CHICAGO –– Despite a year in which institutions insured by the FDIC reported a nearly 30% increase in net income, financial institution CFOs who say they are “very confident” in their institutions’ abilities to manage the financial impact of evolving business circumstances dropped to just 22% in 2018 from 35% the previous year,
according to a new report.
The same report, which includes feedback from credit union CFOs, also identified 10 strategic priorities for 2019.
The report from Kaufman Hall, 2019 CFO Outlook: Performance Management Trends and Priorities in Financial Institutions, found 95% 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, Kaufman Hall stated in its analysis.
“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, in a statement. “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.”
‘No Easy Task’
Kaufman Hall said it found accessing the information needed to make sound business decisions is no easy task, however. According to the survey, 67% 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% reported challenges gaining “access to clean, consistent, and trusted data,” and “delivering meaningful ad hoc reporting to end users,” while 50% 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,” the report stated.
Among the other findings:
- When asked which profitability dimensions are most important to monitor, 91% of respondents listed “relationship” (the full breadth of a customer’s influence at the institution) and 90% said “customer.”
- Yet only 43% said their institutions are currently monitoring the relationship and 41% 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,” Kaufman Hall said. “Understanding a customer’s total sphere of influence, as well as their current and historical profitability, is critical to supporting profitable growth.”
10 Strategic Priorities
Based on the results of this survey, Kaufman Hall said it 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.