Effective Crisis Management

Održali smo intervju s Karolinom Kristic, Chancellor i CFO Frankfurt School of Finance & Management, koja će održati predavanje na temu Upravljanja financijama u krizi na

3. Financijskoj konferenciji, 27.10.2021.

1. What are the key elements of effective crisis management?

Don't panic and don't immediately start cutting costs. In my experience, also from previous crises, it is crucial to take some time to assess how the crisis will impact the business’ revenues. Using scenarios to guide decision-making is key. The focus needs to be on how to secure revenues first. Once this is clearer the focus should be on costs. But you can only do so, if you really know your costs structure. Being able to react fast, because of a flexible cost structure is a critical point that is often underestimated, especially in industries that are usually classified as more or less crisis-resistant. The pandemic has proven that all industries can be turned upside-down a lot faster than we think.

2. How do you measure the results achieved by crisis management?

Actually it is quite simple, the decisions led to the expected outcome in the long-run. For example, one decision we as an institution made was not to go for the German short-term work compensation as a stabilizing factor. We wanted our staff to be ready and going when business picked up again. Therefore we used all possibilities from our flex-working hours model to tide those positions over the period required to re-organize the work.

3. What is your view on the priority in revenue management over cost management in a crisis?

I sometimes wonder why this is even a question. In my mind it is quite clear that revenues always come first and in a next step the focus should be on managing resources. Coping with a high level of uncertainty has been „normal“ life for many industries even before the pandemic. That's why it is important to include flexible cost management in every risk management concept. Those concepts need to be developed in good times, so that they are ready when they are needed. In our case it helped to know how flexible our costs are and how fast we could cut costs if necessary. This simply gave us enough time to focus on our revenues. It also prevented us from losing resources that are crucial to us when business picks up again.  

4.Can you list the main activities in managing costs during a crisis?

We focused on costs that are critical to stabilize revenues. Investments and budgets that are less critical were delayed until there was a better understanding on the impact the crisis would have.
We allowed for overcapacities to speed up some investments. This turned out to be really valuable in retrospect. It is also something most CFO's are very uncomfortable with, as most costs are only measured one-dimensional. But sometimes these overcapacities/overspending help mitigate other investments and therefore make perfect sense.  
Many of our supplier contracts already included clauses that enabled quick costs reductions if needed. This was an important factor as we didn't have to pay for obsolete services especially during the lockdown.
One critical factor is personnel costs. Our business is very labour intensive. Many years ago we developed a flexible personnel cost structure as part of our risk management approach. Reducing personnel costs, especially in Germany is complicated, but with our structure we are able to cut up to 15% short term. When the pandemic started, we developed several revenue scenarios and aligned potential personnel cuts accordingly. Fortunately we never had to implement any of those cuts.

5. In what way do you think the approaches to cost management will develop in the future?

The level on uncertainty will remain high. CFO's need to focus on risk management in a more broader way than just numbers. Also important, agility, constant updates of risk factors and quick decision-making cycles. Costs management in general has to be aligned accordingly.

6. What are the most important lessons you learned in the Covid-19 crisis?

There is no such thing as a safe industry. Fast change and a high level of flexibility is already the new normal, also in slower changing industries like higher education.

Ako želite saznati više o Upravljanju financijama u krizi, pridružite nam se na 3. Financijskoj konferenciji 27.10.2021. godine.