The primary value of scenario planning is that it helps companies anticipate and prepare for a wide variety of future possibilities. It can also increase the confidence of executives in their ability to handle whatever may come.

Risk analysis differs from scenario planning in that it assumes that the probabilities associated with each identified possible future scenario are determinable. Planners who use risk analysis invest time and effort in figuring the odds, individually and jointly, of the various possible outcomes in key areas of uncertainty. It doesn't have to be complicated — relative probabilities work just fine. For example, here are the outcomes that well-informed U.S. executives usually conclude are most likely to occur in the next five years:
• At the standard level, future U.S. GAAP and future IFRS will be significantly — but only partially — converged.
• Country-to-country variations in the adoption, interpretation, and application of IFRS will persist.
• The SEC will allow U.S. registrants to choose between future U.S. GAAP and future IFRS.
• In the United States, the private-company standard-setting process will remain closely coupled with the public-company standard-setting process.

The point of this example isn't for each company to reach the same conclusions. Rather, the example illustrates that conclusions such as these can form the basis for detailed plans. Once detailed plans are created for one or more highly-probable scenarios, those plans are used to supplement the less-detailed plans developed with scenario planning. By combining scenario planning and risk analysis, managers are ready for anything — and most ready for what they think is most likely to happen.

Proactive-influence planning differs dramatically from the preceding two techniques. Scenario planning and risk analysis assume that there is little or nothing a company can do to influence what actually happens in each key area of uncertainty. But proactive influence assumes that a company can, at least to some degree, influence what happens in the future.

In short, this technique is about determining which possible future scenario would most benefit a company's stakeholders, and then developing a plan of action to increase the likelihood of it happening. For example, CFOs can participate in the standard-setting processes of FASB and the IASB, as well as the rule-making process of the SEC.

By following the three-pronged planning approach I've described, U.S. CFOs can exercise exactly the kind of leadership that is needed in the financial-reporting supply chain today.

Contributor Bruce Pounder is president of Leveraged Logic and chairs the Small Business Financial and Regulatory Affairs Committee of the Institute of Management Accountants (IMA). He is also the lead developer and presenter for the Webcast series "This Week in Accounting."

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