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84 Strategic Planning in the Airport Industry diversity are also very strong. Nonairline revenues account for approximately 50 percent of all airport revenues. Weaknesses The airport's customer satisfaction rankings are low. The number and variety of conces- sions, terminal cleanliness, and staff courtesy are at issue. These issues need to be resolved for our airport to be able to thrive against its competitors. The organization has no established strategic direction, and employee morale is low. Opportunities The introduction of very light jets (VLJs) could lead to increased general aviation activity at the airport. We could begin marketing our services to VLJ operators. The City will host the Olympic Games in 4 years. Our terminal modernization program may need to be fast-tracked to meet the needs of the volume of travelers that will be visiting then. The airport service region's economy is booming, leading to increased disposable income. Numbers of enplaned passengers are likely to increase, and opportunities may exist to increase non-aeronautical revenues. Threats Increasing gas prices will reduce flight training operations at the airport. Aeronautical rev- enues are likely to decrease in the coming years. The local government will likely require the airport to be financially self-sufficient by 2010. There is a need to develop a financial plan that includes aiming to get off the tax rolls by using revenues to invest in income-producing capital improvements. Using the outcomes of the Internal Assessment (Worksheet 6.01), Competitor Benchmarking Analysis (Worksheet 6.02), and External Opportunities and Threat Identification (Worksheet 6.03) worksheets, the planning team should develop the matrix included in Worksheet 6.04, "SWOT Matrix." 6.3 Tools to Assess the Future of the Organization and Formulate Strategies This section provides a summary of the tools available to assess the future of the organiza- tion and the potential uncertainties that may positively or negatively affect its operations. These tools are generally used to complement the other components (internal assessment, competi- tor and peer group analysis, and external threats and opportunities assessment) of the external environment scan. 6.3.1 Scenario Planning Scenario planning is a systematic approach to imagining future scenarios. Each scenario tells a different story of how the future might unfold and how critical elements might interact. The main objective in developing scenarios is to reduce the risks related to strategic direction through the evaluation of potential developments that may adversely affect strategy implementation. Examples of "what if" scenarios applicable to the airport industry include the following: The airport's primary airline is applying for Chapter 11 bankruptcy protection. Two of the airport's primary airlines are consolidating their operations. A major hurricane is expected to hit the airport. Passenger traffic is expected to decrease 10 percent next year.

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Scanning the Environment and Predicting Developments 85 CASE STUDY Conducting a Scenario Analysis--Dallas/Fort Worth International Airport The executive management team at Dallas/Fort Worth International Airport (the Airport) engaged in a scenario planning exercise as part of the process of developing the most recent strategic plan for the Airport, which was completed in late 2007.a Scenario planning was con- ducted as part of a SWOT analysis in which the executive management team looked at competing North Amer- ican airports and the potential impact of airline consolidation on operations at the Airport. An air service consultant provided the Airport's executive management team with three potential airline con- solidation scenarios. The executive management team concluded that the Airport would not be significantly affected by any of the three consolidation scenarios. Therefore, the direct impact of the scenario analysis on the strategies and objectives contained in the plan was minimal. However, the analysis highlighted the Airport's dependency on American Airlines and the fact that American's fleet will have limited growth for the foreseeable future (which will limit growth opportunities for the airline at the Airport). As a result of this understanding, one of the main strategic objectives included in the strategic plan is the following: "Grow profitability of non-passenger-dependent businesses that achieve the established financial returns." By setting the objective to increase the profitability of non-passenger-dependent businesses, such as commercial development (including hotels) and natural gas exploration, the Airport's revenue stream should eventually be less influenced by year-to-year airline network planning decisions. a Dallas/Fort Worth International Airport's most recent strategic plan is available online at www.dfwairport.com/about/pdf/publications/ 14816_DFWAIR_STRATEGIC_PLAN_012508_resize.pdf (accessed May 28, 2009). To conduct the scenario planning analysis, the planning team should organize one or more workshops with department leaders and senior management. At times, external or internal stakeholders may also participate in the workshop(s). The intent is to bring together a wide range of perspectives to consider scenarios other than the widely accepted forecasts. Depart- ment leaders should participate because later they will formulate and implement strategies based on the scenarios. 6.3.1.1 The Process The objective of scenario planning is to apply sound data and analytical methods to a base case and alternative growth scenarios for the organization to demonstrate how different growth pat- terns would affect airport(s) operations, such as traffic congestion, rates and charges, level of services, and the like. Scenario planning is also used to inform and facilitate the dialogue among stakeholders regarding the long-term vision for the organization. Steps in scenario planning are the following: Step 1: Determine the specific decision (focal issue) to be analyzed or whether the workshop will be used to test the robustness of strategies across broad-ranging global scenarios. Step 2: Identify the key factors that affect the focal issue. Step 3: Identify the political, economic, social, and technological forces driving the key factors. Step 4: Determine the two environmental factors that have the largest impact on the organi- zation and are the most uncertain. Make future uncertainties explicit and transparent and try to account for unpredictable events. Step 5: Develop different future scenarios (probable, possible, plausible, and less probable).

