Managing the Unthinkable: Scenario-Based Enterprise Performance Management

In order to attain high performance in this new environment, more and more companies are moving towards what Accenture calls Scenario-Based Enterprise Performance Management (EPM), in which alternative views of the future are incorporated into processes for managing the business on an ongoing basis.

In this article, we identify the issues and challenges, and the steps needed to develop a Scenario-Based EPM capability.

Accenture believes that a combination of long-range trends and specific events is resulting in greater volatility, uncertainty and risk. Some of these trends include the rise of new economies, boom-and-bust commodity cycles, demographic changes, environmental concerns, global interdependencies and technological innovation.

Finance organizations, in particular, are under pressure to find better ways to support the core business by managing uncertainty, volatility and risk.

In this environment, scenario planning—a capability that helps manage uncertainty by providing alternative views of the future against which strategies, tactics and budgets can be tested—has become increasingly important.

However, as scenario planning has become more common, it no longer provides a competitive advantage. Rather, companies should consider moving to what Accenture calls Scenario-Based Enterprise Performance Management (EPM), in which scenarios are incorporated into processes for managing the business on an ongoing basis.

Incorporating a scenario capability into an organization’s Enterprise Performance Management processes requires seven steps:

1. Identify the key factors that can have a material impact on the organization. For example, consumer products companies may look at gross domestic product growth and consumer spending, airlines at oil prices, global manufacturing companies at exchange rates and freight costs, and financial services companies at consumer credit quality, interest rates and asset prices.
     
2. Define relevant scenarios (typically three to four) that describe a range of future operating environments. For example, what if oil prices average $75 a barrel, $110 a barrel or $140 a barrel?
      
3. Agree on a baseline scenario that will be used to develop/review strategy, set targets and develop operational plans and budgets.
    
4. Develop strategic plans, targets, action plans and budgets using the baseline scenario.
     
5. Develop alternative views of targets, plans and budgets under each scenario. Identify the major impacts and changes under each scenario.
     
6. Identify relevant triggers and corresponding tolerance ranges for each scenario.
    
7. Whenever established triggers/ tolerances are exceeded—meaning a new scenario becomes effective—adjust tactics using the previously developed plans and generate a new forecast reflecting the change in scenario and the changes in tactics.

The seven steps provide the basis for the entire Scenario-Based EPM capability, starting with strategic planning and supporting other key EPM elements ranging from target setting to forecasting and action planning.

To realize the benefits of Scenario-Based EPM (among them the organizational ability to generate more proactive, dynamic and faster market responses) companies need to put the following in place:

• Process. Companies need to ensure that their current EPM processes are built around key drivers of business value, and focus on the most volatile and material aspects of the business.
    
• People. Leadership commitment in program sponsorship, organizational discipline and mindset change are required.
    
• Technology. Technology is a major enabler of Scenario-Based EPM. Companies need to move away from using spreadsheets as their main planning tool to take advantage of sophisticated software that enables better scenario planning.

Robert Bergström is an executive principal and leads the Finance and Enterprise Performance practice in ASEAN. He is also the Asia Pacific lead for Accenture’s Enterprise Performance Management (EPM) Strategy offering group. Based in Singapore, Bergström’s primary focus is helping client executives develop EPM capabilities, and through coaching in long-range planning and target-setting processes align their organizations around key value drivers for increased economic profit and high performance.

David Axson is an executive director-Finance and Enterprise Performance. Based in Cleveland, Ohio, he has more than 27 years of consulting, industry and entrepreneurial experience working with clients and firms in more than 40 countries. An accomplished author, Axson specializes in advising clients on the challenges of doing business in an uncertain and volatile global marketplace focusing on strategy, performance management, risk management and analytics and guiding them on their journey to high performance.

Natalia Timofeeva is a senior manager with Accenture’s Finance and Enterprise Performance practice and leads the Planning, Budgeting, Forecasting offering group in North America. Based in Toronto, Canada, she has more than 12 years of consulting and industry experience working with resources, professional services, and telecommunications companies. Her primary focus is on helping client companies achieve superior enterprise performance via enhanced planning, reporting, and analysis capabilities.