How ‘What If’ Scenario Planning Can Improve Risk Management

What are the key risks to achieving your organization’s objectives? Do your plans, budgets, and forecasts adequately consider and address key risks? What happens if an expected launch gets delayed or you discover fraud within your organization? Does your business have the tools to survive? This blog article will help answer these questions for you.

Risk is inherently a part of business. That’s something we all accept. Yet, that doesn’t mean your organization has to be held hostage to it. Well prepared organizations look to be proactive around risk rather than reactive, thus mitigating the potential damage and even spotting opportunities along the way.

So, how can your business help stay ahead of potential risks? One solution is by implementing ‘what if’ scenario planning into your budgeting and forecasting process.

How ‘What If’ Scenario Planning Works

Over the course of any business lifecycle, a number of unexpected events are going to pop up. Some might be business related, while others will undoubtedly come from outside your organization. The worst thing that can happen to your business is being unprepared for these events. No one wants to get caught flat-footed at the cusp of a massive shift in the market or downturn in sales.

A good rule of thumb is to pick a handful of potential scenarios that have a higher probability of occurring and plan around those. Pick too many, and you’ll likely get swamped and start feeling the law of diminishing returns. In the most basic sense, these scenarios let you come up with various best, middle, and worst-case outcomes. From there, key decision makers can think through plans and solutions.

The Benefits of Planning

So how does that play into risk management? Let’s take a more in-depth look. If there’s one truth about the world, it’s unpredictable. All sorts of events are going to arise over the life of a business, both large and small. The first key to success is understanding that. The second is being prepared to manage the potential risk that comes with unpredictability.

So, while it might feel strange to think about potential disasters, it’s actually smart business planning. If you don’t know what will happen if raw materials costs rise, revenue unexpectedly drops, or your organization is a victim of fraud, then it’s challenging to have a plan in place to take action.

Hand in hand with better planning is identifying potential problems. Do you have the right oversights and controls in place to deal with the issues that might arise? Running ‘what if’ scenarios can help to act as stress tests to see if your organization’s original assessments and policies hold up. If they do, then you’re well prepared to mitigate risk. If not, then it’s far better to know now and make the necessary adjustments before the unexpected actually occurs.Many organizations might find they don’t have the systems in place until it’s too late. If you can develop the scenarios that help identify early warning signs, then contingencies can be in place to either eliminate or mitigate the potential risk.

Finally, ‘what if’ planning can help your organization identify the key drivers that really matter to your business. It’s these drivers that can be the real cause of dramatic swings in your organization, and make the difference between a banner year and a significant loss on the bottom line. ‘What if’ planning can help you focus on the things that matter. You can see the implications of big decisions before they are made, allowing for planning and adjustments to help make better decisions and reduce risk. No one can predict the future, but Budget Maestro’s business scenario planning capabilities help you prepare for it with more certainty and less risk.

To learn more about Budget Maestro, contact GraVoc to schedule a demo.

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