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Last updated on 2024年7月3日

How can you manage conflicts arising from differing risk appetites among stakeholders in financial planning?

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Managing conflicts over risk appetites in financial planning is a common challenge in corporate finance. Stakeholders, from shareholders to management, often have differing views on how much risk is acceptable. These differences can stem from varying objectives, experiences, and personal thresholds for uncertainty. In corporate finance, risk appetite refers to the amount and type of risk a company is willing to take in pursuit of its financial goals. Balancing these appetites is crucial for creating a financial plan that satisfies all parties and positions the company for success.

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Eduardo Cerezuela

"#LinkedInTopVoice | Helping #BusinessOwners, #Founders, and #CXOs optimize #KeyActivities to drive #Profitability with…
Francisco Almeida

Diretor Administrativo Financeiro | CFO | Diretor de Opera??es | COO | Diretor Executivo | Procurement | Qualidade |…

1 Risk Analysis

Understanding the risk profile of each stakeholder is the first step in managing conflicts. You should conduct a thorough risk analysis to gauge the levels of risk each party is comfortable with. This involves evaluating their past decisions, current financial positions, and long-term objectives. By establishing a clear understanding of stakeholders' risk tolerances, you can anticipate areas of potential conflict and address them proactively. It's essential to communicate the findings of the risk analysis effectively, ensuring that all stakeholders are aware of the implications of their risk preferences.

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Romiluyi Sola

Senior Internal Control Officer at Dangote Group of Company
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Identify the sources and types of conflict, then communicate and listen actively. Also, analyse and prioritize the issues and generate and evaluate options.

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Eduardo Cerezuela

"#LinkedInTopVoice | Helping #BusinessOwners, #Founders, and #CXOs optimize #KeyActivities to drive #Profitability with in-depth #Research & #Analysis through my exclusive, results-driven methodology, ABVA."
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A good financial business plan must help identify short-term cash flow surplus opportunities, generally generated by reductions in WK financing needs, whether cyclical or timeless. The change in the convexity of the working capital financing needs curve then determines the limit time for these short-term investments. Another limit is that their interest rate must be superior to the interest rate of financing the working capital needs. However, the financial business plan also needs to identify how long-term capital investments—required to achieve the strategic plan's initiatives—will be financed, and their interest rate cost must be higher than the ROA. These limits could help to harmonize stakeholders' propension or aversion to risk.

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2 Open Dialogue

Encouraging open dialogue among stakeholders is vital for reconciling differing risk appetites. Create a forum where everyone can express their views and concerns regarding the financial plan. This inclusive approach helps to build trust and understanding. It's important to facilitate these discussions in a manner that is respectful and constructive. By fostering a culture of transparency, you can help stakeholders understand each other's perspectives and work towards a consensus on the level of risk that is acceptable for the company.

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3 Compromise Strategy

Developing a compromise strategy is key when stakeholders have divergent risk appetites. This might involve creating a financial plan that incorporates elements of both conservative and aggressive investment strategies. The aim is to find a middle ground that satisfies the most critical needs of each party. This could mean adjusting investment portfolios, revising project timelines, or reallocating resources to balance the overall risk profile. A successful compromise strategy requires flexibility and a willingness to negotiate.

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4 Expert Guidance

Seeking expert guidance can be instrumental in managing stakeholder conflicts over risk. Financial advisors or corporate finance consultants can offer impartial advice and facilitate discussions. Their expertise in risk management and strategic planning can provide a fresh perspective and help bridge the gap between conflicting parties. Experts can also introduce industry benchmarks and best practices that may sway stakeholders towards a more harmonious risk strategy.

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Eduardo Cerezuela

"#LinkedInTopVoice | Helping #BusinessOwners, #Founders, and #CXOs optimize #KeyActivities to drive #Profitability with in-depth #Research & #Analysis through my exclusive, results-driven methodology, ABVA."
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Financial advisors are generally beneficial in helping to identify the minimum return needs for short-term financial investments and long-term capital investments, as well as the maximum acceptable cost of financing short-term and long-term assets. With data contrasted with companies' financial statements, financial advisors usually identify these limits, helping to generate a consensus among stakeholders documented with data.

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5 Policy Implementation

Once a consensus on risk appetite is reached, implementing policies that reflect this agreement is crucial. These policies should govern investment decisions, project evaluations, and other financial activities. They serve as a reference point for future decisions and help maintain the balance of risk that has been agreed upon. It's important to ensure that these policies are communicated clearly to all relevant parties and that they are enforced consistently to prevent future conflicts.

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6 Continuous Review

Continuous review of the financial plan and its underlying risk assumptions is necessary to manage stakeholder conflicts effectively over time. Markets and business environments are dynamic, and what may have been an acceptable level of risk at one point could change. Regularly revisiting the financial plan allows stakeholders to adjust their strategies in response to new information or changes in the business landscape. This ongoing process helps to keep stakeholder expectations aligned and mitigates the risk of future conflicts.

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Francisco Almeida

Diretor Administrativo Financeiro | CFO | Diretor de Opera??es | COO | Diretor Executivo | Procurement | Qualidade | FP&A | Educador Financeiro
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A revis?o é primordial no processo de execu??o do plano financeiro, tanto pela oportunidade de ajuste de rota, como pela confirma??o do trajeto. A revis?o n?o deve caracterizar uma deficiencia no processo de planejamento, mas a garantia que os desvios n?o lhe afaste do seu objetivo.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Eduardo Cerezuela

"#LinkedInTopVoice | Helping #BusinessOwners, #Founders, and #CXOs optimize #KeyActivities to drive #Profitability with in-depth #Research & #Analysis through my exclusive, results-driven methodology, ABVA."
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I recommend implementing corporate governance practices prior to agreement between the shareholders. These practices could be useful in regulating investment policies and the scope of the different committees within the organization. Corporate governance practices can also help to set limits on the activities of certain shareholders in executive functions and contribute to regulating the level of delegation of authority in favor of the directors. Implementing a corporate governance system not only contributes to the benefits above but also complements them with family succession protocols and shareholder participation in board decisions, which contribute to greater transparency for external investors and reduce stakeholders risk aversion.

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How can you manage conflicts arising from differing risk appetites among stakeholders in financial planning?

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1 Risk Analysis

2 Open Dialogue

3 Compromise Strategy

4 Expert Guidance

5 Policy Implementation

6 Continuous Review

7 Here’s what else to consider

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