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The CFO’s management checklist Back  
Chief Financial Officers (CFOs) have been faced with a challenging landscape over the past number of years, due to developments such as the Sarbanes-Oxley Act in the US, local governance requirements such as the impending Directors’ Compliance Statements, and the adoption of International Financial Reporting Standards. While the breadth and complexity of the CFO’s agenda will not go away, Shane Mohan writes that it may begin to stabilise, thus allowing the CFO to move out of a reactionary mode into a more planned and structured approach, enabling the finance function to add enhanced value to the organisation.
The role of the CFO and his/her finance function continues to evolve. Currently there is a significant control and operational focus to the role of the CFO with developments such as the Sarbanes-Oxley Act in the US, local governance requirements such as the impending Directors’ Compliance Statements, and the adoption of International Financial Reporting Standards. This was pre-dated by, and indeed in many respects cut off, the broadening strategic role of the CFO during the era of the Celtic Tiger and the dot com boom. Prior to this CFOs were typically preoccupied with major undertakings such as the implementation of corporate wide ERP systems and the move to shared services, projects which had a dual control and cost management focus.

The Deloitte CFO Survey in 2005 highlighted this contradiction in roles. The top three priorities facing the finance function were identified as being:
• Controlling costs in the business
• Providing better information to support decision making
• Improving risk management and internal control.
Taking this a step further we consulted widely with CFOs of leading national and international companies and identified the following significant items on the CFO’s agenda:-
• Adapting to new business models encompassing more integrated business relationships with suppliers and customers, electronic commerce and outsourcing
• Adapting to the faster pace of mergers, acquisitions, consolidations, alliances, etc.
• Supporting step transformations in business operations e.g. rapid
• The need to ensure stakeholder trust in the governance of the organisation and a more demanding regulatory environment
• The demand from shareholders and other external stakeholders for quality financial information, aligned with meaningful analysis of the underlying business
• Demands from fellow managers for quality management information on a real time basis

While these challenges do not all just impact on the CFO, they do have significant implications for his/her areas of responsibility. The breadth and complexity of the CFO’s agenda will not go away, although our view is that it may begin to stabilise thus allowing the CFO to move out of a reactionary mode into a more planned and structured approach, enabling the finance function to add enhanced value to the organisation.

The evolution of the role of the finance function since the early 1990s is set out in Figure 1 and it also presents our view as to how the role of the finance function will evolve. Rather that focusing heavily on specific issues or areas, the CFOs leading best in class finance functions are already, and will continue to adopt, a more balanced approach across three core areas:

Integrated Performance Management(IPM/) - reflecting the CFO as a key contributor to the leadership and management of the organisation. The purpose of IPM is to improve management control and decision making, and in turn organisation performance. IPM enables this by adopting an integrated approach to technology, people and processes across all stages of the management cycle – strategy and planning through to budgeting, reporting and management action.

Stewardship - reflecting the CFO as a key contributor to effective corporate governance. Stewardship aims to ensure a consistent focus on internal control, risk management, information security and regulatory compliance.

Finance operations - to ensue that the CFO can effectively deliver on the above two roles, and manage the overall cost of the finance function. Efficiency and effectiveness are the key attributes required of the finance function as it seeks to balance its multiplicity of responsibilities. The organisation of the finance function will continue to evolve with three core areas of focus:

• Business support/partnering
• Control and compliance
• Transaction processing (including shared services and outsourcing in certain circumstances)
• Finance function strategy

It would be unheard of for any organisation not to have a corporate strategy or business plan, an IT strategy or a marketing plan, so why, to date, have many CFOs not had a finance function strategy, particularly given the many demands being placed on them? What we are now seeing is that leading CFOs are adopting a strategic approach to managing their function in order to ensure that they are dealing with the multiplicity of demands and ensure that they are contributing real value to the organisation.

The Finance Function Strategy must be an integral element of the corporate strategy or business plan, ensuring that its short term and long term objectives are aligned to those of the organisation. The objectives for a finance function, all of which need to have clearly definable performance measures, might include target total cost of the finance function, regulatory (e.g. SOX) compliance and audit results, and service level agreement metrics.

These objectives can be achieved through on-going operational improvements or major projects such as an ERP implementation. Over the last number of years many finance functions will have found themselves in a heavy project mode as they dealt with issues such as regulatory initiatives, IFRS conversion, implementation of shared services, systems implementations, etc. Where this is the case, a gap we have seen on a number of occasions is the failure to treat these projects as an integrated programme. Smarter organisations have, on the other hand, capitalised by integrating, for example, shared services and ERP implementation, and in the future will use their shared services organisations to add further value through maintaining significant elements of the control environment, and standardising management reporting on a regional or even global basis.

Other elements of the finance strategy will need to address:-

Organisation – How is the finance function organised and have we appropriate focus on each of our core roles? Are reporting lines clear? Have we “rightsourced” the finance function operating model to include the optimum mix of business support, shared services, offshoring and outsourcing?

People – Do we have the right people with the right mix of skills, how are they managed and organised, are roles and responsibilities clear, how much time is spent on basic accounting and transaction processing versus supporting the business?

Processes – What are our core transaction processes (e.g. accounts payable, accounts receivable, etc.) and management processes (e.g. planning, budgeting, reporting, etc) and how efficient and effective are they? Do we have the right mix of centralisation and devolution? Have we clearly defined policies, procedures and controls?

Technology – Are we using the right enterprise and financial systems, and analytical tools? Are we getting full value from our investment in technology or is further investment required to drive greater efficiency and effectiveness?

Guiding principles
A few simple guiding principles have been proven to help sharpen the focus of the finance function strategy:

• Get the basic accounting and control environment right first
• Performance measurement is an integral part of the control environment
• Effective corporate governance is internally driven not imposed externally
• Finance objectives, roles and responsibilities have to be clearly defined
• Make use of technology to enhance reporting and performance management
• Instil a business performance management mentality in the finance function

Defining a finance function strategy is not complex, but it does require the CFO and his/her team to stand back and understand what is important to the business, and how the finance function can really add value. They need to identify their own performance improvement initiatives and measures, and the supporting infrastructure necessary. Such a structured approach helps ensure internal and external confidence in financial management and reporting, and enables the finance function to add considerable value to the organisation.

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