A finance chief has a bird’s eye view of a business’s financial health, comprising the balance sheet, cash flow, capital expenditures and returns. As a result, they are uniquely positioned to architect a strategic risk management plan for the business.
However, the added perspective and resources provided by fractional CFO services can enhance the CFO’s ability to identify and mitigate potential risks. By introducing an objective voice to the process from start to finish, fractional CFO services strengthen due diligence and ensure a more comprehensive approach to risk management.
Avoiding the Element of Surprise
The last thing any business wants is to become blindsided by an unexpected risk, including those stemming from changes in the market, consumer habits or the economy. While some risks are simply unknown and not on the radar of management, astute CFOs can troubleshoot negative scenarios early and even watch out for opportunities they may present.
Finance chiefs have the innate ability to analyze where fresh risks could arise. Fractional CFO services complement this skill by providing an extra set of eyes to help identify potential risks and develop contingency plans. By implementing steps to identify high-risk scenarios, even if they seem unlikely, CFOs can assess the potential timing of an event and how quickly a team can respond. During this exercise, communication is paramount so relevant parties can prepare for any possible fallout.
For example, when a business needs additional funding to capitalize on a market opportunity or must meet development deadlines to launch new products on time, fractional CFO services can help assess the feasibility and risk of these scenarios and develop strategies to address them.
Knowing Risk When They See It
Risk management is not about avoiding risk altogether. Instead, the CFO’s role in strategic risk management is to be able to separate the numerous minor risks from the few major ones. Fractional CFO services provide additional expertise and resources to help identify and prioritize risks, allowing the finance chief to lump them into the relevant bucket while creating processes for how an organization will respond to and keep track of the status of those risks.
Technological developments such as predictive analytics can help by harnessing data to forecast potential events that could unfold. By collaborating with fractional CFO services, CFOs could apply tech models to potential risks surrounding succession planning, changing economic conditions, supply chain issues, client needs and staff turnover, to name a few. Finance chiefs set the tone by establishing criteria for high risks so that others can respond appropriately when those parameters are met.
Risk Education
Business stakeholders, including boards of directors, also have a hand in risk management. However, considering their absence from the day-to-day operations of a business, they may not be privy to new risks that emerge.
As a result, CFOs have taken the initiative to educate board members on the various systems in place, including the reporting, compliance, management and monitoring risks. Fractional CFO services help bridge the gap between the CFO and stakeholders by providing regular updates and education on risk management systems. These finance chiefs can remain accessible to and field questions from board members on issues, such as risk disclosures and mitigation, while incorporating strategic risk management into core competencies to better compete in an industry.
Risk Appetite
CFOs must also recognize which risks must be confronted first, such as staying compliant with regulators, producing financial statements on time and disclosure controls. While this might seem like a thankless part of the job, the CFO is also in the driver’s seat, gauging risk for potentially more rewarding activities, such as M&A.
By leveraging the additional perspective and expertise of fractional CFO services, CFOs can make informed decisions about risk appetite and prioritization, ensuring that the organization’s risk management strategy aligns with its overall goals.
Takeaway
Strategic risk management isn’t only about avoiding excessive risk but identifying opportunities for value creation in areas like product creation or M&A. By integrating fractional CFO services into the risk management process, CFOs can enhance their ability to navigate the complex landscape of strategic risk management and deliver maximum value to their organizations.