Focusing on the future in uncertain times

Blend the theoretical and the practical: uncertainty and risk. Developing a forecast for the future requires the right balance of the theoretical and the practical. What disruptive forces, including accelerating risks and megatrends, are on the horizon, and how will they impact the core assumptions that underlie the company’s strategy and business model? One director suggested thinking about the future as two components: risk, which can be identified and measured, and uncertainty, which is dealt with in terms of probability estimates. “You can only go so far with probability estimates, but you can go further with good processes,” one forecasting expert said.

Bolster scenario planning and strategic forecasting. Given the level of uncertainty today, directors highlighted the importance of scenario planning and strategic forecasting to help companies make informed decisions and prepare for potential disruptions by considering a wide range of scenarios. Directors emphasized the need for the board to help ensure that the scenario planning and strategic forecasting processes are properly resourced with the right expertise and that management’s aperture is wide enough to capture the different scenarios, the context is correct, the processes are iterative, and independent third-party voices are heard.

Keep the conversation focused. One challenge of scenario planning highlighted by some directors is that “it can get too theoretical for boards.” To counteract this, encourage dialogue around what-ifs in a more focused and urgent way; because black swan events are always possible, low-probability and high-impact scenario discussions should be required, rather than optional. Another challenge for boards is cutting through the noise, such as information overload, too many scenarios, and poor information quality. Data are the starting point for scenario planning and forecasting, but context and judgment are critical. Putting the data that are relevant for the business and industry together with the plain-English narrative about the company’s future is imperative. Generative AI can be a helpful tool in this process, but management’s judgment is essential.

Challenge assumptions and set expectations. Directors identified two common assumptions that boards should challenge and be sensitive to in their discussions about the future. The first is the tendency to assume that the status quo will remain the same. The board should help ensure everyone is comfortable with the idea that this is not the case. Another common assumption to challenge is the idea that the board expects management to present to the board with certainty. That expectation may lead management to paint a picture that is overly rosy, giving the board a false sense of security. Directors also emphasized the need for no-limits brainstorming and board members with traits that might make them better forecasters, such as directors who are good at pattern recognition; who challenge rather than protect beliefs about the world; who are skeptical of easy solutions; who tend to favor incremental, rather than big, changes; and who seek context. “If the focus is on collegiality, and nobody is asking difficult questions, there’s a problem,” one director said.