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Recognisable Impacts and Cost Implications

Covid-19 has generated the single biggest social experiment in history

 

It has mercifully happened at a time of sufficient technological advancement to make its impact more bearable for many than it would otherwise have been (modern technologies have greatly alleviated some of the limitations lockdown has imposed).  Lockdown is tough for many and its disruptive effects will likely trigger the worst economic downturn since the Great Depression according to the IMF. 

 

However, for all its virulence and impact, Coronavirus is very far from being so cripplingly lethal that the population will be decimated.  The needs of the vast majority of us may change (sometimes temporarily and sometimes permanently) but we will continue to want living standards and services as close to normal as possible; and both gainful employment and purpose in life perhaps as never before. 

 

The New Normal will not look like the world before Covid hit in many ways – for as long as social distancing and the threat of the virus exists, we will be more physically separate from each other, less comfortable with tactile experiences and things will take longer and cost more. 

 

Cost Implications of Lockdown 

 

Without undue speculation on what the future holds, there are three immediate costs we should anticipate having to face:

  • First, is the cost of paying for the lockdown itself – this has been effectively financed by a large mortgage on the future that needs to be repaid.  Inevitably, this will be funded from higher taxes;

  • Second, is the cost of disruption and re-establishing a New Normal – this has not been fully ‘invoiced’ yet and we will pay for it in the form of higher costs over a sustained period.  Price inflation has so far not been a serious problem, but faced with lower volumes of trade and rising costs, margins will be squeezed and unit prices will rise (although if demand is artificially suppressed by social distancing measures they may not be able to rise far).  We may also see a secondary form of taxation introduced as organisations ask those who can to fund support measures for others [1] and as charities call out for support to weather what will be a longer than expected storm and to protect their service/assets.  Either way, those who can will find more calls on their resources to help others either directly or indirectly;

  • Third, is the hidden cost which we cannot yet count but which is there; the cost that the Chief Medical Officer has so ably described in human terms (Jump to 17 mins, 15 seconds) [2].  Beyond the direct losses from Covid, there are the indirect costs of the measures we take to mitigate the impact of the disease.  Just as we may not know the full cost in human lives for some time, we will not know the full economic costs that eventually have to be borne.

Organisational Level Impacts 

 

At the organisational level, we should also anticipate impacts which may include:

  • direct financial difficulties as previous revenue streams come under considerable pressure;

  • direct costs of transitioning to a New Normal;

  • indirect impacts of the inevitable changes in the wider economy including higher taxes.

 

We should also recognise that the impact on property and physical assets is immense.  As we become more socially distant, the capacity of our buildings will be cut dramatically.  There are clear and obvious challenges in making any aspects of our normal operating models work on a socially distant basis which encompass:

 

  • The simple economics of the problem: vastly over-resourcing activities with effectively no increase in income and steeply rising costs; if margins were slim pre-Covid, they will be far worse (or non-existent) under social distancing;

  • The equity of the solution: for many people, access to, and the ability to experience, services will be greatly diminished either by enforced lockdown or by growing concerns about their own bio-security.  As a result there may be great pressure to have differentiated fees to reflect necessarily differential experiences.

 

In this context, even liabilities which looked manageable become much less bearable.  The cost of adaptations may not be economically acceptable. Nor, given the dramatic falls in demand, will there be ready alternative uses for sites if they are put on the market (worse still there may be so many released sites that values crash).  Most critically, we may find that the basic cost of maintenance is a burden that is hard to shoulder among the other costs.  There may also be a penalty in the future for legacy problems, particularly with buildings and maintenance backlogs.  Mothballing may be a necessary concomitant of having much less footfall, even as social distancing seems to increase demand for space.

 

Scenario Planning is a Critical Success Factor 

 

Clearly, we do not know any better than anyone else what the future holds and we are only speculating.  However, the characteristics described are reasonable based on the growing evidence from, and our shared experiences of, lockdown (accepting that they may still prove to be somewhat wide of the mark).  The most important point is that scenario planning and thinking flexibly about working practices is going to be critical.

 

Some of the most interesting work on scenario planning was captured by Arie de Geus during his time at Royal Dutch/Shell where scenario planning work https://hbr.org/1988/03/planning-as-learning anticipated the dramatic fall in the oil price in 1986.  Having considered already what the company would do in such a scenario better prepared the organisation for this seismic event.  Thinking of the future without scenario planning will, from this point forward, be rather like gambling; it will be staking the future of the organisation on one outcome to the exclusion of so many other eminently possible outcomes (which may be better or worse than the one anticipated).

[1] The first example of this we noticed is “1+1 pricing” of elements of the BGP Response Programme at Cranfield School of Management.

[2] Professor Chris Whitty said: “We've got to remember, just from the health point of view and clearly there are wider social and economic issues as well, that there are at least four different kinds of mortality and ill health we need to take into account over the period of this epidemic."

“There's the direct effects of people dying from coronavirus, there's the indirect effects of the NHS, if it were to become overwhelmed and therefore unable to provide emergency care for either coronavirus or other areas, and all the activities we're doing at the moment are to make sure that both of those are minimised."

“But it is really important also to remember that there will be effects from the fact that some healthcare has had to be postponed to make room for this within the NHS and of course anything that has an impact on the socio-economic status, particularly of people who are more deprived, will have a long-term health impact as well and we have to, in our exit strategy, balance all of these different elements which to some extent can be in tension.”

 
 
 
 
 

Our work has made a difference for the following institutions...

Aston University | Newham Sixth Form College, London |  University of Surrey | University of East Anglia | Cleveland College of Art & Design | Southampton Solent University | King's College, London
National University of Ireland, Galway | University of Oxford

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