Thursday, July 7, 2022

5 ways managers can use finance to make better decisions

Written by: Matt Gavin

Decision-making is an essential management skill that can both drive and impede financial performance. According to research by management consulting firm McKinsey, organizations with fast and efficient decision-making processes are twice as likely to report financial returns of at least 20 percent as a result of recent decisions.

McKinsey’s research also shows that inefficient decision-making can lead to more than 530,000 days of lost working time and $250 million of wasted labor costs per year.

To help position your organization for success and avoid these pitfalls, it’s critical to develop your financial literacy and knowledge to understand and overcome business challenges.

Here are five ways you can use finance to improve your decision-making and become a better manager.


1. Perform Financial Statement Analysis

Financial statements are among the most important resources at your disposal when it comes to decision-making. You should not only know how to read them, but interpret and analyze the data they present.

Understanding the numbers on your organization’s balance sheet can indicate its current financial position, and show whether it’s on a trajectory for success or failure. By examining its cash flow statement, you can gain insight into how cash is being generated and used. Through reviewing its income statement, you can gauge how your business is doing in relation to its expected performance.

When viewed in the context of an annual report, these statements can reveal valuable information about your company, such as its profits and losses year over year and the factors that have contributed to—or hindered—its growth.

Equipped with this information, you can make more informed decisions about how to allocate your company’s resources and work toward its goals.

2. Estimate the Financial Impact of Projects and Initiatives

To effectively manage your team and department, you need to decide which projects and initiatives are worth pursuing—and which are not.

Calculating the anticipated return on investment (ROI) of a project can help support your pitch with numbers and show how much profit it’s likely to generate and the resources needed to make it a success.

The ROI of completed initiatives can also reveal critical details about how your organization allocated funds and accomplished tasks, providing valuable lessons you can apply to future endeavors.

Conducting a cost-benefit analysis is another way you can use finance to make better decisions. This method of data-driven decision-making provides a framework for performing an evidence-based evaluation of an initiative, allowing you to assess how its projected benefits compare to its costs. With this approach, you can break down complex business decisions and elect to pursue projects expected to yield the best outcomes.

3. Learn How to Budget

Budgeting is a basic finance skill all managers and decision-makers should have. At its core, your team’s budget is a vital tool that ensures your organization has the resources necessary to reach its goals.

By breaking down your team’s work into a detailed set of deliverables during the budgeting process, you can track your spending against estimated expenses and, when necessary, pivot your project management strategy to ensure tasks are completed on time and on budget.

Knowing how to manage a budget can also allow you to better communicate progress and performance to stakeholders within your organization, which can inform how company-wide initiatives are planned and executed.

4. Involve Your Team in Decision-Making

Soliciting and considering a range of alternatives is an essential step in the decision-making process. By involving your team in important business decisions, you can facilitate an in-depth evaluation of the issues at hand and stimulate more creative problem-solving. According to research by software company Cloverpop, teams make better decisions than individuals 66 percent of the time.

When addressing a financial decision, you can lean on your team members’ expertise to answer key questions and chart a path forward. One of your employees may be more versed in financial terminology, while another may have a greater understanding of the difference between GAAP and IFRS accounting standards.

By soliciting input from your colleagues and encouraging discussion and debate, you can fill in your knowledge gaps and formulate an array of potential solutions to business problems.

5. Track Financial Performance

Knowledge of your organization’s past and present financial performance is crucial to sound decision-making. Monitoring financial KPIs, or key performance indicators, such as gross profit margin, working capital, and return on equity can equip you with an understanding of your company’s financial health and your team’s contributions to its strategic objectives.

Metrics like cash flow and profit are also useful for tracking how your firm is managing money and growing, which can inform how you decide to appropriate people and resources to pursue its goals.

Wednesday, July 6, 2022

Mid-year financial review: Is it time for a new plan?

Author of the article:Scott Hannah

Reviewing how you’ve managed money for the past six months can do wonders for staying on track with goals. Here are tips for an effective financial checkup.

A mid-year financial review is a time to checkup on yourself and how you’re doing with your finances.

