How is Managing Risk a vital CFO role?

A guarantee of survival in 2009, is not necessarily a strong order book. The risk it brings can tear the heart out of a business. CFO’s work is not just about managing cash and costs. It is also to get business through tough times.

Equally involving is working with the front line to give them confidence that new and recurring business will be worthwhile. CFO’s must now spend quality time on risk management planning.

Large orders can be a concern with things like exchange rates and supply uncertain. Trying to get a long range view on these is not easy to ensure that margin isn’t lost on volatile currencies or delays.  CFO’s need to be assertively active to help moderate customers and suppliers, who have become intolerant of even the most reasoned arguments.

Business Credit indemnity is also tighter and risks have now shifted. Insurers are rejecting applications as they press for more information, and then charge for re-submissions. Additional guarantees are also being demanded for deliveries schedules keep within to insured limits.  As a result the CFO’s finance teams are required to provide increasing support for sales and purchasing functions.

With Bankers now high risk attentive, facilities and covenants administration vigilance is crucial.  Breaches or tardiness, even just on reporting timeliness, could mean that life line facilities could be withdrawn. At minimum, this may give bankers an excuse to re-price.

Additional facilities for acquisitions or investments will most likely be priced higher, so CFO’s should be sure to shop around and give thought to planning other financing options. They should also beware of “restructuring” advisers whose motivation is getting administration fees.

The insurance market is also more difficult. Underwriters are insisting on more information. Reverting to checking amalgamations of cover is being used for a pricing edge. Things like risk points on product liability between manufacturer and distributor are being painstakingly scrutinized. And previous cursory checks are now being strengthened or extended to things such as professional indemnity cover of contracted technical experts.

Looking just at risks with customers and taking cover on getting paid is also now not enough. It is equally as important to assess suppliers to ensure supply chain integrity. In doing this credit information may be out of date, so monitoring submission dates, utilizing associations and networks, check-listings and swapping information with colleagues can reduce risks of the unexpected.

In summary the CFO has an onerous task to ensure future financial viability of the company’s ongoing business. A duty of care to involve all C-Level executives in a regular  run through of the business risk profile and mitigation strategies.  Vital for this in business now  is well understood assessment processes, transparent & well monitored metrics and an embedded always-alert risk management culture.

3 thoughts on “How is Managing Risk a vital CFO role?

  1. If one of the daily activities of the CFOs were to monitor and execute this, the economic wouldn’t have been this bad.

    1. Dr Kitbamroong, Thank you for your comment. Yes I have to agree many CFO’s have been focused on acquisition growth and leveraged efficiencies at the expense of fundamentals and the basics of risk management itself. Budgeting and expense management are vital but not the only issues that need to be managed as companies struggle to reduce their balance sheet exposures

      And squeezing the orange till the skin breaks syndrome on sometimes mindless consolidations may not have been all that smart either as sell-offs are now all the go. With extraordinarily high prices having been paid for often no more than market share based acquisitions, synergy clean-outs and less focused shared service SLA models have often been initiated to justify them and cut costs.

      This has have taken a huge toll on products, capability and good sense in risk management as overstretched sales forces struggle with no commercial awareness try to sell into confused overpowered markets who have also became more demanding and equally mindless with a single focus on ROI.

      The trick is now how do we get that under control and help keep business out of more trouble without selling off the farm And top keep the money flow moving that makes it all work. CFO’s need to look hard at this now to survive while all this shakes out.

  2. Covering risk is a skill not well understood by many CFO’s and business managers. If you are not confident you should use experts. One suggestion is to find and maintain good relationships with a broker and leverage them work in your best interests. They understand and mix with underwriters on a daily basis and can be an intermediary to obtain balanced quotations and facilitate to limit onerous amalgamation and conseqential risk demands. If you are concerned they are not working for you so not hesitate to change.

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