An Overview of Scenario Planning. Topics include: Scenario Planning and Uncertainty, Scenario Planning Prerequisites, Key Benefits of Scenario Planning, Types of Scenario Planning, Overcoming Hurdles to Scenario Planning and Five Required Structural Elements

1. An Overview of Scenario
Planning
APQC’s Financial Management Webinar Series: May 2013

2. 2012 ® Axiom EPM All rights reserved
TODAY’S SPEAKER
As Chief Strategy Officer of Axiom EPM www.axiomepm.com
Peri is responsible for leading product and go-to-market strategy for the
Axiom EPM. He brings over 25 years of financial and performance
management experience largely within the context of enterprise software.
His most recent role was at SAP, where as Vice President of Business
Analytics he was responsible for the launch of numerous analytic
applications designed for banking, healthcare, retail and other industries.
Prior to SAP, Peri was responsible for Business Objects’ EPM Center of
Excellence. He also served on the executive management teams of SRC
Software and Sendero Corporation where he managed the industry strategy
and product management functions respectively. His thought leadership
work has been published in the Journal of Performance Management and
other publications.
Peri received his Bachelor’s in Business Administration from the University of
Washington and an MBA from Keller Graduate School
Peri Pierone

3.  Scenario Planning & Uncertainty
 Scenario Planning Prerequisites
 Key Benefits of Scenario Planning
 Types of Scenario Planning
 Overcoming Hurdles
 Five Required Structural Elements
 Closing Remarks
U N I F I E D P E R F O R M A N C E M A N A G E M E N T
May 21, 2013
Agenda

4. 2012 ® Axiom EPM All rights reserved
Scenario Planning and Uncertainty
 The notion of uncertainty is at the crux of both finance and risk
management domains
 Even so when it comes to strategic planning, budgeting and forecasting,
most practitioners are content with completing the “the budget” or
“the forecast” without addressing the issue of uncertainty
 There is false sense of security when underlying assumptions are
treated as facts vs. assumptions – masking both exposure and
opportunity
 Over 90% of organizations we surveyed take at least 2 months to
complete a budget – most take more than three months, many more
than 4 – thus its difficult to perform scenario analysis
 Only 8% of organizations surveyed do
scenario planning regularly

5. 2012 ® Axiom EPM All rights reserved
Prime Conditions for Introducing Scenario Planning
 Uncertainty is high relative to managers’ ability to predict or adjust
 Too many costly surprises have occurred in the past
 The company does not perceive or generate new opportunities
 The quality of strategic thinking is low (i.e., too routinized or
bureaucratic)
 The industry has experienced significant change or is about to
 There are strong differences of opinion, with multiple opinions having
merit
 Competitors are creating advantage by using scenario planning
“Scenario planning attempts to compensate for two common errors in decision
making – under prediction and over prediction of change. Most people and
organizations are guilty of the first error.”
Paul J.H. Schoemaker
Professor Wharton School, Univ. of Pennsylvania

6. 2012 ® Axiom EPM All rights reserved
Key Benefits for the Organization
 Understand and define the key drivers of the business
 Quantify the sensitivity to key drivers, creating important
institutional knowledge
 Properly treat financials as outcomes rather than inputs in the
planning process
 Eliminate (at least in part) bias or aspirational thinking that is not
grounded in reality
 Test the strength and flexibility of a strategy under adverse
conditions
 Manage risk and uncertainty more effectively by modeling
scenarios that break with current trends
 Become more expansive and imaginative in its thinking
 Consider possibilities that would otherwise have
likely been ignored

7. Types of Scenario Planning
#1 – Single Variable Sensitivity Analysis
 Easiest to set up
and process
 Useful in
quantifying the
impact of a
particular DV
 Can be a great
educational tool
 Primary criticism is
its simplicity –
market variables
seldom move on a
stand-alone basis

8. 2012 ® Axiom EPM All rights reserved
Types of Scenario Planning
#2 Two Variable Example – Nine Box

