In: Operations Management
The name of the article is "Nonprofit Financial Planning for COVID-19". The authors are Mahamaya Navlakha and Satyam Vyas.
SUMMARY:
The article basically addresses the situation of funding for on-profit organizations amidst the COVID scenario. It discusses the economic repercussions of the pandemic in the upcoming year. Apart from keeping people safe and sound, the CEOs also need to keep the organization alive where the employees can return to when the situation stabilises. This is possible by injecting adequate money into the business which comes from financing.
Funds may take a downturn or they may be assigned to more vital causes such as healthcare, rehabilitation etc. Thus, the CEOs need to assess the financial health of their organization for a period of atleast next three to nine months. For this, the author recommends a scenario planning exercise while chalking out best and worst case scenarios commencing from April 2020.
Three stages have been defined-Stage 1 for best-case scenario, Stage 2 for average-case scenario and Stage 3 for worst-case scenario. Based on these scenarios, financial plans should be created for each of them. Also, potential risks should be mapped for each case scenario and suitable action plans should be created.
For creating financial model, 4 sheets should be created in Microsoft excel- Grant statements along with timelines (similar to Gantt Chart), expenditure sheet, list of employees with monthly salaries and fourth for variables and assumptons associated with the business.
Next all the 3 scenarios should be detailed based on fixed and variable costs. The best case scenario would involve lockdown continuing till April end. Here fixed costs remain fixed, however productivity of employees goes down by 25%, financers' response slows down by 50% and partial quarantines would be required. The average case scenario would include lockdown extending till May end. Here, the programme will be impacted by 9 weeks, financers' rsponse slows down and the employee productivity decreases by 35%. However, the fixed costs would remain same. The worst case scenario would involve lockdown extending till June end. New financers would not respond to funding requests. The programme is impacted by 13 weeks while the productivity of employees is reduced by 50-60% including layoffs.
The author has also considered 2 funders actions- funders agree to finance as per commitment or they back out from their plans. With these 2 actons and 3 scenarios, 6 situations have been created and for each situation, financial repercussion on the programme as well as recommended action plan is provided.
The three things that author suggests to consider while doing financial planning for the organization are as follows:-
Reexamining people cost would involve measures such as reduction in salary or in the worst case layoffs. But at the same time, it should be kept in mind that people with lowest salaries should be taken care of irrespective of our management plans. They are reliant on the organization for their mere survival.
Non-profit leaders should also think about their guiding principles before making any decision. the author has been guided by following:-
These principles may vary for different CEOs. However, the message remains the same. Financial planning and designing action plan for every possible scenario will help the executives handle the situation in a much convenient manner with self-preparedness and confidence.