Some organizations with material interests in the regions impacted by the Russian invasion of Ukraine will experience extreme cash-flow challenges, and CIOs need to act quickly to help protect their organization from financial distress.
Organizations with material operations and/or revenue generated in the regions impacted by the Russian invasion of Ukraine will experience disruption and severe cash-flow challenges.
Some are already experiencing these challenges, while others may wish to plan for future disruption if the invasion impacts wider parts of the region.
Survival, not growth, will be the priority for executives in these areas. Survival will depend on maintaining cash flows and income, while continuing to be innovative with technology in unaffected parts of the business.
The prevailing conditions will result in unexpected and unplanned spending implications, driven by disruptions that force new ways of operating without new revenue streams to pay for them.
As CIOs seeking to mitigate cash-flow challenges through IT cost and risk management, you should:
Quarantine your cash flow by assessing risk, cost and value in your decision making. Cash flow must be protected by whatever means you have at your disposal.
Define your new spend levels by identifying what you need and how much you can afford to pay for it in this harsh new economic reality.
Reduce strains on current cash flow by proactively canceling projects, eliminating services and reducing service levels. In addition, release unnecessary personnel and renegotiate all business demands.
Anticipate spend increases in essential areas to ensure business continuity, while eliminating — or at least freezing — all nonessential spending.
The Russian invasion of Ukraine is a tectonic disturbance that has immediate consequences for people in the region and beyond. First and foremost, this event affects people’s lives, and many will suffer pain and loss as it develops; this at a time when pain and loss have already become hallmarks of the COVID-19 pandemic. Our responsibility as leaders is to ensure the safety and well-being of our employees. Only then can we address the range of business issues, including those addressed in this guidance, that we will face in the weeks and months ahead.
Crises are bound to arise, and organizations should be prepared for them. This guidance was adapted from that which we issued in early 2020, when COVID-19 lockdowns were altering operations and economies, and severely impacting revenue streams and markets globally. This guidance applies equally to those materially impacted by the Russian invasion of Ukraine and other crises you will inevitably face in your career.
As the Russian invasion of Ukraine continues, the financial and business implications are being felt by all organizations with material operations and/or revenue generation in the affected regions. As uncertainty grows with regard to the scope and duration of the disruption, it is inevitable that financial pressures will increase. Enterprises that fail to act may not survive this disruption, or may see their subsequent recovery delayed. This is not a cost or value optimization discussion. This is a matter of survival through careful management of commercial risk considerations in your decision making.
Key to enterprise survival is ensuring the ongoing cash flow of the organization. With that in mind, take the actions shown in Figure 1 in order to protect or quarantine your cash flow.
Immediately establish what aspects of your current spend can be deferred, eliminated or altered (e.g., payment terms). Review all external spend for third parties/vendors and address your spending across all categories and types. Focus your attention on spend that is not yet incurred or committed, or is nonessential/discretionary and variable in nature.
Identify key vendor payments that are approaching. First, ensure that payments are not being made before they are due. Next, approach vendors and seek changes and delays in payment, either in terms of reduced rates, plans for repayment or deferral until a later date (see ).
In protecting your cash flow, consider:
Start with a blank sheet of paper and work with the business to reprioritize requirements and set spending levels that the organization can afford. Classify the spend and actions into the following groupings.
Can/Must: Identify vendor/supplier agreements and payments that can, and therefore must, be ceased, deferred or delayed. Be wary of “buy now, pay later” deals that you may not be able to afford in the future.
Could/Should: Identify vendor/supplier agreements and payments that could be ceased, deferred or delayed. For these, identify the specific spend reduction actions and the associated risk mitigation steps that will be required to execute them.
Can’t/Don’t: Identify payments and vendor/supplier agreements that should not be ceased, deferred or delayed due to their importance to the business. Actively monitor the performance and financial viability of these vendors and consider contingency plans for those deemed to be at risk.
Across all these groupings, include vendor impact considerations in this assessment — what happens if the vendor fails to perform or terminates services? Can they survive constraints on their cash flow? This will be particularly relevant for smaller and more heavily geared vendors.
