7 Tips for Defining Scenarios During a Crisis: Covid-19 edition
Project Manager – ECFO Services LTD
This article is part II in ECFO’s Covid-19 crisis planning series. Our last article, “Modeling to Plan Through a Crisis: The Covid-19 edition”, stressed the importance of using modeling as a tool for crisis planning. Particularly we covered both quantifying impact under different scenarios and developing mitigation measures for the short and long term under each scenario.
In our second installment, we offer a practical approach to defining different scenarios for your crisis planning, including a framework for determining the scenarios and different factors to consider when making assumptions. While we address scenario building here with the current pandemic in mind, the concepts still apply to contingency planning in general.
1. Break down your plan into distinct “Impact,” “Recovery” and “Normalcy” phases,
Every crisis has a life cycle. The first action to take is to frame your crisis plan by defining the different phases of the cycle. This step is essential since factors on the ground quickly shift during a crisis, and having a plan in place can shorten response times and improve mitigation efforts. Companies should approach each phase separately and define key modeling assumptions ranges (e.g., demand, inventory supply, employee participation).
One relatively versatile framework is to divide the crisis into “Impact,” “Recovery,” and “Normalcy.” Note that areas that are not yet affected or which are expecting a second wave may also add a “Readiness” phase (before “Impact”).
Impact: During “Impact,” the crisis is in full display. In the case of a pandemic, this includes extremely tight public health restrictions and measures, a sharp decrease of demand, and substantial disruptions to supply chains. For China, this phase seems to be drawing to a close for most of the cities (except the epicenter of Hubei Province), as the number of confirmed cases has been continuously decreasing. For other countries, it is the beginning of this phase, and the number of confirmed cases has been increasing at a high rate (Italy announced a total lockdown as of March 10th and other countries have also followed on different levels of border control measures).
Recovery: Under the “Recovery” phase, mainstream economic activity has restarted, demand is increasing at a slow pace, and supply chains are gradually getting back on track. In many cities in China, employees have been going back to offices and even factories. A clear indication of a recovery phase is a sustained increase in demand, no matter how minor.
Normalcy: for the global market as a whole, there might not be absolute “normalcy” during a pandemic until the introduction of a vaccine. Every company needs to define what “normal” means relevant to its own business. However, this should involve a view on long-term demand, staffing, and other structural decisions.
2. Design your scenarios according to the length of each phase before proceeding to depth
To design each scenario in the model, companies should determine the duration of each phase of the cycle. Framing length of phases will simplify conversations around specific assumptions (“depth”). For a worst-case scenario, the “Impact” period would be more extended than the best-case scenario. Another important and perhaps more controllable dimension is the length of the recovery period. The table below shows a quarterly assessment over a single year, but the time period and increment will depend on the company’s own perception of its industry outlook.