As uncertainty rises and the impacts of COVID-19 become more permanent, it’s important that businesses are proactive in assessing their capability to withstand disruption, as well as the options they have to identify—and respond to—potential opportunities.
Trying to navigate your company’s finances through this level of uncertainty and disruption is no small task; with the help of scenario-based forecasting, you can assess different alternatives to help better plan for the future.
Tips for scenario-based forecasting:
- Make it a collaborative effort. Identify the key people from the relevant functions (marketing, sales, finance, supply chain, HR, IT, etc.), and form a working group. This core team is responsible for developing and managing the scenario definition and reforecasting processes through the preparation.
- Identify and agree upon scenarios. Define plausible alternate futures in which the impact of your decisions is assessed. These are stories with beginnings, middles and ends, that include twists and turns and show how the environment might change over time. Each scenario must contain enough detail to assess the likelihood of success or failure of various options.
- Focus on the drivers that matter for your business. Customize the scenarios to your particular context and challenges, including less obvious possibilities. Be sure to include external risks, like travel or regional shutdown, as well as potential opportunities.
- Generate a range of forecasts: four is a good target number. More than four tends to get confusing, and three scenarios runs the danger that people will try to pick the most plausible and forget about the other two.
- Use flexible time periods. Be sure to forecast for the short, medium, and long terms in line with the different nuances of each scenario. Understanding the different implications and options at each turn is key to being able to adapt.
- Define and monitor early indicators. Identify the first signs of the big changes that differentiate the various scenarios. This is particularly important as you identify the appropriate execution for each scenario and if your answer does not fit all scenarios.
- Reforecast, reforecast, and reforecast again. As you go through one of the scenarios, diligently monitor the evolution of your response, and agree among the members of the working group how the assumptions in the model might need to change. If it’s appropriate, reforecast weekly or daily.
For more information on scenario planning, check out Deloitte’s PrecisionView solution, powered by Anaplan. You can also watch our webinar highlighting how algorithmic forecasting can assist with this scenario planning.
US Finance & Enterprise Performance practice leader
Deloitte Consulting LLP
Global Finance & Performance practice leader