Finance for non financial personnel - part 6

Finance For Non-Financial Personnel Part 6Business Driven Finance Insights For Laymen

Estimation

£ ¥ € ₳ ₨$The Structure of Finance For Non-Financial Personnel

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8 presentations altogether, if you cannot find all the links, kindly email [email protected] to request

Part 5

Part 6

Part 7

Part 8

Accounting systems - the systems are not that simple after all and how your own system integrates to them. Accounting systems are not IT systems!

Estimation - any activity (you name it) involves estimation, how can you estimate better? Budget/ Forecast/ Plan. How the financial data so important to you? Lean & agile.

Valuables take-away - how to work on numbers that please your boss? What numbers must you always look at? The hidden financial formula a boss must have.

Decision making - interpret financial information, perform critical ratios analysis, read different reports, and use reports for specific needs. Use management accounting information for your own management needs.

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Estimation Beyond Financial Information


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Why we need to estimate?


Only One Answer:

“Because we don’t know the

future!”

If we already know the future, there isn’t any need to estimate at all!

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Complete Piece of Information for Decision Making

Objectives

StrategiesImpacts

Financial & non-financial numbers

Perceive

Solely rely on financial information to make decision is dangerous

Good Information: “timely; reliable; relevant; fit for purpose; cost; complete ”

Source: From Presentation Part 4

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To estimate accurately is one of the greatest assets in the world! Financial data play an important role for estimation, however ...

Rule from complete piece of information:

We must include financial information

in each estimation but other information also very important.

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Principle 2Types of input data for Accounting information:

1. Historical2. Estimate

Only these two. Not that much right?

Do you estimate?

Record history to appraise results


Actual: What had happenBudget: What had committedForecast: What I think will happenPlan: What I hope to happen

Historical => ActualEstimate => Budget/ forecast/ plan

Source: From Presentation Part 3

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Modelling is getting information about how something will behave without actually testing it in real life

Extrapolation beyond the original observation range, the value of a variable on the basis of its relationship with another variable.

Regression a statistical process for estimating the relationships among variables.

Wild Guess to arrive at an opinion about (something) without having sufficient evidence to support the opinion fully

Logic Reasoning the system or principles of reasoning applicable when estimating

Value/ Religion Guides collection of beliefs, cultural systems, and worldviews that relate humanity to an order of existence.

Here are some methods to estimate

financial numbers

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What Would You Like to Estimate?


● Recruit new employee● Working on budgeting● To plan an event or project● Plan for resource allocation ● Predict what to do next● React to complex environment● Detect possible failure earlier

for good risk management

TO NAME A FEW

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Example: Recruit New Employee

The Case: customer service manager wanted to recruit a customer service officer and approach to HR manager to advise on costing and HR matter. He also turns to finance manager to advise on the finance impact.

Finance Impact:

Profit lesser?

Increase one more headcount

as orders increase

S/T Costs increase >

sales increase

Expect increase in assets

Cash conversion

more important

Are the orders L/T or S/T?

Modelling Regression

Extrapolation Value/Religion Guides

Logic ReasoningWild Guess


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Finance Impact:

Profit lesser?


as orders increase


sales increase

The cash conversion

rate reduce to

20%

Expect increase in assets

Cash conversion

more important






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Finance Impact:

Profit lesser?


as orders increase


sales increase

The cash conversion

rate reduce to

20%

Expect increase in assets Yes,

orders increase 5 times in L/T

GREAT! L/T net

benefits > than now.

Cash conversion

more important






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Finance Impact:

Profit lesser?


as orders increase


sales increase

The cash conversion

rate reduce to

20%

Expect increase in assets Yes,

orders increase 5 times in L/T

GREAT! L/T net

benefits > than now.

Cash conversion

more important






Modelling suggests while S/T suffers a bit

L/T gain much more. Is the market still the

same in longer term? I need to estimate

consumers’ behaviours.

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● You know how to use financial information for estimation

● You understand financial information is critical but you

also know that you need to depend on other information

● You know how to use different methods to estimate

financial numbers


Are You On Track?

Look For Next Presentation: Finance For Non-Financial

Personnel - Part 7

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[email protected]

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Finance for non financial personnel - part 6

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