Navigating the Unknowns: The Challenge of Unseen Risks for CFOs

Introduction

Donald Rumsfeld once observed:
“There are known knowns, things we know that we know; and there are known unknowns, things that we know we don’t know. But there are also unknown unknowns, things we do not know we don’t know.”

For today’s CFOs, this idea resonates deeply. While financial leaders manage risk every day, the greatest threats to a company often lie not in what they can see, but in what they cannot anticipate. These “unknown unknowns” are the sudden shocks—geopolitical shifts, regulatory changes, supply chain breakdowns, or market disruptions—that aren’t captured in a spreadsheet of historical data.

The Limits of Internal Data

Most companies rely heavily on internal financial statements and historical performance when making strategic decisions. But internal data, by definition, looks backward. It provides visibility into what has happened, not what’s about to unfold.

This reliance can leave blind spots. A CFO may see stable liquidity ratios in their reports, while an industry-wide tightening of credit is already underway. By the time internal numbers reveal the stress, competitors who acted earlier are already ahead.

Shedding Light on the Unknowns

o uncover risks that lie outside the company’s walls, CFOs need to broaden their field of vision. The most effective way to do this is by incorporating external data—industry benchmarks, competitor financials, market trends, and macroeconomic indicators—into their analysis.

Benchmarking in particular helps transform the “unknown unknowns” into actionable insights. For example:

• If industry EBITDA margins are compressing by 8–10% while your company’s remain flat, that’s an early warning sign of pressures that will likely hit your business soon.
• If liquidity ratios across your sector are weakening, it signals tightening credit conditions that may require adjustments to working capital strategy.
• If peers are sustaining higher growth rates than your internal forecast suggests is possible, it could expose gaps in efficiency, pricing, or market approach.

By seeing their company’s performance in context, CFOs can anticipate risks—and opportunities—before they fully materialize.

Building a Proactive Framework

CFOs can navigate these unseen risks by building a proactive framework that includes:

1. Industry Benchmarking – Compare liquidity, profitability, solvency, and efficiency ratios to spot early warning signs.
2. External Data Feeds – Incorporate market and economic indicators that flag disruptions faster than internal reports.
3. Scenario Planning – Use what-if analysis tied to external benchmarks to model potential impacts before they hit the P&L.
4. Continuous Monitoring – Just as risks evolve, monitoring must be ongoing, with real-time updates rather than quarterly reviews.

Conclusion

“Unknown unknowns” will never disappear. But CFOs who expand their perspective beyond internal data can illuminate risks that would otherwise stay hidden. By embedding external benchmarking and market intelligence into their decision-making, financial leaders move from reactive problem-solvers to proactive navigators.

In today’s volatile environment, the ability to see what others overlook isn’t just an advantage—it’s a necessity for protecting resilience and driving long-term growth.