For businesses looking ahead and planning for 2021, objective scenario planning is a powerful tool to help evaluate future strategic business decisions, assess potential opportunities and reduce uncertainty.
What is scenario planning?
Scenario planning assesses the financial effects of future changes in your business, for example, the purchasing of new equipment, another COVID-19 lockdown or a new business opportunity. This ability to plan and be ready for specific impacts is critical for business’ success.
A scenario planning model tests the operational assumptions underpinning each change or opportunity, ultimately assessing the financial viability and potential success of the decision. The test will see how the business will perform under a range of possible events, negative or positive, and ultimately allows the owners to prepare for the outcome.
How does scenario planning work?
Analysis and planning for different scenarios will never eliminate all risks but it will underpin the foundations of your business decisions, enabling better informed and more strategic choices.
Scenario planning does not need to involve a huge spreadsheet or a programmable computer model. It should be fit to purpose and only as complex as required for the business. Focusing on the key variables is paramount in successful scenario modelling.
A scenario model can:
- uncover risk and financial impacts that have not been considered;
- highlight the need for more information to reduce risks;
- reveal the business decision requires more analysis; or
- confirm, on a high-level, that the decision is sound and to proceed with negotiations or execute the decision.
After a year of uncertainty, volatile markets and disrupted business, many businesses are now planning ahead to minimise their risks and take advantage of opportunities. Scenario planning is never perfect, but it can give you the knowledge to either progress or dismiss opportunities for your business.