Executives say the integration of data from multiple sources and better data and visualizations are of critical concern to informing better business decisions.
CHICAGO – February 5, 2019 – Despite a year in which institutions insured by the FDIC reported a nearly 30 percent increase in net income year over year, CFOs who say they are “very confident” in their institutions’ abilities to manage the financial impact of evolving business circumstances dropped to just 22 percent in 2018 from 35 percent the previous year. That is just one of the key findings in the new Kaufman Hall report 2019 CFO Outlook: Performance Management Trends and Priorities in Financial Institutions.
To inform strategic decisions as business conditions change, 95 percent of those surveyed said their institutions should be doing more to leverage financial and operational data and analytics as part of performance management efforts. This capability is especially critical since CFOs and other senior financial executives are increasingly integral to the development, execution, and monitoring of their institutions’ visions and strategies.
“There is no doubt this was a strong year financially for banks and other financial institutions, but CFOs recognize that there are serious threats on the horizon,” said Ken Levey, vice president at Kaufman Hall and the report’s author. “A volatile economy, coupled with offerings from new players attempting to siphon off some of the most profitable lines of business, are putting traditional financial services institutions at greater risk. CFOs need the data and tools to anticipate alternative economic environments and have plans in place to address each of them. The report’s findings acknowledge this reality and reinforce how performance management must be enhanced in the years ahead.”
Accessing the information needed to make sound business decisions is no easy task, however. According to the survey, 67 percent of senior financial executives said their top financial reporting challenges are “pulling data from multiple sources into a single report,” and “creating more effective dashboards and visuals.” Additionally, 56 percent reported challenges gaining “access to clean, consistent, and trusted data,” and “delivering meaningful ad hoc reporting to end users,” while 50 percent listed “drilling into reports to understand underlying data” and the “ease of report creation” as critical issues. The use of a modern platform that automates reporting and the report-distribution process would make it easier for financial executives, board members, and non-financial staff to access and interpret the information quickly.
Focus on relationships and customers
When asked which profitability dimensions are most important to monitor, 91 percent of respondents listed “relationship” (the full breadth of a customer’s influence at the institution) and 90 percent said “customer.” Yet only 43 percent said their institutions’ are currently monitoring the relationship and 41 percent are monitoring the customer. Since a limited number of relationships often generates a disproportionate amount of net income in financial institutions, improvement in this area would likely benefit many institutions. Understanding a customer’s total sphere of influence, as well as their current and historical profitability, is critical to supporting profitable growth.
Based on the results of this survey, Kaufman Hall identified 10 strategic priorities for 2019 and beyond:
- Enhance access to, and use of, high-quality data and analytics to improve strategic decision making
- Create better visualizations to communicate financial information
- Better understand and measure profitability and its drivers, particularly relationship profitability
- Consider profitability-based incentive compensation programs
- Shorten budgeting cycles to enable more value-added analysis
- Increase use of scenario analyses and rolling forecasting
- Improve the monitoring of capital project plans and budgets
- Advance reporting and analysis to support decision making
- Ensure skilled personnel and redesign outdated planning processes
- Acquire funding to replace or augment inadequate financial performance management tools
The third annual report presents the results of an online survey completed in October and November 2018 by CFOs, vice presidents of finance and treasury, directors of finance, and other senior finance professionals at the nation’s banks, credit unions, and farm credit services. To download a copy, visit 2019 CFO Outlook: Performance Management Trends and Priorities in Financial Institutions.
About Kaufman Hall
Kaufman Hall is the performance solution company that helps the management teams of organizations in dynamic, disrupted, and transforming industries improve financial performance, make strategic decisions, and plan their futures. Our solutions are driven by rigorous analytics to help organizational leadership achieve the transformative outcomes they need to compete and win. With specific expertise in targeted industries including financial services, Kaufman Hall hires the best of the best to partner with clients and solve the toughest business problems on earth.
Kaufman Hall’s Axiom Financial Institutions Suite provides sophisticated, flexible performance management solutions for banks, credit unions, and farm credit associations that empower finance professionals to analyze results, model and forecast scenarios, and optimize organizational decision-making. Solutions for strategic decision management, budgeting and forecasting, funds transfer pricing and profitability management, reporting and analytics, and incentive compensation management are delivered on a single unified platform.