How artificial intelligence and the CFO can guide us in uncertain times

CFOs who are still relying on Excel to determine and predict their liquidity position are unfortunately missing out.

The coronavirus has caused an unprecedented human and economic crisis. The main heroes in this crisis are the medical and healthcare sectors. Every day, thousands of healthcare workers and scientists take up the gauntlet with expertise, commitment, creativity and flexibility.

What also strikes me is how medical science is deploying more and more AI applications in the fight against the virus. In university hospitals, for example, physicians, mathematicians and engineers are working side by side to identify patterns in lungs affected by the virus though deep-learning algorithms. This helps us better detect infections and prepare for the next epidemic. Robovision in Ghent and Icometrix in Leuven are helping radiologists and lung specialists develop an AI algorithm that can give them an idea of the percentage of affected lung tissue. This way, AI can help overburdened hospitals in the triage phase.

AI also plays a key role in the race for a vaccine. AI allows scientists to gain better insight into viral protein structures, which is helping them to put together a vaccine against the virus, and will hopefully speed up its development. AI also helps researchers with the instant screening of tens of thousands of scientific publications and medical databases in the search for relevant insights and solutions.

Many companies are also taking action to protect their employees, customers, suppliers and financial results. The CFO plays an important role in this. Two tasks are fundamental in this regard. On the one hand, the CFO steers the organisation like a ship through turbulent waters, ensuring it does not capsize. On the other hand, once the storm starts to die down, the CFO would do best to continue plotting course so that the ship can pick up speed after the storm and return safely to port. Previous crises have shown that CFOs who are able to strike a balance between these two challenges are in a better position to steer their organisation through difficult times and prepare for a speedy recovery. Today more than ever before, AI can support CFOs in this challenge.

With some companies at risk of losing more than 75 percent of their turnover in a single quarter, maintaining sufficient liquidity is essential to their survival. CFOs must be able to determine their company’s cash position quickly and accurately and predict how it will evolve based on various scenarios. Such forecasting models can quickly become complex. They take different company-specific and macro-economic parameters into consideration and they often rely on certain assumptions and probability calculations. What is the probability that certain customers and/or suppliers will have payment problems? Which regions are more likely to recover from the virus quicker? Which of our products and/or services can we offer digitally and how will our customers respond to this? Are there certain industries that are more or less sensitive to crisis? How long will the lockdown measures continue to apply? An insight into these scenarios is necessary and allows us to control costs and quickly identify financing needs and opportunities.

CFOs who can rely on AI applications for these simulations today have a competitive advantage. An important form of AI is machine learning. Machine learning means that the computer learns on the basis of data and makes predictions. These prediction models can be automated. They allow for the collection and follow-up of real-time information, have no limitations when it comes to reading large volumes and different types of data (figures, text, images, audio etc.), and we can also use them to identify patterns in unprecedented situations, which, in turn, allow for further interpretation. As such, machine learning is a powerful and indispensable tool for CFOs in managing their organisations during this crisis. CFOs who are still relying on Excel to determine and predict their liquidity position are unfortunately missing out.

AI also plays an important role in preparing the organisation for the post-coronavirus era. There is no doubt that this crisis will change the purchasing behaviour of many customers. AI can help CFOs better predict what a shift to more e-commerce would mean in terms of revenues, product mix, costs and necessary investments. Through AI detection algorithms, CFOs can also scour the market for interesting knowledge companies that may be an attractive option for acquisition due to liquidity problems. In addition to this, AI assists CFOs in performance and risk management, for example in terms of relationships with suppliers, which are traditionally assessed on the basis of margin and efficiency. There is no doubt that after this crisis, location, strategic dependence and resilience will also become important performance indicators. Machine-learning techniques allow CFOs to collect and process financial and non-financial performance data much more easily, pour it into a predictive model, visualise and monitor it.

The Covid-19 crisis has resulted in new insights. Although things have not always been this way, I do not think that many CFOs today still doubt the usefulness of further digitisation of the financial department, along with extensive automation of payment and order traffic, the use of bots for standard advice and reporting, and the development of AI-driven forecasting models. However, this requires a strategic vision on the organisation of the financial department and long-term investments in the right people, training and infrastructure. CFOs who have – unfortunately – only just realised this will be left putting out fires. As J.F. Kennedy said in 1962, “The time to repair the roof is when the sun is shining.

Kristof Stouthuysen is Associate Professor of Management Accounting at Vlerick Business School and KU Leuven. At Vlerick Business School he leads the Centre for Financial Leadership and Digital Transformation. For the past few years, he has focused on the use of AI by CFOs and in financial roles.

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