The benefits of conducting scenario planning through advanced data modelling

December 09, 2020

The benefits of conducting scenario planning through advanced data modelling

Synopsis
4 Minute Read

A digital finance solution can help your team overcome cognitive biases and information gaps and deliver the information you need to make informed business decisions.

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The financial impact of COVID-19 has reached far beyond what anyone first predicted. It seems as though stocks, portfolios, investments, savings, and budgets suddenly became words with little meaning or security. This forced many Canadian businesses into crisis mode as they had to determine the health of their current assets and income and make critical decisions about how to keep their doors open and their staff employed.


During times of uncertainty, scenario planning becomes even more essential to help reduce risks and take advantage of opportunities. Research has shown organizations that take a dynamic approach to a crisis benefit over those who don’t. Businesses that remain flexible and implement detailed strategies tend to see nearly double the shareholder returns over the long term [1].

Scenario planning has traditionally been based around the act of pulling levers. Individuals look at the available options and tools while assessing the impact of high-level variables and pull levers — often at random — to achieve their desired outcome. This process is used to develop best and worst-case scenarios and help determine how a business should respond. Even when done more formally and with a deeper analysis of the impacts each lever brings into play, scenario planning can risk being hampered by cognitive biases of those involved in the process. Background knowledge, personal assumptions and beliefs, fear of the outcome, and overconfidence in one’s abilities can skew results and reduce the effectiveness of the entire process [2].

Used effectively, scenario planning needs to: 

  • Be based on the most likely critical trends that will affect the business.
  • Fully consider extreme eventualities to promote more creative thinking.
  • Ensure all voices are heard.
  • Consider the implications of the various scenarios holistically across the organization.
  • Be aligned with the organization’s purpose.

However, in scenario planning it can be challenging to differentiate the hard work involved in coming up with potential implications from their financial impacts. It’s not surprising that multiple, and particularly, more complex scenarios are often avoided. It’s even more concerning when those tasked with stewarding organizational finances are forced to reject potential scenario approaches due to a lack of knowledge or experience to accurately measure potential costs and benefits.

A more formalized and holistic scenario planning approach featuring cloud-based Financial Planning & Analysis (FP&A) systems can be equally beneficial for both small businesses or growing complex corporations with multiple financial streams. Organizations can both enhance their decision-making with informed analytics and consider contingencies for greater risk mitigation. 

Understand the complexities of financial planning and analysis

Financial planning and analysis (FP&A) activity footprint helps visualize the varying considerations which must be accounted for to effectively craft scenarios that address both risks and rewards. As above, the individual assigned to assess financial risks may be unable to do so without bias. They may also lack the required information, or background knowledge in finance, market trends, prediction analysis, and so on.

How, then, can a business effectively create both positive and negative scenarios and accurately develop critical actions without a randomized lever approach? With access to tools designed for this very purpose.

Source: CEB Analysis

Benefits of our digital finance solution

Dynamic solutions and strategies can help organizations stay up to date in the fast-changing world of business. MNP’s Digital Finance solution, for example, allows you to make the most of detailed and standardized reports while taking a simplified approach to financial management. We work with you to assess your financial needs and goals and help you develop strategies for scenarios that take into account every detail and the potential outcome. The result is a specially designed suite of tools that allows your teams to identify opportunities and benefits without being overwhelmed by outdated technologies and systems.

Digital Finance solutions can assist your team in the following ways:

  • Identify and measure performance gaps and growth opportunities
  • Create clear objectives and establish company-wide benchmarks
  • Implement detailed, fact-based processes and procedures and measure their performance
  • Assess overall performance and identify areas for further improvement
  • Measure each team’s objective-specific successes and failures and areas of improvement

MNP is in the business of helping your business succeed. We are here to help you navigate existing challenges and respond to unexpected situations. 

To learn more about FP&A, contact Dan Caringi, National Digital Enterprise Leader, at [email protected]. You can also reach out to consulting partner Kevin Joy for more information on scenario planning at [email protected].

[1] “Never Let a Good Crisis Go To Waste” – McKinsey Quarterly, October 2013
[2] “Overcoming Obstacles to Effective Scenario Planning” – McKinsey: Drew Erdmann, Bernardo Sichel, and Luk Yeung.

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