Q: When my girlfriend and I got our tax refunds, we put them in savings because one of our goals this year was to find the money to take our first post-COVID trip. However, another one of our goals was to pay down our credit cards, so that we could start saving for our wedding. Needless to say, with the high cost of living, we haven’t made a huge dent in our credit-card balances. That’s super frustrating because now we’re halfway through the year and no better off than when it started. 

What can we do?

A: If the first six months of 2022 are any indication of what’s to come, our finances could be in for a wild ride. Many who made New Year’s resolutions have likely revised them several times or abandoned them altogether. However, in the words of William Arthur Ward, “The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”

July is a great time to perform a mid-year financial review and adjust any sails that need adjusting. It’s an opportunity to review where you stand in relation to your goals and make a plan for the next six months. A revised plan is better than no plan, so in that light, here are tips to get you started:

What is a mid-year financial review or checkup?

A mid-year financial review is a time to check up on yourself and how you’re doing with your finances. You might want to compare your current standings to the position you were in six or 12 months ago, or to where you’re at in relation to your goals.
Article content

A financial review will vary a little from one person to the next based on someone’s circumstances. However, a checkup should always include a thorough review of all of your income, expenses and bills, your savings and investments, and your budget. It may also include a review of related financial matters, e.g. retirement plans, insurance policies, and taxes.

Is there anything to zero-in on?

With the impact of inflation on our post-pandemic finances, it’s important to zero-in on anything that matters to our goals. If reigning in your spending is important, do a deep dive into all of your expenses. Track where you spend your money and if you are living within your means. If you are using credit to supplement your paycheques, this will not be a sustainable strategy as interest rates rise. Make informed choices and changes once you know your spending habits.
Article content

If decreasing your debt load is important to you, look carefully at your debt management strategies. Ask yourself: Are your balances increasing or decreasing? Are you prioritizing paying off your most expensive debt or the account with the highest balance owing? Are you using your line of credit as a lifeline and need a consolidation loan instead? Take steps to align your actions with your goals.

During the pandemic, many Canadians realized how important an emergency savings fund is. If you identified your need for one, consider what you are doing to set money aside for a rainy day. If you’re already saving to cover unexpected bills and expenses, reflect on how to achieve your goals more quickly. Through your online banking system, set up automatic transfers on payday and consider adding at least part of any unexpected windfalls you receive as well. Stashing the cash out-of-sight and out-of-mind will help keep it safe from yourself.

What not to forget

If you have any variable rate credit products, be sure to check in with your lender to see where you stand and what you should expect. Home equity lines of credit (HELOCs) are often based on interest only payments, but all credit line payments are affected by rate changes. With the expectation of a significant mid-July interest rate increase it would be wise to budget accordingly now. The same can be said about a variable rate mortgage. If your payments were deliberately lowered, they could go up as well.

In terms of a fixed-rate mortgage, keep an eye on your maturity date. That is when your payments could increase. If you will need to renew your mortgage in the next 12 to 18 months, strategize with your lender to find out when a renewal would be most advantageous to you.
Article content

Also keep an eye out for any missing money. If you have extended health benefits at work, submit your receipts and get the reimbursements you qualify for. The same can be said of your taxes. If you haven’t filed yet and are likely due a refund, get that attended to sooner than later. If you are holding onto purchases that you meant to return to a store or ship back, get that taken care of as well. Don’t leave money on the table if your employer offers an RRSP matching benefit. Review your budget to see how much you can contribute to your child’s RESP to take maximum advantage of the government grant.

July vs. January — why now?

If you’re being honest with yourself, looking at your finances right after the winter and holiday spending season can be misery-inducing. The days can be long and dark, punctuated by last minute deals for sun-soaked destinations and emails letting us know our credit card minimum payments are due. The slower pace of July versus January tends to be a great time to review how we manage our money and where we stand. Our income taxes are filed. We’ve got six months to plan how we’ll afford to pay for the happiest — and often costliest — time of the year. And if your budget is maxed, July is a great time to suggest alternative holiday gift giving to your friends and family.

