No financial forecast will be exactly right, and most businesses that offer financial forecasting only produce one forecast. Therefore, it’s critical to create a range of forecasts across different economic scenarios.
You can learn more from the range of forecast outcomes. Generating forecasts for extreme scenarios is a great first step. However, the most valuable step in scenario planning is to prepare a response plan should that scenario unfold. You can take steps now, implement new measures or controls, and prepare so that if you encounter one of the scenarios the damage will be mitigated.
It can be eye-opening to go through a scenario planning exercise. The best companies in the world do this, but it’s not a widespread practice. During this process, you can uncover hidden financial risks as well as opportunities. Some great investment ideas can come from this exercise. Don’t wait until something rare happens – envision it now and start to prepare.