It’s been three years since COVID-19 was declared a global pandemic. In many, many ways the world is still adjusting to the changes it imposed on us all.
Few people were ready for those impacts — countrywide lockdowns, work-from-home arrangements, political fear mongering, all of it.
At some point, another crisis of a similar magnitude will arrive. None of us knows when, nor do we know what kind of crisis it will be, but the lesson from 2020 is clear: Be prepared for whatever comes.
For businesses, preparation means continuity planning. To weather the next crisis, businesses need operational resilience, financial planning and an ability to model potential scenarios with solid data.
As we will see below, a lot of those preparations have become the responsibility of CFOs and the teams that report to them.
How has business continuity planning changed since COVID?
More businesses today recognize how vulnerable their operations and their staff are. COVID proved the point, and subsequent events like global inflation and the 2022 energy crisis drove it home.
“More people understand that when something like a pandemic happens, they need a plan in place,” says Alexa Grose, who led customer success and implementation teams at Agility Recovery for more than three years. “More clients from all backgrounds are coming to us wanting to learn about how to get started.”
At the same time, there appears to be a gap between interest and action. In 2022, HR software provider MHR Global surveyed more than 500 managers, executives and owners of mid-sized businesses (defined as headcount between 500 and 5,000) in the UK and Ireland. According to their research:
- More than 3 in 10 respondents “rate their ability to withstand non-routine disruptive events as less than good.”
- Less than 3 in 10 respondents believe “that their organization has a good understanding of their current and likely future business risks and tolerances.”
- Nearly two-thirds of respondents say their companies had “just about enough” cash flow to cover unexpected events in recent years.
If that sample size is indicative of businesses everywhere, many organizations won’t meet the next black swan event with sufficient resources or preparations in place.
Potential risks on the horizon
It’s impossible to foresee black swan-level events, but all businesses can identify their known unknowns and make preparations accordingly.
“Having a sense of the main risks faced by their company cannot alleviate the threat itself, but it can provide business leaders with the ability to proactively implement the necessary measures to enhance their current security procedures,” says Chris Job, director of risk management services at Healix International, which provides medical and travel assistance.
Healix International cites the ongoing energy supply crisis, political polarization and extremism, cyber risks, and climate risks as potential major disruptors to businesses in the coming years.
George Hammond and Richard Waters at The Financial Times say a shrinking commercial property market and an economic crunch in the tech sector are also risks companies need to prepare for.
Mission critical: Protect the continuity of your payroll operations
If paychecks stop arriving on time (or, worse, at all), then your organization will lose employees. And no amount of financial planning can overcome that challenge.
That’s why any major business continuity program for multinational organizations must include the digitization of payroll and ensuring that you can deliver payroll remotely — for long periods of time, if need be.
This is a people-processes-technology question. Your global payroll director is a great person to consult because they will be able to walk you through the various aspects of your payroll function. Payroll consultant Gemma McDonnell-Mossop outlines these nicely:
- The people who do the work and have the expertise and knowledge to keep payroll operational.
- The software your organization relies on to keep payroll running smoothly.
- The infrastructure that supports payroll. This includes data, the servers where that data is stored, integrations and analytics tools.
Assess the resilience of each, and look for ways to boost that resilience (e.g. by moving away from high-risk manual processes to automated and digitized payroll processes across countries).
Further, payroll data management can help simplify payroll processes. When you consolidate your vendor data into a single platform, you give yourself a clear view of costs and vendor performance across all countries.
How CFOs can prepare their organizations for future crises
An important aspect of the CFO’s role in a company is to prepare the organization to navigate risks — financial and otherwise, note Frank Manzi and Mark Martinelli, both certified public accountants and respectively a professor of accounting at the College of Mount Saint Vincent in New York and the chief audit executive for Synchrony Financial.
“[CFOs] have the skills to identify, quantify, and monitor the impact of new risks facing their companies,” Manzi and Martinelli write in The CPA Journal. “Although it is true that all risks have financial implications, many of them are specific operational risks that surface due to their potential impact on a company’s financial results.”
Below are three things every CFO can do to prepare their organizations financially for a black swan-type event.
Have real-time visibility into company finances
“How well CFOs integrate people, processes, and technology inside an organization will determine how well they manage risk,” Fatihah Ramzi at DigitalCFO Asia writes.
Here is where the technology part of that equation comes into play. It’s critical for CFOs to have real-time visibility into things like global company expenses — of which payroll is usually the biggest line item. Having this perspective is foundational to decision making.
CFOs can only make informed, responsive decisions when they have access to fast, agile cloud analytics capabilities, writes Laurie Miles, senior director at SAS UK & Ireland. That’s what will help organizations establish priorities and set strategies for navigating an unfolding crisis, and limiting the damage it does to the company, Miles says.
Develop a cash management strategy
Cash on hand is important to have, especially when external forces are putting cost pressures on your company.
Peter Kingma, Sven Braun and Eidji Braghin at EY write that having a strong culture of cash management can better prepare companies for crises. Such a culture, they write, will have these characteristics:
- Better long-term cash forecasting.
- An ability to execute multiple high-value projects at once.
- KPIs to measure progress and evaluate success.
- An ability to hold leaders accountable.
- “A focus on the cash conversion cycle in addition to pricing.”
Know what your starting point will be the moment a crisis arrives
In May 2020, McKinsey researchers Ankur Agrawal, Kapil Chandra, Matthew Maloney and Michele Tam advised companies to call together a “financial-planning team, supported by a range of cross-functional experts (for instance, in sales and in supply chains)” that could tell a comprehensive, fact-based story about what trends have affected the company’s financial position.
They wrote this in the context of COVID-19, but the same advice applies to any future black swan events. Use data from across the organization’s departments and expertise to paint a clear, evidence-driven picture of the company’s position. This will be the basis for forecasting, modeling and planning.
We talk further about the digitization, planning and management of global payroll in our e-book “Future-Proof Your Global Payroll.” Download that e-book now to learn more.