As more CFOs are taking a proactive role in the strategic development of companies, scenario planning has become a reliable tool that enables companies to grow. By identifying potential scenarios and outcomes, CFOs are able to rally a team around an idea and plan to solve complex problems. Let’s take a look at the impact of scenario-based planning.CFOs Play “What If”
Simply stated, scenario planning for CFOs involves taking a “what if” approach to strategy. With concerns about an unstable economy mounting, CFOs are using a scenario-based approach to strategic development. For many CFOs, scenario planning results in the ability to stave off a company crisis. Deloitte’s CFO and Managing Partner of Finance and Administration, Frank Friedman, is just one advocate of scenario-based planning.
According to Frank Friedman, scenario planning has helped his company carry out strategic investments, conduct capital planning and adjust hiring strategies. In an interview, Friedman stated, “I use scenario planning to be forward-looking and to stay ahead of potential events rather than react after they occur.” Scenario planning is beneficial for CFOs in three significant ways.
One of the best reasons to take a scenario-based approach to strategic planning, according to Friedman, is the ability to plan and prepare for a variety of events. Creating potential scenarios and formulating viable solutions prepares executives to successfully face an array of challenges. Friedman recalled that scenario planning led Deloitte to proactively adjust its cost structure, resulting in a state of preparedness and fiscal health during a period of economic downturn.
Short Term vs. Long Term
Scenario-based problem solving enables CFOs to categorize planning into short and long term initiatives. Anticipatory problem solving via a scenario-based approach allows CFOs to segment impact. Macro and micro-scenarios can be constructed that apply to an entire company or specific departments, making scenario planning a valuable tool for large organizations.
Create Resilient Solutions
Formulating solutions in response to potential scenarios enables companies to test potential outcomes prior to implementation. As opposed to responding to a crisis, creating solutions for hypothetical future events provides room for CFOs to apply these solutions and evaluate possible outcomes. With scenario planning, CFOs are able to help companies create resilient solutions for future challenges.
As a CFO, what steps do you take to plan for future events? Does your company conduct scenario planning?