If the COVID-19 pandemic has taught businesses anything this year, it’s that the need for contingency planning is real.
With 42 percent of the workforce in the U.S. working remotely by early summer, entire industries have confronted operational challenges that were both unforeseen and daunting. Offices were closed, supply chains were disrupted, and concern for employee health and safety became paramount. In turn, the primacy of contingency planning as part of an overall business continuity strategy became strikingly apparent.
For Treasurers, unexpected questions of liquidity planning and business forecasting suddenly arose in unprecedented ways. Demand for and flow of products was uncertain, while other external forces such as an oil price shock and historically low interest rates hit at the same time. And the possibility that key executives could be sidelined by illness became frighteningly real.
The importance of contingency planning is hardly new. Companies with major operations in Tornado Alley or Hurricane Alley in the U.S., or in various earthquake-prone regions, typically have robust contingencies with backup data centers and continuity plans. Recent events—from the 2008 financial crisis and the regional upheaval brought by Brexit to the tariffs and tensions raised in the trade war with China—reinforced the fact that business is continually battered by unexpected events.
But in many cases, treasury operations, though considered business-critical, were not among the departments that appeared most at risk in a disruption. The coronavirus has changed that. And even with existing business continuity plans, many Treasurers discovered those plans did not foresee customers, suppliers, transportation, and employees all being affected simultaneously.
“Contingency planning in the past was mostly focused around emergency preparedness—things like hurricanes, or natural disasters, or even cyber-attacks,” said Darcy Peart, Vice President, Treasury Solutions Consultant at Bank of the West. “This has really changed the whole stage in that it’s so widespread and it’s on a global scale. The way it’s happening seems to be both fast and slow, and the response needed is both immediate and longer-term.”
The challenge today for Treasurers is rooted in the need to access information systems and complete daily operations from remote and dispersed locations, while at the same time analyzing financials and forecasting liquidity needs. Ability to access data, process and track receivables and payables, control levers of liquidity, and make balance sheet adjustments—all while working remotely—has become vital.
Four Areas of Focus
While scores of procedures, details, and alternate iterations can be modeled for issues of business continuity, there are four major areas of disruption that current conditions have highlighted for treasury contingency planning.
(1) Displaced Offices: Among the most immediate issues faced by companies this year was the sudden shift to remote working conditions. Although plans are often prepared for isolated, regional disruptions, the current challenge came as entire workforces were displaced.
Ensuring the availability of equipment, high-speed connections, and other strict cybersecurity measures was essential. Even assistance with passwords (which might have been written down in an office drawer) can present unforeseen obstacles, as well as the need to replicate many of the printing and scanning functions that were taken for granted with equipment in the office.
- By planning for widespread physical disruptions, companies can identify hardware and software requirements that would be critical in times of crisis.
(2) Delivery Channels: Because of displacement, many companies that relied on traditional interpersonal contact found they were no longer able to deliver documents, review printed spreadsheets, or receive signatures within a single office. Generating and mailing checks, for example, or receiving and depositing payments, became temporarily impossible for many.
Instead, new systems were required to issue checks remotely by uploading payment files, or to collect payments through a lockbox. Although some organizations have sophisticated ERP systems that communicate directly to their financial institutions, other companies struggled to replace traditional operations with new, secure online or outsourced capabilities.
- By identifying distribution channels required for basic treasury functions, companies can be prepared for breaks in access to normal receipt or delivery capabilities.
(3) Employee Functions: Whereas some companies have restrictions about top executives flying together because of risk, the current crisis suddenly made real the possibility that senior executives in different locations could be unable to perform their duties simultaneously.
While operational shortfalls can be rectified through hardware purchases or software upgrades, preparing employees to step in and perform other tasks if numerous colleagues were to fall ill can often be overlooked. “My biggest advice to clients is to ensure they have backups and that people are actually cross-trained,” said Peart. “The transfer of knowledge is critical, and that’s something I think that has been lacking at a lot of big organizations.”
- By ensuring that both current and historical data is retained in a secure and centralized database, companies can maintain access to all key financial and account information.
(4) Process Flows: In addition to the physical operations of treasury functions, ensuring secure communications and transfer of data are vital to the daily flow of information. Dual authorizations for issuance of payments, multilevel authentication for emails, and host-to-host connections for secure, encrypted communication (when possible) can help protect each step in the treasury process.
Clearly identified priorities in dissemination of information, as well as assigning specific responsibilities for client management in case of operational interruptions, are also important. Selection and education in the use of teleconferencing—whether it’s Webex, Zoom, or some other platform—can also play a large role in maintaining ongoing financial relationships.
- By implementing and continuously revisiting availability of secure channels for information, authorizations, and communication, companies can accommodate the needs of clients, vendors, employees, and financial partners in dispersed locations.
Planning Contingencies Ahead
In general, that many companies were not fully prepared for the current disruption is understandable. Even half of information security professionals said their organizations lacked, or they were unaware of, a contingency plan for a pandemic like COVID-19.
Despite experiencing several crises in the past two decades, organizations were likely to focus on specific lessons of those individual experiences. They neglected to broaden their perspective and develop effective overall strategies that would respond to an array of continuity threats. The lesson this time might serve well for whatever lies in the future.
“Enacting high-impact strategic actions under unforeseen stress circumstances as now exists under the current COVID-19 scenario,” a report from Oliver Wyman concluded, “is where a well-run and prepared treasury can make the difference—helping firms survive the crisis and thrive in its aftermath.”