Sie sind auf Seite 1von 7

MANAGEMENT DEVELOPMENT

Financial Skills
every manager should be able to

NAVIGATE

Build your financial


training program
around these
competencies.

32 TD | June 2018

TDFE720602Oliver.indd 32 5/16/18 3:51 PM


PODC AST

I
BY LIANABEL OLIVER BIGAS

t is time for the monthly


management review of
your organization’s finan-
cial performance. As your
controller or finance director
drones on, you look around
the room at your colleagues.
Some are texting, others have
a dazed look in their eyes,
and a few are hanging on ev-
ery word. Few ask questions,
and the answers manage-
ment provides are not always
clearly understandable.

IMAGE | SOLVOD/GETTY IMAGES June 2018 | TD 33

TDFE720602Oliver.indd 33 5/16/18 3:52 PM


Talent development professionals probably hear a lot of leaders to make better business de-
frustration from top management about the lack of financial cisions and manage their financial
acumen of the key leaders in their organizations, including performance more effectively. It will
high-potential employees. But do you really understand why enable them to prepare more accurate
it’s important to strengthen your management team’s finan- budgets, analyze and act on budget vari-
cial skills? Does it rank as a high priority for you and your ances, and examine new revenue and
training organization? How can you help the company’s man- cost-reduction opportunities with a
agers acquire the financial competencies they need to do their clear understanding of the expected
jobs successfully? results. It also will enable them to
Because many managers lack basic financial skills, they relate their day-to-day decisions to
often rely on the finance team to raise red flags, highlight op- the financial performance of their
portunities, identify risks, and even explain financial results. units and understand how they affect
However, finance organizations have been significantly down- the organization’s financial position
sized during the past 10 years, and analysts are swamped with as a whole.
requests from the areas they support. It may be difficult for
your company’s managers to get finance’s attention, and there Identifying the financial
may not even be a finance liaison on-site who understands competencies managers need
your business. As you evaluate your leadership team’s
Moreover, managers, not the finance team, are responsible and high-potential employees’ financial
for the financial performance of their areas of responsibility. training needs, identify the desired busi-
A strong understanding of financial concepts will enable ness outcomes of the resulting training
program as senior management defines.
The business outcomes can be specific,
such as preparing a budget or reducing

BEFORE YOU CAN TEACH


budget variances, or more general, such
as lowering departmental spending,
growing revenue, or increasing the prof-
SOMEONE HOW TO BUDGET, itability of the business unit. The more
specific the identification of the desired

YOU MUST TEACH HIM business outcomes, the easier it will be


to measure the results and calculate a

HOW TO PLAN.
return on investment (ROI).
Once you have defined the desired
business outcomes, determine what
specific competencies and skills are re-
quired to achieve them. Competencies
are requirements for success on the job
expressed in broad terms such as how
to analyze financial reports. Skills are
specific learned activities such as how
to prepare a budget. Your finance team
can help you define the required compe-
tencies and financial skills to be able to
demonstrate these competencies.
All managers and supervisors should
have some basic understanding of finan-
cial concepts. Every decision or action
they take has a financial consequence
for the organization. Some will be clearly
reflected in the financial statements
and others will become hidden costs
or missed opportunities that may never
be revealed.

34 TD | June 2018 IMAGE | GEOPAUL/GETTY IMAGES

TDFE720602Oliver.indd 34 5/16/18 3:52 PM


The sidebar below summarizes the and which line items they affect through their actions. While
key financial competencies and skills most managers focus on departmental spending and budget
that managers should have. These skills variances, other areas under their control, such as inventory
build on each other. You can’t learn to management or capital investments, can significantly affect
multiply if you do not know how to the organization’s financial results.
add; you can’t manage financial infor- Managers also should understand the concept of accrual
mation if you do not understand the accounting and how it affects the preparation and presen-
basic building blocks that underlie its tation of the financial statements. For example, a purchase
preparation. More importantly, orga- order is not an expense, contrary to popular belief among
nizations can measure these skills and nonfinancial managers. Expenses incurred but not recorded
assess how well a manager is applying by accounting can wreak havoc on a manager’s budget.
these skills on the job.
Prepare and manage a budget
Identify business This financial competency applies only to those managers
transactions that give with budgeting responsibilities, either because they must
rise to assets, liabilities, prepare and defend a budget or because they must pass judg-
revenue, and expenses ment over somebody else’s budget. I have a mantra in this
These skills involve understanding area: Plan first, budget later.
basic accounting terminology, such Before you can teach someone how to budget, you must teach
as assets, liabilities, revenue, and ex- him how to plan. Managers should have a general understand-
penses, and where these items are ing of the strategic planning process and its relationship to the
reported in the financial statements. budget. They should understand their own company’s planning
Managers should have a general fa- process and what role they play in this process. They also should
miliarity with the balance sheet and be able to identify objectives for their areas aligned with the
the income statement, their purpose, strategic plan and develop a detailed work plan to achieve them.

Key Financial Competencies and Skills

Competency Skills

Identify business transactions • Basic accounting terminology


that give rise to assets, liabilities, • Accrual accounting
revenue, and expenses. • Balance sheet and income statement

Prepare and manage a budget. • Basic cost terminology


• Strategic planning and its relationship to the budget
• How to prepare a work plan aligned to the strategic plan
• How to estimate revenue and costs
• How to analyze and act on budget variances

Read and analyze financial • The nature and purpose of the balance sheet, income
statements. statement, and cash flow statements
• Identification of relevant notes
• Financial ratio analysis and interpretation

Financially justify significant • How to build a business case


investments. • Return on investment analysis

June 2018 | TD 35

TDFE720602Oliver.indd 35 5/16/18 3:52 PM


Once this work plan is completed, they
are ready to prepare the budget for their de-
Financial Knowledge partment. So, how do you teach them how
to budget their expenses? An understanding
Needed Based on Position of a department’s cost structure is partic-
ularly useful for this purpose. Knowledge
Frontline supervisors and professional employees of basic cost concepts, such as variability,
• Understand accrual accounting. traceability, and controllability, can be par-
• Understand how operational drivers of performance ticularly helpful in estimating costs and
—such as utilization, productivity, and volume— determining the basis that will be used to
affect the financial performance of their areas of estimate the spending level for a particular
responsibility. line item in light of the departmental work
plan and objectives.
Project managers Managers also need to be taught how to
• Be familiar with the basic financial statements and read and analyze the monthly departmen-
key accounting terminology. tal spending reports, which show budgeted
• Analyze and act on the financial reports prepared versus actual performance. More impor-
for internal use. tantly, they need to know what to do with
• Analyze and justify capital investment and strategic this information, especially when they
projects, including cash flow management, asset cannot explain a budget variance based on
impairment, and depreciation. their knowledge of the business. Did the
accounting team make a mistake when it
Department managers recorded the invoice? Is this an expense
• Be familiar with the basic financial statements and from a prior month? Is this a true budget
key accounting terminology. overage? Can I make up this overage over
• Analyze and act on the financial reports prepared the next couple of months by cutting other
for internal use. expenses, or does the finance team need
• Prepare a budget or forecast and analyze variances. to include this overage in the financial
• Understand absorption variance (manufacturing forecast?
organizations).
• Understand how changes in sales and product mix Read and analyze
affect the financial results of their operations. financial statements
• Identify the composition of product and service Most frontline supervisors and middle
costs, as well as cost improvement opportunities. managers do not need to read or analyze a
• Analyze and justify capital investment and strategic financial statement. However, as they move
projects, including cash flow management, asset up the organizational ladder, they will be
impairment, and depreciation. expected to understand a balance sheet,
an income statement, and even a cash flow
Business unit leaders statement. Let’s face it: Financial state-
• Understand the basic financial statements and how ments are long, complex documents and
the business unit affects the organization’s results. can be quite boring—even for financial ex-
• Understand how changes in sales and product mix perts. Your managers need summaries, so
affect the business unit’s financial results. be ready to provide them.
• Analyze customer and product profitability. Your managers should be able to iden-
• Review and challenge capital investments and stra- tify the nature and purpose of the balance
tegic initiatives. sheet, the income statement, and cash flow
• Review and challenge cost or profitability analysis. statements. They should be able to read
• Analyze and review financing and investing decisions. the more relevant notes related to ac-
counting policies, inventory management,
accounts receivable, fixed assets, con-
tingencies, and subsequent events. They
should understand how their actions affect
the company’s financial position, bottom

