Wednesday, July 20, 2011

Managers need to understand numbers

Some people choose a career path almost purely based on one idea - to avoid working with numbers on a daily basis. They prefer working with the people side of business rather than the numbers side.

That’s all well and good but once you become a manager, you simply can’t ignore the financial drivers of your company. But some managers do, and as a result they can’t read a balance sheet or properly calculate ROI of endeavors. More often than not, they are probably pretty clueless on what their company’s CFO is talking about in meetings.

However, the only thing every company regardless of size has in common is numbers. So, whether you like it or not, finance is the language of business.

In fact, we find that fiscal management is so important that it is a dimension measured in some of our 360 Feedback. Demonstrating financial expertise adds value and credibility to decisions, plans, and understanding of organizational complexities.

According to the book, Financial Intelligence: A Manager’s Guide to Knowing What the Numbers Really Mean, accountants typically rely on estimates, assumptions, and judgment calls. It is vital for managers to know how those sources of possible bias can affect the financials and that even sometimes those numbers can be disputed.

Your job duties might not specifically state a need to use finance, but a reluctance to understand the financial side of business will only hurt you in the long run.

For instance, if you depend too heavily on the analytical expertise of others, it will not allow you the opportunity to fully integrate financial and other business factors into your decision-making process. And if you're intimated by financial complexities it may grant you a reputation for making poor decisions. Sounds scarier than working with numbers every now and then, right?

As a non-financial manager, you still need to take the initiative and increase your knowledge of business and financial measures and use it to inform your decisions. As we stated earlier, finance is a language, so commit to learning this language.

We won’t leave you hanging – here are some tips to follow:

·Consider taking a course or workshop on financial analysis. The widely available course, "Finance for Non-Financial Managers," may be helpful.

·Ask a colleague whom you respect as an expert in financial measures to be your mentor.

·Build positive working relationships with your accounting and finance contacts.

·Get to know the organization’s key financial indicators, such as net income, cash flow, and earnings per share. Learn the meaning of each indicator, how it is calculated, and why it is important. Identify the ways in which your unit contributes to these indicators. Determine whether your unit is measuring the activities that contribute most to the organization’s success in terms of these indicators.

Remember, if you take the time to learn the financial side of business, you might be able to put in your two cents worth at the next meeting with your company’s CFO. Wouldn’t that be nice!

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