financefornon financialpersonnel-part8-150208202930-conversion-gate02

Finance For Non-Financial Personnel Part 8Business Driven Finance Insights For Laymen

Decision Making

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

educational: free distribution

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.

mailto:[email protected]

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Decision Making … the toughest of all ...


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How People Make Decision?


Values & Beliefs

Emotion

Ego

Understanding

Personality

Note: The complete decision making module is totally a different topic. We introduce some of these methods here so that we can look at using financial information to make decision more meaningfully.

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Values & Beliefs

Emotion

Ego

Understanding

Personality

The outer layer are more obvious.

How you handle this?

Middle layer override the outer layer and sometimes are the blind spots to us.

The deepest of all & being

ignored. But it is the real

mastermind behind all

intentions and choices making.


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Values & Beliefs

Emotion

Ego

Understanding

Personality

The outer layer are more obvious.

How you handle this?

Middle layer override the outer layer and sometimes are the blind spots to us.

The deepest of all & being

ignored. But it is the real

mastermind behind all

intentions and choices making.

Those that interfere decision most are found in the innermost layer. Understanding at the most outer layer

act as connector of individual to outer world.

3 Layers Doctrine For Decision MakingKindly email [email protected] to ask more about this



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Decision is effected through INDIVIDUAL or GROUP

The Quality of using financial information to make Decision Depends on:

1. Completeness of the information - Presentation Part 4

2. Estimation skills - Presentation Part 63. Good financial knowledge from the rest

of the presentation series.


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Decision Versus Action Versus Result



Decide First

Action Next

Results Created

Impa

cts

crea

tion

We regret on the decision made not on the action made. What you are NOW is the decision you made in the PAST!

Responsible

Due Care

What to do when you find hard to make

decision?

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Example 1: Should we shut down a food outlet?


Background:A food outlet with capacity to hold 50 pax facing negative cash flow & manpower shortage.Head office plans to shut down the outlet.

Basic Information: $ $1 Monthly Sales 100,000 11 GP/Headcount/Day 1832 Costs of Sales 45,000 12 Sales/Table Turnover/Day 223 Gross Profit 55,000 13 Sales/customer/Day 74 Overheads 60,000 14 Net cash from GP 40,0005 Net Outlet Loss (5,000) 15 Free cash flow GP 30,0006 Headcount 10 16 Free cash flow GP/customer 27 Current Ratio 1.5: 1 17 Break-even point ($) 109,0918 Cash Operating Cycle 30 days 18 Break-even point (customer) 15,0229 Table Turnover rate 9 times 19 Break-even point (customer)/Day 501

10 Sales/Table/Day 196 20 Break-even point (Table Turnover)/ Day 10

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Break-even = 501 customers, but capacity only 450 customers, how to continue?

We like here, low costs and can stay long.

Cannot increase customers, need to increase sales per customer. How to overcome L/T net loss?

80% of 450 = 360, we need a taking of $9.25 per customers @ 60% GP margin.

The StrategyIncrease take-away salesIncrease corporate salesEnhance credit controlIncrease overheads by $10kManage possible impact on existing customersCheck viability about market, process, and food quality for sustainable business model.

Management Team

Let finance conduct a

“what-if” for underperform

sales

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Looks like continue the outlet is a better choice, but the challenge is L/T net loss.How fast can we turn into net profit? How to resolve the shortage of manpower?

Shutdown outlet, reduce free cash from GP to $20k Continue without change, free cash from GP remain at $30k


Management Team

Let finance conduct a

“what-if” for underperform

sales

Looks positive

here!

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Management Team

If Implement Strategy:Sales= $150k

GP = $90kOverhead = $70kNet Profit = $20k

Net Cash fm GP = $60Headcount = 12

Free cash fm GP = $45Current Ratio = 2:1 (higher credit risk)

We don’t do take-away, will this affects our

image?

I think we need an alternate route for

overheads

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Management Team

If Implement Strategy:Sales= $150k

GP = $90kOverhead = $70kNet Profit = $20k

Net Cash fm GP = $60Headcount = 12

Free cash fm GP = $45Current Ratio = 2:1 (higher credit risk)

Can we decide now?

Someone here needs to be the sponsor for the

change


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Example 2: What I need to do to my project?


Background:Product XYZ development project, adopted a metaphor of waterfall and agile with liberty to act within a set of constraints. Consistently delay in releasing new version and cannot meet marketing request. The development also not generating good cash flow.

