Using economic data to the best advantage: weary from the economic struggles of the past few years, financial leaders need to change their mindset. Turning down the noise and getting to the heart of why the economy is changing will enable them to identify the real challenges their companies face.

AuthorStewart, John
PositionFinancial Strategy

Most financial experts understand that the economy has an impact on their business. That's the easy part. But problems arise when trying to measure that impact on projects and in developing longer-term strategies in an environment focused on immediate issues and mitigating risk.

[ILLUSTRATION OMITTED]

Perhaps because the economy itself is so large (more than $13 trillion annually), many executives are overwhelmed and confused by economic change, mistaking action as futile rather than the adoption of strategies to manage risk. Still others are haunted by thoughts of their Econ 101 days, with professors discussing the rules of demand and supply, comparative advantage and the Taylor Rule.

More recently, many have been commenting on the theoretical fine points of whether the Federal Reserve should raise or lower interest rates or whether additional fiscal stimulus is needed. Though these outcomes may ultimately impact business, most of these discussions are of little practical use in a business sense.

The key is to turn down the decibel levels of noise and get to the heart of why the economy is changing, which will in turn enable financial executives to identify the real challenges to an individual company or a specific project.

Rather than spending time worrying about whether government should choose a certain path, they should begin looking at how different scenarios might impact their own company's projects and financing in terms of the outcomes of government actions (or inactions).

In business, the economy sets the rules. A chief financial officer's focus should be knowing the rules rather than trying to change the game.

For example, when the economy goes into recession, interest rates will fall and stay at relatively low levels well after it ends. This rule, and others like it, will create both opportunities (falling interest rates) and risks (the recession).

In fact, a more productive way for CFOs to evaluate changes in the economy is by understanding the opportunities and risks presented rather than getting trapped in the theoretical underpinnings of why change has occurred. Both are provided by the rules being set within the economy. Both can be counterintuitive and both can be present during recessions or recoveries.

For example, recessions and the immediate recovery period that follows provide for many of the best opportunities to secure market share and get new projects off the ground, with CFOs playing a critical role in that...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT