Scenario planning: Pivoting from pandemic to proactive

January 26, 2021 | 3 minute read
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By Edward Roske, CEO, interRel Consulting

On a scale of 1-10, how far off was your 2020 budget? Feel free to go as high as 14.

We started off 2020 with a great deal of promise, with markets high and unemployment low. Two months in, the global economy got slapped in the face with the reality of being a global economy. And yet, we persevered. How? By reacting quickly.

Reactionary scenario planning

Once the pandemic became real, most organizations quickly came up with multiple scenarios for how the impacts of coronavirus would affect the lives of their employees, their customers, and their business. They took the information they had (which, back in March 2020, wasn’t very much) and created financial plans. Most people had 3-5 scenario plans ranging from “short-term recovery” to “multi-year recession” (though we all hoped for the best).

Companies took those scenario plans and compiled a set of actions, based on how they would respond if each scenario came to pass. Some examples included:

  • Short-term recovery? Minimize discretionary spending. 
  • Year-long economic hit? Stop our least profitable products and locations. 
  • Multi-year recession? Stop everything that isn’t making money, cut costs dramatically, and determine how long until the money runs out.

And then the data started coming in. The economic dip was deeper and faster than 90% of the predictions anyone made, so we revised our scenarios down. The economic recovery after the massive drop was faster than 99% of the predictions, so we revised our scenarios up. COVID-19 turned out to be more deadly, longer-lasting, with cases and deaths coming in multiple waves, so we extended our scenarios around recovery. The vaccines were developed and approved faster than any in history, so we allowed for scenarios with faster resumptions of more traditional spending and economic activity.

2020 was a year of reactionary scenario planning. Yes, we were coming up with possible scenarios, but only in response to events. We looked ahead by responding to what had already happened. Things happened to us; we did not happen to things.

Proactive scenario planning

But now 2020 is over. We’re planning our scenarios for 2021, and we need to pivot from being backward-looking about potential scenarios to being proactive about the scenarios we want to make happen. Take a pause, look ahead and say, “Now that the end is in sight, what are the most plausible scenarios for 2021 to 2025?” It might be “global expansion” or “delayed expansion” or “Let’s definitely not expand ever.” It could be anything from “Our new products launched well in 2021” to “Well, that didn’t work.”

On that note, you probably should throw in a worst-case scenario, because there will be another catastrophic event. Take the time now to plan for how you’ll respond to it, so you’re not reacting in the moment.

You’ll find that there are too many possible scenarios for you to plan for, so group them together into broad categories that cover the 3-5 most likely general cases. Expand them—drive them off KPIs, so they’re easy to revise—into full financial scenario plans. Then take those plans and come up with a set of actions to prepare and respond to those scenarios.

Most importantly, make sure those scenario plans are circulated widely. If some of the plans are dire (otherwise known as the “Start updating your resumes” scenario), make sure everyone knows what to do to avoid this. Make 2021 the year where things don’t happen to you; you go out and happen to things.

Next steps in making the pivot

Each year, I conduct a global survey of business analytics. In the most recent survey, I asked over 250 companies how they were doing in the world of reporting, analysis, planning, and consolidation. If you want to see where you should be planning before it happens, I’m unveiling the results on an upcoming webcast. You’ll learn how your analytics and EPM (enterprise performance management) software stacks up against the rest of the world.

Register for the webcast, “State of Business Analytics Survey 2021.”

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