How are CFOs controlling costs during lockdown?
With more than half of CFOs expecting a 25% revenue decrease due to COVID-19, many are now focused on controlling business costs post-lockdown to stabilise cash flow and sustain operations. According to a recent global survey by PWC, businesses are looking at ways to cut investment and release cash flow back into their operations to navigate financial uncertainty.
Unsurprisingly the top two areas CFO’s are looking to cut back on are general CapEx and Operations (OPEX). And as UK businesses are coming to terms with the new post-lockdown landscape, CFO’s have the challenging responsibility of reviewing expenditure in order to stabilise budgets and manage cash flow.
What cost element are CFO’s overlooking?
With new procedures being implemented to ensure safe social distancing, such as altered shift patterns, changes to production, or how the site and the equipment operates, these changes will have a direct impact on OPEX. This includes the impact from an energy cost perspective, something we’re finding many CFO’s are overlooking when looking at reducing operational expenditure.
Being able to understand the impact operational changes will have on your energy consumption can provide critical information to inform the overall budget and cashflow of your business. CFO’s can achieve this by conducting an energy budget impact assessment.
This assessment analyses your consumption data and combines it with your proposed operational changes, identifying the likely impact on your energy consumption and more importantly, costs.
How can an energy budget impact assessment be of benefit?
The benefits of this type of assessment vary depending on what energy contract your business has signed i.e. if you have a Fully Fixed, Pass-Through or Flexible purchasing contract.
For businesses on Fully Fixed contracts, CFO’s can compare their energy budgets to the forecast generated through the evaluation. This can help them to understand future contract implications of volume variation.
For those with pass-through contracts, the evaluation will provide the same benefits as those with fixed but CFO’s have the ability to understand changes to Time-of-Use and the impact this will have on future invoices.
Lastly, businesses with Flex contracts benefit from all of the above, as well as the ability to control future budgets based on predicted consumption with more accurate forecasting. CFO’s have the added ability to unlock unrequired hedge (energy consumption) or commit to more depending on the situation, as well as mitigate the risk of inflated energy costs.
So whether your business is on a fixed, pass through or flex contract an energy budget impact assessment can help Finance Directors and CFO’s build a complete picture of future costs and make informed decisions backed by data, helping to minimise OPEX and give confidence in cashflow forecasting.
References:
https://www.pwc.com/gx/en/issues/crisis-solutions/covid-19/global-cfo-pulse.html
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