Here are some of the sorts of hypotheticals you’ll be able to model:
- Does it make more sense to expand geographically or release another offering to my current customer base?
- What will the effect be on my business if costs of materials go up 60%, and how can I mitigate that increase?
- What if labor becomes increasingly competitive and my company is understaffed?
- What if another pandemic keeps people in their homes?
- Should I hire a general manager or invest in new equipment?
With good scenario planning software, you can create contingency plans for the worst while hoping for the best. This approach will make you thrive while other businesses are caught unprepared. You’ll be able to confidently make decisions that maximize profitability, and avoid decisions that would tank your profits.
What is a Scenario?
A scenario is a what-if question based on a specific set of variables and assumptions:
- What if I raised prices 14%?
- What if I hired a human resource manager?
- What if I invested in inventory management software?
- What if a serious supply chain disruption occurred?
- What if average temperatures continued to rise from climate change?
- What if Chinese manufacturing costs increased by 40%?
Having identified the scenarios you want to plan for, you’ll be able to construct models that help you envision the potential impacts on your business of each scenario.
What is Scenario Planning?
Scenario planning involves asking the following two questions.
- What could potentially occur? This is the scenario itself.
- What would be the impact on my business if it did occur? This often involves looking at “best case,” “most likely,” and “worst case” outcomes.
With the right tools, you’ll create business plans around scenarios to guide your business toward the “best case” outcome of each scenario and away from “worst case” potential outcomes. It’s a highly effective form of continuity planning for your company.
While you may have limited control over many external factors affecting your business, you don’t need to be helpless.
Top Tools for Modeling Scenarios
To successfully conduct scenario analysis to guide your business, you need the right tools. Here are some tools and resources that can help you model different scenarios to find the optimal pathway forward.
Microsoft Excel
If you are a Microsoft Excel wizard, you can use spreadsheets to create scenario planning templates and to model scenarios.
If you’re not proficient in Excel, you’ll probably find yourself frustrated and spinning your wheels.
Advantages of Excel for Scenario Planning
- Free, so long as you already have a Microsoft Office subscription
- Construct unlimited scenarios on any device that has Excel
Disadvantages of Using Excel
- Complicated for those with limited Excel skills
- Models are static rather than dynamic
- Time-consuming
Scenario Planning Software
Scenario planning software can shorten the time to develop scenarios and model them, and it can also allow for dynamic planning capabilities by adjusting variables in real time in an easy user interface.
There are a number of software solutions on the market to help businesses dynamically model scenarios. Each has its unique angle and is targeted toward a specific type of customer.
Prophix
Prophix is a scenario analysis software that integrates with Microsoft Office. It allows you to model multiple scenarios and generate forecasts for visibility into factors such as the following:
Prophix is targeted to larger enterprises and may be a bit cumbersome or overkill for small businesses.
Scenario Planning Software by Workday
Human management software company Workday has released a scenario planning tool that features an intuitive, user-friendly dashboard. It is built for team collaboration in larger organizations and allows team members to create plans, link plans, assign tasks, and participate with role-based access.
For the average small business owner, Workday’s platform is overly complex and feature-rich, making it more intimidating and with a steeper learning curve.
Onplan
Onplan is an FP&A software platform that includes scenario planning capabilities. With a well-designed customer portal and excellent UX, Onplan’s interface is topnotch. Like Workday and Prophix, Onplan is targeted toward larger companies, emphasizing features like permissions control, team collaboration, and stakeholder reporting.
Synario
Synario’s platform is incredibly feature-rich and complex, with options such as the following:
- Scenario layers (think Photoshop)
- Financial thresholds
- Multiple permutations of each scenario
- Multi-year planning
- Differential user access levels for team collaboration
As with other tools covered above, Synario has a significant learning curve and is best suited for larger companies with a dedicated financial department.
Project Management Software
A number of project management and performance management software platforms are adding scenario planning capabilities to the suite of services they offer. These include Monday, LiquidPlanner, GetApp, and Netsuite by Oracle.
