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Professional judgment: 5 ways finance can help in a crisis

By Professor Sir Andrew Likierman FCMA, CGMA is a Past President of CIMA and Professor of Management Practice at the London Business School, of which he was Dean 2009-17

Finance leaders are used to making difficult decisions, but the coronavirus pandemic has significantly raised the stakes. Finance carries a large responsibility to provide the authoritative guidance to steer their colleagues safely through this crisis.

During these uncertain times, it’s critical to demonstrate professional judgment — the ability to combine personal skills with relevant knowledge, experience and professional standards to form opinions and take decisions. On the free webcast Professional Judgment in Volatile and Uncertain Times (CIMA members register here and AICPA members register here), I offer some best practices and tips to guide you and your teams.

As you help your organisation navigate the financial impacts of this pandemic, here are five areas where you can apply professional judgment:

Problem-solving

Your organisation relies on your judgment, which means you need to be aware of all the issues it’s facing, not just the financial ones. One best practice is to see how other organisations are tackling similar problems, both within and outside your sector. Think creatively about solutions. Make sure you identify and mitigate your personal feelings and biases as much as possible. This will prepare you to exercise your judgment in discussions with finance leaders and other stakeholders. You’ll also need to be ready to contribute to the discussion of how to return to more normal times.

Creating new plans

Planning in this uncertain environment should start with an identification of the organisation’s risk appetite or tolerance. This is essential for managing survival-related issues. Professional judgment is also necessary when considering the 2020 budget, which may need to be amended or even scrapped. There might also be new objectives that need to be reflected in the plans, probably on a shorter timescale.  Your plans should also consider indirect effects, such as disrupted supply chains and the effects of home working.

Adjusting existing plans

It’s unlikely that new plans can be detailed for the rest of 2020. The timing of lockdowns, the shape of a recovery and the indirect effects provide too many uncertainties. To apply judgment, you need to consider not just shorter timescales but possibly rolling forecasts. Look at ranges of outcomes as well as the usual midpoints. Make the assumptions explicit, including how costs differ from the average — the relative price effect. Look at computer models to check that assumptions are still valid. 

Monitoring and controlling

Professional judgment is also needed to review your organisation’s monitoring and control information to make sure it’s appropriate for the new circumstances of the pandemic. Some information will no longer be useful; other information may need to have different timescales. If controls are tightened to ensure closer supervision at a time of vulnerability, you’ll need to make certain this is reflected in the management control information. Performance measures may also need to be altered to reflect new objectives. If so, the information flow will need to reflect the new measures.

Leading the finance function

Finance plays an important role in offering professional judgment to support the CEO and senior management in explaining and navigating the financial implications of the COVID-19 crisis. This includes judgement on any forthcoming audit activity, which is likely to be unusual in 2020 due to the forecasting uncertainties of this pandemic. In the same way, the finance function should be the recognised source of information. Areas where information may be required include emergency legislation, external regulation, internal contracts and arrangements such as outsourcing.

Resources to guide you

To learn more about exercising judgment amid the COVID-19 crisis, explore the AICPA Coronavirus Resource Center, the CIMA Coronavirus Resource Center and the following resources: