Skip to main content
Home
The Online Resource for Modern FP&A Professionals
Please register to receive the latest FP&A news, updates and tips Login

Main menu

  • Home
  • FP&A Insights
    • AI / ML FP&A Committee
    • FP&A Trends Digest
    • FP&A Talks Series
    • FP&A Trends E-Books
    • Our Authors
  • FP&A Board
    • Amsterdam
    • Boston
    • Brisbane
    • Brussels
    • Chicago
    • Copenhagen
    • Dubai
    • Frankfurt
    • Geneva
    • Hong Kong
    • Houston
    • Kuala Lumpur
    • London Board
    • London Circle
    • Melbourne
    • New York
    • Paris
    • Perth
    • San Francisco
    • Seattle
    • Shanghai
    • Singapore
    • Stockholm
    • Sydney
    • Tokyo
    • Toronto
    • Washington D.C.
    • Zurich
  • Webinars
    • FP&A Board Connect
  • FP&A Videos
  • About Us
    • Privacy Policy
    • Company Policy
    • Editorial Guidelines
    • Our Sponsors & Partners
  • Contact Us
This block is broken or missing. You may be missing content or you might need to enable the original module.
FP&A Empowerment Survey 2021

FP&A Empowerment Survey 2021

Click here to view details and register

 

Reacting to Market Changes with Agile Scenario Planning
March 11, 2021

By Stéphane Bonutto, CFO at Oerlikon Balzers

FP&A Tags
Scenario Planning
Modelling and Forecasting
Planning and Budgeting

Agile Scenario PlanningWhile the economic environment is getting increasingly volatile, processes and tools are not always available to support taking the right business decisions. This blog explores how to identify the right drivers to monitor and how to build flexible scenario templates.

The goal is to safeguard the bottom-line result

It is likely that a budget will not always materialise as expected. This calls for ad-hoc actions. In a favourable market situation, the necessary actions are rather easy to decide, since their purpose is to gather the additional resources to cope with the increasing demand. In a market downturn, however, the required actions are more difficult to take, since their goal is to reduce cost. It is essential to react quickly and to try and maintain the expected profit margins. In this context, the finance team need to have the right modelling tools available to estimate the financial impact of the alternative decisions.

Is forecast the adequate tool?

While it is the responsibility of the operational managers to implement the decided actions, finance must provide them guidance. This means explaining how the company’s results may change depending on the possible action taken. The usual process used to recalculate the company’s results, the P&L and the KPI’s is forecasting, depending on the revenue impacts. However, in my experience forecasting does not allow for the review of several alternatives, due to timing and content requirements.

First, the forecast only takes place on a scheduled timetable, e.g. monthly or quarterly, so there is a time lag between updates. Second, the forecast only shows one picture of the estimated future company results, with no alternatives. Modelling these alternatives is the purpose of scenario planning. Only the most probable scenario should be reflected in the next forecast. Alternatives to the submitted forecast should be documented as risks and opportunities to the key lines of the P&L, cash flow and working capital.

Identifying the drivers

In a manufacturing plant, I implemented scenario planning to assess the financial impact of several different production models that met the quantities requested by the sales organisation. The scenario planning process involved logistics, manufacturing engineering and finance. The first two departments quantified production-related drivers.  For example, the various production schedules, the shift models and the required staff numbers depending on the hours per product. Finance assessed the other cost drivers and calculated the final product cost using a specific modelling tool.

Agile scenario planning requires detail and speed

Since a market can change very rapidly, it is a good idea to mentally prepare the organisation to be able to perform recalculations regularly and quickly, even if these require intensive work. The people involved need to understand that these scenario calculations are an essential method for optimising resources and achieving product margin targets despite a difficult market situation.

Agile scenario planning requires the right tools. These tools must be simple enough to enable quick simulations and swift decisions, but detailed enough to return an accurate result. It is, therefore, necessary to identify the cost drivers up front and include them in the integrated simulation tool.

I had a good experience with a tool consisting of two templates: a rapid one and a detailed one. With the rapid template, the managers could quickly assess alternatives on their own based on a reduced number of drivers. Generally, they would choose one or two scenarios from this initial directional assessment and send them to a specialist team. This team would then perform the necessary calculations on the detailed template. The detailed template was based on a higher number of drivers and returned an accurate and more reliable decision basis.

What to do with the scenarios?

Choosing one scenario and reflecting it in the next forecast is certainly not enough. It is often difficult to decide when it is the right time to implement each scenario based action. It is first necessary to recognise when the anticipated market change has effectively materialised. Then it is important that management demonstrate courage when explaining to the staff that these actions are required to protect the results of the company.
 

The article was first published in Unit 4 Prevero Blog

The full text is available for registered users. Please register to view the rest of the article.
  • Log In
  • or
  • Register
+

Subscribe to
FP&A Trends Digest

We will regularly update you on the latest trends and developments in FP&A. Take the opportunity to have articles written by finance thought leaders delivered directly to your inbox; watch compelling webinars; connect with like-minded professionals; and become a part of our global community.

