Good morning. The single-point forecast is no longer fit for purpose.
Scenario planning has become boardroom shorthand for preparation to deal with the unknowable, my colleague Geoff Colvin writes in a Fortune feature titled “For CEOs, it’s time for a wartime mindset.”
Colvin argues that it’s a practice that is never more vital than in wartime — when a cyberattack, or even a sanction, can reroute supply chains overnight and send energy prices soaring.
He writes: “Instead of betting on one forecast about how events will unfold, the most resilient CEOs are now rehearsing several plausible futures at once and deciding — before the missiles start dropping, the virus becomes a pandemic, or the markets seize up — what they will do in each.
“It’s an approach that was pioneered by Shell precursor Royal Dutch Shell. In the 1970s, the energy company began developing a set of vivid alternative futures involving potential oil-supply disruptions. Shell did not invent the idea of developing such scenarios, which had earlier roots in military and Cold War strategy, but it was the first major company to embed systematic scenario planning at the center of corporate decision-making, largely through the work of economist and planner Pierre Wack.” You can read more of Colvin’s article here.
CFOs are strategic partners to CEOs, and financial scenario planning isn’t just about reducing risk—it can also uncover new opportunities, according to Gartner research. For each scenario, CFOs should define actions that enable rapid response, while prioritizing moves that apply across multiple outcomes, such as locking in supplier contracts or accelerating product launches, Gartner advises. This kind of proactive planning helps to ensure companies can act quickly. The firm also points to AI scenario planning models to track key metrics in real time, and autogenerate scenarios based on real data, not just guesses.
Sheryl Estradasheryl.estrada@fortune.com
This story was originally featured on Fortune.com
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