Gone are the days when CFOs were seen as corporate naysayers, stamping out ambitious plans. As the pace of business change accelerates, modern CFOs know that leaning into the right risks can mean the difference between a company that thrives and one that’s merely treading water. But just because embracing risks has moved to center stage at many companies doesn’t mean that all risks are created equal.
Everything from Brexit and the U.S. presidential election to uneven global demand and shifting consumer preferences has tamped down risk appetites at many companies. A recent survey of more than 100 North American CFOs found that expectations for revenue, earnings, capital spending, and domestic hiring all declined—with some expectations now at or near six-year lows.
How can CFOs balance the competitive imperative to take risks with the fiduciary imperative to stay prudent—especially at a time when CFOs are expected to be true business partners with the CEO? By being smart about choosing and executing strategic risks.
Step 1: Strengthen your foundation
Knowing the company’s financials inside and out makes it easier to assess strategic leaps and mitigate unnecessary risks. When Anne Weiler, CEO and co-founder of Wellpepper, moved to Russia to run a $400 million business, her first step—before even eyeing the possibilities and pitfalls the new endeavor might bring—was to carefully consider every nook and cranny of the company. “Knowing how the company worked and how to market and position the products were my strong foundation,” she writes. And starting with a strong foundation helped her grow the business despite a pervasive economic crisis.
Having a comprehensive, real-time understanding of where your company is can be incredibly hard—maybe impossible—if the finance department is still wrestling with spreadsheets on the server. At Selecta, Europe’s largest vending machine company, the finance team used to need months to manually consolidate disparate data sets across the organization’s many territories. Moving to a cloud-based corporate performance management solution revolutionized that process, giving the company an immediate, accurate view of its financial foundation.
Step 2: Prep for possibility
With the right tools in place—to simplify journal entry management, automate reclassifications, and speed intercompany financial reports—you’re better positioned to act on the right risk. That’s because a team that’s not bogged down with as much data crunching and number verifying can spend more time strategically planning. Think beyond forecasting the company’s metrics against a static backdrop to proactively modeling how various political and economic events might create new obstacles or opportunities.
The nationwide momentum toward a higher minimum wage, for instance, is expected to shift the risk-to-reward ratio of greater automation in retail and manufacturing. Rather than sit and wait, some CFOs are proactively scenario planning now to prepare for the risks that lie ahead. That means posing what-if questions and generating sophisticated models on how everything from acquisitions and large-scale capital expenditure projects to reorganizations and new product portfolios might impact the company’s financials.
Step 3: Refine the response
Wait to take a risk until you’re sure it will be executed perfectly against the exact-right business landscape, and you’ll find the company fossilized in amber. Instead, savvy CFOs understand that leaning into risk requires both an initial plan—and a robust strategy for how to react if things don’t go as planned.
“Agility implies a deftness of movement, whether the required pace given the circumstances is slow or fast—movement is key,” write risk management experts Dante Disparte and Daniel Wagner. “Standing still is usually not an option.” That applies both to taking the initial risk and reacting in real time to how the opportunity unfolds.
This is another area where a comprehensive, cloud-based financial performance tool can help. This type of system makes tracking the realized risk’s impact on financial KPIs easy and intuitive—and everyone from the C-suite to designated managers can access and assess that data. That means reacting to troublesome signals can happen faster than if the financial data is locked away with the finance team or stuck in a months-long reporting cycle.
Learn how Adaptive Insights can help you eliminate risks with centralized data, plans, and models.