Businesses are facing significant shortfalls by reacting rather than responding. Forecasts are often worthless and many just end up dealing with issues made by static assumptions months ahead of time.
In this unpredictable business landscape finance managers need to accurately predict the future, those who don’t end up facing significant difficulty to operate, plan and deliver performance. In such a landscape, finance teams need the most reliable and relevant insights into risks and opportunities that their businesses are about to face.
By undertaking good and frequent financial forecasting can help minimize business risk and prepare for the future. However, that might not be enough to get your business moving.
What is the answer to this? Scenario planning!
Using trends and uncertainties in your business scenario planning can help to accommodate your business growth and resource allocation to improve your business decision making and development. Scenario planning is a great feature of financial forecasting and budgeting that enables a business to evaluate a variety of possibilities and prepare for them however they find applicable.
A look into scenario planning
Scenario planning is simply looking at a variety of possible future scenarios for your business based on your forecasts. This information can be used to analyse a current situation of your business against desired business targets. Or you can use scenario planning to ensure that your business can take whatever might be coming their way. For example, if you have a farm, and the weather forecast is predicting a very cold and dry summer, you would create a financial scenario that looks at what would happen to your business if you don’t grow any crops, or what happens if your harvest is smaller than usual and so on.
This simple process can be very cost effective to your business by helping you to minimise the risk of increased costs, risks and opportunities. If you are aware of what happened can happen, you can be prepared to deal with it better.
Scenario planning can be used in a variety of ways in your business, here are some ways you can impliment it to your business:
Scenario planning for finance
In finance, scenario analysis helps managers to test business or project performance under different scenarios. It looks at diverse but consistent information on variables that create a scenario. The main aim of scenario planning in finance is to look at what does the future hold for the business. From there a business can take these scenarios in one of the two ways: use it for budgeting, or use to adapt the strategy.
Scenario planning for budgeting
Similarly, scenario planning for budgeting within the organisation the aim here is to look at the information available about the companies future and adjust accordingly. The key to budgeting is to identify the most plausible scenario and ensure that your business is ready to deal with it.
Scenario planning in strategy
Scenario planning for strategy and particularly business strategy is all about the plausible future. It is all about creating data-driven stories about the organisation and all of the factors that might affect it like environmental or political change.
Finally, scenario planning is a tool to help your business strategy overall. Whether you are using the more technical terms for strategy or not, your business has a direction to go to, and scenario planning helps you ensure that you are prepared for what life can through at you.
There are dozens of great tips out there how to get started with scenario planning in your business, and how to adapt it to your strategy, check out scenario planning techniques and the pitfalls of scenario planning!