A Finance Department or Unit is very conspicuous in the organogram of any establishment. The exception may come from smaller firms such as sole proprietorships and partnerships. In the past, the Finance or Accounts Department only brought to mind the idea of payments and salaries.  From the processing of payments to vendors to the stewardship of a company’s assets, and from the compilation of budgets and forecasts to the preparation of management accounts, the traditional role of the Finance Department has most often been regarded as that of a score keeper, focused only on book keeping. 

 

Over time, the role of the Finance Department is shifting from the traditional book keeping to that of a strategic business partner. In today’s dynamic environment, it is not enough to prepare management accounts for the organization. One would argue further that such reports only show past performance. Fortunately for businesses, with the proliferation of accounting softwares, the generation of financial reports can be obtained with just a click of a button. With such resources at their disposal, the Finance Department is faced with a challenge to go beyond the generation of reports to the interpretation of the reports for effective decision making amongst other responsibilities. Again, putting in place the right internal controls is necessary but insufficient for today’s finance role. For purposes of this article, I will attempt to highlight some key strategic roles that are expected of today’s finance departments. 

 

The preparation of timely financial reports with value added commentary for decision making by management is one key strategic role of the Finance department as a business partner. The focus here is the timeliness and the depth of commentary. As earlier indicated, management is interested in the story behind the numbers, which will influence decision making. The commentary could explain the reasons for the actual to budget variances, highlight issues like cost drivers, trends in the industry in terms of market share, peer performance, etc. Recommendations could then be outlined to improve or sustain performance. The use of graphs and charts give the pictorial side of the numbers and is also useful for management reports.  The preparation of the management financial report must be aligned to business strategy. However, the content of these management reports depends upon the organization and its business model and it is important for the Finance Department to identify the right measures and reporting format required by the business. 

 

The next important strategic role of the Finance Department is the provision of technical assistance to the development of a strategic plan for the organization. The department must be seen as the anchor in the strategic planning process by way of industry information gathering, liaising with the strategic business units to sync their strategies with the organizations ultimate strategy. The Finance team will eventually come up with a financial forecast to support the organization’s strategy. It is important to note that this strategy document is reviewed from time to time to ensure its relevance to current trends. Again, having regard to the importance of this role, some businesses prefer having a separate department for this. 

 

Thirdly, the Finance team has an important role to play when it comes to improving efficiency in business operations. As a department that does not directly generate revenue, their influence can best be felt when they are seen as championing efficiency in order to improve upon productivity and cost minimization. They need to assess the whole business model to identify and stub out waste. The Finance Department has a critical role to determine the cost drivers in an organization and try to understand how such costs can effectively be managed without hampering business activities.  The Finance Department for purposes of an example can make a business case to outsource some of an organization’s activities which weigh the business financially. 

 

Finally, the Finance Department is expected to play a stewardship role by ensuring that the company meets regulatory and financial compliance, and good corporate governance by way of effective controls. They are also the custodians of the company’s assets and must ensure value protection.

 

 

In summary, the Finance role can be viewed as a good blend of the following:

 

1. Commentator – focused on explaining the numbers

2. Business Partner – focused on value creation

3. Scorekeeper – focused on book keeping

4. Custodian – focused on governance. 

 

Today’s Finance Department has to ensure that the above roles are fully performed. Indeed, it does not require just formal training as a professional accountant. With the rapid changes and new requirements today, I strongly believe that life-long learning, creativity and benchmarking are key to ensure an effective business partnership.

 

 

Joseph Ciici Arthur, Financial Controller, Agricultural Development Bank