COVID-19 is a new illness that can affect your lungs and airways. It is caused by a type of virus called coronavirus.
On the 14th of April 2020, the International Monetary Fund warned that the world faces its worst recession since the Great Depression of the 1930s.
COVID-19 is forcing organisations to develop and put into place business continuity plans, resilience features, incident-management processes, and recovery strategies.
For larger organisations, the responsibility for business continuity often falls to specialist practitioners, dedicated to continuity and the related disciplines of crisis management and IT service continuity.
Unfortunately, micro businesses & SMEs, more often than not, don’t have that luxury and it falls instead to the owner managers to prepare contingency plans, ensure that the critical infrastructure and systems are protected, and to give the organisation the greatest chance to survive events like this that can, and will, bankrupt many businesses.
When you sit down to plan around your business, remember, you are not doing this alone. Across the globe, individuals and businesses are facing the same uncertainties and risks at this moment.
There will undoubtedly be difficult decisions to make but how prepared you are and the actions you take now will be key to not only the businesses survival but its future success, when this pandemic passes – which it will.
First Steps
Before you make any decisions around your business, pull in as much information as possible to help you prepare, i.e.
- Map out your supply chain
- Look at supplier T&Cs and payment terms – can these be renegotiated? i.e. can you work on consignment stock maybe or push out to 90/120 days payment terms?
- Assess your business liquidity, i.e. your creditor and debtor lists, your cash at hand, your monthly overheads and income.
- Look at employee contracts and sickness policies, remote working policies, use of email and other business systems. Do you have a lay-off or short-working time clause like below?
“If there is a shortage of work, you may be placed on short time or suspended from work without pay. This will be done in accordance with the provisions of current employment legislation.”
This is obviously an extremely sensitive area and no employer wants to be seen as ‘dumping’ staff at a time of global crisis. Fortunately, the introduction of a job retention scheme through which 80% of employee wages, up to £2,500 per month, will be repaid to the employer by the UK government, has provided many businesses with a life line so that hard decisions like this can be at least delayed. However, having a clause like above in your contracts, is still worth considering as it provides you with an option, other than redundancy when there is a shortage of work.
Scenario Planning
Many businesses use Scenario Planning to help them prepare for future uncertainty.
Scenario planning is making assumptions on what the future is going to be and how your business environment will change overtime in light of that future. It is about identifying a specific set of uncertainties, i.e. different “realities” of what might happen in the future of your business.
When carrying out Scenario Planning, we are looking at the 3 most plausible outcomes.
It is hoped that a vaccine for this virus will be developed sooner rather than later, however the consensus seems to be that even in the best case-scenario, it is still 18 to 24 months away: Some potential scenarios around COVID-19, for the next 12 to 18 months, could be:
- Best-Case Scenario: After a short period of lockdown, the virus is managed effectively, leading to containment and quick recovery.
- Midway Point: Lockdown and social distancing measures for a few months followed by global slowdown
- Worst-Case Scenario: Lockdown extended beyond the summer months followed by global recession
So what are some of the things we would expect to see in each of these Scenarios?
Scenario 1: Virus managed effectively and quick global recovery
Even if we manage to contain the spread of the virus, initially through lockdown and then by practicing social distancing, until we have a vaccine or cure, infections will continue to rise, at least, in the short-term.
Despite this, in scenario 1, the general public are following the measures introduced to contain the spread and our health service can cope.
Short-term impacts could be staff being off sick or in self isolation, meaning that businesses may need to prioritise some work and cancel other projects.
Re-assignment of staff may be necessary, and you may need to change working patterns in order to cope or to keep social distancing in offices etc. This could mean the introduction of shift patterns.
Most ‘Experts’ expect Coronavirus to return annually, however, in this scenario, the impact will be like that which is caused by flu.
In this scenario, we would also expect to see China’s recovery completed by the end of June and whilst Europe and USA experience an initial drop off, by Q2, the shoots of recovery are already being seen.
The rest of the world have varying impacts with those countries that excelled in containing the outbreak, quickly recovering.
Inevitably, there will be a change in consumer spending as a result of Coronavirus; for example, people may wish to avoid crowded places like restaurants and bars, electing instead to socialise and make more meals at home or get more takeaways. They might do bigger shops, but less frequently.
Biggest impacts in GDP are expected to be seen in Asia (obviously China but elsewhere too), Middle-East, Africa and USA.
In this scenario, Europe’s GDP falls, but, below the global average of around 20%: As consumer spending comprises circa 70% of GDP, any fall will see a drop in disposable income and a change in spending habits.
Scenario 2: Global Slowdown
In scenario 2, by the end of Qtr 1 2020, recovery in China is starting to be seen, as the factories go back into production and public health measures are relaxed. China is fully operational by the second half of 2020 but the pressures of trying to clear the earlier backlog means that quality has suffered. This may lead to demand outstripping supply due to quality returns and then inevitably price increases and shortages.
In this scenario, the response in Europe to public health measures does not have the same impact on the spread of the virus that it did in China.
COVID-19 is now considered as a seasonal occurrence but with higher fatality rates than flu thus putting more pressure on countries health systems. Some developing countries and those with aging populations will not be able to cope. Everywhere, health costs increase exponentially.
