Imagine knowing 10 years ago that we would be facing the economic conditions we are today. What preparations would you have made over those 10 years to be better prepared for today’s market? Would you have more or fewer assets, inventory, acquisitions, or more or less staff? Much like strategic planning, the practice of scenario planning can be a valuable exercise for your business. Scenario planning focuses on a number of foreseeable futures for your business, not just a single potential forecast. Variations in scenario planning may focus on issues, such as potential threats from competition, economic changes, vendor/production changes, changes in growth strategies, customer behaviors, as well as testing the company’s current strategy in the possible futures. By taking time to consider and plan out potential futures, you can leverage your company to not only be prepared, but to take advantage of foreseeable future scenarios.
Scenario planning can help distributors plan even when uncertainty reigns, says Adam Fein, founder and president of Pembroke Consulting, a Philadelphia-based management advisory and business research firm , in an article. He notes that scenario planning can help identify market dangers or outside shifts that could affect your business, as well as help to identify opportunities for growth.
Fein suggests that in the early 1970s, Royal Dutch/Shell, a British oil company, pioneered scenario planning. Royal Dutch/Shell Company had considered a scenario that involved oil dropping to $15/barrel. In 1984, oil was priced at $28 per barrel. When the price of oil dropped two years later, the British oil company took advantage of purchasing oil reserves at those low prices while other companies were unprepared for the unexpected price drop. Instead of having to reduce operations because of the sharp decrease in prices, they were leveraged to buy more oil. Just like in today’s economy, prices of fuel, distribution, and other costs of conducting business can change quickly. How would such drastic changes affect your company and what can you do now to prepare for possible future scenarios? Microsoft Dynamics® GP is a robust business intelligence solution that can help streamline processes, improve communication with your entire enterprise, and can also deliver predictive modeling and forecasting scenarios via Microsoft Forecaster. Using Microsoft Forecaster, you can accommodate multiple budgets and forecasts that can easily be updated.
With Microsoft Forecaster, you can develop scenarios with budgeting and planning options better preparing you for the future. it will help you develop and evaluate employee assets, capital purchases and depreciation, and other scenarios. By linking Microsoft Forecaster segments with the General Ledger chart of accounts, you can extend current financial data and match how you organize budgeting information and processes. This will allow you to quickly modify reports to understand the impact of potential changes. Then, when one of the planning scenarios starts to match current reality, that budget can easily be promoted to the active budget to be used in financial statement comparisons.
Efficient scenario planning will involve meetings with staff across the company to discuss realistic potential futures. Meetings should be open and flexible to allow for a constant stream of creative ideas. Once reasonable futures are shaped, data can be entered into Microsoft Forecaster and can be measured and tracked. Planning and being prepared for potential futures can help you weather the ups and downs of the future market a little safer and easier.
By Earl Hunt of The Resource Group, Seattle based Microsoft Dynamics GP Partner
The Resource Group is a seasoned team of business professionals that help companies gain valuable business insight from their financial systems, enabling customers to manage their business more efficiently and effectively.