Lecture: First Session, 10 September 2014

MIR 889: Financial Literacy for NonFinancial Managers: Introduction

Today’s Session • Introductions: Around the room: who are you, your background, your expectations. • Relationship of Accounting to Business Strategy – Len • Financial Literacy: What is that? – Andy • Purposes of Accounting – Len • Users of Financial information – Len and Andy

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Course Objectives • Familiarization with financial concepts • Comfort with discussing the financial aspects of the work • Demystify financial management • Leveraging financial literacy to get your job done.

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About Us • Len Anderson • Andrew Graham

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About You

Tell us who you are, what your background is, what you aspire to on graduation and your expectations for this course. 

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About the Course: Approach to Learning • Classes will be active. Students will be asked to undertake the following tasks, as part of the learning and evaluation process: – Text reading, – Some assigned out-of-class exercise, – Class quiz, – Class case studies for discussion in group and feedback, – Reviews of annual reports and financial statements, – Group work and presentations (2), including a capstone final presentation, and – Written assignments.

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About the Course: Text and Readings Accounting for Non-financial Manager, Third Edition, John Parkinson with Charles Draimin, Captus Press All other readings will be provided on the Moodle site in pdf format.

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About the Course: Assignments

For the Presentations, a marking rubric has been provided in the Outline. 9

About the Course: Architecture

Shareholder Perspective • Foundations: The World and Language of Accounting

Management Perspective • Applications: Budgets, Risk, Control and Performance

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About the Course: The Flow Accounting Fundamentals Assessing Performance

Financial Statements

Analysing Financial Statements

Risk and Control

Business Planning

Financial Reporting

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Remember, there is no stupid question.

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Establishing context

Consider the following metaphor: what does it tell us about success in business? Nascar strategy

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Fundamentally

• Business success is about direction and traction

• Accounting is a tool to help with direction setting and the measurement of traction

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What is Financial Literacy? • Understand the lingo: – Some core terminology is essential. – However, much of this terminology may have nuanced meaning in the particular operating culture of one organization. • Read the Reports: – This is best translated as being an intelligent user of financial information, be it costing for policy design or cash forecasts for the first quarter of the fiscal year.

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What is Financial Literacy? • Get Clarity: – This may mean asking dumb questions. – It may also mean pushing the point of understanding so that everyone is actually talking about the same thing. • Marry up Numbers on a Pages with What Happens at the Mission End of the Organization: – A financially literate manager can see the link – or insist that it be clearly stated – between what may be for some just a bunch of numbers and the policy and operational impact. 18

Not Just a Financially Literate Manager or HR/IR Advisor, but a Financially Literate Organizations • All managers do not need to be accountants • Being ready users of financial tools and information is great • If the company does not use these tools it will fail • Two-way street – financial people need to understand what you do

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Are Finance and HR Oil and Water?

Words to describe concerns of Finance and Human Resources 20

So being financially savvy is good for the company

Finance

Human Resources

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Forecasting

Controlling

Financial Condition Analysis

Costing

Identifying, Assessing and Managing Risk

Core FM Skills

Communicating financial and program information

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The textbook view of the Nascar lessons • Directional activities can be broken down into: – Attention directing – budgetary control, variance analysis, control triggers

– Decision making – choices between alternatives, viability assessments, build/buy

• Measurement of traction – Scorekeeping – Inherently a “rear view mirror” activity, stewardship reporting

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Accounting serves all three purposes dynamically Decision making

Strategy

Scorekeeping

Attention directing 25

Consider one strategy model

• Michael Porter “Competitive Advantage” • Cost Leadership v Differentiation • Exercise – identify two businesses in each of the following sectors that each embody one of Porter’s strategy focus points: • Airlines • Grocery stores • Hotels

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The management perspective

• Now ask yourselves • What would you expect these businesses to look like in a financial statement? • Think: sales volumes, profit margins, number and cost of people, investment in physical infrastructure

• What would be important to management? • And what financial information would they focus on

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Users and uses

• In groups, read the tabletop cases handed out • Take 15 minutes for reading and discussing in your groups • Tabulate the following: • Who are the likely users of the financial statements in each case? • For which of the three purposes do they seek information ? • How do they get the information? 29

Wrap up

• Questions? • Homework – read Parkinson Chapters 2, 4 and 5 including appendix 4.1

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