Short-term challenges for companies facing contingencies

The start of 2020 made clear that we cannot be sure what the next three months will look like. That situation hit most companies hard, forcing them to rethink plans and actions — in some cases to drive recovery, in others simply to survive. The focus must be on how the first effects of a contingency are handled: radical changes in demand and supply that can mean serious losses if not managed properly.

As discussed in “7 advantages of mathematical models”, models help in emergencies. Every organization faces its own challenges, but for many the main concern is recovering liquidity, which demands careful analysis of financial flows. These are the challenges every company should consider:

• Market behavior: in radically changing circumstances, forecasting from historical data is a terrible idea; watch the market permanently and anticipate its behavior by considering what is happening elsewhere.
• Input price monitoring: suppliers are also going through radical changes; care for the relationship and consider renegotiations or other agreements.
• Operating cost analysis: constantly re-evaluate cost estimates, taking into account what your team is experiencing.
• Redefining non-essential expenses: in an economic contraction, no non-essential expense can be sustained.
• Strict working-capital discipline: tight control of financial flows, receivables, and working capital management.
• Financial risk evaluation: understand your cash-flow mechanics and options, including short-term capital requirements.
• Preserving loyalty and permanence: keep constant contact with clients, suppliers, contractors, and partners; if commitments must be missed, open communication matters most.

Models to respond fast

It is essential to run this kind of analysis quickly and efficiently in pursuit of recovery. Every business model will need to be redefined, and short-term response capacity has a direct impact on the odds of recovering. That organizational capacity demands analytical technologies, mathematical models, and optimization algorithms, whose design forces the organization to know its capabilities well and define its criteria clearly.

Companies large and small will need analytical technology as an ally: a strength for competing in an ever more complex, dynamic, and demanding world. Nobody should come out of a crisis without having learned lessons that will serve in future contingencies.