As COVID-19 began its rapid spread in early 2020, the resulting economic disruptions rippled across the globe. Suddenly, companies large and small needed to grapple with volatility in foreign currency, fluctuating commodity prices, historically low interest rates, and tightening credit markets. In a matter of weeks, a chain reaction affected supply chains, consumer demand, and revenues.
How finance and risk management leaders reacted to these risk factors depended in large part on their readiness for the unexpected. Those with formal risk management frameworks or business continuity plans (BCPs) in place had the potential to leapfrog their competition, thanks to policies specifically created to guide their decisions during crisis.
With experts predicting a longtail span for COVID-19 and a slow road to recovery, there’s still tremendous value in creating a formal plan for your finance team.
Seven steps to ready your organization
A risk management or business continuity plan helps you stay on course in even the most challenging conditions. It gives you maximum opportunity for control and agility, while mitigating risk as much as possible. Finance plays a key role in its creation and implementation.
A sound plan covers these seven steps:
- Confirm objectives. Corporate goals are central to an effective plan, so leadership must participate in developing your plan—and being present and active when you deploy it.
Every company’s objectives will be unique. A global business may focus on FX and liquidity to maintain operations in a certain geographic region. A manufacturer might prioritize maintaining raw materials and supply chain continuity. Work with your stakeholders to determine what’s most important to your organization.
- What strategic objectives will align your team?
- Are there particular risks or opportunities where your business should focus?
- How will management remain visible and communicate important messages?
- Monitor status. Employees are the lifeblood of any business, so their safety should be paramount in your plan, as well as practical considerations for doing their jobs in less- than-ideal conditions. Start by documenting how you will communicate with staff if normal channels fail, and what equipment and systems they may need to access remotely.
Finance should also establish cross-training and “backup” roles to ensure adequate coverage across locations and for critical tasks. Finally, review your accounts, signors, and approvers. Especially with health-driven situations like COVID-19, it’s necessary to have multiple parties who can authorize transactions.
- How will you track the location and safety of employees?
- What technology and equipment does the finance team need to work outside the office?
- Where can you diversify across geographic regions or cross-train employees?
- Which authorized signors need proxies? How will you document this?
- Identify activities. Next, evaluate and prioritize critical business activities. In addition to regular cash flows to operate your business, identify the likelihood a crisis will require your company to access additional liquidity or affect your ability to refinance upcoming debt maturities. Other concerns include ensuring payroll goes out and that you can handle the rolling of various investments.
- What are the contingencies and dependencies within the finance function?
- Is your credit facility and liquidity position sufficient to meet business disruptions?
- What happens if a given supplier goes fully offline?
- Assess risks. Market volatility and the need for additional liquidity are common in crisis situations, which makes risk assessment a key component of your plan. Identifying and quantifying your exposures in advance, as well as any hedge programs already in place, will enable you to react more quickly when you activate your plan. In this step, assess your risks, and then differentiate those that can be controlled, mitigated, or hedged.
- Under what conditions should you implement, amend, or cease your interest rate or FX hedging programs?
- Can your investment portfolio be rolled correctly and do your policies take into account large market moves?
- What scenario analysis will be used to test various courses of action?
- Under what conditions should you consider refinancing or resizing your balance sheet?
- Establish controls. Disruptive situations will always create new challenges. However, you can anticipate and plan for many potential obstacles. It’s a valuable exercise at every level of your organization. For finance, consider alternate approval mechanisms and dual controls; make sure transaction limits carry over from in-person to online or mobile banking channels.
- Which subject matter experts will monitor decision-making and ensure proper controls are in place?
- Who will function as backup delegates with sufficient signing authority?
- What is the process for resolving issues?
- Ensure communication. Mistakes and errors are much more likely during times of change and stress. That makes clear and consistent communication a must-have. Determine the methods and frequency of crisis communications—everything from daily check-ins with finance staff to formal reports to senior stakeholders. Consider how you’ll help employees remain connected during challenging times, and when you’ll provide updates to leadership on metrics like cash positions, rates, and global payments.
- What best practices and communication protocols will finance implement?
- When and what metrics will you report to your executives?
- What virtual methods are available to keep employees and managers connected?
- Track progress. Lastly, be prepared to learn and refine as you go. Even the most stringent plans can never anticipate all the demands of a crisis. Consider convening a working team or “situation room” to drive, document, and roll-out routine updates as you activate your plan.
- What frequency and format will you use to track progress?
- How will you refine and communicate any changes in key operating procedures?
- Which regulatory and audit requirements still require compliance (or a formal reprieve)?
Ultimately, the best path to business resilience involves getting into the details and doing the necessary work to be prepared. It’s time-consuming, but in times of disruption like the COVID-19 pandemic, advance planning provides invaluable support to safeguard your company, your employees, and your finances.