We highly recommend taking advantage of the scenario planning features for organizations who already subscribe to these platforms, but if you’re looking for a true scenario planning software–especially one catering to small business–you can definitely do better.
Profit Frog
Profit Frog is the only scenario planning solution specifically targeted to small businesses. We know that you don’t have time to master Excel—or software platforms that are nearly as complex as Excel—so we’ve stripped our tool down to the essentials.
- Modeling and optimizing profitability: profit is the lifeblood of your company, and all of our forecasts are based on modeling profit under different scenarios.
- Controlling expenses: we help you get a handle on your expenses so you can see which ones have the biggest impact on your profitability.
- Unlimited scenario planning exercises and models to guide your business strategy.
If you want an easy scenario modeling tool that allows you to dynamically plan for the future, you want Profit Frog. We have everything you need for modeling your small business, and nothing you don’t.
Get started with your free trial of Profit Frog today!
What is a Scenario Planning Framework?
A scenario planning framework is a tool or structure that gives form to your scenario planning exercises. A software solution can provide a framework, as can a conceptual process or set of steps. Any structure to follow can be considered a framework.
Profit Frog provides the framework you need for your scenario modeling activities—and it’s baked right into our software so you don’t even need to think about it.
Scenario Planning Case Study
Here’s a case study of how scenario planning can help small businesses maximize profitability.
Benny models three variables—scenarios—in Profit Frog to come up with a new business plan for his bakery. His new business plan involves the following three changes.
- Switching coffee suppliers. Benny finds a new coffee bean supplier offering volume pricing that is 30% cheaper than what he has been paying.
- Increasing prices on specialty drinks. Benny knows he could charge more for specialty drinks based on his local research, so he increases prices to match the market.
- Advertising. Benny isn’t doing any advertising, and decides to hire a Google Ads firm to drive local business to his bakery.
He models these three changes in a new scenario plan that he calls “Reduce Cost of Coffee Beans” and sees that he should be able to increase his profits by almost 50% by making these few fundamental changes.
Now that his new plan is in place, Benny just needs to track his progress each month to make sure his business stays on course to realize the new profit margins.
Scenario Modeling FAQ
What are scenario planning tools?
Scenario planning tools are software programs—either spreadsheets such as Excel, or online applications—that allow one to model hypothetical scenarios and forecast best-case and worst-case outcomes.
What are the 5 steps of the scenario planning process?
Traditionally, the 5 steps of the scenario planning process looked like the following (Profit Frog simplifies these):
- Identify trends or decisions needing to be made
- Come up with future scenarios involving those trends or decisions
- Develop a scenario planning template
- Create one or more scenarios
- Evaluate your scenarios
With Profit Frog, the process is simpler:
- Identify scenarios you want to model
- Input actuals (data about your business) into Profit Frog
- Adjust variables (costs, pricing, or other drivers of profit) dynamically to see how they influence scenarios
- Create a business plan and update it dynamically as conditions change
What is the difference between strategic planning and scenario planning?
Strategic planning and scenario planning share a lot in common, but differ in the following respects:
- Strategic planning assumes a known future outcome and strategizes how to get there
- Scenario planning assumes a dynamic, chaotic future and helps you plot the course to maximum profitability through all the unknowns
In other words, strategic planning is a more static process and is disrupted by variability, where scenario planning is designed to navigate variability.
How do you create a scenario plan?
Here’s the fastest, most efficient way for small businesses to create one or more scenario plans:
- Identify scenarios you want to model
- Input actuals (data about your business) into Profit Frog
- Adjust variables (costs, pricing, or other drivers of profit) dynamically to see how they influence scenarios
- Create a business plan and update it dynamically as conditions change
What is a scenario matrix?
A scenario matrix is a type of scenario planning framework or template that uses a quadrant-based layout to forecast different scenarios. It is useful for back-of-the-napkin decisionmaking but lacks the dynamism and robustness of a tool such as Profit Frog.
