Why This is the Best Time to be a Finance Leader

 Written by Vince Pompilio, CPA

 Every day, we hear about AI-driven corporate layoffs. It’s easy for accounting and finance professionals to feel anxious.

Here is why AI will not replace you, it will make you indispensable.

I can confidently say this because of two concepts: Jevons’ Paradox & Elasticity of Demand for Accounting and Financial Analysis.

· Jevons’ Paradox: When technology makes a resource more efficient and cheaper, we don’t consume less of it—we consume more.

For example, the introduction of ATMs made bank tellers fear for their jobs; however, banks found that they could open up more bank branches because operating a branch became cheaper. Thus, the demand for bank tellers actually increased.

· Elasticity of Demand: The demand for financial reporting is highly elastic. As AI reduces the cost of obtaining data and converting that data to information, the business demand for it increases.

The introduction of AI and the evolution of accounting and finance technology.

One of the earliest demonstrations of Jevon’s Paradox and the elasticity of demand for accounting and financial reporting services can be seen with the introduction and scaling of computing power in the '60s

Accountants previously working with pen and paper became skilled in using computing power to provide more detailed and meaningful financial information. Businesses wanted more, not fewer skilled professionals to provide the information they needed.

Again, this repeated when spreadsheets arrived in the '80s.

And again, when cloud accounting took over in the 2000s.

Each time, automated efficiency didn't kill jobs - it freed finance professionals from tedious data-entry so they could focus on higher-value advisory and strategic forecasting.

So, AI is just the next step in an evolutionary process. So, nothing to fear here, and to the contrary, we see a blossoming of new opportunities. The only thing to fear is not embracing AI. Those who do not will be surpassed by those who do. The same way we can’t ignore smart phones or PCs, we can’t ignore AI.

The "O-Ring" Principle & The Human Element

AI can handle complex calculations and heavy data analysis, but it lacks human judgment.

MIT economist David Autor highlights the O-Ring Principle (named after the Challenger shuttle disaster): when you automate almost every step in a process perfectly, the remaining unautomated steps become the critical point of failure.

In finance, the human in the loop is the O-Ring. Without professional discretion, ethical oversight, and contextual knowledge, the entire system can crash. In other words, like O Rings, it is very important that a human professional be placed at critical decision points in the system, so that the steps work together harmoniously and are not allowed to go awry.

The Big Opportunity!

AI-driven financial modeling is a massive boon, especially to small businesses and startups, who have traditionally struggled to have access to high-powered professional modeling.

However, we also need humans, meaning CFOs, Controllers, and other financial professionals, to direct and marshal all this new abundance of knowledge.

This in fact becomes the sweet spot especially for fractional professionals because it will tend to further lower the cost for small businesses to have access to quality financial information, oversight, and guidance.

A personal story that nicely brings this all together.

I recently called on a plumber to fix a noisy pipe fixture. The plumber came in and quickly saw the problem. A pipe, two stories down in the basement was not fastened properly. He took a clamp from his toolbox and secured the pipe. Voila, no more noise.

The cost of the clamp, mere pennies. The cost of the plumber’s time, $250.

The moral of the story is that the clamp is analogous to information provided by AI, plentiful, inexpensive, and the plumber is the professional. You need the professional, with their judgment, to be able to use the information to get real leverage, value and a headache eliminating solution.

Otherwise, just like a missing O Ring, you can experience a catastrophic failure!