It is important for medico businesses to continually review their business decisions and performance, to ensure they are continually planning for the future.
What is scenario planning?
Scenario planning assesses the financial effects of future changes in your medical business. The ability to plan and be ready for specific impacts is critical for long term success.
To illustrate further, scenario planning can be used to evaluate the following circumstances:
- Purchase of new medical equipment: Considerations here include how to finance the purchase? What impact does this purchase make to your business cash flow?
- Another COVID-19 lockdown: Considerations here include an analysis of the outgoing expenses you will be required to cover if your business has closed due to COVID lockdown. Where would the funds come from to cover these outgoing expenses if hospitals also suspend elective surgeries? What if the lockdown is 3 months or 6 months?
- A new business opportunity: Considerations here could include a review of the additional costs to expand a business premises and what is the additional income required to at least break even?
A scenario planning model tests the operational assumptions underpinning each change or opportunity. The model assists in ultimately assessing the financial viability and potential success of the decision. These tests “financially stress” the performance of the business, so that a range of possible events (negative or positive) can be evaluated.
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. This enables a better informed and more strategic decision to be made.
Scenario planning does not need to involve a huge spreadsheet or a programmable computer model. It should be fit for purpose and only as complex as required for your medical 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 and make a decision.
- Confirm, on a high-level, that the decision is sound and to proceed with negotiations or execute the decision.
After a year of uncertainty due to the COVID crisis, many medical businesses are now planning ahead to minimise their future risk 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.