Managers Need To Learn Language of Finance
OTHER PARTS OF THIS ARTICLEPt. 1: This PagePt. 2: Understanding Key Financial Management TermsPt. 3: Making the Financial Case for Projects
Sometimes, we fool ourselves into thinking a bad deal is actually a bargain. My neighbors built their home in 2008 at the beginning of the housing crash. They chose to heat the home with propane. They have a 500-gallon tank and refill it an average of four to five times each year. Back in 2008, propane was selling at about $2.04 per gallon, so their average bill for the year was $4,080-5,100.
The average price for propane in 2014 was about $2.67. Keeping with the average annual refills, that same amount of propane cost $5,340- $6,675.
When we built our home in 2006, we chose natural gas. Many factors went into our decision, but ultimately it came down to long-term costs and resale value. Our average annual heating bill over the course of 10 years has been $940-$1,070.
Back in January 2016, my neighbors made the conversion to natural gas, and their total heating bill for this past year was $900. It cost them $4,100 to convert. The total year-to-date cost is $5,000. Was that a good decision? Did they achieve a desirable return on their investment (ROI)?
Many maintenance and engineering managers are not trained to speak the language of finance and are not equipped with the tools necessary to make informed financial decisions, let alone secure approval of budget proposals from chief financial officers (CFO) or chief executive officers (CEO). But it is critical for managers to understand basic concepts of fiscal responsibility and learn to speak and present intelligently in order to get the backing and support for capital or major expenditure spending. Taking just a few tangible steps can enable managers to better prepare financial information for financial types and present it in a manner that speaks their language.