The COVID-19 pandemic has forced chief financial officers (CFOs) to build corporate resilience—not only against the pandemic's impact but also against external risks such as cyberattacks, tariff wars, and climate change. Financial executives and business technology experts point out that the pandemic has made CFOs acutely aware that companies are facing the broadest range of external risks in decades.

Currently, risks facing CFOs include the potential spread of COVID-19 variants, fragile supply chains, growing pressure for sustainability disclosures, and extreme weather events like the Texas winter storm. Additionally, they must watch for signs of financial instability stemming from high federal and corporate debt as well as record fiscal and monetary stimulus.

Barry Keating, co-author of Forecasting and Predictive Analytics (7th edition), said, "In terms of the scale of risks we face, we are in uncharted waters." Keating, a professor at the University of Notre Dame's Mendoza College of Business, noted that companies that fail to predict external threats based on near-real-time or real-time data analysis "will be companies that no longer exist in the future."

During the pandemic, CFOs used advanced data analytics to cut costs, strengthen cash management, and secure supply. For example, detailed analyses of consumer demand and economic growth across multiple countries are helping automakers adjust their just-in-time production to cope with severe semiconductor shortages.

Today, CFOs who effectively manage risk have abandoned traditional forecasting methods that rely primarily on spreadsheets and retrospective historical data. According to CFOs and business technology experts, they have adopted advanced analytics based on massive near-real-time or real-time data to track internal and external risks.

Richard Wagner, CEO of Prevedere, said that with cloud computing and data analytics, CFOs can conduct detailed econometric modeling that many companies had rejected for decades due to high costs. He said, "It's like having an army of economists in a box." Wagner noted that CFOs will shift faster from traditional forecasting to advanced data analytics after realizing that only 15% of the variables affecting business performance come from within the company. The remaining 85%—such as political turmoil, economic downturns, social unrest, and regulatory changes—come from outside the enterprise and are beyond the financial executive's control.

Casting a Wide Net

Jérôme Basdevant, Chief Technology Officer of data analytics software provider Datamaran, said CFOs can gather external risk information from sources such as news reports, social media, regulatory announcements, and quarterly earnings calls of industry leaders, and analyze it based on likelihood and potential business impact. Financial executives with such information can identify and measure emerging risks, such as the reliability of suppliers in pandemic-stricken countries or the impact of lockdowns and other pandemic pressures on new employee well-being.

Basdevant said, "You can turn information that was previously unstructured and difficult to assess into content that can be compared with other risks." Through dynamic data dashboards, CFOs can adjust the magnitude and balance of risks based on a range of scenarios and develop comprehensive, forward-looking, and timely risk management strategies.

Sharon Daniels, CEO of Arria NLG, said, "You need to be able to see what's actually happening across the risk landscape," rather than relying on expectations based on internal historical data. Arria NLG is an AI provider that converts structured data into natural language. When it comes to identifying and measuring risk, "there's no room to fall behind anymore."

CFOs who ignore external threats may face greater regulatory and behavioral risks. In a study by The Conference Board and Datamaran, pressure from regulators and investors may force companies to disclose more external risks related to public health, climate, and workforce diversity. They noted, "Events of 2020 brought climate change, social justice issues, and public health-related risks to the forefront of public awareness," and pointed out that U.S. and European companies currently pay limited attention to these issues in public statements. They said, "It is time for companies to examine whether their financial disclosures adequately recognize systemic risks."

The U.S. Securities and Exchange Commission has begun such reviews, considering how detailed companies should be in disclosing environmental, social, and governance (ESG) risks.

Gartner found that most CFOs expect obstacles in advancing advanced data analytics this year. According to a Gartner survey of 173 CFOs, 82% of financial executives have made adopting such technology a top priority, and 78% expect difficulties in achieving their goals. Similarly, according to an Accenture survey of 450 financial executives at companies with at least $1 billion in revenue, 99% of CFOs want to use real-time data to address risks, but only 16% say they leverage data at the scale needed. 34% of CFOs ranked real-time scenario planning as their top priority for 2021, while 24% cited gaining real-time insights as the primary goal of their finance function.

