Empowering your people in the discipline of financial performance management significantly enhances their ability to impact the quality of their decisions and actions.
It is estimated that more than half of mid to senior managers do not have a clear understanding of how the income statement, balance sheet and cash flow statement integrate. Managers make ongoing decisions that impact the income statement favorably but could cause a significant adverse impact on the balance sheet and cash flow. Alternatively cash favorable decisions can have the reverse effect on the income statement.
Consider the case where a senior management team implemented a scorecard measure of 98% on time delivery in full. The focus on this metric significantly improved customer satisfaction, however the improvement was most detrimental to the balance sheet. In a typical traffic light system, working capital requirement significantly increased with cash flow quality moving from dark green to bright red. We can share numerous famous and possibly some infamous real life examples of how financial statement understanding can highlight operational dysfunctions.
So why do the known conditions not automatically become common knowledge within the organization?
