The Business Modeling Scenario
Scenario Planning is being researched as a potential tool to
assist decision makers in being prepared for upcoming events.
A scenario is a story of what might happen; possible elements are
world trade, oil/commodity prices, political/economic stability, productivity.
The following highlights what we are looking at in scenarios. Click here for
The scenario will give percent change in the overall industry,
the WSA will give history of industry product-model sales,
the Cat history data gives details on Cat sales, and putting
this together, we predict the per-product-model percent change
in 200 Cat product-models -- this sales volume prediction can be
fed into the financial model; part of the formula:
(PINS = Percent INdustry Share)
- Get away from point forecasts, we know they are wrong anyway;
the future cannot be accurately predicted.
- Scenarios can be used to assist decision makers to consider
a wide range of possibilities.
- State of practice: 2 years lag in recognizing change in conditions,
another year or more to react.
Each scenario should be provided with explanations of what would be necessary for each story to come true
- The stories should be in terms of the key factors of the business
(e.g. commodity prices, political/economic
stability, world trade, productivity)
- Signposts are defined to help managers see what scenario is unfolding,
reducing the recognition lag
- Managers predefine plans for each scenario to reduce reaction lag
Integration with financial model
- Allow "What if?" games for each scenario
- Allow end users to change scenarios
- Easy to Use
- Predict Factory Inventory, Sales & Shipments, ROA
Inputs to scenario tool and financial model
- 4 scenarios x 15 years (thru 2010) x 7-8 geographic areas
- Industry level forecast
World Sales Analysis (WSA)
Currently SAS files which are changing
Can use flat files
Divided ~75 size-classes
Some figures are estimates
Global retail sales - annual
NA retail PINS, WW ship PINS - monthly
Scenario and Financial Model Architecture
Book: The Art of the Long View, Peter Schwartz ... he has some good information on the web!
References: List of Scenario References
More Notes on Scenarios