Tag Archive: scenario planning

  1. Cash Management Post Lockdown

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    I don’t know about you, but if I hear another talking head on the TV using the phrase “new normal,” or read another newspaper article or blog post that suggests that anyone truly knows how business will change in the medium to long-term, I think I will explode. I plan to just build on my previous post on cash management and on the need to scenario plan as you continue to focus on cash-flow, which you and I both know is the lifeblood of every business. 

    Being too slow to cash is fatal for any business, and in the last two months most of you reading this will have already acted deliberately and quickly to take the necessary tactical steps to adapt your working capital, business expenses, and other cash outflows to be closer aligned with reduced short-term revenues and uncertainty around the immediate future, either to ensure the survival of your business, or as a sensible precaution during this national (and international) emergency. For many business owners, executive managers, and their employees, this was a very difficult time and required some tough decisions and sacrifice.  

    But as states begin to emerge from “lock-down” and you consider how you might ramp your business back up, you are probably coming to the conclusion that the next few months will be no less uncertain, and that navigating decision making in this (hopefully interim) environment may actually be even more difficult than what you had to go through during your initial pandemic response. 

    Therefore, let me offer up a few key things for you to consider as you try to model your cash projections for the rest of 2020 and beyond, and consider potential scenarios you may well face: 


     #1 Are you going to undertake M&A activity? 

    No judgement here: there may be a lot of good candidates for mergers or acquisitions at far lower prices than a few months ago that may represent good returns on investment and boost your top and/or bottom lines, or your current business situation might make you a good merger or acquisition target, or make you more open to merging or selling. 

    Outside of our typical cautions on the challenges of due-diligence and pre and post-merger integration, and of actually achieving projected synergies (meaning you will likely benefit from external help), you will need to factor M&A into your cash equations if it is potentially on the horizon. It might also be prudent to check in on your current and future potential credit lines, borrowing ability, and lending rates you might be able to achieve, bearing in mind that banks are starting to be more watchful in these areas, and have already factored large, pandemic related write-downs to their business loan portfolios in expectation of higher rates of business failure.  


    #2 Has the impact of changed Marketing Investment and Capex assumptions and budgets been reflected in other key assumptions? 

    If you have already made changes (i.e. reduced) your projected marketing spend or capital expenditures to manage cash flow, you have probably already captured the high-order effects of these changes in your cash position projections. However, you probably have not yet had the time to look at how these changes have affected other assumptions that have the previous capital expenditures embedded within them, such as Sales Growth, Cost of Goods, and Gross Margin. 

    If previously planned (but now cancelled or deferred) marketing spend or capital expenditures drove assumptions in the maintenance or achievement of positive improvements to your production or operational efficiency that then translated into top and/or bottom-line impacts in your original projections (and let’s assume they did, otherwise why were you planning to spend this money?), “backing-out” these embedded effects from your new projections to see how this affects your cash position might be a worthwhile exercise. This may well cause you to reassess your current best thinking on which projects to stop, slow, or carry on with, as you consider the strategic impacts, both internally and on your competitive situation, of your initial tactical moves to conserve cash. 


     #3 What if? (also known as “What else could go wrong?) 

    In order to make future financial projections you will need to make assumptions (Like you haven’t already) on how key expense and revenue variables will grow and change as lockdowns begin to subside. 

    No doubt, these assumptions will be based on complex interrelationships across myriad factors, from the obvious (such as customer demand, pricing, and supply chain issues and changes) to the harder to predict or more intangible (such as oil prices, when a Covid-19 vaccine will be available, the strength of the economy in the meantime, etc.), and across multiple stakeholders (such as employees, business partners, regulators, your local communities etc.). 

    Therefore, the opportunity to arrive at imperfect assumptions is high, without even considering “what else could go wrong” (i.e. other “black-swan” type events).  

    So spend some time, or consider getting some outside help (from Core Catalysts of course) to model a few potential scenarios or “what-ifs,” such as: 

      • What if revenue rebounding takes twice as long as projected? 
      • What if revenue only returns to 50% / 75% / 90% of what it was before? 
      • What if raw materials inputs and supply chain prices stay where they are (versus where they were) or were to increase 5% / 10% / 15%? 

    Projecting the impacts of these and similar scenarios on the financial health of your business and considering the odds that any, a combination, or all of these might happen will give you a sense of the medium to long-term risks that you may be facing, and help you to determine, change, or optimize your cash management strategy in the near or ongoing term. 

     While certainly not easy, planning for and considering these three factors can position your company to emerge stronger and as soon as possible from the pandemic, with the capability to continue to make both strategic and opportunistic investments. If you think you might benefit from assistance in refining your post-lockdown cash management strategy, give us a call to see if we might be able to help you! 

     Mark Jacobs, Client Service & Delivery

  2. Are You Scenario Planning Around the Coronavirus?

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    Without wanting to further add to the concern and hysteria around COVID-19 (aka the Coronavirus), fears that there might be a widespread epidemic here in the US are causing widespread business uncertainty (just look at the swings in the stock market the last few days).

    This raises questions on how well prepared many business are for unexpected or unusual issues in supply and demand.

    Consider the Impact

    As an example, have you considered the impact on your business, and what you would do, if:

    • A sizable percentage of your workers called in sick and were out for a few weeks?
    • Your key vendors experienced a reduction in output due to their workers being ill?
    • A measurable percentage of your customers / consumers become unwell for a short period of time?
    • A measurable percentage of your customers / consumers become unwell for a long period of time?
    • Your inbound and / or outbound logistics takes twice as long as usual?
    • People start stockpiling goods and staying indoors?

    Why Scenario Planning is Useful

    The uncertainty around COVID-19 is a perfect example of why, when faced with uncertainty, scenario planning is useful.

    The process of scenario planning (sometimes also called ‘war-gaming’) involves risk-intelligent companies taking time to proactively address risks and consider a variety of possible scenarios to help them ‘pressure test’ and ‘rehearse’ their ability to handle issues as they arise and to spot sources of risk that may otherwise go undetected.

    Scenario planning also gives a company the opportunity to challenge key assumptions that underpin baseline business performance and to ‘peer-around’ the corner at alternative versions of the future, with consideration to second and third order effects as well as the obvious ones, because, like an iceberg, much of the risk (ice) often cannot be seen (under the water).

    Thinking through various scenarios that are driven either visible trends that are shaping the longer-term future, or by forces and events that cannot be predicted or controlled (such as the Coronavirus) also helps companies prepare for potential situations and build longer-term organizational capability in thinking through other issues in their supply chain (like product recalls) or organization (like a data-breach, a factory fire, or a major vendor going in to bankruptcy) and making the right strategic choices despite the uncertainty.

    Scenario Planning Workshops

    Here at Core Catalysts, we have run multiple scenario planning workshops for our clients across a wide range of issues:

    • One recent example considered the effect on prices, supply, and demand, for Pork products around a variety of scenarios involving Swine Flu.
    • Another revolved around potential competitive reactions to merger and acquisition activity in a rapidly consolidating medical specialty market.

    We prepare and facilitate scenario planning sessions to help our clients think through and develop of usable strategies and risk mitigation tools for both ‘wildcard’ or ‘black-swan’ events (low-probability, high-impact occurrences that could dramatically change the business environment) and more ‘every-day’ activities (such as product launches, price changes, and other externally facing strategies where the responses of customers, competitors, and other parties can affect results), giving management teams the ability to gauge the effectiveness of existing strategies and tools and to feel better prepared and more confident in their decision making if and when a variety of situations arise.

    Do you think you or you team might benefit from a scenario planning workshop? If so, please get in touch to find out more.