How preventing risk provides new opportunities for CFOs

Top chief finan­cial offi­cers (CFOs) are widen­ing their risk man­age­ment respon­si­bil­i­ties in response to an increas­ing­ly volatile envi­ron­ment. Many have rel­ished the chal­lenge and dis­cov­ered it brings finan­cial oppor­tu­ni­ties and greater board­room influ­ence.

A grow­ing range of threats has forced finance lead­ers to focus more on risk man­age­ment, includ­ing tech­no­log­i­cal dis­rup­tion, chang­ing mar­ket dynam­ics, geopo­lit­i­cal uncer­tain­ty and envi­ron­men­tal risks. Coro­n­avirus has increased the pres­sure fur­ther. Almost eight in ten CFOs say the pan­dem­ic has trig­gered more requests for them to man­age risk, among oth­er changes to their role, accord­ing to research by Accen­ture.

Mike McLaren, CFO of pro­fes­sion­al ser­vices firm FDM Group, says: “Risk assess­ment and man­age­ment have increased dra­mat­i­cal­ly due to COVID-19 and are now a key part of the CFO’s role. The shift to remote work­ing and lock­down restric­tions made antic­i­pat­ing finan­cial chal­lenges and man­ag­ing resources a top pri­or­i­ty.”

Most CFOs’ near-term risk focus has been on pro­tect­ing finan­cial posi­tions and man­ag­ing dig­i­tal risks, such as cyber­at­tacks, which have grown more dan­ger­ous dur­ing the pan­dem­ic. But the cri­sis has also cre­at­ed or accel­er­at­ed many oth­er threats from sup­ply chain risk to cus­tomer behav­iour changes and staff men­tal health issues.

Kelvin Stagg, CFO of recruit­ment com­pa­ny Page Group, says that CFOs, as own­ers of the finan­cial busi­ness mod­el, are well placed to take more respon­si­bil­i­ty for over­all risk man­age­ment. “Our func­tion­al heads own their risk but, as finan­cial cus­to­di­an of the com­pa­ny, bal­anc­ing those risks falls to me,” he says. 

Oth­er lead­ing CFOs have also seen the ben­e­fits of doing this, using their insights into risk to increase the fre­quen­cy and scope of col­lab­o­ra­tion with C‑suite part­ners. CFOs who have trans­formed their roles in this way are in addi­tion expe­ri­enc­ing bet­ter growth and prof­itabil­i­ty.

Risk management drives value

Risk man­age­ment is not just about pre­ven­tion and mit­i­ga­tion, but also tak­ing the right cal­cu­lat­ed risks.

Stagg says one of the biggest risks for Page Group is miss­ing oppor­tu­ni­ties to grab mar­ket share in the post-COVID recov­ery.

“We start­ed align­ing the busi­ness for these oppor­tu­ni­ties in July 2020,” he says. “For exam­ple, we found com­peti­tors had mis­treat­ed staff dur­ing the pan­dem­ic. We hired 500 of them, many expe­ri­enced in tech­nol­o­gy recruit­ing, which was anoth­er oppor­tu­ni­ty due to the demand for cloud engi­neers to sup­port remote work­ing.”  

Stagg has intro­duced a risk man­age­ment matrix to Page Group, which enables him to spot such risks and oppor­tu­ni­ties quick­ly. The matrix plots risk tol­er­ance bands in core areas. It shows where the company’s cur­rent risk lev­el lies in each, accord­ing to a range of evolv­ing met­rics, com­pared to 12 months ago.

Many CFOs have rel­ished the chal­lenges brought by the pan­dem­ic, see­ing it as an oppor­tu­ni­ty to test and bol­ster the strength of their risk man­age­ment plans.

Elodie Bri­an, CFO of UK pub­lic trans­port provider Go-Ahead Group, says: “We are nav­i­gat­ing unprece­dent­ed lev­els of uncer­tain­ty, test­ing our agili­ty more than ever. In response, risk man­age­ment has become more dynam­ic and real time. We have moved from busi­ness fore­casts to dynam­ic sce­nario plan­ning and fos­tered more col­lab­o­ra­tion between teams to sup­port faster deci­sion-mak­ing.”

This helps the com­pa­ny antic­i­pate long-term risks too, such as per­ma­nent changes to cus­tomer behav­iour, for exam­ple around the dai­ly com­mute and an accel­er­at­ing green agen­da.

Focus on risk can also dri­ve val­ue in oth­er parts of the com­pa­ny. James Ire­land, CFO of finan­cial ser­vices provider Sanne Group, says: “Greater empha­sis on risk man­age­ment in the CFO’s role has allowed us to invest more in this area, which dri­ves val­ue.

“The key is to focus not sim­ply on mit­i­ga­tion, but on using out­puts of risk man­age­ment activ­i­ties to improve and refine busi­ness process­es and strat­e­gy. This bet­ters under­stand­ing of resource allo­ca­tion, which strength­ens our busi­ness and dri­ves effi­cien­cy and val­ue for stake­hold­ers.”

Exciting challenges

Mauri­cio Ortiz, CFO of Chilean min­ing com­pa­ny Antofa­gas­ta, says: “Over­see­ing and imple­ment­ing risk man­age­ment strat­e­gy is excit­ing and cen­tral to my role, even more so in volatile envi­ron­ments such as in 2020, and trans­for­ma­tions such as adopt­ing new tech­nolo­gies or respond­ing to cli­mate change.

“It was pleas­ing to see our risk man­age­ment pro­gramme was robust as the pan­dem­ic test­ed it across oper­a­tional, mar­ket, logis­tic and social sce­nar­ios.”

The firm’s main long-term risk – cli­mate change – is also start­ing to emerge, says Ortiz, for exam­ple with drought and heavy rains in Chile. The firm is respond­ing by adapt­ing oper­a­tions to harsh­er cli­mate con­di­tions and devel­op­ing clear poli­cies, and report­ing and com­mu­ni­ca­tion strate­gies around cli­mate change.

McLaren says board diver­si­ty is a crit­i­cal ele­ment of good risk man­age­ment as it helps raise and bal­ance aware­ness of more risks by avoid­ing group­think. “FDM’s diverse board has over 500 years of diverse expe­ri­ence,” he says. “Also, our inter­nal and exter­nal audi­tors have worked with the group to under­stand the business’s risk pro­file.”

Mark Satchel, CFO at wealth man­ag­er Quil­ter, says the most effec­tive mit­i­ga­tion strat­e­gy is to have a strong cul­ture of risk-informed deci­sion-mak­ing in finance and across the group.

“This includes link­ing risk man­age­ment to per­for­mance, devel­op­ment, and remu­ner­a­tion and reward schemes,” he says. “An envi­ron­ment that encour­ages peo­ple to embrace risk man­age­ment, and speak up where need­ed, is crit­i­cal to achiev­ing strate­gic pri­or­i­ties.

“If the past year has taught us any­thing, it is that busi­ness­es need to be pre­pared to make rapid respons­es to dis­rup­tions. This brings com­mer­cial advan­tages and helps build a more resilient busi­ness.”