9. Types of Scenario Planning
#3 – Multi-Variable Storyline Scenario Planning
• Employs two or more key variables typically based on a particular narrative
• More formalized and more plausible
• It should include factors the organization is quite certain of ones it isn’t
• Takes more time and energy to create

10. 2012 ® Axiom EPM All rights reserved
Types of Scenario Planning
#4 - Initiative Based Scenario Planning
Forecasting Methods Include:
Examples:
• Driver-based model
• Volume & Mix
• Variable Labor, efficiency benchmarks
• Capital constraints
• Open new geographic region
• Expand productive capacity
• Back office automation
• Divestiture of finance subsidiary
Analysis Contains:
1. Income Statement
2. Balance Sheet
3. Cash Flow
4. Key Ratios
Consolidated Results
Initiative #3
Initiative #2
Base Case
Given current trends,
what is our financial
outlook 3-10 years?
Initiatives
As we prioritize growth or
cost containment
initiatives, what is the
incremental impact?
Scenarios
What is the impact on our
baseline projections given
the initiatives we’ve
proposed?
Initiative #1
Initiative #4
Base Case
(Conservative)

11. 2012 ® Axiom EPM All rights reserved
Forecasting Methods Include:
Examples:
• Driver-based model
• Volume & Mix
• Variable Labor, efficiency benchmarks
• Capital constraints
• Open new geographic region
• Expand productive capacity
• Back office automation
• Divestiture of finance subsidiary
Analysis Contains:
1. Income Statement
2. Balance Sheet
3. Cash Flow
4. Key Ratios
Consolidated Results
Initiative #3
Initiative #2
Base Case
Given current trends,
what is our financial
outlook 3-10 years?
Initiatives
As we prioritize growth or
cost containment
initiatives, what is the
incremental impact?
Scenarios
What is the impact on our
baseline projections given
the initiatives we’ve
proposed?
Initiative #1
Initiative #4
Base Case
(Conservative)
Types of Scenario Planning
#4 - Initiative Based Scenario Planning

12. Types of Scenario Planning
#5 – Stochastic Based Scenario Planning
 Rather than a discreet scenario – stochastic analysis focuses on hundreds
maybe even thousands of scenarios
 Using a random # generation process (e.g. Monte Carlo) against a key
variable(s) for the purpose of producing a distribution of results
 Resulting in probabilistic outcomes (e.g. mean, STDs, confidence intervals)

13. 2012 ® Axiom EPM All rights reserved
We are not set up for it
We’d like to but haven’t gotten around to it
We occasionally run scenarios
We process what if scenarios often
Axiom Survey Results Scenario Planning
7.8%
56.9%
21.6%
13.8%
0.0% 20.0% 40.0% 60.0% 80.0%
Regarding Scenario Planning which best describes your organization?

14. 2012 ® Axiom EPM All rights reserved
Hurdles to Scenario Planning*
8%
14%
23%
45%
54%
Management hasn't shown interest
Our budgeting process is zero based
Don't have a good handle on our drivers
Our model was never properly set up
We don't have enough time
0% 10% 20% 30% 40% 50% 60%
1. Bandwidth Constraints (we don’t have enough time)
* Axiom EPM Survey Results February 2012

15. 2012 ® Axiom EPM All rights reserved
Finding the Time
I. Reducing budget cycle times by:
a) Streamline the input required –
take a more calculation rich
approach
b) Enable more robust driver-based
approaches
c) Improving the efficiency of the
bottom up – top down process
d) Have the budget process
become part of a rolling forecast
process
e) Reduce the size of your chart of
accounts
9%
44% 45%
3%
< 2 Months 2-3 Months 4-6 Months > 6 Months
0%
10%
20%
30%
40%
50%
How Long Does It Take to Complete the
Budget?
* Axiom 2012 Survey Results
0% 20% 40% 60%
50 - 100
201 - 300
# of Accounts in Budget
There is a correlation between
cycle times and COA size!

