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Strategy

Improving What-If Scenario Testing: A Q&A With Centage’s David Winterhalter


According to Winterhalter , finding the right software to partner with will give CFOs a real leg up on scenario planning, forecasting, and overall budgeting needs when compared with spreadsheets.

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A recent survey, conducted by Centage Corporation, sent to thousands of CFOs across the country, showed that almost all are looking to grow revenue and nearly half (48 percent) need easier testing of what-if scenarios to accomplish that objective.

FEI Daily spoke with David Winterhalter, Vice President of Marketing at Centage Corporation about how companies can improve their what-if scenario testing.

FEI Daily: 48 perecnt of respondents say that what-if scenario testing could be improved. What does effective “what-if” scenario planning really look like?

David Winterhalter: What-if scenario testing refers to a business’s ability to test out the effects of different scenarios on a company’s bottom line. Changing markets, new hires, new competitors, deep discounting, etc., these kinds of changes from within or beyond the organization can have big implications on the success of a business. What-if scenario planning shows the companywide implications of a decision before it is made and allows executives to see the big picture without having to do a lot of guesswork. 

The process used to be comprised of a lot of legwork on the part of the finance teams to gather historic data, analyze comparable business success and attempt to determine patterns that emerge. Now, with so much information at our fingertips, and advanced financial technology that easily analyzes millions of data points in milliseconds, it’s easier than ever before to build an unlimited number of what-if scenarios that give executives the most complete, data-driven big-picture analysis.

FEI Daily: What are some of the objectives of what-if scenario analysis for CFOs?

Winterhalter: The broad objective is similar to any budget/growth plan: provide a view of the financial landscape for a business. Particularly, what-if scenarios look into the future and ask what is likely to occur if we take steps A, B or C? It’s a forecasting crystal ball of sorts – it provides data that allows a business to know if a decision is worthwhile.

Businesses make hundreds of decisions daily – about product, partners, staffing, efficiency, etc. so having what-if scenarios to provide a glimpse into what these decisions will mean for the overall health of a business is a seriously beneficial weapon.

FEI Daily: What are the techniques CFOs are currently using for what-if scenario planning?

Winterhalter: We learned that a lot of CFOs are still using spreadsheets for all of their finance needs, but they are increasingly seeing its limitations in what-if scenario building. It’s extremely difficult to build a spreadsheet that represents the inherent complexity of the budget and still satisfies the requirements of multiple teams and departments. You would need to piece together multiple spreadsheets and rely on complex formulas and macros to arrive at answers. The result is a budget that’s difficult to manage and nearly impossible to manipulate in order to test multiple business scenarios. 

This is a critical consideration given that, when building a budget model, it’s impossible to anticipate the variety of changes that might occur in the future. This is why there are new options for CFOs, software that provides the ability to build and test these scenarios quickly and easily for companies to plan, pivot or just make more informed decisions.

FEI Daily: What are the steps CFOs can take to improve the planning process?

Winterhalter: CFOs should start by looking at what kind of forecasting and scenario planning they might need, and then consider a solution that can help them with that process.

For example, a CFO using budgeting software with business scenario planning capabilities would be able to quickly and easily modify drivers, revenue, expenses, and payroll assumptions, easily update or create new versions of your plan based on what-if scenario and globally apply increases and decreases to a single assumption or a number of entities. They could save multiple versions for comparative analysis, generate a new set of income statement, balance sheet, cash flow and any management reports, on-the-fly and also consider a wide range of potential situations.

The great thing is that there is a myriad of technology that can help CFOs better plan for business decisions.