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 Scenario Analysis
If you can't predict the future, and few of us can in today's turbulent economic times, the next best thing is to set up scenarios, lots of them.
Scenarios let you explore how you might behave (or decide) if things are better or worse or just different.
Unlike budgeting where you care about who changed what number, scenario analysis is about understanding what's behind the numbers — the most critical assumptions, volume and rate impacts, and especially what's driving material changes to the P&L and cash flow.
Deliverables from scenario analysis
The functionality you need in scenario analysis
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Customer Stories
Iroquois Gas
Transmission System:
Using Alight for Complex
Scenario Analysis
"The Alight implementation consultant was great! With only 25 hours of Alight's help, together we built an extremely sophisticated model of our business..."
[ read the whole story ]
Open Learning Exchange:
Using Alight for Rapid Model Building
"The Alight modeling environment is amazing!... I'm motivated to keep going because I see results right away. The people who built Alight, they understand planning."
[ read the whole story ]
Sales Team Live:
Using Alight to Analyze Strategy
"The deal structure choices were definable, but the underlying assumptions were all over the map. The software I needed to integrate strategic choices and assumptions with pure number crunching..."
[ read the whole story ] |
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Deliverables from scenario analysis
The deliverable of scenario analysis is actionable knowledge. By analyzing a specific scenario and comparing it to a baseline case or other scenarios, the management team is better able to evaluate best courses of action. Where there is an immediacy to the issues — e.g. to proceed with a capital project or change pricing — the deliverable is decision making. Because it's decision and action focused, robust scenario analysis is the most critical underpinning of continuous planning and rolling forecasts.
The functionality you need in scenario analysis
The functionality you need for effective scenario analysis goes beyond simple budget versioning. Here are our criteria:
- Real time feedback. Whether you're a financial analyst working through the numbers late at night or the CFO answering questions live in an operations review, scenario analysis should be delivered by the planning tool in real time. That is, when you change a value, all elements of the financial model — the P&L, balance sheet, cash flow, financial ratios, performance metrics — should update in seconds, not minutes or hours.
- The need for speed. Scenario analysis must satisfy the need for speed we're used to with Excel. Scenario analysis must be an interactive process responsive to questions and testing of assumptions on-the-fly. Continuous planning needs tight feedback loops on the numbers.
- Maintenance across scenarios. Budget versions don't require ongoing maintenance because old versions are superseded by new ones. Scenarios do. The planning application should support adding, modifying and deleting line items across selected scenarios in a single operation. Calculation and update of financials after structure changes should take only a minute or two, at most.
- Robust comparison at the line item level. Budgeting focuses on amounts in accounts. Continuous planning is about in depth comparison of scenarios and differences in values at any level of detail, especially at the line item level where the most significant inputs and modeling occur. Where the underlying data or links are available, scenario comparisons should reveal variances in underlying unit activity drivers and rates.
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