7 Plan for different scenarios
What is the issue?
Nobody can predict what is likely to happen to the overall economy, or indeed what impact the current downturn may have on a particular sector or business. To ensure the survival of a business, management teams need to rethink their operational business, be attuned to potential eventualities and plan various scenarios.
What do I need to be aware of?
Managing in a downturn is all about being flexible, anticipating and reacting quickly to changing circumstances. This helps mitigate risks, while also creating opportunities. Investing management time in planning for different scenarios is not a luxury it is a necessity. However, proper scenario planning requires the full engagement of a company's board and senior management team. A further requirement is the availability of reliable financial and operational information.
What questions should I be asking myself?
- How will my business be affected by an extended economic downturn?
- Which industry sectors and geographical areas does the company operate in? What are the likely repercussions for those sectors and geographical areas?
- To what extent have we stress-tested our forecasts to account for changes in performance?
- Have we stress-tested forecasts over different time periods to reflect a potentially extended economic downturn?
- How good are management reporting and information systems at highlighting potential issues?
- Which areas need to be monitored carefully?
- What are the key vulnerabilities in the company's business model? Is my model flexible enough to allow us to adapt quickly to a new environment?
- What is my long-term financial position? How significant would a material loss of revenue be?
- Even if my products are not easy to replace, could customers still find a cheaper option elsewhere?
- What are my competitors doing, and are there opportunities for organic growth in the sector?
- How bad can performance get before we face a covenant or facility breach?
- Am I appraising the board regularly on performance and scenario planning/management?
How can PwC help?
Drawing upon a network of expertise and the experience of our professionals, we help you plan your scenarios and manage business continuity. Check the column on the right for details of who to contact and for further information.