Other Benefits

CFOs and business technology experts say financial executives who launch near-real-time or real-time data analytics often gain not only insights into external risks but also benefit from more frequent and timely forecasts. Wagner said that early in the pandemic, many CFOs began meeting daily or weekly with leadership teams rather than monthly. He said they "now have to do 'nowcasting' rather than forecasting" in order to "understand what's happening this week and next week."

CFOs and business technology experts say advanced analytics shared on data dashboards drive structural improvements within companies by fostering communication and collaboration. Bill Koefoed, CFO of OneStream Software, said, "Risk must be perceived and discussed in a collaborative way." Given the diversity and rapid evolution of external risks, "everyone has to see it, everyone has to talk about it." Daniels said data dashboards shared across the company break down organizational silos, paving the way for "self-service analytics," where "your IT department is essentially democratizing data."

CFOs and business technology experts say advanced data analytics reveal not only risks but also opportunities. Bryan Hipsher, CFO of Dun & Bradstreet, said, "You could say these are new risks or new challenges, but really, they're more like opportunities to strengthen the company." For example, a technology company could view social media commentary about a lack of diversity in its industry as an opportunity to shift recruiting focus to a broader population and differentiate itself from competitors. Basdevant said that with advanced data analytics, "you can determine where you have the best opportunities, not only to contribute to society but also to differentiate yourself from competitors."

Data Mining Pays Off

Insights from advanced data analytics can boost profits. Wagner said a beverage company determined to dominate shelf space in China knew it was overproducing and holding too much inventory but lacked accurate estimates of future demand. The company aimed to improve forecast accuracy by at least 3% and save $9 million by reducing inventory. The company analyzed multiple consumer indices—including online spending, retail sales, and spending on luxury goods, gasoline, and travel—and improved the accuracy of its four-week beverage demand forecasts by 18%. It confidently cut inventory and achieved its cost-saving goals.

Basdevant said AT&T sought to use data analytics to more effectively identify ESG issues, improve communication with stakeholders, and gain insights for its reporting and strategic decisions. AT&T's regular surveys lacked the nuanced, qualitative insights needed. The company used software to automate the collection of information from social media, regulatory notices, peer reports, and traditional media, and surveyed 26,000 stakeholders across multiple groups, including investors, corporate customers, and consumers—far broader than previous research. Using the survey results, AT&T plotted multiple issues, including work-life balance, corporate water use, and cybersecurity, on charts based on correlation with company performance and importance to consumers and stakeholders. The resulting scatter plots helped prioritize issues and clarify corporate strategy, Basdevant said.

Monitoring External Risks

Today, CFOs identify several major external risks, all of which can be tracked around the clock through advanced data analytics. For example, the 10-year U.S. Treasury yield rose from 0.917% on January 4 to over 1.5% by March 5, pushing up corporate borrowing costs. Through analytics, CFOs can deeply monitor real-time impacts on markets and on company cash and investments. In the Accenture survey, 49% of respondents cited rising interest rates as a major concern. This trend could undermine the Federal Reserve's stimulus measures. At the onset of the pandemic, the Fed cut its benchmark interest rate to record lows and began purchasing $120 billion in bonds monthly. Koefoed said, "Whenever there's cheap money, that situation comes to an end—and often not in a good way." Record monetary stimulus and a $1.9 trillion COVID-19 relief package pending congressional approval have heightened concerns about economic overheating and inflation. Keating said the surge in federal spending "will heat up the economy like a blowtorch on a frying pan on the stove." 47% of survey respondents cited further pandemic disruptions and the possibility of recession as major concerns, while 42% cited hiring and retaining talent as a key issue.

CFOs and business technology experts say that even when facing an unprecedented range of external risks, many financial executives still use only internal data and outdated technology to develop business strategies. Keating said, "I'm afraid many companies today are still doing forecasts on the back of an envelope. Using predictive analytics is a very important way to compete."