FP&A teams – are you Climate Scenario Planning?
With COP26 beginning in Glasgow in just a few days it seems very timely to ask the question – Does Climate Scenario Planning feature in in your plans, budgets and forecasts?
Whatever decisions are made next week at the COP26 event, and whether there are agreements reached and committed to, climate change is going to affect all organisations and they should be planning for this.
The big question is what change should they be planning for? Will we get to an average increase of 1.5C, 2C or warmer and what will the impact be for organisations? What taxes will Governments introduce to pay for the actions necessary to halt climate change? What will stakeholders demand organisations do regarding climate change? What will the impact of climate change be on our customers and suppliers and how will this affect our organisations?
The answer is, potentially all of these and many other changes we have not even though of the questions for yet! Therefore, all organisations will need to integrate multiple scenario planning into their FP&A processes to enable them to plan for many different climate futures. But if the variables and possibilities are limitless how organisations plan for their future?
One thing is for sure, spreadsheets are not going to hack the complexities and agility that will be required to keep up with the change we are going to see in both the medium and long term. Even traditional legacy planning, budgeting and forecasting systems are going to find it hard to meet the requirements of this new age of climate scenario planning. New ideas and technology are going to be required to process all this new information and deliver timely and optimum plans, budgets and forecasts.
So, what should organisations be looking for?
At a base line they will need:
- Driver-based planning by any dimension
- Spreading functionality
- What-if scenario modelling
- Predictive planning
- Sandboxing and modelling
- Integrated finance and operational planning like workforce, project, sales and marketing planning
- Purpose-built capabilities for long-range planning (top down rather than traditional bottoms-up planning)
- Workflow processes and approvals
In this new world these emerging technologies will become very important:
- Predictive scenario analytics
- Data science model simulations (like Monte Carlo)
- Artificial intelligence
- Directed data analytics
These requirements are echoed by the Task Force on Climate-Related Financial Disclosures (TCFD). They observe that ‘forward-looking assessments of climate-related risk has led scenario analysis, a method for developing strategic plans, to become a key financial tool for businesses in recent times.’ You can read their publication Guidance on Scenario Analysis for Non-Financial Companies HERE.
The good news is there are Cloud based planning, budgeting and forecasting solutions available today that will deliver on all these requirements. These are no longer expensive or difficult to implement. I am very happy to provide advice and debate the subject. If you want to know more, please reach out via LinkedIn or use the contact page of our website HERE.
Until next time