How well do your middle managers understand the numbers?

by 22 Mar 2012

I know to most of us financial management isn’t the most interesting topic in the world and we spend a lot of time discussing how to build soft skills in managers, but I think when looking at a well-rounded middle manager, the assessment of capability in key hard skills, in particular financial skills, is being overlooked.

From my experience in industry it has become apparent that many middle managers simply don’t understand financial reports, how to interpret them or the implications their actions are having on the financial outcomes of the business. I believe this is largely due to the perception that financial reports are complex documents, which are difficult and painful to decipher, and belong in the domain of the MBA qualified, the executive team and the finance department.

To me, this is a bit of a scary reality as it is actually the people at the front line sales and operational layers of the business who are creating many of the system inputs (expenditure, pricing etc), which significantly impact the financial performance of many organisations. Add to this the implications of executive level decisions around strategy, staffing and investment that are being made on the sum of incomplete or incorrect information, particularly given the current economic climate – this problem certainly becomes one worth solving.

As a starting point, it is unfair (and naïve) to simply expect middle managers will get their inputs and information right if they have no idea how to read financial reports nor have an understanding of the consequences that their actions have on those reports they are reading.

To break the above problem down into some specifics, it seems that in the conversations I have had with executives the most common grievances and mistakes relate to relatively easy-to-understand financial concepts, and these seem to centre around:

1. correct allocation of revenue, assets and expenditure to the correct GL accounts;

2. staff misaligning revenue and costs across months and as a result seeing wide fluctuations in reported margins; and

3. inconsistency in effective, profitable pricing in sales proposals, particularly in businesses that sell more than just a fixed price product.

Although the third point above is a deep multi-faceted issue, I believe implementing a program to build the necessary financial skills and capabilities in your middle management ranks is relatively easy.

Building skills, however, does require training. But in a few days (perhaps with the help of a representative from your finance department), you could teach a course that could effectively educate middle managers about financial matters. This would make a big difference to the quality of financial information executives have at their disposal to ultimately make better decisions and reduce time wasted in correcting entries in the accounting system.

The reason I suggest liaising with your internal finance department is because I have seen generic external courses to be of limited value for the simple reason that because many learners don’t have a financial or accounting background, they struggle to relate the concepts they learn externally to their own companies’ financial reporting and accounting processes.

Where I have seen organisations gain traction in educating their middle managers around relevant financial matters is when their course focuses on:

1. Keeping it simple – use plain English terms and avoid too much jargon, after all the learners are not expected to become accountants. Stick to a limited number of terms that will help your managers meaningfully interpret your company’s financial reports.

2. Keeping it practical – above basic education on standard financial terms and interpreting financial reports, only focus on training that relates to learners’ job roles, otherwise what is learnt won’t be used and will quite likely be forgotten.

3. Using internal financial information and reports and avoiding too many generic examples – this will perform two functions: firstly, it will make what is being learned directly relevant and allow more specific prescriptive course content, and secondly, it will often make the reasons for strategic initiatives being driven from the top-down more clear.


About the author

Leonie Curtis-Kempnich Director Training and Course Development, Leadership Success. (02) 80690370


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