The evolving role of the CFO

Benjamin Franklin wrote: “By failing to prepare, you are preparing to fail.” He was right. But planning is one of the toughest aspects of running an organisation. With an ongoing pandemic and Brexit now a reality, there are at least two macro factors to make business planning even cloudier than usual.

As retailers switch to online only, restaurants become food delivery services and clothiers turn production over to face masks, it’s clear we are a million miles from business-as-usual. Companies are having to adapt their plans sharply, assess multiple scenarios and at the same time envision what the post-pandemic future may look like. The good news is that smart CFOs are already adopting tools and tactics to make business planning a more reliable discipline, even amid the turmoil.

Progressive CFOs are increasingly looking at financial planning and analysis (FP&A) to get visibility and create strong frameworks that support strategic decision-making. Excel addiction is ending and we’re seeing a shift from CFOs being viewed as accountants. The new CFOs are more akin to analysts, architects, play-makers and venture capitalists. They are able to study a range of source materials to make complex decisions, and present risks and opportunities in ways that can be widely understood.

By adopting AI and querying historical data in ERP systems and elsewhere, they can look at business in the round. Forecasts will become more accurate and the capacity to make inspired decisions is exponentially increased. Add rich visualisations, and the ability to persuade others and share knowledge is amplified. Engineering firms, for example, need to match the right people to the right roles and build the right amount of capacity to grow profitably. FP&A helps by getting to a clearer picture of likely needs.

CFOs need to lead or oversee FP&A teams that give them the critical capability to understand and predict what will happen next, so they can build in contingency planning and the ability to course-correct and pivot. FP&A can help to answer short-term questions such as ‘Do we have the cash reserves to survive if this pandemic continues into late 2021?’ but also complex, multidimensional concerns that can steer investments, such as:

• What adjacent market moves are wise, and what are our chances of success? 
• In which geographies are we underperforming and why? 
• Will the recent Schrems II verdicts leave us at risk of data protection prosecutions and to what extent?

These are the sorts of questions CFOs can answer with the aid of FP&A. The tools aren’t a virtual magic wand, but they will provide ways to think about such matters in a considered fashion, create an audit trail of assumptions and build a case for business change.

FP&A is already seeing wide adoption in large enterprises, but the tools are also valuable for smaller companies seeking investments, talented recruits or strong valuations. They can help build a buzz and drive a sense of purpose internally because realistic goals can be set based on documented reasoning. This is a ‘show, not tell’ phenomenon: by providing evidence in support of changes in direction, CFOs can get everyone on board, winning buy-in and backing and fostering the mindset to think differently.

Like anything valuable, FP&A is not simple and it’s certainly not purely dependent on having great software. Companies that succeed will have a balance of analytical nous, data science, technical knowledge and communications skills. Also, there will be the usual challenges of change: not over-inflating expectations, or moving too fast and losing confidence because initial results aren’t great. But FP&A can help to build powerful environments that make the CFO an even more influential figure in organisations where they are not just counting the numbers but making the calls.

The ICAEW Library & Information Service provides access to leading business, finance and management journals, as well as eBooks.

Further reading on financial planning and analysis (FP&A) is available through the resources below.