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Planning for a restart

Jun. 3 2020 by Gary Simon , Chief Executive of FSN & Leader of the Modern Finance Forum for CFOs - FSN Publishing Limited

Performance Management Budgeting & Planning Strategic Planning

The notion of a “restart” suggests that organizations will carry on where they left off three months ago before the current crisis started. But as the stringencies of lock-down are eased, CFOs know that that in reality, they are not restarting but starting all over again.

The detail of a restart depends to a large extent on how badly a business has been affected. The impact has varied widely between different industry sectors and geographies, nevertheless, there are three big considerations, around re-starting operations.

How quickly can I restart?

The velocity of a restart depends to a large extent on the capacity to deliver and of course the projected demand for goods and services. A restart plan has to take account simultaneously of liquidity, employee safety and availability, the state of the supply chain, the reconfiguration of buildings for safety and social distance working, sales demand, inventory, communications infrastructure and where relevant shared services centres.

Liquidity has been the central theme of this crisis. Government funding to support employees and businesses will be reducing and it is doubtful that many businesses can fund the working capital requirements of a complete restart. Careful consideration needs to be given to the cash implications of different levels of activity. Perversely, restarting could quickly lead to ‘over-trading’, because the working capital requirements of restarting outstrips cash receipts.

What are the risks of restarting?

Any restart plan has to assess the business risks and key risk factors (KRF) should be embedded in any business model alongside ‘normal’ business assumptions. This is going to be a challenging area. First of all, assumptions used in previous forecasts, plans and business models may be completely inappropriate in post-COVID circumstances and secondly, the risk landscape has changed out of all recognition, for example, the proportion of the employees working from home, the cost and availability of personal protection, cleaning and hygiene facilities, as well as the cost and ability to enforce social distancing and so on.

But the most unpalatable risk is the possibility of a second spike in corona virus. Regrettably, organizations must consider the impact of a second round of infection.

How can I ensure agile plans?

What jumps out of the page is the near impossibility of modelling so many variables and dependencies in a spreadsheet. Interviews for the “Planning in a Crisis” video series, showed that during the height of the crisis, many organizations turned to spreadsheets because they had no other planning tools to lean on, or because their existing tools did not lend themselves to the rapid, almost instantaneous changes businesses were facing.

In either case, spreadsheets severely limited the number of scenarios CFOs could model and forced some businesses to leave out crucial information (business lines, margin calculations), simply because they ran out of time.

It is perhaps unrealistic to expect businesses to change systems in the middle of a crisis, but every CFO I spoke to wished that they had invested in integrated planning systems. With the benefit of hindsight, CFOs know that integrated planning systems are a game-changer, allowing rapid re-forecasting, (and sometimes simplification) without the disruption of building bespoke spreadsheets from scratch and then looking for the data to populate them.

Those CFOs I interviewed who did have a CPM system were highly appreciative of the capability it gave them to pivot the business this way and that, within a matter of hours. Those companies that could leverage their CPM systems in the cloud were at an even more significant advantage with so many of the finance team working from home. Michel Hofland, CFO of the multinational healthcare business, Urgo Group, (see interview here) was particularly appreciative of the agility conferred by his CCH Tagetik planning application.

In response to lessons learned during the crisis, leading software houses are adding capability to their software offerings. For example, CCH Tagetik is adding downloadable, ‘plug and play’ modules for Workforce Planning, Capital Expense Planning, Cash flow planning, Risk Adjusted Planning and Driver Based Planning.

Despite the enormous challenges presented by the crisis CFOs have come through it with remarkable fortitude and professionalism. They are now better placed than ever to make a business case for investment in corporate performance management systems and, given recent events, what CEO in their right mind would say no?

If you want to know more about how CCH Tagetik can help companies to reforecast their business, connect their team and accelerate their planning check the CCH Tagetik Smart NOW App webpage here.

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