Basic Information:

1# of Proposals Accepted/Total # of Proposals Presented 20% 6

# of Potential Customers x Market Share x Average Selling Price x Average Annual Consumption $1m

2

Total Time Required to Gain Feedback/# of Ideas Submitted 5 days 7

(Consumer Who Bought Good/Total Consumers in Segment)*100 5%

3

Total Product Development Cycle Time (in Days)/# of Formal Quality Audits 20 days 8

Sum of Expense at Each Phase in Product Development Lifecycle $350k

4Total CAC ($)/# of New Customers $150 9

(Total Revenue Generated by New Products/Total Firm-Wide Revenue during the Same Period)*100 1%

5 Net Cash from new product $20k 10 Free cash flow from new product -$15k

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Management Team

Management Team

Left 15 days to release new version and we still not yet

test the product. Late again, what can we do?

Spent $60k and a further spending of $10k for this release, exceed budget by $15k. To achieve the same target profit, need to increase sales by $70k. However our cash flow with fall by $20k due to increase in working capital.

We may not meet

marketing requirements

on time

Spent total $350k development costs and achieved 1% of total revenue. This is 5% behind target and free cash flow still negative.

Will the manageme

nt cease the project?

Product XYZ development is too slow & cannot achieve

market requirements + financial targets.

It is underperforming, how can we improve it? What are the key improvement areas

we are looking for?

Should we change the

way we review ideas to speed up feedback?

Can use 3rd parties engines to build our features to reduce the need of testing and speed up development. Customers will not notice the different so easily. Cost of development may be lesser but cost of sales will increase by 5%, more sales need to achieve.

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Management Team

Management Team

Left 15 days to release new version and we still not yet

test the product. Late again, what can we do?

Spent $60k and a further spending of $10k for this release, exceed budget by $15k. To achieve the same target profit, need to increase sales by $70k. However our cash flow with fall by $20k due to increase in working capital.

We may not meet

marketing requirements

on time

Spent total $350k development costs and achieved 1% of total revenue. This is 5% behind target and free cash flow still negative.

Will the manageme

nt cease the project?

Product XYZ development is too slow & cannot achieve

market requirements + financial targets.

It is underperforming, how can we improve it? What are the key improvement areas

we are looking for?

Should we change the

way we review ideas to speed up feedback?

Will 3rd parties

products affects our

brand?

Can use 3rd parties engines to build our features to reduce the need of testing and speed up development. Customers will not notice the different so easily. Cost of development may be lesser but cost of sales will increase by 5%, more sales need to achieve.

Market is expecting new features in this

release.

I rather push the date for release then

Propose use 3rd parties products to reduce R&D

time

Good idea, provided the management

don’t respond to our idea so slow

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Management Team

Management Team

Propose Strategy:Use 3rd parties engines to reduce development time by 30 days & can release on targeted dates. Idea needs to approve fast.

Accept Strategy:Change brand & position to take advantages of faster product development. Need to monitor closely the impact after strategy launched.

Company S/T cash flow affected badly, but L/T cash flow increase.

Impact on Project:Devt cost reduced by = $20k

ROI on the change = 35%S/T cash new product = -$50kL/T cash new product = +$70kSales on new market = $1.5m

Impact on company:To sales other products = $200k

Overall Net Profit = $90kOverall cash flow (S/T) = $15k

Overall cash flow (L/T) = $500kContribution/ XYZ = $5k

Overall free cash flow (L/T) = $300kSales on new product/ Total = 2% Cash conversion rate (L/T) = 15%

This can solve temporarily problem.

In L/T challenge - we face 3rd parties’

qualities + integration issues.

The management

team does not know this

Marketing activities need to

adjust this.

We need to take note of cash flow burden

We need to track customers’

reaction + the pace of sales

growth

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● We make decisions everyday and everytime.

● Financial information is critical for decision making

● You also know how individual & group affect decisions

● Use accountant to provide relevant financial information

for good decision making.


Are You On Track?

Last Overview Presentation On Finance For Non-Financial Personnel.

Business Driven Finance Insights For Laymen

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1. Work with accountant to obtain the financial numbers you want.

2. Financial knowledge from your own viewpoint is more critical to

your performance and career progress.

3. Know exactly what you need to act to influence the financial

numbers make you very AGILE

4. Your competitiveness is not the acquiring of financial knowledge

but the ability to use financial knowledge to improve yourself.

“Learning A Lot” Compare to “Learning Correct” Makes A Big Different

Conclusion For 8 Presentations

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[email protected]

3CTT is a management consultant who advise and run projects for holistic business solutions, usually end-to-end, to improve business and make achievements. They cover all business functions with unique IT enhancements to increase companies’ competitive advantages, maximizing revenue, liquidity, & profit while designing highly effective organization.

We had been recognised by many as Trusted Advisor, Growth Driver, Turnaround Expert, Exceptional Motivator, Strategist, Business Designer, and Dynamic Change Agent

For more information: www.3cthinktank.com

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

All the 8 presentations are the overview, PLEASE email us if you like to get more benefits from them.



http://www.3cthinktank.com


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Documents

decision making

complete decision

free distribution decision

laymen decision

financial information

financial data

outer layer act

middle layer