Attention managers, now it is time to turn on “survival mode”!

In this article I would like to deal with the impact of the pandemic in the organizations. The idea is to work with important points and actions which will help the process to corporation survival.  

It is based on an experience that I had managing a business company during an economic crisis with a strong impact in the agricultural sectors here in Brazil.

Certainly, very few professionals and/or corporations were prepared to face the current situation. Covid 19 emerged as a low-probability event, but with a very high impact.

The impact of this event on the global economy is not yet known, but based on the forecasts and what we are experiencing, it will be deep. For sure, in medium-term, it will break with the existing pattern of economic, social and market structure.  Of course, the short-term impacts, due to the halt in business activities, must be the management focus.

We do not know how long all this situation will last, but it will be much longer than companies can endure. Some sectors, will grow at this time, but most companies will suffer a negative impact on their business, for some, the impact will be deadly.

Those corporations that have done their homework by implementing effective corporate governance, based on best management practices, will have a greater chance of survival. Those who have not taken the same care, will possibly not survive.

In some lectures I had already commented that linear companies with a traditional organizational structure had little time to change, because the (physical) world was converging quickly and unequivocally into the virtual world, a world that no longer accepts structured hierarchical organizations from traditional way; then the change would be a matter of time. I imagined that they still had about five years to adapt, however, now, with all this happen, this time, in my view, does not exist anymore.

Now, one topic that should be on the agenda of any corporation, be it large, medium or small, is the short-term survival of the business.

The crucial point, at this moment, is not knowing how long this event will last, and how worse it will be. The problem is not being able to see the possible post-pandemic scenarios, thus making it difficult to take actions in order to direct business.

There are many unanswered questions in the air: Will the economic hubs change? Will global supply and logistics structures be maintained? How will the consumer market behave? And what will be the impacts on the workforce?

Organizations will need to answer these questions in order to start thinking about their structure, the organizational and operational architecture for this new world ahead.

But before that, companies must go through this turbulence, and for that now it is time to start the "survival mode".

At this moment nothing is more important than the maintenance and health of the operational cash. In the short and medium term, it is not the lack of profit that breaks a company, but the lack of cash, which is a fact, either you have money or you have no money.

It is interesting how some experiences are remarkable, and now, providing supporting for some companies in directing the “survival mode”, I remembered the year of 1994, when the advent of the Real Plan (Brazilian economic plan which move from hyperinflation for more stable economy), where the companies that worked in the agricultural sector were severely impacted by freezing the price of agricultural commodities, but with no freezing interest on loans and financing for planting, harvesting and mechanization, which cause a great financial mismatch, and disruption of the economic base of this market.

At this time, I was the financial director of a tractor and harvester company in southern Brazil, and we felt this impact head on, without warning, investing in expanding production capacity. It really was an odd experience in my career.

Imagine being idle for about 160 days, with no sales and no production; leveraged in the financial market, strong delay in accounts receivable, three thousand employees on the payroll and negative R$ 180 million (almost US$ 120 million) in cash. My luck, at this moment, was that I had one of the best teams I have ever had in my entire professional life, composed of highly trained and committed professionals.

I believe that this experience was the closest thing to what I imagine the day-to-day life of companies at this time of pandemic.

When I talk about of "Survival Mode" I may make the analogy with a boat sailing in the middle of a rough sea, with more water entering than the pump has the capacity to expel. In this situation decisions must be quick and oriented to maintain the buoyancy of the vessel for as long as possible.

Well, let's get to it, what I am going to share with you are some actions that helped me a lot in 1994, and perhaps it can help your corporations at the present time.

Are they:

1. Create a crisis management committee, composed in a multifunctional way by the board and specialized managers,

2. Unlike 1994, an eminently economic event, this is an event related to health, so it is important to take actions to preserve the health of employees, especially when there are employees in the risk group. Some will work remotely in the home-office, and others in in the office, but in a controlled way.

3. Fast and objective communication is essential, so I suggest creating a daily meeting to discuss the actions that should be taken to protect the cash. As some fronts are open for the execution of specific actions that must be carried out immediately, such as rational cash advance, extension of accounts payable and banking operations, monitoring the performance of future cash and others.

4. Identifying the essential processes to maintain the operation. It is important in order to decide which process or task can be put on stand-by with low business impact. For projects under implementation, some will need to continue, but others should be put on stand-by. If the organization has specialists in internal controls or internal auditors, they are the appropriate professionals to carry out this survey.

