When we released the results of our CFO Indicator Survey earlier this month, many were surprised that 43% of those surveyed cited the ebola virus as a financial risk to their business in 2015.
While we may have not expected ebola in particular to be top of mind for so many CFOs in terms of business impact, it’s not uncommon for CFOs to account for macroeconomic issues within financial plans and forecasts. In fact, considering how macroeconomics influence your bottom line is a very prudent practice for a CFO, so long as the focus is on those that are most likely to impact your business.
There is no question that macroeconomic events will impact your business at some point, in some fashion. Is it the CFOs job to constantly worry about all the worldwide, macroeconomic problems? No. That’s neither practical nor efficient.
It is the CFOs job to deeply understand what drives the business from a top line and from a production perspective, and then quickly tie world or external events back to demand and supply for the organization.The CFOs goal should be to have a plan in place to respond as the business experiences various external shocks. It’s important to be able to answer the question of what are we going to do about it? Are we planned for it, or will we be reactive to it?
Once you’ve done that, then you’re really able to model the impact of the external events that influence your business the most; whether that’s fluctuating oil prices, or political unrest, or severe weather, or a labor strike.
What could those macroeconomic issues impact when it comes to your business? Purchasing? Product? Raw materials? If there are shocks to one or several of these parts to your business model what would you do differently? That’s the thread that takes us back to forecasting and the data-driven nature of business, i.e. monitor some of this macroeconomic data, see how things are going, and keep abreast of world economic and world political situations because one or several of them will impact your business.
In your analysis you may find that some of the things you may have been worrying about are actually not that important to your business, and other factors that weren’t on your radar really need to be accounted for. Again, it’s all about really understanding what drives demand and supply in your business.
That’s the bigger theme for CFOs, and it could be any number of these external events. It could be political unrest, but it could also be a virus or some other medical impact. The key isn’t that you’re worrying about everything that’s happening.
Data-driven businesses and data-driven perspective when ti comes to decision-making is critical, and now it’s more possible than ever to make that happen. Every CFO wants to be strategic, but strategic decision-making in the absence of the right data is very difficult.
Marcoeconomic stressors on your business – what impact do people think they might have on their businesses, and how do you deal with that as a CFO? It’s completely out of your control and can go in so many different directions. Do people even worry about it?
The bigger picture question is how do you deal with the uncertain macroeconomic climate and its potential impact on your business? My answer to that is you really can’t, other than trying to stay ahead of it and then having good plans to withstand the shock of those factors regardless of what those are.
Thinking about and planning to handle various marco economic stressors is basically a game of “what-if”? Well, what-if any number of different things happens. Why is it important to play this game? Because then you have a plan as opposed to being surprised and having to think on your feet when you find yourself in that situation. It goes back to being well-prepared so that even if you end up in a situation that you don’t have complete control over, you’ve at least figured out how you’re going to respond to it and thought about the impact of various possible responses ahead of time.
In Adaptive, you’d have to say – what’s the macroeconomic event that’s likely to happen, and then what’s the impact to our business? Take the macroeconomic event of fluctuating oil prices as an example. Oil prices would have to be an input to your production. Or, if I’m the CFO of an airline company, fuel is a huge part of my cost structure. The best way to prepare for fluctuation would be to model the various cost implications as prices go up and down.
For anyone in the print business, the price of paper is huge macroeconomic factor to consider. These events usually have the biggest impact on businesses that sell commodity goods and the willingness of specific markets to continue to purchase and produce those goods.
In some cases, macroeconomic events might influence a company’s decision to stop product or sales in certain geographic areas. What does that kind of huge decision mean for your business, considering that not having a production plant in operation essentially cuts down the amount of product you have to sell. You may no longer have the costs associated with that plant, but now all of a sudden you don’t have the sales.
Do macroeconomic issues have an impact on sales? Do they have an impact on production? If prices go up, what does it mean for your business? If sales go down, what are you going to do? How long can you weather through a decrease in demand before you have to take internal action, i.e. more financing, downsizing,
Do you have to lineup more financing to get through that?