Financial Planning and Analysis

Should a Financial Planning Team Report on Performance or Drive It?

In every organization, finance performs a number of critical functions that are key for a company to deliver performance results, report out to investors, manage internal functions, and so on. While these core functions are absolutely vital to your business, they are largely supportive functions that do not always drive results.

Yet as 8020 Consultant and seasoned Finance Leader Kalman Portman has seen first-hand, this doesn’t necessarily have to be the case. In fact, this traditional top-down focus can lead to missed opportunities that, when realized, can have a significant impact to the bottom line. To understand those opportunities, we asked Kalman to share his insights on financial planning teams.

Can you explain what you mean by using a financial planning team as a performance driver? And how this is accomplished?

Often times, financial planning & analysis teams and organizations are viewed as a cost center – a required expense that’s needed to support functions like reporting, planning, budgeting, and forecasting. Such functions are essential in order to keep things running smoothly, yet are costly to operate – largely due to the investment in human capital. How can you offset those costs?

Start with a shift in thinking. This may require an organization to refocus corporate finance’s top-down reporting and budgeting mentality, and use operational finance support to power results from the bottom up. This provides key operational insights that will ultimately set best practices, improve negotiations, deploy human capital in a more cost-efficient way, lower supply costs, and leverage data analytics to increase profitability. These financial planning team changes can substantially offset your required expenses – and potentially, help you shift from a “cost center” to a “financial performance driver” mentality.

How do you define operational finance?

A business is run by “operators,” the managers who broker the decisions made in the field related to the operations of the business. Good operators know how to run their business, and have an in-depth knowledge on how to deliver a service or product. Simply put, they keep the trains running on time. While operators have a solid understanding of how to execute operations in an efficient manner, they may not necessarily understand the key drivers of profitability, or the technical data behind those drivers.

That’s why operational finance is so key. It helps your organization align financial expertise with operational know-how, giving operators the means to make more thoughtful, strategic and financially sound decisions. With a more detailed and technical understanding of the data, managers can make small operational changes (for example, reducing labor costs by a few percentage points) that can make a material impact.

What are the challenges to this approach?

Finance and operations are not always aligned. Business operators may even have a negative view of the finance organization because, while a finance professional may have great analytical skills, he or she may lack a more comprehensive understanding of the organization’s everyday operations. There can be a lack of common ground, causing a communication barrier between operators and finance planning team. In other words, the two teams are “speaking different languages.”

Take the example of a hospital that outsources to a healthcare services provider. That healthcare provider deploys clinicians to utilize medical devices to provide treatment to patients. The local operator hires and trains clinicians, builds relationships with local hospitals, negotiates contracted rates, and manages staffing daily. The business delivery model is complex with many market-specific nuances, all of which the operator expertly addresses on a daily basis. While that operator is a seasoned clinician with a general idea of how many people to staff to meet the business needs in a cost-effective way, he or she doesn’t typically have the financial know-how that will help optimize operations through financial modeling, data analytics or sensitivity analyses. And conversely, the finance professional doesn’t necessarily understand the day-to-day decisions and clinical nuances that the operator faces well enough to identify opportunities for optimization.

What is your advice for helping companies overcome this challenge?

The bottom line is this: finance cannot successfully support operations until they truly understand the business. There’s much to be gained when a finance expert truly learns the operational ins and outs of a business – and that means spending time in the field. Specifically, spending “a day in the life” of an operator to listen, ask thoughtful questions, understand challenges and identify opportunities. Expanding on the hospital outsourcing example, this business savvy could lead the finance expert to develop a staffing model that is specific to the local market’s labor pool and clinical requirements.

Are there other ways to leverage the collaborative relationship you’ve described?

Yes – once finance and operators are on the same page, the budgeting process improves. Business operators understand and support budgetary decisions and are capable of being directly involved in budget development. That leads to more accountability for operators in managing those budgets. The financial planning team relationship is strengthened through collaboration, combining top-down and bottom-up approaches. If you’d like to know more about operational review process and how to break down silos, then check out our free guide:

financial forecasting process guide

And remember: rethinking the role of your financial planning and analysis organization and refocusing finance to become a driver of performance and profitability doesn’t happen overnight. If you’d like to know how 8020 Consulting’s expertise can make a significant difference, leading to a successful bottom line impact, then contact us for more information.

About the Interviewee

Kalman is a KPMG alumnus with over 10 years of finance leadership experience. His areas of expertise include financial planning & analysis, strategic planning, forecasting, budgeting, complex financial modeling, and data analytics. Kalman served as regional CFO for a Fortune 200 healthcare services provider and built a rental real estate portfolio from the ground up, acquiring distressed properties and stabilizing the assets to create cash flow and equity. His diverse industry experience includes, life sciences, entertainment, automotive, financial services, real estate, healthcare, and technology startups. Kalman received his degree in Financial Analysis and Valuation from the USC Marshall School Business.

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