When the “worst case scenario” becomes the norm
11 Dec 08
As retail becomes the next sector to face the crunch, business plans for all companies need to be tested against the worst possible outcomes.
The fall of Wall Street giants like Lehman Brothers certainly sent shocks around the world, but the depth of the economic crisis really hits when the end comes for names you thought would be around forever. Woolworth’s has been a fixture of the High Street for as long as any of us can remember – over a century – and the announcement this week that its closing down sale is officially under way is more than just a sign of a tough business climate. It’s a sad day, even for those of us who have not passed through its doors too often in the last few years.
It also brings home one of the points made at the ICAS/PricewaterhouseCoopers Corporate Governance Panel, which Anton Colella refers to in his recent blog. Boards routinely test their company’s business plan and assumptions against likely adverse scenarios to see how robust they are. The thing is, what might have seemed an unlikely, extreme set of hypotheticals against which to test the plan is now looking all too likely.
Any plans drawn up and “stress tested” earlier this year are going to have to be gone through again and analysed from a very pessimistic angle. Hopefully, for your business, the worst won’t happen. But directors will sleep easier knowing they have at least figured out how they will deal with it, if it does happen.