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If you are looking to grow faster, your current way of doing your budgeting may well be restricting your growth plans way more than you think.

What if there was a much more organic way to think about budgeting? A way that doesn’t restrict and limit your business but enables the creative process and encourages innovation?

The following interview with leading FD, Phil Drury, explains through real-world examples why the concept of Beyond Budgeting is such a powerful innovation for the modern-day finance function.

Using sound management reporting and project by project accounting would make it easier for construction companies to get funding from banks and other financial institutions to grow and scale their businesses, says Simon Parkins, a construction industry accounting specialist.

Many construction businesses don’t invest in good management information, says Simon, who has over 20 years of experience in the construction sector and who is now a part-time FD with the FD Centre, the UK’s leading provider of part-time FDs.

Instead of making informed decisions about how to run the business based on facts, Managing Directors and their boards tend to rely too much on gut instinct, he says. That makes banks and other financial institutions wary.

Why banks and financial institutions don’t like construction companies

Getting access to external finance has always been challenging for construction companies because it’s perceived to be a very high-risk sector, says Simon.

The collapse of construction giant Carillion with £7bn debts just over two years ago has made lenders even more cautious about providing funds to companies within the sector.

“Carillion going bust made it even more difficult than it already was,” he says. “There were already banks who would not touch construction clients, but now even the ones who were open to construction companies have put a lot more hoops in place for them to jump through.”

SME construction companies are not particularly good at investing in management information or the accounting software that’s suitable for the industry, so they are often the first things Simon recommends they do.

Having access to the banks and financial institutions that will lend to construction companies and knowing what assurance and MI they want to keep that lending position in place is really crucial.

“I’ve got connections with some really good lenders who are not put off by construction, and they’ll improve their rates and fees on that the basis the FD Centre is involved,” Simon says. “They know that we will ensure the management information they need is there.”

“A lot of construction companies simply do not understand what the banks need to get finance, which is where we can help.”

Another reason why lenders find construction companies less appealing than other businesses is that the profit margins are often quite low.

Many of the top construction companies work with tiny margins of 4% to 5% while SME construction companies are more likely to have margins of between 10% and 25%.

Using project by project accounting practices

Many SME construction companies fail to put project by project reporting into place. This results in poor MI for the business, but also in an erratically performing profit and loss position, which scares lenders.

“A bookkeeper or accountant will put together management accounts for the business, but they often report on the whole business and not on individual and distinct projects.”

“The key to success in construction is really understanding project by project performance, so you can see which ones are performing, which ones are not, and which ones contain the risk. Doing that brings the performance of the business into clear focus,” he says.

“I worked with one client with a Commercial Director who the Managing Director regarded as performing quite well. He was delivering reasonable but not great numbers, but there was no transparency to what he was saying at the monthly board meetings. When we put project by project reporting into place, he had nowhere to hide. He was found to be deficient and covering up lots of problems and issues from the Managing Director.”

“Within four months of me coming on board as a part-time FD, the Commercial Director went from a position of nearly being assigned share options and some ownership of the company to the point where it was revealed he was fundamentally underperforming and probably losing that business something in the region of £100k to £150k a month.”

Construction accounting is very different from standard accounting and many good accountants get it wrong when tackling construction accounts for the first time, says Simon.

“As accountants, traditionally, we take the ledgers, we adjust for income not recorded (bringing in work in progress) and then we adjust for missing cost (accruals). Do this for a construction company without looking at individual project performance at your peril.”

“Traditional accounting in this way is problematic, and the following issues were common to the majority of construction SME clients I have worked with:

• Making income and cost adjustments without looking at individual project performance means there is no sense to check/validate the adjustments being made.
• The majority of risk tends to materialise or manifest itself at the end of a construction project, and so you need a system of reporting that reflects this risk and adjusts accordingly.
• The ability of the business to forecast the expected margin at the end of each project is often poor to moderate.

Clients believe that when they bring the income and cost adjustments together the accounts will be accurate. What you tend to find is that income is optimistic and overstated and that not all outstanding costs are identified. Coupled with poor visibility of the likely financial outcome of the project, and no consideration for risk, the accounting profit tends to be overstated.”

Too few construction companies allow for the problems that inevitably occur during a project.

