MANAGEMENT DEVELOPMENT

Financial Skills
every manager should be able to

NAVIGATE

Build your financial

training program
around these
competencies.

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 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.

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 Talent development professionals probably hear a lot of
frustration from top management about the lack of financial
acumen of the key leaders in their organizations, including
high-potential employees. But do you really understand why
it’s important to strengthen your management team’s finan-
cial skills? Does it rank as a high priority for you and your
training organization? How can you help the company’s man-
agers acquire the financial competencies they need to do their
jobs successfully?
Because many managers lack basic financial skills, they
often rely on the finance team to raise red flags, highlight op-
portunities, identify risks, and even explain financial results.
However, finance organizations have been significantly down-
sized during the past 10 years, and analysts are swamped with
requests from the areas they support. It may be difficult for
your company’s managers to get finance’s attention, and there
may not even be a finance liaison on-site who understands
your business.
Moreover, managers, not the finance team, are responsible
for the financial performance of their areas of responsibility.
A strong understanding of financial concepts will enable
BEFORE YOU CAN TEACH
SOMEONE HOW TO BUDGET,
YOU MUST TEACH HIM
HOW TO PLAN.
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TDFE720602Oliver.indd 34
leaders to make better business de-
cisions and manage their financial
performance more effectively. It will
enable them to prepare more accurate
budgets, analyze and act on budget vari-
ances, and examine new revenue and
cost-reduction opportunities with a
clear understanding of the expected
results. It also will enable them to
relate their day-to-day decisions to
the financial performance of their
units and understand how they affect
the organization’s financial position
as a whole.
Identifying the financial
competencies managers need
As you evaluate your leadership team’s
and high-potential employees’ financial
training needs, identify the desired busi-
ness outcomes of the resulting training
program as senior management defines.
The business outcomes can be specific,
such as preparing a budget or reducing
budget variances, or more general, such
as lowering departmental spending,
growing revenue, or increasing the prof-
itability of the business unit. The more
specific the identification of the desired
business outcomes, the easier it will be
to measure the results and calculate a
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.
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 The sidebar below summarizes the
key financial competencies and skills
that managers should have. These skills
build on each other. You can’t learn to
multiply if you do not know how to
add; you can’t manage financial infor-
mation if you do not understand the
basic building blocks that underlie its
preparation. More importantly, orga-
nizations can measure these skills and
assess how well a manager is applying
these skills on the job.
Identify business
transactions that give
rise to assets, liabilities,
revenue, and expenses
These skills involve understanding
basic accounting terminology, such
as assets, liabilities, revenue, and ex-
penses, and where these items are
reported in the financial statements.
Managers should have a general fa-
miliarity with the balance sheet and
the income statement, their purpose,
Key Financial Competencies and Skills
Competency
Identify business transactions
that give rise to assets, liabilities,
revenue, and expenses.
Prepare and manage a budget.
Read and analyze financial
statements.
Financially justify significant
investments.
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and which line items they affect through their actions. While
most managers focus on departmental spending and budget
variances, other areas under their control, such as inventory
management or capital investments, can significantly affect
the organization’s financial results.
Managers also should understand the concept of accrual
accounting and how it affects the preparation and presen-
tation of the financial statements. For example, a purchase
order is not an expense, contrary to popular belief among
nonfinancial managers. Expenses incurred but not recorded
by accounting can wreak havoc on a manager’s budget.
Prepare and manage a budget
This financial competency applies only to those managers
with budgeting responsibilities, either because they must
prepare and defend a budget or because they must pass judg-
ment over somebody else’s budget. I have a mantra in this
area: Plan first, budget later.
Before you can teach someone how to budget, you must teach
him how to plan. Managers should have a general understand-
ing of the strategic planning process and its relationship to the
budget. They should understand their own company’s planning
process and what role they play in this process. They also should
be able to identify objectives for their areas aligned with the
strategic plan and develop a detailed work plan to achieve them.
Skills
• Basic accounting terminology
• Accrual accounting
• Balance sheet and income statement
• 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
• The nature and purpose of the balance sheet, income
statement, and cash flow statements
• Identification of relevant notes
• Financial ratio analysis and interpretation
• How to build a business case
• Return on investment analysis
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Financial Knowledge
Needed Based on Position
Frontline supervisors and professional employees
• Understand accrual accounting.
• Understand how operational drivers of performance
—such as utilization, productivity, and volume—
affect the financial performance of their areas of
responsibility.
Project managers
• Be familiar with the basic financial statements and
key accounting terminology.
• Analyze and act on the financial reports prepared
for internal use.
• Analyze and justify capital investment and strategic
projects, including cash flow management, asset
impairment, and depreciation.
Department managers
• Be familiar with the basic financial statements and
key accounting terminology.
• Analyze and act on the financial reports prepared
for internal use.
• Prepare a budget or forecast and analyze variances.
• Understand absorption variance (manufacturing
organizations).
• Understand how changes in sales and product mix
affect the financial results of their operations.
• Identify the composition of product and service
costs, as well as cost improvement opportunities.
• Analyze and justify capital investment and strategic
projects, including cash flow management, asset
impairment, and depreciation.
Business unit leaders
• Understand the basic financial statements and how
the business unit affects the organization’s results.
