Anticipating future events is key to a company's forward progress, helping leaders manage risk, identify opportunities, and determine the right next steps for the organization. This is especially important in uncertain times when leaders must respond to unknown risks that can emerge overnight.

However, the challenge is that scenario planning is most difficult during periods of high volatility—and it is precisely during such times that organizations most need robust contingency planning.

Despite the difficulty, CFOs have a significant opportunity to refocus scenario planning and adopt strategies and best practices that build more resilient organizations. Below are tactics and insights to help you prepare for future unknowns.

Start with data

Reliable data access is the foundation of scenario planning. CFOs must be able to overlay their organization's first-party data with reliable third-party data to make forecasts and plan accordingly.

"Some of the biggest risks organizations face come from external factors, from the economic environment to new legislation to shifts in the political landscape," said Tony Grayson, Vice President and Head of Commercial Card Optimization and Consulting at Bank of America. "Scenario planning is about examining these trends and being able to determine how these changes will impact you."

However, CFOs constrained by data silos may be unable to generate the comprehensive insights needed to create accurate forecasts and corresponding contingency plans. Therefore, the first step is often to critically review the organization's data strategy and assess:

  • Data quality and reliability
  • Degree of integration across data sources
  • Accessibility of real-time data

Based on this, CFOs can recommend ideal next steps, such as investing in integrated or unified platforms to break down data silos, seeking opportunities to incorporate additional data sources, or investing in advanced analytics capabilities.

Establish a risk prioritization framework

While risk management is often the core objective of scenario planning, not all risks pose a significant threat to the organization. When beginning to plan, it is important to identify mission-critical initiatives—the processes and workflows that must continue to support company operations regardless of what happens externally.

Grayson said these initiatives should be the top priority in scenario planning. "Determine the minimum required for these processes and workflows to continue running, and build contingency plans around that." From there, you can expand planning to incorporate secondary risks until you are satisfied with your overall level of risk management.

Plan for both "sunny days" and "rainy days"

Ultimately, the goal of scenario planning is to be prepared for everything. This means creating a broad range of forecasts to plan for as many scenarios as possible.

Grayson noted that if you focus too heavily on sunny-day forecasts—what to do during good times—you will miss opportunities for risk management. On the other hand, focusing too much on worst-case (rainy-day) scenarios may mean you are underprepared to capitalize on growth opportunities.

After all, it is important to remember that growth opportunities themselves come with challenges, such as how to optimize supply chains to meet surging customer demand or how to increase headcount when you need to scale capabilities. Scenario planning for every possibility enables you to make the most of any environment—regardless of the surrounding economic conditions.

Put scenario planning into action

Just as it is important to plan for a range of scenarios, it is equally important to develop plans that translate forecasts into clear actions.

"Contingency planning should not just be a mental exercise. It should be a rehearsal for actions when situations actually occur," Grayson said. "For example, your scenario planning might include processes for regularly backing up systems to support critical operations during disruptions, but it is equally important to confirm that you can actually access that data when needed."

Consider conducting a series of rehearsals to identify gaps or challenges in your scenario planning, allowing you to adjust strategies accordingly. This way, you can be confident that you have done everything possible to ensure your plans run smoothly in practice.

  • Pro tip: It is equally important to ensure your organization has the financial resources to execute contingency plans—such as adequate cash flow or access to capital. Use this exercise to create a financial checklist of essentials needed to successfully deliver your plans.

Continuously refine your forecasting strategy

Contingency planning is not a "set it and forget it" approach. It is an ongoing strategy that needs to evolve over time.

After all, changes in market dynamics or within the organization can create new risks you need to manage, and strategic shifts will change how leadership responds to new environments. Additionally, personnel turnover within the organization requires regular reviews to ensure teams can still implement contingency plans.

Regularly review your scenario planning to ensure your plans continue to serve the organization's needs. This exercise can also show you whether the organization is consistently meeting the financial prerequisites you identified early in the process. For example, if you need to expand access to capital or improve cash flow, you can take immediate action to ensure the organization has the resources it needs.

Explore how to turn plans into action

In today's dynamic economic environment, leaders need to invest in scenario planning to manage risk and maximize opportunities. Financial readiness plays a critical role in successful planning—and professional corporate payment experts can connect you with the resources needed to make the right next moves.

Whether you are looking for flexible working capital, treasury management or cash flow support, or the latest insights on scenario planning for your industry, Bank of America's dedicated team can help you understand your options and develop a plan to position your organization for success—both today and as new situations arise.