…and feel safe asking for help when they need it
  • Work well as a group, bringing out everyone’s best efforts and results

Begin by asking yourself these important questions:

1. What “game” is our company or team playing?

2. What’s a win for our customers? What’s a win for us?

3. Who are the main players in this game?

4. What are their roles?

5. What are the rules we play by now? What are better rules for us to use?

6. How do we keep score now? Is that the best way?

7. What’s the reward for playing well?

8. What are the penalties for playing poorly?

9. How are we doing, overall? How do we know?

10. Are we playing better all the time, and achieving ever-better results?

11. If so, why? If not, why not? What can we do to improve?

12. How do we keep ourselves inspired, motivated, and continually moving forward?

Five ways to increase your business resilience

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“A good half of the art of living is resilience.”

Alain de Botton

A good half of the art of business is resilience, as well.

Here’s how the need for resilience may show up:

  • All information you’re monitoring looks good. Things seem to be going well, overall.
  • Oh, maybe there’s one small thing that’s a little off-course, but it shouldn’t be a big deal, not after you make a few tweaks and tucks. It’s NOTHING to worry about.
  • Time passes. Things change, even if almost imperceptibly.
  • Suddenly, and seemingly without warning, you’re facing potential disaster.

That little problem you weren’t worried about?

It was a big one.

The situation blew up. Now you’re sunk.

Or are you?

This is when resilience – if you have it – can be a business-saving skill.

For those who struggle with resilience, what causes the problem?

Primarily, fear.

And it’s human nature.

No one wants to think about what might go wrong.

But putting your head in the sand is never a winning strategy, in any business, profession, or situation.

And denial only increases stress (and the mess, if it happens) instead of getting rid of it.

If you’d like to grow or improve your resilience, start with the following five ideas.

They may even save your business during challenging times:

1. Stretch your thinking.

You’ll be more prepared to respond to any unexpected situation if you consider what might go wrong, long before something happens.

Just by considering a wide range of possibilities, and mentally rehearsing what you, and the people you work with, would do to address these situations improves your ability to respond effectively.

You can “try on the future” with scenario analysis. In the simplest possible version, here’s how you do it:

  • Consider the best possible case, the worst possible case, and the most likely situation to arise
  • Stretch your thinking even further in each direction. Take into account an EVEN worse possible outcome, and an EVEN better possible outcome.

Now, having considered a wider range of possibilities, the “most likely” scenario is now likely to be different…and probably more accurate…than it was when you imagined the future as a simple extension of the past, or present.

2. Pay attention to critical details.

Track key indicators of possible change to improve your ability to predict what might happen, before it happens.

Look at it this way: you’re improving the crystal ball you use to predict what will happen in the future by virtue of being more aware of signs of changing circumstances.

To use examples in nature, animals, who are tuned in to very subtle signs in their environment are far better than humans are at predicting and being ready for some natural disasters when they occur.

Dogs and cats, for example, can often tell when an earthquake is going to happen, and they often start to act different.

This New York Times article addresses birds’ ability to anticipate and prepare for dangerous storms: Birds Have Natural Ability to Survive Storms.

Similarly, you can discover and track early warning signs of possible change in business.

To do so, start by identifying the highest risk aspects of your business.

Then brainstorm details or related trends that you could track to give you early warning about the very changes you worry about now.

Having advance notice about what may be happening as change occurs in its sometimes subtle early stages may enable you to take actions to prevent or minimize the impact of changes ahead, if very challenging things are starting to occur, or make the most of good situations, if they are starting to take shape.

3. Strengthen the processes and systems that must work.

Improve the core processes and systems of your business, if needed.

Make sure they are strong enough that your business could rely on them, if needed, to ride out an emergency for a while, should it occur (we who live in California think of being earthquake-ready, for example).

And if that emergency never occurs…and hopefully it won’t…you will benefit from faster, easier, more cost-effective processes for getting work done.

An immediate benefit is that improvements are almost guaranteed to lower your costs and improve your profits.

4. Create an emergency plan and resources for your business.

This one is easy to wave off, but it could save your business, and it could save lives, too.

Encourage your employees and friends of the business, such as your customers, suppliers, and colleagues, to make themselves emergency-ready, too.

Here are links to pages on the FEMA website that tell you how to create business and also family preparedness plans and then implement them:

Business preparedness

Emergency preparedness

5. Practice.

Find small ways to practice resilience.

Be creative.

Treat resilience-building like a game, if you can.

Your business…and your life…could depend upon it.

The odds are that your efforts ahead of time will have beneficial effects, sooner and later, that are far beyond what you might expect…even if that rainy day never comes…and also, when an unexpectedly sunny one does.

Strategic planning: Mine your imagination with scenario planning

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Have you ever been blindsided, whether by difficult circumstances or by opportunity?

Many people around the world would answer “Yes!” to that question, given recent events, who might previously have said, “Hmmm, let me try to think of an example…”

Consider a big surprise in your career or personal life, whether positive or negative.

