Industry Responds to COVID-19 Crisis
- Socially Adept Solutions
- Mar 18, 2020
- 8 min read
This post was originally published on Environment Analyst. To see original article please view link below:
Health & safety of employees, clients and society at large prioritised as consulting sector prepares for challenging times
In light of the unprecedented and rapidly changing operating environment, consultancies are having to work up plans to deal with the coronavirus (COVID-19) outbreak to protect their staff, clients and stakeholder communities as well as to ensure business resilience as the global economy veers towards recession.
As the industry attempts to assimilate the ramifications of the escalating crisis, a number of common issues will be at the forefront of the minds of business leaders in the sector. Consultancy firms are first and foremost a people-based businesses and any downturn in the economy is certain to result in redundancies, as seen in the wake of the global financial crisis ten years ago. Some SME practices are already saying they will not be able to survive more than a few weeks’ shutdown or remote working at reduced ultilisation given their cash flow situation.
Historic income patterns for consulting firms during prior downturns would suggest that the impact usually comes after a six-month time lag as firms work through their order book pipeline, before they become fully exposed to project delays, postponements and cancellations. In this current unique situation there question marks over the disruption to construction supply chains which could have a more immediate bearing, although environmental consultants tend to do most of their work at the front-end feasibility and planning stage as opposed to the build/operate stage.
A decade ago, when many of the firms in the sector were then the midst of responding to the worst recession they had ever experienced, the ability for teams to work on overseas projects or in countries that were not so deeply impacted provided a cushioning effect for many - but with the international travel restrictions and multi-jurisdictional nature of the COVID-19 crisis the prospects of being able to do so again seem extremely limited. The key questions are to what extent virtual working practices can take up the slack and how much firms are reliant on staff actually being on-site?
Certainly it is likely that some restrictions imposed during the previous economic dip - such as extended periods of unpaid leave/enforced sabbaticals and shorter working weeks, and inevitably job losses - will feature in the decision-making in coming months. Meanwhile, companies will also be watching to see what further tax breaks, preferential loans and funding grants will be available from the banks and governments to support them through this challenging period. We can also expect governments to plough investment towards national infrastructure projects as fiscal stimulus which will help mitigate the very likely downturn in private sector work for consultants.
There’s also the longer term impacts to consider - a virus triggered recession is expected to fundamentally change how we live, do business and invest, as affirmed by CEO of deVere Group, Nigel Green, one of the world’s largest financial advisory organisations. Green commented: "Any way you look at it, it’s now almost certain that there will be a coronavirus-triggered recession as both global supply and demand are impacted.
"We can expect this recession to be deep but short. The slowdown will be temporary because it’s not caused by deep-rooted problems and imbalances in the economy, rather by a wholly unexpected shock that’s gripped the world."
"Every recession produces a new world. This one will too," he continued. One major outcome is that the pandemic is expected to speed up the technological revolution and the infiltration of AI and mobile supercomputing.
"New industries will emerge and, of course, there will be winners and losers. This will mean job losses in some sectors and huge, possibly unprecedented, job and investment opportunities in others," said Green.
Another key learning for the EC sector from the last recession is that corporate sustainability initiatives often get moved to the back burner; but new working practices implemented as a result of coronavirus will expedite some more sustainable and climate-friendly business behaviours (particularly in respect to travel) for the long term.
Useful resources
The UK Association for Consultancy & Engineering (ACE) has established an online resource to help ensure its members are up to date on developments with regards to COVID-19, including the latest on government business support, advice to employers, and hygiene in the home and workplace.
McKinsey has this week released a special briefing paper, COVID-19: Implications for business, in which it models two main scenarios based on the science known about the spread of the virus, society’s possible responses and the impact on the economy. These are referred to as the ‘delayed recovery’ and ‘prolonged contraction’ scenarios. In the case of the latter, McKinsey believes the global economic impact will be as severe as the GFC of 2008/09 with GDP contracting significantly in most major economies through 2020. And recovery will begin only in Q2 2021.
The New York-based advisory firm EFCG (Environmental Financial Consulting Group) has also produced a briefing on the impacts of COVID-19, specifically focused on the architecture, engineering consulting and construction (A/E/C) industry sector. It outlines six major points for A/E/C companies to consider in terms of taking decisions, making plans and building resilience into their businesses to minimise the impacts of the outbreak:
Develop a plan and reassess regularly as the situation evolves - firms should be assessing scenarios of key people having to be off-duty for some time and/or for entire offices having to shut down for a protracted period.
Prioritise the health & safety of employees and clients - make provisions for home-working; business trips should be reviewed, as well as in-person meetings and other business activities that require interaction with several people. Discussions with colleagues and key clients can be conducted electronically.
