The corona pandemic presents enormous challenges for controllers and planners. Uncertainty always makes forecasting tricky, and in the last 65 years, there has never been more uncertainty than today.
In mid-March, volatility on the global financial markets reached an all-time high. Though markets have stabilized, volatility has yet to return to pre-crisis levels. There is also a record level of economic uncertainty. In Germany, business confidence in economic development fell rapidly – the ifo Business Climate Index plummeted in March and April before rising again slightly in May. According to the Federal Statistical Office of Germany, the change in Germany’s price-adjusted gross domestic product in the first quarter of 2020 was -1.8% year-over-year, and-10.1% in the second quarter year-over-year. Such sharp declines make it challenging to forecast GDP for 2020 with any degree of accuracy: instead of forecasts in exact percentages, only forecasts with broad ranges are currently published.
With their variances and the hardly predictable course of the pandemic, such statistics pose significant challenges for planners and controllers. Baselines from previous periods always had been reliable; now, they are mostly useless. Structures and processes must be adapted to respond to the rapidly changing environment of a crisis.
Based on BearingPoint’s experience, a crisis can be divided into four phases: shock, cost savings, restructuring and consolidation, and restart. The four phases place specific demands on planning and forecasting processes during a crisis. Crisis Mode requires an immediate effect and action-based rolling forecast. Medium-term and budget processes in the ‘next normal’ crisis mode require focused planning. In addition, the crisis also offers the opportunity to accompany the preparation and restart with optimized planning. In the following, three major adjustment requirements in the planning process during the crisis are described:
The first phase of crisis management through performance management is in full swing. The focus of planning and forecasting is on creating transparency and creating a clear picture of the situation.
Many companies are already or very soon will be transitioning to the second phase, in which cost savings are the focus. It builds on the approaches introduced during the shock phase. Now new approaches to planning and forecasting must be adopted to deal with the continuing high uncertainty level. As noted in the shock phase, the planning and forecasting processes characterized by annual, quarterly or possibly monthly rhythms need to be changed to a one to two-week rhythm.
The new start should begin with the phase of restructuring and consolidation. While in previous phases, the focus was on short-term planning horizons to stabilize liquidity and operational profitability, attention must now be paid again to medium to long-term planning. Optimization of planning must be accompanied by a performance management transformation aimed at managing future growth.
When taking new directions in planning and forecasting, we have noticed many clients subordinating the handling of budget activities, usually carried out in summer and autumn. On the one hand, this is due to the necessity of making short-term forecasts, including effects and measures. On the other hand, conventional planning and forecasting cannot cope with the current crisis and the increasingly dynamic environment. The crisis offers the opportunity to review which planning processes can be centralized and focused in terms of content. The growth phase associated with the restart requires a consistent orientation of planning processes towards growth.
Promising examples already exist, and BearingPoint has related references, project experience and methods. Let us work together to meet the challenge of managing the crisis and gain market share in the restart through early growth.
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