Executing a successful risk management program for an organization is a collaborative effort that necessitates the commitment of the entire organization, particularly the C-suite. While the CEO holds ultimate accountability for the assessment of risk, it is the Chief Financial Officer (CFO), who pulls it all together. This article delves into the multifaceted responsibilities of the CFO during a risk management assessment, where they often take on roles such as Communicator, Conductor, and Collaborator.

Numbers and Narratives:

The CFO's involvement in risk management extends beyond traditional financial responsibilities. While overseeing financials and operations is paramount, the CFO also takes on aspects of a Chief Risk Officer (CRO). The CFO aids the CEO in telling the organization's story to various stakeholders, ensuring alignment between narrative and financial metrics, such as EBITDA and cash generation.

Conducting the Orchestra:

Functioning as a conductor, the CFO manages the financial implications of different operational workstreams, providing the CEO with the necessary data to present a compelling narrative. The CFO anticipates potential financial, reputational, and operational risks. This proactive approach allows for the identification of risks in advance, enabling the implementation of mitigation measures to ensure the assessment of risk is successful and produced. The CFO, like a Conductor of an Orchestra, pulls in special effects like Legal, IT, Insurance, and other outside advisors, as deemed necessary. 

Navigating Complex Risks:

Today's risks are intricate and competitive, requiring CFOs to leverage various tools and strategies. Private equity owners demand quicker and more substantial returns. The CFO must explore every avenue, addressing multiple levers to unlock the full potential and identify and quickly mitigate risks.

Stakeholder Management:

Effective stakeholder management requires subtlety. The CFO must comprehend internal dynamics without impeding functional leaders while strategically communicating externally. While financial acumen is essential, a well-rounded CFO embraces a 'jack-of-all-trades' mindset, emphasizing communication, collaboration, and team building.

Conclusion: Support through Challenge, Collaboration, and Communication:

The CFO's role related to risk management extends well beyond assessing the balance sheet and income statement. Ultimately, the CFO contributes significantly to delivering financial results, however, a major benefit that the CFO provides behind the scenes is the assessment and mitigation of risk to the organization.  A value for all stakeholders.

The Authors

Tim Journy is a Partner at the Florida CFO Group and a seasoned professional, with a proven track record of implementing best practices, enhancing internal controls, and driving financial success across diverse industries. Tim has significant experience in the financial and risk management areas having served as Chief Financial Officer for multiple companies, including General Auditor for a Fortune 50 international organization and Audit Partner for a Big 4 firm.   

Don Noble, a distinguished Partner at the Florida CFO Group and a technology expert, boasts an extensive background in financial leadership and advisory roles. Leveraging his wealth of experience, he collaborates with businesses to optimize their financial and technological strategies, fostering growth and resilience in the dynamic marketplace.

Contact Us

If you have any questions or would like to have a discussion in your organization’s risk assessment, please give the Florida CFO Group a call. We are here to help you navigate your financial challenges and achieve success.

In an era of rapid technological advancements and unprecedented global challenges, the value of structured and formal education has never been more critical. While some may argue for alternative forms of learning, such as online courses or self-directed study, there are compelling reasons why structured and formal education remains indispensable in today's world.

1. Foundation of Knowledge: Structured education provides a strong foundation of knowledge across various subjects and disciplines. It ensures that individuals acquire a comprehensive understanding of fundamental concepts, theories, and historical contexts. This knowledge serves as a solid framework upon which innovation and problem-solving can flourish.

2. Critical Thinking Skills: Formal education promotes critical thinking and analytical skills. It encourages students to question, evaluate, and synthesize information, fostering the ability to make informed decisions and solve complex problems—an essential skill set in a rapidly changing world.

3. Collaboration and Social Skills: Schools and universities are environments where students learn to collaborate, communicate effectively, and work in diverse teams. These social skills are invaluable in a globalized society where cooperation and cultural sensitivity are increasingly essential.

4. Professional Development: Many professions require formal education and certifications to enter or advance. From medicine to engineering to law, structured education ensures that individuals have the necessary qualifications and expertise to excel in their chosen careers.

5. Adaptation to Change: The modern world is marked by constant change and uncertainty. Formal education equips individuals with adaptability and resilience, allowing them to learn new skills and adapt to evolving circumstances throughout their lives.

6. Access to Resources and Expertise: Educational institutions provide access to a wealth of resources, including libraries, laboratories, and experienced educators. These resources are often beyond the reach of self-directed learners and are crucial for in-depth learning and research.

7. Ethical and Moral Values: Structured education often includes the transmission of ethical and moral values, emphasizing the importance of empathy, integrity, and social responsibility. These values are vital for fostering a just and compassionate society.

In conclusion, while informal and self-directed learning have their merits, structured and formal education remains the bedrock of personal and societal progress. It not only imparts knowledge but also nurtures essential skills, values, and adaptability, preparing individuals to thrive in an ever-evolving world. As we confront the challenges of the 21st century, investing in structured education is an investment in a brighter and more promising future.

In recent years, executive teams have been strained to continue to provide comprehensive group health plan benefits within their budgets. Small to mid-sized employers find this task particularly difficult since their smaller groups can experience extreme increases in costs driven by a few major illnesses in their covered groups.

When faced with a large premium increase at renewal time, the first step is often re-bidding with other providers – with a primary focus on the Blue Cross companies, United Healthcare, Cigna, Aetna, and Humana, the so-called “BUCAH” insurers, which dominate the traditional group plan market. Health plan brokers that intermediate this process often suggest raising deductibles and out-of-pocket maximum costs to employees and the coinsurance and copayments that employees pay at the point of service.

