"Demand has fallen off the cliff and I’ve got such high fixed costs… I don’t know what to do."
This was a distressed phone call from a panic-stricken business owner at the start of COVID-19. We have helped this business transition from survive to thrive.
We helped them do this by:
Building a Critical Incident Team to lead the process.
Identifying & Evaluating the Key Risks to their business.
Prioritising the Critical Actions.
Developing and Implementing an Action Plan to mitigate the key risks identified.
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1. Establish your Critical Incident Team (CIT)
Leadership and decision-making are key to identifying and evaluating the key risks and implementing solutions in any business.
So, it is imperative that the team that you are entrusting to navigate your business through these tumultuous times has dedicated time and a space to critically think, plan and strategies.
Final composition of your team will vary according to the industry and evolution of the situation you are facing. Your CIT will typically include the key operational heads of functions’ - Finance, Operations, Marketing, Sales, Human Resources etc.
Now you know who, it’s time to decide what and when.
Key takeout’s here include:
Agree on a meeting schedule and frequency.
Plan and allocate work with clear accountability.
Decide on the decision-making matrix upfront.
Communicate regularly to the executive team and employees.
Typically, these situations change frequently; you need to be agile, pivot and adapt to the existing circumstances.
As we have already agreed, decision-making is crucial. So, ensure the people and decision-making process are constantly being constructively reviewed and evaluated to determine if this process can be improved by changing the people or tweaking the process.
2. Identifying Risk Assessment Scenarios
Now the team is in place, it is important that you establish your Risk Assessment Scenarios as they pertain to:
Your industry segments.
Prevailing legislation applicable to your state/territory.
This can be done in many different ways. This is particularly important if you have a national business as the restrictions may vary from state to state. For example, in our case study of this manufacturer, key risks they had to consider included:
Supply chain assessment
Reduced interstate travel: whether it is an essential good or service etc.
3. Forensic Risk Assessment
We now have the CIT established and we have identified the Risk Assessment Scenarios specific to your industry segment and state/territory.
Time to drill down and conduct a Forensic Risk Assessment across your business in the following streams:
Financial strength and capability
Using a risk assessment questionnaire and a traffic light system we are able to help determine the key risks across your business.
Once the key risks have been identified and assessed, we can now develop an action plan prioritising the critical actions to mitigate those deemed as high risk. ___
For example, going back to our manufacturing client whose “demand had fallen off a cliff”, their concern pertained to their ability to meet financial obligations. In this scenario, to help assess their level of risk, our questionnaire would consider the following:
Do we have visibility over our short-term obligations?
Are we able to meet our obligations with our cash levels at different demand scenarios?
Can we meet our debt/covenant obligations?
Can we raise new debt or seek alternative funding?
Can we improve our cash position by cutting expenses?
Can we reduce our fixed costs? (e.g. reduce salaries, postpone capital expenditure)
Can we generate cash? (e.g. sell assets)
4. Rubber Hits the Road (The Action Plan)
Once the Forensic Risk Assessment has been completed across all business streams, you will have identified where refinements are required. It’s now time for the CIT (with a little help from us) to develop and implement the Action Plan.
Let’s go back to our client’s case and get a flavour of the Action Plan we helped implement:
Manufacturing production had to be re-designed to adjust to social distancing rules.
A testing regime was introduced to assess the health of suppliers and staff before they entered the building.
Head office staff needed to work from home and technology had to be urgently updated to enable this to occur.
Supply chain issues had to be resolved and in some cases alternatives sourced.
Strategies had to be developed to mitigate short-term revenue drops such as re-imagining the retail sales procedures and a focus on online sales.
Labour costs had to be decreased by renegotiating workers contracts from full-time to part-time.
Cashflow mitigation strategies had to be implemented including negotiation of rent reductions, seeking terms from supplies, enacting rent and debt holidays and obtaining Government assistance packages.
Of course, each of these action items had an owner and date due for completion.
Is your business equipped for the new normal?
Today’s business environment brings unique challenges for us all as we grapple with the twin issues of preparing to get back to work safely and preparing to scale and recovery.
In our case study example, they were able to address the immediate and near-term challenges that uncertainty bought to their own workforce, customers, business partners and indeed technology.
The CIT was dedicated to identifying and resolving initial challenges and therefore this was the focal point of their energy and provided them with resilience when they needed it most. Change management is difficult and requires a clear focus.
This team is now focusing on a return to work business plan into scale as quickly as possible, as all the implications of the “new normal” become clear. They are now well-placed to continue to grow and importantly take advantage of opportunities that will inevitably present. This business has “flattened the curve” successfully and is now scaling quickly. Challenge though is omni present, not only for this business but all businesses, as now is the time to ensure your business has the right people, operational plan and strategies in place to cope with the curveballs that inevitably we all will face.
The pace of change in this “new normal” is relentless.
How will you handle it?
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