The best practices that have been in place up until this point may no longer be sufficient – here are four ways CFOs can help drive change.

This issue of CFO Insights looks at how finance can prepare and be more attuned to an ever changing risk environment. To deal adequately with new risks, from cybersecurity to geopolitical/trade disruption, to the change driven by new technologies, the best practices that have been in place up until this point may no longer be sufficient. As Deloitte notes, best practices become less relevant as they age, and could even mean that opportunities and options are ignored. Instead it's important for finance to have its finger on the pulse, enabling them to react to change and innovate where possible. According to Deloitte, adherence to an established strategy even in the face of change can be particularly damaging in areas such as financial forecasting and budgeting processes, strategic planning and risk management.

This edition of CFO Insights highlights four of the ways CFOs can help drive change and improve financial risk management best practices.

1. Alternative ways to achieving and measuring outcomes

Never stop thinking about how things could be done differently and look around at how other companies may be achieving results with different methods. Think about how you measure success – Deloitte suggests considering return on customer behaviour, rather than return on investment: “Marketplace activity, rather than accepted metrics, is what drive revenues.”

2. Commit budget to new opportunities and innovation

Innovation needs to happen, whether it's expansion into new customer markets or development of new products and services. Deloitte notes: “CFOs serve in a unique capacity when it comes to deploying financial resources that will define how the business pursues innovation.” The problem it outlines is that company resources are often disproportionately allocated to existing products and familiar markets. CFOs need to “guide the company into the transformational space where the bigger risks, and fatter profit margins – not to mention signals of the future – reside.” They can do this by dedicating a percentage of budget to new opportunities that could bring in greater returns.

3. Make budgets forward-thinking and goal-focused

In around three-quarters of companies, budgets are tailored using forecasts based on past results. This is misguided, says Deloitte. Instead, strategy should guide budgets. “CFOs would be better served by basing their budgets on a calculation of how much it costs to nudge customers into engaging into behaviour that results in added revenue.”

4. Reap the benefits of zero-based budgeting

Advocates for zero-based budgeting say it helps to reduce costs, improve efficiencies as well as providing more data on performance across the organisation, such as how and where value is created. “By using zero-based budgeting – where every dollar in every budget must be justified – CFOs are requiring managers to apply a new level of scrutiny to their most recent results, rather than devoting their time and energy to figuring out why the last plan ended up being such a poor (or exemplary) predictor of performance.”