“Nine times out of 10 profit-related things go wrong at the end of the construction project. There might be:

• Liquidated damages where you’re actually on penalty clauses to finish the project on time,
• Remedial works, an ongoing obligation to fix any subsequent problems which materialise with the work you’ve carried out,
• Snagging at the end of a job is when the client will point out problems with the work,
• Many companies underestimate the amount of work required to fulfill the snagging list for the client to be 100% happy.”

“It’s also just an industry in which people haggle at the end of the job.”

It’s for all these reasons that Simon tries to persuade clients to hold back some of the profit.

“I tell them to beware of ever taking the full margin until the client has signed the project off and physically paid the bill.”

While big construction companies have the systems and processes to put that all into place, many SMEs don’t have the knowledge or resources to do these things properly.

They might have accountants or bookkeepers, but they often do not understand well enough how to allow for how the construction industry works.

“It’s quite hard for an accountant without construction experience to know what to do or to understand the risks involved in construction,” he says.

“I have worked with many of the blue-chip companies in the construction sector for the past 20 years, and there are lots that I’ve learned along the way. A finance director in construction cannot sit in an ivory tower playing with spreadsheets. You’ve really got to understand project performance and how things are going on operationally.”

One client has a Commercial Director who was advising the monthly unbilled income figure and working with the accountant on the missing cost figure. They were adamant that the adjustments they were making were correct. But they had no mechanism for sense checking whether the adjustments were logical when bought together in the accounts. By introducing project by project reporting Simon showed them that their adjustments were very often incorrect. On one project they were reporting a 75% margin, on a project they were forecasting would make 35%. Moreover, the forecast proved to be inaccurate, and by the time the job was complete the actual margin achieved was 23%. With the job not even halfway completed they were already taking £250K profit on a job that ultimately only made £130K, and yet they were 100% convinced that what they were reporting was accurate.

Why construction companies need external funding

Much of the work construction companies do initially is self-financed with extended payment terms and that can put pressure on cash flow.

Projects can also go into a dispute which means cash flow can stop altogether.

“I had a client with a modest annual turnover of £6M who got into a dispute with a customer who then withheld a massive £1.2M. The work was delivered, but the £1.2m was withheld because a single piece of paperwork wasn’t delivered by a deadline.”

Many of Simons’ clients are SMEs who are working on four to eight live projects at any one time and are therefore highly exposed to each client.

“Their clients can quite often just withhold money on a pure technicality. The amount of cash they need for business operations hasn’t changed but their expected cash inflows can suddenly dry up. It is a difficult sector from that point of view.”

It’s therefore often a good idea for the construction company to have lending facilities on standby as a contingency to cope with any issues that may materialize. Approaching the bank, at short notice and with an urgent need for funds is rarely easy of a successful conversation.

If your a construction business needing some help/advice on getting external funding, reach out to us today at [email protected] and one of the team will be able to book a call with one of our dedicated Regional Directors to discuss more.

If you consider what sets companies like eBay, Alibaba, Netflix, Google, Starbucks, Apple, Cisco and Dell apart from other companies, their ability to continuously innovate and create high growth will probably come high on your list.

So should the fact they’ve all successfully transitioned from start-up to scale-up status without losing their ability to be dynamic and entrepreneurial.

Then there’s the fact they’ve helped create thousands of full-time and part-time jobs throughout the world. Twenty-three-year-old eBay, for example, employs 14,100 full- and part-time employees while Google’s parent company Alphabet Inc. has 88,100 full-time employees.

In his book, Scale Up!, the FD Centre’s Chairman Colin Mills defines scale-ups as companies that have grown by 20% a year for a minimum of three years and which started the three year period with a minimum of 10 employees.

Scale-ups disrupt and revolutionise entire industries, according to a Deloitte & THNK report. “They embody ingenuity, innovation, and foresight,” its authors concluded after studying 400,000 enterprises worldwide.

There’s a common misconception that only startups can be innovative, dynamic and entrepreneurial. Yet as scale-ups like Google and Alibaba illustrate, that’s far from the case.

Perhaps startups attract more attention because there’s so many of them: it’s estimated that there are 300 million startups globally. By comparison, only a tiny fraction of startups ever survive long enough to make the transition to scale up, according to the authors of the Deloitte report.

