Scenario Planning .. just a fancy way of saying ” what if”
Running a business in 2020 has been a little bit like taking a ride on one of those jet boats in the harbour, filled with sharp turns and sometime 360 spins. We have been hit with the unexpected challenges of lockdown periods and the resulting economic uncertainty. The instruction to date has been to “ hold on tight “ until the end of the ride.
The question now is what next. Some businesses have taken a serious financial hit so the first thing to do is to assess cashflow and identify what the commitments are and how they are going to be met. The revenue streams for some businesses have slowed or have at the very least changed so decisions need to be made about what business in the future is going to look like and what needs to change.
We have been helping many of our clients navigate through this tricky time using scenario planning. Scenario planning is just a fancy way of saying “ what if”. What do the finances look like if I take plan A, and what will they look like if we take plan B? What do our finances look like if plan A doesn’t work or what will they look like if I take on more employees?
Using our understanding of the business, we analyse how the profit and loss will look using different situations and this helps management and the Board decide which decisions to make. Scenario planning also takes some of the stress out of an uncertain future. If we plan for all possible scenarios , both good and not so good, then we can decide a course of action to take depending on what happens. Having these plan in our top pocket allows our clients to react quickly when events in the future take place and not waste time trying to decide which way to go.
Running a business can be stressful, but if we can see the likely financial implications of different scenarios in the future then there is less reason to worry about them, and more time to put actions in place to mitigate them or utilise opportunities.
Here’s an example – one of my clients is concerned that one of their main sources of income might be threatened within the next 6 months. We analysed several scenarios that could possibly occur in the future – what if nothing changed, what if we lost half the revenue , what if we lost all of the revenue, what if the change in revenue happened tomorrow and not in 6 months. For each of these scenarios we worked out what changes we could make to the client’s expenses to ensure that they remained in a break even position. This allowed us to be able to say, if we lose 50% of revenue then we need to put cost cutting plan A into action. We need to reduce certain employee hours, we need to change some employee’s roles and we need to reduce certain expenditure. We presented these scenarios to the Board and while no one is happy about the possibility of losing revenue, we all feel a little better knowing that we know what to do if that happens.
Scenario planning forces us to face uncertainty and allows us to make the most informed decisions no matter what happens in the future.
If we can help you put together some “ what if” plans for the future please contact us at email@example.com or call Deanna on 0431 807 135.