A. Different Approaches to plan for 2021 and beyond
There are multiple approaches to planning but for planning your 2021 budget we would like to advise you to create three scenarios: best case scenario, worst case scenario and most probable or base case scenario.
In order to create best case scenario evaluate how much of a hit you have already taken, and apply your most honest assessment of what it’s going to take for the world to get back to normal. If most things start turning in the right direction soon, what will that look like and where will your business be at that point?
In order to create worst case scenario imagine that the potential recovery looks more like very wide U. Revenue goes to zero, customers cancel or fully disappear without returning. In the worst-case scenario, you need to dig deep and confront all the possible outcomes you’ve been afraid to address. Don’t get paralyzed — detach yourself and lay it out.
Now it’s time to create most probable or base case scenario. Look realistically at your worst case and best-case scenario and answer yourself a question: where did you exaggerate?
Identify risks and opportunities that you envision: some of them need to be included in the forecast and some don’t. It is also good to think over mitigation strategies and include them into your respective scenarios.
Should you need any help in developing scenarios or identifying risks and opportunities or have questions on which should be included and which should be excluded, My Best CFO Team is happy to help you.
B. Key considerations for CFOs when planning for certain uncertainty
1) Plan on limitation of costs
When you are creating your budget, think about limiting your costs to the extent possible by proper resource allocation. Companies can better understand what spends should be made but have not been made either because of negligence or because the wrong people were making decisions by properly allocating existing resources in accordance with strategic priorities. This has become very important in the current state of turbulence. Managers who are oriented to strategic results must make right spending decisions in order to achieve strategic results.
2) Research and development of new sales channels
If we start speaking about effective budgeting and planning, success here lies in improving business results for customers, employees, investors, and local communities, not in meeting budgetary cap. The focus of this approach should be learning, adaptation, and growth, not trying to predict the unpredictable. The key is to collect the whole truth that stands behind your numbers, show that they are prudent and honestly point out moments of uncertainty or turning points, rather than pretend they are unthinkable.
3) Evaluation of potential investments
The best approach is to turn your strategic targets into a strategic portfolio of instructions related to budgeting. These guidelines spark a debate should resources be allocated from total to form specific projects budgets according to strategy, or from specific projects budgets to form total budget. Both approaches can be used. Try to answer the following question: in light of strategic priorities, where should the resources go? For example, how much of our resources should go towards doing business (operations) and how much towards changing the business (innovations)?
4) Preparation for/Continuation of supply chain restoration
Study your suppliers. In the event of a force major situations, companies that do not do not know their supply chain find it more difficult to respond to or predict the consequences of the force major situation. Many supply chains have weaknesses that threaten the entire enterprise. For example, an enterprise may depend on a supplier whose single plant is responsible for a huge share of the global market. Make business continuity plans. These plans should take into account critical regions and back up plans for transportation, communications, supply and cash flows. Involve suppliers and customers in making these plans.
5) Digital transformation
Leaders have to admit that digital transformation is not a fashion or a temporary fad. It is a serious work that should have been done 10 years ago. And if it has not been done earlier, then it needs to be done immediately.
6) Factoring in contingency
It is very common that companies encounter some unexpected elements during execution of their projects. If during budgeting of a project we knew exactly would it cost to complete the work, it would be a miracle. Therefore budgeting needs to have conservative approach which means factoring some contingency into your budget.
Should you need any help in planning for uncertainties, My Best CFO Team is happy to help you.
C. Managing complexity during a global pandemic
1) Talk to your people
The priority in changing environment is to communicate with your people, so that they stay up-to-date. Create a group that includes representatives of main departments that support your company: specialists in technology, law, finance, operations and human resources. They can focus on travel updates, meetings and events restrictions, and logistics or other related tasks. Constantly instructed employees on how to work effectively from home, and make the management regularly report on their actions - in return. Make sure you receive feedback from your employees.
2) Understand concerns of your personnel
Do not forget what is important for your employees besides work, even in times of crisis. In the process of remote work, it is good to provide employees with guidance on methods of effective remote work, and managers on how to organize team work, taking into account the needs of people and problems that they face during work from home. In addition to recommendations and tools provide employees with active support in solving various issues. For example, it is possible to provide expert advice on how to properly maintain mental health and manage childcare issues while working from home.
For many people this period was and remains difficult. It is difficult to work from home especially when the house is a small apartment, full of representatives of different generations and there are small children that need attention. Any crisis is a survival lesson: it is most important to remember, especially in difficult moments that there is also life outside of work. The task of the leader is to remind employees of this and give them every opportunity to live life to the fullest.
3) Be ready and have budget for the uncertainty
Business budget sometimes is as difficult for predicting as the path of a hurricane for the next week. Fortunately, business planning can follow these principles: describe the intended route, set an acceptable error and a reasonable range of results, explain assumptions behind the forecasts, track down unsuccessful assumptions and replace them, adapt the plans to achieve the best possible results in light of the most accurate information.
4) Develop the feeling of belonging/participation in your personnel
In times of crisis, it is especially important that each employee feels that he or she is part of a team. Each employee should be aware of his or her responsibility for the well being of colleagues and the success of the company as a whole. A sense of belonging lies at the heart of the relationship between workers and employers.
How can you develop this feeling in your employees? At first, it is important to ensure effective interaction with staff and create teams united by common values. Corporate trainings, games and competitions can be organized that motivate people to show their talents and unite with colleagues based on common interests.
5) Plan from future to nowadays
Decision makers need to evaluate the present from the perspective of the future. American consultant Charles Smith calls this approach "the Merlin principle." As you know, the wizard Merlin was the mentor of King Arthur. He understood that the lifeline of the people around him unfolds from the past to the present, while Merlin himself lived the other way around - from the future to the present. Likewise, there are two ways to formulate a strategy. The first is to proceed from past experience, the second one is to draw the world of the future and then, having this future world in mind, evaluate the present.
6) While responding to current challenges see opportunities and develop those
In any entrepreneurial activity, there is also a factor of chance. For example, Mark Zuckerberg created Facebook because a girl offended him. If we look at this situation from the logic perspective: Zuckerberg created a plan and implemented it, he took revenge on that girl. And what happened next? It is possible to take revenge on the second girl, on the third girl that offended you and so on… But Zuckerberg’s entrepreneurial talent is in the fact that while resolving one problem he saw new opportunities. The complexity is that in order to use opportunities, you need to see them. And in order to see, you should evaluate the situation in the context of the future, not in the context of the past.
Should you need any help in developing your budget at any stage or need advice for your specific situation, My Best CFO Team is happy to help you.
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