Expecting the unexpected is part of every CFO’s mandate. But CFOs do not possess psychic powers to predict the future. Instead, they rely on well-honed enterprise risk management (ERM) systems that prepare for eventualities, both real and imagined. When a crisis strikes, these ERM systems and processes can help ensure businesses continue.

Before COVID-19, CFOs expressed misgivings about the future. In Deloitte’s January 2020 CFO Signals’ survey, 97% predicted difficult economic times ahead, but the crisis of COVID-19 most certainly exceeded their most dire predictions.

As of the date of this blog, COVID-19 has been the dominant theme in earnings calls of S&P 500 companies, according to MarketWatch. Supply chains in Asia as well as shifts in consumer behavior due to mandatory quarantines are anticipated to have wide-ranging effects on earnings. But many leaders cannot say with certainty what those effects are for the long-term.

One thing we do know for certain from a recent Gartner survey of CFOs about COVID-19 is that CFOs are demonstrating the kind of mettle we expect from leaders during a crisis. In this March 17, 2020, survey, Gartner found CFOs doing the following for their employees to ensure business continuity:

• Expanding work-from-home and sick policies, and adjusting work schedules and non-illness-related flexibilities (such as for childcare needs) to ensure tasks and projects get completed
• Tracking state benefits for hourly workers
• Considering offering childcare for employees who must continue coming to work
• Offering remote working equipment, such as modems and routers, if needed
• Allowing employees to donate sick leave to one another

And for non-full-time workers, some CFOs are stepping up to make sure their hourly workers are kept financially whole during the crisis. For example:

• 81% of the respondents said they intend to offer benefits to their hourly workers that exceed any contractual obligations during the COVID-19 disruption
• One third (33%) intend to offer full monetary compensation during the period

The decisions CFOs make today regarding COVID-19 can have far-reaching consequences on their businesses in the long-term. CFOs are aware that good employees will be hard to replace when they are needed the most in and after a crisis.

IMA® (Institute of Management Accountants) has long counseled CFOs to think ahead and plan for the unexpected. This ensures that critical decision making is not made in haste and resources can be properly allocated to see companies through difficult periods when cash flow may be compromised or expense loads may be increased.

IMA’s “Enterprise Risk Management: Tools and Techniques for Effective Implementation” Statement on Management Accounting provides techniques for identifying risks and the root causes of those risks. Several qualitative and quantitative procedures for assessing risks are provided.

Some practical ERM implementation considerations are also explored, including infrastructure and maturity models, staging adoption, the role of the management accountant, education and training, technology, aligning corporate culture, building a case for ERM, and the return on investment (ROI) of ERM. Any organization—large or small; public, private, or not-for-profit; U.S.-based or global—that has a stakeholder with expectations for business success can benefit from the tools and techniques provided in this SMA.

A key aspect of ERM centers around supply chain. With COVID-19, supply chain disruptions are occurring, and many companies have had to consider shifting operations from high-risk areas to low-risk ones. A recent Strategic Finance CFO to CFO column on Gap Inc.’s supply chain management focused on the finance function’s role in creating more resilient, efficient supply chains. Teri List-Stoll, GAP executive vice president and CFO, offered this piece of advice about supply chain disruptions and COVID-19:

“More and more, the risks are broader and more complex in nature, including the growing cyber risk and the interconnectedness of supply chains. AI and data science capability will aid in planning and detection. You can even anticipate Mother Nature’s impact with more advanced notice, and, therefore, have more ability to respond. The opportunity comes from how you can leverage data and technology to have more advanced notice and planned responses. And having a strong business continuity plan (BCP) in place, not just on paper but one that has been tested and is widely understood and able to be implemented, is critical. As we work through our response to the coronavirus (COVID-19), we’re seeing the importance of having had these plans in place.”

IMA is also a co-sponsor of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), where we helped “write the book” when it comes to ERM. A comprehensive ERM program is a CFO’s best defense for leading his/her business through crisis.

Source: imanet.org