16. 2012 ® Axiom EPM All rights reserved
Hurdles to Scenario Planning*
8%
14%
23%
45%
54%
Management hasn't shown interest
Our budgeting process is zero based
Don't have a good handle on our drivers
Our model was never properly set up
We don't have enough time
0% 10% 20% 30% 40% 50% 60%
1. Bandwidth Constraints (we don’t have enough time)
2. Technology Deficiency (our model was never properly set up)
3. Configuration Deficiency (our model was never properly set up)
4. Data Deficiency (our model was never properly set up)
* Axiom EPM Survey Results February 2012

17. 2012 ® Axiom EPM All rights reserved
Hurdles to Scenario Planning*
8%
14%
23%
45%
54%
Management hasn't shown interest
Our budgeting process is zero based
Don't have a good handle on our drivers
Our model was never properly set up
We don't have enough time
0% 10% 20% 30% 40% 50% 60%
1. Bandwidth Constraints (we don’t have enough time)
2. Technology Deficiency (our model was never properly set up)
3. Configuration Deficiency (our model was never properly set up)
4. Data Deficiency (our model was never properly set up)
5. Lack of Institutional Knowledge (we don’t have a good handle on our drivers)
* Axiom EPM Survey Results February 2012

18. 2012 ® Axiom EPM All rights reserved
Driver-Base Analysis for P&C Insurance
Insurance Income Statement:
INVESTMENT INCOME
Net Investment Income Earned
Net Realized Capital Gains (Losses)
Net Investment Gain (Loss)
OTHER INCOME
Net Gain (Loss) from Agents’ or Premium Balances Charged Off
Finance and Service Fees Not Included in Premiums
Aggregate Write Ins for Miscellaneous Income
Total Other Income
Dividends to Policyholders
Net Income, after Dividends to Policyholders
Federal & Foreign Income Taxes Incurred
NET INCOME
Combined Ratio
ROE
Key Drivers:
• Number of Agents
• Applications Per Agent
• Policies In Force
• Rate Changes
• Commission Rates
• Customer Retention
• Producer Retention
• Consumer/Producer Price Index
• Loss Frequency
• Loss Severity
• Claim Cycle Time
• # of Claims
• # of Adjusters
• # of Underwriters
• # of Customer Service Reps
• Adjuster/UW/CSR Productivity
• Attorneys Rates
• Medical Examination Rates
• Competition
• Regulatory Environment
UNDERWRITING INCOME
Written/Earned Premiums
Losses Incurred
Loss Expenses Incurred
Other UW Expenses Incurred
Aggregate Write Ins for Underwriting Deductions
Net Underwriting Gain (Loss)

19. 2012 ® Axiom EPM All rights reserved
Driver Based Planning Revenue / COS / Margin
Gross Margin Analysis
Model: A4 2013MY
JAN FEB
 Unit Forecast
 Wholesale Pricing
 Manufacturer’s Cost
 Per Unit Stats –
Options, Freight, Port
Processing, Incentives etc.
Audi A4

20. 2012 ® Axiom EPM All rights reserved
Hurdles to Scenario Planning*
8%
14%
23%
45%
54%
Management hasn't shown interest
Our budgeting process is zero based
Don't have a good handle on our drivers
Our model was never properly set up
We don't have enough time
0% 10% 20% 30% 40% 50% 60%
1. Bandwidth Constraints (we don’t have enough time)
2. Technology Deficiency (our model was never properly set up)
3. Configuration Deficiency (our model was never properly set up)
4. Data Deficiency (our model was never properly set up)
5. Lack of Institutional Knowledge (we don’t have a good handle on our drivers)
6. Process Conflicts (our budgeting process is zero based)
7. Cultural Conflicts (management hasn’t shown interest)
* Axiom EPM Survey Results February 2012

21. 2012 ® Axiom EPM All rights reserved
Which Scenario(s) Should I Consider?
1. Consider naming a scenario team that has cross
functional representation
2. Conduct a Scenario Planning workshop
3. Identify those factors that:
a) Have the most influence in the
organization
b) Have the most uncertainty
associated with them
4. Consider starting with a straight
forward sensitivity analysis
5. Group together variables into a
storyline (e.g. #3, #6, #8)
6. Model and back test the relationship
between drivers and outcomes to
improve the accuracy of your model
Level of Uncertainty
Level of
Impact
Variable 2
Low High
Low
High
Variable 3
Variable 6
Variable 9
Variable 5
Variable 7
Variable 1
Variable 1
Variable 8
Variable 10
Variable 4
1 2
3 4
Driver Variable Matrix