Create new account

The FP&A Trends Webinar: Magnifying Revenue Planning for Better FP&A Insights

The FP&A Trends Webinar: Magnifying Revenue Planning for Better FP&A Insights

Click here to view details and register

Pagination

  • ‹‹ Previous
  • April 2021
  • Next ››
Su Mo Tu We Th Fr Sa
28
29
30
31
1
2
3
 
 
 
 
4
5
6
7
8
9
10
The Digital Pan-Asian FP&A Board: The Art and Science of xP&A Business Partnering
 
11
12
13
14
15
16
17
The Digital North American FP&A Board: From Traditional to Better and Beyond Budgeting
 
18
19
20
21
22
23
24
The FP&A Trends Webinar: Embracing FP&A Transformation. Key Steps to Consider
 
The Digital London FP&A Circle: Empowering FP&A to Close the "Strategy - Execution" Gap
 
25
26
27
28
29
30
1
The FP&A Trends Webinar: The Combined Power of Human and Artificial Intelligence in FP&A: Roche Case Study
 
The FP&A Trends Webinar. Dynamic and Immediate Revenue Planning in Uncertain Environment: Insights from Microsoft and Emirates Airline
 
 
All events for the year

Future Meetings

FP&A Transformation
The FP&A Trends Webinar: Embracing FP&A Transformation. Key Steps to Consider
April 20, 2021
Digital London FP&A Circle
The Digital London FP&A Circle: Empowering FP&A to Close the "Strategy - Execution" Gap
April 22, 2021
The Combined Power of Human Intelligence and AI in FP&A
The FP&A Trends Webinar: The Combined Power of Human and Artificial Intelligence in FP&A: Roche Case Study
April 27, 2021
Revenue Planning
The FP&A Trends Webinar. Dynamic and Immediate Revenue Planning in Uncertain Environment: Insights from Microsoft and Emirates Airline
April 28, 2021
The Digital Swiss FP&A Board
The Digital Swiss FP&A Board: Building Winning FP&A Teams
May 6, 2021
The Digital Benelux FP&A Board
The Digital Benelux FP&A Board: The Art and Science of FP&A Storytelling
May 11, 2021
FP&A Predictive Analytics
The FP&A Trends Webinar: How to Manage Uncertainty with FP&A Predictive Analytics
May 12, 2021
xP&A Business Partnering
The Digital Pan-Australian FP&A Board: The Art and Science of xP&A Business Partnering
May 13, 2021
FP&A Scenario Planning
The Digital Middle Eastern FP&A Board: The Power of FP&A Scenario Planning
May 24, 2021
The Digital Nordic FP&A Board
The Digital Nordic FP&A Board: The Art and Science of Digitised FP&A Business Partnering
May 25, 2021
Advanced AnalyticsArtificial Intelligence (AI)Behavioural FinanceBetter BudgetingBeyond BudgetingBig DataBrexitCash PlanningCollaborative PlanningCorporate Performance Management (CPM)Cost PlanningCOVID-19DashboardsData ManagementData QualityData VisualisationDriver Based PlanningExtended Planning & Analysis (xP&A)Financial Planning and AnalysisForecasting QualityFP&A AnalyticsFP&A Business EnvironmentFP&A Business PartneringFP&A Case StudiesFP&A DigitalisationFP&A Maturity ModelsFP&A PeopleFP&A SkillsFP&A StorytellingFP&A Talks SeriesFP&A TechnologyFP&A TransformationFP&A Trends E-BooksFP&A Trends InitiativesIntegrated FP&AKey Performance Indictators (KPI)Machine Learning (ML)Management AccountingModelling and ForecastingPlanning and BudgetingPredictive AnalyticsProfitability AnalysisRisk ManagementRobotic Process Automation (RPA)Rolling ForecastScenario PlanningStrategic FinanceStrategic PlanningTeam BuildingWhat is FP&AZero-Based Budgeting (ZBB)

Please register to receive the latest FP&A news, updates and tips.

info@fpa-trends.com​

              

Foot menu

  • FP&A Insights
  • FP&A Board
  • Webinars
  • FP&A Videos

Footer countries

  • Amsterdam
  • Boston
  • Brisbane
  • Brussels
  • Chicago
  • Copenhagen
  • Dubai
  • Frankfurt
  • Geneva
  • Hong Kong
  • Houston
  • Kuala Lumpur
  • London Board
  • London(Circle)
  • Melbourne
  • New-York
  • Paris
  • Perth
  • San Francisco
  • Seattle
  • Shanghai
  • Singapore
  • Stockholm
  • Sydney
  • Tokyo
  • Toronto
  • Washington D.C.
  • Zurich

Copyright © 2021 fpa-trends.com. All rights reserved.

0