Businesses Explain How Scenario Planning Is More Important Than Ever

16 June 2020 | BlueBridge One
Businesses Explain How Scenario Planning Is More Important Than Ever

When COVID-19 started spreading in the U.S. in early March, things changed very quickly for Depatie Fluid Power. Order volume for the Portage, Mich.-based company’s hydraulic and pneumatic equipment become a mystery.

Rather than making decisions in a panic, the company started running a scenario planning drill—it looked at cash flows, played out a number of possible paths and turned a potential guessing game into decisions based on actionable insight.
“It was extremely helpful to go through the scenario planning,” Ryan Thomas, Depatie’s general manager, said during the most recent event in Oracle NetSuite’s Open For Business series. “None of our scenarios were right, but we weren’t too far off. At the end of the day, I think we made some really good decisions.”
Because Depatie serves the health care sector, making pneumatic sub assemblies for ambulance cots and hospital beds, Thomas said Depatie was designated an essential business. But with demand down significantly for products, company leaders used scenario planning to determine which parts of the business it needed to keep operating, and thus which people would need to come in to work, as well as which parts could be managed remotely.
Monitoring a Dynamic Situation
Now, several weeks later, with parts of the economy slowly reopening, Depatie is using scenario planning to get a better idea of how it will reintegrate its business.
“It’s a wait-and-see game, depending on the industry, depending on the customer, depending on the products,” said Thomas. “There are a lot of dynamics in play for us.”
For instance, the company’s operations are spread through Michigan and Indiana, but its customers are all over the country. That makes for a fluid set of factors as customer expectations may not match what’s going on in those two states. To add to the complexity, the rules for returning to work seem to change weekly, forcing Depatie to hold meetings almost daily to keep up on developments.
“We don’t have a lot of firm answers at this point,” said Thomas.
Despite the clear benefits of scenario planning, a poll of the event’s attendees indicated that it’s a concept that hasn’t really caught on. Just over 40% of attendees said they had “developed a few scenarios,” while 25% said they have yet to do any scenario planning.
Hooked on Scenario Planning
Manuel Romero, who manages business strategy for Argentine managed services provider Neutrona Networks, has seen both ends of the spectrum. He’s worked for a $100 million holding company that did no scenario planning, and has also been asked to use scenario planning to generate 13 forecasts a year from a single budget at Neutrona.
There’s no question which extreme he prefers.
“I’m kind of a scenario planning addict,” he said. “I always try to push managers, CEOs and the company to roll with the process.”
Romero said the practice of scenario planning has kept Neutrona’s strategy firmly focused on what’s in front of it rather than acting off old information.
“The budget process typically unfolds between September and December, but scenario planning is always there,” he said. “In any moment, there is one variable or macroeconomic driver that’s going to trigger the planning process.”
Planning in the COVID-19 Era
Scenario planning has figured especially prominently of late as Neutrona navigated an acquisition by Transtelco Holding Inc., which closed operations last month because of COVID-19.
Neutrona has transitioned to 100% remote operations in response to the pandemic, adding to the challenge of combining the companies. As the companies have integrated, there have been weekly calls to align the organizations’ goals, sync projects and kick off joint sales efforts.
Functionality in NetSuite Planning and Budgeting combined with multi-subsidiary management capabilities in NetSuite OneWorld has allowed Romero to be confident in the subsidiary and consolidated results in the General Ledger. It also helped in creating scenarios impacted by multiple variables across subsidiaries in nine countries, each with their own payroll and revenue recognition requirements.
Now, with the combined companies both on the NetSuite platform, the new organization can count on scenario planning to help it navigate an uncertain future.
“It’s going to give us this ability to play and work with the different scenarios,” said Romero.
Thomas agreed, saying that scenario planning is keeping Depatie flexible as business conditions change. And the combination of scenario planning and NetSuite Planning and Budgeting has given the company more confidence in its financial decision-making, regardless of when the budgeting process occurs.
“As we’ve gotten to know the planning and budgeting processes, it’s allowed us to simplify so we can do scenario planning more easily,” he said. “We can run scenarios and make adjustments, but not go through a complete financial re-evaluation every few months.”