“Our research shows that the chances of a new enterprise to ascend as a scale-up are around 0.5%, which means that only 1 out of 200 surviving new enterprises will become a scale-up. ‘Unicorns’ make up the even smaller subset of scale-ups; only 104 startups are valued over $1 billion.”

Those companies that do become scale-ups help to boost local, national and international economies. They provide direct, ongoing employment and that, in turn, creates more consumer spending which in turn stimulates the economy and expands the tax base.

Or as business guru and venture capitalist, Daniel Isenberg say in Scale-Up!, “One venture that grows to 100 people in five years is probably more beneficial to entrepreneurs, shareholders, employees and governments alike, than 50 which stagnate at two years.”

Contrary to what many policymakers believe, startups don’t help economies to flourish or cause per capita income to rise.

“The relationship between per capita income and entrepreneurial activity is generally negative, rather than positive as is often believed,” wrote Scott Shane, Professor at Case Western Reserve University, in Entrepreneur magazine. He referenced a Gallup Organisation survey which compared per capita Gross Domestic Product (GDP) with the fraction of the population that reported being self-employed in 135 countries. It showed that the self-employed fraction had a negative linear relationship with the log of GDP.

“That is, self-employment rates are lower in rich countries than in poor ones.”

But growing a company past the start-up phase is not without its share of challenges, whether they are related to employees, sales and marketing, operations, administration, or finance. Most importantly, if growing companies don’t have the right infrastructure to support their expanded operations, those challenges can become increasingly severe.

“While on paper, they may have the revenue, the manufacturing base or customer reach of a substantial business, the culture, the controls, the processes, the personnel and the leadership remain those of a much smaller business than they were a short time before,” says Mills in Scale-Up!.

“Worse, they haven’t yet accumulated the resources to build and maintain that infrastructure.”

If the situation is not resolved, the business will outrun itself (cash reserves will dwindle as it tries to meet the expanded demands) or get stuck (as the owner and employees find themselves unable to cope with the problems).

But if you revise your business model, you can overcome these challenges or even avoid them altogether.

“You need to consider your whole business model, because if you have a terrible business model, then the last thing you want to do is to start scaling it,” says Mills.

The FD Centre’s part-time FDs or CFOs help clients revise their business model using a framework known as the ’12 Box’ approach.

It has three levels:

1. Operational
2. Strategic
3. Business Support

Operational

This refers to finance operations and focuses on two key aspects: cash and profitability. There are four boxes: Cash Flow Management and Profit Improvement (which generate money), and Internal Systems and Reporting (which generate time for management).

Strategic

This involves your finance strategy: how are you going to finance the business to achieve future cash and profits? The four boxes in this section cover: Risk Assessment, Strategic Funding, Strategic Activities and Exit Planning, and an Implementation Timetable.

Business Support

This involves crucial tasks such as compliance, tax planning and legal issues, banking relationships and outsourcing. In the case of The FD Centre’s FDs (and the CFO Centre’s CFOs), they don’t carry out the tasks but instead, manage the work on a client’s behalf. They’ve built relationships with the right people in each country where they operate so that they can connect clients with the right supplier at the right cost when they need it, and then manage the work on their behalf.

Take the F Score: Find Your Future Challenge Areas

To help you identify which one of these 12 areas is a potential current or future pain point for your business, the FD Centre/CFO Centre has created a quick assessment form known as the ‘F Score’. (It will only take nine minutes to complete.)

The F Score features a series of questions built around the 12 Boxes, designed to identify your areas of strength and those which represent a gap. When you’ve completed the questions, you’ll receive an eight-page report which will reveal your current or future challenges. It will not only rate the performance of your company’s finance function but also uncover untapped opportunities for non-linear growth.

To discover how the FD Centre will help your company to scale up, please call us now on 0800 169 1499 or contact us here.

Free 1-1 Finance Session

Do you have a burning question about any of the following:

• Cash flow management
• Funding
• Profit improvement
• Exit planning
• Reporting
• Getting the most from your bank?

Book now for your complimentary 30-minute finance breakthrough session with one of our part-time FDs/CFOs. Get the answers you need to scale up your business.

Ask the FD

If you’ve got just one finance-related question and you’d like us to send it across to our team of top FDs, please let us know, and we’ll get back to you within 24 hours.

