Scenario Planning: What, Why, and How to Begin

Traditional planning approaches have a major flaw: they do not work in today’s society.

Markets can change quickly, and patterns can have a wide range of future ramifications.

If you’ve been in FP&A for a long and still employ spreadsheet-driven methods, you’ve probably wondered, “Why doesn’t my planning process take into account different outcomes?”  

By detecting trends and investigating the ramifications of projecting them ahead, scenario planning enables you to gain a better understanding of the future.

You get to answer the question “What if…?” and investigate a wide range of alternatives. 

Why is Scenario Planning Necessary? 

The challenge with planning is that the future is unpredictable.

You are not an oracle with a crystal ball who can forecast how market trends and global events will effect your company.  

You’ll never have all of the knowledge you need to make an accurate prediction about the future, which is why scenario planning is important.  

We’ll break it down into five reasons to help you understand why you should employ scenario planning. 

1. You can design several scenarios for the most diverse set of future conditions feasible.  

You can use scenario planning to study various trends, concerns, and themes, and then interpret deep drivers that can affect your organization.

By looking at these aspects, you will be able to generate multiple distinct scenarios. Consequently, this will give you a more comprehensive view of your strategic options.

2. By mixing scenarios, you can see the influence of more than one event. 

The possibilities for your predictions do not end with multiple scenarios based on diverse elements.

You can connect those scenarios to see the impact of two or more events, or numerous trends, occurring at the same time. 

3. You can answer the most important questions 

Scenario planning enables you to ask important questions and acquire useful insight into the responses.

How are you going to meet your goals? Why did the outcomes differ from your expectations?

These and other questions can be addressed through scenario planning. 

4. Your scenarios might be based on major business drivers. 

if your CFO is focusing on driver-based planning — predicting based on important business drivers — then scenario planning can help.

With scenario planning, you should identify those main factors and develop scenarios for how they might effect your organization. 

5. You can define quantifiable and strategic goals. 

Using scenario planning, you can discuss your scenarios with executive management, who can then reach an agreement to create strategic goals. 

Scenario Planning: How Do I Started? 

If you’ve been convinced of the benefits of scenario planning, you’re probably asking how to get started.

Creating a scenario planning method consists of four steps: 

1. Determine your business drivers. 

As previously noted, scenario planning should take into account the variables that drive your organization. Will changes in the economy, society, technology, or politics have an impact on your company?

How will your organization be affected if you chose to make internal recruiting decisions?

It is critical to stay current on external trends, but it is also necessary to examine internal developments that will have an unavoidable impact on your organization.

You should select to look at some unanticipated company drivers as well as trends that will clearly effect your organization. Make a list of everything you can think of.

2. Determine the major uncertainty. 

Once you’ve identified your core business drivers, you should then prioritize the crucial uncertainties that not only will have the most influence on your organization but also will help you shape your strategy.

A grocery shop chain, for example, can focus on agricultural production and weather trends. 

3. Create a variety of feasible scenarios. 

Select two of your business drivers and create a matrix with your two uncertainty as the axes.

In order to help you make decisions regarding your organization’s future, you can use a matrix that generates four potential possibilities.

4. Discuss the consequences 

Finally, so that your firm can develop a strategy, you should discuss the potential ramifications of each scenario.  

This kind of prospective thinking gets you out of the habit of basing your budget or your attention on past results. However, using this method manually has the same drawbacks as using spreadsheets for traditional planning. 

Oracle PBCS Scenario Planning 

If you’re still using spreadsheets and would like to start using current planning methods like scenario planning, it’s critical to find a solution that works and is simple to use.

Having all of the cloud’s advantages: no upfront hardware or software costs, reduced IT participation, and no annual maintenance costs, Oracle Planning and Budgeting Cloud Service (PBCS) is a great choice for your business needs.

Alternatively, if you need a planning solution with out-of-the-box capabilities, Oracle Enterprise Planning and Budgeting Cloud Service (EPBCS) is comparable to PBCS but comes with four built-in frameworks.  

The simplicity of the cloud can help you gain approval from your supervisor for planning software. Despite this, you may be wondering, “How can these tools assist me with scenario planning?” 

Sandboxing and Predictive Analytics for Robust Modeling  

You can develop “what-if” scenarios in PBCS by employing ad-hoc scenario modeling, a sandbox, and predictive features. As we have already discussed, generating a variety of scenarios is crucial for your success.

You can use PBCS to construct different scenarios that allow you to slice and dice data based on various what-if assumptions.

In addition, PBCS simplifies the creation of models based on rapidly changing assumptions.

Sandboxing allows users to experiment with data without interfering with other users. Unless you publish the data, changes done in the sandbox are not saved in the application.