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Oil & Gas Service Downturn – 3 Strategies for Scaling your Business Back!
The Leader You are Now and the Leader You Strive to Be

Forecasting can often feel like a futile exercise, even in the most stable of markets. The only thing it seems we can predict with certainty in any market is that our forecast will be wrong.  For this reason, many companies have never bothered forecasting their business or tried but have since abandoned planning efforts. So if you’ve thrown in the towel on forecasting you are not alone but you may be at a serious disadvantage.

 

It’s the journey, not the destination

What many companies have failed to recognize is that the value of forecasting is not the projections but is the process itself.  What I mean is that the outcome of the forecast process, the projections, are likely inaccurate but the act of developing the projections, analyzing the business and understanding how outcomes change in response to business drivers, is invaluable.  And the more people in the organization that are involved in the process, the deeper the learning will be and the more insights will be shared.

 

Plan for the worst, hope for the best

For oil & gas service companies, forecasting revenue comes down to predicting customer activity levels, which in Alberta is as predictable as the weather.  What’s more important is planning out what actions you’ll take when the forecast is wrong!

What if revenue is 30% higher than expected?  How will you support this growth?  What new assets need to be purchased?  How will this be funded?  How many people will you need to hire?  Do you have sufficient capacity on you operating line to meet the cash flow needs of the business working capital ramps up with revenue? Better pack the sunscreen!

What if revenue is 30% lower than expected?  50% lower?  What overhead cost can be cut?  Where can the capex budget be trimmed?  How much cash will you generate? Will you be able to meet your commitments? Will you be offside on your bank covenants?  On second thought, maybe we should bring along a parka and toque just in case!!

 

A goal without a plan is a wish

Scenario planning gets you and your managers thinking about different areas of the business and action plans. This will ensure you are able to proactively respond to changing market conditions because you’ve already planned for these scenarios.  Furthermore, if you do need support from equity partners or banks, waiting until you’re in trouble makes it seem as though you were caught off guard.  Sharing these plans in advance will demonstrate your understanding of the potential risks, the likely outcomes and your strategies to manage your way through.  This will give stakeholders more confidence in your management team and business plan and they will be more likely to support the business and help you achieve your goal. After all, a goal without a plan is a wish!

 

Article by Kevin Rowand.

You can read more about Kevin Rowand here.

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