Risk Management

Five Ways CFOs Can Survive the Fiscal Cliff

Whatever the outcome of the crisis is, senior finance executives should be thinking about what happens next.
Kristine BrandsDecember 13, 2012

The fiscal cliff has businesses and CFOs on edge as they wait to find out what will happen. It’s hard to run a business without knowing what the outcome will be. But while the uncertainty is unsettling, it is a symptom of doing business in turbulent times.

Even if Congress provides some answers by the first of the year, CFOs will continue to face increasing pressure and challenges. While the financial crisis of 2008 and 2009 required businesses to adapt to uncertainty, the magnitude of the fiscal cliff could be an even bigger game-changer, requiring even broader planning for the future.   

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So how can CFOs prepare? A good place to start is with the Association of Chartered Certified Accountants and the Institute of Management Accountants’s “100 Drivers of Change for the Global Accountancy Profession” study in September. It provides a good overview of the challenges and opportunities facing CFOs and accountants in the turbulent environment that is becoming “the new normal.”

The main goal of the study was to “future-proof” the accounting profession. It identifies key drivers of change  the forces that will affect business and the profession during the next 10 years  and offered strategic actions CFOs can deploy to address the challenges and opportunities of the future, including the aftermath of the fiscal-cliff situation.

The study offers 10 strategic-action imperatives to help business leaders begin to address the many issues they will face in the future. But in 5 of these, some clear messages to CFOs stand out.

Assume and Plan for Volatility
Assuming and planning for volatility tops the list of the study’s business imperatives and requires CFOs to address this threat throughout the strategic-planning and decision-making process. Organizations must identify critical issues and then create scenarios that can address them, if and when they emerge.

Why is this important? Planning for business shocks hard-to-envision events such as economic collapse or government nationalization of subsidiaries or assets must be part of the CFO’s toolbox. While solid cash and debt management, the negotiation of flexible purchasing and contract commitments, and other sound financial-management practices will lessen its exposure, your organization will need to be prepared for business volatility crisis management. Develop the competency to mobilize resources to react to and manage business shocks.

Build the Radar
Business leaders can no longer relegate future plans to the annual planning cycle. They need to assess future factors and develop outlooks for the short, medium, and long term. Companies must learn the art of “horizon scanning” to continuously monitor and assess threats, develop trends, and look out for other sudden shifts that may affect their organization. Your radar must always be turned on to prevent being blindsided by surprises.

So what’s a good plan of action? Gather information from a wide range of sources by talking to your employees, customers, and industry peers to identify important signals and clues. Then evaluate and interpret the information and adjust the plan.

Pursue Technology Leadership
Technology leadership and managing data are also critical for decision-making in the face of uncertainty. Businesses must leverage technology to adapt to rapidly changing needs, and CFOs need to step up and take an active role in technology leadership. They can no longer take a hands-off approach and leave the job to others in their organization.

The age of Big Data requires systems and data models to provide business intelligence and data analytics to run the business. Why is this important? CFOs must understand the capability of their enterprise resource planning systems to provide financial and nonfinancial information as well as the broader impact of technology on other functions in their company and how that technology affects the company’s strategy. 

Prepare for True Globalization
Globalization is the new norm and requires that businesses develop global business models instead of merely exporting their domestic models. The new global models should include everything from strategic planning to the development of innovation to recruiting global talent that can leverage growth opportunities. Your foreign operations need to be embedded in the foreign location, not transplanted from your domestic base.

CFOs also need to focus on global M&A activity, the level of foreign direct investment, developing a positive global reputation, the impact of global accounting standards, foreign risk management, and the ability to move into new markets created by emerging economies.

Develop an Adaptable Mind Set
To adapt to rapid change and uncertainty, organizations need to be agile, keep an open mind, and develop a “curious culture” that can explore innovative solutions to complex problems. Companies can adopt “asset-lite” models to focus on outsourcing rather than on the deployment of in-house resources. Flexible organization structures like matrix organizations and high-performance teams need to be adopted to react to change.

Further, CFOs must develop risk-management systems to identify, measure, and prioritize risks without forgoing opportunities. They will also need to focus on enterprise social responsibility in the planning process instead of focusing on individual activities. Further, they should use integrated reporting to provide a broader measure of the entity’s performance. Management of foreign operations will require the finance and accounting function to understand local accounting rules and regulations.

Fasten Your Seatbelts
While CFOs await the results of the fiscal-cliff negotiations and anticipate the road ahead, adopting these action imperatives can help companies prepare to weather the fiscal storm and anything else that hits them.

Kristine Brands is an assistant professor at Regis University in Colorado Springs, Colorado. She is also a member of the Institute of Management Accountants’s global board of directors.

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