When I was in college, I was under the illusion that I would make it as an accounting major. Then it happened. Late one night, under the light of the desk lamp in my dorm room, I was at a crossroads. Should I continue on my misguided attempt as an accounting major and spend another agonizing hour trying to find the $0.56 that I was off on my worksheet, or should I come to the realization that I am not cut out for this and declare another major?
The next day, I went as fast as my legs could carry me to the advising office and promptly declared as an Economics major, and as Robert Frost has so eloquently written, “…that has made all the difference.” After graduation, I chose Human Resources as my career of choice, and all was well, until…
I never thought I would be back in the painful throes of the accounting nightmare. Yet here I am, making HR decisions based on budgets, capital expenditures, and staffing models. As HR Professionals, if we don’t make an attempt to understand the numbers, no matter how painful, we are at the mercy of those who do understand them and make decisions based on them every day.
In the book, “Financial Intelligence for HR Professionals,” Karen Berman and Joe Knight identify four skills that form the basis for financial intelligence. Competency in each of these will enable you to achieve greater success in your Human Resources career.
1. Understanding the foundation – HR professionals should at a minimum be able to read and make sense of a balance sheet, an income statement, and a cash flow statement. Knowing how these work and what they mean will give you greater insight into the financial position of your company and why decisions are made (or not made).
2. Understanding the art – Just like many things, sometimes even accounting is more art than science. Sometimes assumptions and estimates need to be made and reflected in a company’s financial statements. The HR professional needs to identify when art has been applied to the numbers and how applying numbers differently can lead to different results. Don’t just take the numbers at face value – challenge and question them when appropriate.
3. Understanding analysis – After you have taken the time to learn the basics and understand the art of finance you can begin to use analysis to obtain depth and meaning from the numbers. Use ratios such as debt to income and return on investment to help you make better decisions when faced with challenges such as staffing, training, and the like.
4. Understanding the big picture – Contrary to popular belief, numbers don’t always tell the whole story. By understanding the numbers and putting them into their proper context, such as taking into account economic forces and the competitive market, you will be well equipped to decide what decisions need to be made and when.
You are probably thinking that you would rather sit in a dentist’s chair and get a root canal than try to become financially intelligent. However, by learning, practicing and applying the above steps, you will be able to position yourself as a strategic partner and have a greater impact on your company’s performance.
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