It depends ...

Many years ago, I attended an outstanding finance class where our distinguished professor* started the class by asking, as if in a place of deep thinking:

   “Is it true that in Finance, all is variable?”

Then he went on to give his own answer:

   “It depends”

This little joke resonated with me because it encapsulated a profound truth about finance, one that may leave business people frustrated, until they are initiated enough in finance to get it ...

As a side note, this truth about finance is great: it secures a solid place in the organization to finance professionals (like me) …

Our finance professor then went on with giving us a simple case study: Based on a certain set of data which made perfect sense at the time - but turned out to be outright inadequate, students were asked to play the role of decision makers and choose where to invest their company’s money. There was no stragglers on our team; we promptly computed profitability and our conclusion was clear; we were united on a well supported decision path; we felt like winners.

Then we were given light on oh! - some not-so-obvious data … and our perspectives utterly changed … It was painful and humbling to taste & see how based on our first set of data alone we were - with such confidence, about to push our fictitious company out of business fast. This not about any visibility; this is about a certain type of visibility.

You may think this exercise was exaggerated and that this type of mishaps does not happen in real life - really?

Data is like water. It hides. It moves. It is everywhere and nowhere. It has a life on its own. The bigger the company, the larger the waters - the bigger the problems. No one can grab water or data without appropriate tools and strategies. Yet, when water is channeled properly, it becomes your most powerful ally: now you can go places, you may conquer the world!

GROWING FINANCIAL LITERACY

Even with adequate technology, gaining finance mastery is not as easy as people think. In addition to acquiring information systems, the wise course of action is for an organization to acquire financial knowledge so that it  becomes proficient in navigating treacherous seas.

Your business needs an experienced finance guide - a CFO - to keep the business focused on money and channels, in digestible terms, what is not simple.  

It costs money to build strong internal finance organization, but benefits outweigh costs: you will drive better to where you are going and you will mitigate risks.

Rising tides lift all boats. As applied knowledge makes a ship sail better, I personally advocate that everyone in a team  be adequately financially educated and invited to participate in the financial health of the organization.

But this point, right here, is another story for another time ….

Notes:

* Marc Bertoneche at Insead, France, Valeo Program circa 1988