New biz environ: CFOs face multiple risk management tasks

CHENNAI: The office of finance is transforming itself into a strategic advisory role to guide the organisations in coping with the operational challenges during turbulent and uncertain times. The key focus areas of the office have dramatically changed for the good.

They are now focused on future landscape, opportunities and challenges, planning, analysis and financial management through effective real time operational data.

At the ET forum on " role of finance to weather volatile economy & performance management, organised in Chennai on Wednesday in association with IBM India as knowledge partner, chief financial officers, representing different sectors, discussed how real time analytics of operational data can provide the necessary insight to tackle those challenges.

Price House partner, Abdul Majeed moderated the session. Initiating the debate, David Morton, industry solutions lead, IBM Software group, Singapore said cash flow is an oxygen in turbulent times. In the new economic environment, the finance managers have to face short term and long term challenges, deal with forex, interest rates, expenditure management and risk management. They have to interact with the board and take decisive actions.

He said companies with the best practices in place have to deal only with 15 components relating to their business whereas it will be 230 items for others. Mr Morton also explained how investment in automation could bring about a transformation by improving the efficiency. It will help organisations to plan for multiple scenarios like deep recession, zero growth and modest recovery.

He noted many organisations are wasting valuable talent. During a week, they spend two days on collecting data and rest of the days on analysis and interacting with the management and decision making. Whereas, with automation, it is possible to collect data within half a day and spend rest of the days for performance analysis, interaction with the management and for strategic initiatives.

Apollo Hospitals Enterprise CFO, S K Vankataraman said data alone is not enough for performance management. " We are dealing with imperfect data. Financial transactions are influenced by human nature. As there is a volatility and standard deviation of mind, thinking by a finance person plays a crucial role. For this, we need to practice corporate yoga".

Not much risk mitigation measures including insurance are available for a CFO. He also questioned the relevance in the usage of standard jargons like IRR, NPV and other financial metrics to judge the performance of a corporate.

Similarly, instead of calculating BSE sensex based on PE multiples and EPS, debt;equity ratio should be considered as it will show to what extent the companies are leveraged. The huge money in repo reserves showed the banks are not lending much to corporates, he argued.

S G Murali, CFO, Sundaram Clayton & Executive VP- TVS Motor said the role of CFOs has not changed much. May be they are in the limelight due to the global meltdown. " It continues to be on conserving cash, cost competitiveness, creating a capable and credible organisation and complying with laws".

He also said in the changing environment, they could become mentors in leading the organisations. They need to be transparent, speak the truth and play a leading role in risk management. It is also important to educate the students in schools and colleges on the importance of finance.

N C Sridharan, Director ( Finance), Chennai Petroleum Corporation said CFOs��� role has become challenging with the need to managing risks relating to forex, commodities and interest rates. Besides the conventional budgeting exercise, they are involved in taking techno commercial decisions.

He welcomed the transition from the Indian generally accepted accounting principles ( GAAP) to international financial reporting standards ( IFRS). Such a convergence into international accounting standard will be good for companies with India set to reach the top slot by 2020. It will help companies in creating value for all stake holders. Indian PSUs, who are pioneers in innovation and corporate governance, will be in the forefront of the transition, he pointed out.