22. 2012 ® Axiom EPM All rights reserved
Driver
Assumptions
Baseline V1 V2 V3 …Vn
Business
Logic Layer
e.g. (Price * Volume – (Regional Discount Factor *
Volume) * Shipping Fee) – Return % = Net Sales
Collaboration, I
nputs and
Overrides
Database
Scenario
Storage
Scenario
Presentation
BaseV1 V2 V3 …Vn
1
2
3
4
5
Five Structural Elements to Scenario Models
1. Driver Assumptions
• Internally oriented and
externally oriented drivers
need to be identified and
stored distinctly
• History retention of driver
information recommended
• Automating the data
capture is a best practice
• The ability to quickly clone
and alter driver
assumptions is critical

23. 2012 ® Axiom EPM All rights reserved
Five Structural Elements to Scenario Models
2. Business Logic Layer
• The most critical aspect of
your scenario planning
model
• Goal: Define algorithms
that emulate the
organization
• BLL should be transparent
to stakeholders
• Select technology
platforms that enable this
easily
Driver
Assumptions
Baseline V1 V2 V3 …Vn
Business
Logic Layer
e.g. (Price * Volume – (Regional Discount Factor *
Volume) * Shipping Fee) – Return % = Net Sales
Collaboration, I
nputs and
Overrides
Database
Scenario
Storage
Scenario
Presentation
BaseV1 V2 V3 …Vn
1
2
3
4
5

24. 2012 ® Axiom EPM All rights reserved
Five Structural Elements to Scenario Models
3. Collaboration & Inputs
• Seldom is every line
itemed governed by a rule
• Regardless of the best
business
logic, stakeholders can and
should be able to provide
subjective input
• Workflow processes
should govern who has
rights to make
adjustments and overrides
Driver
Assumptions
Baseline V1 V2 V3 …Vn
Business
Logic Layer
e.g. (Price * Volume – (Regional Discount Factor *
Volume) * Shipping Fee) – Return % = Net Sales
Collaboration, I
nputs and
Overrides
Database
Scenario
Storage
Scenario
Presentation
BaseV1 V2 V3 …Vn
1
2
3
4
5

25. 2012 ® Axiom EPM All rights reserved
Base
Five Structural Elements to Scenario Models
4. Database Scenario Storage
• Rapidly created scenario
need to find a home in the
system
• It is important that all data
(incl. models and
metadata be stored with a
scenario)
Driver
Assumptions
Baseline V1 V2 V3 …Vn
Business
Logic Layer
e.g. (Price * Volume – (Regional Discount Factor *
Volume) * Shipping Fee) – Return % = Net Sales
Collaboration, I
nputs and
Overrides
Database
Scenario
Storage
Scenario
Presentation
V1 V2 V3 …Vn
1
2
3
4
5

26. 2012 ® Axiom EPM All rights reserved
Base
Five Structural Elements to Scenario Models
5. Scenario Presentation
• It is critical that scenarios
can viewed side-by-
side, with full drill-down
• Operational drivers should
be presented along with
financial information
• Flex-based analysis
superimposing actual
driver values into
scenarios is great for
model tuning
Driver
Assumptions
Baseline V1 V2 V3 …Vn
Business
Logic Layer
e.g. (Price * Volume – (Regional Discount Factor *
Volume) * Shipping Fee) – Return % = Net Sales
Collaboration, I
nputs and
Overrides
Database
Scenario
Storage
Scenario
Presentation
V1 V2 V3 …Vn
1
2
3
4
5

