Planning under uncertainty:

Manageable by means of robustness and flexibility?


Planning under uncertainty
–  a problem as old as the Ancient Greeks

 „ The key is not to predict the future but to prepare for it.“

(Perikles –  a leading statesman of Athens and Ancient Greece  in 500 b.c)

Planning means making decisions that are focused on the future. Even if we cannot predict the future, it is possible to prepare for it and focus your (business) planning on it. In particular, an essential aspect of strategic planning is the high uncertainty this involves. Whether it’s investment, financial or production planning: Strategic decisions can have a long-term effect on your business success because of the long-term planning horizon Often, these decisions involve making large investments which cannot be easily undone – at least not without incurring high costs in the process.

This could all be averted by means of robust and flexible planning, couldn’t it? Let’s first take a look at planning under uncertainty and see how we can deal with it…

Plannning under uncertainty? Confront scenarios

Uncertainty exists when several future developments are possible but we cannot say with absolute certainty how the future will develop. How does this affect planning in practice? Which uncertainties can arise, e.g. in network planning?

Uncertainties in business planning could be:

  • Changes in the demand structure and volume (e.g. because of alternative product offers in the market)
  •  Market price fluctuations
  • Resource and capacity bottlenecks
  • Exchange rate fluctuation

Of course, the number of uncertainties is far higher and the more we know, the better. In turn, a lack of information also presents us with an uncertainty. One way of demonstrating this large number of uncertainties in planning is by using scenarios. (what-if analyses).

Scenarios contain relevant data for analysis and optimization. Just like in a sandbox you can take a look at what happens if one thing or another changes and the effects become clear immediately. This enables the analysis of countless scenarios and gives the planner a better planning basis to develop suitable strategies and decisions.

Robust and flexible planning

Strategic planning, which contains enough flexibility and robustness can minimize risks and increase your chances.

With a robust planning strategy, making the wrong decisions can very likely be avoided. One example to demonstrate this would be: avoiding the interruption of a supply chain: High stocks guarantee a continuation in production, even with delivery bottlenecks – and so they don’t jeopardize your planning. Yet risky chances are ignored here, too.

With a robust planning strategy, it is highly likely that the wrong decisions can be avoided, for instance avoiding the interruption of a suppply chain: high stocks guarantee a continuation in production, even with delivery bottlenecks, and so they don’t jeopardize your planning. Yet, here, too, risky chances are ignored.

A flexibility strategy in production planning, to react to a change in demand, for instance, could be to invest in machines which can process various products instead of special machines for only one product. This may be an expensive procurement but it gives you the possibility to react to a changed future at short notice; in other words, to be flexible. A fast repetition of your planning in consideration of a change in environmental influences helps a business to be flexible in its planning. The advantages are fast and easy implementation.

 Make the right planning decisions with OPTANO

The advantages of scenarios when planning under uncertainty have already been made clear. This is where OPTANO comes in: With this optimization platform, planners can create “what-if scenarios”. Alongside the operative questions in production planning (general and detailed planning), OPTANO can also be deployed for investment problems and long-term order planning. It is also possible to test changes to production plans when product demand or market situations change. Expansions into other markets and product differentiations thus become plannable –  thanks to a better planning basis.

Read more on OPTANO and scenarios in our blog What-if scenarios in production planning

OPTANO – helping you to recognize chances and risks

To sum up:  When planning under uncertainty, it’s always a matter of weighing up the chances and risks.

An optimization system such as OPTANO cannot show you the “right” solution but, with the aid of pareto-optimization,there is a reasonable scope for decision-making with various chance-risk ratios –  because a simultaneous optimization of all targets often isn’t possible.

We can compare this with an investment in a financial product where you have to decide between shares on the one hand (high chance, high risk) and federal savings notes on the other (low chance, low risk)

However, the decision as to which planning process is the right one still remains a management decision which is focused on company strategy (and, as  was the case in Ancient Greece, the decision of leading statesmen such as Perikles).