Why \u201cScenario Planning is Critical\u201d<\/p>\n\n\n\n
A few years ago, I was\nworking with a group of dealerships that were seeing record equipment sales,\nservice shops were backed up, parts were hitting record sales and oh did the\nprofits keep coming. What a great place\nto be or is it? Depends on how much you\nare paying attention and the experience depth of your leadership team.<\/p>\n\n\n\n
When I met this team,\nthey were all very happy about the business environment, they were patting\nthemselves on the back for all the great things that were happening and yes,\nthey were getting \u201cSpend Happy\u201d. New\ntrucks, a better sign, building expansions, pay increases, big discretionary\nbonuses, lots of free giveaways for the sales team, big dinners with clients,\nand so on and so on.<\/p>\n\n\n\n
In my initial\nconversation with the leadership team they all seemed to believe the good times\nwould never end. I simply said so what\nif it they do and it\u2019s a more serious market correction then we have seen\nbefore. The markets were at unnatural\nhighs so is this a sign for a severe correction? That\u2019s when they looked at me\nlike I was a little out of touch with their reality, and this is when I introduced\nthe senior team to \u201cScenario Planning\u201d<\/p>\n\n\n\n
Over the next week we\nstarted to discuss what could go wrong in the market, with sales volumes, our\ncustomers markets, etc. How big of a\nmarket correction could we stand before we were in very serious trouble? In the \u201cScenario Planning Exercises\u201d we took\nour current operating statements and we modeled what they would look like if\nsomething happened. We call this \u201cStress\nTesting\u201d the Operating Financials and Balance Sheets.<\/p>\n\n\n\n
Once we had agreed on\na worst-case scenario, I plugged the numbers into the financial model and guess\nwhat? Yes, the results were dismal under\ntoday\u2019s cost structure and expense culture. \nThe General Manager, who was an experienced operator, realised at that\nmoment he made the wrong assumption about his young team. This team of excellent young managers had\nnever been through a market correction or a recession. How could they be expected to see the dangers\na head with all this great success!<\/p>\n\n\n\n
Over the next few\nweeks each of the managers was asked to meet their teams and explain the\n\u201cScenario Planning\u201d exercise and the outcomes. \nThey were tasked with developing a team plan that would ensure the\nhealth of the business under adverse market conditions. When we had our next \u201cScenario Day\u201d as they\ncalled it, what an amazing change in thinking appeared. In the process they found lots of unnecessary\nfinancial fat that they just carved out and they all had a moment of\nself-reflection that saw their \u201cSpend Happy\u201d culture as a poison creeping in.<\/p>\n\n\n\n
Once we agreed on and\nfinalized the plans, we agreed to put the \u201cScenario Plan\u201d in the drawer and\nrevisit the exercise as a regular part of the annual budgeting process. The most important two messages I left with\nthe team were: when things go bad having a thought through plan prevents a lot\nof dumb decisions when panic sets in, and always build your cost structure so\nyou can still make money at the bottom of the market. <\/p>\n\n\n\n
Fast forward six\nmonths and what happens, the 2009 Global Financial Meltdown!! When this hit our markets, the drop-in sales\nvolume was a catastrophic -65%!! Because\nwe had experienced the \u201cScenario Planning Thought Process\u201d we had adjusted our\nspending habits, brought more discipline to our cost structure and most\nimportantly had a plan ready, and yes, we managed our way through without\nlosing any money that year and the following. \nWe actually came out the other side a better and stronger team and a\nstronger business.<\/p>\n\n\n\n
So, can the \u201cGood\nTimes\u201d kill your business? It sure can and it did to many during the 2009\nmeltdown. But it doesn\u2019t have to!<\/p>\n\n\n\n
Scenario Planning is an extremely effective way to build strategy, test your strategy and test your current operations, financials and balance sheet. It is also a very effective way to teach your teams about risks and opportunities that they may not have in their experience toolbox yet. That\u2019s adding real health to your business.<\/p>\n\n\n\n
If you\u2019d like to discuss how we can assist you and your business, get in touch with John Higgins, the author of this article, at jhiggins@scpg.ca<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Why \u201cScenario Planning is Critical\u201d A few years ago, I was working with a group of dealerships that were seeing record equipment sales, service shops were backed up, parts were hitting record sales and oh did the profits keep coming. What a great place to be or is it? DependsContinue Reading<\/a><\/span><\/p>\n","protected":false},"author":2,"featured_media":152,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[2,4],"tags":[],"_links":{"self":[{"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/posts\/82"}],"collection":[{"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/comments?post=82"}],"version-history":[{"count":1,"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/posts\/82\/revisions"}],"predecessor-version":[{"id":320,"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/posts\/82\/revisions\/320"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/media\/152"}],"wp:attachment":[{"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/media?parent=82"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/categories?post=82"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/scpg.ca\/worthreading\/wp-json\/wp\/v2\/tags?post=82"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}