The CFO Risk Manager

Dr Thomas C Schleifer

Contractors are professional gamblers who place big bets that they can profit from complex transactions that often take years to complete. If they’re operating in familiar stable markets, they believe they can win the bet otherwise they wouldn’t be able to bid with confidence. Unstable disorderly markets, however, like the one we are currently experiencing, alter the odds dramatically. In other words, we still believe our horse can finish the race. We just don’t know the odds that it can win on a muddy track. 

A Muddy Track

Changes and disruptions have rocked the business world at a dizzying pace over the last 10 years. Accelerating technological advances, widening global inequality, a ground war in Ukraine—not to mention a global pandemic and a looming recession—have made the world a lot more unstable.

The world is different than it was even two years ago and so is the risk environment in which we operate. Change is fast and disruptive. The pandemic caused disturbance in the labor market and the supply chain. The current volatile geopolitical environment is further exacerbating supply constraints, heightening cyber risks, introducing rapidly evolving sanctions, and putting safety and humanity at the forefront of all decisions. Supply shortages, sanctions, and rising raw material costs are also heightening risks within supply chains as organizations deal with upstream supply chain risks related to subcontractors and other fourth parties that further complicate risks.

Risk Assessment 

When experienced contractors are operating in familiar market environments, they rarely encounter macro market risks. They more commonly deal with micro-risks like competition, labor relations, materials cost, and contract negotiations. But when markets become disruptive, skilled risk assessment and risk management suddenly become imperative, and few contractors are equipped or staffed to handle it. During this high-risk business environment, the entire business community needs to awaken to the need for professional risk management skills.

Price Waterhouse Coopers Survey

Finance professionals will need to adapt quickly to crises while juggling multiple responsibilities as the global risk environment becomes more volatile, complex, and unpredictable, according to a new survey.

A Price Waterhouse Cooper’s survey, which included 3,584 business risk, audit, and compliance executives, found that organizations are ponying up to boost their risk management capabilities:

  • Three quarters of the executives are planning on increasing spending across data analytics, process automation and technology to support the detection and monitoring of risks.
  • Almost a quarter of the organizations in the survey saw measurable benefits from defining or resetting risk appetite and risk thresholds.  
  • According to PwC’s2022GlobalRiskSurvey, risk-management strategies should be an integrated part of every business process and function to support effective strategic decision-making. This is becoming especially true as organizations continue to develop sophisticated data analytics and scenario modeling. Speed and flexibility will be key to responding to risk and disruption and can provide effective organizations with a competitive advantage.

The CFO Risk Manager 

Gone are the days of a backwards-looking CFO tasked with capturing past performance. Today’s CFOs are being called on to be future-focused strategic leaders who have a lot more responsibility—and expectations—than just crunching the numbers. According to Deloitte, CFOs are now expected to use their financial acumen, understanding of their company’s operations, people, market conditions, and data analysis to drive strategic decision-making (risk management).

  • “The CFO of 20 years ago—or 15 years ago—was helping you look out the rearview mirror of your car,” said Ben Kessler, CFO and COO of 66Degrees, a Google Cloud computing advisory company. “Now, it’s more about scaling and growing a business than it is just doing accounting activities.”
  • An April survey by McKinsey found that not only is the CFOs’ role expanding, but they are taking on responsibilities once considered part of the purview of a company’s CEO or COO.
  • So, amid all the disruption, and in addition to their traditional responsibilities of tending to their company’s financial health, CFOs are being called upon to use their financial acumen, understanding of their company’s operations, people, market conditions, and data analysis to drive strategic decision-making (e.g., the Project Selection Program discussed in prior messages).

Financial Malpractice

Contractors are not traditionally comfortable with financial professionals on the payroll. In the past, CFOs were considered bean-counters who knew nothing about construction. They were not admitted to the executive suite and rarely consulted about top management decisions. If you’re doing business in this disorderly marketplace and still hold with that antiquated notion, you might be found guilty of financial malpractice. 

It is time to bring the CFO out of the back office and join him or her in an active risk management program. After all, with the right jockey you might even win on a muddy track. 

Next week we’ll look at some of the modern elements of a construction industry risk management program.

Find additional information on topics discussed here in the book The Secretes To Construction Business Success, published by Routledge

For a deeper look into The many roles of a Chief Financial Officer , read more here: CFO

For a broader view into risk management read more here: RISK MANAGEMENT

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