If you had anticipated and been ready for it, would that have affected the decisions or actions you took when the surprise occurred?

Be better prepared the next time changes are sharp and sudden.

Scenario analysis, a simple planning tool, can help you.

It may sound complicated, but it’s not.

In its simplest possible form, scenario analysis is a brainstorming tool.

It works because it loosens your grip on the future you expect.

It opens your eyes to many possible futures, and helps you prepare for seemingly far-fetched circumstances that can, in fact, become real.

The process of building scenarios increases the quality of your planning, and improves your responsiveness.

It helps your team consider, and work through many different possibilities. It also heightens awareness of cues and data you can monitor to anticipate, notice important changes that are occurring, and then to be prepared for whatever happens.

As you envision each scenario, you’re essentially beginning to rehearse how you’d handle each circumstance.

Here’s a simple approach to use scenario planning:

Prepare

1. Define the problem.

What’s your challenge, in one sentence?

2. List the primary forces that could drive change in the situation.

For example, is availability of qualified employees critical to your team or company?

Are economic trends, regulatory issues, industry or technology trends important to you – or could they be?

What other major forces must you monitor and be ready to respond to quickly, and well, as changes occur in each of them?

3. Create a matrix.

You’ll need at least six columns. You’ll also need enough rows for each of the primary forces you identified that could drive significant change in this situation.

In the first column, list each of the primary forces, one per row, that you identified.

Across the top of the matrix, write these column headers: “Even better case,” “Best case,” “Most likely case,” “Worst case,” “Even worse case” in columns two through six.

Be there

4. Imagine, one by one, that you’re in the middle of three different scenarios,  “Best case,” “Most likely case,” and “Worst case.”

As you consider each scenario, write a few details in the appropriate boxes for what you expect would be happening with each driving force in that circumstance.

For example, let’s say you’re planning for rapid growth at your company. One force you would need to consider in that case is the availability of qualified candidates for jobs at your company.

Let’s say, then, that you anticipate the best case is that there will always be as many highly-qualified candidates as you need.

As a worst case, perhaps you fear that major demographic changes could reduce or even eliminate future job candidates for the jobs you anticipate having available.

And as a most likely case, perhaps you think there will be little change in the number, and quality, of job candidates available to you.

5. Stretch even further.

Now, having considered the “Best case,” “Most likely case,” and “Worst case,” expand your thinking.

What circumstance would be EVEN BETTER than what you imagined for each driving force?

And what would be EVEN WORSE than what you already dared to picture?

Working through these extreme outcomes inevitably leads you to new insights. Many companies find that creating these stress scenarios…both good and bad…accelerate and improve their preparation, teamwork, trust, and resilience.

6. Build the most likely scenario.

Having considered the extreme examples, what now seems to be the most likely scenario?

Is it the same “Most likely” scenario you originally envisioned?

The odds are very high that, having stretched your thinking, you see some new areas of caution and, also, opportunity.

And that the “Most likely” scenario now looks different.

Save and compare

By this point, you may have accomplished as much as you want to with this simple version of scenario analysis.

You can do further work, if desired, such as by gathering data and doing detailed analysis to help you understand which scenario you envision is most likely…or if there are forces, or scenarios you also need to consider.

7. Save your work.

Whether you’re ready to complete the scenario analysis, or you’re doing more research, save the work you’ve done for later use.

8. Express key scenarios in a way that makes them easy to use.

You can capture the scenarios in some way that makes them easy to use and refer to in the future, such as through simple graphics or drawings. You can select a metaphor, or write a phrase that expresses the anticipated circumstance succinctly.

9. Later, when time has passed and change has occurred, compare what actually happened with the scenarios you imagined…and what you thought might happen.

You might be surprised at the quality of the crystal ball you create with this simple exercise, and how well-prepared you are, as a result, for what actually occurs.

Considering many different possibilities prepares you to some degree to be ready for them…and makes you more attentive to the key forces that may be constantly changing.

One client, an investment management firm, discovered after we used scenario planning there, that they were far better prepared for volatile financial markets than some of their competitors were.

However you plan and prepare for the future, rest assured that it won’t be a simple extension of the past.

Scenario analysis can help you be much better prepared for the future, and more resilient.

How to lead successfully through uncertainty

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“I think we’re lost. Yeah, we’re lost. I KNOW we’re lost!”

Does that sound like the worried buzz at the company where you once worked – or the one where you work now?

Did the path forward once seem SO clear, so destined to be successful during the cool logic of business or project planning?

And now, does that plan seem to be pure fiction, or a dream, perhaps?

These “we’re lost” quotes were not from an employee sometime, somewhere.

These were the fears of our then-12-year-old son, Matt, as his 20-year-old sister, Anne, tried to lead us back to our hotel in Paris when we were trying to find our way to home base on the last night of a family trip there.

