Day: 19 June 2020

It is true, you cannot predict the future. However, in today’s turbulent world it is necessary to be prepared for different scenarios. You can, however, make some assumptions about future projections for strategic planning purposes.

Consolidating data from across the enterprise, be it product groups, divisions or geographies is never easy. Or often sheer hell if managed in spreadsheets, in a process driven by an erratic managers. Not only is it a frustrating, costly and error-prone process, but, often micromanaged by various company ‘influencers’. All guaranteed to drive people from FP&A totally crazy. Instead of the value added activity of ‘what if’ analysis, time is spent on who changed this?, why?, is this the real number? Can we do this differently? Or worse, it is all wrong, redo it now!Do you have the necessary insight to identify where your company is today? A quick trend analysis, using charts, will show how your business performed in the past, identify any peeks or troughs, and allow you to make more informed predictions as to future growth.

If you take account of historical performance, extrapolate based on the growth strategy of your company and factor into your projections variables, what do you think might change? Can your planning process consider various outcomes? There can be many versions of the future, and in determining your strategic options, you need to track the variables that have the most impact on your profit margin.

This can range, across the board, from basic sensitivity analysis to full scenario analysis.

• Sensitivity analysis, or what-if calculations, where you are able to tweak one key input or driver in a financial model, to understand the effect of a set of independent variables on some dependent variable under certain specific conditions.
  What-if analysis can involve a data intensive simulation, or you can change some attribute of the data to create a specific scenario.
• Scenario analysis where you identify all the variables that would impact a specific scenario, and manipulating the variables to understand the full range of outcomes. It is possible to create a number of business scenarios, based on different business drivers, to provide insights into how each decision will affect the business.
  While researching your scenarios, you may discover potential problems that can be addressed immediately.

So now you have all these different scenarios, you now need to make comparisons to evaluate your assumptions. You can create a snapshot of the data, change any assumption and save the new snapshot. Of course, is always a good idea to add a description to the snapshots to remind yourself of the key changes.

Whether you need to run a quick what-if-analysis, or a multiple, complex scenarios. You can capture multiple snapshots of your analysis to use at any time. You can compare different versions, review them against budgets or strategic plans, or just determine which of the scenarios best suits to your situation.

Don’t forget, a good strategic plan is one thing, but you need to translate your plan into action, track progress and measure variances. As you execute, use rolling forecasts to track and adjust you plans to adapt to changes in the market.