Managing operations during crisis

Ever since the financial crisis started to spread around the world, organisations heavily focused on business efficiency – reducing costs, improving operations and making the best use of assets.

Nowadays, of a more stringent nature than before, many companies realised that they should know how their costs compare to other companies on the market, how operations could maintain efficiency and what opportunities there are to maintain profit.

Here are a few tips on how companies could manage operations during crisis:

  • Assess the pros and cons for your business and consider outsourcing if this lets you focus on your core business efficiency;
  • Reduce costs through the use of shared service centres;
  • Eliminate the activities that do not add value to company business;
  • Optimise the supply chain (if applicable) to reduce the procurement cost as well as the cost of supply to customers;
  • Analyse the benefits and risks of your optimizing decisions, in both internal processes and external relationships with customers and suppliers.

If you haven’t done it already within your own company culture, now is the perfect time for organisational redesign and working capital reduction. Moreover, as a „lesson learned”, consider maintaining a culture of continuous cost containment, even after the financial crises fades away, rather than damaging the business through periodic cost-cutting intercession.

As a result of the actions above, you may gain a clear picture of your company’s cost drivers and address cost efficient and sustainable improvements. Your focus on people and cultural issues, as well as on processes, structures and technology, could ensure that performance is managed during crisis.

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Profit and liquidity management

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The collapse of Northern Rock proves that profitability is no defence against liquidity risk: the company made profits in the quarter before it disappeared. Following a significant fall in market liquidity, Northern Rock was unable to meet its payment obligations.

Only a few voices raised liquidity risk issues until now and, even if the regulators did monitor banks’ liquidity management, they rarely raised serious challenges. During this financial crisis, risks tended to repeatedly transform from one type to another and companies face the challenge of placing greater emphasis on developing an integrated view of risk management across all types of risk.

The new economic perspectives bring significant challenges: while funding can still be found, it is only available for short periods and at high costs. Therefore, this is a good time for any company to perform a liquidity stress test such as the following 3 steps approach:

    1) Identify liquidity risk drivers:

  • erosion in value of liquid assets,
  • additional collateral requirements,
  • evaporation of funding,
  • withdrawal of deposits (if the case);
    2) Design stress scenarios (and probabilities):

  • emerging markets crisis,
  • systemic shock in main centres of business,
  • market risk,
  • operational risk,
  • ratings downgrade,
  • country / industry specific scenarios;
    3) Model stress tests:

  • quantify liquidity outflows in all scenarios for each risk driver,
  • identify cash inflows to mitigate liquidity shortfalls identified,
  • determine net liquidity position under each scenario.

Times of crisis are perfect opportunities to refocus on fundamentals: you can show that you truly understand your businesses and its potential risks with an integrated risk management perspective.

Intelligent Benchmarking

“Intelligent Benchmarking” is an article I wrote for the “Business Week” Journal in February 2009. The article provides some tips & tricks on how to perform a successful benchmarking process namely:

  • correctly identify your necessities,
  • explore the hidden parts of statistics,
  • identify the optimum benchmarking frequency,
  • heal yourself from the “we can’t do it” syndrome,
  • involve your people within the process.

You may find below a PDF copy (Romanian version only):
“Intelligent Benchmarking,” Business Week Journal No.122, McGraw-Hill Publishing, Bucharest, 24 February 2009

PwC’s 2009 Global CEO Survey

CEOs around the world are retrenching, indeed many claim to be entering “survival mode.” PwC’s 12th Annual Global CEO survey shows how the financial crisis shattered short-term confidence.

The percentage of CEOs who were ‘very confident’ about their one-year revenue growth prospects dropped to 21%, the lowest level in six years. Uncertainty about the future is still running high and confidence no doubt continued to deteriorate after PwC completed the survey in early December.

You may compare yourself to the CEOs in this issue or download the most relevant nuggets of Survey data by industry, country or business issue from:
http://www.pwc.com/ceosurvey/

The impact of Sarbanes-Oxley Act on Romanian companies

“The impact of Sarbanes-Oxley Act on Romanian companies” is an article written for the “Financial Audit” Journal in July 2008. The article evaluates the benefits of the Sarbanes-Oxley Act for shareholders by studying the lobbying behaviour of investors and corporate insiders to affect the final implemented rules under the Act.

All over the world, regulatory pressures have overshadowed the risk management function for the past few years and we may see a high impact on Romanian companies as well. SOX compliance brings high regulation costs as well as competitive benefits such as improved ability to prevent, quickly detect, correct, and escalate critical risk issues, reduced cost of risk management by improved sharing of risk information and integration of existing risk management functions.

However, SOX compliance not only refers to financial side of corporations, but also to the IT departments considering the corporations’ electronic records and access rights. The lack of controls over spreadsheets has been a contributing factor in financial reporting errors at a number of companies. In this article, you may find examples to highlight the importance of understanding how spreadsheets are used in a company’s financial reporting process and evaluating the controls over spreadsheets as part of the company’s overall Section 404 process.

You may find bellow a PDF copy of the article (Romanian version with English abstract):
“The Impact of Sarbanes-Oxley Act on Romanian companies,” Financial Audit Magazine No.7(43), Chamber of Financial Auditors of Romania, Bucharest, July 2008, 12-18

Prolegomena

As you came to the “Business Management” weblog, I would like to wish you a warm welcome and a worthful spend of your time.

This web space is a result of my business management experience and I intend to comprise opinions on various business issues as well as some abstracts of my published work.

May you enjoy the lecture and please let me know of your thoughts, if you feel like sharing them to me and / or this weblog’s readers.

Thank you,
Liviu Mihaileanu

Authored by Liviu Mihaileanu

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