Question

Accounting and Finance

Critique the budgetary process used in your company. Special mention would be given on how your company handled their budgets during the Covid-19 pandemic.

2000 words

Answer 1

Hi there,

Here is my explanation tobthe situation asked.

As the coronavirus outbreak continues to spread and create further uncertainty, it’s imperative that chief marketing officers (CMOs) and marketing leaders take immediate action to manage coronavirus-related risks and implement a cost optimization plan. This plan must take into account the variable impacts the COVID-19 crisis will have on marketing budgets. In fact, 65% of CMOs and marketing leaders report they are already bracing for moderate to significant budget cuts due to coronavirus-related disruption.

“Marketing organizations are ill-prepared for COVID-19’s impact on the global economy and consumer sentiment, and this crisis will only exacerbate the budget strain we saw developing in 2019,” says Ewan McIntyre, Vice President Analyst, Gartner for Marketers. “We expect COVID-19 will mark the inflection point in which marketing budgets begin to significantly decline. It is critical that marketing leaders take action now to help mitigate the inevitable risks to those budgets.”

Prior to the coronavirus outbreak, the Gartner 2019-2020 CMO Spend Survey found 86% of CMOs reported that future economic and business climates would have positive effects on their organizations’ ability to meet performance goals, and 61% felt marketing budgets would increase in 2020.

While the COVID-19 pandemic was unanticipated, it reveals a glimpse of where marketing budgets will be cut. Much as we have seen in news headlines already, CMOs in North America and the U.K. report they will look to make cuts in TV advertising (32%), offline advertising (32%) and event marketing (28%) to keep their organization’s marketing strategy on track.

CMOs and marketing leaders can take these immediate actions to alleviate the near-term and future impacts of the COVID-19 outbreak on marketing budgets.

Assemble a tiger team

CMOs and marketing leaders should create a tiger team (a specialized, focused team) responsible for formulating, socializing and adapting a cost optimization strategy. This team must be able to flex to the shifting demands and impacts that COVID-19 will place on global organizations as the situation continues to evolve. They must empower the tiger team to make near-term, strategic decisions that position the organization for long-term success.

To do this, the tiger team must have the necessary data to review potential impacts on a wide range of costs including those incurred through COVID-19 communications, challenges as a result of reduced revenue and changing consumer behaviors.

Build adaptable scenarios and rapid reviews

Respond to the impact COVID-19 is having on marketing budgets through swift and decisive action. CMOs must build adaptable budget scenarios and conduct rapid reviews of how the pandemic may impact their marketing functions in the near term. This should be done while still keeping long-term marketing and enterprise goals top of mind.

Because there are no existing playbooks with canned strategic responses for a global event of this kind, marketers must be prepared to make near-term cost corrections. CMOs should appraise cost optimization objectives by conducting a rapid review with their tiger teams using adaptable budget scenarios that trigger decisions and action.

The effects of COVID-19 will continue to impact organizations around the globe throughout the remainder of the year and into 2021. By taking these immediate actions, CMOs can better ensure their organizations remain nimble and adaptable in the face of further uncertainties.

Using budget forecasting to recast plan after COVID-19:

Given the recent onset of the COVID-19 virus, financial institutions are struggling with myriad items that will impact their already approved budgets for 2020.

What will the impact on my salary and benefit costs be if I have to pay extra for those on the front line or worse yet, furlough employees?  We want to defer our consumer loan payments for three months, and we can’t process the lockbox every day because of staffing issues — what impact will that have on my investable cash flow? Down the road, if the recession is deep and long, what impact will current low interest rates, loan modifications, past due customers, nonaccrual loans and deposit withdrawals because of customer cash needs have on my financial statements and, even more so, on my capital?

The budget you started this year with will not tell you those answers.  Most budgets, once approved, don’t change.

Forecasting is also a great tool during rapidly changing times such as these. It is much more hands-on,  changes your mindset to a forward-thinking approach and it provides you, your senior management team and your board with relevant, up-to-date information to manage your business.

