The ability to plan for multiple eventualities — and do it fast — will be a defining trait for the next generation of industry leaders. Forward-looking companies will avoid risks and seize opportunities that their competitors didn’t see coming.
Finance leaders are used to dealing with data. They’re experienced at modeling and calculating risk. All they need is the right data, processes and technology in place. And with the evolution of Corporate Performance Management (CPM) software, and the scalable performance of the cloud, we now have an accessible platform for faster and more accurate scenario planning.
To help Finance leaders boost their prediction powers, we created a two-part guide. The first is a downloadable book that features advice from Finance and technology experts, along with even more actionable information from our team. The second part is this page itself: read on for definitions, how-tos, practical examples and more.
Reduce risk and identify opportunities with enhanced Scenario Planning.
What Is Scenario Planning?
Scenario planning is a structured method of evaluating different possibilities of what might happen in the future. It’s used by FP&A teams in business to enable strategic, operational and financial planning.
This process empowers businesses to be prepared for whatever comes next, even if past performance is unlikely to be an indicator of what the future holds.
The value of scenario planning for modern businesses depends on both speed and accuracy. Businesses need the capacity to model multiple plausible scenarios based on current information, and alter these models as real-world conditions change.
In short, scenario planning empowers businesses to plan for uncertainty, mitigating risks and enhancing the capacity to take advantage of new opportunities.
Why Do We Need Better Scenario Planning?
As businesses seek to become more resilient, flexible, and data-driven, there is a dire need for enhanced scenario planning. Here are just a few reasons why:
Uncertainty is on the rise
First we were waiting to return to normal. Then we were getting used to a ‘new normal.’ Now, the idea of normalcy seems quaint. We need to be able to make continuous, well-informed adjustments to stay afloat.
Finance departments must plan in the short term
It’s unlikely that anyone’s five-year plan included a global pandemic or increasingly volatile trade relations. The ability to plan and pivot quickly is a necessity — we’ve gone from five-year to five-week plans.
Businesses need better collaboration and alignment
When the next crisis hits, will you have an organization-wide plan that every department is ready to follow? Scenario planning provides that structural stability to get the entire organization on board.
CEOs need better information, faster
Finance leaders can meet these needs, supporting the rest of the C-Suite in keeping the organization data-driven and adaptable.
Traditional planning tools aren’t sufficient
Spreadsheets and manual processes can’t handle enough data at sufficient speed for this type of scenario planning. Our tools have to evolve.
The Finance department must be proactive
Coming to the planning table with forward-looking models can help decision makers to better spot opportunities and mitigate risks.
The Three Pillars of Cross Company Planning
Cross Company Planning is a strategy for budgeting, forecasting and scenario planning. It involves engaging the right people, in a well thought out planning process, underpinned by technology (such as CPM) designed to expedite scenario planning with greater accuracy.
A successful scenario planning program requires senior management commitment early in the process.
To get executive buy-in, the CFO should champion the process, building consensus on objectives and scope, and keeping senior management informed and engaged.
Map out the planning cycle in advance, before you begin. Establish regular touchpoints and check-ins, and establish clear parameters for measurement and refinement.
Enhanced scenario planning requires a tool that can bring together data from across the organization, from multiple systems. A CPM solution that is purpose-built to include scenario planning capacity, including dynamic and rolling forecasts, is the foundation for successful planning.
MorganFranklin Consulting
Get expert advice on faster, more accurate scenario planning for your organization.
The Scenario Planning Process: 6 Steps
Once you have executive buy-in from executives and stakeholders in various departments throughout the organization, you can begin the process of creating a scenario plan. Follow these steps to make sure your planning is organized, relevant and accurate.
In this stage, a CPM solution is essential to bring together these data sources and analyze the data for trends, commonalities, potential interactions between variables, and more.
Three Scenarios
to Plan For
These three types of scenarios should be part of your first round of planning. They are straightforward in objective and scope, addressing the overall health of the business. Together, they can form a guiding framework to inform more complex planning and guide decision-making.
Common Challenges &
Solutions for Scenario Planning
While each company has its own unique challenges, there are many common use cases that our team sees with our customers across industries.
Note that not all of these challenges involve something negatively impacting the business; scenario planning is equally useful for spotting or maximizing opportunity as it is for avoiding risk.
Understanding a Sudden Shift in Your Market/Industry
A dramatic change, whether good (your R&D team makes a breakthrough) or bad (a global pandemic) can put your business at a crossroads. By planning for different financial scenarios, you will be empowered with plans to prepare for multiple potential outcomes. This means you will be aligned to strategic goals and have the ability to quickly adjust, regardless of the nature of a specific change.
Understanding the Potential Impact of Your Company Launching a New Product or Service
CPM makes it easy to plan for the best and worst of times. You can model any number of potential scenarios, by considering the financial performance of the organization and any influencing market dynamics. That way, you can build and evaluate plans to prepare for multiple expected levels of performance for the new offering, making sure you’re covered even if it underperforms.
Evaluating a Potential Acquisition or Merger
Scenario planning helps clarify the business implications of a merger. You can model how your revenue and costs might change, identify places to cut back or staff up, and identify potential trouble spots. You can use your scenario planning sessions to stress test your plans and better prepare your newly-configured business for success in the future.
Get expert advice on faster, more accurate scenario planning for your organization.
Why A CPM Solution Matters for Scenario Planning
A corporate performance management (CPM) solution like Prophix is an essential component of enhanced scenario planning. CPM makes it possible to conduct complex data analysis, automate repetitive processes, and generate real-time insights.
Prophix can centralize your data and provide a platform for:
Fast and comprehensive scenario planning
Rolling forecasts that update frequently and automatically
Collaboration and alignment across departments
Better managing costs against sales forecasts
Reducing business risk through data-driven decision making
Get expert advice on faster, more accurate scenario planning for your organization.
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