How CFOs Should Handle Risk Today

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Marrying proactivity with creativity is key, says Russ Porter, CFO, Institute of Management Accountants.

From inflation to supply chain issues to the Great Resignation, companies are facing multiple related risks these days. And finance teams are critical to handling those risks, argues Russ Porter, CFO of Montvale, New Jersey-based Institute of Management Accountants.

Porter spoke with StrategicCFO360 about the importance of a proactive approach, the ability to take a long-term view while handling day-to-day challenges and when risk can create opportunity.

What are the near-term risks that finance teams and their leaders are worried about right now? Are there additional pain points they should be looking to address?

In today’s unpredictable business environment, many of the near-term risks that worry finance teams and their leaders are interrelated. Among them are supply chain issues, inflation related to pandemic recovery and ongoing conflict in Europe.

For U.S. and European businesses, the Great Resignation has impacted businesses’ internal stability. As organizations continue to grapple with an economy where inflation is high, they will often have the urge to address employees’ needs by simply offering additional compensation, but that is no longer the only thing workers are looking for. Today’s employees have varying needs, and are interested in benefits packages, workplace flexibility and other items which are tailored to the individual. This is an area where all leaders in business need to move to “meet the times,” and meet their employees where they are.

Employers are at risk of losing the race for talent within their own industry. While these are all issues that will continue to unfold over time and gradually move through the economy over the next 12 to 18 months, CFOs should be aware of and prepare now for potential ripple effects before they happen. 

Looking at one of those risks more specifically—what is the impact of supply chain issues on a financial team and how can CFOs react to counter those issues?

Supply chain disruption is indeed one of the greatest risks to an organization’s finances. The supply chain is an area where finance professionals can help guide decisions that straddle the line between efficiency and risk. Recent challenges and events have exposed gaps previously hidden within an organization’s procurement process. Now that there is a greater sensitivity to the supply chain, CFOs can identify where gaps and risks currently exist in a company’s strategy while looking for additional risks that may not be initially apparent.

There are several questions that finance professionals should reflect upon when looking at potential risks that may exist in their supply chain. Among these are supply chain geographic diversity, as well as the supplying countries’ stability and sustainability practices. For example, what is the risk of solely sourcing from a country like Vietnam compared to the incremental cost of doing business with European or U.S.-based suppliers? Often, focusing on near-shore activities comes with a cost, but it can help reduce a company’s risk. Financial professionals can play a key role in helping a company realize where the balancing point is and quantifying risk for the organization. 

How can businesses be more proactive in their risk management strategy?

Getting ahead requires thinking ahead, which is among the most crucial elements guiding successful risk management strategies. Generally speaking, every company could use more proactivity in the development of their risk management strategies. Proactivity goes hand-in-hand with creativity, as finance professionals could always be more inventive in thinking about the risk their businesses will face in the near-term, as well as down the road.

Contributing skills to crafting a proactive and creative risk management strategy are developing a more comprehensive understanding of business operations, including where critical value points may exist, identifying where risks live, and considering the risks upstream with suppliers and downstream with clients.

On the other hand, risks may not always be a negative for your business; they may create opportunities for a company as well. Positioning a company to be ready to respond to opportunities that may arise is crucial to responsiveness to change. The strong suit and one of the most valuable contributions a finance professional can make is identifying the risks that will have the biggest potential impact. They also have the ability to ensure successful mitigation strategies yield a strategic and competitive advantage. 

Is the traditionally operational way of approaching risk management still relevant? In what ways should CFOs adapt their thinking?

The core principles of traditional risk management still apply, but the techniques can be adapted to incorporate more strategic objectives. CFOs and finance professionals often focus solely on day-to-day operations, particularly at smaller organizations, because there is so much work to be done. Today’s CFOs need multi-dimensional finance professionals on their team, not just those well-versed in financial practices, but those who can also broaden their perspective to look at the organization as a whole for the long-term.

During my career, I’ve worked with management accountants who possess a strong understanding of human resources, business operations and customer service, along with traditional planning and control capabilities. This expanded skill set is key to helping develop a well-rounded strategic risk management strategy. 

Successful risk management strategies cannot be developed in a vacuum and reviewed only once during the annual budget review. Meeting with the team to develop a risk management strategy more regularly helps better gauge the big picture and adapt to change.

In my experience, the capabilities and perspectives of my team matter when it comes to risk management. Those who possess the skills associated with the CMA certification are those who bring the most diverse competencies to the table. As organizations and CFOs are tasked to think about risk management more strategically, they need to hire the most well-rounded professionals possible. 

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