Navigating uncertainty: The power of scenario planning in financial decision making

What if? That’s the question that you’ll ask yourself over and over (and over) when engaging in scenario planning, a well-worn tool that business leaders use to make agile, forward-thinking decisions about future challenges.

What is scenario planning?

In finance, scenario planning is largely what it sounds like: Leaders analyze potential uncertainties and opportunities in future conditions in order to strengthen the accuracy of financial forecasts.

“As the Covid-19 pandemic has shown, many situations lack historical data for teams to refer to when creating plans, making swift decisions and accurate forecasting difficult,” an Oracle report noted. Scenario planning can help finance leaders “minimize risk, stay agile, and maintain business continuity,” the report noted.

Where did scenario planning come from?

It’s essentially a more formalized version of what businesses have always done in some form. The method has been around for a while: In a 1995 essay, decision science expert Paul J.H. Schoemaker called scenario planning “a disciplined method for imagining possible futures”—and that’s the crux of it. But given the uncertainty of the past few years, it’s become increasingly important to have a formalized process in place, and more and more leaders are taking note.