The Weekly Ledger No. 72: Resilience Planning

October 20, 2022 Theresa Rex

team talking about resilience planning

Welcome to The Ledger where we sum up the latest finance and accounting news for you. This week, we've rounded up everything finance leaders need to know about planning for resilience to mitigate risk. Read on for fresh insights on what finance leaders need to know about resilience planning as a strategy, myths about resilience and risk and what finance leaders and CFOs need to know before, during and after a crisis.

The Weekly Ledger Resilience Planning

Why CFOs are Rethinking Just-in-Time Supply Chains

Global consulting firm Protiviti recently released the results of their 2022 Global Finance Trends Survey and found that the challenges of 2022 — like inflation and overseas conflict — have compounded pandemic-related supply chain snags for nearly 75 percent of businesses. The result? Concerning ripple effects that touch every part of operations and negatively impact the finance function, ultimately demanding an increased share of CFO's attention.

To get — and hopefully stay — ahead of current and future supply chain risks, CFOs are increasingly willing to overhaul traditional models by:

  • Jettisoning Just-in-Time Logistics: 45 percent of CFOs say that they are trading just-in-time supply chains for flexible revenue assurance models that better withstand risk

  • Embracing ESG to Sustain the Chain: 40 percent are incorporating ESG into their sourcing decisions and taking advantage of the transparency ESG necessitates to optimize supply chains

  • Diversifying to Prevent Disruption: 39 percent are diversifying their supply chain at multiple points, spreading it out to different regions and sources to build contingencies directly in.

Between what CFOs know about the way supply chains are reacting to persistent challenges, what they can reasonably predict about the market and what can't possibly be known about what the future has in store, finance leaders are willing to revisit every aspect of operations to stay prepared. Read more about how they plan to do exactly that and see additional insights from Protiviti's survey at cfo.com.

Don't Let These 5 Myths Derail Your Resilience Planning Strategy

If we've learned anything in the past few years, it's that organizational resilience — responding quickly to change and thriving in crises — benefits from a proactive and strategic approach. In turbulent times, companies with resilience strategies are already moving solutions into place into place while their competitors are still processing what the heck just happened, giving them a sizable head start and serious edge.

Yet, few organizations move to codify resilient practices into their operational strategy, thanks to a very human tendency to put a crisis out of mind soon after its effects are out of sight and felt less acutely. To keep that edge, organizations have to resist this instinct, and therein lies the good news — now is the perfect time to lay the foundation for resiliency in the future. Just look out for some common resilience myths that can derail your strategic approach:

  • Risk — and Resilience — Only Impact Supply Chains: While the supply chain is particularly susceptible to risk and especially visible in the immediate aftermath, gaps in resilience affect everything from data security and FP&A to sales growth and churn.

  • Resilience = Risk Mitigation: By only viewing resilience through the lens of risk and reacting to a crises, organizations miss the opportunity to be proactive and take full advantage of crises.

  • Resilience is an Ops Thing: Again, this mindset reflects a reactive approach. By turning resilience into a strategy and not an operational contingency, organizations can capitalize on transient opportunities.

  • Resilience is Pure Cost: This is a simple case of conflating dips inefficiency in the short term for unrealized value in the long term. Even before calculating the benefit of resiliency measures (diversified supply chains, organizational adaptability and modularity for instance) in everyday non-crisis operations, consider that performance in a crisis is three times as impactful as performance in stability.

  • The Odds of a Crisis Occurring Is Low: This myth tends to prevent organizational investment in resilience beyond the bare minimum. Why invest in crisis planning when crises rarely happen? The truth is, there are more exogenous factors that represent potential crises than there were just a few decades thanks to advances in technology and climate change.

There's little downside for finance leaders who are considering getting strategic about their approach to risk and resilience, especially relative to those that don't. Get the whole story and strategy — including the six key elements of operationalized resilience over on hbr.org.

How Treasury and Finance Can Impact Resiliency — and How CFOs Guide the Process

A lot of resiliency planning has to do with planning to thrive in scenarios that include everything from a novel respiratory virus to giant container ships lodged sideways in the Suez Canal. But ask a treasury professional and they'll quickly point out that if you hope to build a resilient organization you must also be able to anticipate threats, quantify them where possible and forecast the impact they're likely to have on the company's bottom line.

Traditionally, this has applied solely to financial risk such as currency, credit and interest volatility, but finance teams are increasingly being asked to factor nontraditional risk factors and their impacts into financial forecasts. Cybersecurity, worst-case supply chain scenarios and natural disasters are all getting the treasury treatment, assessing organizational financial resilience to operational risk by:

  • Assessing Appetite & Tolerance: CFOs and treasury professionals are working to become as confident discussing organizational tolerance for cybersecurity and geopolitical risk as they are discussing credit and M&A risk.

  • Understanding Exposures: The next step is to assess and quantify measures that can be taken to control for potential risk exposures, which can include everything from insurance analyses to mapping out the costs and benefits to implementing new technology.

  • Prioritizing Spend: Once operational risk has gotten the treasury expertise treatment, it's up to leadership to determine where resilience and protective priorities lie and allocate resources accordingly.

CFOs can guide the integration of treasury teammates into strategy planning by demonstrating the importance of how risk capital is invested and reporting on the health of those investments. Securing key stakeholder buy-in by making the case for greater visibility into resilience planning and its impact on a business's balance sheet can help make the case for having a seat at the table, and now is an excellent time to make that argument. Read the full article at treasuryandrisk.com.

Recent research shows that the challenges facing today's organizations — whether they're pandemic-related, exacerbated by inflation or stymied by supply chains — disrupts the finance function for 72 percent of finance operations. The CFOs who oversee them are increasingly seeking help from outsourcing providers to manage those disruptions. See how Personiv helps companies build resilience and thrive in challenging times with one of our virtual accounting solutions.

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