Scenario Planning (Edexcel A Level Business)

Using Risk Assessment to Identify Risks

• Scenario planning is the process of anticipating possible changes in a business’s situation and devising ways of dealing with them

  • This risk assessment is where a business identifies, evaluates and prioritises risks and the precautions that may be taken to protect against them

Hazards commonly covered by business risk assessments

Natural disasters

• Natural disasters are often unpredictable but their impact can be so devastating to business operations that they are a common element of risk assessment

  • Identify the types of natural disasters that could be expected to occur in a particular area 

  • Assess the potential extent of the impact of a natural disaster on the business and its assets

  • Estimate the likelihood of a natural disaster occurring and the potential magnitude of its impact 

  • Identify and implement measures to reduce the risk (e.g. evacuation plans)

• For example, 2022's Storm Eunice caused significant disruption to transport networks and damage to commercial property across England and was followed by a period of flooding that closed hundreds of businesses

IT systems failure

• Information technology systems are used extensively by most businesses and an IT systems failure can have a devastating effect on a business's ability to carry on operating normally

• Business IT systems are at risk for a variety of reasons, such as

  • Malware (e.g. viruses) can infect a business's IT system and cause significant damage including loss of data and system downtime causing financial loss

  • Phishing involves cybercriminals tricking employees into giving away sensitive information such as login or financial details

  • A data breach occurs when sensitive or confidential data is lost due to a cyberattack, human error or negligence

  • Downtime is when a system or application is unavailable as a result of hardware or software failures, power outages or cyberattacks

• Insider threats come from within an organisation and can include

  • Employees who intentionally or unintentionally cause harm to the business's IT systems

  • Stealing sensitive information or causing a system outage

  • Employees who are not adequately trained or aware of cybersecurity best practices can pose a significant risk to the security and integrity of a business's IT systems

Loss of key staff

• Losing key members of staff can cause difficulties especially if they are unplanned (e.g. as a result of sudden illness or incapacity)

• Loss of experience and knowledge can impact a business competitive edge

• Losing a figurehead or influencer can affect the morale of remaining employees as well as the culture and direction of the business

• Business contacts and relationships with customers and suppliers may be lost

Planning for Risk Mitigation

• Risk mitigation plans identify and assess risks and then prioritise and plan responses to those risks

• Two key elements of risk assessment plans are business continuity plans and succession plans

Business Continuity Plan

• A business continuity plan sets out how a business will operate following a serious incident or disaster and how it expects to return to normal as soon as possible
   

• While the specific stages may vary depending on the businesses size and specific circumstances there are some common stages that are typically included in a business continuity plan

The business continuity planning process

1. Risk assessment
   Involves identifying potential risks that could disrupt business operations

   • This may include natural disasters, cyber attacks, supply chain disruptions, and other events that could impact the business

2. Impact analysis
   Is the assessment of the potential impact of these events on the business

   • This may involve identifying critical business functions and determining the potential financial and operational impact of disruptions

3. Strategy development
   Formulates the approaches to be taken to respond to disruption

   • This may include measures such as implementing backup systems, developing communication plans, and identifying alternate work locations

4. Plan development
   Outlines the specific steps that will be taken in the event of a disruption

   • This may include detailed procedures for handling different types of disruptions as well as guidelines for communication and decision-making

5. Testing and training
   Ensures that the plan is effective and all stakeholders understand their roles and responsibilities

   • This may involve conducting drills and simulations, as well as providing training to employees and other stakeholders

6. Maintenance and review
   Involves the regular review and updating of the plan to ensure that it remains relevant and effective

   • This may involve reviewing and updating the risk assessment, revising procedures and guidelines, and ensuring that stakeholders are aware of any changes

Succession Planning

• Succession planning involves identifying and developing current employees who have the potential to move into key roles in the future

  • It is often used to preparing for the eventual retirement death or departure of a senior executive and ensure the smooth transition of the business to the next generation of leadership

  • While the process may vary depending on the specific circumstances of a business, there are some key elements of succession planning

Elements of Succession Planning

• Successful business succession planning can help to ensure the long-term viability of a business while also providing peace of mind to key leaders or employees as they plan for their departure