4 minute read 25 Sep 2020
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How can you succeed in the Transformative Age and reimagine finance

By Michael Herrinton

EY US Government and Public Sector Leader

Seasoned business leader. Audit and risk professional. Devoted husband and father of three. Avid sports fan, especially all things Michigan State.

4 minute read 25 Sep 2020

The future of finance and the evolving role of the CFO.

In brief

  • CFOs have an opportunity to shift focus toward their goal of transformational leadership.
  • Leading CFO organizations have implemented automation technologies in most of their business processes, freeing up 20% to 60% of productive time.

For years, CFOs have been seeking a bigger seat at the table in strategic conversations for their organizations. While there is good intent with this, CFOs have had mixed results in shifting away from transactional or compliance-focused finance. The global COVID-19 pandemic requires CFOs to now guide their organizations through difficult financial waters, deal with the impact of remote work arrangements and effectively manage increased risk. The time is now for CFOs to enact a shift — with significantly enhanced automation capabilities, evolving digital data capabilities and the CFO role as a major owner of organizational data, CFOs have an opportunity to shift focus toward their goal of transformational leadership.

Leading CFO organizations have implemented automation technologies (e.g., intelligent automation such as robotic process automation or RPA) in most of their business processes, freeing up 20% to 60% of productive time. These freed-up resources now focus on delivering organizational insights such as measuring outcome to funding ratios, identifying reform opportunities, proactively mitigating risk, and monitoring organizational efficiency and effectiveness. Leading organizations are using data and digital technologies to accomplish the following:

  1. Get the organization to derive value from financial information — one in every four decision-makers doesn’t consider the financial implications of their decision-making.¹ Leading CFOs are making it easier for the organization to engage with and act on financial data using design thinking and visualization techniques and tools. A focus on financial cost transparency is a key starting point for CFOs to increase organizational acumen around the financial implications of decision-making. In addition, CFOs should take the lead in tracking reform and modernization efforts to measure the return and/or mission impact from investments. In the near term, CFOs should be actively measuring the financial implications of the COVD-19 pandemic on revenues, fund flows and the value delivered from increased funding from the government’s response to COVID-19 (e.g., CARES Act).

  2. Manage and detect financial risk — algorithms can explore data to identify fraudulent transactions and support requirements associated to tracking improper payments. The use of algorithms can accelerate prioritization of risk areas and enable 100% risk coverage of the transaction population. The use of intelligent automation not only reduces manual processing but improves auditability, consistency and control over error-prone activities. CFOs leveraging these advances in technology can more rapidly identify and communicate risk to the organization and work to define effective mitigation strategies. In addition, they can use prediction engines to proactively identify areas of potential risk exposure. The impact of COVID-19 heightens the need for alternative channels to manage and detect risk as remote work arrangements challenge existing processes and introduce compliance flexibilities in support of expedited funding to impacted populations.

  3. Use predictive analytics to improve performance — with the proliferation of available data (internal and external) predictive analytics is being used to improve demand management (e.g., IT consumption), predict risk, predict future costs and funding patterns, as well as a variety of other customized use cases. COVID-19 is accelerating the pace of digital transformation and introducing an ability to capture a larger set of useable data for delivering insights. In addition, CFOs have the incredible challenge of forecasting future financial positions as a result of the pandemic. Using historical trend information in developing these financial forecasts is insufficient requiring CFOs to look to external data sets or focus on new data capture processes to develop scenarios and associated planned responses to financial shortfalls.

  4. Partner on cybersecurity — the increased threat of cyber attacks requires CFOs to partner in threat monitoring (e.g., deploying AI algorithms to detect unusual traffic patterns in IoT devices, understanding third-party risk management or conducting proactive threat testing). It is estimated that the number of connected devices will exceed 50b in 2020 and that attacks and breaches will cost organizations $2.1t each year. ² ³ The harmful reputational and financial impact of a potential data breach requires CFOs to have cybersecurity as a top priority. Protecting the enterprise is no longer just the acquisition of cybersecurity software (i.e., install and forget it), but requires active cybersecurity services to provide threat detection and response, vulnerability management, data protection, identity access management, and application security.

  5. Deploy enterprise data strategies with a bias toward action — data is being democratized, which requires CFOs to partner around how data will be organized, deployed and used with a bias toward speed and flexibility in solving business problems. Leading practice CFOs focus on answering business questions through use cases and then allow the use cases to inform and evolve the data strategy vs. a data-first approach.

  6. Understand future technology trends, value and shortfalls — as technology continues to be a disruptive force, CFOs, with their business partners, need to assess and understand the value of deploying these technologies on mission outcomes and organizational efficiency. For example, within transportation, the increasing use of AI will require understanding AI shortfalls (e.g., ways AI-driven autonomous vehicles can be tricked) and require AI transparency for adoption and effective risk management. It is also important to understand how new technologies work and avoid a black box scenario where organizational decisions are being made by an algorithm without knowledge of how they are being derived. New approaches to auditing algorithms are being introduced to understand when an algorithm may drift or where it contains certain biases.

Taking advantage of these new automation and data capabilities requires CFOs to understand how their organizations need to change and adapt to the new possibilities. This will involve an organizational evolution toward the more strategic roles of finance or what we term “the catalyst” (strategy and change execution), “the oracle” (decision support), “the guardian” (risk and compliance) “the steward” (funding), “the concierge” (customer service) and “the curator” (finance process).

Future roles of finance

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Summary

The global COVID-19 pandemic requires CFOs to guide their organizations through difficult financial waters, deal with the impact of remote work arrangements and effectively manage increased risk. CFOs now have an opportunity to shift focus toward their goal of transformational leadership.

About this article

By Michael Herrinton

EY US Government and Public Sector Leader

Seasoned business leader. Audit and risk professional. Devoted husband and father of three. Avid sports fan, especially all things Michigan State.