Anne was our leader in this case because she was, effectively, the only French-speaking member of the family.

She’d been nervous about taking on the communications and navigation leadership role at the beginning of the French portion of this family trip. She grew into the role beautifully, though.

Her skills were really being tested this final evening. And she did get us safely back to the hotel, despite the doubts of some of her followers.

What worked in this situation can help you, too, to succeed when you must adapt best-made plans quickly in order to lead successfully through uncertainty.

Try these approaches to help you be successful:

Make yourself easy to follow

Be clear about your vision, plan and directions. Use simple language and descriptions that everyone can understand. Speak in specific, concrete terms. Help your team understand what’s different in this situation from the original plan.

Be clear about your assumptions

We all know stories about teams that made incorrect assumptions in planning and then never adjusted them, despite the facts. In many of these cases great difficulties, even tragedies, occurred which might have been prevented. Be attentive to whether your assumptions are solid…or need to be revised…as you play your plan. Use good data. Know what it’s telling you. Adjust both your plan and actions if facts make it clear you must.

Trust your instincts, but check the facts

One of the primary strengths of the way Anne led us back to the hotel that evening was that she started with a vision of success that held up in spite of the nervousness around her. She also paid close attention to her intuition, combined with the facts and feedback she could gather from the team (her family, in this case) and the environment. Finally, she held it all together with a healthy spirit of adventure that made the team successful, and the experience memorable, in a positive way.

Show confidence, courage

This is often a major key to tipping the balance of a team’s focus from fear and anticipation of failure – particularly when plans must change rapidly – to confidence and conviction. Armed with a vision, a revised or flexible plan, and guided by facts gathered along the way, you and your team can move with assurance in whatever circumstances you find.

Make simple agreements – and keep them

Agree with your team on the milestones at which you’ll check your progress, and the data or metrics you’ll use to evaluate whether you’re on- or off-course. Then keep those agreements. You’ll build a strong experience of being a team – and improve your outcome – as you face uncertainty together.

Keep communication flowing

Success requires strength, confidence and everyone’s willingness to stay fully involved. Keep lines of communication open, free-flowing. As a team leader, be clear about how you’ll make decisions. Ask for information or feedback you need. Listen fully. Acknowledge, sort, synthesize and incorporate essential information you receive (if you don’t, people may stop bringing it to you). Keep communication moving. It can be the difference between success and failure.

Follow through

This one can’t be said enough. Confidence grows when teams see a growing trail of small victories, one success leading to another. Follow up. Follow through. Complete each task and keep moving.

Encourage others

If you’re discouraged in the unexpected situation in which you find yourself, others on your team are probably even more so. They’re watching you very, very closely, and your mood shows more than you know. As the leader, it’s your job to get the group successfully and safely to their destination, despite the circumstances you find yourselves in. Your job will be easier if you help to lighten the team’s load, even by letting them know that you see how much they’re carrying. Show appreciation for their efforts and their flexibility.

When you’re right, no gloating, no showboating

Finally, congratulate and thank each member of the team, whatever role they played in the team’s success. Remember – you got to your final destination together, not alone.

Six ways to grow your leadership strength

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Like any skill or ability, leadership strength, one of the top ten characteristics of great leaders, can increase with learning, experimentation, practice, and experience.

As you develop this, or any leadership skill, you stretch the boundaries of your leadership comfort zone and proficiency.

If you’re ready to become a stronger leader, here are six ways to start:

1. Select a leader you admire and emulate his or her strengths

Keep this person in mind as a guide to emulate, learn about, and learn from as you experiment, build and refine your strength as a leader.

2. Get feedback on your leadership

Seek information about your strengths and areas for improvement from peers and direct reports, in addition to seeking and using your manager’s feedback.

The information, if honestly provided and viewed, may be eye-opening and humbling, in complimentary as well as instructive ways.

3. Know where you’re going

Create a vision to keep your attention, intention, and actions aligned with the long-term goals for your team.

In addition to creating a compelling vision, use simple but consistent and effective follow-up practices to keep you on track.

4. Listen and observe

You may or may not like what you hear and see when you check in to see how things are going, but you need to know what’s really going on.

Regular, honest assessment is essential to know how you and your team are really doing, and to be able to respond and adjust effectively to actual conditions, rather than what you hope to find.

5. Improve the ways you get your work done

Make your work life easier, and your results more predictable through effective process management.

Simplify and improve the processes, measures, feedback and follow-up practices you and your team use.

6. Build bench strength

This gives you greater capacity and adaptability, as a team.

It also extends your leadership reach and effectiveness. You can’t be everywhere, all the time, after all.

You’re more effective as a leader if you create processes, measurements, and good practices for your team to be able to self-monitor, self-manage and self-correct, as much as possible, in addition to seeking and using feedback you provide them.

A big part of your job as a leader is to create more, and better leaders, in your company.

As Tom Peters notes, “Leaders don’t create followers, they create more leaders.”