The bottom line on an effective mid-year financial check up

A mid-year financial review is often touted as a checkup on your investments. While monitoring your savings and investments should be part of a financial review, given how drastically living costs have changed, it’s important to check up on other areas of your finances as well. How you spend your discretionary funds, allocate your budget, and manage all of your bills, expenses, and debts — get help if creating a new plan seems like a daunting task. A non-profit credit counsellor in your area would be happy to help.

Scott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by email, check or call 1-888-527-8999.

Tuesday, July 5, 2022

Leading Off (essentials for leaders and those they lead)


Edited by Rama Ramaswami, a senior editor in McKinsey’s Stamford, Connecticut, office

As the US celebrates its independence on July 4, references to freedom are everywhere. It might be worthwhile to reflect that while freedom is a privilege to be grateful for, it also comes with checks and balances. This tension is apparent in the postpandemic workplace, where many leaders support employees’ growing demands for autonomy—the ability to control how, when, where, and, increasingly, if they work—but struggle to set parameters around it. Finding the right balance between employee autonomy and management oversight is an enduring challenge: as McKinsey’s Bryan Hancock puts it, “What drives me crazy is when I hear an executive say, ‘This is just a near-term employee power thing.’ No, it’s not.” This week, let’s explore the issue of employee autonomy—and how best to approach it.


Flexible work is for (almost) everyone

Not all work is remote, but more of it is than you might think. That’s one of the notable findings of McKinsey’s latest American Opportunity Survey. At first viewed as a temporary pandemic response, hybrid or remote work has become an enduring feature of the modern world across most industries, occupations, and regions—58 percent of Americans can work from home at least one day a week, 87 percent would work flexibly if offered the chance to do so, and flexible work is one of the top three motivators to find a new job. Flexible work options are available even in traditionally labeled “blue collar” jobs that might be expected to require on-site labor. As new working models evolve, leaders will need to explore which roles can and cannot be performed remotely, how much day-to-day flexibility their teams expect, strategies to integrate on- and off-site workers, and—perhaps most important—ways to measure how well their chosen models are working.


That’s how much employers pay every year in healthcare costs for workplace stress, much of which results from limited job control—the amount of discretion that employees have to determine what they do and how they do it. Research shows that people in roles with more autonomy experience less physical or mental stress in the workplace even if they face greater job demands. Leaders who are challenged to define flexible work options may want to consider the negative impact of restricted job control and the positive impact of employee autonomy: workers who have more control over their jobs are healthier, more engaged, and better motivated, thereby boosting organizational effectiveness.


That’s one of the conclusions of a study of hybrid work published in the Harvard Business Review. According to the researchers, what employees really mean by wanting “flexibility” is wanting autonomy, or the ability to be the primary decision makers of where and when they do their work. By directly blocking this ability, mandates such as requiring a certain number of days in the office are likely doomed to fail. Instead, establish principles, not policies: for example, rather than dictating three days a week in the office, you may want to encourage employees to decide which locations best enable them to carry out certain tasks. Also, consider investing in tools and training to build the skills that employees need to work autonomously.


Giving his teams a high degree of autonomy has paid off for Prashant Gandhi, managing director and head of digital payments at JPMorgan Chase. But it didn’t happen at the expense of structure. “While autonomy is celebrated and talked about frequently, I find that what’s often missing is a careful discussion on the management systems needed to support it,” he says in this interview with McKinsey. “Otherwise you get chaos.” Gandhi’s organization uses a shared culture and guiding principles—in this case, centered on customer satisfaction—to set up a management system that rewards independence and initiative. “If you lay out principles, give people autonomy to deliver on those principles, and provide a system of reviews that’s fair and rigorous, people get it and rally around it,” he says.


Flexibility has its downsides. Employees who work remotely report burnout, alienation from colleagues, feeling invisible to management, and a host of other ill effects. For employers, the implications are different but no less dire. There is often a lingering fear that remote workers may slack off during business hours, moonlight, leak confidential information, or otherwise abuse their flexibility. Using remote monitoring tools without disclosure may raise legal risks. Ultimately, creating a culture of trust and transparency may be the best way for leaders to ensure autonomy—within necessary limits.

