Pre-COVID financial models may no longer apply. Be it zero-based budgeting or just being operationally cautious, there is good reason to believe creating a more agile fixed cost environment may be prudent.
- Revenue Forecasts Remain Uncertain
- Benefits: Agility, Offsetting Fixed to Variable Expenses, Minimal Disruptions
- Downside: Adaption of Hybridized Day-to-Day Management Structures
- Leveraging Lessons Learned: As the Economy Takes its Turns, Maintaining Agility is Critical
Revenue Forecasts Remain Uncertain
Pre-COVID financial models may no longer apply. Be it zero-based budgeting or just being operationally cautious, there is good reason to believe creating a more agile fixed cost environment may be prudent. One historic method is outsourcing. The critical questions to consider: 1) Which Functions?, 2) For How Long? and 3) Defining the Cost-Benefit?
As you develop a plan of attack to reimagine your operating model, you must prioritize which functions remain core to the business and which functions could truly be out-of-office. These will vary by industry, expertise, product or service offering, etc. That said, it is almost certain that there are functions that can be outsourced; the question then becomes why?
For How Long?
How long until COVID, or the lasting effects of COVID, are over? What about the next possible disruption, should there be one? Prudence would dictate that the underlying lesson of this crisis is not dealing with COVID but preparing for disruptions of many kinds going forward. Risk assessments, disaster recovery plans and changes to operating models should determine the duration of such outsourcing.
Defining the Cost-Benefits?
Step 1: Model the financial options, risk impacts, and associated qualitative upside/downsides related to each outsourced scenario.
Step 2: Overlay this financial model and assessment on top of a revised agile operating model. If from a financial, risk, or management perspective, it starts to make sense, there may be merit to pursuing further.