The future of Finance will include Generative A.I., claims an MIT researcher

CFOs should brace for generative AI’s influence on financial forecasts, capital allocation, and KPIs, requiring adaptability and transparency.

Should CFOs consider how advanced technology like ChatGPT may impact their role and their companies? “I think, increasingly, we’re going to be seeing generative A.I. used for financial forecasts and scenario generation,” Michael Schrage, a research fellow at the MIT Sloan School Initiative on the Digital Economy, said, writes Sheryl Estrada for Fortune.

ChatGPT is a chatbot launched by OpenAI in November that can answer questions and write everything from complex computer code to an essay on parenting advice to a legal brief. Recently, a Wharton School of Business professor documented how ChatGPT performed on the final exam of a typical MBA core course, Operations Management. (The professor noted the generative A.I. would have received a B to a B- score.) And this week, Microsoft announced it would be making an additional $10 billion investment in OpenAI—adding to the investments it made in 2019 and 2021, totaling $3 billion.

“Basically, what we’re really moving to is the notion of do we want to collaborate with generative intelligence?” said Schrage. “Do we want to coach it?” Generative intelligence powered by machine learning will be used for financial planning “to challenge the fundamental assumptions of the numbers,” he said. It will be interesting how finance team members will “bring you scenarios and forecasts that will require you to engage in the way you didn’t expect,” said Schrage.

Generative A.I. and machine learning will become increasingly significant and pervasive, which calls for the importance of “interpretable, explainable, and transparent algorithms,” he said. (My colleague, Jeremy Kahn goes into depth on why ChatGPT is worrying the biggest names in tech and how it is expected to transform all aspects of business.)

Schrage also discussed how the meaning and measurement of capital allocation are being changed by digitalization across companies and industries. CFOs are not just concerned about financial capital, but human capital, intellectual capital, and social capital, he said. Digitalization aimed toward internal processes at a company and customers is requiring increased collaboration between departments and enhanced key performance indicators (KPIs) to determine the most effective use of capital allocation.

Customer lifetime value and employee experience are among the modern KPIs that are increasingly shared organization-wide, he said.