The CFO'S Perspective

When to Use a ‘Decision Tree’ for Business Planning

Originally published: 2/15/2021
Updated: 3/4/2024

For those not familiar with the term, a decision tree is a flow chart that works through all possible response options in a scenario to analyze resulting outcomes. Basically, it is a visual version of an “if this then that” statement across all possible alternatives.

The “branches” off each decision alternative that result use data analysis to forecast the most likely outcome of each decision. When one decision leads to another decision that must be made, that branch splits to continue extrapolating the effects of each subsequent decision. The result is a tree-like diagram (hence the name) that is easy to understand and interpret.

Decision trees can be more conceptual in nature or have numbers to back up decision scenarios, as is the case of pricing changes affecting revenue figures. For decision trees with complicated calculations, a software program can assign values and probabilities to streamline decision-making. A decision tree is a critical part of strategic planning because it allows decision makers to analyze the effects of a significant change throughout different areas of the business.

Topics: Data Analysis Planning Analysis Leadership Growth Forecasting Risk Management Change Management Strategy

Don’t Trust Your Accountant!

What would we do without our accountants? We rely on them for accuracy, reporting, transaction processing, analysis, and financial advice. For non-accountants, the discipline can be a mystery. So, we try to find a good accountant to add to our team and then we trust them to do their job. That’s what we should do, right?

Actually, no.

You shouldn’t trust your accountant. Well, hopefully, you can trust them, but you shouldn’t.

Topics: Accounting Fraud Risk Management

Email: An Essential Business Tool, and a Direct Conduit for Thieves

We’ve all heard about “phishing” – malicious emails. As Microsoft notes below, they’re hugely popular among cyber thieves. They also happen to be hugely lucrative (which is why they’re so popular!).  

Topics: Security Risk Management Cybersecurity

Danger Ahead – What are the Future Business Risks? And what can we do about it? (From a CFO’s Perspective)

Uncertainty, a term frequently mentioned by business leaders today, essentially refers to business risk - an area CFOs often focus on. Let's delve into the various types of risk a business may face.

Topics: Planning Forecasting Risk Management

The Fallout from Silicon Valley Bank: Evaluating the Implications for CFOs

The collapse of Silicon Valley Bank (SVB) was a sudden jolt to the banking system. SVB was a leading financial institution founded in 1983 that catered to the tech industry. This unexpected development has had far-reaching consequences, particularly regarding risk evaluation for Chief Financial Officers (CFOs) tasked with assessing and mitigating potential risks within their organizations.

I am pleased to note that First Citizens Bank (Nasdaq: FCNCA) announced on March 27, 2023, that it entered into an agreement with the Federal Deposit Insurance Corporation (FDIC) to purchase all of the assets and liabilities of Silicon Valley Bridge Bank, N.A. The transaction is structured as a whole bank purchase and assumption agreement with loss share coverage. Silicon Valley Bank is now a division of First Citizens Bank.

While the acquisition of SVB by First Citizens is a successful one, there are lessons to be learned from the original event. In this article, I will explore the fallout, identify the emerging risks, and discuss what I think it means for CFOs as they navigate an increasingly complex risk landscape.

Topics: Risk Management Banking Bankruptcy

Understanding the Importance of Financial Modeling: Should You Build a 3-Year Model?

“How do you build a three-year financial model?” It’s a question we get (and answer) a lot.

A financial model is a type of financial projection that pulls together important data to allow organizations to analyze their current financial position and predict their future financial position. While effective financial modeling takes significant time and expertise to complete, the considerable benefits provided make it well worth the investment. Financial modeling is an essential tool used to manage risk, allocate resources, make smart investments, secure funding, and develop long-term growth strategies.

Some projections are over a longer time horizon while others only cover a short time horizon. However, whether your financial model covers two, three, five, or ten years, it’s important to understand what it should accomplish, why you should do one, and what it should include. Find out now why you need financial modeling and how to build a financial model for your organization that will offer the insights needed to make key strategic decisions.

Topics: Finance Trends Planning Financial Projections Risk Management

What Should Organizations Do to Prepare for a Recession?

We’re trying something new today by giving our readers access to insights from an internal conversation we’ve been having! In a recent team meeting our experienced CFOs were discussing what organizations can do to get ready for a recession or economic downturn. The list of tips that our team came up with to prepare your business for a recession offers great advice for for-profit and non-profit entities alike, no matter what the future holds. Below is the result of that brainstorming session.

Topics: Planning Forecasting Risk Management Strategy

A CFO’s View on Insurance and Risk Management

Have you ever had a conversation that went something like this?

CEO: “So, do you have an update on our insurance?”

CFO: “Well, I have good news and bad news.”

CEO: “Bad news first, please. Always.”

CFO: “I took a look at The Company’s coverages and talked with our broker. The bad news is that our insurance bill is going up, way up.”

CEO (interrupting): “By how much? We’re kind of tight right now.”

CFO: “The premium increase will be almost 40% over last year. We might want to shop it. But the good news is…”

CEO (interrupting again):Let me guess - another invitation from the insurance broker to a charity golf event in the month of November?”

CFO: “Actually the good news is that this year we have identified some significant gaps in our coverage. We have the opportunity to close those gaps now to better protect The Company in the future from significant financial risk.”

CEO (looking unconvinced): “Oh?”

CFO: “With our new advisory board of directors, we will need D&O insurance. Also, the broker has been recommending cyber insurance for the last several years, but The Company continues to put off purchasing any kind of coverage in this area. I strongly recommend that we should cover ourselves in this area.”

Topics: Risk Management