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How COVID-19 is Impacting FP&A and What We Can Learn for Next Time

As Covid-19 spreads, businesses are forced into uncertain and ambiguous economic positions and, in extreme cases, it results in a survival mode mentality. To deal with this uncertainly, leadership is increasingly looking to the financial department for insights and guidance.

Covid-19 is the type of black swan event that is difficult to anticipate and prepare for. Finance organizations – and the company as a whole – must quickly address the rapid changes in both their external and internal environments. Determining how to address external impacts such as changes in customer buying behavior or supply chain continuity are made even more difficult due to the internal impacts – teleworking and personal uncertainty – caused by the COVID-19 pandemic.  However, it is these very challenges that elevates the need for strong Financial Planning and Analysis (FP&A) capabilities.

Unfortunately, most financial departments lag top performers when responding to disruptive or unforeseen major events.

Impacts on Finance Organizations

As the businesses begin to assess the impact of COVID-19 on company operations, they are looking to the financial organization for guidance. The business needs advice on decisions such as identifying opportunities for cost-cutting or potential new sources of revenue.

Saving and Preserving Cash

Cost-cutting measures are likely be the first line of thought for leadership. Topics such as identifying operating costs that can be quickly eliminated, capital expenditures that can be delayed, and even considerations around furloughs or layoffs will be front of mind. Financial teams will be asked how each one of these impacts immediate and longer terms expenditures, along with what improves the company’s financial viability while providing the most runway for the company.

Identifying New Opportunities

Additional discussion will consist of what other levers the company can pull to ensure business continuity through such an ambiguous time. One thought is to explore how to speed up account receivables to provide an immediate cash influx. Financial organizations will also need to investigate additional lines of credits, divestitures, joint ventures, and even debt relief. Recently, the federal government has relaxed its monetary policy and is offering different financial vehicles to provide additional financial assistance. These could bolster company’s cash position providing a bridge for operations and alleviate initial stresses.

Sound Decision Making

When making recommendations and weighing the questions above, CFOs must balance immediate needs with the company’s priorities and strategy.

In order to provide sound guidance, finance organizations need real-time information on the company’s income statement and balance sheet. This is particularly important in the situation such as the one created by the COVID-19 pandemic, where company performance changes drastically overnight. Without accurate and timely visibility into the company’s financial position, the CFO is flying blind when trying to provide guidance to the business.

How Successful Finance Organizations are Responding

Despite operating in an environment defined by uncertainty, misinformation, and rapid changes, successful finance organizations are responding. Organizations that are responding successfully have the following characteristics:

  • Organized for Success: Successful finance organizations have developed team structures that empower decision making and encourage providing insights over simple data reporting. These organizations can quickly share and disseminate information across the team, avoiding traditionally siloed environments.
  • Focus on Insights: The quicker a financial organization can focus on gaining the right insights to help their decision making, the better positioned the organization will be moving forward. The confidence using these insights to make decisions will clarify the path forward for the organization. Having the right insights readily available will help them articulate a clear path forward and impacts to the business to investors and other internal stakeholders.
  • Proactive Scenario Planning: Financial organizations that complete dynamic forecasting models and have prepared a plan for operational pauses are better positioned to handle more extreme scenarios. They will have the right procedures in place to allow for more organization and clarity throughout their organization. Scenario planning is also enhanced during this period. Ranges of scenarios should be based on the economic impacts geographically, various speeds of economic changes, and supply-chain disruption and employee dislocation impacts.
  • Right Tools: The right set of IT tools can greatly bolster the efficiency and collaboration of a finance organization. Tools can help finance teams quickly answer critical questions around financial position and potential risk. A decision cockpit dashboard can provide clear financial metrics from which leadership can base their decisions on during this time.

What We Can Learn for Next Time

While there is no clear end in sight for the impacts Covid-19 will have on the economy, implementing the practices highlighted by successful financial organizations will help your company navigate through these types of unpredictable events. Use this time to analyze where your company stands in comparison to the responses above. Coming out of this crisis, your team will want to ensure the new established improvements are sustained. They offer a more efficient operational environment prepared for a quick economic ramp up just as much as a rapid ramp down.

This can be a stressful and anxious time for the business, but those who prepare for these scenarios, focus on the right metrics, and are empowered to drive data backed strategies forward will be more likely to survive and thrive in the new environment.