Simulate and Steer the Course Towards Profitable Outcomes
Unexpected challenges are precisely that—unexpected. If they weren’t unexpected then we could plan for them and put in place contingencies to handle them more effectively, or at least minimize their effects. But in business, after having planned for everything we see, or can imagine ahead, how then do we best prepare beyond this, to cope with the unexpected? Three words spring to mind: agility, responsiveness, and resilience.
Agility, Responsiveness, and Resilience
I’ve spoken about these words before, in an earlier blog. But how does this relate to profitability management, and why should you care?
Well, think about it. Your business and profit objectives are set early in your strategic planning cycle, and your business financial and operational plans are constructed around the achievement of these set goals, along with other things, of course.
But as you execute your plans, and steer towards objectives, things change. Market volatility takes an unexpected shift owing to financial pressures; political tensions in an important geography affect your supply chain or demand; consumer preferences are dynamically influenced by social media; or worse. And let’s face it, we’ve seen worse recently!
All of these can and do affect your ability to reliably achieve the profitability objectives you set during your planning cycle. And you need to re-forecast and re-plan with agility, be responsive to the changing circumstances, and have resilience built-in to your business and its systems, so that they’ll support you with the insights that you need to survive and thrive.
Sound easy? Actually it’s not so easy, as many organizations found to their distress just over a year ago.
Build-in the Flexibility to Generate New Insights
What’s needed are systems that not only help you to manage a process, but which give you the flexibility to generate insights based on changing parameters. Insights that will help you to assess the impacts of unexpected change immediately—the “I want this right now” type of immediacy—and then allow you to select and implement business decisions based on the best, and likely most profitable, outcomes. And you need to be able to do this dynamically, as a business user accessing your enterprise software solution, not with the involvement of a team of IT experts and an array of supercomputers.
Thankfully, you can do this, with flexible simulation and scenario planning tools, which should come as a part of your modern and advanced profitability management solution; something mentioned by FP&A Trends in their recent Profitability Management white paper, in which they cite the need for organizations to “embrace scenario management”.
And this isn’t just about profitability analysis (see my earlier blogs), but rather this now extends to other activities like transfer pricing, tax, IT costing, and sustainability. With sustainability performance management rapidly rising in interest owing to compliance and social pressures, wouldn’t it be great to be able to model the carbon footprint impact of, say, new raw material supply routes, to ensure changes in carbon consumption during transit don’t adversely affect your ability to achieve sustainability targets? Or better still, compare the carbon impact of various new supply routes so that you can identify the one with the smallest footprint? And even more, assess the profit impact of these changes at the same time, so that you’re confident that you’re not just acting sustainably but also profitably?
You may not be able to anticipate all events, and sometimes the unexpected will happen. But you can prepare yourself with the tools to be agile, responsive, and resilient. And with scenario planning and simulations capabilities as a core strength in your toolkit, you’ll be well prepared to steer your business to a profitable outcome whatever choppy waters you encounter on the way.
If you’re eager to learn more about profitability management, then why not also join an excellent recent webinar from FP&A Trends, in which a panel of experts discuss this matter; Managing Profitability in Uncertain Times.
Thank you for reading.
Let me know your views and experiences with profitability management, either in response to this blog, or on LinkedIn.