CFO are finding it increasingly challenging to make the proper pricing and costing decisions due to a host of factors, and Julie Neal director at management consultancy, Vendigital discusses how to mitigate the risks
CFOs and other board-level executives believe that increased complexity makes it harder to make suitable costing and pricing decisions at the right time, adding significant risk.
Research conducted by management consultancy, Vendigital, with 201 C-suite executives, including CFOs and Financial Directors, at UK-based companies, has revealed that 84% of respondents believe that it has become more challenging to make the right decisions over the past year due to the need to weigh up complex considerations. However, only 1% of respondents said it had become less challenging.
The main reason for the increased complexity was ‘cost volatility’, affecting commodities such as power supplies, fuel, raw materials, and other goods. The ongoing geopolitical and economic uncertainty climate, primarily due to the war in Ukraine and high inflation, means cost unpredictability will remain.
Cost volatility is a destabilising factor, especially for finance teams, impacting their ability to make the right decisions at the right time. However, before the pandemic, costs were much more predictable, making strategy setting concerning pricing, for example, a less risky process.
Along with cost volatility, the respondents identified several factors making boardroom decision-making more complex and challenging, including global supply shortages, depleted cash reserves, and shifting consumer demands.
Combined with the prevailing uncertainty, this diversity of factors creates a web of complexity for CFOs and other decision-makers.
Top of the list of decisions that CFOs and other C-suite executives find the most challenging in the current climate are ‘pricing decisions’ – i.e., knowing whether to absorb cost increases or pass them on to customers or deciding to reduce prices to drive market share.
In a challenging macroeconomic climate, with rising interest rates and high inflation, knowing how to remain competitive without allowing costs to erode margins is an essential priority for all senior-level executives.
Almost half – 49% – of board-level executives felt their decisions had been skewed in favour of short-term considerations over the past year, suggesting that they have been less focused on long-term objectives. One in five (22%) respondents said they had been stuck in ‘fire-fighting mode’ over the past year.
While some CFOs and other board-level executives understandably feel that cost volatility and demand uncertainty have given them little choice but to focus on short-term considerations over the past year, long-term decisions may have been side-lined due to a lack of visibility. In some cases, this could be resolved by adopting more reliable industry-specific data-based systems.
The research also revealed that data trust is a significant issue for board-level executives. Only one in five (21%) said they trust the business information they are using to inform their strategic decisions. The remaining 79% of respondents said they trust their data only sometimes.
Without complete data trust, CFOs and other board-level executives are flying blind. In today’s complex, highly competitive and ever-changing world, businesses with access to accurate and reliable data-based models will be best placed to mitigate risks and exploit opportunities.
Vendigital is an award-winning UK top 20 management consultancy and delivers data-led accelerated cost transformation by combining multi-disciplinary consulting expertise and its proprietary digital platform to achieve measurable and sustainable client cost reductions.
