Financial perspective

It is essential that internal consultants have a good grasp of finance - after all, their recommendations will invariably have financial consequences. At the very least, internal consultants should have an understanding of:

• financial statements and common ratios: but it is not enough to be able to read a profit and loss or balance sheet; consultants need to be aware of what drives performance and the relationships between the financial numbers and measures such as customer satisfaction, labour turnover or lead times.
• working capital and cashflow management: cash is king! Many profitable businesses fail because they run out of cash.
• value management: the traditional financial statements and ratios were fine during the “industrial age”; nowadays they can give a very misleading picture. For instance, on average, 75% of the value of a company does not appear on the balance sheet. The real value in a company lies not in its balance sheet assets but in the skills of its people, its accumulated R&D knowledge, relationships, brand, systems. Consultants must fully understand the concept of “value” if they are to make sense of “finance”.
• sensitivity analysis: consultants should be able to construct "what-if" models that illuminate critical variables and how changes impact cashflow, profitability and shareholder value.
• project / investment finance: many consulting projects will have payback periods stretching over several years. In fact, much of what functions such as HR, IT, and Marketing do as part of their normal activities have paybacks beyond the current financial year. And yet, training, installing systems and promotion are treated as expenses rather than investments. Tools such as discounted cashflow provide consultants with the ability to appraise and justify recommendations taking into account risk and the company's cost of capital.

Our finance module is extremely practical and participants will take away several valuable spreadsheet models that can be used for sensitivity analysis and project appraisal.