5. Identify the existing possibilities for sales continuity, even in smaller volumes, and make it in line with the logistics process.

6. All this information will help the committee to know in advance what can be shut down, without having a strong impact on the continuity of the organization. The objective is to provide data for decision that can be taken to maintain the organization's survival.

7. In some sectors, the workforce has a large weight in the organization's cash flow, and a quick study should be done to create a phased layoff plan to face the cash shortage. In 1994, we decided to reduce wages at all levels, where higher levels had a higher percentage of reduction than lower levels. This plan was approved in a vote by all employees, without support from the works union, which was contrary to this measure.

The more the company manages to prolong its life, the greater will be the opportunity to have a clearer vision of this post-pandemic new world, which will help managers to take more assertive actions in the definition of a structure, aligned to the needs of this new market.

All efforts must be in the direction of taking the organization to the other side of the storm, with the least possible damage and loss.

In the case I reported above, we managed to take the company up until the moment it was sold to the company that owns the brand, and today this company remains one of the most prominent worldwide companies in the sector.

Unlike other crisis, the retraction will be worldwide, and it will impact all consumer markets, which makes this crisis, at least "special".

Today we are seeing a retraction in supply, but sooner we will also see a retraction in demand, a consequence of the closing of small and medium companies, and also due to massive labor layoff.

The estimated global recession in 2020 is 2.1%, however, it is still unknown how far it can go.

In a risk management process, we must work with at least three scenarios, the worst, the best and the balanced. In crisis management, work with the worst to make decisions and actions, as you may have only one chance to act.

I hope, the professionals and corporations may learn the value to have an effective corporate governance in place, with risk management and internal controls in the culture and management awareness.

At the end,

Be happy!

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Atenção gestores, agora é hora de ligar o “modo sobrevivência”!

Neste artigo vou tratar do impacto da pandemia, a qual vivemos, nas organizações, e tecer alguns pontos importantes para a sobrevivência da corporação, baseado em uma experiencia pela qual passei no gerenciamento de uma crise econômica com forte impacto em um dos setores da economia.

Com certeza, pouquíssimos profissionais e/ou corporações estavam preparados para passar pela situação atual. O Covid 19 surgiu como um evento de baixa probabilidade, mas de altíssimo impacto.

O impacto deste evento na economia global ainda não é conhecido, mas com base nos prognósticos e no que estamos vivenciando, ele será profundo, de forma a romper com o padrão existente de estrutura econômica, social e de mercado, além lógico, dos impactos de curto-prazo devido a parada das atividades de negócio.

Não sabemos quanto tempo tudo isto vai durar, mas será por um tempo maior que as empresas podem suportar. Alguns setores, poucos, irão crescer neste momento, mas a maioria das empresas sofrerão um impacto negativo em seus negócios, para algumas, o impacto será mortal.

Aquelas corporações que fizeram sua lição de casa implementando uma efetiva governança corporativa, baseada nas melhores práticas de gestão, terão maior possibilidade de sobrevivência. Já as que não tiveram o mesmo cuidado, possivelmente ficarão pelo caminho.

Em algumas palestras já vinha comentando que as empresas lineares e com estrutura organizacional tradicional, estavam com seus dias contados, pois o mundo (físico) estava convergindo de forma rápida e inequívoca para o mundo virtual, mundo este que não aceita mais organizações hierárquicas estruturadas de forma tradicional; então seria uma questão de tempo. Imaginava que ainda teriam uns cinco anos para se adaptarem, entretanto, agora, com tudo isto, este tempo, ao meu ver, não existe mais.

O ponto agora, e que deve estar na agenda de trabalho de qualquer corporação, seja ela grande, média ou pequena, é a sobrevivência do negócio a curto-prazo.

O ponto crucial, neste momento, é não saber quanto tempo este evento irá durar, e o pior, não conseguir enxergar os possíveis cenários pós-pandemia, dificultando, com isso, ações para o direcionamento dos negócios.

São muitas questões sem resposta: Os polos econômicos se alterarão? As estruturas de suprimentos e de logísticas globais se manterão? Como será o comportamento e atitude do mercado consumidor? E quais são os impactos na força de trabalho?

As organizações precisarão responder estas questões para começar a pensar em sua estrutura, na arquitetura organizacional e operacional para este novo mundo que se avizinha.

Pois bem, mas antes as empresas devem passar por esta turbulência, e agora é hora de ligarem sua operação no “modo sobrevivência”.

