Controllers Council recently held a webinar on Scenario Planning for Controllers and CFOs, sponsored by BILL.
BILL is a leading financial operations platform for small and midsize businesses (SMBs). As a champion of SMBs, BILL automates the future of finance so businesses can thrive.
Our expert panelists were Barbara Salazar and Eric Greene. Barbara Salazar is the Chief Financial Officer of 7X Group, a firm that’s involved in construction, property management, and real estate management. She has more than 25 years of finance and accounting experience with roles that included VP of Finance, CFO, and corporate controller and duties that included SEC reporting, SOX compliance, and audit at PwC. Barbara is a CPA and earned an MBA from Stanford.
Eric Greene is Director of Accounting and Controller at Aptive Environmental with approximately 2 ,000 employees. Eric is a CPA and a certified management accountant, certified internal auditor, a certified fraud examiner, and more acronyms. He’s also a PwC alum and Utah Association of CPA Board of Directors, member of AICPA. Eric Earned a master’s degree in accounting and business administration from Westminster University and undergraduate degrees in finance and accounting from University of Utah. The panel was moderated by Neil Brown, Executive Director at Controllers Council.
Following are key takeaways to this discussion. If you are interested in learning more, view the full webinar archive video here.
Doe your organization use scenario analysis and what are some examples?
Eric: I think we use scenario planning in a lot more ways in our day-to-day work than we expect. A lot of work that we do is scenario planning and trying to make decisions, looking at potential outcomes of impacts, evaluating responses to possibilities that may be either positive or negative. We’re thinking about larger scenario planning of helping key decision makers, whether it be executives or leaders of teams, all the way up to the CEO and the board, help understand what risks and opportunities are out there, and helping businesses become proactive versus being reactive to events.
Barbara: At 7X, I really would not even do any FP&A and budget forecasting without scenario planning. I start with a realistic scenario, optimistic scenario and pessimistic scenario. And it might be multiple scenarios under each category.
How is scenario analysis different than financial planning and analysis?
Barbara: Financial planning and analysis is your annual financial plan, which is often called your budget. And as mentioned, I typically do at least three scenarios… realistic, optimistic and pessimistic scenario. You’re projecting financial earnings, you’re looking at estimating cash flow, you’re looking at best, worst case scenarios in financial models when it comes to financial information.
Eric: Scenario planning is an integrated approach across many departments in which you’re looking at things that may happen in the business that will have a ripple effect that impacts a lot of different stakeholders. It’s almost like strategic planning for your business and forecasting all the scenarios. So, it’s like less standardized. It is always “one-off” because you’re addressing specific risks.
What other types of planning do you use, and what is the relative timing?
Barbara: I’m in the construction real estate industry, so we have to incorporate planning and cost control early, even when you are a small company. We also do a lot of project planning and job planning. We also have headcount planning because the company is growing very fast.
Eric: Aptive uses several different types of scenario planning. One that came up recently is what we call a pricing. We have all these different customers and have all these different plans. There are so many different things that you are thinking through as you’re trying to do and figure out what is the best pricing to go and what pricing is going to best help us understand and maximize the value of the business. One thing that I’ve learned through this process of applying scenario planning, both for this and for headcount planning and for mergers and acquisitions and other areas in which we’ve had to kind of think about it is sometimes scenario planning can be standardized. You do it once a year. You can say, hey, let’s look at our risks. Let’s look at our opportunities based on the current opportunities in the market. What’s happening politically? What’s happening in demographics? What’s happening economically?
What types of scenario planning tools or technology solutions do you use?
Barbara: Technology is your future. So, in scenario planning, you really want to spend as much time as possible analyzing data and as less time as possible on crunching data. And as we all know, you have to do a lot of modeling and analysis. I always try to use as much technology as possible. My favorite technology tool right now are Adaptive. My prior companies used Oracle and our standard FP&A tool is Hyperion.
Eric: Data is the core of good scenario planning. To have good data, you must have good technology. And to have good technology, you got to have good people getting that technology into place. Another thing I want to talk about is tools that we use. I think that people are an incredibly important element of considering and doing scenario planning. There are different people who have different thinking, different skill sets, a different way of processing problems, and you want that varied experience. When it comes to scenario planning, especially large-scale scenario planning, I encourage integrated thinking with different departments, such as operations, IT, legal, let everyone kind of think through it.
How does scenario planning adapt to rapid changes in macro-economics and/or internal organization changes?
Barbara: Organizations and business environments are constantly changing. This is why scenario planning is so important, even if you have a very robust FP&A with your annual budget, quarterly budget, monthly analysis of actuals versus planned versus focused, it’s not just enough. You really have to focus on scenario planning and make assumptions. Scenario planning is all about your organizational changes, about your macroeconomic and being ready for any outcome, even if outcome is pessimistic.
Eric: We live in a “VUCA” world (volatile, uncertain, complex, ambiguous). The goal of scenario planning is to be proactive rather than reactive to what’s happening around us.
Sometimes, you use scenario planning to make a one-time decision and sometimes, you can make decisions as you go along the way to say, for example, is this still the right path that we should be pursuing? Sometimes, it’s an on and off switch where you say go, no go, then you’re locked in. Other times you can use scenario planning to determine, are we still on the right path? Are we making the right choices as a business? I think it’s important to remember that scenario planning in this world that we live in today is very short term, which means that the data that we’re using for scenario planning is relevant and timely often for a small amount of time.
What information or results are you trying to get with scenario planning?
To view this question and the complete webinar, download here.
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