AICPA's Ash Noah shares his tips to manage the financial disruption Covid-19 has caused.
By Ash Noah, CPA, CGMA, FCMA, managing director - Learning, Education & Development, Association of International Certified Professional Accountants.
As a former CFO, I have managed through crises, including the Gulf War, 9/11 and the 2008 financial crisis. But the financial disruption caused by the coronavirus (COVID-19) is unprecedented. Our global economic and social system is operating in uncharted territory.
Amid the uncertainty, the finance function can create value and elevate its role as a strategic business partner. As CPAs and CGMA designation holders, our training and experience equip us with the expertise and skills to mitigate risks and lead the recovery efforts for our organizations, businesses and communities.
To help guide you, the Association of International Certified Professional Accountants, the global voice of the AICPA and CIMA, is conducting a four-part webinar series with finance leaders in the coming weeks to offer expert insights on business planning to help you lead your organization through this crisis. The series will include learnings from Oracle on how its customers are leveraging technology best practices to not just ride out the current storm, but also that can increase your business resiliency in the months ahead.
A five-step plan for business continuity
On my first webcast in this series (also available as a podcast), Chris Kite, Oracle’s VP of Global Strategy, shared her approach to business continuity, which starts with a business continuity plan (BCP). If your organization doesn’t have one, check if it has a disaster recovery plan (DRP) that can be leveraged. If it has neither, it’s time to start fresh. Once you have your BCP, follow these five steps to ensure its effectiveness:
1. Conduct a business impact analysis (BIA)
A BIA can help your organization determine and evaluate the potential effects of the coronavirus on business operations. This process involves performing a gap analysis to assess your organization’s readiness for continued operations. When conducting this analysis, consider the impact on the following stakeholder groups:
- Employees — Your workforce should be your most important concern. How you manage your staff now can have a long-term impact on employee loyalty and retention. Start by identifying the “critically important” processes and the staff members who execute them. Next, determine if these processes must be conducted on premise or if they can be performed remotely. Also consider any actions that allow most of your organization to work remotely. It’s vital to start building back up capability as it’s possible that a portion of your workforce may get sick because of the virus.
- Customers — How your organization responds to and serves its customers now is crucial for building long-term loyalty. One misstep could cause long-term reputational damage. Closely monitor customer debt levels and regularly assess their credit risk. Don’t use standard credit scores that are now not accurate, but unconventional ones that will help you determine if a customer will be a going concern after normalcy returns.
- Suppliers — With global supply chains disrupted, you must determine what supplies or suppliers are “critically important” to keep your operations running. Review all your supplier contracts, understand the implications and determine if there are other ways to continue your operations if one of your suppliers cannot deliver goods. Now is the time to rethink and reconsider everything. This is your opportunity to challenge conventional thinking. Encourage innovation and creativity.
2. Build scenarios (modeling)
Next, you’ll want to create models for “worst” and “most-likely” case scenarios. This provides an adequate range of outcomes for the business to consider. For example, if you look at your key stakeholder groups and the risks you have identified for each, you should be able to identify possible strategic, operational and financial outcomes for the next three, six or 12 months. The CGMA scenario planning tool is a great resource to guide you through this process. Don’t forget to also look at the upside risks. There might be alternate business models or new ways to serve your customers.
3. Perform risk analysis and mapping
In this step, you should consider scenarios (created in step two above) to help you identify new risks. This will help you build robust scenarios. Consider also other potential risks — including financial, strategic, operational and external — and the probability of occurrence. The CGMA Risk Heat map can guide you with this effort.
4. Ensure organizational alignment and communication
If your organization doesn’t yet have one, create a cross-functional pandemic response team. This will ensure organizational alignment around key objectives. You’ll also want to make sure approvals are in place to execute the continuity plan that conforms with governance requirements.
Communication with stakeholders is also a vital step of every BCP. Identify the content and frequency with which you want to communicate with your stakeholder groups. It’s extremely useful to create specific landing pages for employees, customers, investors, etc., with resources and guidance.
5. Develop an action plan with continuous monitoring
An effective BCP also focuses on key performance indicators (KPIs) of priority processes. Increase the frequency of measuring and monitoring liquidity, sales, stock, etc. to daily and/or weekly. Leverage data feeds for rapid responses to changing risks. Attempt to enable continuous forecasting in key functions and keep adjusting. As already mentioned, liquidity is the key. Also important is the workforce, the ability to continue to serve the customer, as well as maintaining the production lines and the supply chain.
COVID-19: Scenario planning and strategic modeling deep dive
On April 9, we held the second webinar in our COVID-19 business continuity webinar series. You can watch the on-demand webcast or join live on select dates for free CPE credits for a deep dive into scenario planning and strategic modeling techniques you can use right now as you look to marshal your current resources around your action plan, as well as get out in front of changes to your business and industry in a post-COVID world. Joining us was Marc Seewald, vice president of Enterprise Performance Management (EPM) Product Management at Oracle and an industry veteran with more than twenty years of experience architecting and delivering leading planning and budgeting solutions.
Specific learning objectives include how scenario planning can help your organization, the role of the finance in scenario planning, what approaches and methodologies to apply, and what tools are available to support your scenario planning needs. Marc shared best practices in scenario planning and will take attendees through how to move from emergency and crisis management today, to planning and modeling for a variety of continuity and recovery scenarios.
Parts III and IV our COVID-19 business continuity webinar series will look at the role of professional judgment in crisis and recovery management, and human capital management strategies. Go to the AICPA COVID-19 Resource Center to view the replays or upcoming webinars in this series.