Steps in forecasting :

The important steps in forecasting include the following:

• Lower the level of detail. Sometimes having too much detail just slows down the process unless you have a very robust model.
• Forecast only what you can see. Right now, many of your loan customers are preparing cash flows weekly. Where your financial institution is may determine the time frame you should forecast. Has your state been put under a “shelter at home” order for two weeks or two months?
• Expect the unexpected. Enterprise risk management dictates that we understand our current risks so we can nimbly respond to the unknown risks. Many of us expected that cybersecurity threats would be more likely than our current situation. None of us, when we were budgeting, understood the impact the COVID-19 pandemic would have on our lives. Bring together your disaster team and maybe a few board members from your communities to talk about scenarios. You have your contingency funding plan. Look at the scenarios included there and utilize them in your forecasting.
• Use a critical eye when reviewing results. Since we have moved from a static, once-a-year budget to a moving, continuous forecast, be prepared to tweak it and continuously review and modify it as often as necessary.

3 key steps to crisis budgeting during the COVID-19 pandemic ;:

Financial experts propose separating your expenses into needs and wants to make it through these uncertain ating and following a budget can be hard enough when you have the money to cover all your expenses. But the coronavirus pandemic is hitting Canadians hard financially—and reducing the financial repercussions of this crisis will take some careful planning.

Everybody needs a certain amount of financial flexibility. And that includes a dedicated emergency fund.

“Once we’re through this, I think many of us will have learned the hard way how important it is to have funds put aside for an emergency,” says Doretta Thompson, CPA Canada’s financial literacy leader. “That being said, we are facing uncertain times right now, and there are still some things we can do to prepare as well as possible for what life will look like when we emerge from this.”

The difference when you’re creating a budget during a financial crisis is that you don’t have the same income coming in, adds CPA Stan Swartz, president of Infomoney Solutions Inc.

“There’s no top line or the top line is diminished,” he says. “How do we make do between whatever the government is providing or savings we’ve able to utilize.”

Here are a few ways you can prepare a COVID-19 budget to help you make it through the financial crisis.

1) UNDERSTAND YOUR SPENDING HABITS

Knowing where your money goes is a key factor in making your budget work. Particularly in times of crisis, it’s important to take a hard look at what you’ve been spending over the past year.

“You’ve got to look back and see where you were spending your money before you look to see what you can do today,” says Swartz. “Get the credit card statements, get your bank statements and get an idea what you had been spending before all this happened.”

Examining where your money has been going will help you eliminate non-essential spending going forward.

2) SEPARATE THE NEEDS FROM THE WANTS

“We don’t know how long the crisis will last, so it’s crucial to look at what is a necessity and what is just nice to have,” says Thompson. “Now, when staying healthy is job one, it’s important to focus on the essentials: housing, food, medication and utilities. Once those are covered, you can look into what can be put aside to prepare for the immediate future.”

She adds that, if you’re facing loss of income, it’s critical to eliminate all unnecessary spending immediately and even discuss short-term changes to your repayment schedule for existing debt with your lender.

Swartz also prioritizes debt, saying it’s a matter of trying not to increase it.

“So, can you manage it? Have you looked at all the government programs that will help you get through it? Call the credit card companies or call the mortgage company. Take advantage of payment reductions and deferrals.”

He adds that, while it’s tough to do, you’ve got to look around and ask yourself what you can do without.

“If there are two cars in the family, can you get away with just one? If you have been bringing somebody in to clean your home on a regular basis, can you do that yourself now?”

3) TAKE ADVANTAGE OF FREE AND LOW-COST ACTIVITIES

Thompson suggests focusing family time on low- or no-cost activities.

“For those in your bubble, look to ‘old’ ways of being together, such as cooking together and family games nights,” she says. “And, for those we cannot be with physically, use technology to extend togetherness. Schedule regular video chats and shared experiences such as baking or playing music. Most internet providers have removed limits to bandwidth, so take advantage. Or even try things you have wanted to try—dust off those sketch books or that guitar.”

Many cultural institutions are offering free virtual walks, talks, classes and performances. And libraries are still offering online resources. You can also use this time to keep up-to-date professionally, with a variety of free online resources available to help you learn and connect.