During a recent webinar hosted by AFP CEO Jim Kaitz, treasury and finance professionals were aligned in their focus on employee and customer safety, access to liquidity and business continuity planning. But there was one area that seemed gray for everyone—the budget.
SHOOTING A MOVING TARGET IN THE DARK
Committing to upgraded safety protocols is easier than committing to a set-in-stone budget for 2020 or 2021. There are some industries, noted panelist Anthony Scaglione, CTP, executive vice president and CFO of ABM Industries, that have a better hold on the future. Since ABM works to clean and maintain facilities, the company has essential worker status and will play an important role in the re-opening of the economy.
Understanding ABM’s crucial role in the future allows for more confidence in Scaglione's assessment. "We feel like we have the best case to be the definition of a V recovery, because as cities and states begin to open back up, ABM is going to be in even more demand as hygiene and sanitation becomes front and center,” he said.
Yet for other organizations, looking beyond Q3 feels like shooting at a moving target in the dark. For the hospitality industry in particular, time horizons are the key uncertainty. In response to the pandemic, Hilton upped its frequency of reviewing data, cash flow, and the budget. Even with daily reviews, the confidence in that data depends on the fluctuating social response to the virus. "What's the cycle look like in terms of the social or government response to it? When will travel bans be relaxed? When will social distancing be relaxed?” said Fred Schacknies, CTP, formerly senior vice president and treasurer for Hilton. “These are all events which, depending on who you ask and in what context, might be measured in expectations of weeks, months, quarters, or years, so that's the great unknown."
Scott Satriano, CFA, head of financing and risk solutions at NatWest, expressed similar concerns: “I truly believe that anchoring any of this to specific economic indicators, given how messy the data will be for a little while, will be hard.”
Take the case of lockdown policies; when statewide lockdowns began there was the concern of peak fear from a consumer and markets’ perspective. As those policies played out, the opposite happened; in an AP-NORC poll, lockdown policies were embraced as a positive with eight out of 10 Americans saying they supported the government measures, while 26% of those polled said the measures do not go far enough.
GOODBYE BUDGET, HELLO SCENARIOS
Descending into one of the most uncertain periods of time in recent history, many organizations have had to say farewell to their budgets. Despite confidence in knowing the integral role his organization will be playing in the near future, Scaglione said the ABM budget was essentially useless at this point in time. In the same boat was Schacknies, whose organization also pulled its budget.
Without guidance for the future, boards have been challenging treasury and finance to run longer-term scenarios. Satriano’s approach to the challenge has been partially anecdotal and partially economical. “Rather than looking at employment data alone, we've retooled some of our quant teams and we're tracking the current models as best we can—how infection rates may peak and how and where things could slowly come back online,” he said.
Wolfgang Koester, chief evangelist and global head of financial institutions for Kyriba, has observed four categories influencing scenarios—cash, cross border payments, working capital, and risk. But in order to create a perimeter of possible scenarios in this fluctuating environment, nothing can be left off the table; “You are seeing, unfortunately, scenarios that are running, ‘What if this economy doesn't come back and it doesn't go global until September?’” Koester said.
CASTING A WIDER NET
As the COVID-19 crisis continues, so will the daily and weekly reports to the board. The daily bombardment of new data paired with the challenge to analyze and produce reliable forecasts is a difficult task for any treasury and finance professional right now.
To rise to that challenge, there are two ideas that financial professionals can adopt: do not easily dismiss what might appear as a fluke and expand your analysis beyond economic metrics.
Dismissing what appears to be a fluke is what blinded organizations from seeing the COVID-19 crisis in the first place. Labeling COVID-19 as an outlier would dismiss the fact that there have been precursory events: the 2002 SARS epidemic and the 2014 Ebola epidemic. A pandemic was not unthinkable; it was highly plausible and it is time to stop thinking that an event halfway around the world has no effect on your organization when you are part of a global society.
Secondly, as Satriano advised, it is important to resist anchoring your analysis to strictly economic indicators. The COVID-19 pandemic is unique in the sense that individual behavior has a significant influence on the ability to reopen the economy. A pandemic requires a sociological perspective as much as an economic one. That is not to say that we should throw macroeconomics out the door. Rather, be sure to take into consideration the pattern of behavior by individuals across state or political lines and how that impacts your economic analysis.
For more insights on what the CEO and the board are asking of finance in the current crisis, listen to the full webinar.