claude-skills-reference/c-level-advisor/scenario-war-room/references/scenario-planning.md

Scenario Planning Reference

Shell's Scenario Planning Methodology

Shell invented modern scenario planning in the 1970s after the oil crisis. Core insight: scenarios are not forecasts — they're tools for thinking.

Shell's Principles (adapted for startups)

1. Scenarios are mutually exclusive, collectively exhaustive — they cover the space of possibilities without overlapping
2. 2x2 matrix — pick 2 critical uncertainties (not risks — uncertainties); cross them to get 4 scenarios
3. Name the scenarios — named scenarios are remembered; numbered ones aren't
4. Identify predetermined elements — things that will happen regardless of scenario (regulatory changes, tech trends)
5. Early indicators — each scenario has signals you can monitor today

Shell's 2x2 for Startups

Critical uncertainties for early-stage SaaS:

	Market grows fast	Market grows slow
We raise successfully	"Blue Ocean" — execute hard	"Ramp Carefully" — efficiency focus
We bridge/delay raise	"Scrappy Growth" — ramen profitability	"Survival Mode" — cut to core

Build your war room sessions around whichever quadrant is most relevant right now.

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Monte Carlo Thinking for Startups

Monte Carlo = running thousands of simulations with random variables to understand probability distributions.

You don't need software. Apply the mental model:

The Mental Monte Carlo Process

1. Identify the key variables (3-5 max)
2. Assign ranges — not point estimates
   • CAC: $6K–$12K (uniform distribution)
   • Close rate: 20%–40% (normal, mean 30%)
   • Churn: 5%–20% (right-skewed — bad tail is worse)
3. Run mental scenarios — pick low/mid/high for each
4. Identify the combinations that kill you — which variable combinations make runway hit zero?
5. Focus hedging on the 20% of combinations that account for 80% of kill scenarios

Practical Monte Carlo Heuristic

For revenue forecasting, always state:

• P90 (90% confidence you'll exceed this)
• P50 (median case)
• P10 (only 10% chance you'll exceed this — your "stretch")

Boards respect ranges. Point estimates are usually wrong and make you look naive.

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Pre-Mortem Technique

A pre-mortem asks: "It's 12 months from now. We failed. Why?"

It's the opposite of planning (which asks why you'll succeed). It surfaces hidden risks that optimism suppresses.

Running a Pre-Mortem

Setup:

• Time: 90 minutes
• Participants: leadership team
• Facilitator: neutral (COO, or external)
• Assumption: "It's [date 12 months out]. The company failed / missed its major goal. This is real."

Phase 1 — Silence (10 minutes): Each person writes their top 3 reasons the failure happened. No discussion.

Phase 2 — Round Robin (30 minutes): Each person shares one reason per turn. Facilitator captures on whiteboard. No debate yet.

Phase 3 — Cluster (20 minutes): Group similar causes. Identify the top 5 clusters.

Phase 4 — Probability & Impact (20 minutes): For each cluster: P(likely) × impact = risk score. Rank.

Phase 5 — Mitigation (10 minutes): Top 3 risks: what one action would most reduce each?

Pre-Mortem Prompt Variants

• "It's March 2027. We ran out of money. Why?"
• "It's Q4. We lost 3 enterprise customers in 60 days. What happened?"
• "It's next year. Our top competitor took 40% of the market. How?"
• "It's 18 months from now. Half the engineering team left. What triggered it?"

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Cascade Effect Mapping

Cascades are where most startups get surprised. The first hit is expected — the second and third aren't.

