Key challenges and risks for organizations preparing to adopt the Euro in Bulgaria

At first glance, the Euro conversion requirements might appear straightforward, but this transition is a significant transformation journey for organizations. It presents a highly complex, large-scale challenge that impacts most business processes across the organization, and it requires the involvement of tremendous resources to achieve compliance.

These are the essential requirements organizations will need to comply with for the purpose of adopting the Euro:

• Mandatory Conversion: All amounts denominated in Bulgarian Lev (BGN) will be automatically converted to Euro (€) at the fixed exchange rate set by the Council of the European Union.
• Dual Display of Prices: For an extended period before and after the Euro conversion date, businesses must display prices in both BGN and Euro to ensure transparency and avoid confusion among consumers.
• Rounding Rules: The Euro Conversion law mandates specific rounding rules for converting amounts from BGN to Euro to ensure consistency and accuracy.
• Legal Continuity: Existing contracts, agreements, and legal obligations denominated in BGN will remain valid, but all references to BGN will be considered references to Euro after the conversion date.
• Consumer Protection: Measures will be in place to prevent unjustified price increases during the transition, including monitoring by regulatory authorities.
• Public Awareness Campaign: The government is required to conduct a public awareness campaign to inform citizens and businesses about the conversion process, their rights, and obligations.
• Accounting and Reporting Adjustments: Businesses must update their accounting and financial reporting systems to reflect the conversion to Euro, following prescribed guidelines.
• Cash Exchange: Credit institutions are required to exchange BGN for Euro without fees for a period of 6 months after the conversion date. After that, they may charge fees for this service.

Based on Deloitte's experience, we have identified several key challenges and risks that must be carefully managed to ensure a smooth and successful conversion:

1.      Aggressive timeline for implementation: Given the extensive complexity and number of moving parts in this transformation, larger organizations face considerable challenges in meeting the requirements within the available preparation window. Even a seemingly sufficient timeframe may prove inadequate given the constraints and interdependencies involved.

2.      High complexity & large scale: The Euro conversion will impact nearly every aspect of an organization’s operations, from products and services to processes and systems. With multiple external and internal stakeholders involved, managing these moving parts effectively is crucial to ensuring business continuity and minimizing disruption. Moreover, the Euro conversion program will run alongside other critical business projects, adding further complexity and requiring meticulous coordination to avoid any loss of business.

3.      Complex IT landscape: Large organizations typically operate within a complex IT environment, characterized by hundreds of systems and applications with various integration layers. Without a well-documented IT enterprise architecture, it becomes challenging to assess the impact of conversion on systems and identify the most optimal paths for necessary changes. Furthermore, in specific situations, technical constraints and limitations inherent in legacy and in-house systems, along with gaps in knowledge or expertise, can significantly heighten the risk of non-compliance.

4.      Managing multiple vendors: Organizations rarely operate in isolation and often rely on multiple vendors to support various business functions. Many vendors may lack awareness or understanding of the transformation requirements and face limitations in capacity, which can hinder the timely implementation of necessary changes, posing a significant risk to the conversion process.

5.      Management commitment and internal capacity: The success of the Euro conversion hinges on robust management commitment and leadership. Securing the necessary budget and resources is critical, but organizations often face constraints related to insufficient business and IT resources, which can lead to delays and cost burdens.

6.      Uncertainties regarding the Euro conversion scope: Although the legal framework has been established, some businesses may face unique circumstances that require additional clarification from competent authorities.

7.      Program/Project management: Effective program management is vital for navigating the complex transformation journey. A detailed plan outlining what needs to be done, how, and when, along with clear roles and responsibilities, is essential to avoid costly mistakes and delays. Proper governance tailored to the organization’s specific needs is crucial to maintaining business continuity and preventing penalties due to non-compliance. Additionally, a curated communication plan and change management activities will help mitigate resistance and ensure alignment across all stakeholders.

Deloitte has developed a proven Euro conversion approach and methodology, tested with clients in Croatia and Bulgaria. This structured approach is executed in four key phases:

1. Euro conversion requirements impact assessment: This phase involves assessing the impact of Euro conversion on the organization, including products, services, processes, and IT systems. The objective is to identify affected areas and potential risks that, if unmanaged, could negatively impact the organization.
2. Developing an implementation roadmap: A comprehensive implementation roadmap, including a detailed list of initiatives, provides management with oversight of the Euro conversion program. This roadmap highlights key projects, milestones, and dependencies, offering a clear picture of the program’s scope and complexity.
3. Program governance setup: Establishing a robust governance model is critical. This involves designing the program structure, defining key stakeholders' roles and responsibilities, creating an authority matrix, and setting up escalation channels. The governance model is customized to align with the organization’s unique attributes, ensuring efficient program execution.
4. Program delivery: In this phase, we support program leadership, orchestration, and risk management. Deloitte acts as a gatekeeper with a wide range of stakeholders, ensuring that the program’s objectives are met while alleviating pressure on the organization’s team, allowing them to maintain focus on business as usual activities.

In summary, Deloitte advise its clients to begin preparations early to allow sufficient time for detailed analysis, planning, securing the necessary budget and resources, and initiating conversations with vendors to ensure their readiness to support the transformation journey. Given the transformation's complexity and the potential risk of business disruption, it's never too early to start acting.

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