To sustain financial institutions’ competitive position, CFOs must be able to dig deeper into data and communicate high-level insight.
Ninety-four percent of financial institution CFOs say they’re pressured to deliver greater insight into how their institution’s financial results impact strategy—but most say they lack the tools to dig deeper.
At a time when finance executives have access to more data than ever, they struggle to leverage that data to understand business trends. This puts CFOs and other senior finance executives in a tough position. They play an integral role in developing, executing, and monitoring their institution’s strategy, but they fall short in articulating:
- Why the institution’s financial results matter
- What can be learned from the numbers
- How leaders can make better decisions based on the results
And if finance leaders can’t tell the story behind the numbers,
who, then, can financial institutions turn to for this perspective?
For CFOs, the survey results point to the need to pivot from a siloed, micro view of financial performance to a macro view that uses integrated data and advanced analytics to inform strategy development. Here are four strategies CFOs should consider.
Strategy #1: Enhance Access to High-Quality Data and Analytics to Improve Strategic Decision Making
The financial services industry recorded strong performance over the past year, but banks and credit unions should take caution: low interest rates and competition for customers have heightened their exposure to interest-rate risk and credit risk. Meanwhile, competition from “neobanks” threatens to pull business from two critical customer segments: Millennials and those who prefer mobile banking services.
These are just two reasons why 65 percent of CFOs are only somewhat confident in their institution’s ability to manage the financial impact of industry disruption.
In a continually changing business environment, the ability to achieve results depends on access to high-quality data and robust analytics.
What are my results? Why did I get these results?
CFOs should invest in tools and software that positions finance teams to move from descriptive analysis (“What are my results?”) to diagnostic analysis (“Why did I get these results?”). Such analyses support decisions that enable sustained competitive performance. They require:
- Access to clean and consistent data—a challenge for 56 percent of financial institutions
- A robust database with sophisticated modeling and analytics capabilities
- The ability to integrate data from any source to perform calculations, create and monitor plans, measure profitability, and conduct other types of reporting and analyses
- Automated reporting and report distribution
Strategy #2: Provide a More Complete Picture of Relationship Profitability
Could your institution measure the profitability of each relationship and customer? If so, how hard is this to do, and what data, metrics, and calculations are used? Profitability is at the heart of any bank or credit union's long- and short-term strategy, so determining key profitability drivers should be a mission-critical priority for any CFO. But while nine out of 10 CFOs say monitoring relationship and customer profitability is important, just 43 percent monitor relationship profitability, and only 41 percent monitor customer profitability.
Understanding the total value of a customer’s relationship
is essential for frontline personnel.
With this information in hand, frontline personnel can price loans and deposits appropriately, more effectively market products and services, retain best customers (and service them appropriately), and more. CFOs should seek profitability measurement systems with the following attributes:
- The ability to actively manage complex relationships and portfolios
- A single repository for both sourced and derived data
- A robust calculation and modeling engine
- Analyses that provide actionable insight on ways to improve financial performance
Strategy #3: Increase the Use of Scenario Analyses
Fewer than one out of four CFOs include multi-scenario analyses in their budget planning process. That’s a red flag for financial institutions, as these analyses offer the opportunity to modify budgets in response to new insight and develop appropriate targets and mitigation plans, where needed.
For example, in progressive institutions, finance executives run stress scenarios to forecast the impact of specific pressures on deposits and loans. These analyses enable finance leaders to assess the effects of stress at a granular level before the budget is finalized.
Incorporating scenario analyses into budget planning increases
CFO understanding of the relative value and impact of strategic initiatives.
The right solution should enable finance leaders to easily pinpoint the impact of various scenarios on the institution’s revenue, cost, profit, debt, and capital structure.
Strategy #4: Shorten Budgeting Cycles to Enable More Value-Added Analysis
More than a third of CFOs say their budget cycles are too long to allow for value-added analysis. Meanwhile, 25 percent of financial institutions still use spreadsheets as a primary budgeting tool. The result: long budgeting cycles and error-prone data processing.
Outdated approaches such as these are no longer acceptable. CFOs who rely solely on spreadsheets should consider systems that streamline planning and reporting processes, eliminate tedious data collection, and automate report distribution. The ideal system also should enable more sophisticated modeling and analysis while providing finance teams with an interface that supports spreadsheet-like analytics.
The impact: more time for high-value strategic analysis and decision making within a shortened budget cycle.
Going Beyond the Numbers
There’s no shortage of challenges facing financial institutions in an evolving business environment—but there is also abundant opportunity. By investing in tools and processes that fuel data-driven insight, CFOs can connect the dots for a macro-level view of performance. It’s an approach that enhances agility while positioning the institution for long-term success.
Start quantifying financial impacts with integrated financial planning software for banks and credit unions
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This on-demand webinar focuses on our key findings and recommendations, based on a survey of CFOs and other senior finance professionals in financial institutions nationwide.