Enterprise & Market Resilience Middle East Forum (Session 4): Managing post COVID-19 - What do Finance organizations have to prepare for?

Managing post COVID - What do Finance organizations have to prepare for?
Enterprise & Market Resilience Middle East Forum (Session 4): Managing post COVID-19 - What do Finance organizations have to prepare for?

This was the fourth edition in the series of Middle East Forums organised by Protiviti on Enterprise & Market Resilience during COVID-19.  

The theme for the session was on Finance Organizations preparedness in managing their operations in the COVID-19 environment and how they will need to step up in these challenging times not only to manage their function efficiently but also to adapt to the changing needs as a business partner. 

Over 200 Finance professionals joined the session hosted under the Chatham House rules. 

Key Takeaways:

  • “Cash is king” – Effectively managing cash and liquidity crunch is key for enterprise sustainability and growth. 
  • Acceleration of digital transformation programs is vital to building efficiencies and reducing costs.
  • Cost optimization would need focus on all aspects of the organizations and not just certain functions. 
  • Health and safety are becoming priorities. 
  • Increased focus on cyber security due to WFH scenarios.
  • Increased acceptance of innovative solutions for creating new business lines

Cash is king – How organizations are managing liquidity and cash management

The Chief Financial Officer (CFO) from a sovereign wealth fund in the region shared experience on how they managed to close a debt capital market transaction in late February, just before the COVID situation escalated, which eased the load around liquidity concerns to a large extent. The CFO stressed upon the need to diligently evaluate the liquidity requirements, across the various portfolios of a holding entity. Government benefits and schemes should be opted as much as possible and these can be a key parameter in assessing the situation and alleviating the challenges.  For companies that are Capex driven, prioritized expenditure into necessary projects is the key to ensure liquidity. 

The Chief Investment Officer from amongst the largest banks in the region highlighted the fact that management of liquidity in the banking sector is different from that of other industries, as the banking sector is governed by various aspects and ratios. Emphasis has to be placed on both short term and long term liquidity, with focus on opportunities to invest in High Quality Liquid Assets (HQLA).  The bank has put in place strong measures to control liquidity, which has resulted in higher ratios as compared to the requirements. 

However, major challenges lie ahead - as to gauge how long the pandemic will last, in conjunction with the fall in oil drop prices. Companies need to consider both the aspects in their forecast.

On a related poll question on whether their organizations are using an effective cash management solution approximately 60% of the participants said that their organizations have an effective cash management, however it is done manually.

Cost optimization 

In the current scenario, liquidity and cost management are both important areas for any organization.  They are looking into cost drivers and launching cost management programs in order to optimize these.  As revenues get challenged and businesses look for new products to cater to current environment, costs have gained attention. 

The CFO of a leading asset management organization recommended looking at committed costs, scaling back discretionary spends especially in marketing, advertisement and travel. Further, fixed and committed costs should also be evaluated with key partners and suppliers, whereby a balance can be maintained between each of them to postpone or defer the whole/ or part of the costs. 

For medium term, processes are being re-engineered for increased efficiency. Digitalization is expected to be accelerated and delivery models are getting redesigned, considering the current situation as the new normal.

The CFO for a large waste management company added that it is imperative to look at costs throughout the organization, across all functions and heads, at a line item level. Organizations should look to see if support functions can deliver productivity working from home, explore options for outsourcing functions, ways to reduce corporate costs. 

Participants in a poll identified major cost optimizations measures in areas like manpower optimization, employee benefits, supply chain and vendor management.

Manpower first

All the panelists concurred that manpower costs depend on the nature of the industry. In labor intensive industries like manufacturing, non-availability of labor is a key risk and organizations are looking to onboard labor and provide them facilities at the manufacturing sites to reduce any health and safety exposure. 

In banking, the industry is looking at a mix of delivery models like retail branches operating at minimum staff to maintain service levels, whereas support functions and corporate clients are being managed remotely.  

Every crisis brings new opportunity

Sharing their experience, one of the panelist highlighted how the crisis was taken up as a challenge and opened new opportunities in the business of integrated waste disposal management. The key was to encourage people working on the frontline to act as the eyes and ears of the organization and help identify new opportunities.

Similarly, another panelist opined that the current scenario is a ‘golden’ investment opportunity for the companies that are cash-rich. Banking sectors would benefit from these opportunities as this opens them to facilitate mergers & acquisitions, advisory on restructuring- both financial and operational. 

Supply chain disruption and third party risk management

Transportation and logistics, an integral part of supply chain, have been deeply impacted, bringing a cascading effect. Enterprise preparedness to address the ‘work from home’ model – a need of the hour, was found wanting in some cases as there was shortage of IT assets such as laptops, and connectivity to facilitate this. This has caused disruptions and affected business continuity in certain organizations. Organizations that are better prepared, have been able to tread through this challenge effectively and are more successfully in conducting their business, with lesser disruptions.

During a poll regarding the management of risk arising from third parties, 32% of the respondents said that the end user departments are responsible for managing such risks and 24% responded that there was no effective third party risk management process within their organization.  

Thinking Ahead:

  • Effective cash and liquidity management will be key for the short term to medium term. 
  • Increased focus on cost optimization. 
  • Stress test and risk scenarios need to be updated considering changing business models.
  • Digitalization programs need to be prioritized and accelerated to bring in efficiencies. 
  • Health and safety concerns will become a priority in medium term.
  • Organizations need to be agile and tap into opportunities arising due to the “new normal”.
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