How maximizing value for business through analysis and proper risk management can lead to this third pillar of finance excellence.
When we talk about climate change, nothing has shifted more than the current risk culture that sprung up after 2008’s liquidity crisis and is pervasive in business and finance circles today. In many ways, it is equally as forbidding, omnipresent and need I say “glacial” in scope and significance as global warming is to ecologists. When speaking with my clients and friends in the finance field about their strategic agenda for 2015, risk and compliance issues prevail. In my latest installment to the Foresight blog, I continued to build the four attributes of the Finance Excellence Model and what it takes to be a great senior finance leader or CEO with the concept of the Champion of Rigor. As ever, we invite your commentary.
A Champion of Rigor is a finance professional who maximizes value for the business through robust analysis combined with proper risk management. Without stating the obvious, competency here is arguably the most immediate need for executives today and has become an important foundational skill as people surf what has become a watershed event in the banking and financial services sector.
The first aspect of Champion of Rigor that requires mastery is about sound financial management and analysis. This involves the skills and aptitude for putting rigorous systems and processes in place and being proficient in leveraging business analysis to support sustainable, compliance-friendly results and growth. Test yourself using the following check list of practices. Do you:
- Ensure that there is a rigorous and cost-effective financial infrastructure for effective reporting, forecasting, planning, transaction processing and management of working capital.
- Apply expertise in process efficiency to optimize and re-engineer processes.
- Have a strong grasp of systems and IT ensuring that these platforms provide the relevant information at an appropriate level of detail.
- Understand and deliver different types of management information, including insights from “the numbers” in order to support the defining of strategy and benchmarking against competitors.
- Use and disseminate models that add to the power of analysis (e.g. EVA, simulation and option-based approaches).
- Bring structure, breadth and logic to business analysis, including in a crisis; identifies the key issues from the detail.
- Excellent insight into the drivers of economic profit and acts as threats and opportunities arise.
- Spot inconsistencies and makes incisive judgments on uncertain data; get beneath the surface of issues. Test business plans against the full range of alternatives, including consolidation and outsourcing.
The second critical variable of the Champion of Rigor relates to managing risk. By risk management we mean an ability to understand and reduce risk while ensuring appropriate controls. Finance leaders who excel at managing risk show competence in the following areas:
- Evaluates risk and offers sound judgements around acceptable levels of risk.
- Understands the underlying assumptions and drivers in the strategic plan to identify risks for the whole business.
- Understands and reduces risk created by sources of uncertainty, e.g. currency fluctuations, political and environmental factors.
- Identifies gaps in risk analysis. Ensures risks are minimized through strategies and controls for their management across the business.
- Ensures that appropriate controls are in place to assess and manage risk.
As organizations are bulking up their risk and compliance departments and “business as usual” gets harder, do not be left in the dark. Taking simple steps to refine and broaden your core finance discipline and apply yourself as a Champion of Rigor will open up opportunities to contribute and thrive in the new economy. Stay tuned for next month when we talk about the final aspect of the Finance Excellence Model: The ability to act as an External Advocate.
Latest posts by Denny Taylor (see all)
- Financial Excellence Model: External Advocate, Part 4 - April 28, 2015
- Finance Excellence Model: Champion of Rigor, Part 3 - January 26, 2015
- Finance Excellence Model: Strategic Function Builder, Part 2 - November 25, 2014