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86 Strategic Planning in the Airport Industry Step 6: Assess the implications of each scenario for the organization and determine what could be done differently in each scenario. Step 7: Select leading indicators and signposts for each scenario and set up a process for mon- itoring them. As a 2004 issue of Business HR advises, "Monitoring these indicators will allow [an organization] to know what the future holds . . . and how that future is likely to affect strategies and decisions in the [organization]. If the scenarios have been carefully developed, then the scenarios will be able to translate movements of few key indicators into an orderly set of [organization]-specific implications."75 6.3.1.2 Benefits The benefits of scenario planning are as follows: Assessing the vulnerabilities of a given strategy and recognizing the need for clear alternative strategies Enabling the planning team to quickly alter course in response to changes in the business environment Providing an opportunity to rehearse potential changes in advance of the scenario occurring, thereby enabling the organization to react quickly if the scenario occurs Changing the mental map of senior executives Helping to align views and create a common language within a team Helping to foster "out-of-the-box" thinking Facilitating an ongoing strategic conversation Worksheet 6.05, "Scenario Planning," will help the planning team identify types of driving forces that could affect the organization's future, define potential effects on the organization, and summarize potential conditions for the organi- zation under each scenario. 6.3.2 The Delphi Technique The planning team can also use the Delphi Technique to analyze a specific trend or emerging event. This technique can be used in tandem with identifying scenarios or with elements of a SWOT analysis. The Delphi Technique consists of brainstorming sessions conducted in a series of rounds. The basic idea of a Delphi survey is to interview experts on a set of alternatives or strate- gies. A set of questions is associated with alternatives or strategies, such as the estimated degree of importance, the expected time of realization, and the type of constraints.76 In the first round, the panel of experts is asked their opinions on the topics and asked to independently rank the alter- natives according to their likelihood of occurrence. The opinions of all participants are then sum- marized and presented to these same participants. The participants are then asked to develop new thoughts and judgments on the topic and provide a second ranking, still working independently. This second round provides the participants with an opportunity to change their original opin- 75 "Future Scenario Planning: A Powerful Top Management Tool for Strategizing," Business HR: People Practices at Work, Issue 11 (December 2004). Available at www.naukri.com/mailers/bhr/151204/strategies.html (accessed May 28, 2009). 76 Kerstin Cuhls, "Foresight with Delphi Surveys in Japan," Technology Analysis & Strategic Management, Vol. 13, No. 4 (2001).

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Scanning the Environment and Predicting Developments 87 ions or stay with them and explain why. This process may continue for several rounds to revamp ideas and summarize thoughts. In the end, the group comes to a consensus on the topic.77 6.3.3 Business War-Gaming War-gaming has been used by the military as a standard training tool to prepare officers for real situations and to simulate battlefield conditions. Drawing on the military experience, com- mercial war-gaming simulates a set of business conditions and challenges executives may face in designing successful strategies that evolve with the changing nature of the environment. Because war-gaming can be a valuable process to support planning and decision-making in the airport industry, the concept of business war-gaming and the ways that war games may help a planning team deal with future uncertainties are discussed in this section. 6.3.3.1 The Process The war game process forces a rigorous examination of a situation from several different perspectives, not just the perspective of the organization sponsoring the war game. Through examining alternative perspectives, some of them hostile, the organization learns to recognize opportunities and threats that would never have been noticed using an "inside out" approach. War games are most often conducted at two points in an organization's planning process. At the outset of the planning process, a war game can be especially helpful in converting data and information about an organization's markets, channels, competitors, and so forth, into action- able intelligence that will be used in subsequent planning. Alternatively, after a basic plan has been developed, a war game can be conducted to test whether the plan is robust enough to suc- ceed in any realistic combination of events or actions. War-gaming offers a dynamic, simulated, real-world environment in which to test an organi- zation's strategy. However, the war game must be set up specifically for each situation. The process for conducting strategic simulation is summarized below. Before the war game simulation can occur, a game book must be prepared that provides (1) profiles of all stakeholders represented in the game, including information on strategy, finan- cial performance, business activities, service offerings, and strengths and weaknesses and (2) an overview of the current environmental situation, including information on the past and present industry landscape and future projections. Once the characteristics of the stakeholders and the environment of the game have been estab- lished, the players must be set up to act as passengers, tenants, employees, and others in the mar- ket. The planning team will execute the strategy to be tested, and the players acting as passengers and tenants will simulate passenger and tenant reactions to the strategy. A market team will sim- ulate market reactions. A control team will monitor and evaluate the simulation, determining external shocks and assessing the impacts of actions taken by the teams playing the game. (Exter- nal shocks are interventions that force different teams to address certain topics or move in a cer- tain direction. In an airport setting, external shocks could include the announcement of an airline merger or emerging concerns about the construction timing for a major project, such as a passenger terminal.) Once the game starts, the players play the simulation, starting with the current strategy and adjusting it to the changing environment move by move to test the quality of the strategy. This 77 Subhash. C. Jain, "Environmental Scanning in U.S. Corporations," Long Range Planning, Vol. 17, No. 2 (April 1984): 117128.

