All businesses face risk in their future. One of the key elements of the Forecasting function is to provide a level of insight on the impact of risk. This includes the assumptions that drive risk, the impact to results and potential estimates on the probability of those risks.
Decision makers can therefore incorporate these into their strategies and investments. The goal should be to minimize the impact or probability of risk. It is also important that risk can relate to both events that lead to downside (threats) or upside (opportunities).
The whole area of risk management is one of the areas that seems to suffer most when issues of inefficiency impact the process. This is one of the last areas to invest in so when timing and resources are pressed, this often gets postponed or deprioritized.
There are different ways that teams can ultimately tackle risk. These can include increasing their scenario analysis in either discrete scenarios, decision trees or Monte Carlo simulations. All approaches have the potential to improve decision making and therefore business results.
The use of Excel desktop-based Forecasting again provides significant obstacles to improving risk management. Excel is notoriously challenging when running discrete scenarios as it often creates a library of files on the network drive, which require significant manual time to consolidate the results. When it comes to running Monte Carlo simulations, Excel is quite efficient, but the major obstacle seems to be in communicating the significant information that comes out of the models in a manner that decision makers can utilize.
Enabling technology can definitely help in risk management, but this is one of the areas where accompanying best practices are strongly required to implement significant process improvement.
i2e by Scarsin provides significant improvement to discrete scenario management as the support of the database allows forecasters to achieve significant levels of efficiency gains (30-70%). i2e also supports Monte Carlo simulations. The biggest advantage of the technology is its ability to share the impact of risk management to decision makers in self-service reporting tools. It is also important that this be accompanied by risk management best practices provided by Scarsin or an i2e professional services partner.