The idea of hiring even a part-time FD may seem to some SMEs a bit OTT—like paying Quentin Tarantino to make a 90-second home page video or booking Wembley Stadium for the company’s five-a-side friendly football match.

But for companies whose ambition is to get into and survive the coveted scale-up phase, hiring a part-time FD makes perfect sense. They know that they’re getting a finance veteran, someone with big business experience, who can provide the guidance they need to grow rapidly and help them to avoid the costly mistakes that so many ambitious SMEs make as they attempt to move into the Big League.

As Colin Mills, the Chairman of the FD Centre, said in his book about scale-ups, “The reality is that there is great value in having someone from the next level if you’re aspiring to get there.”[1]

Companies who hire part-time FDs understand that today’s FDs are capable of delivering far more than bookkeeping or accounting services. They provide advice and analysis and implement practices and processes. They can work with your board of directors and external stakeholders such as your bank or investors. They can also advise you on mergers and acquisitions. Besides strategic analysis, they can provide advisory support on everything finance-related in your business.

Their responsibilities might cover business planning, capital structure, risk management, auditing and reporting, tax planning, capital expenditure, investor communication, R&D investment, working capital management and company budgeting.

Companies that don’t hire FDs are often unaware of the opportunities and profits they’re missing out on. When asked why so many SMEs don’t hire FDs, Matthew Bud, Chairman of the international Financial Executives Networking Group, said business owners are either unaware of their need for a FD or reluctant to spend the money.[2]

“What many entrepreneurs don’t realise is that they’re already spending that money in lost profits and misspending,” he told Inc.

“They’re not seeing the dynamics of the business from an educated financial point of view. You can’t always go with your gut in making financial decisions, which is what a lot of entrepreneurs try to do.”

So, what can you expect from a part-time FD?

Well, the role a part-time FD will play in your company will depend on factors such as the size of your business, your expectations, your industry, and your corporate strategy and business goals. But a good FD will work on your company’s finance strategy and finance operations and manage areas such as compliance, tax planning and legals, outsourcing and banking relationships.

To achieve success in these different roles, a FD will need outstanding hard and soft skills.

If you’re a CEO, the FD will be your strategic partner, providing financial insight and strategy and helping you to improve profitability and cash flow.

A good FD won’t, however, be a ‘Yes’ person, someone who rubber-stamps every initiative without due diligence.

Charles Holley, CFO-in-residence at Deloitte and former Walmart CFO, says good FDs are independent-minded yet supportive of their CEO.[3]

“My CEOs counted on me to be the truth teller, to form my own opinions on important company decisions and to speak up. At the same time, they expected my support for execution.”

Great FDs challenge the business, he says. They point out problems and propose possible solutions to “spark the debate”.

“FDs are in the best position to call attention when the numbers aren’t supporting the strategy. For example, FDs can push the business to change capex priorities when the underlying ROI assumptions are no longer supported by the numbers.”

Besides being a trusted advisor and sounding board, a good FD will help to raise efficiencies, identify opportunities, manage risk management, and manage capital structure.

Since they speak the language of financiers and understand what they are really interested in, FDs can also liaise with financial institutions, investors, and auditors on your behalf.

In other words, a part-time FD/CFO can help you to manage the transition into the scale-up phase more smoothly and ensure you reach your growth targets sooner.

How it works in practice

The FD Centre’s part-time FDs use a proven framework known as the ’12 Boxes’ to identify where the problems are within any business. They use it to review every aspect of your company finance function and identify every problem area.

They will help you to understand your company’s finances; eliminate cash flow problems; identify cost-savings, and improve profits.

They can also help you and your team to understand your main profit drivers; find and arrange funding; identify your Critical Success Factors and Key Performance Indicators (KPIs), help you to expand nationally and internationally; and build value to make your business more attractive to investors or buyers.

To discover more about the 12 Boxes, click here.

Need help?

To discover how an FD Centre part-time FD will help your business, contact us now on 0808 164 8902. To book your free one-to-one call with one of our part-time FDs, click  here.  You can see how they add rocket fuel to any business here.

To hear what people really think about the FD Centre’s part-time FDs, watch these short videos here.

Uncover strengths and weaknesses

Identify the strengths and gaps in your business in just nine minutes with the F-Score.