Neste momento nada é mais importante do que a manutenção e saúde do caixa operacional. No curto e médio prazo não é a falta de lucro que quebra uma empresa, mas sim a falta de caixa, o qual é um fato, ou você tem dinheiro ou não tem dinheiro.

É interessante como algumas experiências são marcantes, e agora, auxiliando algumas empresas no direcionamento do “modo sobrevivência”, me veio na lembrança, o ano de 1994, quando do advento do Plano Real, onde as empresas que trabalhavam no setor agrícola foram duramente impactadas pelo congelamento do preço das commodities agrícolas, mas sem o congelamento dos juros dos empréstimos e financiamento para o plantio, colheita e mecanização, causando um grande descasamento financeiro, e ruptura da base econômica deste mercado.

Neste momento eu era o diretor financeiro de uma empresa de tratores e colheitadeiras no sul do Brasil, e sentimos este impacto de frente, sem aviso, investindo na ampliação da capacidade produtiva. Realmente foi uma experiencia impar na minha carreira. Imaginem ficar por volta de 160 dias parado, sem vendas e sem produção; alavancado no mercado financeiro, forte atraso no contas a receber, três mil colaboradores na folha e com R$ 180 milhões negativo no caixa. Minha sorte, neste momento, era que contava com uma das melhores equipes que já tive em toda minha vida profissional, composto por profissionais altamente capacitados e comprometidos.

Acredito que esta experiencia foi o ponto mais próximo do que imagino que está sendo o dia-a-dia das empresas neste momento de pandemia.

Quando falo em “Modo Sobrevivência” faço a analogia com um barco navegando no meio de um mar revolto, com água adentrando em maior quantidade que a bomba tem de capacidade de expelir. As decisões devem ser rápidas e orientadas para manter a flutuabilidade da nau por maior tempo possível.

Bom, vamos ao que interessa, o que vou compartilhar são algumas ações que me ajudaram muito em 1994, e que podem ajudar vossas corporações no momento atual.

São elas:

1.     Crie um comitê para a gestão de crise, composto de forma multifuncional pela diretoria e gestores especialistas,

2.     Diferente de 1994, evento eminentemente econômico, este é um evento relacionado com a saúde, então é importante tomar as ações para a preservação da saúde dos colaboradores, principalmente quando existem colaboradores no grupo de riscos. Alguns trabalharão de forma remota em home-office, e outros de forma controlada presencialmente.

3.     Uma comunicação rápida e objetiva é essencial, então sugiro criar uma reunião diária para se discutir as ações que devem ser executadas para a proteção do caixa. Como algumas frentes são abertas para execução de ações pontuais que devem ser executadas imediatamente como antecipação racional de caixa, alongamento do contas a pagar e das operações bancárias, monitoramento do desempenho do caixa futuro e outras.

4.     Identificar os processos imprescindíveis para a manutenção da operação é importante para decisão do que pode ser colocado em stand-by. Isto serve para os projetos em implementação, alguns precisarão continuar outros devem ser colocados em stand-by. Se a organização contar com especialistas em controles internos ou auditores internos, este são os profissionais adequados para realizar este levantamento.

5.     Identificar as possibilidades existentes de continuidade de vendas, mesmo que em volumes menores, alinhando com o processo de logística.

6.     Todas estas informações ajudarão o comitê conhecer antecipadamente o que poderá ser deixado de ser realizado, sem forte impacto na continuidade da organização, para que se possa tomar decisão objetiva para manter a sobrevida da organização.

7.     Em alguns setores a mão de obra tem um peso grande no caixa da organização, e deve ser feito um estudo rápido para criação de um plano de demissão escalonada ao enfrentamento da falta de caixa. Em 1994, decidimos pela redução dos salários em todos os níveis, onde níveis mais altos tiveram um percentual de redução maior, do que os níveis mais baixos. Plano este aprovado em uma votação por todos os funcionários, sem apoio do sindicato, o qual era contrário a esta medida.

Quanto mais a empresa conseguir prolongar sua vida, maior será a oportunidade de ter uma visão mais clara deste novo mundo, pós-pandemia, para tomar ações mais assertivas na definição de uma estrutura alinhada às necessidades deste novo mercado.

Todos os esforços devem ser na direção de levar a organização até o outro lado da tempestade, com menos avarias e perdas possíveis.

No caso que relatei acima, conseguimos levar a empresa até o momento em que foi vendida para a empresa detentora da marca, e hoje continua sendo uma das empresas mais proeminente do setor, de forma mundial.

