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Strategy Huron

Contingency Planning During Market Uncertainty: Why Strategic Modeling Today Is the Key for Tomorrow


Sponsored by Huron

Finance Leaders are needing to make critical business decisions during a time of uncertainty and assessing the impact while quantifying how it affects their balance sheet, cash flow and liquidity.

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Leaders in every industry are preparing to make critical business decisions during this rapidly evolving time of uncertainty. Initially, most organizations focused on protecting and preserving their employees, but have since shifted their focus to assessing the impact on customers and vendors as well as quantifying the impact of this crisis on their balance sheet, cash flow and liquidity.

When market disruptions arise, there are actions that organizations can take today to position their business for success no matter what news tomorrow brings. Specially, organizations need to be able to confidently respond to three critical questions:

  • Can your business accurately model “what-if” scenarios that analyze the depth and duration of this crisis and quantify the financial impact on your business?
  • Based on the range of scenarios, can you quantify the impact on your liquidity needs, capital structure needs and cash burn?
  • Have you prepared a series of contingency plans to address any financial, operational and cash flow issues for all potential scenarios?

The key to addressing these questions is having a strategic modeling solution that provides real time analysis and the ability to statistically analyze an unlimited number of “what-if” scenarios for contingency planning.

Hear first-hand from Huron clients, ConEd, Lululemon, H&R Block, Macerich, on how they are leveraging Strategic Modeling during these uncertain times. Watch the webcast replay.

Start Planning Today

Top performing companies possess robust strategic modeling capabilities that can analyze various financial scenarios and develop data-driven contingency plans. A strategic modeling solution requires the ability to perform real time “what-if” scenarios evaluating the following types of scenarios:

  • Macro-economic scenarios that analyze fluctuations in currency, GDP and market contractions.
  • Financial scenarios that sensitize revenue and sales forecasting, COGS, margins, operating costs, working capital assumptions, etc.
  • Driver based scenarios that sensitize variables specific to an organization’s industry including price, volume, customer behavior, etc.
  • Operational scenarios that assess impacts in supply chain, S&OP demand forecasting, production capacity, customer channels, etc.
  • Liquidity scenarios that sensitize working capital assumptions, solvency and liquidity analysis, debt and/or equity refinancing and recapitalization, financial covenant projections, credit rating calculations, 13-week cash flow projections, etc.
  • Corporate development scenarios including divestiture of non-core assets and/or business units, business reorganizations, acquisitions, mergers, etc.

Most organizations deemphasized the strategic modeling process based on the hubris created by the favorable economic conditions in a ten-year bull market.  While the “rising tide” of a ten-year bull market elevated all businesses, the “reversal in tide” has now exposed businesses and forced a renewed dependency on strategic modeling and contingency planning. Now is the time to invest in the solutions and resources that enable a truly robust strategic modeling capability and to ensure that your organization is prepared for all that tomorrow brings.

Pave A Path Forward

Without a sophisticated solution that specializes in strategic modeling, most spreadsheet-based financial models will fall short of providing management with the critical information they require. Key details and insights that are often omitted include cash reporting, liquidity and solvency. By implementing a process and tool that produce an accurate cash forecast, organizations can have a more informed understanding of which assets or business segments are either generating or absorbing cash surplus, allowing management to take swift actions where required. “What-if” simulations should be performed at the consolidated level as well as at the business unit level. This allows users to identify underperforming assets and run simulations of divesting these underperforming assets.

Conversely, users can evaluate which strategic initiatives should be funded, and if there is sufficient cash flow from operations to finance these activities or if the organization will need to raise additional debt.

For organizations faced with debt maturing or coming up for renewal, a robust strategic modeling platform allows for users to model an unlimited number of scenarios in which they can view their business under a variety of different capital structure alternatives. In addition, users can model interest rate swaps, hedging instruments, repatriation strategies and the impact of fluctuations in foreign exchange rates. Ideally, the process should also help organizations evaluate their debt capacity and define their optimal target capital structure while balancing their weighted average cost of capital.

A truly robust strategic modeling process leverages a common modeling platform to facilitate the quantitative analysis performed by the finance, business development and treasury groups through an integrated process on a continual basis. This scenario-driven collaboration leads to improved cash flow analysis that isolates operating, investing and financing cash flow impacts on both short-term and long-term capital needs.

Key Takeaways

Strategic modeling today can prepare your organization for variable outcomes tomorrow, empowering leaders with the information they need to make critical financial decisions. Strategic modeling will require organizations to:

Think differently.

Executive leaders who invest in strategic modeling systems can generate business plans and liquidity scenarios that consider all revenue and operational areas.

Plan differently.

Carefully consider all contingency plans produced by strategic modeling and outline steps for each scenario.

Act differently.

Start your strategic modeling now and develop a viable roadmap and contingency plan ahead of the many outcomes of current and future market disruptions.

Start planning for tomorrow, today.  Connect with Huron Strategic Modeling Experts, Scott Leshinski or Rich Schmitt.