Inventory days and Scenario planning: Difference between pages

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''Financial ratio analysis - management efficiency ratios.''
''Strategic planning - sensitivity analysis - stress testing.''


Inventory days is a working capital management ratio calculated by dividing inventory outstanding at the end of a time period by the average daily cost of goods sold for the period.  
Scenario planning is a form of flexible long-term planning.


It takes account of the possibility of multiple simultaneous plausible, significant and adverse events outside the control of the organisation making the plans.
For example: a company holds on average £30,000 of stock over a year. It sells £300,000 of goods per annum.  


The inventory days are:
The idea is to ensure that the organisation's plans would remain robust, if the scenario were to occur.


(30,000 / 300,000) x 365
Scenario planning is closely connected both with stress testing and with sensitivity analysis.


= 36.5 days


:<span style="color:#4B0082">'''''Plan for bad times'''''</span>


A lower number of days is usually considered desirable, because it is a quick measure of the amount of stock held, although the business must also gauge the amount of stock required to meet customers’ delivery expectations.
:"... we need to plan for the bad times as well as the good.  


:This means more and better stress testing, more scenario planning, understanding the points of weakness in our supply chains and developing better risk mitigants.


Also known as Days inventory outstanding (DIO).
:Certainly, construction costs have increased in recent months – the debate now is how much is transitory and how much is permanent.  
 
:What is the trade-off of embedding more redundancy in our processes? 
 
:We need to get better at quantifying this."
 
:''The Treasurer, November 2021 - Issue 4, 2021, p15 - Ian Chisholm, Group Treasurer, Grosvenor''




== See also ==
== See also ==
* [[Cost of goods sold]]
* [[Back test]]
* [[Creditors]]
* [[Model]]
* [[Days sales outstanding ]] (DSO)
* [[Redundancy]]
* [[DPO]]
* [[Reverse stress test]]
* [[Inventory]]
* [[Risk mitigant]]
* [[Inventory turnover ratio]]
* [[Sensitivity analysis]]
* [[Management efficiency ratio]]
* [[Simulation]]
* [[Net working capital days]]
* [[Strategic analysis]]
* [[Operating cycle]]
* [[Stress test]]
* [[Payables management]]
* [[Supply chain]]
* [[Working capital]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Identify_and_assess_risks]]
[[Category:The_business_context]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]

Latest revision as of 13:46, 1 December 2021

Strategic planning - sensitivity analysis - stress testing.

Scenario planning is a form of flexible long-term planning.

It takes account of the possibility of multiple simultaneous plausible, significant and adverse events outside the control of the organisation making the plans.

The idea is to ensure that the organisation's plans would remain robust, if the scenario were to occur.

Scenario planning is closely connected both with stress testing and with sensitivity analysis.


Plan for bad times
"... we need to plan for the bad times as well as the good.
This means more and better stress testing, more scenario planning, understanding the points of weakness in our supply chains and developing better risk mitigants.
Certainly, construction costs have increased in recent months – the debate now is how much is transitory and how much is permanent.
What is the trade-off of embedding more redundancy in our processes?
We need to get better at quantifying this."
The Treasurer, November 2021 - Issue 4, 2021, p15 - Ian Chisholm, Group Treasurer, Grosvenor


See also