I recently came across a blog from CEB’s Peter Young, where he offers an excellent 10-step guide for scenario planning. Young’s idea is that, with the right methodology in place, it’s possible for companies to anticipate and blunt the damage caused by future calamities – and possibly even turn some disasters into revenue opportunities. To achieve this with some reliability, they need to combine some core best practices, a good dose of procedural structure, cross-disciplinary talent and data-driven models, and then apply all these to the process of predicting likely scenarios.
Young’s process is all about ensuring that your organization stays competitive in the face of potentially high-impact events. In FP&A, we talk about modeling what-if scenarios. In fact, it’s a fundamental capability of Tidemark’s software. But these are what-ifs on steroids – potential catastrophic events that could strangle your supply lines, scare off customers, or obliterate your competitive advantage.
Here’s my quick summary of Young’s list, though a more detailed version appears on his blog. Worth planning for, don’t you think?
- Formulate the most important problems you’re likely to face and the most crucial decisions you’ll need to make.
- Create a team representing the key disciplines across your company.
- Generate a list of major future drivers, or the events and influences likely to impact your business.
- Refine and rank these major driving forces.
- Establish the nature of the “alternate worlds” your company may face, including the logic and framework needed to test scenarios.
- Create a quantifiable model based on the scenario’s major forces.
- Gather data and quantify your assumptions, including historical data, internal structured data, and external unstructured data – everything you need to make assumptions that mean something.
- Run the model you built based on the what-if scenario framework you designed.
- Create data-driven narrative scenarios and outline your opportunities.
- Present your results to senior management.
As Young points out, “Scenario planning can be complicated and resource intensive.” And if I were managing this process, I’d probably be losing some sleep over the steps involving wrangling and analyzing lots of data, then flowing that information into various useful scenarios, and finally finding a way to clearly communicate to decision-makers what these various “alternate worlds” might mean for your company.
And I’d get no sleep whatsoever if I was trying to get all this done by relying on spreadsheets or an old-school FP&A platform that affords little flexibility for on-the-fly scenario modeling. Just imagining it makes my head hurt.
The picture gets a lot brighter, however, once you factor in a modern business planning and analytics platform. Though it would streamline virtually every step in Young’s guide (not to mention FP&A overall), a solution like Tidemark would be a lifesaver in several key aspects of scenario planning, including:
- Data gathering. Step 7 in Young’s scenario planning guide could trigger a nightmare for organizations whose internal data is stuck in silos, and whose legacy enterprise platforms impose rigid limits on how they import and use data – especially the unstructured stuff from external sources like social media networks, email and market trend info. Modern FP&A software is far more flexible. For instance, Tidemark’s architecturereorders the old “ETL” data integration process so incoming data is transformed only when business users need to access it. This makes it far easier to augment internal financial and operational data with the growing volumes of unstructured data that provides meaningful context to recognized performance metrics. The result is that your models for anticipating future events are based on more real-world data and fewer made-up assumptions that could ultimately be proven wrong in practice.
- Analysis and modeling. A modern solution like Tidemark leverages the cloud as a computational platform. This means users access a computational grid that is free of cubes and that doesn’t limit data use by constraining volumes or dimensions. It also means data-driven decisions can be processed up to 10 times faster than typical cube-based approaches, which helps eliminate lag time and confusion over outdated information. So those complicated what-if scenarios don’t take forever to model.
- Communicating scenarios and possible outcomes. An Excel spreadsheet or numbers-laden report might contain all the information senior executives need to anticipate how another Asian tsunami could constrict parts availability and threaten revenues, but getting to the point of insight requires a ton of heavy lifting for both presenter and audience. Tidemark innovations like Storylines and Playbooks use interactive infographics to represent complicated scenarios and potential opportunities in ways that anyone can understand – quickly and easily.
The best thing about modern, cloud-based FP&A solutions like Tidemark? Scenario planning is just one use for them. They’re also instrumental in enabling a continuous planning environment that pushes budget and forecasts ownership (and participation) to every manager in your company. And the data that informs plans, budgets and forecasts is always current, so you’re never working off of outdated information.
And yes, they’ll also help remove the nightmares from your scenario planning. Because there are few things more valuable than a good night’s sleep.