The global economic crisis has brought with it one unexpected long-term benefit for businesses: by virtue of necessity, the CFO has become the most influential person in the organisation.
From dwelling in the metaphorical shadows of the back office, the CFO has been propelled centre stage to take on a much wider role. And it’s not a moment too soon. With the economic turmoil predicted to continue, it is critical that finance has the broadest possible view of what is happening across all levels of the organisation. CFOs are now occupied with making enterprise-wide decisions, and their influence extends way beyond traditional financial control and supervision.
So what are the issues?
The world of the CFO is changing, and pure accounting skills alone are no longer enough. To achieve strategic objectives, the modern CFO must become intimately involved with all functions within the business. Importantly, he or she must also be equipped with the knowledge and authority to challenge the decision-making process.
IBM recently published a study based on conversations with more than 1,900 Chief Financial Officers worldwide. It revealed that more than 70 percent of CFOs feel they are playing a greatly expanded role in the running of the business. An equal proportion of respondents also said they were under pressure to reduce the enterprise cost base of their organisations, make faster decisions and provide more transparency to external stakeholders.
Cost reduction management, information management, strategic revenue planning, business model innovation, resource allocation, capital asset management and selection of key performance indicators all feature prominently in the typical CFO’s extended skills base.
The survey also reveals that information integration and risk mitigation have more than doubled in perceived significance among CFOs during the last five years.
To achieve a deeper level of understanding of the business, finance departments must have integrated access to both financial and operational information. CFOs clearly accept there is an urgent need to address the problems of information management. But to be effective in mitigating risks, they need the right tools for the job.
The business case for risk mitigation is increasingly supporting the need to invest. Key value drivers are often supported by the need for:
1. A systematic, well-informed and thorough method of decision making
2. Fewer financial surprises with unforeseen costs
3. Faster decision making
4. A greater likelihood of a more predictable, secure income stream
5. Stakeholders of the organisation are likely to be reassured
6. A reduced likelihood of reputation damage
7. Access to opportunities that an organisation may have otherwise not been aware of, and enables a faster grasp of such opportunities
8. Protects the organisation’s image and reputation
9. A better basis for the allocation of resources
10. Greater likelihood of achieving the organisation’s objectives
To mitigate risk in an efficient and effective manner, integrated information has to be a top priority. The CFO’s focus must now be on proactive data governance, which involves managing important information and establishing accountability for its accuracy. This demands that CFOs have an understanding of which key metrics and indicators signal which outcomes, and how they link to performance and to strategy execution. And all of this needs to take place in real time. Shown below is the format typically used to prioritise risks – real time prioritisation should be made available to the CFO (as opposed to what is typically a slow, ad hoc and manually intensive process) and form part of the CFO’s dashboard:
We appear to be looking at a trend. A similar recent study also revealed widespread concern about risk management. Two thirds of businesses with revenues over US$5 billion had experienced material risk events during the preceding three years. And of these almost half admitted they were not adequately prepared.
This dramatic rise in the perceived significance of risk management is further evidence of the CFO’s expanding role. Finance is no longer occupied exclusively with monetary risk but is becoming more involved in mitigating corporate risk in its many forms – whether strategic, operational, geopolitical, legal or environmental. All types of risk, of course, have a financial outcome, which is why it is so important for CFOs to have access to integrated information.
How GIROUX can help
We work with CFOs, FDs, CEOs and CIOs to restructure their planning cycles to consume fewer resources by optimising the way information is used and significantly improving the ability for an organisation to mitigate risks.
How can GIROUX make a difference to secure the value of your organisation by embedding gold standard risk mitigation BI? Allow us to demonstrate.
To find out more or to discuss your needs in detail, contact us +44 20 3287 7620