Latest news with #scenario planning
Forbes
3 days ago
- Business
- Forbes
Unable To Plan In 2025? Use AI To ‘Leave No Scenario Behind'
During in-person discussions with boards and senior leaders in Asia, the Americas and Europe this summer, the directors and executives cited the inability to plan as their single greatest business challenge in 2025. Consequently, effective leaders are conducting robust scenario planning to avoid stagnation or delayed decision making as recent advances in generative AI change how they approach scenario development. Why are businesses unable to plan? The global leaders provided several concurrent challenges that make planning difficult: Said one senior executive recently, 'We used to have a core scenario in place with a handful of back-ups, but now we need to have literally hundreds of options on the table and know which one to follow at any given time. And the answer can change daily or weekly and vary by product line or country.' The role of scenario analysis: Rehearsing the future Peter Schwartz, a pioneer of scenario planning and author of The Art of the Long View, likened the use of scenarios to 'rehearsing the future.' Similar to rehearsing a theater production, the process of scenario development historically required a collaborative effort of numerous individuals and several days, weeks, or months of refinement before the scenarios were ready for their intended audience. This traditional approach to scenario development generally was time-consuming and resource intensive. The role of AI in scenario planning: 'No Scenario Left Behind' Recently in Silicon Valley, PruVen Capital Managing Partner Ramneek Gupta shared the concept of 'no scenario left behind.' He and his colleagues have been studying advances in scenario planning and funding solutions that could enable business leaders to leverage advanced AI such as large language models (LLMs) and large geotemporal models (LGMs). LGMs use frameworks that analyze and reason across both time and space to exhaustively simulate virtually any and every event and scenario. These AI models provide dynamic risk modeling and real-time simulations for a vast array of business scenarios, allowing business leaders to address the inability to plan. WTW's Jessica Boyd and Cameron Rye explain in a recent article that advances in generative AI tools have enabled the rapid generation of numerous scenario narratives across a wide range of disciplines. These models accelerate the traditional, resource-heavy process of scenario development, streamlining the steps while introducing novel perspectives that might be missed by human analysts. They help overcome the limitations of human imagination that occur when people overlook or underestimate potential risks that have not yet happened in historical data. This can reduce potential blind spots that otherwise leave organizations vulnerable to highly disruptive events. Already, AI breakthroughs have enabled the next stage of scenario planning using advanced language models in areas such as weather forecasting, including hurricane landfall predictions, as well as political and economic modeling. These models provide the opportunity to expand beyond the traditional exploratory scenarios that most businesses currently use. For example, normative scenarios (similar to a reverse stress test) can add significant value when they are built around specific business objectives. Further, within the UK and Europe, new regulations focused on financial institutions have sparked considerable attention on scenario testing (in the U.K.: Operational Resilience 2025 and in the EU: Digital Operational Resilience Act (DORA)). These rules have further increased the importance of well-developed and defined scenarios, including scenario testing with third parties. How to start scenario planning and conducting an impact analysis Recently, WTW's Laura Kelly explained how scenario building and impact analysis have become a crucial part of business planning and risk management. She suggests three key steps in scenario planning and impact analysis: Effective leaders are not halted by uncertainty but rather mobilize around it. They identify the broad range of scenarios that might occur in a given set of circumstances, prioritize the greatest risks as well as the solutions that can mitigate these risks, and enable the company to thrive.
The Australian
28-07-2025
- Business
- The Australian
Why CFOs may already own sustainability
Given its need for enterprise-wide advocacy and targeted resources, sustainability often finds a fitting environment in the finance function. CFOs have a responsibility to ensure that investment and operational performance drive returns for the business both in the short and longer term. As the demands and expectations of stakeholders change with respect to sustainability performance, CFOs who do not regard this aspect as part of the overall financial strategy of the company may not be able to deliver the most value for the business. The speed of change in expectations can vary depending on the stakeholder, the sector, and the region of operation, but the increasing focus on sustainability is fast becoming an imperative, even as the politics waver. As such, CFOs should view the responsibility for sustainability as introducing a unique set of risks, opportunities, and trade-offs to be considered. Scenario planning A useful approach that CFOs can take is to consider how each of their stakeholder groups might change over the next five years; what impact that shift could have on company performance; and what opportunities may consequently arise to increase market share, profit margins, or even product range. Some of the potential high impact challenges that specific stakeholders could present over the next 5-10 years [1] might require CFOs to adapt by focusing on the following actions: ■ Reassessing asset valuation impacts. Investors may reassess, both negatively and positively, asset valuations due to the inclusion of physical climate risk impacts on operating cashflows or supply chain resilience. ■ Meeting changes in regulatory compliance. Governments may implement a 'Green New Deal' approach to decarbonisation in some major jurisdictions. ■ Accommodating shifts in demand. Customers may switch to demanding low-carbon sustainable alternatives, thereby reducing demand for traditional products and virgin materials. ■ Stepping up recruiting and retaining efforts. Failure of employee attraction or retention could lead to gaps in the workforce and in the leadership pipeline. ■ Shielding company reputation. Local communities' perception of the business could affect its reputation and social value, resulting in boycotts or even in loss of license to operate. ■ Helping suppliers navigate challenges. Widespread and binding requirements for suppliers may require them to report and then reduce emissions as companies target scope 3 emissions. ■ Partnering with legal