Diferente de outras crises, a retração será mundial, e impactará todos os mercados consumidores, o que a torna, pelo menos “especial”. Hoje estamos vendo a retração da oferta, mas logo veremos também a retração na demanda, consequência do fechamento de micros e pequenas empresas, e também devido a demissão.

A recessão mundial em 2020 estimada é de 2.1%, entretanto, ainda é uma incógnita até onde ela pode chegar. Em um processo de gerenciamento de riscos devemos trabalhar com pelo menos três cenários, o pessimista, o otimista e o equilibrado. Na gestão de crise, trabalhe com o pior cenário para tomada das decisões e ações, pois pode ser que você tenha apenas uma chance de agir.

Como tudo na vida passa, isto também passará.

Que possamos, nós profissionais, e as corporações tirar lições para o amadurecimento da gestão e da governança.

No final,

Seja Feliz!

Uncomplicating and simplifying the Agile Internal Audit!

I confess to you that I am not very adept at accepting as "good or appropriate" everything that presents itself as a solution in the field of management, without a deep study and much reflection on how this new concept can improve management.

In this article I will deal with the application of agile or agile methodology in the internal audit activity. How it can help the internal auditor eliminate waste of time and increase its efficiency without affecting the quality of delivery.

First, we need to know how this theme came about. In 2001, seventeen professional software development experts gathered at Snowbird sky resort in the Mountains of Wasatch, Utah to, as Jeff Sutherland, co-creator of Scrum, says, "discussing ways to improve his work processes, which was slow, unpredictable and often did not result in a product that people wanted." From this meeting came MASD – Manifest for agile software development, which brings together the values and principles so that there is greater agility in software development.

Briefly, the goal contained in MASD is to ensure the highest degree of customer service and satisfaction through fast and continuous deliveries.

For this are necessary: Competent and motivated people, good documentation, clarity of what customers want or need, planning flexibly, cooperation to find better solution, self-organizing teams, communication at intervals regular and simplicity.

Note that this manifest works in the field of ideas, and in this way, we can affirm that Agile is not a methodology, either is a "framework" or much less a process. Agile is a set of values and principles that allow the team to make decisions that make their activity more efficient and effective. 

Agile is not a product that you can buy, it is a working style. You work nimbly or do not work nimbly.

Some tools and practices can be used and adapted to increase agility in the software development process, such as: Scrum, Crystal Clear, extreme programming, adaptive software development, and others.

Each one of these tools and/or permit practices will the team work more quickly. The choice of the tool or practice that the group will apply will depend on your need and the nature of your activity.

The question now is how can all this be applied in an internal audit job? Or could we ask if it is possible to use MASD principles and values in an internal audit work?

The answer is positive for the second question above, internal audit can rely on the values and principles of MASD to develop its work,  not least because the audit activities that operate in accordance with international professional practices, already seek to reduce the waste of maximum time, controlling the resources spent and measuring its performance with the results delivered to the corporation. Now, to be able to answer the first question, we need to review some concepts that should be present in an internal audit work.

We know that internal or external audit activity is standardized, there are rules of good practice that must be observed to the detriment of any other type of requirement. For this article I will be based on the international framework for professional internal audit practices - IPPFs, promulgated by the IIA - International Internal Auditors Institute.

The IPPFs conceptualize that the mission of internal auditing is:

“Increase and protect organizational value, providing risk-based assessment (assurance), advisory and knowledge (insight).”

According to these audit standards, we understand that internal auditing fulfills its mission by performing, objectively and independently, risk management assessment works, internal control system and governance, using a systemic and disciplined process, which allows internal auditing to adds to the corporation, increasing its ability to achieve its objectives.

This systemic and disciplined process, which is mentioned in the definition of internal audit, we call “audit work methodology”, which should always be applied based on the risks of the assessed object or process, and in accordance with the auditing standards , specifically with the performance standards, those starting with the number 2000, included in the IPPFs.

Basically, this audit work methodology consists of three basic steps: Planning, execution and communication.

Each of these steps is subdivided into phases, which can be adapted depending on the nature of the audit, i.e. operational (performance), compliance, or regularity and accounting.

Let's look at the audit methodology, its stages and its phases, in the figure below:

 

I can say that to be agile in auditing, is to achieve the objectives of the work, in the shortest possible time, without prejudice to the compliance with the audit rules, and without prejudice to the quality of the audit delivery.

