Today, uncertainty plagues the world of business. But the typical business responses to uncertainty—defensive strategies and reducing or holding back investment—can be detrimental for future growth. This article shows how businesses can effectively deal with uncertainty using a scenario planning approach. It shows how using MODLR, you can evaluate the potential impact of various scenarios and strategic options. 

• Introduction
  • The Entire World in Disarray
  • Global Growth on a Downward Trajectory
  • Retaliatory Tariffs & Implications
  • Reconfiguration of Global Trade Patterns
• When Businesses Face Uncertainty
• So What Can Your Business Do?
  • Achieving strategic flexibility
• What is Scenario Planning?
• Getting Started with Scenario Planning
• Step 1: Define key uncertainties and drivers of uncertainty
• Step 2: Select the most critical uncertainties as drivers for your scenarios
• Step 3: Create a number of potential scenarios around critical uncertainties
  • Possible Approaches to Scenario Planning
  • Going with just three scenarios
  • Using two key uncertainties
  • More Complex Scenario Exercises
• Step 4: Create a grid around your key uncertainties
  • Tariff rate scenarios
  • Demand for your products and services
• Step 5: Fill in the grid - Tariff levels vs demand
• Step 6: Strategize beyond the grid
• How MODLR Can Help with Scenario Planning
• Do you need more information from MODLR?

Scale of uncertainty for businesses is escalating, Typically, when faced with uncertainty, businesses hesitate to make decisions, reduce or hold back investments, and seek to protect themselves with defensive strategies and lower their risk tolerance thresholds. Such responses can impact business growth and value over time. Instead let us explore how we can use scenario planning to consider multiple potential futures and prepare strategic responses for each of them. Then, come what may, regardless of your business size and industry sector, your business too will be prepared, like the Boy Scouts.   

Here’s a video for CEOs and Boards that talks about the need to be prepared. Watch the video by Washington Post Intelligence’s Lead Global Security Analyst, Josh Rogin and that should convince you why scenario planning is worth the trouble. 

The United States is known for many things. But spurring uncertainty on a global scale isn’t one of them. However, things changed early in April 2025, when President Donald Trump unveiled his plans for “reciprocal tariffs” on countries across the globe and steered the helm of the US government in unpredictable directions. US businesses and businesses in countries that trade with the US were in a quandary overnight. 

Although everyone should have seen it coming, because President-Elect, Trump had “threatened” tariffs, no one took it seriously; nor expected things to go this far. Now everyone knows better. 

In the aftermath, some businesses braced for price increases while others prepared for layoffs. Some businesses said they were unable to make plans. 

Higher prices in the US for imported goods will likely see a drop in demand. US exports, meanwhile, become more expensive abroad, due to retaliatory tariffs, making it more difficult for American companies to compete in the global market. 

A look at April news headlines anywhere in the world, makes it amply clear how the new tariffs, have contributed to the heightened uncertainty. The World Economic Forum created a visualisation of the new US trade restrictions where clicking on your country tells you the applicable tax rates, excluding the sector specific tariffs on cars, steel, energy and pharmaceuticals. But this is already old!

Global stock and bond markets have also taken a hit from the disruptions.

The International Moneraty Fund’s (IMF’s) World Economic Outlook, which projected global growth in its January 2025 update—at 3.3 percent in both 2025 and 2026—says in its most recent (April) update that “global growth is expected to decline and downside risks to intensify as major policy shifts unfold”.

More recently, World Bank’s  latest Global Economic Prospects report released on June 10, 2025 says that “heightened trade tensions and policy uncertainty are expected to drive global growth down this year to its slowest pace since 2008 outside of outright global recessions.” The turmoil has led to cuts in growth forecasts for nearly 70% of economies around the world. Although the report says that “A global recession is not expected,” it states that, nevertheless, should these forecasts materialize, the “average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s.” 

Reflecting Newton's third law, which states that for every action there is an equal and opposite reaction, key trading partners, China, Canada and the European Union, responded with their own retaliatory measures on imports from the US. At the time of writing (24 April 2025), the US president says it ‘depends on China’ when tariffs come down, while China says there are no negotiations with the US over tariffs.

The policy shifts continue to unfold, and no one knows where the end is. 

Tax Foundation’s article on Trump Tariffs: The Economic Impact of the Trump Trade War is a thorough read for businesses from any nation, including the US. 

Trump tariffs on China have been brought down, but the shocks to the financial systems and the impacts on trade remain, albeit on a lesser scale. However, the thinking behind it, the consequences (for winners and losers), and thoughts on how to be prepared are evergreen. 

And these policies will change global trade patterns. 

Policy changes in the US and elsewhere have led to a reconfiguration in global trade patterns. Some countries seek to reduce reliance on the US market through diversifying their export markets and finding new trading partners. This has paved the way for new trade agreements and alliances that may have long-term impacts on the global economy. These changes have resulted in shifting the relative competitiveness of many nations. New alliances and agreements being formed in the world trade could have long-term implications for the global economy.

