Archives For risk

A return to old school?

accapr —  19 February 2013 — Leave a comment

tall building, modern CFO

By Jamie Lyon, head of corporate sector, ACCA

In a recent global survey of finance leaders by the ACCA and IMA (Institute of Management Accountants), there was one stand-out data point of significant interest on the priorities of CFOs. The data suggests an entire balance of different priorities, some of which are entirely consistent with the finance leaders growing mandate, particularly around business insight and risk, while others were more akin to their traditional finance responsibilities; cost management, control and working capital. This isn’t entirely a surprise and is consistent with soundings we get elsewhere across different markets. This is also a probable underlying story of re-adjustment post-crisis.

Pre-crisis, many CFOs were in deal-making mode and, over the last five years, merger and acquisition activity has generally been one-way traffic; it’s only now that we’re starting to see a potential surge. Pre-crisis too there was much talk of the role of finance as a business partner. The partnering agenda and drive for insight hasn’t gone away but there’s a sense post-crisis that most finance departments earn their spurs first and foremost on ensuring the business is effectively controlled, that it meets its regulatory requirements and that it protects and maximises the funds it creates. The crisis brought into focus sharply a refocus on the finance fundamentals, the importance of sufficient liquidity and strong financial control. Part of the rationale here also relates to the broader call out now for business practices that drive long-term sustainable performance.

To this end, CFOs have a tough job on their hands, balancing the need to develop financial strategies that are beneficial over the longer term, knowing most eyes continue to be on quarter-by-quarter results… and that’s no easy call for today’s finance leader.

Check out the full survey results here….

In CFO, Finance Transformation, FRC, IMA, Jamie Lyon, Risk , , , , ,
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Changing role of the CFO: interview with Holger Lindner

accapr —  4 February 2013 — Leave a comment

Holger Lindner, member of advisory council, Singapore CFO Institute; former chief financial officer, Daimler South East Asia Pte Ltd.,  talks about the external factors and trends that shape the role of the CFO now and in the future. Holger discusses the areas of economic volatility and competition; greater risks rebalancing global economy with emerging markets in Asia, greater investor scrutiny, ethics and behaviour as key priorities for CFOs and finance leaders now.

The Changing Role of the CFO report explains how the financial and business landscape is changing: greater uncertainty for the global economy, fluctuating energy costs, rises in commodity prices, currency fluctuations, government deficits and cost cutting.

In Finance Transformation, Risk , , , , ,
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On the right track?

aksaroya —  26 November 2012 — Leave a comment

By Peter Williams, Accounting and Business journalist and accountant

As well as highlighting the DfT’s poor record on bidding processes, the West Coast Main Line franchise debacle poses deep questions about the accounting profession’s ability to model risk. 

In May 2011, the Department for Transport (DfT) published a mercifully short document, A Guide to the Railway Franchise Procurement Process, which I read, prompted by the debacle over the West Coast franchise. When all hell broke loose over the flaws in the model, a team of consultants from PwC – previously let go to save money – found the errors in the spreadsheet within half an hour.

The DfT admitted that significant flaws had been discovered in the way the bidding process had been conducted. The risk assessment was messed up as a result of mistakes in the way inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result.

The track record on these processes is not good. The Transport Select Committee heard from Virgin boss, Richard Branson, at the beginning of September, weeks before the DfT ditched the franchise process. According to Branson’s evidence, on four recent occasions companies which won bids subsequently admitted to several financial difficulties or went bust.

You may think that the Department may be scarred by those experiences by now. We all need to be sceptical of forecasts that predict high growth right at the end of the period. And to be fair to the civil servants, that May 2011 guide is clear the biggest money bid won’t win unless everything else appears in order. The Department promises it will assess the cost and revenues set out in bids. If this assessment indicates a significant risk that costs of revenues will not be delivered or identifies other reasons why the franchise is likely to be financially unstable, the Department can rule out those bids from the competition on the grounds that they are financially high risk.

