5 management approaches with which to withstand any crisis
The effects of the corona lockdown are continuing: a recession is on everybody's lips and the world order is changing – from the required floorspace for each visitor in restaurants and shops through to global supply chains. Nobody knows exactly what lies ahead – and yet businesses need to be prepared. Being responsible for financial operations, CFOs have a particularly prominent role when it comes to navigating the unknown: when the cash runs out, if not before, is when the business will grind to a halt.
In these fast-moving and uncertain times, CFOs need an early-warning system with which they can identify dangers before they come to pass. With the right management approaches, this ambitious project can succeed.
1. Use your data advantage
In the light of the rapid market developments owing to the corona pandemic, the expert opinions of leading economic research institutes are held to be outdated even by the time they are published. After all, they are based on figures from two weeks previously.
This is where CFOs have a clear advantage. Digitised business management accesses the data from the entire company in real time. Programmed business logic cuts the lead time for company-specific analyses, plans and forecasts – depending on the scope – to just a few hours or days. With their data advantage, CFOs can deliver reports and projections that are up to the minute. The executive management gains room for manoeuvre to react to the challenges of the business environment.
2. Think in scenarios
Those who align their plans with just one set of coordinates when planning with multiple unknown variables will, in some way or another, get more than they bargained for and be forced to make snap decisions on the next course of action.
Scenarios that run through several different developments outperform the ordinary annual budgets by far. They allow businesses to evaluate measures such as short-time working or loan applications before a crisis emerges and to prepare for their implementation.
You can read more about scenario planning under corona conditions here. [https://www.corporate-planning.com/en/managing-businesses-from-home/]
3. Manage by value drivers
Keeping pace with the fast-moving market requires management tools that combine being up to date with being informative and figures that can be retrieved at short notice. CFOs can gain agility by concentrating on a small number of key profit and value drivers.
For instance, by keeping track of order backlog and incoming orders, a manufacturing business has a sound basis for looking into the future to identify dangers in good time and take appropriate countermeasures.
4. Choose KPIs as early-warning indicators
An early-warning system needs a set of informative KPIs to be chosen. This is where what are known as financial covenants come into play. Whether CFOs report to the investors, banks or their supervisory board, there's always the question of whether the business is fulfilling the financial requirements that have been defined. The following financial covenants reflect this particularly sensitive and informative appraisal of the business.
- profitability ratios (order backlog / incoming orders, capacity utilisation, personnel)
- gearing ratio
- equity ratio
- debt service coverage ratio
- interest coverage ratio
- DSO (receivables management)
If these values can be determined automatically on the basis of current data and interpreted quickly, businesses can use them as early-warning indicators. Financial covenants as KPIs can point out imminent financial difficulties in sufficient time to allow them to be dealt with.
5. Comply with IBCS standards in reporting
Consciously or subconsciously, the way in which the data are presented in a report affects how the information is taken in and can distort the message. If, however, an early-warning system is to work properly, distortions – for instance owing to missing data or inconsistent layouts – must be ruled out. Company reports can only be a sound basis for decision-making when senders and recipients speak the same language.
Experts recommend using the International Business Communication Standards (IBCS), which have been tried and tested across many sectors of industry. These standards provide practical rules for the conceptual, visual and linguistic design of business reports and presentations.
By presenting the same parameters (KPIs) in the same manner every time, comparability is ensured. Upward and downward trends can thus be clearly identified. When preparing IBCS-compliant reports, CFOs receive support from solutions that apply IBCS standards automatically.
Certainty in uncertain times
Smart corporate performance management tools enable CFOs to set up company-specific early-warning systems very quickly. Managers can now receive access to the technological resources at no cost until 30th September 2020 with a time-limited free licence for Corporate Planner Finance.
The provisioning in the Corporate Planning Cloud will take place without delay and, like the structure build by experts from Corporate Planning, is being offered at special terms. You will find the details HERE.
