Uncertainty is a constant. There’s no way to predict with absolute confidence what’s going to happen in a ‘normal’ year, let alone foresee bigger challenges like we’ve seen in the last eighteen months.
There are many potential drivers for ongoing uncertainty:
- The shape of economic recovery
- The impact of markets reopening
- Possible new waves of the pandemic (fingers crossed unlikely)
- Evolving consumer behaviour
- Supply chain disruption
- New products
- New competitors
No matter how much dynamics fluctuate and vary, and what specific drivers impact your organisation, the businesses best placed to respond are those who can flex their plans. When new insights become available, these are the organisations that will take action to turn risks into opportunities.
Moving beyond crisis management
Through necessity, we’ve all become increasingly adept at managing change by reacting to circumstances. Our crisis management skills are far more evolved than they were at the start of 2020.
But crisis mode is not sustainable and, looking ahead, we know that there will inevitably be more disruption. The time has come to move beyond the reactive stance.
Within your own business, there are no doubt countless scenarios that you know will bring about changes to your plans should they arise. These are the uncertainties that are easy to anticipate and can therefore be planned around – if you can predict them, you can model their impact.
The businesses who are going to do well over the next period of change will have planned for it.
Gaining insight to guide profitable decision making
This planning can only take place with access to data and the insight it delivers. With all the information, impacts can be modelled, and scenarios can be planned for, with alternatives considered dependent on outcome.
Once you have an overview of the different ways in which a range of scenarios are likely to play out, you can create a picture of the future of the business. If this happens, then this follows. If we do this, then this changes.
Being aware of the potential range of scenarios gives your business an edge. You are aware of possible disruptions ahead and alert to methods of managing them and the likely outcome of those decisions. You’ll still be reacting to changing circumstances, but you’ll be able to move quickly and follow a considered recovery plan rather than relying solely on your view of the present situation and your static forecast of what the future will look like if no changes arise.
Scenario planning can deliver enormous value, not just informing how you react to change. Used as a regular process, the key insight it provides allows you to avoid risk and make positive decisions that drive the business forward.
Requirements for effective scenario planning
To maximise the potential benefits of scenario planning, you need the following:
- An accurate view of the business, as it stands now, not an outdated snapshot from the start of the month.
- The relevant data and baseline information to create a status quo forecast – what does the future look like if you do nothing?
- The functionality to be able to model ‘what-if’ events in your forecast: spreadsheets aren’t powerful enough to deliver.
- Calculation efficiency and robustness. Scenario plans are only valuable if your FP&A team haven’t spent days on end gathering and manipulating data in spreadsheets to create them.
- Ease of reporting to make the output easy to digest across the wider business. Other functions need to be able to fully understand the plans to buy into the approaches they recommend.
Being able to use scenario planning to transform change into opportunity is more accessible than you might release. It doesn’t take an enterprise solution to equip your team with the tools required to reach this position – the requirements for the planning that will deliver insight and guide profitable decision making can all be met by Planning Analytics on Demand.
If you’re ready to strengthen your FP&A activities and start proactively managing change, get in touch today to discover exactly how valuable Planning Analytics could be to you.