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How Confident Is Your CFO When It Comes to Managing Risk?

author Michael Berman
3 min read
Jul 31, 2018

When it comes to managing risk, many CFOs have a long way to go. A worldwide survey of finance leaders from companies with between $250 million and more than $1 billion in revenues found that more than 60 percent of finance leaders are less than “highly confident” when it comes to managing their top risks.

The Workday global finance leader survey uncovered three key reasons why this happens. Let’s take a look at them:

1. Lack of data.

The financial department thrives on data and typically has some of the largest troves of data in a company. Yet is that data forward or backward looking? It makes a difference in predicting future outcomes. Companies that only look backwards are missing an opportunity to identify and measure risk.

Even if the finance department has cutting edge analytics, it’s often cut off from the rest of the institution’s data. These silos and lack of integration make it hard to uncover risks and address them because they aren’t getting the full picture. It’s like the old allegory about the group of blind men and an elephant. Each man describes the creature he’s petting, but because each is touching a different part (tusk, trunk, side), their descriptions of the overall animal aren’t accurate.

2. Lack of knowledge and skills to manage new and emerging risks.

At medium-sized companies, a “lack of systems and technology to simplify the audit process” is the biggest barrier to improving risk management, the survey found. Once again, different departments often do things their own way because there isn’t an enterprise-wide approach to risk management. When people aren’t hired, trained, and encouraged to think about enterprise risk management (ERM), they don’t have the tools or motivation to make risk a priority.

Another issue finance leaders under the age of 39 who have significant experience outside the realm of finance were cited as saying in the survey is that decisions are too often made based on intuition instead of data. The status quo is a powerful force, and people are used to doing things the way they’ve always done them. As new information and programs become available, it’s important to embrace the possibilities for improving risk management rather than continue on business as usual. It’s very likely that a company’s most successful competitors are evolving. Failing to evaluate new methods can create a competitive disadvantage.

3. Incentives not aligned with risk objectives.

Everyone knows what happened at Wells Fargo when incentives weren’t aligned with risk objectives. Many people simply looked out for their own bottom lines. Another way to control risk through incentives is to encourage inter-departmental collaboration.

Two thirds of financial professionals surveyed said that executives in IT are “reluctant to collaborate” with finance. Similarly, 68 percent say the chief information officer (CIO) and chief financial officer (CFO) have trouble collaborating because they “don’t speak the same language,” the survey found. There is often “tension” between the two groups, particularly when the CFO is quick to complain about IT going over budget because it wants to acquire new technologies, Workday’s survey found.

When there is good communication across departments and information about risks is shared regularly and openly, it’s easier for finance to understand different departments’ needs and the risks they face. Create a common language and tools for communicating easily and regularly, and structure the company’s environment so that departments and individuals benefit from collaboration. Change doesn’t happen on its own. It requires motivation.

These lessons apply beyond CFOs and the finance department. Many departments and financial institutions struggle with these three risk management weaknesses. It’s not just about the risks facing a single department. Identifying, managing and mitigating risk is an enterprise-wide activity. Every department benefits from shared knowledge and risk management.

Make sure your institution has the right outlook and tools to properly manage risk.

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