Plato once said, “Good decisions are based on knowledge, not numbers.” For chief financial officers who are masters of spreadsheets, this may be of little consolation.
Companies have come to rely on CFOs to choose the best course of action for an increasingly wide range of issues. They are expected to make tough decisions every day about the company’s future, from strategy and people to resources and budgets.
It’s no surprise, then, that many CFOs report feeling increasingly overwhelmed by the number of decisions they have to make.
“The pressure to always make the right choice can be mentally exhausting,” admits Soren West-Ronning, CFO at spend management company Pleo.
Not only are the number of decisions being made increasing, but so is the pace at which they have to be made. Nearly all (91%) financial leaders say they are expected to make decisions “faster than ever before,” according to a new poll from data platform Confluent.
What is decision fatigue and what causes it?
Fear of making the wrong choice can lead to hesitation or an inability to make decisions altogether, especially as financial leadership comes under increased scrutiny. This psychological phenomenon is called “decision fatigue,” says Alexandra Dobra-Kiehl, a management consultant specializing in behavioral science.
Dobra-Kiell sees this scenario repeated over and over again by executives who fail to react quickly enough to what’s going on or whose decision-making quality steadily deteriorates over time. I’ve seen it.
And decision fatigue is especially prevalent in finance, she says. For many people, their responsibilities today feel much greater than in the past. “CFOs are expected to have more political influence within their organizations and take on strategic decision-making roles in the business on an increasingly wide range of issues,” Dobrakir explains.
In fact, three-quarters of CFOs report that their influence on their companies’ boards has increased significantly over the past five years, according to Deloitte’s Q4 CFO Survey. Respondents also highlighted how their responsibilities have expanded, including increased responsibility for ESG, strategy development, and enterprise-wide data governance.
“That role change comes with a lot of decision-making pressure,” Dobrakir says.
learn to accept uncertainty
One reason CFOs experience decision fatigue is when their organizations don’t have room for experimentation, Dobrakir says. And without a culture of experimentation, fear of failure often becomes entrenched.
Effective decision making involves accepting that you don’t have all the answers. “It can be difficult for CFOs to open up about things they don’t know,” Dobrakir says. “In situations like this, they need to put their ego aside and focus on decision-making with a little more humility, openness to new ideas, and a willingness to learn.”
The business world is full of uncertainty. In recent years, AI, climate change, and geopolitical turmoil have reduced CFOs’ risk appetite. But Dobrakir said fear of the unknown clouds financial industry leaders’ judgment and prevents them from making “big bets” that could prove to be worthwhile in the long run. I’m thinking.
Richard Cowen, CFO of consulting firm JMAN Group, also emphasizes the importance of making calculated decisions about long-term goals while prioritizing business as usual. Most finance leaders find that long-term project funding must be periodically reduced to meet short-term revenue goals. But by breaking down innovative projects into smaller milestones and delegating execution to the most skilled team, CFOs don’t have to compromise, Cowen says.
Collaboration leads to better decisions
For West-Lonning, the answer to more effective decision-making lies in greater collaboration between the finance department and the broader organization.
Two-thirds of finance leaders say they would have made better spending decisions last year if they had better insight into other departments, a new Pleo poll reveals.
“When faced with a great deal of uncertainty, people are quick to go where they can move quickly, such as cutting budgets or cutting staff,” he says. “But the companies that are successful and perform better over the long term are the ones that can collaborate on important spending decisions.”
A perennial challenge for finance leaders is feeling alienated from the rest of the organization. This can make some people think that they are difficult to work with. To break down barriers, West Ronning says CFOs should strive to be better business partners. “Acting like a walking, talking spreadsheet that is constantly looking at ways to cut the budget and save money is not the best approach.”
Taking a high-handed approach is likely to increase feelings of resentment, which can result in a lack of cooperation between department heads and bottlenecks in decision-making. “They are also more likely to miss out on opportunities to maximize value creation,” West Ronning added. “CFOs need to be able to challenge and support the business by encouraging input and discussion.”
Engaging with colleagues can also reduce your cognitive load and prevent assumptions. Treasurers may have more decision-making power than ever before, but that doesn’t mean they should shoulder the burden alone.
Data is not always the answer
There is a growing emphasis on data-driven decision-making within organizations, and there is increasing pressure on finance executives to use this to their advantage. But they are drowning in data.
“We have more data at our disposal than ever before, and it can be huge,” Cowen says. “Business snapshots have gone from monthly to daily, making decision-making more difficult and easier to jump to the wrong conclusions.”
CFOs are also being dragged into areas of the business that they would not normally be involved in. And because you’re a senior member of the board, people listen to your take on it,” Cowen explains.
Effective use of data analytics and data sharing can help CFOs make more informed choices. Scenario modeling can support acquisition and divestiture decisions. And AI promises to help speed up decision-making by providing relevant data that would normally take CFOs hours to sift through and understand.
But as CFOs seek more certainty about the decisions they make, they risk falling down the data rabbit hole. “The idea is that the more information you gather, the better and safer your choices will be. But you run the risk of looking for a perfect solution that doesn’t exist,” says Dobrakir.
Barriers to effective use of data remain. Specifically, a lack of available data and a weak data culture. Only by addressing these will CFOs be able to harness the power of data.
Making good decisions requires more than powerful tools and the right information. It requires strong management oversight, being able to understand how each choice fits into the bigger picture, emotional intelligence, and perhaps most difficult of all, being okay with not having all the answers. It is necessary to acknowledge that.
Suffering from decision fatigue?Try this
Delegate if possible
Evaluate what decisions you need to make and what you can delegate to others. Thinking you have to do everything yourself creates an additional psychological burden. Are you micromanaging because you need to see everything?
plan ahead
Do you know at what point in the week, month, or year you have to make a lot of decisions? Write down time for this in your diary.
Regularly review your decision-making process
Adapt the process to what works for you. This will take some time and you may not get it right right away, but keep making adjustments until you find the right balance.
Use a decision framework
Segmenting your needs using a decision-making framework (categories based on urgency and impact) helps you filter which decisions require immediate attention and which can be delegated or deferred. Helpful.
Please give me some leeway
Think about where you are now. And give yourself some grace. You may have spent a lot of time berating yourself for your perceived inability to make decisions when in reality there were too many to make.
Collaboration with C_suite
By relying on a team of leaders, you can support empowered decision-making while building stronger, more trusted stakeholder relationships.
