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On December 9, 2016

7 reasons why scenario planning is more important than ever

Scenario planning is becoming more important than ever.

We need only look at the effect Brexit and a new President-elect have had – currencies are in a state of change not experienced in a decade; investment decisions being accelerated one day, slowed the nest, shelved the day after that. It might feel like the world is trapped in the headlights, but you still need to be able to predict what will happen to your business in the future and be able to adjust.

But how?

Strategic CFOs are using corporate performance management tools to collect, confirm and store their planning data in one place. This way, they have the ability to move away from disjointed spreadsheets and focus on scenario planning.
Now more than ever it is important to navigate a world of opportunity and risk with care. Effective scenario planning can help you manage the minefield of business finances as carefully as you can with a number of unknowns. If you want to be the CFO that can make forward-looking decisions, you need to be using scenario planning to its full capabilities.

Which brings us to our first reason scenario planning is important.

1. It allows you to focus on answering critical questions

How are you going to hit a particular target? Who is accountable for achieving particular results? More importantly, why were the results you achieved different to those you expected? Asking the questions is one thing, gaining insight into the answers is far more important.

2. You can focus on maximising enterprise value

In today’s world, you need to be more forward-thinking than ever before. You should be envisioning how to maximise enterprise value. Set targets, screen for new business opportunities and manage risk with scenario planning.

3. You need to set highly measurable strategic targets

CFO’s who take a top-down approach towards their business enable their executive management teams to evaluate many different active or live scenarios. We know that multiple scenarios can create challenges, but they have an obvious benefit. Being able to form a consensus between your management will allow you to set highly measurable strategic targets.

4. You need to be able to update live scenarios across the board

While, in the past, CPM techniques meant multiple scenarios often created an explosion of data, interlinked scenarios mean you can automatically impact or link to other live scenarios by default. They allow you to focus on the assumption differences across scenarios and maintain and screen multiple scenarios. With no one yet knowing the direct impact of Brexit and how the new White House administration will impact businesses, interlinked scenarios are critically important to keep up to date with all possible outcomes.

5. Scenario planning helps with corridor planning

Particularly with interlinked scenarios, corridor planning gives you the ability to see a band of alternative outcomes based on the continuous update of a single expected scenario. This gives you a broader understanding of what would happen if key assumptions are exceeded or
missed.

6. Combined scenarios allow you to see the financial impact of more than one event

If ever there was a time where combined scenarios couldn’t be any more relevant, it would be now. With no one knowing quite how the UK, Europe and the US will work together moving forward in trade, a combined scenario approach is critical. By having interlinked scenarios that are calculated off the base of multiple factors, you will be able to see the financial impact of two or more events happening at the same time.

7. You can account for delays

Until you know what is happening and it is set in stone by officials, delayed scenarios are an important way to see the impact on earnings and funding. It’s important that you are able to create alternative scenarios that are interlinked but only the timing difference is affected. That way, you can adjust targets accordingly.

If you want to make scenario planning and “what if” analysis as straightforward as possible, see how our solution is designed to help.

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