Organizations usually need to evaluate the pros and cons of any strategic decision; therefore, having a model for uncertainty in a fast-changing business climate that makes you able to predict unexpected economic and technological challenges and plan accordingly is essential.
Scenario modeling is an ideal solution for what-if modeling of business risks.
Oracle EPM systems offer powerful scenario modeling capabilities, allowing companies to evaluate the impact of different factors on financial performance. This includes analyzing pricing changes, market expansion, and economic dynamics. Through different scenarios, companies can optimize their strategies, decrease risks effectively, and make the right decisions.
Scenario modeling allows users to create various scenarios for each business unit and model different business outcomes that are calculated based on different sets of forecast assumptions. Users can also run periodic "goal-seek" checks to determine the performance level needed to achieve specific financial objectives. When you define your scenarios, you specify the accounts to include: the entire chart of accounts, a subset of accounts, or a single account.
Steps to Perform Scenario Analysis
- Identifying the key assumptions underlying our forecasts and presenting them in a planning model
- Developing a base scenario
- Identifying and modeling many alternative scenarios and estimating their likelihood
- Monitoring the critical assumptions listed in Step 1 through a dashboard
- Narrowing down and refining scenarios based on events as they play out
The base scenario contains every account. You add an account to a scenario because you want the values to come from your new scenario rather than from the base scenario or another standalone scenario.
- Consolidate various scenarios to give an enterprise view of the long-range financial plan.
- Built-in industry-specific templates, along with the option of customizing as required.
- Built-in financial logic and accounting integrity.
- Quick reporting and comparative analysis between what-ifs
- Built-in features of forecast methods, translation, goal seeking, simulation, treasury planning, and audit trails with strong modeling capabilities.
- User security and accessibility
Financial models detect the impacts of strategic decisions on an organization’s bottom line, balance sheet, cash flow, and shareholder value. Within scenario modeling, financial modelers can use built-in financial intelligence to assess the impact of their what-if strategic scenario models on financial statements.
Scenario modeling aligns strategy with the operational plan by setting meaningful targets, performing quick financial impact analysis, and presenting focused financial information for informed decision-making.
In today’s rapidly changing environment, depending on customized spreadsheets for financial modeling and impact analysis is less than optimal. Solutions like scenario modeling in the Oracle Fusion Cloud EPM have invaluable benefits, as they enable finance organizations of all sizes to stay agile, enhance their financial operations, and improve decision-making.
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