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88 Strategic Planning in the Airport Industry should be done in light of market acceptance and customer reactions and in light of unexpected dynamic changes in the market (e.g., based on external shocks). Following the simulation is a debriefing session in which lessons learned are summarized and strategy is adjusted according to new insights. 6.3.3.2 Benefits and Drawbacks As noted in the Journal of the Association for Business Simulation and Experiential Learning, the benefits and drawbacks associated with war-gaming include the following:78 Benefits The game allows sufficient control so as to ensure internal validity while at the same time being sufficiently realistic so as to have some external validity. The simulated environment removes the sensitivity associated with the problem area. The game allows for high participant involvement. The game permits the simulation of complex decision processes. The game fosters a relationship between and among participants. The planning team can analyze a number of situational variables to explore the dynamic interaction and impact of those variables on the organization's proposed strategic plan. The shift-in-time perspective allows participants to avoid a sole emphasis on short-term results. The game allows for far greater control because it is possible to make certain that situations arise (e.g., higher fuel prices and lower passenger demand and airline change to networks and capacity). Drawbacks There is a lack of resemblance to the real organization and participants are aware that they are participating in a "game." There is a relative lack of control of the participants' status in the game. The participant's status at any given time is a function of his/her previous decisions, as well as the starting conditions. The game may result in vastly different perceptions of the manipulation. 6.3.4 Risk Analysis Risk is associated with events or conditions that could have a positive or negative effect on an organization's objective if they occur. Risk analysis consists of risk identification and risk evalu- ation. The process of conducting a risk analysis mainly consists of the following: Identifying and describing all relevant risk issues and types from all areas of the organization, such as management, finance, procurement, quality management, and information technology. Evaluating all risks identified according to probability and effect and considering potential mitigation actions. Prioritizing and plotting risks on a risk map (as illustrated in Exhibit 6-4). A risk map priori- tizes each risk according to its potential impact (significance) and probability (likelihood). The map is generated by plotting the risk significance on the horizontal axis and the risk prob- ability on the vertical axis. Positions in the map help prioritize the risks and indicate the level of concern and attention which should be directed toward mitigating that risk given the poten- tial impact on the organization's ability to accomplish its vision. Risks above the bold line are both significant in consequence and likely to occur. Risks below the bold line, on the other hand, are less likely to occur and less significant. 78 James W. Gentry et al., "Simulation Gaming as a Means of Researching Substantive Issues: Another Look, Developments in Business Simulation & Experiential Exercises," Journal of the Association for Business Simulation and Experiential Learning, Vol. 11 (1984), 15.

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Scanning the Environment and Predicting Developments 89 Risk Probability Highly Probable R1 Probable R3 Less Probable R2 R2 Improbable Risk Impact Low Medium High Disastrous Source: Booz Allen Hamilton, Inc., May 2008. Exhibit 6-4. Risk map. 6.3.5 Decision Tree Analysis Decision tree analysis is a methodology typically used to actively support decision-makers in assessing alternative courses of action. Generated from statistical decision theory, decision tree analysis was developed in the field of business administration as a practical approach to assist corporate managers in weighing their options and designing logical solutions in a systematic fashion. It is usually applied in a consultative, prescriptive mode with decision-makers, helping them work through immediate problems.79 In decision tree analysis, the decision options and calculations can be displayed graphically as a network, sequentially indicating the decision choices that can be made, the actions of other negotiating parties, and the occurrence of uncontrollable and situational events. Decision trees also present the probability of occurrence of future events, the value of the alternate final out- comes, and expected intermediate values at each node in the tree. As one author has noted, "Overall, decision tree analysis offers an assessment of probable outcomes given choices made and the probabilities of occurrence of other party actions or events."80 The process for conducting a decision tree analysis is as follows: Create a graphic in which decisions, solutions, events, and the range of possible outcomes are connected in the form of a tree, starting with the base decision. Assign a target/expected value to each possible outcome (estimate a cash value or score). Estimate and assign probabilities to the various outcomes (use empirical data or best esti- mate); the sum at each node must be 1 (or 100 percent). Calculate the tree values by multiplying the outcome values by their probability and adding them (and subtracting costs still to be incurred) starting with the last node to the root of the tree ("roll back" method). Determine which option has the largest resulting benefit; this is the best decision (based on current information). 79 Jacob W. Ulvila and Rex Brown, "Decision Analysis Comes of Age," Harvard Business Review (SeptemberOctober 1982): 130141. 80 Bertram I. Spector, "Decision Analysis for Practical Negotiation Application," Published in: Theory and Decision, Vol. 34, no. 3 (May 1993): 183200.