Why create multiple scenarios?

Creating one budget or forecast is all well and good. But what if the worst happens, or the best?! Plan for every eventuality with multiple scenarios

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Why create multiple scenarios?

Scenarios are the key to exploring your future

The CBI in the run up to the UK’s vote to stay in or leave the EU in 2016 commissioned two different exit scenarios: one at the optimistic end of the range, and the other recognising the likelihood of difficult trade negotiations but with trade deals still being concluded. Uncertainty surrounded the impact of both scenarios, but the analysis that these scenarios provided was a step forward in broaching the tough arguments that need to take place within the country before understanding which direction the UK voters wanted to take. The economic impact of staying in versus leaving was impossible to determine without scenario planning.

Where did scenario planning originate?

Scenario planning was first developed and used by the U.S. Air Force during World War II. It gained acknowledgement in the business world when Shell Oil utilised scenario planning techniques to predict the oil crisis of the 1970s. Shell did not act on the scenarios that predicted different outcomes that would affect oil prices in the future and this was a trigger for larger businesses to pay attention and start flexing possible outcomes in order to mitigate risk and work with an air of more certainty.

This is completely relevant to you

Going back to the Brexit dilemma, as a small business, those that trade with Europe, what would the future look like if the UK left Europe? Would contracts be lost? Would red tape increase so much that it would be prohibitive on trade? Or would red tape decrease within specific industries? What would the impact on staff, sales and suppliers be?

Unlike the traditional (basic) preparation of a single budget, which will take its cues from what has happened in the past, and which may lead to a tunnel vision of one fixed future, scenario planning will give you more freedom to test different futures and outcomes and can (and should)  become an integral part of how you manage your company with your team, irrespective of your company’s size.

Small businesses grow into medium sized businesses and scenario planning will help you visualise how you get there.

Scenarios are a management tool to improve the quality of organisational decision making. It’s an essential tool for driving your business forward and should be used in such situation as:

  • When you need to flex a best and worst case
  • When you need to work seasonal or environmental fluctuations
  • When you want to create quick mini action plans to mitigate short-term risk
  • When you’re trying to get your team to think outside of the box
  • When you want to take on more staff: what’s the impact on sales and expenditure?
  • When you want to move or take on new premises
  • When you want to expand your offices
  • When you want to start trading overseas
  • When you want to take on a new untested product line – what’s the gotomarket?

Scenarios can help you to foresee unexpected threats to your business, giving you and your team an opportunity to get contingency plans in place. Or, the scenarios you create could identify unforeseen opportunities that should be grasped. The key is to get your team involved with the creation of the scenarios, as if they take ownership of predictions it has a hugely positive impact on intrapreneurial spirit. Using tools such as FUTRLI, these scenarios can be set up so quickly by using the base rolling forecast and copying it. So transform your next management meeting!

“For me, it's simple. I want to give my clients the kind of service that they rave about. I've been in this game for over 30 years and I've worked with countless business owners (and I'm an accountant!) but that's the point - I've never witnessed anything like this. My clients are hooked. I genuinely love tech and finding newer and better ways to work and FUTRLI delivers massively for my own practice here too. I would never go back to historical reporting apps or spreadsheets. FUTRLI is the future.” - Amanda Fisher

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