Financial tools enable good decision-making, says Simply Finance author
Susan Hansen believes good decision-making requires understanding an organisation’s numbers – and their limitations.
For anyone in business, Susan Hansen says, it’s important to understand what the numbers are telling them, and what they aren’t. This includes anyone making capex decisions (such as engineers), anyone evaluating financial statements (such as lawyers) and those considering acquiring or selling a business, or assets within a business. However, she says, people often make decisions based on flimsy knowledge, different biases and past experience.
“The benefits from any decision are based on future outcomes,” she says. “Predicting future outcomes is very difficult, but it doesn’t require intellectual superiority – it requires a lot of hard work, knowledge and experience. Knowing what to include and what to exclude in decision-making is paramount to good decision-making and avoiding thinking traps.”
Susan is the author of Simply Finance, now in its sixth edition, and has worked in financial services since 1980. Her career in various areas of the sector includes both practical and academic elements. This well-rounded view on finance makes her an ideal lecturer on the subject and she teaches courses on finance for non-financial managers at the Amsterdam Institute of Finance.
Susan qualified as a chartered accountant in 1982 in South Africa and gained valuable work experience at one of the Big Four accounting firms in Cape Town and then in London before spending five years with a Wall Street investment bank.
“It was a huge amount of fun, but I found making money for money’s sake a little pointless,” she recalls. “I returned to South Africa in the early 1990s and lectured at UCT and did an MBA, which reminded me how stimulating education is. My husband and I moved to New Zealand and I was Chief Executive of Auckland’s waterfront development when our first child was born in 1997.
“Two years later, I set up a consulting business delivering finance skills to executives. The demand surprised me and soon I was getting requests from Shanghai, Sydney, Singapore and Amsterdam. I love making a difference to people’s working lives and hopefully their personal lives too. Financial skills are life skills.”
Susan is a non-executive director of a ‘closed-end’ investment company, listed on the London Stock Exchange. She also chairs the audit committee of an Australian listed company.
Her book and the courses she teaches largely target managers from a non-financial background to help them understand the financial tools that are available to assist their decision-making. “I am not trying to make people into accountants,” she says. “Instead, I try to give people the tools so they can understand the numbers and, probably more importantly, the numbers that aren’t there.”
Key financial concepts and value drivers
Susan believes it’s important for people to understand the difference between financial accounting, management accounting and financial management – and to understand when each of those disciplines is appropriate, and how they can add value to the business. She stresses that it’s critical to understand working capital management, linking strategy to financial reality and being able to undertake a customer profitability analysis.
While financial accounting is compulsory, management accounting is not. However, Susan says, organisations with excellent management information systems have a significant competitive advantage. “When an organisation is under pressure to lift profits, a reflex reaction is often to slash costs. This will inevitably erode the intangible value of the organisation. We need a more creative approach to identify ways of improving performance,” she says.
Strategies include understanding what drives a company’s bottom line, analysing it from a customer perspective, undertaking a customer profitability analysis, putting a measurement system in place to include both financial and non-financial metrics, managing risk and building certainty to add value, analysing one’s break-even and contribution analysis, and identifying incremental cash flows.
Susan also believes that the business case is an underestimated tool. “Building a business case is fundamental to decision-making,” she says. “Understanding this both from your organisation’s perspective and your clients’ perspectives will not only help you create value, but aid in better conversations with clients.”
Susan presents a short course on Finance for Non-Financial Managers at the Amsterdam Institute of Finance. Find out more.