Plato once said “a good decision is based on knowledge and not on numbers”. For chief finance officers, masters of the spreadsheet, this may be very little comfort.
Businesses have come to rely on their CFOs to pick the best course of action on a growing range of issues. They are expected to make tough decisions every day about the future of the company, from strategy and headcount to resourcing and budgets.
It is unsurprising then that many CFOs report feeling increasingly overwhelmed by the sheer number of decisions they are required to make.
“Pressure to always make the right choice can be and mentally exhausting,” admits Søren Westh-Lonning, CFO at spend management firm Pleo.
Not only is the number of decisions increasing, so is the pace at which they must be made. Almost all (91%) finance leaders say they are expected to make decisions “faster than ever before,” according to a new poll by data platform Confluent.
What is decision fatigue - and what is causing it?
The fear of making the wrong choice, especially with the growing scrutiny on financial leadership, can lead to hesitation or an inability to decide at all. This psychological phenomenon is called decision fatigue, says Alexandra Dobra-Kiel, a management consultant specialising in behavioural science.
Dobra-Kiel has seen this scenario played out over and over by executives who fail to respond fast enough to what’s happening or suffer from a steady deterioration in the quality of their decisions over time.
And, she says, decision fatigue is becoming particularly prevalent in the finance seat. For many, their responsibilities feel far greater today than in the past. “CFOs have more political sway in the organisation and are expected to take a strategic decision-making role in the business on a growing range of issues,” Dobra-Kiel explains.
Indeed, three-quarters of CFOs report that their influence with their company’s board has increased significantly in the past five years, according to Deloitte’s Q4 CFO survey. Respondents also highlight how their responsibilities have expanded to include increased responsibility for ESG, strategy development and company-wide data governance.
“That change of role comes with a considerable amount of decision-making pressure,” says Dobra-Kiel.
Learning to embracing uncertainty
One reason why CFOs experience decision fatigue is when there is no room for experimentation within the organisation, says Dobra-Kiel. And without a culture of experimentation, a fear of failure can often take hold.
Effective decision-making involves accepting that you don’t have all the answers. “It can be hard for CFOs to be open about what they do not know,” Dobra-Kiel says. “In these situations, they need to put their ego aside and focus on decisions with a little more humility, openness to new ideas and the motivation to learn.”
The business world is filled with uncertainty. In recent years, AI, climate change and geopolitical turmoil have all reduced CFOs’ appetite for risk. However, Dobra-Kiel believes finance leaders are letting their fear of the unknown cloud their judgement and keep them from making “big bets” that could prove valuable in the long run.
Richard Cowen, CFO of consultancy firm JMAN Group also stresses the importance of making calculated decisions about long-term goals, while simultaneously prioritising business as usual. Most finance leaders find that they have to regularly cut funding for long-term projects to meet short-term earnings targets. However, by breaking up innovative projects into smaller milestones and delegating the running of these to their most skilled teams, Cowen says CFOs shouldn’t have to compromise.
Collaboration leads to better decision-making
For Westh-Lonning, the answer to more effective decision-making lies in greater collaboration between the finance department and the wider organisation.
Two-thirds of finance leaders said that if they’d had better insights into other departments they would have made better spending decisions over the last year, a new poll by Pleo has found.
“When faced with a massive amount of uncertainty, you immediately go to the place where you can act fast – budget cuts and layoffs,” he says. “However, the companies that succeed and perform better in the long run are the ones that are able to collaborate on important spending decisions.”
A long-lasting challenge for finance leaders is feeling siloed from the rest of the organisation, sometimes because they are perceived as being difficult to work with. To break down barriers, Westh-Lonning says CFOs should work on becoming better business partners: “Acting like a walking, talking spreadsheet where you are constantly looking at ways to slash budgets and save costs is not the best approach.”
Taking a high-handed approach is more likely to fuel feelings of resentment, resulting in a lack of cooperation among department heads and bottlenecks in decision-making. “You’re also more likely to miss opportunities to maximise value creation,” Westh-Lonning adds. “A CFO needs to be able to both challenge and support the business by encouraging input and discussion.”
Engaging colleagues can also prevent assumptions from being made, while decreasing the cognitive load. Finance chiefs may have more decision-making power than ever before, but this doesn’t mean they have to bear the burden alone.
Data is not always the answer
The emphasis on data-driven decision-making within organisations is growing, as is the pressure on finance chiefs to use this to their advantage. But they are drowning in data.
“We have more data at our disposal than ever before… it can be overwhelming,” says Cowen. “The snapshot I get of the business has gone from monthly to daily, making it harder to form decisions and easier to jump to the wrong conclusions.”
It’s also dragging CFOs into areas of the business they would not typically be involved in. “Suddenly, you are required to have a really strong opinion on areas where you are not a subject matter expert, just because you have all this data on it. And, because you are a senior member of the board, people listen to your perspectives on it,” Cowen explains.
When used effectively, data analysis and data sharing can indeed help CFOs make more informed choices. Scenario modelling can underpin decision-making on acquisitions and disposals. And AI promises to help speed up decision-making by dishing out relevant data that would usually take CFOs hours to sift through and make sense of.
But CFOs risk falling down a data rabbit hole, searching for more certainty about the decision they are going to make. “There is this idea that the more information we gather, the better and safer the choice will be. But there is a danger that you end up searching for the perfect solution that doesn’t exist,” Dobra-Kiel says.
Obstacles to better data use remain. Specifically, a lack of available data and a weak data culture. It is only when these are addressed that CFOs can start taking advantage of the power of data.
Good decision-making requires more than just powerful tools and the right information. It takes strong managerial oversight, being able to understand how each choice fits into the bigger picture, emotional intelligence and, perhaps hardest of all, admitting that it’s okay not to have the all the answers.
