Operations Finance and Management Are Critical Skills

January 18, 2025
Bob Jones
Operations finance manager reviewing project finances

In Operations Management? Then You Are in Finance, Whether You Like It or Not.

Operations finance and management… I have seen it too many times, sharp operations managers and directors THINK their core responsibility is to develop people, processes, and automation to receive inventory, process orders, train staff, etc. But that’s really not the case – well not in its entirety. Their job, like any level of management, is to help drive profit for the company. Think about it – does the company exist to process orders and buy inventory?

Nope, it’s to make a profit. This means the making of that profit are all those operational functions – they are a means to an end. And yet, many operations managers do not really understand the financial end of the business or just think it’s not their domain (and sometimes, both are true). Yet, every significant change a manager or director wants to make must be approved by finance and the C suite. These groups operate almost exclusively in the financial arena. So, operations management and finance are entwined.

Yes, they may understand operational metrics and what you are trying to do, but they are weighing that against the cost, other projects, marketing efforts, cash flow, cost of money, credit lines, etc.

Operations Finance and Management Must Be Core Competencies

I have seen so many incredible ideas, concepts, and plans crash and burn at that C-level, not because it wasn’t good or financially viable, it just wasn’t presented in financial terms or what was presented, did not paint a complete picture of the financial benefits. If the assumption is that the executives will understand all these core benefits implicitly, then one really needs to step back. As with anything in a company, there is competition for time, resources, and money.

If a manager/director is floating up changes that require significant investment (i.e. automation), it is his/her responsibility to not just run the operational stats but flesh out full financial picture as well. However, typically there are some basic operational stats and improvement claims presented, maybe a budget and a simple ROI for two years in static labor savings- but many times this level of financial impact makes the project dead on arrival.

Common Operations Finance Baselines

This lack of understanding that operations finance and management must be the same thing is caused by many reasons, but there are the more common ones:

  • People are brought through the ranks and are promoted to higher level management or director level positions because of their performance, but the company who promoted the manager does not train that person in the world of basic corporate finance, nor does the manager take it on themselves to educate themselves.
  • Many times, managers and directors are on the periphery of the financial discussions but are never truly brought into the actual financial decision-making process at that level, so they never learn.
  • Sometimes people are brought into a position with the required operational skill sets, such as managing large scale facilities, automation, and workforces, but they are not truly vetted for their level of financial acumen, and rarely are there any required internal training courses to test and educate on this most critical front.

These managers and directors are sometimes making presentations of new systems / concepts, and ideas to the C-suite, or even the board of directors, and are explaining things in operational concepts with either no or very little / rudimentary financial supporting information, even though that’s what their audience is focused on.

Many times, the CFO/Controller, etc…, are hearing about these major funding requests for the first time or have had very little involvement of the scope of the project or the financial impact. Does this sound like this is an exception? It’s not. My personal experience is that very few managers and mid-level directors have a solid foundational baseline understanding of corporate finance, let alone have a deep background.

Financial Operations Explained

In my own experience as a VP of operations, It was clear that when I made presentations to the C-suite, Board of Directors, or even the investment community, I was explaining operational concepts to a financial audience, and I had to adapt my thinking that whatever I was presenting in operational terms (better accuracy, improved order flow, inventory modeling, facility expansions, etc….), had to be paired with a realistic financial result. I had to speak their language, create that impetuous for change in their minds based on THIER priorities. Thinking these groups can make that leap from operational to financial impacts when you are requesting millions of dollars in investment is a critical mistake.

To test this, I challenged every one of my DC managers globally to complete an IRR (Internal Rate of Return) analysis of any investment over $1M. Out of 15 managers, not one understood it enough to complete the form. I am not talking about fleshing out a hurdle rate (they can get that from the CFO), but they didn’t even understand what a hurdle rate was. After this, I put in place a mandatory financial boot camp for all midlevel managers and directors, and it was optional (but highly recommended) for all supervisory personnel as well.

Operations and Finance Alignment

It was also required that any request for capital expenditure was initially finically scoped by the requesting manager/supervisor (with any assistance needed), then reviewed by the operations management team (for both input and education), and if it made sense, the requesting director/manager presented it to the core financial team (and I would be their supporting). This is so we could get the financial concepts aligned and make adjustments if needed. Only then would the concept and funding requirements be presented to the larger group in the C-suite. It is important that the director/manager promote their project, adjust as needed, and be able to explain the underlying operational and financial impacts, with full support and backing of the operations management team and C Suite (along with the CFO at that point).

The takeaway from these thoughts is simple. You either have to know, learn, or find someone who can help you convert “operations talk” to “finance speak” in order to win the day and achieve your company’s and personal goals and objectives. Feel free to reach out to me and let’s discuss how I can help you with combining operations management and finance at bjones@isddd.com

For More Information

Bob Jones

Bob has been with ISD as a Senior Consultant for over 20 years and has worked with 100’s of clients to help improve and automate their operations in a myriad of industries, applications, and markets. Before joining ISD, Bob was a Sr. Vice President & Director of global operations for several companies, along with general manger responsibilities and overseeing Procurement, HR, and Sales Operations. His background in these large-scale supply chain networks provides him insight to the challenges that face ISD clients in all facets of their operations. Bob uses his decades of experience to help provide proven and operationally sound solutions that are rooted in real world experience.

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