Prioritise key clients - i.e. those that account for the bulk of the firm’s revenues/profits - and make sure the relationship remains strong through the crisis. Dedicating more senior staff time to clients may be of value. All sectors will be affected, but some will be so disproportionately depending on their exposure to certain markets, sectors or projects. Although some projects will inevitably be cancelled, there will also be opportunities to utilise consulting expertise to assess the short- and long-term impacts of the outbreak for clients; as clients will be facing similar challenges to their own. Long-term supply chain risk will take on new meaning.
Supply chain interruption - this is particularly so for construction firms which rely heavily on Chinese manufactured materials and supplies [while similar disruption may be anticipated as other countries’ manufacturing bases are similarly compromised]. Major projects in Asia are already impacted by staff being unable to physically do to work on-site as well as shortages of construction materials. The latter is also having a direct impact on solar projects in the US. So it is critical to identify the vulnerabilities in supply chains and review ‘material adverse change’ clauses in contract agreements.
Financial scenario planning - develop best case and worst case scenarios for the year ahead that objectively evaluate the impact on the company’s financials. Since the outbreak will likely result in unpredictable net revenue and profit fluctuations, it is crucial to control costs and avoid overoptimistic or too pessimistic assumptions when setting budgets. Focus on evaluating and improving productivity, making sure that top employees and senior executives are working at full capacity; this is also fundamental in ensuring that relationships with key clients are maintained and the firm is able to pursue new project work.
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EFCG’s briefing concludes that the impacts of the pandemic are very uncertain and dependent on a myriad of factors. The overall impact could subside in six months or it may continue for many more with ripple effects, it noted: "Yet, although through our analysis of the past recession we have found that the A/E/C industry is resilient and has managed to navigate past crises effectively; the most successful firms were those that entered periods of crisis better prepared to address financial hardship, more adaptable to rapidly changing operating conditions, and ready to take action early on to further improve performance.
"The top performing firms were not more effective in predicting the timing of crises, but were more resilient and better prepared to withstand unexpected events when such events unfolded."
Consultancy positions
ERM, Haley & Aldrich, Ramboll and Turner & Townsend are among the consultancy firms to have issued official statements on COVID-19 in what is a rapidly evolving situation from country to country and day by day:
ERM (London, UK) stressed that the safety and health of its people, clients and contractors is paramount and its response to the virus is being guided by a global task force as well as regional and local teams made of subject matter experts. In addition to the location-specific travel restrictions, it has imposed a ban on non-essential international business travel and limitations on face-to-face colleague, client and vendor meetings.
Hayley & Aldrich (Boston, US) - whilst taking a proactive stance on safety measures, the release from this US engineering and environmental consultancy also sought to reassure that it is open for business. "Our vision to solve your complex issues has never been more urgent. While we can’t stop the virus, we will do everything in our power to contain its impact on your company and our staff, while remaining as dedicated as ever to address your needs."
Ramboll (Copenhagen, Denmark) underlined its priority to ensure the health and safety of its staff and clients and also its general responsibility to society as a whole. The firm’s statement reads: "This means everyday work life has changed for many of our employees, who now work remotely using our digital collaboration platforms and virtual channels. We are well set up to continue delivering on our commitments and projects with clients and we have continuity plans in place in case of wider disruption, due to the coronavirus."
Turner & Townsend (Leeds, UK) said its top priorities are "taking care or our people and supporting our clients [...] while working safely". As well as altering its pattern of working and restricting business travel, crucially the c6,000-strong professional services firm remains "fully operational". Its teams continue to support all clients and their needs through modified working practices - an approach which has "recently been fully tested in Asia, and is now being applied effectively across other regions as the need arises". It is confident in the resilience of the business and "our ability to continue to provide our full range of services throughout this period, while supporting the health and well being of everyone".
A senior business leader from one of the top ten global environmental consultancies told Environment Analyst directly: "Our first priority remains the health and safety of our employees, clients, and partners everywhere we operate around the world. The situation is evolving hour by hour and is certainly having an impact on our clients and the markets (including the stock markets); and also our people of course in terms of business travel and meetings. How much of an impact? We don’t have a crystal ball and it's very difficult to quantify.
"But what we can say is we’ve never seen anything like it and we have no idea for sure how long the restrictions and impacts will persist. We’re still working off the project backlog that we have [...] but by the end of 2020 we’ll have more visibility on the material impact on the business."
EA is committed to bringing you the latest industry comments and views on the impacts of COVID-19 and likely global recession on the sector over the coming weeks and months.