CFOs Manage Risk

As you can imagine, CFOs are nervous about the near-term with economic indicators suggesting a recession could be happening. However, those fears won’t change the fact that CFOs are being tasked with more forward looking responsibilities than ever before. Instead of solely focusing on budgets, reporting, audits, and compliance, their role is shifting to be more strategic and there is a new expectation that CFOs manage risk along with the CEO.

The role finance leaders are taking on as it relates to risk is what the Wall Street Journal and Coupa explored with their survey, The Strategic CFO: Thriving with Risk. According to the survey, CFOs should have, “more focus on technology (66%), more extensive participation in strategic business decisions (60%), more diverse types of risk management (59%) and more use of data analytics (57%).”

While the CFO job has never been an easy one, managing the books and overseeing the budget seems almost simple when compared to the expectation of the role today. Backward-looking responsibilities were easier to define and manage, while forward-looking responsibilities are fraught with risk and unpredictability. Taking a more strategic approach to the role requires a comfort level with uncertainty, something not all CFOs can handle.

While the evolution to a more strategic focus for CFOs has been happening for some time, the combination of technology advancements along with the concerns about the global economic environment has sped up the transition. The challenge with the transition can be seen in the survey with only 4% of CFOs responding that they spend an appropriate amount of time managing all of the risks they are responsible for.

The expectation is that it will get worse before it gets better. CFOs believe that over the next two years risk associated with fraud (51%), cyber attacks (35%), and suppliers (34%) is going to increase. And these are risks that CFOs are aware of, what about those they haven’t even considered? Amazon CFO Brian Olsavsky states, “We’re continually auditing our operations to find more risks — a job that’s never done.” 

The survey groups risks into three categories; strategic, operational, and functional. Strategic risks impact the company’s position in their industry. They could be internal or external and carry long term implications. Operational risks affect the company’s resources and can impact quarterly results. Functional risks target controls and governance.

Along with automation, the keys to managing risk according to CFOs is people and process. Awareness and consistency enables technology to help identify and address risk faster and more efficiently. To do this effectively requires visibility.

The study notes that, “executives who rate their firms as having complete visibility also rate their organizations as more effective in risk management.” According to Chantal Wessels, VP of Finance and Operations at Nasdaq, “The concept of forward looking requires a solid baseline and visibility. Data produced by various digital tools enables us to analyze current trends and put measures in place to address future risks.” 

Unfortunately, only 49% of the CFOs surveyed believe they have full visibility into their company’s transactions. And just 38% think they have the technology to adequately manage risk. This could be due in part to the juggling of new and old responsibilities, with the tactical nature of traditional job expectations taking up too much of their time.

The transition to a more strategic role is going to take some more time to sort itself out fully. CFOs managing risk are coming to terms with the fact that it is not as cut and dry as their previous responsibilities. It will continue to evolve and never be fully eliminated.

For more information on how you can evolve your CFO position to a more strategic role, send us a note. Our team of executive recruiters can advise you on the pitfalls and best practices for managing risk in your industry.