When it comes to predicting future trends in capital spending, and finance more broadly, there’s no shortage of opinions. So we’ve cut through the noise to consolidate the predictions and viewpoints that have reached broad consensus. In short, workforce challenges are top of mind for most CFOs, followed by recession worries and a focus on transformative investments. Let’s dive in.

Changing workforce dynamics top the list of challenges

While CFOs have plenty on their plates heading into 2023, “finding and keeping top talent is THE top risk. Other workforce concerns include “increases in labor costs impacting achievement of profitability goals, as well as evolving approaches to managing hybrid and remote work environments and continued shifts in the nature of work.” Despite a looming recession, most are expecting the labor market to remain tight for the foreseeable future.

Read more: Protiviti https://www.protiviti.com/sites/default/files/2022-12/nc_state-protiviti-survey-top-risks-2022-2032.pdf

Our take: Finding and retaining top talent in FP&A, in particular, is a key concern among finance leaders we speak to everyday. This theme reinforces the idea that recruiting efforts should be ongoing rather than ad hoc based on current needs, and underscores the importance of a robust retention strategy.

Preparing for recession

With the Fed set to continue hiking interest rates in 2023, most leaders are expecting a slowdown as the economy adapts to the new equilibrium. “Almost half (46%) of surveyed CFOs said they expect the North American economy to be in a recession by 2023. Slightly more than one-third of CFOs (39%) noted they expect the North American economy to be in a period of stagflation by 2023.” While bypassing a recession in 2023 seems unlikely, the good news is that many economists are now forecasting it to be relatively mild.

Read more: Deloitte https://www2.deloitte.com/us/en/pages/finance/articles/cfo-signals-3q-2022.html?id=us:2el:3dp:wsjspon:awa:WSJCFO:2022:WSJFY22

Our take: Factors such as the cost of capital, changes in demand for products and services, and continuing supply chain issues underscore the challenge Capex stakeholders face in choosing the right projects and having the wherewithal to make critical decisions quickly. They’ll need to be able to balance choices that meet the demands of the day without sacrificing a more opportunistic, longer-term view centered on growth.

Automation will become an invaluable business tool

Software robots, such as automated workflows and machine learning (ML), made significant inroads into finance departments in 2022. Going forward, “CFOs plan to protect their digital investments as they cut costs elsewhere in the business,” according to recent surveys by Gartner, Inc. Among technology priorities, CFOs have particularly favored back-office automation as a key to driving down costs in the face of ongoing inflation.” Automation allows companies to save on costs through increased efficiency, while gaining a key digital capability for the future.

Read more: Gartner https://www.gartner.com/en/newsroom/press-releases/08-30-22-gartner-says-cfos-are-focusing-on-automation-investments-to-drive-down-costs

Our take: Automated Capex workflows save time, reduce data errors, and establish a clear audit trail, allowing people to focus on higher value-added work. Moreover, because the full scope of project data “follows” each project throughout the approval process, along with consistent forecast metrics, better decisions are inevitable.

Risk mitigation and compliance with ESG will require new investments

“Risk and compliance management is another area currently driving significant ROI and investment. Building a robust compliance and risk management practice should be a priority for CFOs over the next 12 months.” “Those CFOs who can improve their data management, including maintenance and organization-wide visibility, will be better placed to handle the challenging and unpredictable economic landscape…[including] issues such as Environmental, Social, and Governance (ESG) reporting and proof of due diligence, which will become increasingly important for companies over the next few years.”

Read more: CFO.com https://www.cfo.com/budgeting-planning/strategy-budgeting-planning/2022/12/2023-outlook-cfo-priorities-cash-flow-risk-and-compliance-hybrid-work/

Our take: Clear and accurate Capex reporting is essential for a strong ESG strategy – as a function of governance and a means of demonstrating to shareholders that your company puts its money where its mouth is. To learn more about how the two are related, watch the replay of our webinar exploring the topic, “ESG and the Capex Connection.”

Data driven decision making will accelerate, powered by predictive analytics

“More than 70% of organizations confirmed increased investments in advanced analytics and technology. Many of these organizations using advanced analytics have unlocked millions of dollars of incremental cash flow. However, most organizations are still in the early stages of adoption, having only achieved improved visibility.” “CFOs must transform their finance operations into an insights-led digital enterprise that delivers significant value to the business. This is dependent on their ability to balance tech-led and process-led transformation. A bias towards a process-led transformation approach will extract the full potential of their finance operations capabilities.”

Read more: CFO.com https://www.cfo.com/budgeting-planning/strategy-budgeting-planning/2022/12/2023-outlook-cfo-priorities-cash-flow-risk-and-compliance-hybrid-work/

Our take: As we covered in our webinar on AI for finance, finance teams have lagged other functions in large enterprises in embracing AI/ML for a host of reasons, including unfamiliarity and skepticism around the algorithms used to drive those systems. Increasingly, this will become an unsustainable position as competitors embrace these technologies and become more agile and effective in using them. For that reason, it’s incumbent on leadership in finance to overcome those hurdles, build solid strategic use cases, and move forward.

Returning to growth as supply chain constraints ease

Even though recession is top of mind for most CFOs, there are still opportunities for growth as the supply chain issues of the past several years unwind. “Despite economic headwinds, finance leaders aren’t losing sight of their long-term growth goals. But with less margin for error, it’s critical to invest more selectively with an eye toward achieving long-term goals.” “Growth in leaner times is possible, but CFOs are likely to be much more selective about spending, turning to advanced scenario planning and modeling to inform strategic capital decisions.”

Read more: PwC https://www.pwc.com/us/en/library/cfo.html

Our take: When spending is constrained, ensuring that Capex dollars go to projects with the highest risk-adjusted ROIs is critical. This is where a purpose-built capital planning solution such as Finario really shines, since it allows you to assess and compare projects based on consistently applied ROI models and risk metrics, see how funding or not funding particular projects will impact your budget and forecast, and more.

Investments in digital transformation will make finance teams more efficient and effective

Capital investments in digitalization will continue to be prioritized by CFOs in 2023. “Company growth targets have been trending down and will be less aggressive for 2023 as the cost of capital remains high and the investment hurdle rates will likely remain constant or slightly more conservative.” “By now, CFOs and the rest of the C-suite appear to be aligned in terms of digitalization as a high investment priority. According to a recent global survey of CFOs, more than 70% of those surveyed recognized the need to invest in digital technologies as their top priority.” “Leveraging digital technologies, such as automation, to modernize financial reporting processes improves efficiency and reporting accuracy.”

Read more: Forbes https://www.forbes.com/sites/forbesfinancecouncil/2022/11/28/3-key-learnings-cfos-should-keep-front-and-center-for-2023/?sh=2622e8e37e11

Our take: Finance teams that rely on legacy software and processes will have an increasingly hard time keeping up. Capital investments in digitalization minimize errors, limit cost overruns, improve strategic choices, help keep employees engaged, and increase productivity.

The shift to the cloud continues

“CFOs who get in front of cloud adoption can seize on the opportunity to be more adaptable and resilient while managing costs and driving greater value.” However, leaders that think of a shift to the cloud as separate from broader digital transformation efforts can veer off course. “Cloud capability is just one piece of a digital transformation. It’s an important piece, but without attention paid to other elements of the finance operating model, a move to the cloud will fall well short of expectations. The cloud is an enabler, not an end state.”

Read more: EY https://www.ey.com/en_kr/covid-19/how-do-cfos-reshape-today-to-reinvent-their-tomorrow

Our take: A cloud-based solution like Finario is easy to roll out, use, and administer, allowing your finance team to start using a best-in-class tool with minimal training time.