Assumption Based Planning
From GTwM
Assumption-based Planning (ABP) is a technique to reduce the effect of unintended consequences when planning. Although the technique has its roots in high-level strategic activities such as military planning, it is also directly applicable to systems development activities. There are also interesting links between the techniques in ABP and between scenario-based software development. Most business planning methods or books about “how to write a business plan” do indicate that you have to write down your financial assumptions at the end of your plan. Few works however actually support you to actively plan and monitor the validation of these assumptions. Assumption planning does just that.
Contents |
ABP Principles
Once a plan has been written, the ABP team identifies those assumptions made during the planning process that are those most likely to being overturned and derail the plan, to the detriment of the organisation concerned.
Dewar suggests the following ways of finding assumptions:
- Using conventional brainstorming techniques;
- Examining current corporate goals and values;
- Investigating corporate traditions – “we’ve always done it this way”;
- Examining the actions in the plan and identifying those that do not have associated assumptions – these so-called “orphan” actions are often based on undocumented assumptions.
The author also stresses that the more detailed an assumption is, the more useful it is in the ABP process. High-level assumptions such as “interest rates will remain below 5%” are more difficult to mitigate than the more detailed “as a result of low interest rates, consumers will continue to have disposable income that is higher than the historical average”.
Once a list of assumptions has been obtained, the next step is to identify which of these are
- load-bearing (ie those that if they fail, they will jeopardise the plan); and also
- vulnerable (ie those that are likely to fail within the lifetime of the plan).
Once a list of load-bearing, vulnerable assumptions has been documented, then each assumption is given a signpost – an event or measure that, when reached, indicates that the assumption has failed.
Dewar then identifies two types of actions that will help improve the original plan:
- shaping actions - put in place to shore up the assumptions identified; and
- hedging actions - put in place to mitigate against the assumption failing.
Hence, if the shaping actions failed to bolster the assumption sufficiently and the assumption fails, the hedging actions ensure that the plan has a greater chance of survival.
Example
Consider the following situation:
Paul and Harvey, two experienced entrepreneurs, are planning to start a new company, which is going to sell a glow-in-the-dark shampoo. During the business planning process they give a description of the potential customer base and the size of the market for their product. They write down the number of people that could buy their glow-in-the-dark shampoo and the number of bottles they hope to sell to each customer.
The claims about the market made by Paul and Harvey are assumptions, based on a combination of gut feeling, market research and maybe some information gathered out of past experiences of both entrepreneurs. In order to avoid surprises Paul and Harvey take assumption based planning to hand and start asking themselves the following questions:
- How are we going to prove that there exists a customer base of more than 2 million people? And what is a clear sign that there actually are more than 2 million people, to whom we could sell our shampoo?
- What proves that the average customer will use a bottle of glow-in-dark shampoo per 3 months? How are we going to test that? What if the test proves us wrong?
- What are we going to do if we’re not certain about the size of the market by the end of September next year?
- We assume that there the product is not very sensitive to the consumer price, how can we show that we’re right?
Sometimes the mere identification of assumptions immediately leads to a change in the business plan. It is for that reason that ABP should be strongly interwoven into the whole business planning process.
Links with Systems Development Techniques
One of the most interesting things about this book is the link between ABP and other modern systems development practises and techniques such as Prince2 and scenario-based development.
Much of what the author says can be applied to the planning and risk management techniques in project management frameworks such as PRINCE2.
There are some subtle differences, though. It is worth noting that ABP “hedging actions” are not the same as PRINCE2 “contingency actions”: hedging actions are taken before an assumption breaks; contingency actions are those that would be triggered after an assumption breaks.
Dewar sees the construction of scenarios as the main technique in developing hedging actions. He defines “scenario” as “internally consistent and challenging descriptions of possible futures”.
In ABP, scenarios are used to develop hedging actions by envisioning a future state and then to plot the path from the current state from the future state. Dewar states that they must be:
- credible (ie believable) to the community for which ABP is targeted;
- have sufficient detail from which hedging actions can be generated.
This echoes the increasing popularity in scenario-based approaches to systems development – the most popular of which are Use Cases.
In addition, scenarios can be used in other parts of the ABP process, most notably to identify signposts and to generate shaping actions.
Other Methods
TThere are a couple of different assumption based planning methods available, among others:
Each of these methods has a different goal, but they share their intent to prepare managers for surprises and improve the robustness and adaptability of business plans. Table 1 summarizes the goals of the assumption based planning methods listed above.
| Method | Goal |
| Critical assumption planning by D. Dunham & Co. | To help managers and entrepreneurs to maximize business development learning at least cost by means of challenging and testing assumptions. |
| Discovery-driven planning by McGrath and MacMillan | Raising the visibility of the make-or-break uncertainties common to new ventures at the lowest possible cost by means of forcing managers to articulate what they don’t know. |
| Assumption-based planning by RAND | To identify the critical assumptions underlying an organization’s thinking and operations, and then to understand which of those assumptions may become vulnerable and how. |
References
McGrath, R. G. and I. C. MacMillan (1995). Discovery-Driven Planning. Harvard Business Review.
Sykes, H. B. and D. Dunham (1995). "Critical assumption planning: A practical tool for managing business development risk." Journal of Business Venturing 10(6): 413-424.
Dewar, J.A., Builder C.H., et al. (1993) "Assumption-Based Planning: A Planning Tool for Very Uncertain Times", Santa Monica, RAND. Also available as a free download from [1] (Link checked April 13, 2006)
Dewar, J.A. (2002) "Assumption-Based Planning: A Tool for Reducing Avoidable surprises", Cambridge UK, Cambridge Press.
