There is no shortage of items to add to the CFO agenda. From finance transformation to digital readiness, the list is seemingly endless. However, one less obvious choice is funding flexibility and for finance leaders who are serious about getting strong returns out of growth investments, it should be at the very top.
“Flexible funding has the biggest correlation, by far, with the percentage of growth investments that surpass initial business case expectations,” says Tim Raiswell, finance practice leader at CEB, now Gartner.
The reality is, the average CFO is saddled with individual growth initiatives that fail to meet the promised return on investment (ROI). Such initiatives are twice as likely to miss the expected projections as they are to exceed them. The gap between what is and what is expected has lowered organizations’ portfolio-level internal rate of returns (IRR) finds CEB, now Gartner, research.
CFOs have responded with more vigorous vetting and holding business partners accountable. But what they need is the ability to change as an investment changes. For example, if an opportunity shows more promise than expected, the finance team could double down on that initiative allowing it to over-perform.
“In other words, the most successful companies can easily and quickly ramp their resources up or down for an investment opportunity,” Raiswell explains.
The good news is that natural opportunities abound for companies to pursue this strategy. Finance leaders at the average company indicate that there is a strong case for almost one-third of all in-progress growth investments to receive materially more resources than originally planned. The bad news is that most companies have not built processes that allow them to capitalize on these opportunities. For instance, just 23% of finance teams say they are easily able to provide resources to projects in between budgeting cycles, despite 88% feeling pressure to make faster in-year adjustments.