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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 acronyms.

    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

Goals

  • 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

 
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