Making tough choices in the coronavirus crisis

Making tough choices in the coronavirus crisis

Management accountants are grappling with difficult judgements arising from the coronavirus pandemic, which has caused economic dislocation comparable to the financial crisis from 2007 to 2009.

The specific challenges may include helping to ensure the cash needed for survival is available, updating plans with massive uncertainty, adjusting information and monitoring needs, running the finance function (maybe with sick colleagues), acting as an authority, and contributing as a member of the management team. Circumstances may be unfamiliar, and the data being used may be poor.

Professional judgement, the combination of relevant experience and knowledge to take decisions and form opinions, is crucial to make the tough choices. The article “6 Elements of Professional Judgement,” FM magazine, December 2019, set out how to improve it.

Here are the six elements of professional judgement applied to the coronavirus pandemic:

What you take in

Learning will be more difficult when anxiety means filtering what is said and heard. The professionalism of management accountants will also be tested in awareness of the shifts in circumstances and mood. For example, in planning for the post-pandemic world, they need to be ready to judge when to revise timescales.

Whom and what to trust

The role of management accountants is an authoritative one, and trust needs to be safeguarded. With much dubious data and poor evidence, great care is needed on the quality of what is issued. Beware useless speculation, unsubstantiated facts, and tempting but risky analogies.

The information flow will certainly need to be reviewed. Some information will now be unnecessary, some new information will be needed, and the timescale will shorten for key elements. Use the opportunity to get rid of redundant pre-crisis information.

What you know about this

Even for those few not directly affected, there are tertiary effects such as colleagues who are sick or having to cope with childcare duties.

But with every day we know not only about direct but also secondary effects, such as disrupted supply chains and the reactions of competitors and customers. Management accountants need to push themselves along the coronavirus timelines. Find countries ahead of yours. Find other people and organisations with similar issues. They may not necessarily be in the same field, but many finance issues cross national and industry boundaries.

Management accountants play a key role in making sure the senior management group understands the situation and its implications, and can then communicate it clearly to others. Make the assumptions clear. With so many uncertain factors, colleagues need to know.

One of the side-effects of the crisis is the need to review computer models. Programmes are generally based on training data that reflects “normality”. But this is not a normal time. A review is essential to ensure that models are still appropriate.

It may be that a business is in one of the few sectors — say general food retailing or market research — that has not been directly disrupted. Even here, there will be knock-on effects from changed purchasing and working patterns. It is very unlikely that previous plans can be maintained.

How you feel about this

Faced with the crisis, optimists will look for silver linings, pessimists will be gloomy. These feelings will affect choices, starting with risk appetite or tolerance. This is another set of assumptions that needs to be explicit. As ever, there will be biases affecting judgement, heightened by the crisis, such as confirmation bias — preferring the information that we agree with, ignoring what we don’t — or group think. In a discussion, make sure biases are on the table. Management accountants will need to ensure their own biases don’t compromise their credibility.

How you choose

The time has come to choose. For survival, choices will be limited. Zero-based budgeting is seen in normal times as unrealistically cumbersome, but it may be the only way to plan for a business fighting for survival or with a market fundamentally changed.

The 2020 budget was signed off in November or December — a different world. There are probably new objectives that frame priorities. In framing new plans, trade-offs between cost, speed, and risk need to be clear, and missing evidence needs to be identified.

One approach for riding out the storm is to have plans with graded timescales — a day, a week, a month, with the detail decreasing as timescales lengthen. The plans could include ranges with midpoints for cash and volume, rather than a single point projection. Or there could be rolling forecasts, say for weeks or months.

As the foundations of the assumptions become stronger in the light of knowledge about the economic and social effects of the virus, the planning horizon can lengthen. Updating plans for the longer term should not start too early, since the assumptions will soon be dated.

Responding to the crisis, decision-taking may be brought into the centre, affecting the control framework. Performance measures need to reflect changing objectives as well as timescales, with knock-on effects for remuneration and controls. New controls will be needed to bridge the gap. Again, management accountants must be ahead of the game.

How you implement it

As in our private lives in this crisis, it’s no use choosing to buy something that is unavailable. Just so, we can’t plan easily for a workforce in quarantine or refusing to work on health grounds. Management accountants will need to provide the necessary authority and judgement for realism in plans, including, once the crisis is over, in the timing of the return to normal. Meanwhile, with significant effects of the crisis on audit, keep close contact with the auditors on developments.

Management accountants operate in many different countries, industries, and levels. What unites them is a common professionalism in providing the best possible chance for their organisations to weather the crisis and emerge ready to take on the new challenges of the post-pandemic world.

For more news and reporting on the coronavirus and how management accountants can handle challenges related to the outbreak, visit FM’s coronavirus resources page.

Sir Andrew Likierman, FCMA, CGMA, is professor of management practice at, and the former dean of, the London Business School. He is a past president of CIMA, was head of the UK Government Accountancy Service, and was a director of the Bank of England. To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, an FM magazine senior editor, at