Plan with scenarios – but be efficient
A sound basis for management decision-making
In the face of growing uncertainties, businesses need more than just the one plan. They need to think in alternatives. Scenarios help them to consider the different alternative futures and to model risks. But how can can they succeed in presenting their own situation as a basis for a “what if…?” simulation at short notice? How can the individual relevance be conveyed with maximum clarity? And how can financial controllers quantify the impact of change?
Recording the starting point
Scenarios are based on different starting points depending on the context and the questions being asked. Sometimes it’s the latest actual figures that are called for, and sometimes it’s the forecast for the next few months. To be able to act quickly, it is essential to identify the right starting point and have immediate access to the relevant underlying data.
Ready for all eventualities
Suitable data, be it the actual figures or the forecast, should enable managers to make a few targeted tweaks and then see the impact on specific KPIs or on overall performance. Different influencing factors – the loss of a supplier, an increase in demand or staff shortages, for instance – are modelled and the effect on individual departments or the entire company is shown. For this to work, an integrated plan must exist as a basis. Only then can changes in individual aspects be quantified in relation to performance.
The right focus is what gives scenarios the required significance. Running through developments according to an all-purpose formula will do little to achieve this aim. Scenarios will only have individual relevance if they start with the company’s specific value drivers. Moreover, focusing on the value drivers will ensure that the impact of shifts in strategy and changes to the business model can be represented.
Is there a formula for success?
A wide range of considerations find their way into the design of scenarios. The calculation itself is a technical challenge that is met by suitable software. Here it is essential that, despite automated procedures, there is transparency regarding how the values are arrived at and where they originated. Only when the right procedure is combined with a flexible planning solution can scenarios be deployed so that they provide the best possible support for agile business management.
So, is there a formula for success? If there is, it goes like this: custom design + suitable planning solution = planning successfully with efficient scenarios.
Learn more about financial planning for volatile markets in the free live webinar “Financial Management: Real-time forecasting and scenario planning” (in German).
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