The impact of COVID-19 continues to resonate throughout businesses today.
As many businesses close their doors, most CFOs often have to deal with the responsibility of bracing for their organizations’ financial impact and crafting the right strategic response.
Because of the need to make the right estimate, FP&A tools that support scenario-based planning and analysis is crucial.
For this reason, organizations need to look into critical tools available today to help them better prepare for these types of disruption in business.
But what is Scenario-based planning, and why is it so important?
Over the years, the increasing uncertainty around business and the unexpected forces that affect the economy, scenario-based planning has become a necessity.
But it is more than just a tool; it has developed into an integrated approach that organizations can adopt to help them better deal with volatile changes in the market. Whether they need to assess their financial earnings and make revenue projections, deal with cash flow and liquidity, or develop a strategic plan for the future.
With COVID-19 continuing to affect businesses across the globe drastically, this is more important than ever before.
However, looking into organizations today, scenario-based planning is not commonly practiced. Data from Accenture notes that 80% of the organizations set targets concerning historical performance instead of future scenarios.
Why is scenario-based planning so critical now?
Scenario-based planning provides a structured way to identify and evaluate a range of potential outcomes and estimate their impact to the business. It helps organizations reinforce their business continuity strategy with a more structured way to navigate through different challenges, allowing them to better deal and prepare for different outcomes.
Amidst the current uncertainty, it is crucial for businesses to prepare for different scenarios, instead of just one. Single-scenario projections are often insufficient because they fail to account that the future is difficult to control. Therefore, planning for multiple scenarios is preferable.
Scenario-based planning helps address these and helps organizations anticipate a range of outcomes. More importantly, the organization can use this to gain deeper insights into critical drivers and prepare them for these outcomes.
When thinking about how this is relevant for CFOs dealing with COVID-19, these can entail analyzing potential scenarios, identifying critical assumptions and indicators, and exploring the right strategy to mitigate risk for the organization.
Below are key points to consider in Scenario-Based Planning.
- Identify potential scenarios and critical assumptions. With the level of uncertainty that businesses face today, it is crucial to identify and contemplate possible scenarios so you’ll know how to prepare for them. All of these scenarios require dozens of assumptions that may be specific to the economy or business.
- Look into assumptions and indicators. How are today’s events and trends tracking our assumptions? Do these trends increase the potential of them happening all at once? It is essential to adjust and refine your plan of action as you receive more information.
- Identify steps under each scenario. More than anything,scenario-based planning helps CFOs prepare for each scenario’s impact, so they can plan the right course of action required for each case. When CFOs have the correct data available to guide their decisions, they can adjust their strategy into something that’s more well-fitted to ensure a favorable response.
- Adapt to the new normal. Amidst COVID-19, most businesses are being too reactive and focus too much on how they respond to any news that comes daily rather than preparing the right strategy ahead to deal with what may happen when things go back to normal. A few questions that you’ll need to answer are:
- What events will trigger a need to restart the business?
- How can the business reopen?
- What measures must be taken to ensure the business can restart?
- How do we deal with our customer’s expectations?
- How do we bring our teams back?
- What supplies are needed?
- How much capital do we need?
Although looking into the future can be challenging, doing it early on can help you spot potential bottlenecks that can prevent you from doing what is needed the soonest possible time.
Scenario-Based Planning Using Performance Canvas
Global economies and business environments have been volatile even before COVID-19 happened, so CFOs need to establish a system that allows them to always plan for the unexpected. In the same way, finance teams must continue to learn from past mistakes and adopt more effective strategies that can help their organizations be more prepared through any crisis. Choosing scenario-based planning in your approach is only one of many ways that can help. More importantly, today’s organizations need to take these solutions quickly if they want to stay competitive.
Performance Canvas Financials (PCF) is an integrated financial planning and analysis software that offers scenario-based forecasting, budgeting, planning, reporting, and consolidation, supporting easy deployment. Adoption and system integration are quick and easy, making it ideal for organizations looking to tailor-fit it to their crisis response.
If you’re looking for a world-class FP&A software that has advanced features and robust integration capabilities, Performance Canvas is the ideal choice.
Keen to know more about Performance Canvas Financial’s scenario-based planning capabilities? Talk to our team today.