The demands on finance are shifting toward value creation, especially during these uncertain and volatile times in higher education. The finance team is being asked to expand its role by providing greater insight into a wider range of disciplines. Finance departments are analyzing financial and operational data, providing dynamic, driver-based rolling forecasts, and addressing risk, uncertainty, and compliance, while leveraging new technology.
Finance is increasingly at the heart of the strategic process. Assessing portfolio performance, modelling alternative scenarios, and ensuring adequate cash and capital are on hand to invest in growth strategies are essential. What does it take to be an effective finance strategist?
Foundational Performance
- Provide timely + accurate financial information
It’s easy to get wrapped up in the excitement of strategy, but it’s impossible to make good strategic decisions without timely and accurate financial information. We’re often busy, spending hours creating financial reports in Excel when we could automate this function. Either we lack the time or the personnel to act on this knowledge. This is the foundation for everything else. We’ll never achieve the next six steps if this is not in place.
- Adopt a future-oriented mindset
Finance is a lagging indicator. It tallies what has already occurred as evidenced in our financial reports. Strategy requires us to stay constantly focused on the future. The key is to use what we know about the past to gain insight into the future and drive future outcomes. This is a critical mindset. The tool many of us use to help envision the future is our financial projections. We use these projections to figure out where we are and where we’ll be. More importantly, we need them to decide what to do now to achieve a positive outcome. How can you use this data to help think proactively.
Incremental Performance
- Produce actionable (financial) information
Measuring performance is about more than simply measuring money. When they are aligned to your strategic goals and objectives, they become a powerful tool to drive performance, creating a call to action. If your projections show that you will not achieve your critical outcome, what will you do now to change the future?
- Connect operations to finance data
I’ll say it again, finance is a lagging indicator. It tallies what has already occurred in the business operations. These are things like number of new freshmen, percent of students living on campus, average class size. By understanding the financial impact of these operational activities, you can better predict future outcomes. How can you understand what is occurring throughout the institution and connect student and operational data to future financial outcomes?
Strategic Performance
- Create agile + responsive forecasts
We need to develop forecasts that incorporate uncertainty by testing different assumptions and modelling how to respond in different situations. The events of the present and past explain the increasing importance of scenario planning and forecasting. The ability to embrace unpredictability and model alternative situations in advance equips leadership with tools to help them navigate the future uncertainty. For example, if we had 5 percent fewer students this fall, would we need fewer class sections? Would they occupy fewer rooms? What impact would these numbers have on the number of residence life staff members? What would be the impact on our bottom line?
- Embrace process automation + efficiencies
There are many options for automating processes. Reporting, accounts payable entry and approval, revenue recognition, and bank reconciliations can all benefit from automation and modernizing using predictive analytics. We have all experienced significant challenges filling core finance and accounting roles, and that challenge is predicted to get worse. Not only can automation help us with succession planning, but it will speed up our ability to provide timely and accurate financial information to make data informed decisions.
Transformational
- Adopt enterprise dashboards + metrics
Traditionally, programmatic outcomes have been presented separately from financial information. This practice clouds the relationship between money and mission, making this integral relationship difficult to understand. A balanced scorecard leverages financial and non-financial measures, helping institutions act in their best long-term interests. Since enrollment is a key performance indicator (KPI) for the institution, understanding the 3-year trend of lead conversion to enrolled students will help us predict if we’ll meet our enrollment goals for the fall. If we measure the cost per lead, we might notice that we purchased a list this year and our leads doubled. Will this result in doubling of enrollment for the fall — probably not. Similarly, if enrollment has declined, how has the number of students per section affected our cost per student? By identifying the major levers of your revenue and cost structure, you can drive future outcomes.
Conclusion
It is virtually impossible to create effective dashboards without some level of competency in the above areas. Without that, you will have a hard time understanding what to measure. You should ingrain these seven imperatives in your entire finance department, not just the CFO.
With the uncertainties that lie ahead, there will be increased pressure from our boards and presidents to use strategic finance partners to help navigate the future. When you assess your finance team’s competency in the 7 areas noted above, are you an effective finance strategist?
As always, keep checking back for more thought leadership on the future of finance and reach out for a free consultation.
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