Challenges for Financial Managers in a Changing Economic Environment

Executive Summary

Downturns that occur force companies to boost efficiency, to make changes wherever it is

possible, learn to be extra productive, but today the only other option for profitability is

growth: making way into new markets in an uncertain economic environment. To tackle

these uncertain times, there is a remarkable need to have the required skills, particularly for

those who manage the finance function in companies. It is essential for companies to have a

powerful guidance from the finance function to locate in turbulent times. Rapid changes and

challenges that have taken place in those turbulent times within the economic environment

since the last few years have widened the role of financial managers. Responsibilities of those

managers involve reporting financials of the company, capital structure, financial planning,

capital budgeting, In addition to this, financial manager is also required to conduct a

professional communicating to the investors and board members. It is interesting to

understand how the finance function adapts to these complications and uncertainties and

how board and CFOs of company have looked upon these challenges by adapting into the

finance department's structure and the mix of aptitude they chose for their teams.

The paper involves an overall view of the challenges faced by Financial managers and the

financial function created by the dynamic economic environment . It also aims to address the

role of the financial managers that is dynamically changing alongside with the evolvement of

finance function.
 According to ” (Axson.D., 2012) “Finance must maintain flexibility, scalability, and

responsiveness to a multiplicity of global opportunities and challenges'.

Over the last few decades global markets have undergone momentous changes, moreover,

social and economic transition, the development of information technology, and the

increasing variety of financial transactions have given new challenges in financial reporting.

Because of these rapid changes in the economic environment and the more uncertain

competition when it comes to some balance sheet items, fair valuation of these items has

increased beside the historical cost-based measurement particularly in the case of financial

instruments. Growth in international trade has resulted a rise in import and export activities,

and the reach of investors and borrowers has globalised, which has added more to the level

of their risks.

Globalization over the years has brought about changes in the financial function by depending

on the increasing role of banks and other financial institutions (Máté, 2010). According to

(Irvine, 2008) and (King, 2006)one can experience the impact of Globalization in accounting and

in accounting standard setting alongside factors such as the increased use of derivatives,

reshaping the existing accounting concepts and outlines. These amendments over the years are

a clear indication of the changes and paradigm shift brought to accounting concept while its

main purpose is to make adjustments in accounting concepts and conducting measurement

methods suitable to the business environment. financial instruments has their role increased

eventually capital market development. Not just financial institutions but organizations have

their dependency on financial instruments, resulting in the enhanced role of related regulation.
When talking about what challenges the financial managers face in the economic environment,

there are number of factors that are abruptly changing year by year, these include; Change in

Regulations, the more complicated and uncertain the economic environment is, the faster the

speed of regulatory changes, which calls for higher need to stabilize regulation across borders.

This gives an extra role to the CFOs to conform with all regulations and to have professionals in

the finance departments that can handle the regulatory changes. They also need to have the

ability to influence the policy and the process of regulation on behalf of their businesses.

Another broadening factor with time is Globalization, as businesses turn global, CFOs require

to have a global viewpoint and experience. They need to understand how their business can run

in different cultures, regions, having different regulations in order to provide an important

input of the finance function into the whole business while digging in new markets. One of the

challenges for the CFO is risk management where the role of the CFO is not anymore only about

cost savings .In a highly dynamic environment, CFOs have to be able to deal the diverse risks in

a proactive way in order to secure the business assets, to avoid poor behaviour that can wear

down value, to make sure the right policies in investments, cash availability and shareholder

return are made. Transformation of the finance function can pose a challenge to being at two

levels where the first is about outsourcing and shared services in the complex environment and

the need for various skills. This creates more risk to the business that has to be managed

carefully. While the second is related to the finance function that remain which should focus

on more effective analysis. When it comes to Stakeholder management the financial manager

has to prove his finance leadership and also the ability to be a strategic partner to the CEO. The

senior finance executives are included in the top management team and bring their input for
better strategic decisions. CFOs need to have good communication skills since they have to

communicate to investors, banks or financial experts, but in an understandable language to

clients, media and the board members.

The financial manager also has to connect the finance related activities and analyze outputs to

the practicalities of the business aiding to the strategy formulation and process of

implementation. The financial managers have to balance numbers and strategy equally and also

has to take a step forward from analyzing the previous performance and predicting on the short

term to a long term outlook on the development of the business. reporting: measurement and

reporting of performance on social, environmental and financial metrics. Amongst many

challenges for the CFO in a globalized environment, diverse set of skills are require to respond

to a more complicated finance function, operations that are created abroad imposing working

with skilful people from different cultures, involving virtual teams in the advanced technology.

Within these conditions, even the figure of a CFO is changed from a specialist to a person with

much wider view and skills (Ilie, 2015). Technology is also one of the biggest challenge where

the finance function has to be in the centre point of a data revolution. Eventually, there is far

more information accessible that should be gathered and processed, with more complex

software to process the data is that is accessible alongside. More successful business can be in

place once the finance function is making use of the available technology in order to collect,

organize and standardize data. Technology reduces the time spent on searching for data and

will give more time in collecting connected information, giving valuable input for the decision

making process and emphasizing the impact on the business

Being overloaded with information, the finance departments have to deal with an imperative

transformation to narrow the information gap, this is the gap between the information that

they can avail and analyze for decision making. The requirement for more concentrated

information can be solved through the availability of technology and analysis software.

Technology is vital for improving analysis but it is still not sufficient. A strong need for talents

with analytical skills is required who are highly trained and have a general business outlook.

This brings also the change within the finance function, through creating a stronger link with IT,

and in some companies by including the IT function within the finance department. (Ilie, 2015)

The challenges mentioned in the globalized environment today can be tackled by the managers

by creating a globalized finance function. They must store up their financial skills and ensure

they adjust themselves well to the changing alignment with organizational goals. For achieving

this, three aspects are required to be done by the financial function, At a minimum, they must

inventory their financial capabilities and ensure their adaptation to institutional variation and

their alignment with organizational goals. To achieve this, a global finance function must do

three things well: (1) Developing the appropriate geographic centre point of decision

making, Large finance functions are present for the Highly centralized firms at

headquarters that help all subsidiaries in decision making, such plan can gain on

many financial opportunities without ignoring the substantial organizational goals.

Decentralized organizations, in which country managers are dominant, must make

some financial decision making according to the country level.

(2) Develop a professional finance staff that has a global rotation, if the finance professionals of

the organization are groomed to be easy going in dynamic environments and have rotation

experience throughout different levels of the country, region, and corporate. then the relation

between the financial headquarters and the subsidiary having expertise resides, can prove to

be a much needed resource in difficult times. Smart companies, hence, put together

policies particularly with an understanding that local conception and strategic

imperatives need exceptions. For making exceptions, processes such as developing a

finance professionals committee to consider opportunities, while ensuring that

deviating from the business norm are carefully managed. (A.Desai)

Conclusively, Businesses operate in a volatile, global and unpredictable economic environment.

Such situation creates pressure on the finance function and its executive to allot resources and

balance short term versus long term strategies, to offset cost reductions with long term growth

opportunities. There exist implications on the skills required to face the challenges and this

creates the career path way in accounting and finance to evolve in new directions. It is a

challenge and an opportunity for the professionals in search for an enriching experience.

Challenges for the finance department also exist in the human resource, in its infrastructure

and technology department. Requirements of Human resource include having improved skills

to make the most in their role. Improved processes has caused organizations more

complications to incorporate technology for gathering, analyzing and reporting important

financial data required for the decision making process.

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