There’s a huge problem with traditional planning methods — they don’t fit in the modern world. Markets can change quickly while trends can have many different implications for the future. If you’ve worked in FP&A for a while and still use spreadsheet-driven processes, you’ve probably asked yourself, “why doesn’t my planning process consider various outcomes?”
Scenario planning allows you to better understand the future by identifying trends and exploring the implications of projecting them forward. You get to answer the question, “What if…?” and explore a whole spectrum of possibilities.
Why Scenario Planning?
The difficulty with planning is that the future is not predictable. You’re not an oracle with a crystal ball who can predict the way market trends and global events will affect your business. You’ll never have all the information available to make an accurate prediction about the future — this is why scenario planning makes sense.
To help you better understand why you should use scenario planning, we’ll break it down into five points.
1. You can create a multiple set of scenarios for the broadest possible set of future conditions
With scenario planning, you can analyze various trends, issues, and themes then interpret deep drivers that can change your business. Looking at these factors will allow you to come up with several different scenarios to give you an expanded perception of your strategic options.
2. You can see the impact of more than one event by combining scenarios
The length you can go with your predictions doesn’t stop with multiple scenarios based on various factors. You can interlink those scenarios, allowing you to see the impact of two or more events, or multiple trends, happening at the same time.
3. You’re able to answer the most critical questions
Scenario planning allows you to ask critical questions and gain valuable insight into the answers. How are you going to hit your targets? Why were the results different from what you expected? With scenario planning, you can ask these questions and more.
4. You can base your scenarios on key business drivers
If your CFO is focused on driver-based planning — a method of forecasting based on key business drivers — scenario planning can help. With scenario planning, you should identify those key drivers and formulate scenarios about how those drivers might affect your business.
5. You're able to set measurable and strategic targets
By using scenario planning, you can share your scenarios with executive management, who are than able to form a consensus to set strategic targets.
How Do I Get Started with Scenario Planning?
If you’re convinced of the benefits of using scenario planning, you’re probably wondering how to get started with scenario planning. Developing a scenario planning process involves four different steps:
1. Identify your business drivers
Like we discussed above, scenario planning should account for the forces that drive your business. Will shifts in the economy, society, technology, or politics affect your company? If you choose to make internal hiring decisions how will that impact your organization? It’s important to stay current on external trends, but also consider internal changes that will have an inevitable impact on your business. You should choose to focus not only on trends that will obviously affect your organization, but also look at some unexpected business drivers. Make a list of as many as you can.
2. Identify your critical uncertainties
After you’ve make a list of your key business drivers, you should pick critical uncertainties that will have the most profound impact on your organization. For example, a grocery store chain can focus on uncertainties in agricultural production and weather patterns.
3. Develop a range of plausible scenarios
Choose two of your business drivers to develop a matrix with your two uncertainties as the axis. With a matrix, you’re able to come up with four plausible scenarios that can help you make decisions about your organization’s future.
4. Discuss the implications
Finally, you should discuss the various implications of each scenario so that your organization can formulate a strategy.
This sort of forward thinking takes you out of the past of basing your budget or focus on prior results. However, doing this method manually presents the same problems as the spreadsheet methods you use with traditional planning.
Scenario Planning with Oracle PBCS
If you’re still stuck using spreadsheets and want to get started with modern planning methods, like scenario planning, it’s important to find a tool that works and is easy to implement. Oracle Planning and Budgeting Cloud Service (PBCS) have all same benefits of the cloud: no upfront cost for hardware or software, less IT involvement, and no annual maintenance costs. Or, if you’re looking for a planning solution with out-of-the-box functionality, Oracle Enterprise Planning and Budgeting Cloud Service (EPBCS) is similar to PBCS, but with four built-in frameworks.
The ease of the cloud can help you get the buy-in from your boss for planning software. Despite all that, you’re probably wondering, “how will these tools help me with scenario planning?”
Robust Modeling with Sandboxing and Predictive Analytics
In PBCS, you’re able to create “what-if” scenarios by using ad-hoc scenario modeling, sandbox, and predictive features. We’ve already discussed how important it is to create multiple different scenarios. With PBCS, you can create multiple scenarios that allow you to slice and dice data based a variety of what if assumptions. PBCS makes it simple to create models based on fast changing assumptions.
Sandboxing allows users to play with data without impacting other users. Changes made in the sandbox are not saved in the application unless you to publish the data.