More than ever, business scenario analysis is an imperative tool for business leaders. Since the start of the COVID-19 outbreak, the implications for businesses around the world continue to change rapidly. Agile modelling of potential strategies and their possible outcome is key to assist decision-makers to lead their organisations as the outbreak evolves.
The appeal of scenario analysis is that it provides a window into the future. With advances in planning technology coupled with driver-based budgeting techniques, it is possible for scenario analysis to be an integral element of your strategic planning cycle. Here we cover five situations where scenario analysis can be utilised to visualise potential outcomes.
1. Re-configuring the service offering.
Organisations are thinking outside the box to stay afloat; many had to reconfigure the way they do business, the services they offer, and delivery methods. In-person service delivery has shifted to the digital world: sales meetings, employee training, education, and medical consultations to name just a few. Leveraging scenario analysis tools to re-imagine the service delivery and to model the impact on the P&L can help executives to project possible outcomes and make informed decisions.
2. Changes to the product mix; pausing products lines or introducing new items.
As lock-downs and social distancing measures were introduced, people’s needs and buying behaviours also changed, subsequently shifting demand patterns. Whilst some sectors of the supply chain are struggling to keep up with demand, others have seen a decline. On this front, modelling changes in product lines, increasing or decreasing promotional offers, and simulating price changes can help executives understand the impact of their decisions and allow them to adjust accordingly.
3. Payroll planning.
In many countries, governments have introduced job retention schemes to help organisations keep employees on their payroll. Scenario plans can be built around these schemes to help CFOs project the impact this will have on their cash flow. Where there is still the need for further cuts, different models can be assessed to identify the best possible outcome for all involved. Whether this means a 25% pay reduction across the workforce or applying higher pay cuts at executive level to protect low income earners, scenario analysis can offer a preview into the impact of these possibilities.
4. Investment analysis.
Whilst some organisations pull the breaks on all investments, other leaders must make the decisions on how to make the best use or restricted budgets. The huge swing towards working from home, online shopping, and digital service delivery has increased the pressure for reliable IT systems. Scenario analysis can help model the outcome of investment in technology to keep systems running and the technical resources required to back it up.
5. Restructuring operations to plan for possible revenue loss.
As the ripple effect of shuttered businesses takes hold, finance teams can use what-if scenarios to assess and understand the risk of losing a top customer. Applying the 80/20 rule, what-if the organisation loses a customer out of that top 20%? Modelling the scenario can help executives understand the potential impact on revenue and the cascading effect on cash flow. Based on possible outcomes, finance can make more informed decisions on where to focus effort as an organisation to safeguard their operations.
As organisations pivot to navigate their way through these turbulent times, assessing multiple ‘what-ifs’ helps teams and business decision makers gain a better understanding of the potential impact of their decisions. And although the situation is still evolving, planning tools can help evaluate different scenarios quickly to assist leaders in identifying contingency plans for the present and prepare the business for the rebound.
Would you like to learn more about Scenario Analysis tools? Watch this on-demand webinar, demonstrating the application of technology in business planning.