Just answer a brief series of questions, and you’ll receive an 8-page report that will reveal potential current or future pain points for your business. It will also help you to rate the performance of your finance function and uncover untapped opportunities for growth. Click here now to take the F-Score.

Got a Big Question?

If you have a burning question for one of our team of FD ask it here, and you’ll get an answer within 24 hours. Please note the question must be finance-related (sadly they can’t give horse-racing or fashion tips or relationship advice).

[1] ‘Scale Up: How to Take Your Business to the Next Level Without Losing Control and Running Out of Cash’, Mills, Colin, Brightflame Books, 2016

[2] ‘Here’s When, Why and How to Hire a CFO (And Yes, You Can Afford It)’, Tabaka, Marla, Inc., www.inc.com, June 27, 2016

[3] ‘What CEOs want—and need—from their CFOs’, Holley, Charles, Deloitte, www2.deloitte.com

 

You might think a Finance Director’s role is confined to traditional finance activities, but today’s FD (or CFO) can do so much more than count beans.

In the past, an FD’s responsibilities might have been confined to high-level accounting such as providing timely financial statements and monthly management reports, managing investments and expenses, monitoring cash flow, and managing risk. But as the business landscape has become more complex over the past decade, the role of an FD has changed.

That change is due to factors such as the global financial crisis—the biggest since the Great Depression of the 1930s, disrupted and volatile markets, the rise of big data, and the impact of digital and social media.

As a result, CEOs and their Boards expect so much more from CFOs, according to a KPMG report.[1]

“CEOs are increasingly looking to their finance leaders to help drive wider business strategies,” says Simon Dergel, author of ‘Guide to CFO Success’. [2]

They expect FDs to make decisions and shape their plans based on the company’s ambitions, he says. As the keeper of the company’s data with an understanding of every department’s objectives and performance, they can play an active role in refining and aligning business strategies.

“Perhaps the biggest change in terms of the CFO’s role in business today is that their advice is not only valued—it is necessary,” says Dergel.

“Businesses are currently dealing with a wave of disruptive competitors and fast-changing customer expectations, while also managing a global talent shortage and volatile financial conditions. The wisdom and experience of finance leaders make them indispensable in the boardroom as companies look to tackle one of the most uncertain economic periods in decades.”

Most importantly, CFOs are delivering on these expectations. The new breed of FDs is now much more forward-looking. They wear three ‘hats’ at any given time: financial expert, active management team member, and leader of the finance function.

Given the opportunity, they can perform multiple roles within a company, working both on and in the business. Not only can they direct financial performance and protect the financial integrity of the company but they can also drive strategy.

This is borne out by James Riley, the Group Finance Director and Executive Director of Jardine Matheson Holdings Ltd., who says, “A good CFO should be at the elbow of the CEO, ready to support and challenge him/her in leading the business.

“The CFO should, above all, be a good communicator—to the board on the performance of the business and the issues it is facing; to his/her peers in getting across key information and concepts to facilitate discussion and decision making; and to subordinates so that they are both efficient and motivated.

“Other priorities for a CFO are to have the strength of character, personality, and intellect. I take it as a given in reaching such a position that an individual would have the requisite technical knowledge and financial skills.” [3]

How Start-Ups and Scale-Ups Benefit

Most start-ups and early-stage growth companies don’t need and can’t afford the services of a full-time FD. But that doesn’t mean they can’t benefit from all that FDs offer. They can access the skills of highly qualified FDs by engaging them on a part-time basis.

Part-time FDs can provide enormous value in terms of strategy and planning for early-stage or scale-up companies. A report from the Financial Executives Research Foundation (FERF) went further: it described their role as “critical to the success of start-up and early-stage growth companies” since they provide key insights. [4]

It found FDs play key roles in not only managing a young and fast-growing company’s finances but also in setting broader strategic goals and establishing and achieving financial and non-financial milestones.

When the company is at a stage when it needs external investment, the part-time FD can manage the process to ensure it raises the right type of funding from the right sources. The part-time FD can also provide more comprehensive reporting as well as manage the relationship with the external investors, whether they are venture capitalists, private investors, or banks.

Part-time FDs also help to establish sound reporting systems and tools that help improve reporting metrics and communications to investors.
They also play a key part in setting and monitoring company strategy and maintaining a balance between investing in growth, building market share and preserving capital for future opportunities.

