Alternative Financial Scenarios: How They Help Businesses in Uncertain Times
December 10, 2022
In the wake of the COVID-19 pandemic and subsequent economic recession, added to current geopolitical instability and increasingly volatile trade relations, financial uncertainty for companies worldwide is on the rise. Therefore, planning for the unknown and creating alternative scenarios is essential to minimize risk and successfully overcome financial challenges.
Here are some reasons why you should enhance financial scenario planning and how it can help you navigate uncertainty.
Why financial scenario planning?
Financial scenario planning is about understanding how different variables can impact your company and measuring performance so that you can visualize the future and adapt with agility. As a strategic planning tool for mitigating risk and identifying opportunities, alternative scenarios act as guiding frameworks to be prepared for events that may or may not take place.
Where to start: Benefits of advanced CPM software
Planning for various financial scenarios involves generating probable future contexts for your company, sector and economy. Which, in turn, include individual scenarios with variables such as:
- Operating costs,
- inflation,
- interest rates,
- or client metrics.
Spreadsheets and manual processes can’t handle so much data fast enough for this type of scenario planning, and this means that it is time to update your tools. Hence, the first thing you need is a CPM comprehensive solution to effectively and centrally manage your data.
How can this help?
- Ready access to company-wide real-time data that are always up to date for a holistic picture of your business. So that you have better inputs, drivers and outputs for faster and more accurate financial scenario planning.
- Purpose-built to include scenario planning capacity, including dynamic and sophisticated forecasting capabilities, with frequent and automatic updating of rolling forecasts, budget planning or decision-making tools.
- The planning process can be streamlined on a single solution, so that scenarios can be updated, and new ones can be planned as often as required.
The Financial scenario planning process
Follow these steps to take to get the most out of financial planning for your company:
- Set the parameters by defining the objective and scope.
- Identify any variables that might affect the future context and are relevant to your objectives and scope.
- Collect and analyze data from across the company.
- Combine data analysis with creative and hypothetical thinking to plan alternative scenarios.
- Once they are fully developed, share them with the company and use them to create risk mitigation strategies.
- Maintain and update as often as there are new contingencies to consider and new data to analyze.
Final considerations
In short, unpredictable times mean that companies must make well-informed adjustments to stay afloat, and there is a pressing urge to plan in the short rather than the long term. Finally, let us recall that scenario planning is not always about preparing for the worst, but it is as useful for spotting and seizing opportunities to move your organization forward.
Are you still looking for a strategy to avoid unwanted surprises? A CPM software solution will provide you with the best technological tools for successful and agile scenario planning.