Scenario planning is a protective measure, which will show you the possible outcomes of a myriad of things that’ll inevitably come your way.
What is scenario planning?
It’s a means of evaluating the results of different outcomes. You’re estimating the value of a proposed business decision, be it an investment or more of a general decision. Test variables through the scenario planner to make informed decisions.
Let’s say you want to invest in a new piece of equipment for your business. We spoke to Futrli-user Michael Tyrell of Beautiful Print a while back, who needed to do exactly that. He knew that investing in new machinery would increase his revenue overall but wanted a timeframe for a return. He says:
“We broke [the potential investment] down in the end into three scenarios. We were able to drill right down and look at the profits it was creating over our 5-year plan, and the effect it would have on the bank balance as well. It’s very clever and the Dashboard made it so easy to understand – the impact each scenario would have on my business was so clear.”
If you were to wonder ‘what if’ with a variable, you could plan for different outcomes. The idea is to get you thinking outside the box for whatever might come your way.
Why should I be scenario planning?
It’ll make your business stronger, so is thoroughly recommended. It can give you options in your decision making, which is crucial for any business owner.
At the turn of the 1970s, Shell developed scenario planning to protect the business in case of disaster. They listened to planner analysis of the global business environment, meaning that in 1973 when there was an oil crisis, the company was ready to cope. Fast-forward to 1981 and they were again prepared to deal with an industry slump. Other oil companies had stockpiled their reserves after the Iran-Iraq war broke out, while Shell had the foresight to sell their excess before prices dropped.
This proactive method is like a shield for your business against things you simply can’t control. Had Shell followed suit in 1981, the company would have struggled to stay open. While that may have been a win for the planet, it would have been a huge loss for those in charge.
How can I use scenario planning in my business?
Use this function to visualise how you’re going to achieve your goals. Monitoring your progress from day one will get you into good habits.
Later down the line, it becomes harder to keep tabs on every aspect of your business, so using reliable software that will help you stick with it is important.
How do I set up scenarios?
Within Futrli’s scenario builder you can view, create and edit forecasts that have been created for your organisation.
When creating your scenarios, you can use previous months’ data to create an accurate forecast. There is no need to create a formula to calculate this, it can be done using a monthly growth rate method in the scenario’s forecast methods.
What is a ‘what-if’ scenario?
Your business has many paths it could go down and you need to choose which one to action. What if scenarios allow you to work out which future is the best for you. Creating one base scenario with your certain outgoings (rent, rates, bills, etc) and then create further scenarios on top of this to see your best/worse cases, or what it looks like with this many staff vs this many, etc.
What if scenarios give you the perfect tool to see how any changes will impact the overall picture by linking further scenarios that you create, to your base one. Whenever you edit your base scenario, changes will flow through to the scenarios that are linked to it.
Now you have a what-if scenario set up, you can produce forecasts to indicate what would happen in the best case situation. For example, you may predict a new service will attract five new clients per month. On the other hand, you can create a what-if scenario based on the worst case scenario, with only one new client every other month.
What is the maximum length of a scenario in Futrli?
The maximum length of a scenario in Futrli is ten years. If you want to edit your start and end dates, or the length of your scenarios, then head to ‘Advanced Copy’ and it’s a simple process.
Should I include all of my potential leads in my base forecast?
You could do, but it’s better if you only include your financial data like your costs and revenue. Linking these through different scenarios means you’ll have best, worst and middle cases for how many leads convert into sales. Following the worst case in this instance would make a better result a nice surprise, but of course, aim high!
Can I use scenario planning to make quick spending decisions?
You can indeed. By linking your current forecast through to a what-if scenario, simply layer on the additional cost and you will then be able to compare key metrics. These might include your bank account or profit, which will help you to make decisions with confidence.
We have help documents available to help you get your head around this whole concept, which you can see here.