There’s no doubt that organizations face many risks, from the known to the unknown and unpredictable. Given that those risks can disrupt company operations and, therefore, productivity and cash flow, Chief Financial Officers (CFOs) must remain alert and ready to take swift action.
Of course, the CFO is not singly responsible for managing the broad assortment of imminent and long-range risks. They must work with other members of the C-suite and rely on the right tools to help them make intelligent, data-driven decisions.
In this second of a four-part series covering the CFO role, learn more about the key risks facing CFOs today and how they assess and manage those risks to help drive resilient business performance.
Key areas of risk management concern for CFOs
As discussed in the first post of our CFO series, today’s CFOs must manage a variety of responsibilities, and they go far beyond financial leadership and reporting. Because of its far-reaching implications, risk management has risen to the top of the priority list for many senior finance leaders. A 2022 US Bank CFO survey found that, in one year, risk management rose from being the least identified top priority among CFO respondents to one of the top three priorities.
Here are five key areas CFOs must navigate to ensure business continuity:
• Financial market and economic risks: From the Silicon Valley Bank collapse to concerns about inflation, CFOs must be ready with contingency plans that protect shareholder value and organizational growth opportunities.
• Cyber and reputational risks: As more business systems and processes operate in the cloud, organizations must work harder to keep sensitive information out of the hands of hackers, cybercriminals, and rogue states.
• Post-pandemic talent risks: Issues of remote and hybrid work combined with recent trends like the Great Resignation have put pressure on CFOs to work with the CHRO and senior team to reassess the talent strategies and find a workable workforce continuity model.
• Geopolitical risks: In addition to the war in Ukraine, supply chain disruptions and tariff fluctuations all have the potential to threaten supplier relationships and access to raw materials, with a direct bottom-line impact.
• Compliance risks: Though they are constantly evolving, government regulations ranging from tax and reporting to climate change and employment can lead to sizable legal penalties and financial loss in the event of non-compliance.
How today’s CFOs manage risk
In a complex world, risks are everywhere, and no CFO or leadership team can fully eliminate the uncertainty all of those risks bring. However, by taking a methodical approach to risk management, CFOs can help to lead their organizations through the challenges of an unpredictable business landscape. To support their success, CFOs rely on the following:
A close partnership with the CEO
For every risk, organizations have a choice of trying to minimize the risk, ignore it, or avoid it altogether. But before acting prematurely, the CFO and CEO must align on the level of risk appetite and set the tone for the rest of the organization. When they agree on the opportunities the organization will pursue or pass up and where there are acceptable trade-offs, other functions in the organization will have more clarity about how to approach oncoming risks.
Robust Risk Assessment and Planning Processes
Owing to their deep understanding of the business, CFOs are often in the right position to lead the process of assessing, classifying, and reporting risk exposures. In fact, in a Deloitte survey, 55 percent of CFOs said they were responsible for enterprise risk in their organization. Many have the ERP systems and team to properly analyze the financial and company performance implications of a broad array of risks. And, as risks intensify, the CFO can provide guidance to the C-suite and ensure the organization has sufficient insurance coverage and financial reserves to navigate imminent threats.
Tools for risk intelligence
Business intelligence tools help organizations become even more nimble when navigating risk. Today’s CFOs and their teams increasingly rely on advanced data management tools that use predictive analytics, simulations, and blockchain to understand and manage a spectrum of risks. An Accenture report revealed that one in three finance teams said they were already using advanced analytics tools to manage risk. As these tools become more commonplace, CFOs and their teams will likely become more proficient in sidestepping risks and the disruption they can cause to business operations.
Next: The CFO and digital transformation
Risk management is just one area of influence for the modern finance leader. As CFOs continue to help organizations minimize risk, they must also lead their teams and others into the future via digital transformation.
Next in the series, we’ll discuss how finance teams are using new technologies to drive business strategy and decision-making. And in case you missed it, read the first article in the series about the strategic partnership between the CFO and the C-suite.
Interested in exploring more about the CFO evolution and what skills and competencies are required of today’s financial leaders? Download our Force Multiplier Report on the rise of CFO and executive finance roles.
