Planning For Uncertainty

By Victor S. Parra, Contributor

I don’t think anyone will argue that the two year-long Pandemic was the most devasting period in the history of the private bus industry. We lost more than half our industry. Prior to the Pandemic, we had more than 3,100 registered private bus operators. In January 2022, that number was down to just over 1,400.

It can truly be classified as a Black Swan event, a totally unanticipated event. If you’ve not read the book, Black Swan, I suggest you pick up a copy. It was written in 2007 by Nassim Nicholas Taleb. “Everyone in the world thought all swans were white,” is the basic premise of the book. The author contends our belief system didn’t allow us to deviate from this idea and so we became susceptible to “rare and unpredictable outlier events.” But then we had to radically adjust our personal belief system when black swans were discovered in Australia.

Based on this premise, you could also argue the 911 terrorist attack and the 2008 banking crisis were both Black Swan events. No one, very few at least, saw them coming.

So, what do you do? How do you plan for something no one anticipates?

This is where scenario planning comes into play. Simply stated, scenarios are real life compelling descriptions of possible/plausible futures. They are not intended to predict or forecast the future but instead cause you to think about the world and marketplace you operate in. They are outside of your control. However, this doesn’t mean you don’t plan for them.

Today, I suspect many plan for fuel price increases by adding escalator clauses to your contracts. Others build flexibility into schedules to allow for accidents and other traffic disruptions. So, to a certain extent, you may already be doing some scenario planning. And given your recent experience with COVID, no doubt you’ve spent some time thinking about what you’d do if this disease rears its ugly head again. And think if there’s no PPP/CERTS program to support you!

Before going further, a word of caution about scenario planning. It can become a very complicated process, involving many different futures with multiple outcomes and many more alternative action plans. These can involve positive outcomes, as well as negative ones. My recommendation is that you keep it simple and start by focusing on just a couple of plausible future outcomes. Then expand beyond once you get comfortable with the process.

For example, as a bus operator doing a significant amount of inbound business, what might happen if the European economy crashes? Or if the dollar increases significantly against the Euro to the point where inbound travel becomes too costly for Europeans? What about travel coming from China, which represents a large chunk of business for West Coast operators? Will the Chinese economy remain strong to support an increase of inbound travel? How might U.S.-China relations impact inbound travel?

…Wait, I know what you’re thinking. “Vic, I just had the best year in the history of my business. I don’t need to think or worry about future business disruptions. I’m doin’ great!”

I suspect our Canadian operator friends were doing well when SARS (Severe Acute Respiratory Syndrome) hit around 2003. At the time, it was an unknown disease. Panic struck and people shied away from bus travel since no one understood what was happening nor how the illness might be transmitted.

I bet no one, or very few, anticipated the collapse of mortgage-backed securities in 2008 that resulted in the demise of great financial institutions like Lehman Brothers and Bear Sterns. These catastrophic events crushed the U.S. and global economies. Again, another unforeseen business disruptor.

As you might imagine, there may be multiple scenarios totally out of your control that can impact your business. The key is to make sure each one represents a logical view of the future. Then, understand thoroughly the many and different ways your business might be affected by each scenario. Lastly, and most importantly, develop actionable plans that probably require the involvement of multiple members of your team.

As you explore each scenario and develop your action plans, you will no doubt uncover critical vulnerabilities of your business. Because these different futures fall outside the realm of your current business and operating plan, these weaknesses don’t show up. The scenario planning exercise provides a framework to address these deficiencies before they become problematic. This is clearly a primary benefit of this exercise, and the subject of a future article.

Let’s explore one possible scenario. As you think about your current operating environment, supply chain disruptions are certainly possible, as we’ve seen in the not-too-distant past. This may be caused by cargo ships running into transport problems, new regulations affecting truck access to ports, strikes by longshoremen, etc. All these can affect your parts supply, drive up your costs, create challenges for your maintenance team, and affect your customers who may get stranded because of a bus breakdown. Plus, the result could be higher inflation that reduces the buying power of your customer base, as well as a host of other ramifications. What kind of plans do you have in place that can be implemented to mitigate the disruptions in your business?

First, you need to understand how your business is affected financially by an increase in operating costs. What kind of adjustments do you make, either to cut costs and/or drive additional revenues? How about your maintenance personnel? Do they have access to additional sources for parts? Can you use refurbished parts? Looking at your history of breakdowns, what parts are most often affected? Do you have an adequate supply of these parts?

How about your customer service personnel? Are they ready to help your customers who have become stranded due to a breakdown? Do you have an agreement with other companies you can count on to rescue these people at the roadside? Does the driver know what to do and how to handle angry customers?

In developing scenarios, you should involve key members of your team, especially frontline employees who deal directly with your customers, such as sales staff and even drivers. They have firsthand knowledge of how different events may impact your business and what strategies you should create to mitigate the damage.

Conversely, you may build a scenario around potential positive futures, such as the Federal Reserve slowing/stopping the increase in interest rates, and maybe even reducing them. Similarly, with a reduction in inflation, how will that affect your business and how will you capitalize on this opportunity? Since the Pandemic, however, I’m sure most are focused on potential negative futures, wanting to be prepared should something just as catastrophic hit our industry again.

Like I said earlier, start simply by identifying two or three possible futures. Use your team to thoroughly examine how they might impact your business and then develop actionable plans (most important!) to deal with these unexpected developments. Once your team better understands the process, they may come to you with other plausible scenarios that you should address.

I wish you well in planning for uncertainty. Please feel free to email me, vparra@strategic-focus.com, with your thoughts and questions about possible scenarios in your company’s future. And, of course, all inquiries will remain confidential.

Victor S. Parra is a retired President and CEO of the United Motorcoach Association (UMA) and currently is Managing Director of Strategic-Focus Advisors, LLC, a consulting firm that works with Corporate Finance Associates (CFA) — a 60+ year old investment bank, providing M&A guidance in the transportation space. Concentration is in the middle market.