In business, good execution doesn’t just happen. Instead, it is the final step in a process that hinges on data-backed planning. However, it is not enough to simply have planning models in place: your chosen methods must be future-oriented and effective. In the first of our Summer Series of blogs, Miagen’s Director of Modelling, Terence Kelly has outlined his thoughts on the value of planning and, in particular, at scenario planning as the beating heart of financial planning and analysis (FP&A).
Advantages of scenario planning
The days of fixed budgets and static forecasts are gone – and for the better. These methods are liable to fail in high volatility environments and can result in missed targets and reactive decisions which can have long-term negative consequences for a business.
Scenario planning, on the other hand, empowers finance teams to model multiple potential situations – known as micro-scenario planning – to gauge the appropriate way forward. This will help finance leaders to better anticipate risks and respond to them in an effective and non-reactive manner. And, at a time of volatile interest rates, supply chain issues and geopolitical uncertainty, the risks are aplenty. Businesses who rely on traditional planning models may find themselves ill-equipped to combat these threats.
Scenario planning is not just effective in predicting and responding to economic events and crises. Finance teams that utilise financial planning scenario analysis will find that their financial planning software allows them to meaningfully make strategic decisions across all aspects of the company – including pricing, hiring, investments and even capital allocation. This ensures that the finance team can be even more effective in influencing positive outcomes for the business.
Moving to continuous forecasting and modelling shifts
As the use of scenario planning increases, businesses are seeking the best financial planning software to stay ahead of their rivals in a highly competitive market. As part of this, it is imperative that finance teams move away from fixed annual, monthly or, even weekly updates, and towards rolling forecasts and real-time planning. Crucially, this will allow companies to respond faster to both internal and external signals. Organisations who don’t transition their FP&A models in this way risk falling behind their more dynamic competitors.
Any finance decision-maker’s scenario planning methods should include modular, driver-based models that connect inputs to outputs – for example, connecting pricing and costs to revenues and cashflow. These tools will ensure that the finance team’s systems are always agile and transparent, instead of needlessly complex. At a time when all companies must reckon with, and adapt to, shifting customer demand in response to market volatility, these models are essential.
Scenario planning is the present and the future
In a hyper-competitive economy with ever-changing threats and opportunities, all ambitious businesses, no matter how successful, must continuously look to the future. In order to drive business growth and be best prepared for unexpected events, finance teams everywhere must seriously consider and evaluate their scenario planning models.
This can be a complex undertaking, especially for smaller businesses who may not possess the same resources as their global counterparts. Professional assistance and advice from an expert partner can help your company to implement scenario planning tools. What’s more, a cutting-edge organisation, with longstanding experience of providing this service, can investigate your unique requirements and optimise this innovative planning software to suit your business needs.
The bottom line is that finance teams who unlock the full potential of scenario planning are enabling their organisation to shape its future through intelligent, data-driven foresight. Those who don’t are merely reporting on the past and risk falling behind their more forward-thinking competitors.
To find out more about Miagen’s offerings in this area, speak to our expert team on +353 1 969 5900 or email info@miagen.com.