As they grow, the need for a part-time FD’s financial and strategic acumen becomes more acute, FERF found.

The FD Centre’s part-time FDs bring these skills to every client at a fraction of the cost of their full-time counterparts. For instance, its part-time FDs can:

• Provide you with an overview of your company so that you can make sound decisions about its future.
• Help you to understand your company’s finances.
• Eliminate cash flow problems.
• Identify cost savings within your company.
• Improve your profits.
• Create a realistic business plan and so make better financial decisions.
• Help you and your management team to manage your finances with ease.
• Develop clear strategic objectives.
• Identify your Critical Success Factors and Key Performance Indicators (KPIs).
• Find and arrange to fund.
• Understand your main profit drivers.
• Identify your best customers.
• Sort out your tax position.
• Introduce timely, easy-to-follow management reports.
• Facilitate expansion in your country and into other countries
• Build value to make your company more attractive to investors or buyers

To discover how an FD Centre part-time FD or CFO will help your business, contact us now on 0808 164 8902. To book your free one-to-one call with one of our part-time FDs, click here.

[1] ‘The Changing Role of the Chief Financial Officer’, Mbatha, David, KPMG

[2] ‘What Makes a Great Modern CFO?’, Dergel, Simon, Oracle, https://blogs.oracle.com, June 7, 2017

[3] ‘THE ROLE AND EXPECTATIONS OF A CFO A Global Debate on Preparing Accountants for Finance Leadership’, International Federation of Accountants, www.ifac.org, 2013

[4] ‘Center Of The Storm: The CFO’s Role In Start-ups And Rapidly Growing Companies’, Financial Executives Research Foundation, www.financialexecutives.org, March 28, 2017

On Saturday 21st July we (The FD Centre) took part in our first competitive football tournament. We were invited to the 7 aside tournament by our partner and sponsor, Barclays. Money raised from the event was donated to the West Ham foundation which will help run a number of activities for the local community, including programs provided by the Premier League, and children’s soccer schools.

The venue and one of the draws to the event were that it was being held at West Ham training ground. The pitches were a replica of that of the Olympic stadium and the West Ham owners, players and ex-players were in attendance. There was fun for all the family on a beautiful hot sunny day.

The FD Centre team consisted of JP Mills (Regional Manager) as a striker, Jamie Mills (Commercial Director), and Paul Cooper (Barclays) as Mid Field. Defenders; Wayne Smith (Financial Controller), Mike Tibbetts (FD for Thames Valley), Phil Drury (FD for South East), and Darren Cox (FD for South East). Lastly, our goalkeeper was Matthew Allen (Regional Director for London Central West).

Although it was a great day, unfortunately, The FD Centre team could not quite manage to bring the trophy home. However, they did not let themselves down in a highly competitive yet good-natured tournament.

If you would like to find out more about West Ham foundation click here and if you would like to discover how a part-time FD can help your business contact us here or call 0800 169 1499.

Artificial Intelligence (AI) is already transforming the way in which financial services companies are doing business.

More and more of them are using AI to process the information on their customers, cut costs, save time, monitor behaviour patterns, assess credit quality, automate client interactions, analyse markets, assess data quality, and detect fraud.

A PWC Digital IQ 2017 survey found that 72% of business decision-makers believe AI will be the business advantage of the future.[1] About 52% said they’re currently making “substantial investments” in AI, and 66% said they expect to be making substantial investments in three years.

Franck Coison, Industry Solution Director, at international IT services company Atos, says the four main types of AI are facial and voice recognition, natural language processing, machine learning, and deep learning.[2] They can be used in chatbots, document analysis, process automation, or predictive analysis, he says.

Although robotic process automation (RPA) is increasingly common in financial services, it is usually used for quite simple, repetitive tasks, says Coison. “In contrast, AI can be used to automate more complex tasks that require cognitive, or ‘intelligent’, processes.

“While RPA is appropriate for back-office and accounting processes, when it is combined with AI, any process including customer-facing activities can be automated.”

That means it has great potential in areas such as customer service, sales and customer intelligence, IT services, fraud prevention, and cybersecurity, he says.

The PWC survey found that the adoption of practical machines that think is widespread in the financial services sector. Some banks use AI surveillance tools to prevent financial crime, and others use machine learning for tax planning. Many insurers use automated underwriting tools in their daily decision making and wealth managers offer automated investing advice across multiple channels.

