With the global resurgence of COVID-19, US businesses struggling from the first wave of the pandemic are in for a tougher start to 2021 than anyone predicted.
Brett Matteo, President of Synario (a financial modeling software company), believes that powerful forward-looking scenario analysis is the key to navigating the murky, if not treacherous, current economic waters.
President of Synario
“Most finance departments are still using Excel for all of their financial analysis,” says Brett, “With market conditions changing so drastically, it’s nearly impossible to keep pace with standard spreadsheets. Finance teams need dedicated software to contend with shifting trends and position their organization to make the best financial decisions possible.””
Purpose-built for financial modeling, Synario offers agile modeling intelligence that helps modelers, CFOs, and stakeholders achieve new levels of clarity, credibility, and consensus. Synario specializes in scenario analysis, allowing finance leaders to explore and manage an unlimited number of financial or strategic outcomes from a single financial model.
SourceForge caught up with Brett after the Thanksgiving holiday to hear what tips and best practices he could share on navigating the financial and strategic impacts of COVID-19 as we move into 2021.
Hi Brett, thanks for sitting down with SourceForge today.
Absolutely. Thanks for having me. I’ve been looking forward to this conversation.
Wonderful! Well, first things first, could you tell us a little more about yourself and why scenario analysis is such an important topic today?
Of course. I am the President of PFM Solutions, LLC, which offers financial modeling intelligence through its Synario software to companies around the world. Prior to Synario, I was a financial advisor to clients across the higher education and utility sectors, which is where I was first exposed to the financial modeling challenges faced by almost every company.
One of those problems is performing a comprehensive scenario analysis. Most companies are still using Excel, which causes all sorts of risks, errors, and bottlenecks when performing even simple scenario analysis. Right now, while the COVID-19 pandemic is throwing the economy and our day-to-day livelihood into disarray, companies trying to perform scenario analysis have to deal with more uncertainty than ever before. Spreadsheets just aren’t cutting it anymore, and a lot of organizations are looking for dedicated financial modeling software like Synario to help them fully visualize their financial future.
Can you speak to us a little bit about what scenario analysis is?
Every business has a long list of metrics and drivers that can alter its financial trajectory. Those drivers can be internal, like sales, personnel, and expenses, or external, like economic conditions, market trends, and employee benefits costs. Scenario analysis is the practice of changing those variables to visualize a different future or environment for your business.
Scenario analysis is about asking “what if…” and is a core function of managing future risks for a business. With so much information about our businesses at our fingertips, most CFOs are finding their spreadsheet-based financial models are collapsing under the weight of a task like comprehensive scenario analysis. Their models can’t contain and forecast their business data while simultaneously pivoting that data to show internal and external scenarios.
Our clients don’t have this problem when performing scenario analysis in Synario. Unlike their spreadsheet counterparts, our clients are forecasting a multitude of scenarios and changing them on the fly rather than only projecting best, worst, and expected cases. Something we call Agile Scenario Planning–a more strategic and nimble approach to embracing and managing uncertainty.
Are you seeing the average business doing scenario analysis currently? Or is this an activity reserved for fortune 500 companies only?
Unfortunately most businesses are behind on indoctrinating scenario analysis into their business plans. It is an imperative activity that every business should be performing, not just the organizations with a dedicated financial modeling team. We work with companies across multiple industries and sizes, all of which are performing some form of scenario analysis.
Smaller businesses with a small finance team (potentially one person) should be performing rudimentary scenario analysis to see where their business could end up depending on different driving factors. However, too much focus here is not necessary as these teams are often responsible for more critical finance operations.
On the contrary, medium to large size businesses should focus significant time on creating comprehensive financial models with detailed scenario analysis. These types of organizations need to have plans in place for different scenarios before they happen, otherwise, they can lose their agility and lag behind in their market.
So, what does good scenario analysis look like? What about bad scenario analysis?
Good scenario analysis goes beyond best, worst, and expected cases. Many businesses stop here, thinking they have covered the whole range of future possibilities, when in fact they have only scratched the surface of what scenario analysis can do.
When presenting good scenario analysis, finance professionals should have a list of drivers, projects, and initiatives that they can turn on and off within overarching scenarios. In Synario, we use a Micro and Macro Scenario Manager to make this process simple and straight-forward. Scenarios and their underlying assumptions can be saved and easily added or subtracted from a financial model with one-click. Finance leaders can present a broad range of potential futures within a single financial model while updating assumptions or scenarios to stakeholder input.
I think it’s easy to imagine what bad scenario analysis looks like! A constricted, sluggish view of the future with unrealistic assumptions or error-filled results. Unfortunately, this is the reality for many businesses trying to perform scenario analysis outside of a dedicated financial modeling platform like Synario.
What aspects of the COVID-19 pandemic could scenario analysis help a business navigate?
The impact of COVID-19 on the higher education industry is a great example of how scenario analysis can position an organization to increase its market position. We work with a lot of colleges and universities across the country, and when COVID-19 hit in March they were able to rapidly adapt their financial models to incorporate new financial and strategic factors. Our clients formed scenarios around enrollment rates, how long the pandemic might last, investments in online infrastructure, and more. They were quickly able to adapt and find their best trajectory through these difficult times, which is exactly what Synario was meant to do.
The uncertainty around how long the COVID-19 pandemic will last and how long the economic impacts could linger are not just impacting the higher education space. These two factors are at the core of COVID-19 scenario analysis and every business should understand how changes in these factors could impact their organization’s bottom line.
A tool like Synario that facilitates agile and comprehensive scenario analysis helps finance teams see a full-field view of their financial future. Rather than one or two static projections, organizations can get a dynamic view of how they can navigate each aspect of COVID-19 and its future impacts.
I can definitely see the importance of performing a COVID-19 scenario analysis. But what next?
One key aspect our clients use Synario for is setting up threshold markers for various scenarios and their related financial or strategic plans.
Once you have performed your scenario analysis and have different plans for different scenarios, the next question is when to enact those plans. That’s where threshold markers come into play.
Threshold markers are agreed upon measurable aspects of a scenario that, once hit, mean that your organization should pursue one plan over another. It is imperative that these markers are discussed in advance so that organizations can enact plans with confidence and consensus.
A tool like Synario can help identify threshold markers and the values they represent. With comprehensive scenario analysis and agreed-upon threshold markers, your organization will be best positioned to rapidly make high-stakes decisions and outlast COVID-19, among other black swan or grey rhino events.
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