The Covid-19 pandemic has had a devastating effect on SMEs across the globe, with the United Nations reporting that, “Small businesses, including those run by women and young entrepreneurs, are being hit hardest by the economic fall-out of the pandemic. Unprecedented lockdown measures enacted to contain the spread of the coronavirus have resulted in supply chain disruptions and a massive drop in demand across most sectors.”
The repercussions are potentially catastrophic, considering that according to the World Bank, “SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide.”
SMEs play an especially important role in Africa, where they “form the backbone of the African economy, representing more than 90% of businesses and employing about 60% of workers.” (International Trade Centre) And according to the 2020 SME Competitiveness Outlook released by the International Trade Centre, “African exporters may lose more than $2.4 billion in global industrial supply chain exports due to the shock caused by factory shutdowns in China, the EU and the United States. More than 70% of this loss results from the temporary disruption of the supply chain linkages with the EU.”
It is against this backdrop that a chance encounter between Lithon Founder and CEO, Adriaan Grobler, and Gert Grobler, an actuary with thirteen years of experience at some of Namibia’s most established financial services organisations, sparked conversations about how their combined expertise could be harnessed to impact SMEs across the continent.
And so, a new vision has been born within Lithon, one that will extend our mission of making a significant and positive impact in the lives of people by bridging the gap between the worlds of finance and engineering. As our newly appointed Executive Director, Gert Grobler explains, “This new initiative will see us teaming with SMEs to offer insights that will help mitigate risk and drive optimal performance. Drawing on my background and experience in financial and actuarial mathematics, our approach will include mining data to analyse all aspects of the business, identifying new revenue streams and finally, equipping managers to identify risk, move away from crisis management to scenario planning, and implement turnaround strategies.
What does the consulting process look like?
Broadly speaking, it covers three critical phases – base data collation and verification, correlation analysis and regression analysis. These phases are separated into six steps, as outlined by Gert and his team below.
The client provides us with an income statement which we use to identify and define the base data requirements. During this phase of the process, we mine the available data in order to identify possible additional data. For example, if a client has allocated a single number to Salaries and Wages, we might, upon closer inspection, be able to break this figure down further into permanent, casual and overtime costs which can, in some instances, provide further insights down the line.
We take the base data and use it to construct a base sheet. Typically, we look back over a minimum period of 18 months to identify any seasonal or unusual fluctuations. We are, however, able to go as far back as the client requires in order to reach a satisfactory level of confidence.
Once the data has been returned, it is sense checked in order to verify any items that might have been flagged as unusual. Following the verification process, the client signs off on the base data and the correlation analysis begins.
The analysis is presented to the client in a workshop with their various subject matter experts present. Here, we call attention to anything that appears to be an anomaly – for example, where we would expect to see a positive relationship between data, but a negative relationship is reflected. While irregularities of this nature are often unique to an industry or to the client’s specific business, any unexpected relationships are highlighted and discussed, with the intent of filtering the many into a focused few.
These relationships are now run through the regression tool in order to quantify the identified relationship (most often in currency value), produce what are known as three levers, and determine where these levers should be set in order to leverage the value calculated. This often results in new sets of variables needing to be tested. While these combinations of variables represent an individual value, when combined they constitute a maximum value – there is often more than one combination that can deliver the value.
Using the solution selected in step five, we work alongside the client’s operational teams to translate what we are seeing into a tangible business plan. At this point, our team merges with the client’s senior management team to ensure that implementation of the business plan is carried out.
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