Have you ever been frustrated when a proposal for what seemed to you like a sensible process improvement is turned down on financial grounds? Understanding how finance works could be one of your best career moves.
Finance can seem like a mysterious art. Surely, if a machine keeps breaking down it makes better financial sense to replace it rather than keep patching it up? So why do managers turn down your request?
All organisations, whether in the private or public sector, produce a budget for the year ahead which shows how much they expect to receive as revenue or funding and how much they plan to spend on each area of the business.
So the first place to start if you think something needs to be done is to persuade your manager to put in a bid for the money in the annual budgeting process. This usually begins at least six months before the start of your organisation’s financial year.
Each department submits its plans for the year and business leaders decide which of the plans can be afforded. Once the financial year starts, most organisations adjust their budgets by updating financial forecasts monthly and quarterly as circumstances change.
“I think it’s really important for engineering managers and technicians to understand how the financial cycle in the business works in terms of budgeting and forecasting.”Ian Bell, Vice President of Engineering and Facilities, RS Group
“I think it’s really important for engineering managers and technicians to understand how the financial cycle in the business works in terms of budgeting and forecasting,” says Ian Bell, Vice President of Engineering and Facilities at RS Group.
“Because they don't always understand that it’s not about whether it’s a great idea – it’s about whether it’s possible to fund it. And engineers don’t always get that because they naturally think: ‘This is a good idea. We’ve got a problem. We need to fix it’. But each business relies on funding to make the changes.”
Of course, not all projects can be planned in advance – a sudden breakdown can catch anyone by surprise. Many organisations will have contingency funding set aside specifically to pay for some critical emergencies.
But major unexpected costs can cause problems, especially for companies whose shares are listed on stock markets. Investors expect them to deliver on their forecasts, so a major financial upset may make it harder for them to raise money in the future.
Add value to key projects
Maintenance Engineering Academic Dr Moray Kidd says: “It’s absolutely imperative that engineers are aware of whether we’re adding value or eroding value when it comes to key decisions in major projects.”
Dr Kidd says you need to keep your eye on the financial ball in every project you work on throughout the life of an asset. “If you get that wrong, some poor decisions can make the entire project, from concept through to decommissioning, a basket case,” he adds.
“Year on year there will be big budget challenges but it’s about using your resources most efficiently to generate business value.”Dr Moray Kidd, Maintenance Engineering Academic
“In operations, engineering practices increasingly come back to understanding what the corporate objectives are and how, as a maintenance engineer, you support them. Year on year there will be big budget challenges but it’s about using your resources most efficiently to generate business value.”
“It’s fantastically important that engineers understand the language of business ,” says Richard Jeffers, Managing Director or RS Industria at RS Group.
“At RS, my finance colleagues do financial modelling for me, but I have to be able to look at that financial modelling and understand it so that I can have a coherent conversation about it.”
Ian Bell agrees about the importance of mastering the language of finance. “It changes your perspective and makes you feel more engaged with the business,” he says. “So I think it’s a great concept to get engineers to lift their heads up and think about financial mechanisms – it just helps them play their game a bit better.”
Accept finance training
Some organisations offer financial training for non-financial people and engineer Gary Harvey, who is Head of UK Field Services at RS, says he would recommend maintenance engineers to take part if they get the opportunity.
“I remember going to do a week’s finance for managers training and it was just a fantastic thing for me to do because it equipped me for a grown-up conversation with my finance manager,” he recalls.
Harvey says understanding finance is critical to advancing your career as a maintenance engineer. “When you’re at a junior level, it’s pretty easy: all you’re doing is asking for money and trying to spend it,” he says.
“But when you become a manager, all of a sudden you go from asking for permission to spend, to managing a budget for which you take responsibility. You also need to share the agenda of your colleagues across the wider business and be able to have a proper conversation about the business.”
Harvard Business School says that as well as helping your career, understanding finance can help with job satisfaction by helping you realise the financial impact of what you do every day and how it contributes to the success of your organisation.
“Every individual makes a measurable impact on the success of the company, and understanding the impact of your job, using the tools of finance, can be the best first step to reaching a higher level of performance,” says the Harvard team.
Understand that finance is critical
Let’s give the final word to RS’ Ian Bell. “The single best training or knowledge gain I've ever had was the finance for non-financial managers course I went on, especially coming from my background, which was engineering and operations,” he says.
“If it does nothing else, it makes you feel clever. It makes you more able to survive in meetings where terms like gross profit and net profit are being thrown around. And once you are a manager, people assume you've already got this and you're not able to stick your hands up and say, no, I haven’t.
“So if you want to be better at your job, understanding finance is absolutely spot on; the most important thing you can do.”