Sep 22nd 2021

Financial PerspectivesCFOs and Treasurers

4 Ways for Treasurers to Plan for the Unplanned

Treasury operations were vulnerable to the pandemic disruption. Here's how treasurers can build resiliency going forward.

Sep 22nd 2021

If the COVID-19 pandemic taught businesses anything, it’s that the need for contingency planning is real.

Seemingly overnight, entire industries were forced to confront operational challenges as unforeseen as they were daunting. Offices closed, workers went remote, supply chains broke down, and concern for employee health and safety rose to issue No. 1.

But as corporate leaders dusted off old contingency plans, too many found them to be woefully inadequate to address the scale of the disruption before them. The need for more comprehensive business continuity strategies was more apparent than at any time in recent history. And now that many businesses have moved out of survival mode and into recovery, it’s an ideal time to start preparing new contingency plans based on what we’ve learned.

Treasury: An Overlooked Area in Contingency Plans

For treasurers in particular, questions of liquidity planning and business forecasting arose suddenly and in unprecedented ways. Demand for and flow of products was uncertain. At the same time, external shocks—like tanking oil prices and historically low interest rates—stirred market mayhem. If that wasn’t enough, the possibility that key executives could be sidelined by illness at a moment’s notice became frighteningly real.

Contingency planning is hardly new. Companies with major operations in Tornado Alley or Hurricane Alley in the US, or in various earthquake-prone regions, typically have robust contingencies in place—backup data centers, continuity plans, and the like. And recent events like the 2008 financial crisis, Brexit, and the trade war with China — not to mention climate risk — have reinforced the need to plan for unexpected and potentially sweeping disruptions.

But risk to treasury operations, though business-critical, was often overlooked. Even for those treasurers lucky enough to have planned for emergencies, their plans did not foresee customers, suppliers, transportation, and employees all being thrown off kilter at the same time.

“Contingency planning in the past was mostly focused around emergency preparedness—things like hurricanes, or natural disasters, or even cyber-attacks,” says Darcy Peart, a Treasury Solutions Consultant and Vice President 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.”

Even for those treasurers lucky enough to have planned for emergencies, their plans did not foresee customers, suppliers, transportation, and employees all being thrown off kilter at the same time.

With any luck, the worst of the pandemic is behind us as vaccination campaigns march on, unemployment drops, GDP surges, and some workers return to the office. But businesses leaders, still awash in uncertainty, find themselves with a new, unique set of requirements to maintain day-to-day business—and a new understanding of just how quickly unanticipated events can drive them off course.

This “new normal” is driving a new way of thinking about contingency planning for treasurers. Though every operation is unique, the four key considerations below can help guide treasury contingency plans.

Four essential questions for treasurers building contingency plans

  1. Are your operations displacement-proof?

    Among the most immediate issues companies faced during the pandemic was the sudden shift to remote work. Although plans are often prepared for isolated, regional disruptions, entire workforces were displaced this time around.

    Ensuring the availability of equipment, high-speed connections, and secure digital tools outside of the office walls is essential. Even assistance with passwords (which might have been written down and stuffed inside 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 in the copy room.

    To plan for widespread physical disruptions:

    – Identify hardware and software requirements that would be critical for a remote or displaced workforce during times of crisis.

    – Make a plan to get these in place at a moment’s notice, or secure them preemptively.

  2. Are your delivery channels resilient?

    Many companies that relied on person-to-person contact and physical paper exchanges found they could no longer deliver documents, review printed spreadsheets, or obtain signatures—all easily done in an office environment. Generating and mailing checks, for example, or receiving and depositing payments, became temporarily impossible for many.

    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, others struggled to replace traditional operations with new, secure online or outsourced capabilities. To prepare for disrupted access to normal receipt or delivery capabilities, identify distribution channels essential for basic treasury functions.

  3. Are you hedged if key employees go offline?

    Whereas some companies have restrictions about top executives flying together because of risk, the pandemic 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.

The pandemic suddenly made real the possibility that senior executives in different locations could be unable to perform their duties simultaneously.

“My biggest advice to clients is to ensure they have backups and that people are actually cross-trained,” says Peart. “The transfer of knowledge is critical, and that’s something that has been lacking at a lot of big organizations.”

To be prepared:

  • Ensure that current and historical data is retained in a secure and centralized database to preserve access to all key financial and account information.
  • Identify mission-critical roles that lack redundancy and make a plan to distribute the risk.
  1. Can the services you're providing withstand wide-scale dislocation?

    In addition to the physical operations of treasury functions, ensuring secure communications and the 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 can help protect each step in the treasury process.

    Clearly identified priorities in the 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.

    When working from dispersed locations, implementing durable and secure channels to transmit information, authorizations, and communication can help accommodate the needs of:

    – Client partners

    – Vendors

    – Employees

    – Financial partners

Planning for the Next Contingency

In retrospect, it’s understandable that many companies were not fully prepared for the pandemic disruption. Even half of information security professionals, for example, 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 from those individual experiences. They neglected to broaden their perspective and develop strategies that would respond to an array of continuity threats. Because it was so disruptive, the lesson this time might serve well for whatever shocks lie ahead.

“Enacting high-impact strategic actions under unforeseen stress circumstances,” 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.”

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