Scenario Planning: It's Not Just for Finance Anymore

There has been a lot of talk and articles written lately on the importance of scenario planning. Most of these are focused on financial scenario planning — preparing for an uncertain economy and looking at various outcomes and planning your budget and cashflow accordingly. While this is critical, scenario planning should not only be looked at from a financial perspective. If you are not looking at a broad range of different potential scenarios that can impact your organization, particularly in these uncertain times, then you are not getting an accurate picture on how to base your financial planning.

Comprehensive financial scenario planning can only be done effectively once those same tools and methodologies are applied to each underlying department. The questions and underlying assumptions will be different for each department, but they will feed the financial scenario plan.

At the basic level, scenario planning should include at least four scenarios: base case, best case, worst case and aspirational. Within each of these cases, you can get more granular and many more levels of increase or decline (e.g. a 10% loss in staff, a 20% loss in staff, etc.). Let’s look at some departments that should undertake their own customized scenario planning process.

Human Resources

Just like financial scenario planning, it is important to plan for various outcomes in your human resources department. The organization relies on its staff — the ability to attract and maintain staff, the ability to compensate staff at a level that provides sustainability for both the organization and the employees, the ability to provide adequate benefits and professional development opportunities, and the ability to grow.

Many nonprofits had to decrease their staff during the onset of the pandemic. Fortunately, many of those employees were able to benefit from the increased unemployment benefits from the federal government. Unfortunately, in many cases, it was difficult to bring employees back because they were getting more from unemployment than they were making in their job. Some nonprofits benefitted from a Paycheck Protection Program loan, but what does the future look like when that funding runs out? The ability to attract and maintain staff has the most meaningful impact on an organization’s ability to meet its mission. So take the time to map out various scenarios that will drive all the others.

These scenarios can be based on known assumptions, possible outcomes and aspirational scenarios. In other words, you need to plan for whether you can keep employees and whether you can pay them a meaningful wage to keep them engaged. Are there things you want to do to reward your employees and attract new ones in terms of training, and professional development? This would be your aspirational scenario.

Will you be able to maintain staff? Can you continue to compensate them at the same levels? Can you increase compensation? Do you need to decrease compensation? Will your costs per employee increase? How will fringe costs be impacted?

Basic scenarios for HR: 

• Number of employees.
• Compensation levels and increases.
• Fringe costs.
• Training and professional development.
• Aspirational goals.

Operations

General operations are another area that will be key in the scenario-planning process. There are still many uncertainties facing organizations regarding COVID-19 and the economy in general, so it is important to forward plan various scenarios in order to be prepared.

• Client base: Is your mission more critical today? Are you facing an increase in the number of people you need to serve? Is your mission less relevant or in demand? Are you going to be facing a decrease in demand? This will be particularly relevant for its impact on revenue.
• Delivery Method: How are you delivering your services? Have you pivoted to remote, and will you remain that way? What additional resources will be needed to do that? Are you planning on returning to normalcy? What will it look like? Will it be a hybrid structure?
• Facilities: What is the status of your facilities? Are you utilizing your current space, or do you have plans to return? If not, what will happen to the space? Can you get out of your lease? Sublet? Sell it if you own it? Can you co-share your space with another nonprofit? If you are planning on returning, what will be the retrofitting needs to accommodate social distancing and increase cleaning and other safety measures? Are there critical capital projects that are no longer necessary or financially viable? How do these capital projects impact your operations?

Basic scenarios for operations: 

• Clients served.
• Delivery method.
• Facilities.
• Capital needs.

Development

Another area that will have a significant impact on your financial scenarios is the operations of your development functions. The ability to maintain a solid fundraising strategy and staff will be key. How have fundraising efforts been impacted? How has your donor base been affected? Has your staff been able to find ways to fundraise virtually? Is it sustainable?

Basic scenarios for development: 

• Fundraising staff.
• Fundraising campaigns and projections.
• Cost of virtual fundraising.
• Status of donor base.

IT Department

Your IT department has more than likely been significantly impacted by the switch to remote work. More technology is needed, more support is needed, more equipment and different types of software are all needed now and will only increase. All of the various scenarios in your operational plans will feed the technology needs. If you are planning to stay remote, you will need more and better equipment, enhanced security tools, stronger connectivity and better collaboration tools. You will also likely need more support staff and equipment upgrades.

Basic scenarios for IT: 

• Status of workforce.
• New tools and technology needed.
• Level of support staff.
• Connectivity.

Board

Your board will continue to be a critical point in leadership and will fit into all of the scenarios and decision-making. It will be important to plan for scenarios where you may lose board members; board members may have less time to focus on the organization and less ability to contribute. Alternatively, you may find an increase in dedication, a stronger commitment and the ability to attract new members. Each of these scenarios will impact the overall financial planning.

Basic scenarios for the board: 

• Maintain the current board.
• Board engagement improvement.
• Attraction of new board members.
• Increase/decrease in board support.

Make sure that you include individual scenario plans that take each of these assumptions into account. Only then will you get a true picture of the potential impact on your financial plans and be able to do thoughtful and meaningful financial scenarios.

All of these various scenario plans will roll up to the overall financial scenario plan. So it is important to get granular to really get the overall picture of the organization and its ability to maintain operations and make informed decisions to ensure sustainability.