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CurrencyCast is a treasury podcast series from currency management experts. In each episode, we look at the pressing foreign exchange (FX) risk issues facing treasurers and CFOs today and help them identify the potential gaps in their FX risk management strategy.

The Evolving Role of The CFO: Balancing Risk and Strategy (S7 E2)

January 31, 2024
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The Risk Management Skills of a CFO: Bridging the Gap Between Strategic Vision and Tactical Execution

Among the responsibilities of members inside the finance team, the roles of the Chief Financial Officer (CFO) and the Treasurer are more intertwined than ever when it comes to risk management. While the CFO oversees the overall financial health of the company, the Treasurer executes critical tasks like cash flow management, risk mitigation, and financial transactions. However, a key differentiator lies in the risk management skills of a CFO and their strategic vision.

This blog explores the crucial capabilities a CFO needs to bridge the gap between strategic vision and tactical execution, specifically focusing on risk management. We'll delve into the importance of collaboration across departments, leveraging technology, and fostering a culture of risk awareness.

How to break down the silos? Collaboration is key

One crucial skill that the CFO should have when it comes to managing risk is breaking down silos between departments, particularly Treasury, Tax, and sometimes even the Controller's office. While the Treasurer might handle the day-to-day cash flow management and risk mitigation tactics, the CFO needs a holistic view that incorporates:

  • Tax implications: Repatriating funds or making capital investments across borders requires a deep understanding of international tax laws to optimize outcomes. Collaborating with the Tax department ensures compliance and minimises tax burdens.
  • Strategic M&A decisions: Mergers and acquisitions can be complex, with  financial due diligence playing a crucial role. The CFO needs to assess financial risks and opportunities alongside the Treasurer to make informed decisions.
  • Investment policy: Holding assets like Bitcoin requires strong governance and a clear investment policy. The CFO, in collaboration with the board's audit committee, should set parameters for managing corporate funds.

Effective communication and collaboration between the CFO, Treasurer, Tax department, and other relevant stakeholders foster a comprehensive understanding of risk and create a unified approach to financial management.

Technology: A powerful ally in risk management

Treasury operations often involve highly manual and error prone approach that pose great challenges to CFOs. Spreadsheets and manual data entry are error-prone and time-consuming tasks, there is a lack of real-time data visibility that hinders informed decision-making, and consolidating data from disparate sources across various geographical locations can be a logistical nightmare.

CFOs have modern technology solutions at their disposal that improve the risk management task. Gone are the days of manual data entry and time-consuming consolidation. Modern risk management tools are designed to automate these tedious processes. They seamlessly gather and integrate data from various sources like ERP systems, bank accounts, and spreadsheets. This eliminates errors and delays that can plague manual data handling, ensuring a smoother and more efficient workflow.

Furthermore, these solutions can automate repetitive tasks that often burden treasury teams. Daily account reconciliations, payment processing, and even basic hedging strategies can be handled automatically by the system. This frees up valuable time for the treasury team to focus on more strategic initiatives, allowing them to contribute to the company's overall financial health in more impactful ways.

Of course, we are talking about currency management automation tools.

How do Currency Management Automation solutions address these challenges?

  • Eliminating Spreadsheet Risk:  Automating data collection and integration eliminates reliance on manual data entry and reduces the risk of errors.
  • Real-Time Cash Visibility:  CMA tools provides a single source of truth for all cash flow data, enabling real-time tracking and forecasting.
  • Application Programming Interfaces (APIs):  APIs allow for seamless data exchange between the TMS and other financial systems, facilitating automated workflows and eliminating manual data manipulation.

Proactive risk mitigation through real-time insights

The power of CMA extends beyond streamlining processes. Embedded real-time data analysis capabilities empower treasury teams to identify potential risks as soon as they emerge. These risks can include currency fluctuations, counterparty default, or even fraudulent activity. With real-time insights, the treasury team can take immediate action to mitigate these risks before they escalate and impact the company's financial well-being.

CMA also boasts advanced analytics that go beyond simply identifying current risks. These analytics can predict future trends and project potential risks based on historical data and market movements. This proactive approach allows the treasury team to develop and implement mitigation strategies well in advance, safeguarding the company's financial future.

Data-driven decision making and enhanced Reporting

Comprehensive dashboards and reports generated by TMS provide CFOs with a clear and current picture of the company's financial health.  These reports offer real-time insights into cash flow, forecasts, and risk exposures, allowing CFOs to make informed decisions based on accurate and up-to-date data. No longer do they have to rely on fragmented or outdated information.

Additionally, TMS provides automated reporting tools that streamline regulatory compliance and facilitate communication with stakeholders. This ensures that all parties involved have access to the information they need in a timely and efficient manner, fostering better collaboration and decision-making across the organisation.

Therefore, the CFO must champion the adoption of technology solutions like CMA that support a proactive and data-driven approach to risk management, and empowering them with actionable insights.

Cultivating a culture of risk awareness

Building a strong risk management culture requires more than just technology and collaboration. The CFO plays a vital role in fostering an environment where risk awareness permeates all levels of the organisation. Some of the areas that allow for a more risk-focused mindset in the finance team, and thus what the finance director should aim to educate their team on, are:

  • Establishing a risk management framework: Defining a clear framework with risk identification, assessment, mitigation, and monitoring processes provides a roadmap for managing risk effectively.
  • Training and education: Regular training programs for employees across all departments can equip them with the knowledge and tools to identify and assess potential risks.
  • Open communication: Creating a culture of open communication encourages employees to report and discuss potential risks without fear of reprisal.

By fostering a culture of risk awareness, the CFO empowers employees and departments to become active participants in mitigating financial risks and safeguarding the company's financial health.

Effective CFO risk management skills go beyond tactical execution. By fostering collaboration, leveraging technology, and cultivating a culture of risk awareness, the CFO can bridge the gap between strategic vision and responsible financial decision-making.

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