A provider of next-generation investment analytics Kensho Technologies has for example developed a system that allows investment managers to ask investment-related questions in plain English, such as, “What sectors and industries perform best three months before and after a rate hike?”.[3] They receive answers within minutes.

AI is proving popular among banks too. Lloyds Bank, for example, has invested £3billion on its digital transformation initiative, which includes using AI to “simplify and progress modernisation of its IT and data infrastructure, as well as other technology-enabled productivity improvements across the business”.[4]

Terry Cordeiro, Head of Product Management at Lloyds Banking Group says AI has “completely transformed how the finance industry works, with the vision at Lloyds being to use smart machines for extending human capabilities while using data to respond.

“Automating processes means better opportunities to reduce costs for better decision making, and intelligent products mean that our customers are able to do much more,” Corderio says.

Earlier this year, NatWest Bank introduced ‘Cora’, an AI-powered ‘digital human’, which converses with customers in its branches.[5] Cora can answer more than 200 queries, covering everything from mortgage applications to lost bank cards.

The plan is to develop Cora so it can answer hundreds of different questions, as well as to detect human emotions and react verbally and physically with facial expressions. As well as being put in branches, Cora could be used by customers at home on their laptop or PC and, in the long run, on smartphones.[6]

Finance departments are also benefiting from AI. The insight into data that it can provide will be a competitive advantage, according to Matthias Thurner of the Corporate Performance Management and Business Intelligence solutions provider, Unit4 Prevero.[7] “For this reason, AI will become integral to finance functions in every industry,” he says.

As technology improves, AI will become faster and smarter at providing analysis, he says. Companies that don’t use it will be at a competitive disadvantage.

“Businesses don’t want to replace their employees, but they do want to make better financial decisions, and AI will allow them to do that faster and cheaper than a whole team of humans.”

It will enable skilled office workers to spend more time on their core competencies rather than maintaining data, he says. This will help organisations to reduce costs and the time spent on manual tasks or the classifying of data.

Likewise, FDs will benefit from AI data analysis, says Thurner. That’s important since there’s an increasing expectation for FDs to be a source of business insight. Boards want more frequent reports that contain more context and detail. Fortunately, they will be able to deliver more detailed and more frequent reports thanks to AI, he says.[8]

But it’s unlikely an FDbot will appear in finance departments any time soon. “We can expect machine learning to powerfully augment human expertise and experience in the near future even if that’s not a reality today,” says Thurner. “AI can provide data back-up and make suggestions to help the human decision-maker, but it’s the CFO who ultimately has to decide what to recommend,” says Thurner.

With so much potential in key areas of business, it’s no wonder that AI is being hailed as the Fourth Industrial Revolution.

“AI will have an impact as big as electricity and will transform every single industry,” predicts Cordeiro of Lloyds Banking Group.

To discover how a part-time FD will help your company, please call the FD Centre on 0800 164 8902 or visit our website now.

[1] ‘Artificial intelligence and digital labor in financial services’, PWC, https://www.pwc.com

[2] ‘Artificial intelligence: the new power in financial services’, Coison, Franck, Director of Finance, http://dofonline.co.uk, May 21, 2018

[3] ‘How Artificial Intelligence Will Redefine Management’, Kolbjørnsrud, Vegard, Amico, Richard, Thomas, Robert J., Harvard Business Review, https://hbr.org, November 2, 2016

[4] ‘Artificial intelligence ‘transforms financial services’, Alger, Leah, Software Testing News, http://www.softwaretestingnews.co.uk,June 19, 2018

[5] ‘How does NatWest keep up-to-date with online banking trends?’, Alger, Leah, Software Testing News, http://www.softwaretestingnews.co.uk, June 15, 2018

[6] ‘NatWest Bank tests Cora, an AI bot that will answer customer questions, Jones, Rupert, The Guardian, https://www.theguardian.com, February 21, 2018

[7] ‘Here are the human CFO traits that no artificial intelligence can replace’, Thurner, Matthias, Diginomica, https://diginomica.com, March 12, 2018

[8]  ‘Do CFOs have what it takes to be AI educators?’, Thurner, Matthias, Finance Director, www.financedirector.co.uk, February 21, 2018