Financial Intelligence: Explain Why It Is a Critical Leadership Function

by Aminat Abubakar

Future smart organizations invest in their employees, systems, and process to establish intelligent finance functions. Financial Intelligence is critical to leadership function. It provides a better understanding of what numbers really stand for and knowing what is happening in their organization from the financial perspective. It helps to make a well-informed and effective decision. Berman and Knight, (2013, p.18) pointed out some benefits derived from financial intelligence.

  1. Leadership has increased ability, to evaluate the organization, and is able to ask specific questions. How profitable are the products or services provided by the organization? Is there enough cash to make payroll? Is the return-on-investment (ROI) analysis conducted base on solid data in regards to the capital expenditure proposal? It enables a better insight into trends and understanding of numbers in order to access the organization’s performance and prospects.
  2. Financial intelligence provides leadership with a better understanding of the bias in the numbers. It instills “knowledge and confidence to question the data provided by your finance and accounting department-ability to identify hard data, the assumptions, and the estimates” (Berman & Knight, 2013, p.20). Decision and control relegated in the hands of the accounting and finance department team. Leadership final decision is made based on facts on ground whereby there is an undisputed acceptance by everyone.
  3. It provides leadership with the critical ability to use numbers and financial tools to make and analyze decisions. By asking questions such as: What is the return on investment on a particular project? Why can money not be spent, despite being a profitable organization? Leadership would utilize financial knowledge to make better-informed decisions and plan for the future of the organization.

An organization whose leadership masters the art of financial intelligence encourages employees to practice the culture of financial intelligence and apply it in their everyday work decisions. A financial intelligent organization enjoys a number of benefits such as strength and balance, better decision making, and a greater organizational alignment. “The intelligent finance organization of the future, and indeed of today, must go beyond its business-as-usual financial reporting and control role to become a value-adding provider of intelligence that the board and business units can depend on to make strategic business decisions” (KPMG International, 2013).

Financial intelligence is a critical factor for leadership in understanding the organization’s financial result towards making better decisions. Leadership should learn and train employees to understand the key financial metrics that are important to each individual job role in order to create a high-performance organization.

What do you think?

References
Berman, K., & Knight, J. (2013). Financial Intelligence, Revised Edition: A Manager’s Guide to Knowing What the Numbers Really Mean Revised, Expanded (2nd ed.) (J. Case, Ed.). Boston, MA: Harvard Business Review Press.
KPMG International. (2013). Being the best: Inside the intelligent finance function – Insights from our latest global CFO research. Retrieved from https://assets.kpmg.com/content/dam/kpmg/pdf/2013/12/being-the-best-v2.pdf

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