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How prepared is your business to respond and adapt to future challenges?

12 August 2020
Gavin Hooker
COVID-19, Accounting & Compliance

Forecasting has always been difficult for businesses to do given the difficulty in predicting the future, however generally most business owners know the peaks and troughs for their market.

Over the past few months, business owners would have been tested, not only trying to keep sales coming through the door, but also crisis management in relation to workforce and keeping the business afloat through potential financing. However, had businesses planned for certain scenarios, they would have been better prepared to respond and adapt in a fast-changing environment.

Scenario planning not only gives business owners an idea of how situations could affect their business, but also helps them prepare for mitigating downsides and exploiting upsides in an uncertain future. Let’s take the hospitality sector – how many restaurants converted to online ordering and delivery whilst they were closed due to lockdown and had they already planned for such a situation or was it a reaction? Now things are heading towards a “new normal”, are they going to continue with their online presence or return to how they operated before? What would happen in a second spike scenario if they return to how they operated before? Would it be easy to restart their online presence to carry on meeting demand?

Scenario planning provides vital links to organisational processes such as strategy making, innovation, risk management, public affairs and leadership development. Given the uncertain future that most businesses now face, this process helps break the habit that the business operates as it always has done.

Sitting within scenario planning is scenario forecasting which looks at the financial aspect of situations and this is crucial for business survival. You look at expected sales in different circumstances as well as the margins you can apply to that revenue. The biggest expense for the majority of businesses is wages. So when forecasting you should consider the size of the team needed and what that looks like financially, taking into account any redundancies or new starter salaries.

The easiest way to look at scenario planning is to follow the steps below:

  • Identify the driving force of uncertainty – discuss what are the big shifts in society, economics, technology and politics in the future and how they will affect your business
  • Identify two critical uncertainty pairs affected by the driving force – for example at the current time, this could be market recovery and customer demand.
  • On a 2×2 matrix, enter four scenarios based on your uncertainty factors – the two uncertainty pairs would be the axis and from these you are able to draw the possible scenarios
  • Define the implications for your business based on all four scenarios – discuss the implications and impacts of each scenario and start to reconsider your strategy: set your mission and your goals.
Critically uncertainty

Once you have created your matrix you can look at forecasting for each scenario.

Whilst there are benefits to scenario planning and forecasting, there are no guarantees that if a situation happens your business will react in the exact way that you planned. Also how many businesses would have planned for a global pandemic at the beginning of this year? You cannot plan for every eventuality, all you can do is make sure that you are doing your job to the best of your ability and that your processes are as efficient and adaptable as possible. Then when the unexpected happens, your business is in the best place to face the threat at that time. The key is maintaining positivity and adaptability throughout your organisation.

We can help with scenario planning, forecasting and assist in your business’ general strategy. We are here to support your business, if you have any concerns please call us or email Mark or Andrew.

The content in this blog is correct as at 12/08/2020. See terms and conditions.

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