Judy Dobles, General Management Consulting YOUR TOUGHEST BUSINESS CHALLENGES SOLVED.

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  • Finance, what’s it all about?

    In its’ simplest form it is the monetary/mathematical representation of a series of discrete strategic and operational actions.  All of which are distilled/summarized into three financial statements: income statement, balance sheet and cash flow statement.  That definition seems a bit dry and boring, doesn’t it?  Having spent years in finance and loving every minute of it, let me share some of my insights.

    The role of finance is to support the strategic direction and day-to-day operations of a company.  To me, excellence in finance depends upon truly understanding the underlying operational processes and strategic direction of whatever unit you support.  It can be as small as a department or encompass the entire company.  It also requires the ability to get into the numbers and let the “data speak”.  Then as you “listen”, in an unbiased way, you will hear the message.  You must be proactive and not reactive.  You must anticipate.

    To start be sure to formulate the right questions to ask.  Here are a few:

    How do you know the numbers are right?  How do you forecast future results?  When the outcome makes no sense, why?  If our company makes a major investment, what are the predicted results?  We lost 2 days of production due to a massive snow storm that shut the roads down, what will the financial impact be?  And of course, the list goes on.

    Let me illustrate with an example.  While supporting a $300M manufacturing operation, the general manager and I noticed a large chemical usage variance of $1M.  My job was to figure it out.  I started by first eliminating some easy items: were the formulas right in the system, were the proper prices in the system, were the meters working correctly, did our usage match what the supplier gave us?  In all cases, the answer was yes.  Now it was time to walk the operations and see what was happening on the floor.  So I spent a morning with the emulsion makers.  Watched their process, learned how chemical usage data was collected and tallied on a worksheet.  At the end of the shift, they needed to clean out the 10,000 gallon tank.  Bingo, we found the answer.  The amount of solvent used to clean the tank was not being recorded.  As a result, a new process step was instituted.  In the end, the $1M variance was a real cost of the operation.  However, the team could now look at ways to minimize the cost.

    Being thorough and methodical was crucial to solving the problem.  It was important to eliminate all potential root causes one by one.  Without an understanding of the operational process or the data it would have been impossible.

    It also illustrates one last critical point.  Finance owns the numbers.  Some people ask, “How can that be?”  My response is, “If you do not own the numbers, you are only a reporter.  If you own the numbers, you are then an equal partner with line management.”  By putting the operational outcomes and the numbers together, you have the whole picture.  You have earned a seat at the table and are in a position to provide valuable guidance to all leaders in the company.

    Published on January 30, 2012 · Filed under: Finance; Tagged as: , ,
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