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The role of CFOs has undergone many evolutions right from handling the books to driving the financial ecosystem of a company. With the fast-evolving landscape, the CFOs are now also considered the “Chief Futuristic Officers”, owing to the role they play in identification and aversion of risks way ahead of time.
While CFOs in real estate continue to tackle a dynamic economic environment catalyzed by high interest rates and drastically increased market competition, many leaders have shifted focused on risk mitigation initiatives that will help them directly drive the cash flow. This focus has brought about an emphasis on strategies that would mitigate risk while simultaneously building value for investors. Maintaining stakeholder faith is important in a sector undergoing consolidation such as real estate. Hence project level partnerships as well as joint-ventures are going to be key in building trust across the board while balancing diverse expectations of multiple stakeholders.
As a result of this risk-value scenario present in the Indian real estate market, the role of CFO has emerged into a multi-dimensional growth director of the company and requires to don multiple hats, at times looking beyond the books. In this ever-changing scope, CFOs have to essentially adapt versatility and agility as characteristics in a modern-day organization that is driven by value building.
To stay resilient and relevant in the neck-deep competition, CFOs must increasingly focus on implementing measures to increase not only operational metrics but also the value creation to various stakeholders. These could include cost optimization, working capital cycle holistically, conducting audits to identify challenging areas related to direct & indirect cost and also at the same time automate business processes.
Due to this emphasis on a real estate CFO to manage regulation expectations in multiple value creation pipelines, the Indian real estate sector’s transition into a well-regulated environment with RERA in place is highly beneficial for them. This holds especially true given the sector’s vision for tech culture to be imbibed in product offerings as well as in other functional operations at the organizational level.
The people resources of a firm are also very much within the realms of the finance function. Real estate CFOs today also allocate a generous expenditure on empowerment of the workforce by investing in their career growth, development and other areas of importance to them so they are motivated and incentivized to represent their organization. This investment is expected to lead to value creation of a high quality in the long term. An additional emphasis on expectations of stakeholders for ESG and green initiatives, such as new capital raising instruments with norms more suitable for sustainable organizations, should be a top priority in the sector.
Going ahead, majority of the focus for CFOs in real estate for the coming year is going to revolve around leveraging risk management to build value. There are other areas a CFO would have to focus on that could help them leverage their risk mitigation efforts to drive value. While CFOs in the real estate sector have not traditionally played a big part in the following strategies, the environment we find ourselves in today dictate that the CFO functionality to include them. Operational environment scans, both internal and external, is going to be necessary to delve into the company’s capital, people, process, and technology utilization. Real Estate finance teams must also integrate regular business scans into routine operations. In order to maximize these efforts, it would be beneficial to build a risk appetite. It would be imperative to have an effective scenario planning exercise in play as a fail-safe.
About the Author: CA Nitin Bavisi, CFO, Ajmera Realty & Infra India ltd
Disclaimer: The views expressed are solely of the authors and ETCFO.com does not necessarily subscribe to it. ETCFO.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.
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