Managing in Uncertain Times
For business leaders, unforeseen events on the scale and breadth of 2020 represent a distinct call to action. This health crisis (and the related economic impacts) is largely unfamiliar, unpredictable and can lead to extended periods of uncertainty. An effective response demands a combination of immediate action, intermediate-term adaptation and longer-term strategic positioning.
To be effective, the initial reaction to a highly uncertain and evolving situation must be immediate and targeted – processes need to be put in place and actions taken to mitigate short-term risks including management and employee personal risk, liquidity and financial risks, operational risks, supply chain disruptions, distribution impacts and market risks.
Responses will vary from firm to firm. However, experience suggests that effective crisis management depends on empowered and knowledgeable teams working together across the enterprise that can prioritize action steps and act quickly to address issues of relative immediacy and severity.
At this stage, senior financial managers recognize that adroit liquidity management may likely be the key to enterprise strength. In this effort, the first step is obtaining a realistic, current view of available liquidity and understanding which liquidity sources may be under stress. Next, management needs to develop a set of possible short-term scenarios against which to forecast future cash flows. Finally, available levers to enhance liquidity should be identified, along with timing concerns, benefits, costs and risks across scenarios. While liquidity decisions are largely near term, they must still be made with an eye to the ongoing viability of the concern. This liquidity also positions the organization to take advantage of opportunities.
After immediate steps are taken to ensure that mission critical operations continue, assessments must be made and actions taken to adapt to functioning under shifted conditions. This phase of an action plan may call for reformulation and redesign of the fundamental operations of the business. The workplace may be re-organized or even re-imagined, facilities redesigned, employees’ roles and responsibilities shifted, distribution practices and outlets changed, and new supply chains developed.
For CFO’s, this step may include an adjustment to new revenue generation and expense expectations. In addition, the focus of attention shifts from short-term liquidity facilities to consideration and employment of intermediate-term funding strategies across the organization and overall adaptation to a new risk environment. Capital management and risk management tools and techniques also take center stage.
Organizations that effectively manage uncertain and volatile times will eventually shift focus towards long-term strategic assessment. This approach usually does not mean simply picking up where they left off pre-crisis.
A longer-term strategic planning exercise should take place to most productively reposition the organization to operate in a new world and leverage opportunities to emerge as an even stronger company. New product design, new delivery platforms, new markets, new suppliers are all on the table.
The new reality may drive reconsideration of the current financial risk posture and capital structure. This analysis may require a review of pension de-risking strategies such as pension risk transfer and other balance sheet management, as well as issues related to investments in future growth initiatives. Overall, it may also involve improving the quality and flexibility of the balance sheet.
The Right Partner
Critical to effective management in times of uncertainty is having a partner who has been there before and has the experience to help advance your initiatives through all types of environments.
Since 1861, MassMutual has stood by its customers through wars, depressions, recessions, market crashes and many other financial calamities and challenges. We’ve stood the test of time by applying our risk management capabilities and financial experience to help customers prepare for the worst and take advantage of opportunities.
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