How to: Month-end Performance Reviews

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Welcome to this week’s newsletter, where we will focus on enhancing your financial acumen to help you make informed decisions and contribute to your department's financial success. While you may not be finance experts, developing a basic understanding of financial concepts and processes can significantly impact your ability to manage resources effectively and drive departmental performance.

Why This Matters to You...

A month-end financial review is a valuable exercise that allows you to assess your department's financial performance, compare actual results against budgeted targets and forecast future outcomes. By gaining insights from this review you can identify areas for improvement, optimize resource allocation and make informed decisions to achieve your departmental or teams' goals.

Developing your financial acumen as a manager or leader offers several benefits:

1. Strategic resource allocation: Understanding financial reports and performance indicators empowers you to allocate resources effectively, ensuring optimal utilization and cost control within your department. 
2. Enhanced decision-making: With a grasp of financial concepts, you can make informed decisions based on reliable data and financial implications, leading to improved outcomes and departmental performance.
3. Linking financial results to operational decisions: Recognizing that financial results are the outcome of operational decisions made in the past enables you to understand the impact of your department's actions on the overall financial performance of the organization.
4. Collaborative planning: Engaging in the financial review process enables you to contribute to the budgeting and forecasting activities, aligning your department's goals with the overall organizational objectives.

Financial results are often the outcome of operational decisions made 

Why many people struggle

Many department managers face challenges when it comes to developing their financial acumen, including:

1. Limited financial literacy: Department managers may have been exposed to various management reports in the past, giving them a general understanding of financial information. However, this exposure may not provide them with a comprehensive understanding of financial concepts, potentially leading to gaps in their knowledge.
2. The "know enough to be dangerous" dilemma: Department managers often possess a basic understanding of financial reports and terminology. However, this limited knowledge can sometimes lead to overconfidence or misconceptions, resulting in suboptimal decision-making or misinterpretation of financial data.
3. Lack of practical application: While department managers may have theoretical knowledge of financial concepts, they may struggle with applying that knowledge in real-world scenarios. Without practical experience and guidance, they may find it challenging to navigate complex financial situations.

Enhancing Your Financial Acumen

Step 1: Understand the basics

• Familiarize yourself with fundamental financial concepts, such as profit and loss, cash flow, and budgeting.  

Step 2: Engage with financial reports

• Take the time to review and understand the financial reports relevant to your department, such as income statements, balance sheets, and expense reports. Don't hesitate to ask your finance team for explanations or guidance. You do not need to be an expert here, just stick to the basics and ensure you have a clear understanding how each report relates.

Step 3: Identify key performance indicators (KPIs)

• Work with your finance team to confirm the key metrics that reflect your department's performance are being featured. Ensure how the operational decisions you make impact each of the metrics. Leading and lagging KPIs are critical and will be covered in a future newsletter.

Step 4: Analyze variances

• Look for deviations between actual results and budgeted targets. Focus on understanding the reasons behind these variances and their impact on your department's financial performance.

Step 5: Collaborate with finance experts

• Foster a collaborative relationship with your finance team. Engage in discussions to better understand financial concepts, seek their expertise in analyzing financial reports, and involve them in decision-making processes when financial implications are involved.

Step 6: Quickly take corrective action

• By the time a month end review is compete, most department managers will be well into the following month. Align your monthly calendar to ensure sufficient time is set aside for action items that come out of these reviews.

In Conclusion

Remember, developing your financial acumen is an ongoing process. Embrace opportunities to learn and engage with financial information, and don't hesitate to seek support from finance professionals within your organization.

By enhancing your financial acumen, you will gain the confidence and skills to contribute to your department's financial success and make informed decisions that align with organizational goals.

I hope you found this helpful. If you haven't already, feel free to subscribe and follow me on LinkedIn for weekly actionable tips.