Immediately review all projects that are already in flight. Break these down into two categories:
Category 2 projects should be further assessed to determine what aspects can be immediately reduced. Where possible, take the following steps:
Reduce the current project scope. Maintain the “must-have” capabilities immediately, and address the “nice-to-have” ones later.
Review all projects for scope creep and reduce back to the original scope and business case.
Migrate fewer users to new software products, or do so over a longer period. Reduce or defer costs.
Deliver fewer features in software development projects.
Renegotiate payments away from time and materials to milestones or a success-based model.
Defer or cancel all uncommenced spend on projects, staffing, assets or upgrades. Release any retained third-party resources, service or infrastructure expenses related to these. Defer any and all future or planned expenditure.
Beyond tackling the largely discretionary project portfolio, it is also important to address the current service portfolio. Here, you should identify opportunities to:
Provide a lower service level — for example, help/service desk or end-user support
Reduce hours of service to core business hours
Reduce the number of software applications available to users
Inspect your current consumption and spend levels on all variable operating expenses, such as infrastructure as a service (IaaS), platform as a service (PaaS), software as a service (SaaS), voice and data communications. On a service-by-service basis, either completely eliminate or take control actions to reduce enterprisewide consumption levels by restricting or managing supply and renegotiating contract terms as necessary.
Identify the required level of savings/cost reductions from personnel or headcount reductions. As described in , it is critical here to ensure that personnel reductions are conducted carefully and only once, if possible. Ensure that reductions are appropriate to meet needs and, where possible, do not need to be repeated. Divide personnel into two categories:
CIOs should work with their CFOs to investigate whether government or industry financial assistance is available at the federal, state and local level. Different types and levels of assistance may be provided and offered in affected geographies, and can change rapidly.
Work with business leaders to decide on key changes to operations.Negotiate with the business to terminate services or applications, and encourage business users to use less, or work in a different way, so as to reduce the variable operating costs, and potentially even the fixed costs, of the business.
When reducing consumption, it is key to ensure that core business revenue and outcomes are protected as far as possible, ensuring that actions do not damage ongoing revenue and cash flow.
As we learned during the COVID-19 pandemic, as working arrangements change and remote working increases, CIOs must anticipate and plan for any spend shifts and increases that will take place (see Figure 2).
Many organizations and industries that are largely office-based use desktops and fixed office networks and infrastructures. The widespread shift to remote, largely home-based working is affecting, and will continue to affect, all organizations. Some key questions you should be asking are:
How do you obtain and fund laptops, monitors, mobile devices and other equipment? What will be the impact of this on operating expenditures (OPEX) and capital expenditures (CAPEX)?
What are the increased software, VPN and hardware costs?
What will happen to variable or consumption-based communications costs — both voice and data?
What impacts will there be on security — both in terms of elevated or actual risks, and the costs of prevention?
CIOs must anticipate and plan for increased costs, which in many organizations will be felt in the IT budget. CIOs need to communicate this to business leaders and CFOs to ensure that the costs can be met, and so that they do not appear irresponsible in managing their budget during these times.
CIOs and their teams must proactively identify what can and should be reduced, and how. If offices or work locations are partially or completed vacated, can enterprise-/office-based utilities, communications/access, infrastructure and services be suspended or deferred? CIOs should carefully consider their cost base and cost categories to anticipate both increases and possible decrease, as well as determining related actions to be taken.
The impulse to make rash decisions in the face of a crisis must be tempered with consideration of reprioritization, divestment and even investment. Even though decisions must be made quickly, a pragmatic assessment of organizational dependencies (risks) such as technology, workforce and service providers can create valuable insight to support success during and after the crisis.
While leadership will be forced to choose winners (preserve/invest) and losers (cut/divest) across every aspect of organizational operations, processes and goals, they should take care to make informed decisions that do not needlessly mortgage the future.
In this environment, the priority for CIOs is to identify the risks that are inherent in the decisions they have taken. They can then actively work on mitigating those risks, while also doing all they can to achieve their primary goal of cash-flow protection.
The Gartner risk, value and cost (RVC) optimization model helps to establish credibility and defensibility that an organization is doing the right things, whether achieving success or experiencing failure (see Figure 3). Risk-optimized decisions support credibility and defensibility under both conditions (see ).
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