The bottom line is more uncertainty!

In a 15 May interview, Jamie Dimon, the CEO of JPMorgan Chase told CNBC that there is still “uncertainty” on the tariff front, but the pauses are a positive for the economy and market. The idea of a potential US recession is still on the table. 

Then came the Israel-Iran war with short term fuel price hikes and other longer lasing economic implications. 

From the second week of July 2025, the US began announcing new tariff rates and imposing steep tariffs on imported drugs and copper, among other things. 

Chaos and confusion. That is how things are going to be. How things stand and the tariffs may change again tomorrow, next week or next month. Keep track on live updates from Yahoo Finance.

What do we do now? How can your business be prepared? How can you plan for the future when so many factors are in constant flux. 

Source: Management Weekly

Since tariffs have become a key uncertainty for many businesses worldwide, let us take that as an example to demonstrate the scenario planning process. 

• Tariffs, tariffs,  tariffs and constant policy shifts. In the current global business environment, US tariffs on goods exported and which way they will go for each country, industry and class of goods is a key driver of uncertainty.

How the US keeps changing its stance, in line with the President's penchant for deal making is also driving uncertainty. Retaliatory tariffs, trying to cut deals, and issuing suspensions for certain industries, products, and nations are a key factor.

• Retaliatory responses are another driver of uncertainty are the retaliatory responses of the US's key trading partners like China, Canada, and the European Union. Others, like Japan, Vietnam and South Korea are taking a more conciliatory approach, as are many dozens of smaller nations that have little clout.
• Collateral damage including shifts in global trade patterns. How actions by the key trading partners of the US, like China, Canada and EU, can impact their trading partners around the globe. Think of this as collateral damage. 

For example, if Sri Lanka is hit with a 40% retaliatory tariff, its garments, tea and other exports to the US become more expensive in the US. The demand for them among US consumers would drop significantly.  What will some of the US buyers—both wholesalers and retailers—do then? Some would immediately try to source goods from nations with lower tariff burdens. Some Sri Lankan garment operators already have manufacturing facilities in places like Bangladesh and the African continent and would likely shift their production to those nations, seeking lower US tariffs for their goods hitting the US shores. 

China's manufacturers previously targeting the US market, would seek markets elsewhere, likely creating havoc in those markets for local manufacturers. The sheer volumes of Chinese goods coming in at lower, highly competitive prices, local manufacturers will be thrown into crisis mode. 

As a result of all this, global trade routes are also shifting, as we discussed earlier.

All of these factors and more can influence your business, your industry, and your country. And some of the impacts would be temporary, while others may have long term, strategic implications.

But the scenario planning considers the most important drivers among them, and make these the axes for your potential scenarios.

Let us get more specific. If you are merely looking at how your business can survive the uncertainties brought on by tariffs and their consequences, you want to look at:

• How tariffs are impacting your exports (to the US). This means looking at the specific rates applicable to the country overall, and what exemptions and specific rates are applicable to your industry, and product categories.
• Which way tariffs move. Since the US stance on these rates is anything but stable, you want to imagine which way tariffs will move (This uncertainty is a driving factor around which your scenarios will be built on.)

But you can't just leave it at that. You also need to know: 

• Potential actions of US trading partners. What are the other key trading partner countries of the US, including your country, doing in terms of conciliation or retaliation. This is a key factor. 
• How your imports from the US will be taxed. You need to consider whether your country takes a stance of negotiation to maintain the status quo or whether like Canada and China, your government is looking at potential retaliatory measures.
• What impacts will a global recession have on your local and export markets? When the US sneezes, the world catches a cold. So we do not know when a US recession may result in a global recession. As noted earlier, things are already trending in that direction. 
• If an when a global recession comes, what impact will it have on your local and export markets? Whether a recession is on the way is also an uncertainty. 
• Whether there is a global recession, no recession or a soft landing, it is still a lesser uncertainty because, unless you are a new business, you already know what is likely to happen during a recession.
  • When economic activity contracts, it leads to job losses which in turn reduces consumer spending and thus the demand for certain goods.
  • Cost of sales may increase at the same time due to tariffs and as a result of lower business volumes and productivity. 
  • Businesses tighten their belts and go into survival mode, abandoning projects aimed at business growth. 
  • You may have to let go some of your staff.
  • Banks become more cautious about lending, which makes it difficult to get additional credit facilities.

In the end, the critical uncertainty is what happens to the demand for your goods in the coming months and year. So we will use demand uncertainty as a key factor when building our scenarios. 

In scenario planning, you will create a number of potential scenarios. Usually you can have a baseline scenario together with best case and worst case scenarios.