According to Heraclitus “The only constant in life is change”, and never before have we felt this so acutely. Even before the Covid-19 pandemic business leaders have had to face rapid technological change together with growing economic, political, and resource instability.
Decisions that leaders make now could have implications for years to come and as they try to navigate their way through the sea of change, they need tools that enable them to map out the moves they make today and the effect those will have on the future of the business.
According to a report by McKinsey & Company, roughly two in three CFOs say their companies do not yet have the capabilities for agile decision making, scenario planning, and decentralized decision making that they will need to be competitive in the coming years, with many of those companies still preparing budgets, forecasts and scenario plans using spreadsheets, making it is almost impossible to effectively incorporate real-time data.
Scenario planning provides valuable insight into your budgets, forecasts, and strategic plans, enabling a clearer view of the key drivers for business growth. It also allows you to test the impact of your decisions based on opportunities, challenges, and potential future events.
However, forecasts and scenario planning models are only as good as the data that is fed into them, which is why having a Corporate Performance Management (CPM) solution, like idu-Concept, is so important. The online, real-time, collaborative nature of the solution ensures that at any given time finance leaders have access to an up-to-date single version of the truth. Business leaders are empowered with improved decision-making capabilities based on accurate and up to date information.
The keys to successful scenario planning include:
Ensuring you have buy-in from business and management
People at the coal face of the business have important perspectives don’t overlook them in the process
Having access to up to date and accurate data
Clearly define your assumptions
Understanding which assumptions drive what parts of the business
Create high and low versions of your scenarios to provide more context.
Update assumptions and refresh scenarios regularly.
Scenarios by themselves do not determine strategy any more than a forecast does. To be effective business needs to develop strategic responses to the scenarios, and be prepared to take action as and when these are required.
In the words of Benjamin Franklin “If you fail to plan, you are planning to fail!”