Scenario Modelling - Fundamentals¶

What It Is (General)¶

Scenario planning is the practice of creating multiple versions of financial forecasts based on different assumptions about future conditions. In treasury, this typically involves modeling variations in cash inflows and outflows to understand the range of possible liquidity outcomes.

What It Means for Our ICP¶

How Treasury Teams Think About It¶

Treasury teams approach scenario planning as a risk management tool. The goal isn't to predict the future but to ensure they're prepared for a range of outcomes. They think in terms of: - Base case: The most likely outcome based on current data - Conservative/downside: What happens if things go worse than expected - Aggressive/upside: What happens if things go better than expected

Personio's Approach (Source: 2025-10-21) Tom described wanting to apply percentage-based assumptions to forecasts, such as reducing collections by 5% to model a conservative scenario. The goal is quick scenario generation rather than maintaining entirely separate forecast files.

Personio's Investment Scenario Modelling (Source: 2026-01-28) Tom described using forward cash visibility to make better investment decisions: "It takes those kind of decisions from a bit of guesswork and making overly conservative decisions to actually being able to make more informed decisions with comfort and confidence." He wants to create beginning-of-month scenario plans for investment activity that can be referenced throughout the month.

Personio's Seasonal Adjustments (Source: 2025-12-04) Tom described wanting to flex forecasts by percentage while preserving weekly patterns: "for December that we're going to flex that down by 5% based on public holidays. And then in January, We should see an offset of that. Plus, it's our seasonality, so we're going to flex that up by 10%." The key insight is preserving the intra-month collection pattern (front-loaded vs back-loaded weeks) rather than applying blanket adjustments.

ON's Scenario Use Cases (Source: 2026-02-18) Amanda and Rodrigo immediately saw working capital scenarios (AR/AP/inventory) as a use case. Also discussed: - FX currency impact: "If we open a new store in Sweden, we will be expecting many more cash outs in Swedish Krona than expected" - Lego-piece composition: combining small assumptions into event scenarios (e.g., "Swedish store opening" = increased SEK payroll + capex + revenue ramp) - Acquisition scenarios: "We have never done it... but once the time comes, if it comes, it will be interesting to see" - Rated prototype 8-9/10: "Super cool, actually. It's part of our goals, actually, for this year to do more scenario and stress testing."

Fixed vs Rolling Scenario Tension (Source: 2026-02-18) Jennifer (Palm) raised a key design consideration: the rolling forecast re-baselines to actuals, which wipes out the original scenario baseline. Amanda and Rodrigo agreed that being able to "fix" a scenario at a point in time and overlay actuals would be valuable for tracking whether reality is tracking best case, baseline, or worst case.

Typical Processes & Timing¶

Scenario planning is often done: - During monthly/quarterly planning cycles - When major uncertainty arises (economic changes, customer concentration risk) - For board reporting to show range of outcomes - As part of annual goals (ON: scenario & stress testing is a 2026 objective)

Tools They Use Today¶

Spreadsheets - Manual duplication of forecasts with adjusted values
Limitation: Time-consuming, error-prone, hard to maintain multiple versions

How They Talk About It¶

"Conservative assumptions" - applying downside adjustments
"Stress testing" - modeling extreme scenarios
"What-if analysis" - exploring alternative outcomes
"Sensitivity analysis" - understanding impact of specific variable changes
"Assumption-based modeling" - using drivers to generate scenarios
"Percentage flex" - adjusting forecasts by a percentage to model scenarios
"Seasonal uplift/downlift" - adjusting for known seasonal patterns
"Keep the rationale" - preserving underlying patterns when adjusting totals
"Disruptor" - external shock (COVID, tariffs) requiring forecast adjustments
"Working capital hedge/cushion" - FP&A's range of flexibility around forecasts

Personio's Workflow Distinction (Source: 2026-02-18) Tom distinguishes between two related but distinct workflows: "nudging the forecast" (correcting model assumptions at category level when external context contradicts a trend) and "scenario analysis" (layering hypothetical events on top of the baseline forecast). Both need to coexist. He also emphasized the need for one-off absolute value items (e.g., acquisitions, capital markets activities) alongside percentage-based assumptions, and the ability to save, name, and share scenarios with management before applying.

Personio's Worst Case Focus (Source: 2026-02-18) Tom described treasury's primary scenario need: worst case. "Usually worst case scenario from a Treasury side is what you focus on. And if all of those things happen together — like you have to think of the worst, worst, worst case." His approach: combine maximum outflows with minimum inflows from historical data over the past 6 months to establish the floor.

Handling Disruptors in ML-Based Forecasts¶

Levi's Approach (Source: 2025-12-11) When market disruptors occur (COVID, tariffs, etc.), Dette described a workflow:

Check if ML already reflects it: If historical data includes a similar disruptor (e.g., COVID's 20% revenue drop), ML may already account for it

Apply percentage-based adjustment: If new disruptor, apply a percentage (10%, 15%, 20%) downward/upward adjustment

Document the reason: Add explanation so future users understand what happened

Checkbox interface: Instead of manual input, offer pre-defined disruptor types to select

"Maybe that adjustment line would already be 20%, 10%, 15%. All I have to do is check the box. And then you can have a description so that the storytelling is clear." - Dette

Industry Validation of Scenario Modelling Need¶

Treasury Dragons Panel (Source: 2025-12-09)

Varan (Zanders, 13 years consulting): "What I'm looking forward is seeing tech solutions that... enabling [treasury teams] to perform various kind of analysis what if scenarios and the flexibility to incorporate seasonality trends in their forecast directly in the system."

Royston Decoster (Ferguson, 37 years treasury): "Advanced tools now support multi scenario modeling, stress testing, multi entity consolidation and multi currency forecasting... long term forecasts still depend heavily on human judgment and scenario planning."

This validates that industry-wide, what-if scenarios and flexibility are seen as essential capabilities, not nice-to-haves.

Assumption Layers in Practice¶

Palm Feature (Source: Treasury Dragons 2025-12-09) Gurjit described Palm's assumption layering: "Your forecast is as good as your ability to be flexible and nimble enough to change when market conditions or business conditions change. With Palm, you bake in these changes you expect in the future, and you could quickly manage and update your assumptions through different dimensions... whether you want to say it's a group of entities that are increasing revenue in a specific region, or if it's a specific company wide category."

Sources: view all