Covid-19: How much risk can your firm handle? Conduct a scenario analysis

Decision-making is classified under these areas: Certainty, risk and ambiguity. Here's how to evaluate where your business stands, and what the road ahead should look like

Updated: Aug 21, 2020 05:02:46 PM UTC
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As we start implementing stages of Unlock, it is time to plan for what life in office will look like across sectors. Predicting the future is not easy. Scenario analysis can be an effective methodology to plan for and take necessary steps proactively.

Traditionally, decision-making is classified under these areas: Certainty, risk and ambiguity. Under risk or 'known unknown', the decision maker has an estimate of uncertainty in the form of a probability distribution. Under ambiguity or 'unknown unknown', the decision maker cannot quantify uncertainty into a probability distribution. The planning models are predominantly based on decision-making under risk.

However, with increasing variability and complexity due to unforeseeable contingencies, it is important to focus on modelling under ambiguity, especially for scenario planning modelling.

According to the World Health Organisation (WHO), four situations are possible for the ongoing transmission of COVID-19 in the second half of 2020 and beyond. They are: i) no cases, ii) sporadic cases, iii) clusters of cases and iv) community transmission (Figure 1).

The probability of each of these scenarios can be arrived at dynamically at a national, regional or even an industrial or organisational level, based on the ground reality. Specific steps can be planned for each scenario so that the element of surprise is reduced when normalcy returns.


In countries where there are no cases, there will not be much change. Such a scenario does not seem probable as no region is left unaffected by COVID-19. The first possible scenario is ‘sporadic cases’ where countries see a few cases that are imported or locally detected. This may happen in countries that are geographically isolated. The steps to be taken are basic social distancing. Disinfection measures need to be taken before employees return to the work place—whether it is a factory, office, retail store or warehouse. Operating measures need to be put in place for basic hygiene—masks, gloves, sanitisers, avoiding physical contact.

The second scenario or ‘clusters of cases’ is highly probable and will need detailed planning. If movement of people and goods is allowed between specific green zones that have low infection, then relatively fewer alternatives need to be planned. If cross-border trade is possible, back-up suppliers from nearby countries can be evaluated. But it will still need risk mitigation in the form of working out alternatives for the smooth flow of goods. Redundancy can be built in the form of additional inventory and stock on hand than normal times.

Flexibility in associated products made and services offered can be an effective approach. Collaboration across the supply chain and with other industry entities within one’s industry can bring in economies of scale. Contact tracing will play an important role for traceability of infections.

The third scenario or ‘community transmission’ would have the most impact and will need the maximum amount of planning and risk-taking. It will be a situation of large outbreaks of local transmission. The health of employees and partners will be of utmost importance. HR policies may need a re-look to support the new way of working and absence from work. If cross-border trade is not possible, localised suppliers need to be identified and groomed. Collaboration can extend beyond one’s industry and national borders to cross-industry consortiums, working for the betterment of the overall society.

These three need not be the only scenarios for organisations to be prepared for. These are based on the global trends forecast by the WHO. Each country and within it, each industry, can have its own scenario planning based on ground reality.

The power industry, for example, witnessed major changes in patterns of energy consumption. Factory consumption has come down due to the lockdown. But domestic power consumption has gone up due to the work from home effect, with most citizens locked up 24x7 at home. The retail industry may see fewer footfalls in stores while online orders trend upward. The fashion industry may see the demand for hygiene related products go up while normal cosmetics see a downward trend.

Time is the essence. It does not cost as much to invest in planning as required for actual implementation. Organisations can use the time available during lockdown to plan for the different scenarios and be prepared for which way the world is headed when normalcy returns. The probability for each scenario is an area that will see much multi-disciplinary research in the days to come, to become valuable input for influencers and decision makers.

About the authors: Dr. RK Amit is currently an Associate Professor in the Department of Management Studies, IIT Madras. S Ramachandran is a Principal Consultant at the Infosys Knowledge Institute

The thoughts and opinions shared here are of the author.

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