teams. CFOs need to be aware of the prospect of major litigation from a combination of NGOs that have suffered loss, activists, and class-action lawyers. These could be material and, if successful, they may incur balance sheet impacts up to and including bankruptcy. This type of scenario planning should be undertaken by each business considering its own circumstances. It's important to approach this not as an exercise in forecasting but rather as a consideration of plausible scenarios and the subsequent impacts on the company. By running this type of exercise, CFOs can better understand the 'value at risk' of business as usual and the cost of inaction with respect to both the operations and full value chain collaboration. Value chain collaboration What will likely become increasingly evident is that companies will depend on the performance of the full value chain to a greater extent than they previously have. If the final product sold to a consumer has a sustainability claim, or has regulations to comply with, then each input to that final product has a part to play. For this reason, CFOs should engage with their partners and critical suppliers and customers to understand their planned rate of transition to make sure the full value chain is aligned. To deliver on this effectively, CFOs may need to look at various carrots and sticks. In encouraging suppliers to change their operations through specification changes, contract term extensions or even co-funding have been used as incentives. On the other hand, in some cases, a simple requirement for suppliers to change as a 'ticket to play' can be used to force change. This all requires careful analysis to work out the cost of action, the cost of inaction, and the opportunities that can be created through leading change. Value beyond compliance There is a significant focus and effort at the moment on understanding the emerging reporting requirements, making sure that companies have a reliable single source of truth of sustainability data, so that the company can be compliant. At the same time, the responsibility for sustainability data and reporting is often in the process of transferring from the sustainability team to the CFO and controller teams. In addition to the need for compliance, CFOs also have an opportunity to harness the same data to think through and deliver risk mitigation and value creation. There are a few activities that CFOs can consider, such as ensuring that as new data gathering and analytics systems are designed and deployed, additional capability is included to use this same data to optimise operational performance, manage supply chain transparency, and prioritise capital allocation. As emissions reduction and other sustainability-related targets are set, CFOs can use the baseline and ongoing data to develop clear pathways—including resource allocation, financial and otherwise—to deliver on those commitments. These pathways may include uncertainties and dependencies, which need to be considered, as do contingencies. Some of this work might then be published as a Climate Action Transition Plan [2] to provide clear guidance to the market about how the company will change and how it will fund those changes to meet market needs. Put simply, don't waste the required effort of compliance just on delivering compliance. Rather, harness that same effort to drive real business value. Emerging trends The most impactful trends lie in evolving stakeholder expectations and where there might be step-changes in demands. To effectively provide value for the company, CFOs need to understand the possible scenarios for change and identify and monitor signals [3] that might indicate that changes are approaching. For instance, signals that might be worth considering when bearing in mind investor expectations include: ■ Increasing divestment activity from institutional and retail investors ■ Increasing percentage of individual uptake of socially aware/low-carbon portfolios ■ Shareholder resolutions/engagement on sustainability issues To protect and create high-quality value from these macro trends, CFOs should also be aware of technology changes that facilitate more effective real-time monitoring and traceability of sustainability impacts. This can enable them to take quicker corrective action and improve opportunity selection. It is also important for CFOs to understand the breadth of sustainability demands in addition to carbon emissions, which has been a primary focus at the moment. Nature, water, land, community, waste and recycling, and circularity targets are all starting to be adopted and this can extend the sustainability remit for CFOs significantly. While not all of these will be material for every business, a consideration of the materiality can help organisations determine that they develop the most effective sustainability strategies. For already-stretched CFOs, this can feel at times like a whole new set of requirements that doubles their work. However, this is the result of a changing business environment that has encompassed new requirements from customers, financiers, and governments and requires additional information to be collected, analysed, and acted upon. With that view, it is no different than considerations of safety, digital, cyber, and AI. Sustainability ought to be understood and integrated into the overall company strategy to deliver the best outcomes for owners through efficiently and effectively meeting the needs of stakeholders. John O'Brien is partner, Deloitte Sustainability, Deloitte & Touche LLP 1. 'The Chairperson's Guide to Climate Stakeholders: Understanding how key groups are responding today and how they might respond tomorrow,' World Economic Forum Climate Governance Initiative in collaboration with Deloitte, April 2022. 2. 'How to Chart a Credible Path to Net Zero? Try a Climate Transition Action Plan,' WSJ Pro Sustainable Business, October 9, 2023. 3 'The Chairperson's Guide to Climate Stakeholders: Understanding how key groups are responding today and how they might respond tomorrow.' As published by the Deloitte US Chief Financial Officer Program in the 13 November 2024 edition of The CFO Journal in WSJ. Disclaimer This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ('DTTL'), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as 'Deloitte Global') does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the 'Deloitte' name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see to learn more about our global network of member firms. Copyright © 2025 Deloitte Development LLC. All rights reserved. CFO Journal With advancements in automation and streamlined processes, there's a growing opportunity to realign roles in ways that could potentially increase productivity. CFO Journal Cyber risk decision-making should be as credible, defendable, and trustworthy as financial statements. Organisations need a shared understanding of cyber data, metrics and how it ties to risk.