Note that this approach is nothing new, in reality this should be the concern of any auditor who is proficient in the application of the standards, procedures and audit techniques.

So how can we use the MASD values and principle to make internal auditing more agile?

First, it is important that there is a team, as it will not work without a “team”, since being agile requires the performance of activities simultaneously and not in a cascade, as in the case of using the SCRUM methodology

Well, since we are talking about SCRUM, I think this is a methodology that fits for internal audit work. This term comes from an article published in 1986 in Harvard Business Review by two professors, Hirotaka Takeuchi and Ikujiro Nonaka, who verified that the best teams acted as if they were on a rugby team doing a scrum, where the team advances in unity and the ball is passed between the team, as it advances. In 1993 Jeff Sutherland and Ken Schwaber perfected their application.

Another tool that can be used is the Kanban system, a system of Japanese management theory, which simplistically controls the progress of a process through cards. It can be used as a tool to control sprints, also known as “time windows”. "Sprint" in the English language means "going full speed for a short period of time".

In a practical and simple way, the eight points below, summarize my suggestion for applying the values and principles of MASD in the audit activity, using scrum and kanban:

1

• Define an auditor in charge, who will have a complete view of the work and act as a facilitator, helping the team to eliminate anything that might slow the work down. Remember that he is also responsible for overseeing and reviewing the team’s working roles,

• For the selection of the team, the skills and competencies necessary to evaluate the audited process or object must be taken into account, in addition to that, they must be proficient professionals in the application of the auditing techniques and procedures in accordance with the auditing standards. The team must have a complete view of the process to be performed, including on the delivery of the audit,

•  For each step of the audit methodology, define a list of activities that must be carried out (backlog) and estimate the time necessary for its performance. Remember that, in auditing, it is not possible to start the execution stage, without the planning stage being finished, or to start the communication stage without the execution stage. Of course, some activities from other stages can be worked on during planning, for example, the elaboration of the findings matrix and elaboration of the structure of the audit report,

• To exemplify, we will take as a base the planning stage for applying the scrum. This stage is formed by 4 distinct phases, but that somehow, part of them, can be performed concurrently. Let's see the phases:

a.    planning memo,

b.    Mapping

c.     construction of matrix,

d.    elaboration of the work program.

     Remembering that only after the work program is finalized and approved can we proceed to the execution stage

•           In this planning stage, my suggestion is to work with two sprints, the first being for the preparation of the planning memorandum, process mapping and construction of the risk matrix. The second sprint will work on the control matrix, the alignment matrix and the audit program. 

•      Each sprint can have a duration of 1 or 2 weeks and the team must hold quick daily meetings (situational meetings) so that the team knows the progress of the work, and if necessary, adjust any item that may be demanding more time than the estimated. At this point it is very important to plan and estimate time in a feasible way, not a fiction.

•       The work must be visible to everyone, and one way to do this is to create a table with three columns: "To do", "Doing" and "Done". Use cards or post-it for the activities that must be performed, moving them as the work is being performed.

•      In daily meetings, team members must answer three basic questions:

a.    What was done to help the team complete the sprint?

b.    What will be done today to help the team complete the sprint?

c.     Is there an obstacle that is preventing the team from completing the sprint?

This meeting helps the team to know exactly where the work is, creating the opportunity to help each other, since the team is autonomous to make the necessary decisions to comply with the sprint on the agreed date, with its delivery in quality. required.

These points, mainly, from item 3 to item 8, must be performed for all stages of the work (planning, execution and communication), sequentially and without exception. of course, this process can, or better, be adapted to improve the execution of the activities of each stage.

Like any other management activity, continuous improvement is an integral part of the audit activity, whether applying MASD values ​​and principles, or not.

And it could not be otherwise because this process to increase the agility of audit activities, is a cycle, and as such, it must be improved through feedbacks. A good way to work this feedback process is with the use of the Deming cycle, also known as the PDCA cycle, where every cycle completed, improvements must be made to improve the audit activities.

In terms of the working role, in addition to those already in place for the application of the audit methodology, one must be added that will assist the audit team in carrying out a cash management, a document that will provide an objective view of the sprint situation in daily meetings.

Let's look at a suggested working role to control each of the sprints:

I do not intend this article to be a final position, quite the contrary, my expectation is that it will offer you the chance to reflect on how to make the internal audit activity agile, without mystification, in a simple and objective way.

Be happy!

Eduardo Pardini & Wendel Calil