This annual cycle of increased premiums (and Company expense) and lowered benefits (and negative employee reaction) has become a strategic threat to profitability and employee satisfaction. Innovative companies have become more open to alternative approaches to group health insurance delivery.

Enter self-insured or self-funded plans using reference-based pricing. This approach depends on close cooperation between companies/plan sponsors and third-party administrators (“TPA”s) to jointly implement strategies to bring down the cost of medical care while taking steps to improve care.

These strategies include pricing of healthcare services based on a relationship to an accepted reference. The most typical reference is the Medicare rates set nationally for each diagnosis and procedure. While most providers charge their commercially insured patients much more, they accept Medicare reimbursement from their older patients. TPAs that specialize in this area can often reach agreements with providers to accept payments, which is a small increase over Medicare payments. Since these amounts are much less than the traditional BUCAH claim for the same care, savings can be very large.

Another aspect of this approach that companies must accept is that of self-insurance or self-funding. Generally, the Company pays both the cost of claims plus a fee and administrative costs to the TPA, as opposed to a single, typically fixed insurance payment to a BUCAH or other traditional plan provider. Careful analysis and purchase of appropriate stop-loss insurance can greatly diminish the chances of unexpected losses. If done well, the Company can realize very significant savings with manageable risks.

A Florida CFO Group partner became an expert in this area as he helped his company with a fully insured health insurance plan that faced a 75% premium increase.  This equaled $1.7 million, an increase that would have crippled profitability. The company sought bids from other large healthcare insurance groups (the BUCAHs) but found no relief. After extensive research, and with cooperation from the CEO and HR director, the CFO partner helped the company transition to a self-funded medical plan with a Third-Party Administrator (TPA).

The Company team worked with a new broker, who was familiar with and knowledgeable about self-funded health insurance programs. Their three-year implementation and transition included initially moving to a self-funded plan, that used a large insurance company’s network and Pharmacy Benefit Manager (the “PBM”).  Stop-loss insurance was procured to protect the company by capping high claimant costs, both individually and in aggregate.

Once the Company and its employees became comfortable with the new approach, it appointed a new TPA and incorporated reference-based pricing, claim auditing, and direct negotiation of medical facility charges. The company then focused on its prescription benefits and ultimately swapped out the PBM for a more aggressive/hands-on specialty group that was more focused on multiple strategies to keep pharmacy costs down.

This initiative saved the partner’s client $5.5 million in healthcare costs over the last three years. Its employees embraced lowered costs and a medical support team that helped them find high-quality care while eliminating waste – both time and money. The initiative accomplished a true “win-win” outcome for the Company and its valued employees.

Other Florida CFO Group partners have assisted clients in seeking similar solutions. So far, adoption of self-funded plans has been limited but some companies have taken a “half-step” approach with level-funded plans now being offered by BUCAH carriers. In these cases, a lower premium is paid but subject to adjustment based on actual member illnesses and cost of care.

The lesson is clear. Companies will increasingly need to address employee plan cost and quality issues, and newer approaches that incorporate self-funding, reference-based pricing, and partnering with TPAs and member advocacy programs are compelling solutions.

Want to partner with a CFO to help your organization realize these types of savings with your group healthcare costs? Contact us today.

If your business includes manufacturing products to sell to customers, you must have a sales and operations planning process in place.

Sales and Operations planning, often called S&OP is a cross-functional process that involves various departments in your company, including sales, operations, finance, and supply chain management. The goal is to create a comprehensive plan that integrates all these functions to ensure that your company can supply products to your customers on time, while not carrying too much inventory and ultimately meeting your financial goals.

The first step is Demand Planning which means you must forecast customer demand.  Ideally you have a good understanding of the demand based on historical data and more importantly firm orders.  I’ve seen many startups get overzealous in their assumptions about demand and buy way too much material inventory and produce way too much product that ultimately sits on the shelf or in the warehouse. 

The second step is Supply Planning which means determining the organization production capacity and available inventory to meet the forecasted demand in step one.  It’s important that you understand the lead times from order to delivery of materials as well as the production time for each product and total manufacturing capacity.  This is where a good manufacturing engineer can determine how much time it takes to set up and produce each product on the machinery and equipment available. This will also help with understanding total capacity.  Note in some cases, organizations can use multiple shifts to utilize machinery 24 hours to increase capacity.

The third step is Integrating the Demand and Supply Plans to identify gaps and opportunities and create a balanced plan. Ideally you will understand your customer demand in detail including expected delivery dates based on your promises.  Integrating production output with customer expected delivery dates is critical.  Understanding the timing of material delivery to production scheduling to finished product ready to ship is crucial.  A balanced plan will provide production schedules by quarter, month, week and day including their resulting output.

The fourth step is Execution and Control which includes implementing the S&OP plan, monitoring performance to ensure the plan is on track and making necessary adjustments as needed. Identifying the data needed and actions required for each step in the S&OP process is important as well as roles and responsibilities for each department in the process. Ideally an Executive S&OP meeting is held monthly so that Senior Leadership is very involved in the analysis and decision making.  There are many metrics to consider but my favorites are on time delivery to customers, forecast accuracy and adherence to plan. 

The bottom line is every company is in business to satisfy customers and if you are in the manufacturing business, making good on your promise for on-time delivery is key.

Get more advice on Sales and Operations Planning from Marylean Abney