How Software Companies Can Become More Resilient
Around the world, companies are facing incredibly turbulent times. During this unprecedented situation, organizations are working hard to minimize the impact to their clients, their team and their business. Regardless of their causes, downturns are often inevitable and can be managed. Planning for turbulent times and being able to respond quickly are keys to becoming resilient.
How can you better assess a company’s risk and true resilience? We recommend a Risk Assessment Framework that centers on two broad categories: Core Business Fundamentals and Client Data.
Business Fundamentals Assessment
The Core Business Fundamentals Assessment is meant to identify any internal risks that the leadership team needs to proactively address and take action. We believe that companies that carefully assess these factors and make the necessary actions can become more resilient regardless of macroeconomic conditions.
Factor
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Assessment Points
|
Scoring Criteria
|
---|---|---|
Financial Stability
|
Ability to improve working capital position
|
1 = poor financial health 5 = strong financial health
|
Employee Risk
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Ability to continue regular operations
|
1 = high risk in employee exposure 5 = low risk in employee exposure
|
Operations Continuity Risk
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Ability to continue deliver product or service to customers
|
1 = high risk in operations continuity 5 = low risk in operations continuity
|
Customer Assessment:
While these factors may be outside of your control, assessing your client can provide insights into revenue risks. Moreover, companies gain insight into how they can best support their clients during what may be a difficult time for them, as well. If done successfully, companies can greatly strengthen their client relationships.
Factor
|
Assessment Points
|
Scoring Criteria
|
---|---|---|
Industry
|
How will the downturn impact your industry?
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1 = pessimistic industry outlook due to the pandemic 5 = positive outlook for the industry
|
Financial Risk
|
Financial health indicators
|
1 = high financial risk 5 = little to no impact
|
Relationship
|
How will the downturn impact customer and supplier relationships?
|
1 = high relationship risk 5 = little to no impact
|
Core Offering
|
Do you expect demand for your core offering (software/professional services) to be resilient?
|
1 = high demand risk 5 = little to no demand risk
|
Scenario Plan Development
Leveraging the information gained from the Risk Assessment Framework can help companies with scenario planning and to identify action plans to prepare in advance. Businesses can stress test their P&L and Cash Flow Statements based on the assessment. Leveraging the data can position the business unit to better project revenues for various scenarios and identify potential financial issues. If any evident issues present themselves, business can proactively look to mitigate those through efficient cash management (eg. advanced billing, negotiating payables, etc.), or other measures.
Talk openly and often with your clients to make sure you’ve accurately assessed the client risk data contained in your scenarios. Work closely with your clients to identify how you can help them in the near term, but also have an eye towards how their business needs may change over time. Give consideration to how you might be able to adapt to better serve their current or future needs. Remember, opportunity often times grows from the roots of adversity.
Conclusion
Being proactive is key. By better understanding the potential impact on your business as well as your clients, you can manage the situation effectively rather than react to it. It’s equally important to note that the framework is only as good as the information it contains. As we’ve seen recently, information continuously evolves, and so too must your scenarios.