Aside from all the clever technical and academic input to investment appraisal, it boils down to one technical question: would I rather receive some money from that person now or much more in five years time? If you cannot see from a common-sense perspective where those big numbers are coming from, then perhaps it is time to say thanks, but no thanks.

The West Coast example should raise some awkward questions for how good accountants are at creating and understanding these models. They are in a good position to do the number crunching, but in building models what are their drivers? What pressures do they face in stressful commercial situations? They need to take a more independent, strategic position on the risk and reward that governments should ask for and private companies should be prepared to shoulder.

Maybe competent and honest professional accountants have become too wedded to the all-pervading efficacy of spreadsheets. As well as quantifiable risk which can be modelled, the accountancy profession needs to start looking at the impact of human psychology and behaviour in difficult and complex accounting and business contexts. We need to ask ourselves questions which we have barely started to think about: if we want to achieve a certain commercial result, how does that impact on the way we behave?

This post first appeared in Accounting and Business UK November 2012.

In Accountants for Business, Current Affairs, Guest, Public Sector, Uncategorized , , , , , , ,
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Aligning stakeholders and boards when making risk decisions

aksaroya —  5 September 2012 — Leave a comment

By James Bonner, independent sustainability consultant

Engaging with, and accounting for, wider stakeholders - a process of understanding, taking into account, and reacting to the needs and preferences of groups in in society who might affect, or be affected by, organisations – is an activity that many companies have integrated into their business strategy.

Implementing methods and systems to understand the needs of both internal and external stakeholder groups to an organisation, and those with financial and non-financial interests, can have significant benefits. Managing and developing positive relationships with shareholders, employees, customers and suppliers can contribute to and improve the productivity, value and sales of an organisation. Additionally, understanding and co-operating with the needs and wishes of wider stakeholders such as the government, local communities and non-governmental organisations (NGOs) can enhance the reputation of an organisation’s brand, reduce the risk of being targeted by external pressure groups, prepare for changes in regulations and legislation, and, fundamentally, improve the long term sustainability of a company.

Corporate governance frameworks and practices are developed by organisations in an attempt to ensure that their management and boards incorporate and balance the different needs and perspectives of shareholder groups, and their interests, into decision making and business strategy. It is apparent that there will be different, and sometimes contradictory, perspectives and priorities on certain issues between various groups (e.g. shareholders and management may have different perspectives whether to expand a business, or focus on short-term profits), or, in fact, within certain stakeholder groups (e.g. an animal welfare NGO may have different, or conflicting, priorities/perspectives to a human welfare NGO with regards to a topic like animal testing of pharmaceuticals). Managing these differences and conflicts is a significant part of the corporate governance process.

The following table is an introduction to various stakeholder groups that are relevant to many organisations, their typical overarching areas of interest, and some areas where they might not entirely agree, or indeed, conflict. The list of stakeholders, their interests, and example priority differences/conflicts provided here are not exhaustive or complete- but serve to introduce/stimulate issues around this topic.

* While not a ‘group of people’, the natural environment can, nonetheless, be considered as an important stakeholder, who can significantly affect/be affected by, an organisation.

This blog post intends to primarily support ACCA’s Accounting for the future session ‘Thinking Alike: getting boards in tune with their stakeholders’ on Monday 8 October by introducing some of the perspectives of different stakeholders on the issues that organisations and companies might impact and depend upon- an issue which will be discussed in greater detail in the session. Additionally, a number of other presentations during the conference relate to the themes covered in this blog post:

8 October
09:30-10:30 Thinking alike: getting boards in tune with their stakeholders
9 October
12:30-13:30 Inclusive and integrated – the future role of the CFO
10 October
15:00-16:00 Practical workshop: active ownership

Further information:
While with a global level focus, and stakeholder engagement in intergovernmental processes, Stakeholder Forum are, nonetheless, a good group to follow to understand the perspectives of wider stakeholder groups.
Follow the Stakeholder Forum on Twitter

In Regulation, Risk, Sustainability , , , , , ,
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