Scenario Planning Produces Better Benefits Strategies

Many companies are following the example of intelligence agencies and using scenario planning to consider alternate futures for their organizations—and to create different plans to prepare for those potential outcomes.

The process applies various "what-if" scenarios to business contingencies so company leaders can make decisions based on the most likely scenario while staying flexible and able to adjust to changing conditions.

It's an approach that HR can use to explore how different total rewards packages could maximize value for employees and minimize employer costs.

Making the strategic use of employee benefits part of scenario planning can be pivotal to an organization's future success—especially as companies find themselves increasingly dealing with hybrid workforces, rising turnover rates and lingering disruptions caused by the COVID-19 pandemic.

Preparing for Possibilities

HR research and advisory firm McLean & Co.'s HR Trends Report for 2021 indicates that HR departments that created scenario plans more than a year ago were better positioned for effectiveness amid the turmoil of 2020. Only 17 percent of companies, however, fell into that category and 28 percent have no plans to start scenario planning. These findings draw on data gathered in September and October 2020 from 850 businesses with workforces ranging from fewer than 100 employees to more than 2,000.

Marcy Maslov, an experiential learning expert who created e-Factor!, an educational board game for business ethics, and is CEO of the eponymous company that sells it, applies scenario planning for team building, decision-making and critical thinking.

Scenario planning, she said, can be used to "tell a story and also put people into real-life situations" in which company decision-makers can work as a team to explore potential solutions.

According to Jeff Higgins, CEO of workforce analytics firm HCMI, the process involves aspects of systems thinking, "specifically, the recognition that many factors combine in complex ways to create potential future outcomes due to shifts in labor market supply, demand, values, regulations or technology."

Scenario planners consider worst-case, best-case and likely scenarios with different approaches to mitigate risks and seize opportunities, said Kathi Enderes, vice president of research at the Josh Bersin Academy, a corporate HR research and advisory company. This is similar, she said, to how senior military officers prepare to cope with unlikely turns of events.

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Benefits and Scenario Planning

"Using scenarios and real-life situations is much more effective in helping people understand how to think critically and make decisions," Maslov said.

When using it to make decisions about what employee benefits to offer, "HR can show how benefit cost and coverage in various scenarios would lead to potential different outcomes for talent and business results," Higgins said. Using scenario planning strategically can help HR model "how to best allocate benefit budgets to attract, retain and promote top talent," he explained.

Higgins pointed to Gold Eagle, a midsize manufacturing company he worked with that used scenario planning when it needed to adjust staffing levels during the COVID‑19 pandemic. Part of this process involved evaluating how a plan would impact the company's benefits and compensation packages, as well as workforce costs, size and structure.

"Scenario planning as part of a workforce plan helped Gold Eagle's HR team compare options to find the most optimal solution," Higgins noted. "The result was a new workforce plan that was far better at allocating human capital investments and increased manufacturing capacity while controlling costs."

Even companies that use scenarios to plan for workforce staffing might overlook their value for designing benefit offerings, Enderes said. That could be a missed opportunity given the significant investment companies make in employee benefits.

"Changing employee demographics, advances in employee expectations for personalization of benefits and the increasing demand for hybrid work" all make scenario planning a tool that could help HR teams make benefits decisions that keep employees motivated and productive, Enderes said.

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Putting Scenarios into Practice

For HR professionals who feel scenario planning might hold value for them, Enderes recommends pulling together a team that, along with HR, includes representatives from people analytics, workforce planning, strategic planning and finance and other business leaders. Then, she suggests, consider current employees and their needs while assessing different scenarios for the future. The scenario differences might include:

• Employee population size, demographics and locations.
• Workforce composition, such as full- and part-time employees, contract workers, gig workers, etc.
• Input from employees on their needs and preferences for benefit offerings.
• Labor market conditions and outlook.

For example, Enderes said, "if you plan to hire a larger percentage of younger workers right out of college, offering the most advanced retirement benefits won't help you win the 'new war for talent.' " In this case, she advised, "you may think about increasing your offering in tuition assistance or student loan debt programs."

In contrast, she said, if you expect that you will be hiring primarily frontline workers earning lower wages and paid by the hour, "you may want to consider offering on-demand pay solutions to attract them."

McLean & Co. reported that during last year's business upheavals, "many types of [frontline] workers, who were previously marginalized, were revealed to play essential roles in keeping society functioning. The lack of total rewards and respect accorded to these employees highlighted the importance of [placing] a greater focus on employee needs" in the event of future business disruptions.

Using scenario planning, Enderes said, can help companies "define which offerings might be more important in certain market or business conditions and execute on their contingency plans more effectively."

Lin Grensing-Pophal is a freelance writer in Chippewa Falls, Wis.

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