27. 2012 ® Axiom EPM All rights reserved
Case Study:
Volume & Workload Planning
About Dignity Health:
• 5th largest health system in US
• ~50 hospitals across NV, CA, AZ
• 3000 users plan for 6000 cost centers
Approach:
1. Patient Detail sourced from EDW
2. Construct a driver-based planning
model based on patient volumes
3. Model and test market and growth
assumptions
4. Analyze volume/mix in context of
department Workload Plan
5. Model various reimbursement mixes
in Net Revenue Plan
6. Construct and compare scenarios
Inpatient
Cardiology
Oncology
Orthopedic
Outpatient
OP Surgery
OP Psych
ER
Radiology
Cardiology
Oncology
Orthopedic
Cigna
Cardiology
Oncology
Orthopedic
Volume Plan
Workload Computed by
Service Line
Workload Plan Net Revenue Plan
Reimbursement rates
modeled by Service Line
Unified Data Sources includes Patient
Detail and Finance Data.

28. 2012 ® Axiom EPM All rights reserved
Axiom EPM’s Scenario Planning Platform
 Functionally rich platform for Scenario-Based EPM
 Driver-based models created from easy to use business logic layer
 Rapid scenario creation tools

29. 2012 ® Axiom EPM All rights reserved
Summary
 Understand and quantify the sensitivity to key drivers, creating
important institutional knowledge
 Properly treat financials as outcomes rather than inputs in the
planning process
 Eliminate (at least in part) bias or aspirational thinking that is
not grounded in reality
 Produce higher quality strategic plans, budgets, and forecasts
that take less time to develop
 Test the strength and flexibility of a strategy under adverse
conditions
 Become more expansive and imaginative in its thinking
Scenario Planning helps the organization:

30. Key Success Factors
About Axiom EPM
Our Unique
Unified Platform1
Steve Esposito
Director, Finance
Strategize
Plan
Monitor
Analyze
& Predict
“While Axiom EPM provides the planning sophistication
and control I need; it doesn’t require a highly specialized
skill set to manage and deploy.”
 Unifies decision support into a single
solution.
 Designed with Finance ownership and
usability in mind.
 Can scale and evolve as needs change.

31. 2012 ® Axiom EPM All rights reserved
Strategy
Management
Capital
Planning
Financial
Budgeting &
Forecasting
Sales Planning
Profitability
Measurement
ABM
Consolidations
Reporting &
Analytics
Strategize | Plan | Monitor | Analyze | Execute
Strategy Management:
• Long Range Planning
• Metrics Management, KPIs
Capital Planning:
• Planning & Tracking
Reporting and Analytics:
• Financial Consolidations
• Financial & management reporting
• Comments Collection
Key Differentiators – Technology
Performance Management Unified
Budgeting & Forecasting:
• Robust Driver-based modeling
• Detailed Staff Planning
Sales Planning:
• Sku Level Demand Forecasting
Profitability Management – ABM:
• Customer, channel, product profitability

32.  Direct access to support (e-
mail, phone), 24/7 support.
 Encourage customers to
influence our product roadmap.
 Foster a strong user community.
“It is evident that Axiom EPM wants their clients to
be successful and gives them every tool possible to
bring that to fruition.” Shana Ross
Finance Manager
A Commitment to
Customer Support2
Key Success Factors
About Axiom EPM
EXCELLENT
GOOD
NEEDS IMPROVEMENT
POOR
Timeliness Professionalism Product
Knowledge
Accuracy Overall
4.96 4.96 4.92 4.90 4.92
May 2013 Support Survey

33. 2012 ® Axiom EPM All rights reserved
Key Success Factors
3rd Party Analyst Validation
Craig Schiff, CEO
Perfect 5.0!
“We’ve been doing this for ten years, and this is the first time
anyone has ever received a perfect score. And it’s not like only one
or two of their customers rated them; I would say about a quarter to
a third of their customer base provided customer satisfaction
ratings. Clearly their customers love them and it’s a good choice for
anyone looking for a comprehensive and unified solution.”

34. 2012 ® Axiom EPM All rights reserved
Visit our website:
www.axiomepm.com/scenario-planning
- Download Our Whitepaper
Learn more:
Peri Pierone, Chief Strategy Officer
ppierone@axiomepm.com
Contact us:
More Information