Planning for the zombie apocalypse

Preparing for disaster can be a useful exercise.
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· 5 min read

There’s still a lot of uncertainty around a US debt default. As of this writing, negotiations are ongoing and there’s still a risk the US may default on its debt, with catastrophic consequences for the global economy.

To help navigate the uncertainty, CFO Brew is talking with CFOs and experts about what finance professionals about what, and how, finance professionals should be preparing for a default.

Jason Cherubini is CFO of Dawn’s Light Media, a film production company, an accounting and finance lecturer at Stevenson University and a director at a finance consultancy. He believes the likelihood of a debt default is “astronomically small” but that preparing is still a worthwhile exercise.

We asked him what recent economic upheavals have taught us about disaster, developing a disaster mindset, and the risk of overpreparing.

This interview has been lightly edited for clarity.

You’ve said that although chances of a debt default are low, finance professionals should still be doing scenario planning around it. Why?

The best example I can think of is the CDC has a plan for the zombie apocalypse. That’s actually something they have on the books: How does the CDC respond to zombies? Do we think zombies are going to happen? No. But a lot of the things we learn from that planning, we can then use in other areas. Because it’s kind of an out there thing, it’s easier for us to think outside the box or in that “What if?” [for] those small chances.

So it’s things like: What happens if the US defaults? What happens if we have 30% inflation? What happens if the dollar now moves away from a central currency? Some of these extreme situations we may not think are going to happen. But running through that “What if?” or the scenario analysis gives you a chance to figure out where along that spectrum is the reasonable activity.

Maybe I don’t armor-plate my car and buy three years’ worth of food waiting for a zombie apocalypse, but having a week’s worth of food, having extra toilet paper was useful when the pandemic hit. Using that extreme example to be more realistic in your planning, I think is always a useful step to go down.

But haven’t the last few years of a global pandemic, supply chain snarls, weakness in the banking system taught us that maybe the improbable should be planned for a little bit more?

That’s where I think it’s being planned for to an extent, yes. But how much time, effort, and money goes into it with the probability? That’s that cost-benefit analysis that needs to be traded off. I think we should take steps to have healthy balance sheets, to check your scenarios on what happens if you’re not going to get some of your receivables or if they’re delayed, for you to have a better handle on what your cash flow is, to set up a line of credit, if you don’t already have it.

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Some of those things, we in the finance realm, in the CFO office, should be doing anyway. But there’s a limit on that. How much should we go into [it] and say,” Oh, we’re going to have a new flareup of Covid next week, and we’re shutting down again?” Well, we can prep for that. We can spend the time, the money, the effort, but the probability of that is really low. So maybe we have a plan in the back of our head, but the amount of effort needs to be proportional to the probability.

What mindset should CFOs have and what should they really be focusing on in thinking about weakness or failure in the financial system?

This applies to CFOs; I’ve always thought of this more on the accounting side. But accounting is professional pessimism. It really is this idea of what could go wrong, the whole downside risk. Things go better, everyone’s happy; [it’s the] downside you need to prep for.

We in the finance profession, the CFOs, [are] in a position to respond to what happens, it’s not that we necessarily have exact plans in place right now. Essentially, build yourself that box of tools so you’ll then be able to deal with whatever happens, because that box of tools can’t be built…after things go wrong. If you have them ahead of time, you can then work with them.

How do you see the risk of overpreparing in a situation like this?

I think the likelihood of overpreparing can actually be high. I think a lot of people will get tunnel vision when they see a potential disaster, like the US defaulting. Which is also part of the reason why I think the probability of the US defaulting is low; most major disasters are not things that we can see coming.

Something like the US defaulting…it’s never happened before...They’re going to spend time, money, effort, these guaranteed costs, and it never turns into anything. Now, if all of that preparation is transferable, if they’re going through these steps and stress-testing their bank relationships, checking the health of their balance sheet, aging their receivables to what the probability of collection is, all of those can be good things and can help in other areas.

But if it’s 100% planning for this one disaster that we think we can see in the future, that to me is a lot of wasted effort.

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.