Why financial scenario planning has never been more important to business survival & how we can make it more meaningful

Gillian Livingstone, Financial Director, Eureka Solutions

As Financial Director of an SME, I have never before experienced a situation where the rate of change in so many disparate elements of our business landscape has been so rapid, coupled with uncertainty about how long the situation will last. It’s the combination of these two things that make this current time so different and challenging.


Although we are in this unusual time where the big picture is all important, to do our bit we must do our best to sustain our business for the job security of our staff and maintaining the crucial service we provide to our customers, and that requires retaining an element of competitive edge, for the present – yes – but also in preparation for when we start to come out the other side.


If, like me, you are responsible for the finance function of your business, you may be feeling the pressure in that your role has never been so important for the sustainability of the organisation and retaining this competitive edge. As a business, we believe in sharing best practice, so I thought it would be useful to share some of my thoughts and learnings so far and encourage any readers to do the same. In this blog I’ll focusing on scenario planning.


The first important (and difficult) thing to do is to get your head around the concept that the environment is highly changeable and that you can’t control it, don’t waste time on things that you just can’t control. None of us like to feel we are purely reactionary, but here and now the most proactive thing we can do is regroup and prepare how we will react to different possible scenarios – ensure you illustrate to your board the financial implications of those scenarios and reactions, and base this as much as you can on real data rather than guesswork.


This constant scenario planning can be labour intensive and those of us with planning and budgeting capabilities built into our core business systems will find it much easier than those of us that don’t and that are reliant on spreadsheets. According to Vertana Research, companies that use dedicated software instead of spreadsheets are likely to have a better planning and budgeting process that is more accurate. Systems that incorporate finance, ecommerce, CRM, stock management and more centrally, can draw on real data and use in built intelligence to show the implications of different scenarios business wide. They can then produce illustrative reports that present scenarios to the board and enable the quick decision making required.


I think that a lot of us that don’t have this technology will be putting it on our ‘to do’ list now that we are in a situation where its value is tangible – however – whether we have it or not, the key to scenario planning is to focus your energy on only your most important KPIs and business performance levers.


Keeping your focus on only the key KPIs and business levers gives you a simpler, cut down financial model for this period of time, and allows you to see clearly the effect of different actions on these key areas without becoming unnecessarily bogged down.


Then, for each scenario, look at best case, worst case and average case. We may not be able to avoid the worst case – remember that we are not worrying about what we can’t control – but we can at least be prepared for it and thus minimise potential losses or damage.


Good scenario planning can require some out of the box thinking – it requires many perspectives and engaging the wider team – we don’t have to do all of this ourselves! This is an opportunity to share with the wider management team the importance of having reliable data across not only the finance function but their functions too.


Organisations that will survive will have the knowledge to undertake effective scenario planning and act decisively. Again, this can come back to the technology you are using, but accurate data just means superior, faster decision making for all.


Another important point that can’t really be avoided just now – what if I (or you) are out of action due to the poor health of us or family member – is my data accessible and in a format that is easily interrogated by my fellow directors? Again, this can come back to the technology you are using – our systems are all cloud-based and accessible to anyone with the right permissions, from anywhere – but if yours aren’t, do try to plan and organise for this – it will significantly reduce your count of sleepless nights!


I hope you’ve found this food for thought, I’d welcome your feedback on further topics that we could share best practice on at this difficult time. We’ll be watching with interest how our customers are doing and supporting them as best we can, so we may share some of their stories, successes and challenges in the weeks to come as well.


Good luck getting those scenarios planned out!