Lead flexibly.

— Edited by Rama Ramaswami, a senior editor in McKinsey’s Stamford, Connecticut, office

A new approach to keeping talent


Written by: Anu Madgavkar is a partner in McKinsey’s New Jersey office.

Human capital is the knowledge, attributes, skills, experience, and health of the workforce, and it accounts for roughly two-thirds of an individual’s total wealth. Right now, people are fundamentally reconsidering what they want to do with their human capital—reassessing how they want to engage with work, who they want to work for, what kind of work they want to do, and on what terms they want to do it. So this is a critical moment for companies to reconsider the way they think about their employees’ human capital.

Typically, companies think about how to deploy human capital to create value for the company. But human capital is really possessed by workers, who are making decisions all the time to augment and enhance their human capital. Being at a company is just part of that journey. So companies that want to retain employees and make the most of their human capital would be wise to focus on human capital from the perspective of the individual. Thinking about how to enrich that individual’s journey can be a more promising frame of reference than thinking about, “How can I profit from these people?”

Our research shows that about half of what people earn during their lifetime is associated with the skills they gain through work. That’s a huge number. A lot of previous research has focused on the value of education, qualifications, and credentials as you enter the workplace. Those are important, but the decisions you make regarding the roles, the jobs, and the skills that you acquire through your work life will drive your earnings. That’s even more true for people who don’t enter the workforce with top credentials. For example, for tile setters or counter workers in the US, the value of the skills they develop at work is more like 65% to 75% of lifetime earnings.

If companies think about themselves as part of that human capital accumulation journey, they’ll change the kind of investments they make in and the opportunities they create for people. There are three key mind shifts to consider.


of the lifetime earnings of some workers lacking top entry-level credentials can be attributed to the skills they acquire on the job

The first shift is for companies to start assessing people based on their potential, not just based on success in their current role. We already know that workers are capable of great learning. New roles in the US typically involve 30% new skills, and workers who are upwardly mobile, who improve their compensation and earnings faster, typically take on roles that demand an average of 40% new skills. But companies often don’t act as if this is the case. Too often, they search for the perfect fit. That’s too bad: you’re not looking for a clone, you’re looking for somebody who has what it takes. Smart companies are already making big investments to assess people for their potential. Some tools are structured to evaluate, say, whether employees have a certain set of necessary tech skills. Others might look at patterns of behavior to assess whether the person is entrepreneurial and capable of stretching beyond their current role.

The second shift is for companies to embrace the idea of mobility. Companies should get on the better side of the change dynamic we’re seeing during the Great Resignation.

We see three ways companies can do this. First, embrace internal mobility. Some companies build the equivalent of a digital talent marketplace, a place where you can see how the skills that you have fit into different career pathways. Some even overlay this with career advisory support to help counsel workers wanting to find good paths to follow.

Second, be open to different kinds of mobility paths. Companies often think about mobility as very linear and vertical. But companies that focus on lateral movement create more opportunities for workers trying to build their human capital. Employees want the flexibility to decide, “Here’s an opportunity for me to learn something, even if it’s not a promotion that involves higher pay.”

Third, companies can embrace people who leave their job just as much as they embrace people who join the team. People who leave a company see a future. They’re investing in becoming great professionals. They could be good business partners, or even potentially a source of talent going forward. The more you celebrate such people the more you position yourself as an employer who helps make employees successful. Such companies become talent magnets.

The third mind shift is to double down on smart learning and training for workers. A lot of companies complain that they don’t see productivity gains commensurate with the amount they spend on training. We think companies need to focus more on learning that’s experience-based, anchored in people’s jobs. Structured training is very important when people need to pick up specific technical skills. But so much of what makes an employee successful is more likely to arise out of mentorship and apprenticeship. Apprenticeship is where employees really learn the soft skills that allow them to use their hard skills in work environments that are, let’s face it, fuzzy and unpredictable. And that, after all, is what we all really value in the human worker, as opposed to a machine.