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Application of AI in Finance Here’s How Risk-Averse CFOs Can Adapt.

June 27, 2023

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For risk-averse accountants and chief financial officers, change can be hard. But artificial intelligence and other advanced technologies are coming, and financial officers who don’t adapt may find themselves left behind.

“Finance people tend to be inherently conservative. Managing risk is always going to be at the core of the finance role,” said Myles Corson, Global and Americas Strategy and Markets Leader for Financial Accounting Advisory Services at Ernst & Young. This is especially true when the technology is moving faster than regulation. “There will need to be guardrails and CFOs would like to see where information is being shared,” Mr. Corson said.  

Yet while an AI-generated chatbot’s readiness for large-scale adoption in the finance function remains in question, doing nothing isn’t an option. A recent Gartner study predicts that by 2026 AI and automation will result in half of all new employees hired by top-performing corporate finance functions having backgrounds other than finance or accounting. In today’s finance function, 18% of finance staff demonstrate digital competency, compared with just 11% of their managers.

The tide has shifted in the eyes of investment firms, too. Thomas H. Lee Partners LP, a Boston-based private-equity firm with a focus on financial, business and healthcare technology companies, sees CFO software and services as a particularly attractive growth area, said Mark Bean, managing director at THL Partners. 

Within the firm’s own portfolio of investment companies, managers noticed that many CFOs were using Excel for complex tasks at a time they were being asked to do more with less cost. “An Excel financial model becomes quite complex over time, and it’s easy to break,” Mr. Bean said. 

Still, the application of AI in finance is in its early innings for the office of the CFO. “Certainly, with artificial intelligence, it will have to go through that rite of passage,” Mr. Bean said. But the cutting-edge tools can be especially useful for budgeting and forecasting, saving a lot of time. “Not just [for] a most likely forecast for the business, but several scenarios and how likely those scenarios are,” he said.

Some companies are adopting the application of AI in finance through small wins. Dev Ahuja, CFO of Novelis Inc., an industrial aluminum company, has taken a step to develop in-house machine-learning technology for cash flow forecasting on a pilot basis with deployment expected this calendar year. “Having some quick wins can be a big motivator to get on to larger projects,” Mr. Ahuja said. “It is more about empowering the organization, really creating the right vision, and then having a team work through where the opportunities are,” he said. 

For other companies, the pandemic proved to be the motivating factor in tech adoption. When Covid-19 first hit the U.S. and companies turned to remote work, Bank of America Corp.’s existing CashPro app for corporate clients gained in popularity. “It felt like the pandemic collapsed 10 years’ worth of adoption into two years,” said Faiz Ahmad, head of global transaction services at Bank of America. 

CashPro, launched in 2017, is an app version of an existing web-based platform for corporate finance teams to manage daily operations on their smartphones. Instead of waiting for global teams to send cash position updates overnight in Excel, the app provides a way to see cash positions, approve payments and hedge foreign-exchange exposure with a simple click. 

The app also uses machine-learning technology for financial-scenario forecasting. As a result, the app processed $655 billion last year, up from just $40 million five years ago. 

But even the app has hurdles. “Our biggest threat is inertia,” said Mr. Ahmad. 

The numbers would seem to bear that out. Prophix Software Inc., an Ontario-based provider of corporate performance-management software, says a recent survey it conducted with more than 700 global finance leaders showed that 65% said they plan to be more than half-automated by year’s end, but 62% said implementing technology is the biggest obstacle instead of cost. “Unfortunately, our biggest competitor is actually Excel,” said Alok Ajmera, CEO of Prophix Software.

Yet the application of AI in finance is implemented successfully, what is usually seen as a cost center can more easily change its positioning in the company. “A lot of the analytics is helping treasury and finance teams become part of the core business,” said Mr. Ahmad.

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