Cascade Mapping Format

Draw as a chain:

INITIAL EVENT
    ↓ [immediate effect: domain, severity, timeline]
SECONDARY EFFECT
    ↓ [cascade mechanism: how A causes B]
TERTIARY EFFECT
    ↓ [cascade mechanism]
END STATE [runway impact, ARR impact, team impact]

Common Cascade Patterns

Revenue → Cash → People:

Customer churns ($400K ARR)
    ↓ CFO: runway drops 14→9 months; bridge needed
    ↓ CHRO: hiring freeze; morale drops; attrition risk
    ↓ CTO: roadmap slips; key engineers leave for certainty
    ↓ CPO: product quality drops; more churn risk
    ↓ CRO: harder to win new logos without product velocity
END STATE: Death spiral if not interrupted at step 2

Fundraise → Operations → Product:

Fundraise delayed 6 months
    ↓ CFO: bridge at unfavorable terms; equity dilution
    ↓ COO: freeze all non-essential spend; process degrades
    ↓ CPO: roadmap cut to 40% of planned scope
    ↓ CTO: no infra investment; tech debt accelerates
    ↓ CRO: product gaps start losing deals to feature-complete competitors
END STATE: Weaker position at next raise; lower valuation

People → Product → Revenue:

Lead engineer + 2 seniors leave (30% of eng team)
    ↓ CTO: velocity drops 50%; critical features slip Q3→Q4
    ↓ CPO: Q4 launch cancelled; roadmap confidence collapses
    ↓ CRO: 3 enterprise deals cite product timeline → delays/losses
    ↓ CFO: $600K pipeline at risk; raises needed earlier
END STATE: Fundraise from position of weakness; team morale spiral

Identifying Cascade Break Points

Every cascade has a point where intervention is cheapest. Find it:

• Step 1: Very expensive to prevent (existential)
• Step 2: Moderate cost (management action)
• Step 3: Cheap (early signal response)

Always try to interrupt at Step 2 or earlier.

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Trigger-Based Contingency Plans

Triggers are measurable signals you commit to acting on before the scenario fully materializes.

Trigger Design Principles

1. Measurable — not "things look bad" but "cash below $800K"
2. Leading, not lagging — triggers should fire 60-90 days before the crisis
3. Pre-committed responses — when trigger fires, the action is already decided
4. Owner assigned — who watches for this trigger?

Trigger Examples

Cash / Runway:

Trigger: Cash drops below $1M (or runway < 6 months)
Pre-committed response:
  - CFO: activate credit line within 48 hours
  - CEO: begin bridge conversations with existing investors
  - COO: implement 20% spend reduction plan (already drafted)
Owner: CFO (weekly cash report to CEO)

Customer Health:

Trigger: Any customer >10% ARR shows 3 of: [sponsor gone dark, usage -25%, 
         no renewal discussion by 90 days before contract end, missed QBR]
Pre-committed response:
  - CRO: executive escalation call within 48 hours
  - CPO: product health review scheduled
  - CEO: direct outreach if escalation fails
Owner: CRO (health score dashboard, weekly)

Fundraise:

Trigger: <3 term sheets after 8 weeks of active process
Pre-committed response:
  - CEO: expand process to 10 additional firms
  - CFO: model bridge scenarios; draft bridge terms
  - COO: prepare 90-day cost reduction plan
Owner: CEO (weekly fundraise status)

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How Many Scenarios to Model

Answer: 3-4 max per planning cycle.

The math: 3 scenarios × 6 domains × 3 severity levels = 54 combinations. That's already overwhelming. More scenarios don't improve decisions — they paralyze them.

The Right 3-4 Scenarios

1. Most likely adverse scenario — what actually keeps you up at night
2. Market/macro scenario — something outside your control
3. Black swan — low probability, existential if it hits
4. Compound scenario — your top 2 adverse events happening simultaneously

What Kills Scenario Planning

• Too many scenarios — decision paralysis
• Only modeling what's comfortable — survivorship bias
• No pre-committed responses — it's just worry, not planning
• Not revisiting — scenarios from 12 months ago are often irrelevant
• Treating scenarios as forecasts — they're possibilities, not predictions
• Confusing risk with uncertainty — risk has known probabilities; uncertainty doesn't