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Why You Should Run What-If Scenarios

Why You Should Run What-If Scenarios, Centage
If you think once you’ve forecasted your budget for the year that you’re set, think again. Despite dramatic advancements in technology, all too often businesses fail to compare their forecasts to actuals. Or they don’t make any adjustments over the course of the year.

Naturally, part of that has to do with the way business budgeting and forecasting is done. Many companies still prepare their budgets and forecasts manually. That means endless Excel spreadsheets that all need to be updated, approved, and then consolidated over the course of weeks, if not months.

Is it any wonder errors and incorrect information can quickly arise?

With the first month of the year now closed, it’s the perfect time to take stock of where your numbers line up. You can use January numbers to determine how on-track your forecasts are and ask a number of questions, such as:

  • Are the quarterly numbers still on track?
  • Have any unexpected expenses arisen that were not previously taken into account?
  • Is current cash flow at the expected levels?

The answers to these questions are important because they can help managers chart the remainder of the year.

The Trouble with Incorrect Data

Outdated and incorrect data is one of the biggest problems with forecasting for many businesses. Unfortunately, too many variables and data points are missed due to lack of time or human error. It’s even true that assumptions from six months ago, when the budget was first made, have changed or are no longer valid.

Of course, all of these factors can—and usually will—eventually spell trouble. So it shouldn’t be all that surprising that over 70 percent of companies are forced to change their forecasts well into the year. This leaves them scrambling to make up for lost time and information, especially considering it takes most weeks or even months to re-plan. Oftentimes, by then, it’s simply too late.

After all, let’s face it. Things happen during the course of a year. Any manager will tell you that. An unexpected slide in sales or the sudden need to invest in new equipment isn’t uncommon.

The same goes for potential opportunities. Bad data could skew analysis, leaving you missing out on a potential boon for your business.

These are just a few of the reasons I find what-if scenario planning so important this time of year.

Why You Should Run What-If Scenarios, Centage

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The Benefits of What-If Scenario Planning

To say there are a number of benefits to what-if scenario planning would be an understatement. That’s why I recommend it to companies who are looking to improve the accuracy of their budgeting and forecasting process.

Improve Performance

The biggest benefit of incorporating what-if planning is it helps improve both operational and financial performance.

What-if planning allows your company to run scenarios that combine both real-time and historical data. While spreadsheets offer only limited forecasting ability and data estimates, software that run what-if scenarios allow you identify potential risks.

These risks can include everything from budget shortfalls to inefficient departments or processes. Enabling deeper, at-a-glance insights into business units and sales figures, for example, can help managers highlight potential problems more effectively.

Identifying these risks can help reduce cost overruns, forecasting bias, and other inaccurate estimates which could negatively skew reporting and budgeting. Being able to plan for potential issues means managers can make decisions based on real-time information, reducing mistakes that hurt the company’s bottom line.

Quick Turnaround

In addition, using advanced cloud-based technology means decisions can be made quickly because every decision maker has access to data and can perform their own scenarios.

Managers can avoid endless discussions and running numbers on multiple Excel spreadsheets. Plus, the potential for human or versioning errors is dramatically decreased.

For those businesses that need to make adjustments on the fly, what-if scenarios can be run in minutes, not weeks or months.

Plan for the Future

What-if planning is all about improving decision making and reducing potential risk, both of which have a positive impact on the bottom line.

It enables managers to confidently make the right decision at the right time.

If you haven’t begun running what-if scenarios, now is the time. Not only will it put your company on the best footing for success, it’ll also give you a leg up on your competition.

See how you can automate your forecasting processes, forecast the impact of multiple scenarios, and quickly identify where, when and why actuals differ from plan, so you can take appropriate action: 

Centage Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.