Why is scenario planning often used alongside sales forecasting?

Scenario planning is often used alongside sales forecasting to prepare for various potential future outcomes and mitigate risks.

Scenario planning and sales forecasting are two strategic tools that are often used together in business planning. Sales forecasting is the process of estimating future sales, which is crucial for managing inventory, cash flow, and making informed business decisions. On the other hand, scenario planning is a strategic planning method used by organisations to make flexible long-term plans. It involves creating a set of various plausible future scenarios based on identified key uncertainties and then planning how to respond to each.

The reason these two are used together is that they complement each other. Sales forecasting provides a quantitative prediction of what is likely to happen in the future based on historical data and current trends. However, it doesn't account for unexpected events or changes in the business environment. This is where scenario planning comes in. It helps businesses prepare for different potential outcomes, including those that may not be reflected in the sales forecast.

For example, a company might forecast strong sales growth based on current trends. However, scenario planning could reveal potential threats to this growth, such as a new competitor entering the market or changes in consumer behaviour. By considering these scenarios, the company can develop strategies to mitigate these risks, ensuring they are prepared for various potential futures.

Furthermore, scenario planning can also help to identify opportunities that may not be evident from sales forecasting alone. For instance, it might highlight potential new markets or changes in customer needs that the company could capitalise on.

In conclusion, while sales forecasting provides a likely picture of future sales based on current data, it cannot predict all possible future events. Scenario planning complements this by considering a range of potential scenarios, helping businesses to prepare for and navigate an uncertain future. Together, they provide a more comprehensive approach to strategic planning.