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By Douglas Yeung, Senior Finance Director at Genesys
If FP&A professionals previously thought we had a tough job, the new reality of a very different world after COVID-19 will make our previous issues seem like a walk in the park. We will have the same challenges (e.g. forecast accuracy, understanding the business and providing the best information for scenario planning), but the COVID-19 crisis magnifies these issues and creates much bigger uncertainties for the business. As FP&A professionals, where should we focus our efforts, and how can we provide the businesses with the best ways to move forward?
In this article, I will discuss a few areas where I believe FP&A should focus on in order to help our business partners navigate through the coming months of extreme uncertainties.
Forget about artificial intelligence, machine learning and other initiatives that require trend analysis and “leading edge” statistical analysis. While they are still valuable as middle or long-term initiatives, right now, it is better to focus on listening to people in the field, with the feedback collaborated by third-party studies, and even talking directly with external parties such as key customers and partners to understand their read on the market.
While statistical analysis is a helpful tool, COVID-19 represents a classic “black swan” situation. Its consequences in the next few months to a couple of years will vary from industry to industry and even from company to company.
We all talk about scenario planning, but what are the differences in a post-COVID-19 world versus a normal situation?
Scenario planning under COVID-19 cannot be a one-time activity. The situation is very fluid, and its impact may vary significantly. Even for a company, a further decline can be masked by an initial boom when customers see a short-term need to increase purchase, but then when the situation slows down, the demand is reduced. It is important to understand the broader industry view of the recovery: this will be critical in coming up with the different scenarios to analyse.
Your scenarios should pose COVID-19 questions. In typical situations, the exercise will cover a few scenarios regarding revenue and cost. While these are still essential elements in scenario planning for COVID-19, the range of questions are much broader. For example, how would COVID-19 impact your distributor network in terms of their cash flow? How does a company prioritise and manage the impact to their own P&L? Travel and entertainment expenses will probably go down significantly, but should a company use this additional cash to ensure that employee jobs are secured or also use this opportunity to upgrade and bring in new talents?
COVID-19 hits almost every aspect of the economy, and the critical challenge for all companies is cash flow. Cash flow will be impacted throughout any value chain of companies, and every company will want to reduce expenses and make sure that their customers continue to pay for goods and services.
Customers and distributors will most certainly request some sort of financial help, from the deferral of payments to the outright reduction in obligation. It is up to FP&A professionals, especially those in business partnering and supporting frontline functions, to balance between helping customers and distributors but not overstretch the company's financial health.
FP&A professionals are in the unique position to bridge the information flow from the frontline back to the treasury and controllership team so that the balance between helping the customer and safeguarding the company’s financial health.
Having the external view can also help prioritise what accounts are more likely to be at risk of a default and identify the customers or distributors with whom a company can build a stronger relationship in the long term by working proactively on payment plans or concessions.
The final point I want to make may not be directly connected with the FP&A function. By being able to look at the whole business cross-functionally, with an additional lens looking externally, FP&A professionals can appreciate the full impact of COVID-19.
In this unique position, FP&A professionals can be empathetic to the situation for customers, distributors, employees and come up with recommendations to the business to make sure a company makes balanced, long term decisions and will emerge from this crisis not only stronger financially but also in better relationship with customers and partners.
COVID-19 is definitely a huge challenge for any business, but it also represents a unique opportunity. A company can redefine itself by being socially responsible and well-managed enough to work with customers, business partners, and employees and navigate through the challenge. FP&A professionals play an vital part in this challenge, and the biggest advantage of the function is being able to work cross-functionally, have viewpoints both internally and externally and help the company make the most informed decisions.
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