How Should You Measure a CFO’s Success?
Insight from Stuart Pasternak, Toronto Regional Director, CFO Leadership Council
To measure the success of any C-Suite executive, there must be specific and measurable goals and objectives for the positions. The Chief Financial Officer (CFO) position is no different. As the role and responsibilities of CFOs have continued evolving, it has become more challenging to measure a CFO’s success. Doing so involves looking at both qualitative and quantitative measurements.
“Today, the role has expanded considerably, whereby the CFO is one of the top three decision-makers alongside the CEO and the COO.”
~ Stuart Pasternak, Toronto Regional Director, CFOLC
The Ever-Evolving Role of the CFO
Historically, the CFO position primarily focused on financial record keeping, overseeing internal contacts accounts and financial reporting – the financial historians. Today, the role has expanded considerably, whereby the CFO is one of the top three decision-makers alongside the Chief Executive Officer (CEO) and the Chief Operating Officer (COO).
Most CFOs today are responsible for the historical requirements, plus strategic planning and execution and leadership. CFOs are typically responsible for making a wide range of decisions concerning financing, investments and management, including:
- Capital structure
- Risk management
- Treasury management
- Auditing and reporting
- Business and tax planning
- Capital expenditures
- Research and development
- Working capital management
- Budgeting, Forecasting
- Investor relations
Typical quantitative aspects of a CFO’s performance are relatively easy to measure. For example:
- Have net margins and key financial ratios improved?
- Are overhead costs in line with industry peers?
- Have days sales outstanding (DSO) been reduced?
- Is financing in place at attractive rates and terms?
- Is the cash flow running smoothly?
However, qualitative factors are more challenging to measure and an increasingly important part of the CFO’s role. For example:
- Does the finance department have input into the strategic plan and implementation?
- Is finance making value-added contributions to the bottom line?
- Is the CFO an active and visible part of the executive management team?
- Is the information generated by the finance department accurate, timely and actionable?
- Is the CFO thinking and acting like a General Manager? What is the involvement in Sales & Marketing, Supply Chain and Human Resources?
Measure the Right Things
These measurements must be made within the context of specific goals and objectives of the company and the finance department. This involves identifying the key performance indicators (KPIs) that are significant to the company’s ultimate success. KPI’s should be derived from your mission statement and long and short-term goals. KPIs should be financial (e.g., ratios and benchmarks that are common in your industry like debt-to-equity, AR and AP days and inventory turnover) and non-financial, such as quality control, customers and employee’s turnover and lead conversion rates.
It’s essential in today’s increasingly competitive business world that companies measure the success of all C-Suite positions. Doing so involves measuring the right quantitative and qualitative factors, as well as holding those responsible and accountable.
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December 9th, 2019
About The CFO Leadership Council
The CFO Leadership Council offers both live & online programs that feature expert panels and interactive sessions that drive meaningful conversation and leadership development among our membership. Our collection of leadership development resources similar to this article contain pragmatic insights and advice sourced directly from our members and industry experts. Recordings of CFOLC webcasts are made available to our current CFOLC Premium & Virtual members. CPEs are now offered for our webcasts to current CFOLC members only. To learn about our membership and connecting with our growing CFOLC community, visit www.cfolc.com.
The CFO Leadership Conference “CFO Masterclass”
The CFO Leadership Council’s 10th annual national conference “CFO Masterclass” is being held May 11-12, 2020 and is designed to be all about the CFO. It will explore what you need to be a Masterclass CFO in today’s fast-paced disruptive world. This year includes two full days of programming – roundtable discussions, inspiring keynotes, and expert-led interactive panels crafted to dig deep into key leadership areas. Sessions include Mastering The New Executive Leader, Mastering Finance’s New Model, Mastering Delivery Of Company Strategy & more. Network and learn alongside 400+ of your peers across North America. NASBA Certified CPE Offered. Best discounted prices available now until January 31st. Reserve your seat today. www.cfolcconference.com
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