Can CFOs be masters of the new risk universe?

4th April 2014

Of course they can. But as FSN writer Lesley Meall finds, their best efforts may be hampered by disparate and disconnected information systems, haphazard risk management, and the ever changing boundaries of this new risk universe.




If a voice in your head is whispering the words “Why would I want to be master of the new risk universe?” you are probably not alone. However, the finance function is evolving and the nature of finance leadership is changing. “Increasingly, CFOs will have to deliver on a wide range of fronts,” says Helen Brand, chief executive of ACCA (a global professional body for accountants), before reeling off a list that includes the need for CFOs to drive a more competitive finance function, help businesses to develop effective and cost competitive growth strategies, and establish ever more robust risk-management strategies. 

Although all of these demands create challenges (and opportunities) for CFOs, they may need to leap the highest hurdles during the race to achieve the latter – as the boundaries of this new risk universe float on shifting sands. As David Taylor, an executive vice president with Trintech (the record-to-report software specialist) observes in a recent FSN webinar, uncertainty is the new normal. “The CFO is surrounded by many different types of risk,” he says. They range from economic and political events, to cyber security and other technology risks, but according to Taylor: “What keeps most CFOs awake at night are the risks that they actually control.” 

Many CFOs currently focus on risks such as: measuring and monitoring the operating risks around the organisation and its performance; leveraging different currencies and minimising exposure to currency fluctuations; the management of cross-border regulation, compliance and reporting; and how all of this impacts on financial and non-financial metrics, like the reputation of the organisation and its perception by myriad stakeholders. Focusing on the record-to-report process highlights how complex, time-consuming and challenging it can be for CFOs to manage just the risks associated with their core, traditional responsibilities. 

To reduce the risk of any need for restatement, for example, CFOs need to manage the transfer of information across all auxiliary parts of the group, across the globe. “Looking at the entire manual, complex and tedious record-to-report process can seem daunting,” says Taylor. So if you want to improve it, where do you begin? “We recommend starting with what you are trying to achieve, then going back to the roots of what you want to output,” he says, adding that to achieve your aims, you may need to simplify, standardise and automate the key activities and processes from those root tasks all the way up to the point of disclosure. 

This is not easy; in many companies the close process has evolved into a complex web of point solutions, spreadsheets and document routing. Software can help to drag these disparate and disconnected processes and systems into the 21st century; or not. Approaches include: more point solutions and services (such as those for XBRL compliance); enterprise performance management solutions with close reporting features (such as IBM Cognos and Oracle Hyperion); and technology that helps people to collaborate, communicate and gain visibility into the process (covered by FSN here). Trintech Cadency is an end-to-end financial governance solution which manages the entire record-to-report process in a single product. 

Meanwhile, other core CFO responsibilities are becoming more challenging. Ever-increasing regulatory developments for financial reporting, capital requirements and corporate responsibility for environmental and social issues can serve the greater good by providing accountability, transparency and visibility for a range of increasingly demanding stakeholders. But they also make traditional CFO stewardship responsibilities for governance, compliance, control and business ethics progressively more complex and time-consuming – and in a global economy where many businesses are growing across borders, the complexity of regulatory inter-relationships also increases. 

Recent ACCA research finds regulatory change and compliance as the main drivers of greater CFO involvement in risk management; but it sees changes ahead: “Emerging risk approaches will place a new premium on understanding the breadth of risks faced by business.” So it suggests viewing business risks and opportunities as a portfolio of linked investments needing careful management, estimation and financial projection, which tomorrow’s CFOs and their finance functions will be “better placed than anyone” to calibrate and advise on appropriate actions; not by taking sole ownership and responsibility, but by working with the board to balance risk and reward. 

This brings us back to where we began. To help businesses to develop effective and cost competitive growth strategies, the finance function and its teams must become more efficient and effective, and to pull this off it must also establish robust management strategies for the risks it can control and for those it cannot – without becoming overwhelmed by the resource demands. It’s a mammoth undertaking, but anything is possible. And if you are still wondering why a CFO would want to be master of this new risk universe, reflect on the words of Theodore Roosevelt: “Risk is like fire. If controlled it will help you; if uncontrolled it will rise up and destroy you.”