How Can Finance Departments Prepare for Another Black Swan Event?

Businesses, whatever their shape or size, crave certainty. Unfortunately, there has been very little of that in recent times, with the world seemingly lurching from one crisis to another.

In the finance world, an extremely negative occurrence that is often difficult to predict is referred to as a black swan event.

Think the 2008 financial crash, Brexit, COVID-19 and Russia’s invasion of Ukraine – these were all unpredictable events which sent shockwaves through financial markets.

They have also had huge knock-on impacts on businesses. Predicting the future is always challenging, but it has become notoriously difficult of late. It’s a reality that is causing headaches for many companies and their finance teams when it comes to planning both the short-term and the long.

Research MHR conducted with senior managers, C-level executives and business owners from firms with between 500 and 5,000 employees in the UK and Ireland revealed that responding quickly to unexpected changes in the market is one of the top challenges organisations face today. Indeed, 85% of those surveyed also said that there are areas that they need to change significantly to increase their level of business resilience.

Being prepared for future black swan events is undoubtedly critical if organisations are to properly futureproof themselves. However, being ready for the unexpected is never straightforward. Fortunately, there are some basic steps that finance teams can take to build greater resilience within their department, and their business, ahead of the next crisis, four of which are outlined below.

  1. Understand what is critical to your business

The first step any business should take is understanding what they simply cannot do without. Finance departments should work together with other teams in the business to understand which third-party relationships are critical to delivering products and services to clients, and ensure there is resilience in these relationships and their associated supply chains. By identifying these mission-critical partnerships, firms can be sure that they can continue to deliver for their clients, no matter what happens in the organisation.

  1. Embrace agile and adaptable financial planning

Becoming agile and adaptable is a term often peddled by technology vendors.

In practice, agility can be defined as the ability to move quickly and easily, which in planning terms means being able to prepare for multiple possible scenarios inside a short timescale of just a few days.

Being adaptable, meanwhile, is about adjusting to new conditions. For finance teams, this means operating with a model that enables organisations to make key decisions quickly to gain a competitive advantage.

Those finance teams which have an agile and adaptable planning process will meet or exceed the expectations of their business and be viewed as key strategic stakeholders by the C-Suite. This could be by implementing rolling forecasts, or even predictive analytics to give more foresight over how a particular scenario might impact the business. Tools like this help businesses adapt quickly should a black swan event occur, and that can have a positive impact on working hours and reduce associated stress levels too.

  1. Collaborate across departments

Finance teams also have the potential to bring other departments together and build better collaboration practices.

By sharing data and insights, departmental needs and concerns, and generating an understanding of how different scenarios impact different parts of the business, scenario planning will become far more comprehensive and relevant. And that will only help the organisation further prepare for uncertain events in the future.

  1. Boost analytics capabilities with new tech

Planning processes can also be improved by incorporating more technology.

Data from a poll MHR conducted in 2020 showed that some 45% of finance departments in the UK were relying on spreadsheets to plan their recovery from the pandemic downturn. What’s more, only three in 10 companies (32%) stated they were ‘very confident’ in the accuracy of their business reporting and modelling.

Those that adopt cloud-based planning analytics software are benefiting from additional speed, flexibility and accuracy, as well as the ability to model multiple detailed scenarios quickly. Such technologies will also help to free up admin time for colleagues, enabling them to focus greater attention on value-added tasks that could help firms better prepare for black swan events in the future.

Building resilience now

If the volatility of the last few years has taught us anything, it is that businesses need to build their resilience sooner rather than later.

Indeed, more than one in three (36%) of companies we surveyed in our business resilience report rate their ability to withstand non-routine events as ‘less than good’.

By adopting some or all of these steps outlined above, finance teams and their organisations can be better prepared for the next black swan event.

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