|
Management
The Numbers Game
SRINIVASAN IYER explains how it is important for all managers
to be finance-savvy, using Ion Exchange as an example.
Gone are the days when accounts and finance was the exclusive
domain of the finance division. Organisations today don’t
need production managers, finance managers and sales managers.
What we need today are business managers who think beyond
their functions, are finance-savvy, can market their products
and ideas, and bring the best out of their team. It is important
for all managers to master financial techniques to participate
effectively in the company’s strategic management and
contribute to its growth and profitability. Ion Exchange coaches
its managers on the nuances of financial jargon, what financial
statements can tell you, and how to use financial ratios to
assess corporate performance. The company pioneered water
treatment in India and now offers total water solutions for
organisations, homes and communities. An under- standing of
financial statements, jargons and operational finance aspects
helps the managers to communicate effectively with their colleagues
in the finance department. It not only helps them to appreciate
the significance of financial reports but also state the financial
needs of their department to the finance division and top
management effectively. These workshops cover financial concepts
like return on investment, working capital management, costing,
break- even analysis and risk management. The curriculum and
learning material is designed in a simple and lucid manner
to provide non-financial managers with an understanding of
financial manage-ment principles.
Indeed, every business division has an impact on the bottom-line
of the organisation. It can enhance or depreciate the profit
of the organisation and its balance sheet. Knowledge of finance
enables managers to appreciate and evaluate alternative courses
of action before taking a decision. Selection of one course
of action, however, requires abandoning other alternatives.
In foregoing an alternative, we are sacrificing possible benefits
that might have accrued had we chosen that alternative. For
example, using the property for the company’s use would
result in sacrificing the income that could have accrued from
leasing the property. This is the cost of losing an opportunity
and is referred to as opportunity cost. Managers are coached
on how to factor in opportunity costs while making decisions.
The success of business lies in knowing where your cash is
generated and how it is consumed over the short, medium and
long-term time horizons. There are various techniques to predict
future cash flows, ranging from simple forecasts to complex
statistical analysis. Besides cash, working capital management
is about shortening the operating cycle and maximising turnover
of goods. Managers learn the tricks of the trade in working
capital management sessions. One of the prime roles of managers
is to evaluate investment proposals. For this, they need to
understand how to appraise capital expenditure proposal and
how to recoup the original capital invested. They need to
estimate annual cash inflows and outflows. The length of time
taken for recoupment is the payback period. Ion Exchange provides
its managers with project evaluation tools like capital budgeting,
discounted cash flow, internal rate of return, and assessing
net present value of investments. The common assumption is
that projects with shorter payback periods are better investment
propositions than projects with longer payback periods. Though
this principle is important for profitability, growth decisions
like investing in R&D and setting up a state-of-the-art
plant involve greater conside- rations than just cash inflows.
Research has always been at the core of Ion Exchange’s
business plan. The criteria that are considered in growth
projects, besides profit maximisation, are maximisation of
shareholder value, increased customer satisfaction, and social
responsibilities of the organisation. Corporate social responsibility
is important for every organisation. Today, customers value
doing business with organisations that think of society while
making business decisions. For Ion Exchange, being socially
responsible is not only an ideal way to do business but the
business itself. It is in the business of total environment
solutions encompassing water treatment, liquid waste treatment
and recycling, air pollution control, solid and hazardous
waste management, and generation of energy from waste. Managers
today need the confidence to use, discuss and present financial
information. Budgeting is the pillar of corporate decisions.
Ion Exchange teaches its managers to prepare and review corpo
rate and financial budgets. It helps them to understand and
quantify corporate objectives. The managers also learn how
to compare budgeted results with actual performance and to
establish strategic and operational gaps through variance
analysis. The importance of presenting financial information
through Excel spreadsheets, bar and line diagrams and pie
charts is also driven home. Coaching is also provided on how
to develop and present various ‘what if’ case
scenarios. Most managers look at financial statements like
the balance sheet, profit-and-loss account and cash flow statement
as a static picture of the organisational financial health.
Though this is true to a large extent, these statements can
also be an excellent tool to understand more about the business,
competition, key customers and business partners. Interpreting
financial statements can be difficult if you are comparing
organisations of different sizes, different sectors or variable
time periods. It is here that ratio analysis comes handy.
Ion Exchange could organise the Finance for Non-Finance Managers
workshops on functional lines. However, the company includes
a cross-functional team of branch managers, technology managers,
commercial heads and production executives in every workshop.
Managers today need to work in cross-functional teams to help
them to come to a common level of understanding and communication
while working on projects together. Cross-functional workshops
on finance help the managers to appreciate each other’s
roles and gain financial acumen for their individual goal
and as well as the benefit of the organisation. Branch managers
appreciate how fund flow analysis can help them to deal with
customers and how to use cost analysis in negotiations. Technology
managers use fund flow analysis and ratio analysis in project
planning and scheduling. Inventory management tips and budgetary
control techniques help the organisation to ensure that all
managers adhere to the norms of the organisation. The IT manager
now understands the opportunity cost of ‘downtime’
and is now able to appreciate his own contribution to the
bottom-line of the organisation. The purchase manager is no
more into the process of sourcing materials. He now looks
at his role as saving costs for the organisation by practicing
economic order quantity principles, just-in-time sourcing
and minimising procuring costs. The stores department now
uses ABC analysis to grade the various inventories and thus
balances cost minimisation while ensuring availability of
critical supplies. The commercial manager negotiates better
sales deals and is able to book bulk orders at a discount.
He also uses the financial tool while making capital expenditure
decisions and manages working capital better. The credo of
Ion Exchange is ‘Meeting today’s needs, finding
tomorrow’s solutions’. Imparting financial training
to all managers helps Ion Exchange to address its present
needs of profitability and also groom today’s managers
into tomorrow’s strategic business heads and professional
CEOs for its business units.
Quick Bytes
Managers today need the confidence to use, discuss and present
financial information. Budgeting is the pillar of corporate
decisions.
It is important for all managers to master financial techniques
to participate effectively in the company's strategic management
and contribute to its growth and profitability.
One of the prime roles of managers is to evaluate investment
proposals.
There are various techniques to predict future cash flows,
ranging from simple forecasts to complex statistical analysis.
The success of business lies in knowing where your cash is
generated and how it is consumed over the short, medium and
long-term time horizons.
| |
