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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.

Find Certainty and Discover New Opportunities with Scenario Planning

Reduce risk and identify opportunities with enhanced Scenario Planning.

Download the Guide

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.

What Is Scenario 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

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

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

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

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

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

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.

Jack McCullough
“Accurate and agile decision making has never been more imperative for CFOs. Incredible technological solutions are available right now. Invest in those that support your organization.”
President, The CFO Leadership Council

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.

PEOPLE

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.

PROCESS

Map out the planning cycle in advance, before you begin. Establish regular touchpoints and check-ins, and establish clear parameters for measurement and refinement.

TECHNOLOGY

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.

Kenneth Fick
“Because forecasting and scenario planning is designed to facilitate action, it is important that it not be performed in isolation. It requires the buy-in of Senior Leaders in all functions of the company including operations, sales, finance, marketing, IT and supply chain.”
Director of Strategy & Transformation,
MorganFranklin Consulting

Get expert advice on faster, more accurate scenario planning for your organization.

Download the Guide
Find Certainty and Discover New Opportunities with Scenario Planning

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.

Three Scenarios to Plan For

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.

Scenario
01
Low

This model assumes that revenues are falling and costs are rising, necessitating a complete overhaul of expenses and revenue streams. This model is helpful for planning how to strategically slim down, pivot and position the business for survival and eventual growth.

Scenario
02
Medium

This model assumes that your present sales performance and expenses will remain the same for the time being. This scenario helps compare your actuals from last sales period to your previous forecasts, helping guide the business to maintain its current trajectory.

Scenario
03
High

This model is a best-case scenario, based on increasing sales and consumer demand. While this is a positive model, the forces that drive new revenue and high demand can also put a strain on a company’s resources. This model will help your business scale up to avoid being a victim of its own success.

Tom Hood
“This pandemic has heightened the need for contingency planning as few were prepared for the size and scope of this crisis. The most common contingencies revolve around all of the core areas of the business and especially the financial statements - balance sheet, income statement and cashflows.”
President & CEO, Maryland Association of CPAs and Business Learning Institute
Common Challenges & Solutions for Scenario Planning

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.

Amie Roach
“The most important thing for us has been to focus on high-level changes. So while we can’t redo our entire budget in one week’s time, we can make some big scenario distinctions. We’ve been able to look at things like, ‘what if our revenue declines by X percentage?’ and determine how these scenarios will impact our staff and how to best move forward as an organization.”
CFO, Lochmueller Group
Find Certainty and Discover New Opportunities with Scenario Planning

Get expert advice on faster, more accurate scenario planning for your organization.

Download the Guide

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

Fast and comprehensive scenario planning

Rolling forecasts that update frequently and automatically

Rolling forecasts that update frequently and automatically

Collaboration and alignment across departments

Collaboration and alignment across departments

Better managing costs against sales forecasts

Better managing costs against sales forecasts

Reducing business risk through data-driven decision making

Reducing business risk through data-driven decision making

Get expert advice on faster, more accurate scenario planning for your organization.

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