Scenario planning best practice

When it comes to scenario planning, depending on the context, timing is key. In a business environment that’s changing as fast as it is today, slowing down means getting left behind.

Involve planning leaders from across all functions – operational, finance (back office), and commercial (front office) – to solve problems and recognise opportunities. Empower planners to make decisions on the cutting edge of the business, rather than in slow, centralised planning cycles.

According to Anaplan, consider asking three key questions when developing scenarios:

1. What? What happened or might happen?
2. So What? What is the impact of those events?
3. Do What? What options do we have after and what do we do now, in advance?

It’s important to not focus only on identifying possible events and their impact, but most importantly, focus on action. Key decisions need to incorporate not only the changes in inputs and their impact but also an evaluation of those actions that the organisation could take after they occur.

It’s critical to consider what actions an organisation can take that might mitigate risk or position for the exploitation of opportunity. At this point, it’s important to consider participant diversity. Gather input from both managers and frontline staff, as the variety of viewpoints will reveal interdependencies and uncover a complete set of potential implications. By using this approach, the strategy is likely to be more resilient.

Once the implications, risks and opportunities are clear, adjust each function’s strategy, goals and projects or initiatives for a given scenario. Translate these into action plans by deciding which levers (e.g., people, processes, systems, budget) leaders should pull to meet business needs, manage risks and capitalise on opportunities.

Once the most likely scenario is agreed, resources and budget will need to be allocated to ensure the ideas are operationalised. However, some agility will need to be required if the landscape changes swiftly and new information emerges.

Companies need to establish a culture of quickly sharing data across the organisation and put the systems such as centralised dashboards and alerting systems in place. These systems can regularly update the data for the finance and strategic forecasting teams, identify when foundational assumptions may have become questionable, and enable key decision makers to make informed choices more quickly.

Leverage digital planning tools to enable organisational agility

Organisations who do not regularly perform scenario planning or use outdated systems and processes are more vulnerable to risks and blind spots and limited in their ability to capitalise on opportunities. Spreadsheets are a useful tool for all types of organisations, especially for financial computations. However, for complex planning processes, they are totally inadequate.

They are prone to errors, require manual processes to maintain and are difficult to keep up to date. For larger organisations, it can take weeks to update, collate and validate multiple sheets from different divisions or teams. And assessing multiple scenarios can create an explosion of data.

Scenario planning by its nature requires flexibility in being able to extract, manipulate and visualise assorted data in a variety of ways. Planning software helps organisations create robust, detailed scenarios that include all key internal and external data and drivers that impact the business.

Using dedicated scenario planning software enables departmental plans to be linked in real-time and new versions can be updated when needed. Leaders can make real-time alterations and drives timely collaboration to resolve any issues identified.

Business leaders can experiment with the impact of external events, such as a supply chain interruption, and of internal changes, such as a new product launch to drive revenue or efficiency to lower costs. When a variable in the scenario is changed, the areas impacted by that change are updated instantly so all plans and forecasts are continuously up to date.

Multiple scenarios can be created and updated, and interlinked scenarios mean planners can automatically impact or link to other live scenarios by default. They allow decision makers to focus on the assumption differences across scenarios and maintain and screen multiple scenarios.

By having interlinked scenarios that are calculated off the base of multiple factors, leaders can see the financial impact of two or more events happening at the same time, as well as understand the impact on revenue and/or costs.

Technologies such as analytics and machine learning will be a major component, but to be truly effective, they must be supported by new processes, talent and governance.

For further information download our guide