36 TD | June 2018

TDFE720602Oliver.indd 36 5/16/18 3:52 PM


line, and cash flow. At the executive level, Gain your senior management team’s commitment. The
they should know the key financial ratios team must be willing to fund the program, but, more im-
used to evaluate their business and how to portantly, it must be willing to make this an organizational
interpret them. priority by committing the management team’s and high-
potential employees’ precious time. The program must be
Financially justify practical and hands-on, and provide participants with skills
significant investments they can immediately apply on the job.
When managers ask for a significant Customize the training program to your work environment.
investment, such as a new systems Managers may have difficulty applying the knowledge gained
application, a large-scale training in generic financial training programs to their day-to-day
program, or an expensive piece of reality. In large organizations, it may even have to be custom-
equipment, they usually will be asked ized by site because the processes and reports are not uniform
to present a business case. The business company-wide.
case is a formal, written document that Understand the individual needs of the managers who will
justifies why the company should invest participate in the program. Some managers may have had
in this project versus something else. Each some basic financial training in college or graduate school and
company has its own playbook on what just need a refresher, while others need to build these skills
projects require a business case. Some from zero.
only require it for tangible, equipment Identify the most effective delivery mechanism to achieve
purchases beyond a certain dollar amount, the required competencies and skills. Consider your man-
while others require them for all projects agement team members’ time constraints and their learning
that exceed an established threshold. styles. In the past three years, I have been using blended
Managers should understand how to learning, where managers complete a series of short, online
interpret ROI measures such as payback, courses prior to a live session. This methodology has proved
net present value, and internal rate of quite effective because it ensures everyone has a basic level of
return, and what these numbers are knowledge when attending the live session, and it enables the
telling them about the financial viability participants to explore their specific financial concerns and is-
of their project. sues in more depth.
Every training organization should de- Ensure you have a follow-up mechanism to monitor
fine the key financial competencies at each whether participants are applying to the job the skills they
management level before they embark on a have acquired. This mechanism can be a group setting, such
financial training program. This definition as meeting every quarter to discuss the company’s financial
should be established with input from top results, or more individualized, such as talking to the partici-
management and the senior financial team. pants’ managers or finance team liaison to determine whether
The lists provided in the sidebars can help performance has changed. For more senior managers, you may
you start this discussion and determine want to consider a financial coach.
how you want to focus your training efforts. Whatever training mechanism you choose, you must have a
way to measure the effectiveness of the program and whether
How can you help managers the business outcomes were achieved. This evaluation should
acquire these skills? be done within a three- to six-month period. If business out-
Now that you have identified the financial comes are not being achieved, it is important to understand
competencies and skills that your lead- the reasons why and what actions you can take to increase the
ership team needs, how do you go about program’s effectiveness. These actions can range from revising
structuring a training program to bridge the program content to changing the delivery mechanism or
the skills gap? axing it altogether.
Recognize that individuals can’t acquire Financial skills are part of any manager’s fundamental tool-
financial skills in a day or week. You will kit. Training professionals should ensure that their leadership
not be fluent in French by taking a one-day programs provide these financial skills based on the manager’s
course, and neither will your managers be individual needs and the role she plays in the organization.
able to apply financial knowledge to their
day-to-day decision making by taking a Lianabel Oliver Bigas is CEO of OBALearn, a company that
one-day seminar. They will need follow-up provides financial training solutions for the individual and cor-
and coaching. porate user; lianabeloliver@obalearn.com.

June 2018 | TD 37

TDFE720602Oliver.indd 37 5/16/18 3:52 PM


Copyright of TD: Talent Development is the property of Association for Talent Development
and its content may not be copied or emailed to multiple sites or posted to a listserv without
the copyright holder's express written permission. However, users may print, download, or
email articles for individual use.