Challenges faced by Financial Managers in a Changing Economic Environment

Abstract

            Rapid changes that are taking place in the economic environment have led to the broadening of roles of the financial managers. Their roles are now going beyond financial reporting, capital budgeting, capital structuring, and financial planning; currently role that is being played by the finance managers have been broadened. This is because changes in economic environment like globalization, technological advancement, risk management, transformation, strict regulations, and stakeholders’ challenges have made it necessary for the finance managers to sharpen their skills. There is a great need for talented people with a lot of analytical experience, properly trained, have got general business view, and more often than graduates with MBAs, or professionals that have worked in banks and other recognized financial institutions provides a great solution to the finance department.

Introduction

            Changes that are currently taking place in macroeconomic setting have affected how most businesses are conducted. Due to these changes, most businesses have had to alter their strategies and priorities in order for them to remain effective. Different departments including financial department in the organization have also been forced to look for better ways to adapt to these macroeconomic changes. As a matter of facts, the more economic system becomes complex, the further multifaceted businesses become, the further contact among players in the economic set up becomes complex, and also the more the work of managers like the financial managers becomes complex. Therefore it is interesting to understand how the finance functions are capable of adapting to some of these complexities and uncertainties that have been brought about by changes in macroeconomics. Due to these complexities and uncertainties, it would be interesting to understand how companies’ boards and Chief Financial Officers have been able to approach some of these changes by incorporating structures that are made up of different finance departments and a mixture of skills that they have chosen for their teams (Ilie, 2015).

            This essay examines some of the challenges that are being faced by financial managers when operating in changing economic environment.

Challenges Faced By Financial Managers

            There have been studies that have been conducted before to find out some of the challenges that financial managers are facing when operating in an economic environment that is constantly changing. The study was conducted by interviewing different CFOs that shared some of the challenges that they have had to go through to change the department of finance for them to react to these challenges in a better way and at the same time putting the needs of the company into consideration. Different financial organizations like The Association of Chartered Accountants (ACCA) and Institute of Management Accounting (IMA) have come up with sequences of deliberations concerning the prospect of the financial role as well as the work of the financial managers. The information that was published by these two reputable organizations in the year 2012 concerning the changing roles of the financial managers, it was discovered that some of the challenges that these financial managers have to face are as stated below (ACCA & IMA, 2012).

Strict Regulations

            To begin with, it is important to remember that as economic environment is increasingly becoming more complex and uncertain, the more the rate of regulations are also changing, and also the more it becomes important to complement guidelines across different regions. It has added to the roles of financial managers so as to comply with all of regulations that have been put in place. This also makes it increasingly important to have professionals in the finance departments that are capable of coping with these changes. They must also have necessary skills to enable them influence the policy as well as the controlling procedures on behalf of their operations (Ilie, 2015).

Technological Advancement

            Quick advancement in technology is one of challenges that financial managers in different organizations have had to grapple with. Considering the fact that major finance function has got everything data collection, it is necessary for the finance managers to be well versed with technological advancement. On the other side there is a lot of information that needs to be composed and organized, and also there are a lot of complicated software that is required to generate this information is made obtainable. Agrawal, Goldie & Huyett (2013), have pointed out that an efficient business may only be formed the moment financial role is properly applying existing expertise so as to collect, arrange, and also to standardized information. This is due to the fact that expertise shall save the time used in looking for information and shall also provide additional time for linking the data, giving important contribution during  process of making decisions and thereafter demonstrating the effect on the operation. Most importantly to remember is that there is greater opportunity during these turbulent times when using huge data and better tools to give insight for the further development of the business (Ilie, 2015).

Risk Management

 Roles that are being played by the financial managers go beyond cost saving alone. One of the major challenges that financial managers have had to grapple with is how to manage some of the possible risks that they may face in the course of doing their work. In a highly volatile economic environment, the CFOs or financial managers must come up with some clever ways to approach these diverse risks in a proactive way so as to safeguard assets of the business, to protect the image of the company by preventing poor behaviors, to make sure that there are better policies that deals with investments, and also ensuring that cash is available and also returns for the shareholders. Therefore it is advisable for the financial managers to adopt a classical balance of risk-returns which is critical in this quick changing economic environment (Ilie, 2015).

Globalization

            The other challenge that financial managers are facing in their day-to-day operations is globalization. As business becoming globalized, financial managers are expected to have a worldwide perspectives as well as understanding. Financial managers must be able to comprehend how their businesses will have to cope with economic situation in another country or region. For instance, these financial managers must also know how their businesses will adapt with different cultures, languages, religions, political environment, and also in a different regulatory context so as to give a valuable input of the finance function into the entire business and at the same time expanding in new markets (Ilie, 2015).

Consequences Related to Changes in Priorities and Strategies

            After being flooded with a lot of information, financial departments in the organization must face imperative changes so as to reduce the gap of information; that is the breach between the data that they are capable of accessing and scrutinize, and one that financial managers require so as to decide in a wise manner. Demand for more insightful understanding may be solved via existing expertise and other complicated software to analyze the information. It is important to remember that technology is quite critical for the purposes of improving analysis and reporting of the collected information, but is not enough. There is a great requirement for talented people who have a lot of logical experience, properly taught, possess universal business sight, and more often than graduates with MBAs, or educated and have worked in banking institutions as well as other recognized financial institutions provides a great solution to the finance department. However, it is also important to note that improving technology as well as I.T software that is capable of providing quite precise and insightful ideas for planned scrutiny needs extra investment from the corporation. It will also provide conversion in the function of finance, through creation of a firm connection with information technology departments, and in other organizations, and also by including the function of information technology experts with the section that deals with finance in the organization (Boyle et al., 2009).

Complexity of the Roles of the Financial Managers

            According to Boyle et al 2009, for the financial managers to plays as effective as required, they must be able to perform several functions: balancing control and growth of cost, implementation of a robust management performance, and also to unlock the talent of other finance professionals. Evolutions that have been witnessed in the economic surroundings and also the more complicated the function of finance become, there is a need for a forced change of the department of finance through dividing into two discrete categories of actions; that is one category should be finance-based, and the other one should be based on the high valued analytic and tactical. If that happens, it would make it even quite hard for the experts aspiring to be financial analysts. For them to make any significant difference in a very competitive economic environment the Chief Finance Officer requires much than technological abilities; he requires to make a difference in the team of Chief Executive Officer, a team that is involved with day-to-day operation of the business (Ilie, L. (2015).

Conclusion

            Generally, businesses are currently operating in global, dynamic, and doubtful economic surroundings. This state of affairs has put a lot of weight on the finance officers and the decision-makers so as to allocate the available resources and also to balance both short terms against long term strategies, so as to counterbalance reductions in cost by identifying long term opportunities for financial growths. Finally, it is important to remember that there are implications on the skills that are required by these managers to face some of these challenges.

References

ACCA & IMA. (2012). The Changing Role of the CFO. Retrieved November 13,2017, from www.accaglobal.com

Agrawal, A., Goldie, J., & Huyett, B. (2013). Today’s CFO: which profile best suits your company. McKinsey Q, 1, 1-6.

Boyle, M., Gaynor, P., Klee, J., Pittman, D.,(2009). Financial leadership in challenging times: challenges and opportunities for today’s CFOs. Price Waterhouse Coopers LLP.

Ilie, L. (2015). Challenges for Financial Managers in a Changing Economic Environment. Procedia Economics and Finance, 27, 726-730.