Contact Us

Insights Learning Hub

The CFO's Scenario Planning - Make Proactive Decisions in Times of Uncertainty

MAY 01, 2021 08:01 AM

How can stakeholders in an organization plan their company's financial plan accurately in a time when there is a rapid change in the technology and business models? The change in the technology is inevitable and management boards and other stakeholders are looking to the CFO and finance team to help them in providing solutions that will have a lasting impact.

Many organizations are not prepared when unexpected events occur, like the COVID-19 pandemic situation. Modern CFOs who are using scenario planning can survive during times of uncertainty and can eliminate some of the guesswork. This type of scenario planning allows finance teams to run faster while giving them the agility to visualize multiple "what-if" scenarios; more frequent scenarios to examine potential impacts on the business enables a faster assessment response. This COVID-19 pandemic has shown that there is a lack of historical data for finance teams when creating plans, causing them to make swift decisions, which in turn is difficult for accurate forecasting.

Scenario planning helps companies minimize risk, stay agile and maintain business continuity when there is a potential shift. This strategic planning method integrates cash-flow and business forecasting, so organizations can balance short-term needs with long-term priorities to be better prepared for what is ahead.

Leverage Scenario Planning: Monte Carlo Simulation, Narrative Reporting, Cash Management, Profitability & Cost Management
1. Stakeholders Responsibility

This exercise is a top-down strategic approach to identify the stakeholders who will take ownership and responsibility for the business; this helps with building the right leaders to use the C-suite support for quick decision making. After the stakeholder's team is formed, the full plan can be rolled out for implementation.

2. Key Drivers

Traditional drivers are for long-range planning and do not depend on too much - using root cause analysis will best capture what is more important now. To start with, look at organization financial statements and check what supports each line item; this will help make the financial team aware of unlikely alternate futures they had not thought of.

3. Analyse Sources of Data

To develop key assumptions, scenario planning requires collecting quantitative and qualitative data with a combination of information from both internal and external sources.

4. Apply a Full Trial Balance

To have enough transparency in cause-and-effect relationship, focus across organization's full income statement, balance sheet and cash flow. Consider including miscellaneous debit items such as office/ warehouse rent, equipment and salaries, in addition to credit amounts like accumulated depreciation, unearned fees and accounts payable.

5. Limit the Scenarios

Evaluation of all the scenarios ensures that your finance team will be as prepared as possible when the unlikely things happen. Before running comprehensive analysis, start with a broad set of scenarios, then narrow your set with enough detail into each selected scenario; this will cover probable outcomes from "low impact on our business" to "potential bankruptcy."

Conclusion

As you go forward with your planning, the right Oracle Cloud Partner will help your organization's finance team to reposition in scenario planning and communicating financial results effectively to improve performance while instilling confidence in employees, customers and investors. With a proven track record of quickly delivering long-term value to a wide variety of companies, the right Oracle Cloud Partner will deliver the combination of these applications to the businesses based on the requirements.

SMACT Works is a technology-focused systems integrator and IT/ERP consulting firm. We deliver end-to-end consulting, managed, and implementation services for Oracle Cloud Applications, IaaS & PaaS, On-Premise PeopleSoft & EBS Applications. Headquartered in Dublin, OH, we have a global presence with North America and Asia offices. We are an Oracle Gold Partner Cloud Standard, ISO 9001, and 27001 certified delivery organization serving customers with Excellence and Integrity.