Why You Should Spend More Time Thinking About Scenario Planning

Lisa Bodell suggests a very simple question for business leaders to ask: What could put us out of business in 2024? Get people from all levels of the business to ponder the different ways the company might drive (or be driven) off a cliff. It might be global political events, natural disasters, unexpected moves by a competitor, or a failure of your supply chain. China invading Taiwan, perhaps? A rogue state uses a nuclear weapon. Your entire global IT system is crippled in a ransomware attack. An employee leak exposes a scandal within your business, triggering a wave of customer and supplier cancellations.  Not to mention the steady stream of natural disasters, from floods to fires and everything in between.

The point is to ask your staff where your business might have major weaknesses, pay attention to the most threatening scenarios, and figure out which of those threats are relatively easy to fix. Not only is this cathartic for many employees, but it may also save your business from the worst effects of an actual crisis.

The legal team can play an important part in supporting any scenario planning exercise. For example, going into any brainstorming exercise, it is helpful to know which countries your business is exposed to, in terms of the number of customers and suppliers in different places, and whether you’ve committed to any exclusive relationships. It may also help to know which currencies you’ve agreed to support and whether spending and pricing is contractually locked in or flexible, for you and your customers. These are all things that can be answered quickly and painlessly if you have good contract analytics. Otherwise, you’re often speculating.

Similarly, as you come out of scenario planning, there may be new risks and events that you need to mitigate. Contracts are not the only tool for doing this, but they are an important tool. Cyber-risk, for example, was the top concern in the 2023 Allianz Risk Barometer, which means many companies may want to strengthen their cyber incident compliance and reporting obligations, especially in your supplier agreements. Similarly, if a conflict in Taiwan would disrupt your supply chain for certain vital components, could you make it a contractual requirement for suppliers to maintain larger stockpiles of those components as a buffer to keep operations up and running? Or should you negotiate exceptions to any exclusive supply agreements for vendors in high-risk countries?

Without contract analytics, legal teams are forced to reply upon anecdotal evidence about what the contract portfolio might say about various major risks. With modern contract analytics you have fingertip access to measurable data on these risks. If there’s a military blockade of Taiwanese trade, how long would force majeure protect you from the disruption? If most of your clauses say that after 30 days anyone can terminate, but you think you’ll need 90 days to re-shape operations, then now would be a good time to negotiate new terms for those contracts.

For anyone tackling scenario planning, contract analytics is a simple yet powerful tool. As each possible threat is considered, legal can chime in with quick and reliable estimates of how extensive a risk is, what contractual rights and restrictions might apply to each scenario, and how much effort might be required to amend existing agreements to better manage key risks. It’s not the only contribution legal will make, but being able to run quick queries across thousands of contract terms is a vital piece of scenario risk analysis. And this is one of the reasons we built Catylex Contract Analytics. For a taste of real-time contract risk analysis, try it yourself: the first 60 docs are free.