The following is a guest post from Yvette Connor, leader of the risk advisory practice, and Drew Illingworth, the managing director of CxO advisory, at CohnReznick. Opinions are the author’s own.
Not long ago, finance leadership could rely on fixed financial inputs to act in predictable patterns as part of annual planning cycles. Today, those assumptions have been upended, as a single trade announcement can reprice an entire supply chain overnight.
The traditional CFO playbook utilizes locked-in budgets and variance monitoring, with a runway of gradual course corrections built in. But this playbook was built for a slower world. What was once a helpful guiding force is now a ball and chain. It is hard to show financial adaptability when a CFO organization’s foundation limits its ability to proactively respond to shifting market influences.
The CFOs whose finance organizations are managing well in this environment have made three shifts worth examining.
1. They have evolved scenario planning to a standing discipline rather than a quarterly exercise
The most effective scenario planning is done through iterative and continuous simulation. It’s a living thing that adapts to conditions as fast as they change. This turns a reactive financial leadership team into a team that wins with continual minor adjustments that minimize disruption.
A strong starting position includes building out at least three credible cost scenarios — a base case, a stress case and a dislocation case — and making sure all three remain current as conditions evolve. This means leaning into the right types of questions to address:
- At what input cost threshold does the pricing strategy change?
- At what point does the sourcing model need to pivot?
- At what level of margin compression does a capital expenditure get deferred?
When those thresholds are agreed upon in advance, the CFO isn't bringing problems to the board, but rather proactive courses of action. That's a fundamentally different conversation than explaining after the fact why margins came in below guidance.
The technology to support this already exists at accessible price points, and the greatest inhibitor is rarely the tool. What differentiates great from good is the discipline of maintaining the models and the organizational alignment to act on their outputs.
2. They are looking beyond Tier 1 vendors to identify the biggest supply chain blind spots
Most companies have reasonable visibility into their direct suppliers. The risk lives deeper in the chain.
The Tier 2 and Tier 3 suppliers, the vendors that supply your vendors, often represent single-source exposure that doesn't appear on any internal risk register until something breaks. By the time this realization is made, the damage has already been done.
This is far from a theoretical concern. Examples have been sprinkled all throughout our daily lives, such as shortages in semiconductor components, specialty chemicals and critical sub-assemblies, and have cascaded through supply chains in ways that primary supplier relationships couldn't predict or absorb.
Finance leaders whose operational due diligence is limited to Tier 1 have learned that the opportunity cost of ignoring Tier 2 and 3 suppliers is higher than previously imagined.
The CFO's role here isn't to become a supply chain manager. It’s to ask the right questions:
- Where does our cost structure depend on single-source relationships that we don't directly control?
- What does our exposure look like if a key Tier 2 supplier goes offline?
- What would a 60-day disruption to a critical input cost us in lost revenue and premium sourcing?
Quantifying the answers to those questions can prove to be more valuable than any number of qualitative risk assessments. Quantifications will inform the conversations CFOs need to have with operations leadership about whether the current supplier base has been stress-tested against plausible disruption scenarios.
As such, geography is another underappreciated blind spot. The goal is not to see how many countries a company can operate in for efficiency’s sake, but rather to operate in geographical locations that will support resilience when risks arrive. True supply chain resilience means understanding not just where your suppliers are, but where their critical inputs originate.
3. They understand that margin management requires a fast feedback loop
One of the clearest signals that a finance organization isn't built for cost volatility is when margin variances are visible only at the month-end close. In a volatile input environment, a 30-day lag between cost movement and management response can be the difference between profitability and red ink.
Speed mixed with precision is a possible answer to efficient margin management. Finance leaders who are managing this well have worked with operations and procurement to establish near-real-time cost tracking against key input categories.
This is not to say that every line item needs a voice. Rather, a greater focus is placed on driving visibility to the five to ten input categories that drive the majority of COGS on a weekly, daily or, in some cases, real-time basis.
That visibility enables two things: Early action on pricing when input costs move materially, and more credible guidance to the board and investors about where margins are headed.
Both have real value. The former protects the P&L. The latter protects confidence in management's ability to navigate uncertainty. These enablers reshape the thought process behind pragmatism when noise starts to dictate the path forward, instead of data-supported reasoning.
Expectations have changed
The old planning cycle didn't break. It just stopped being enough. Boards and investors are not expecting CFOs to predict the next trade policy announcement or geopolitical disruption. They are expecting CFOs to demonstrate that they have a system: A genuine operational approach that has a point of view in identifying cost exposures early, modeling their financial impact across scenarios and acting with enough lead time to protect margins and liquidity.
The preparedness of adaptable leaders creates the strongest resistance to variable markets. The CFOs who will fare best in the current environment are the ones who have internalized this distinction and built their finance function accordingly.
