At the latest, when one has to fill the position of a CFO or even when one is on the other side applying for such a role, the question has to be answered of what it is the job actually requires and what qualities the candidate ought to have.
Besides, having a glorified job title, CFOs play a major part in building a strong financial foundation for the company’s growth and therefore are one of the important actors in thriving strategy implementation.
QFINANCE‘s definition of strategic financial management refers to key tasks including identifying a strategy able to maximize the net present value and ensuring general conditions by allocating capital resources and finally implementing and monitoring the strategy path itself.
In ‘What is the role of a CFO?’, William von Aachen (president of Strategic Management Resources, a management consulting firm) describes five main task areas the CFO is confronted with:
– Implements/Supervises Internal Controls
– Handles Projects With Major Financial Impact
– Cultivates Relationships With Outside Financing Sources:
An issue, gaining in importance rapidly, in course of the financial crisis and the public’s desire for more regulatory responsibility.
– Drives Major Strategic Issues
– Serves As Key Advisor To Company Management
Lets have a closer look at the fourth point: Drives Major Strategic Issues.
This is addressing strategic decisions having an impact on the long-term future. Designing the far future is a process full of uncertainties and risks. The CFO has the task to build the fundament by making decisions carefully to overcome risks or to manage uncertainties in a way reducing the default as far as possible. Please note here the difference between risk and uncertainties. The later being incalculable, as factors are unknown. Common aids for decision making are well-know models, like decision trees analysis (real options), discounted cash flows (DCF), payback method and combinations.
CFOs have developed from risk controllers to risk managers! (businessweek.com)
The area of risk management is insatiable and would go beyond the scope of this post. Though, you are welcome to leave your key thoughts as comment.
During the decision-making progress one can differentiate three major areas, according to an author on EzineArticles.com:
– Financial decisions: the mode of financing, determining the debt-equity-ratio, which also plays a role for investors, rating of the company and credit worthiness.
– Investment decisions: involving long-term thoughts about the use of funds by evaluating projects in relation to their expected return and risk.
– Dividend decisions: although retained earnings is a source for funding projects and growth, one ought not to lose sight of its signalling effect which also influence the investor’s decision and thus the funding possibilities.
Concluding, according to the short introduction into strategic financial management above, in the course of evolution of the environment, especially in terms of communication technology, global firms have to interact more thoughtfully with externals. While challenges for CFOs grow in complexity, new ways have to be devloped to capture a variety of paradoxes, on the way to hybrid business strategies.