More than 50% of chief financial officers (CFOs) expect a decrease in revenues and/or profits for 2020 of up to 25%, revealed in a recent PWC’s global COVID-19 CFO Pulse document surveying 867 CFO participants from 24 countries/territories.
This anomalous situation has forced CFOs to make varying levels of cuts to expenditures. In its’ survey PWC referenced 60% of CFOs are considering pushing back or canceling planned investments – Capex investments are most likely the course of cuts (83%), operations (53%), and workforce (49%), and only 18% plan to cut R&D. More and more companies are announcing temporary and permanent reductions in staff and investment into R&D. Most likely, the majority of them are the right decisions.
Avoiding The Sunken Cost Trap
Accountants need to steer clear of the sunken cost trap and force their way into the value measurement position. The leadership team steering the ship needs to keep a steady hand looking at the future.
It’s easy to look at the outflows and stay focused on the current strategic plan simply because the organization has invested heavily in that course of action. Instead an organization should be reacting to changing conditions by shifting or pivoting. Each opportunity should be measured against the value it generates currently and moving forward.
A Balanced Approach
At Multiview, we continue to invest in the future; however, pull back on initiatives that weren’t serving us or the future we are building.
It’s a balance of reacting to current circumstances and preparing for the future by making the right decisions.
Harvard Business Review reported in Roaring Out of Recession that:
- Companies that only cut costs heavily during a downturn don’t flourish after it ends.
- Companies that invest more than rivals during a recession don’t thrive after it ends.
- Companies most likely to outperform their competitors after a recession are pragmatic.
These companies recognize that cost-cutting is necessary to survive a recession, that investment is equally essential to spur growth, and that they must manage both at the same time if their companies are to emerge as post-recession leaders.
Why should CFO’s ignore cost? Because costs alone does not tell the full story.
Simply put: If you only look at one side of a double-sided entry, your books won’t balance.
If you’d like to talk to one of our consultants or a CFO that has made one or all of these decisions, please contact us and we’d be more than happy to help.