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How Software Companies Can Become More Resilient

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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

Assessment Points

Scoring Criteria

Financial Stability

Ability to improve working capital position

  • Is there cash on hand to sustain business operations?
  • Does the company have the ability to meet debt obligations?
  • Does the company have the ability to improve cash position, if required (e.g. cash conversion cycle, working capital, cut costs, divest assets)?

1 = poor financial health

5 = strong financial health

Employee Risk

Ability to continue regular operations

  • Can the company ensure the health and safety of employees that need to be on-site?
  • Are employees able to work remotely without significant impact to productivity and a continued sense of a team environment?
  • Can flexible staffing models be utilized that can scale up or down quickly (e.g. contractors, part-time, etc.)?
  • Can the company effectively communicate with employees (e.g. townhalls and video conferencing, weekly touchpoints)?
  • Are HR policies able to adapt to the changing environments?

1 = high risk in employee exposure

5 = low risk in employee exposure

Operations Continuity Risk

Ability to continue deliver product or service to customers

  • Can the company deliver solutions to customers as per usual arrangements?
  • Does the company have the ability to rescope or update product offerings, if needed?
  • What contingency plans for “key personnel” exist (e.g. what do you do if a key employee gets sick and is unable to work?)
  • What is the expected response time for customer issues or requests?

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?

  • Can customers adjust their operations effectively (i.e. can they conduct their business remotely or does it have to be on-site)?
  • How will the downturn impact your supply chain partners?
  • Will industry changes result in new opportunities to better service your clients?

1 = pessimistic industry outlook due to the pandemic

5 = positive outlook for the industry

Financial Risk

Financial health indicators

  • Does the company have the ability to remain solvent and cover any debt or other upcoming liabilities?
  • Are there any indications of deferring billing, extension of billing terms, and requests for price discounts?

1 = high financial risk

5 = little to no impact

Relationship

How will the downturn impact customer and supplier relationships?

  • Will conditions create challenges for key clients and business partners?
  • What ability is there to work with customers and business partners (e.g. new payment plans, renewal terms)?

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?

  • Are the solutions mission critical to the customers operations?
  • Can demand for the current offering be improved (e.g. new offerings, channels or partners)?
  • Is there risk of renewal delays and attrition?
  • Is it possible to become more essential in a short period of time?
  • What percentage of your customer’s budget does your product take?

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.