• Understand how changes in sales and product mix
affect the business unit’s financial results.
• Analyze customer and product profitability.
• Review and challenge capital investments and stra-
tegic initiatives.
• Review and challenge cost or profitability analysis.
• Analyze and review financing and investing decisions.
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Once this work plan is completed, they
are ready to prepare the budget for their de-
partment. So, how do you teach them how
to budget their expenses? An understanding
of a department’s cost structure is partic-
ularly useful for this purpose. Knowledge
of basic cost concepts, such as variability,
traceability, and controllability, can be par-
ticularly helpful in estimating costs and
determining the basis that will be used to
estimate the spending level for a particular
line item in light of the departmental work
plan and objectives.
Managers also need to be taught how to
read and analyze the monthly departmen-
tal spending reports, which show budgeted
versus actual performance. More impor-
tantly, they need to know what to do with
this information, especially when they
cannot explain a budget variance based on
their knowledge of the business. Did the
accounting team make a mistake when it
recorded the invoice? Is this an expense
from a prior month? Is this a true budget
overage? Can I make up this overage over
the next couple of months by cutting other
expenses, or does the finance team need
to include this overage in the financial
forecast?
Read and analyze
financial statements
Most frontline supervisors and middle
managers do not need to read or analyze a
financial statement. However, as they move
up the organizational ladder, they will be
expected to understand a balance sheet,
an income statement, and even a cash flow
statement. Let’s face it: Financial state-
ments are long, complex documents and
can be quite boring—even for financial ex-
perts. Your managers need summaries, so
be ready to provide them.
Your managers should be able to iden-
tify the nature and purpose of the balance
sheet, the income statement, and cash flow
statements. They should be able to read
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
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 line, and cash flow. At the executive level,
they should know the key financial ratios
used to evaluate their business and how to
interpret them.
Financially justify
significant investments
When managers ask for a significant
investment, such as a new systems
application, a large-scale training
program, or an expensive piece of
equipment, they usually will be asked
to present a business case. The business
case is a formal, written document that
justifies why the company should invest
in this project versus something else. Each
company has its own playbook on what
projects require a business case. Some
only require it for tangible, equipment
purchases beyond a certain dollar amount,
while others require them for all projects
that exceed an established threshold.
Managers should understand how to
interpret ROI measures such as payback,
net present value, and internal rate of
return, and what these numbers are
telling them about the financial viability
of their project.
Every training organization should de-
fine the key financial competencies at each
management level before they embark on a
financial training program. This definition
should be established with input from top
management and the senior financial team.
The lists provided in the sidebars can help
you start this discussion and determine
how you want to focus your training efforts.
How can you help managers
acquire these skills?
Now that you have identified the financial
competencies and skills that your lead-
ership team needs, how do you go about
structuring a training program to bridge
the skills gap?
Recognize that individuals can’t acquire
financial skills in a day or week. You will
not be fluent in French by taking a one-day
course, and neither will your managers be
able to apply financial knowledge to their
day-to-day decision making by taking a
one-day seminar. They will need follow-up
and coaching.
TDFE720602Oliver.indd 37
Gain your senior management team’s commitment. The
team must be willing to fund the program, but, more im-
portantly, it must be willing to make this an organizational
priority by committing the management team’s and high-
potential employees’ precious time. The program must be
practical and hands-on, and provide participants with skills
they can immediately apply on the job.
Customize the training program to your work environment.
Managers may have difficulty applying the knowledge gained
in generic financial training programs to their day-to-day
reality. In large organizations, it may even have to be custom-
ized by site because the processes and reports are not uniform
company-wide.
Understand the individual needs of the managers who will
participate in the program. Some managers may have had
some basic financial training in college or graduate school and
just need a refresher, while others need to build these skills
from zero.
Identify the most effective delivery mechanism to achieve
the required competencies and skills. Consider your man-
agement team members’ time constraints and their learning
styles. In the past three years, I have been using blended
learning, where managers complete a series of short, online
courses prior to a live session. This methodology has proved
quite effective because it ensures everyone has a basic level of
knowledge when attending the live session, and it enables the
participants to explore their specific financial concerns and is-
sues in more depth.
Ensure you have a follow-up mechanism to monitor
whether participants are applying to the job the skills they
have acquired. This mechanism can be a group setting, such
as meeting every quarter to discuss the company’s financial
results, or more individualized, such as talking to the partici-
pants’ managers or finance team liaison to determine whether
performance has changed. For more senior managers, you may
want to consider a financial coach.
Whatever training mechanism you choose, you must have a
way to measure the effectiveness of the program and whether
the business outcomes were achieved. This evaluation should
be done within a three- to six-month period. If business out-
comes are not being achieved, it is important to understand
the reasons why and what actions you can take to increase the
program’s effectiveness. These actions can range from revising
the program content to changing the delivery mechanism or
axing it altogether.
Financial skills are part of any manager’s fundamental tool-
kit. Training professionals should ensure that their leadership
programs provide these financial skills based on the manager’s
individual needs and the role she plays in the organization.
Lianabel Oliver Bigas is CEO of OBALearn, a company that
provides financial training solutions for the individual and cor-
porate user; lianabeloliver@obalearn.com.
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