Consumer behaviour sees a more short-term impact than in Scenario 1, i.e. after an initial change in practices, people return to old habits making future endemics more likely. This scenario also potentially brings double and even triple dips with recurring infection peaks.
Europe and USA continue to face economic slowdown that runs well into the 3rd quarter when it could be hit again by another peak in corona virus infections.
Global GDP halves with Europe, US, Middle East & Africa taking the brunt with reductions of up to 75%.
Scenario 3: Global Recession
The public health response is deemed slow and ineffective in many areas. We just get over the pandemic when the world is faced with endemics that bring high fatality rates.
Pressure is compounded as global health systems never had time to recover from the initial impact. Government budgets and growth plans are decimated.
Consumers have become much more financially prudent with increased saving and less money spent on luxury items. Spending habits have changed massively. Lots of online purchases with many high street brands going to the wall.
China initially recovers but becomes complacent and then sinks back into old habits causing new transmissions. Never-ending cycle of infections.
Making Plans
When looking at the possible future scenarios outlined above, from where we are today, which one do you consider the most likely? What happens if you throw any potential implications to your business from Brexit into the mix?
When using Scenario Planning, rather than working from the external environment in, you consider things from your business out, i.e. what are the important decisions you have to take now in any case and then, how would each scenario influence or change those decisions?
Working this way, you should be able to avoid falling into the trap of trying to plan for multiple speculative futures and instead focus on key areas of importance for you.
If we take employment for example. In each of the scenario’s above, even the best-case scenario of a quick recovery, there is still a decision to be made around staff levels. Government subsidies are a short-term sticking plaster rather than a long-term solution. Before you make any decision, what do you need to know, i.e.:
- Have you the option of short-term working and layoffs?
- Even if you did, would this be an option in any of the scenarios above?
- If redundancy is the only option.
- Have you considered your redundancy selection criteria and how each are scored/weighted?
- Will you offer enhanced Voluntary Redundancy first? If you do, set criteria around core staff that you don’t want to go and therefore can refuse their requests
- What would you consider as a successful outcome from the process?
- Will you have to do this in stages / Can you do this in stages?
Immediate Actions (Some suggested starting points)
With Lockdowns being put in place globally, we can safely say that business as usual isn’t an option.
As a business owner/manager you need to protect and communicate with your staff.
If your business has been deemed non-essential and your staff have been furloughed, it’s important to keep lines of communication open.
If you’ve been able to continue to work remotely or your business is considered to provide essential services and/or products, meaning you’ve continued to operate but with new social distancing practices introduced, it’s more important than ever that you give your staff clear guidance on how they should deal with the coronavirus including if they or any family member displays symptoms.
Some things to consider when working with your staff, could be:
- Be consistent with WHO, Govt and Public Health Agency guidance.
- Empower staff to deal with the evolving situation but at the same time, monitor everything. You remain responsible.
- Identify employees who are the most crucial to maintaining business continuity.
- Where remote working is an option, ensure that employees have the proper tools to work remotely.
- Consider developing a Disaster Recovery Scenario in which 25/50/75% of your staff cannot come into work OR work remotely. How do you keep the doors open? Can you keep the doors open?
- Think creatively. If people need to self-isolate but are still fit to work, what can they do that continues to add value for the business, provides them with a focus and also acts a distraction from the pandemic?
- Set up a Response Team spread across departments and also covers ever element of the business right down to cleaning -more important now than ever.
- Who can deputise for you if you get the virus?
- Identify a leader for the Response Team who reports into you. Would you choose the same leader in each scenario?
Suggested focus areas for the Response Team:
- Consider all the different ways you can sell to and interact with your customers. If you have to close physical stores or offices, are you set up to keep trading online?
- Show your staff that you care. Let the Response Team take some ownership and present ideas around maintaining employee health, welfare and providing them with the ability to perform their roles.
- Can your accounting team carry out a financial stress test and then look at contingency planning for your business?
- Supply chain monitoring
- Sales, Marketing and Customer Engagement
- Identify leaders in each department and define their roles.
- Provide clear policies and guidelines.
- Monitor what’s happening in as close to real time as possible and update scenarios accordingly. Government guidance is updating hourly at the moment with changes being announced regularly to support packages etc.
- Review sales forecasts and budgets
- Map exposure points with suppliers. Are you over reliant on any one supplier?
- Consider inventory controls and logistics changes.
- Define marketing plans for priority sales areas/opportunities.
- Incentivise customers to be loyal.
- User-centric Design Process
- Monitor Competitors and assess opportunities.
Liquidity & Supply
Apart from a small number of exceptions, most organisations will suffer financially from this pandemic. Some unfortunately, won’t survive. Now is the time to do everything in your power to ensure that you don’t fall into that category.
Focus in terms of liquidity and financial considerations.
- You should look to hold 3-month cash-flow minimum.
- Know your options for extending loans, terms & other short-term obligations.
- Buffer inventory.
- Speak to suppliers and other stakeholders for find out how prepared they are and to renegotiate relations and T&Cs.
These are unprecedented times and the health of you, your employees and then your business, are the key priorities.
