Sharpen Your Financial Skills

June 26, 2015

Sharpen Your Financial Skills

Over the past few months in this space, we’ve discussed very important skills — being a good communicator and learning how to embrace change and manage it effectively — a facilities manager must master to be successful.

You chose to be a facilities manager for many reasons, but some of them probably didn’t include being a part-time CPA.

But a number of experts agree that sharpening your financial know-how, plus asking for help when you need it, will do wonders to expand your facilities management skill set and resume.

On the plus side, many talented facilities managers already have the important talents — solid critical thinking skills — necessary for generating good results and finding ways to limit inefficiencies.

Those very same analytical skills, plus a healthy dose of curiosity (you’ll need it to venture out of your comfort zone), will be important in helping you become a more financially savvy facilities manager.

Some Financial Tricks of the Trade

To jump-start your adventure on the financial side of facilities management, you’ll need to become more familiar with a number of terms.

You’re probably already very familiar with at least one financial concept that drives facilities management: Return on investment (ROI), especially how it affects energy efficiency.

However, some financial experts believe evaluating the real fiduciary merit of a project means looking beyond ROI or other simple payback periods and using more complicated tools like net present value (NPV) calculations or internal rate of return (IRR).

In simple terms, financial managers use NPV calculations to evaluate the overall value of a project by forecasting the sum of all future inflows and outflows of dollars over the lifecycle of the asset, with a positive cash flow the desired result.

(Also, a cash inflow can be simple as a purchase of new HVAC equipment that generates energy savings which experts would call “cost avoidance.”)

On the other hand, IRR is another handy method to evaluate the financial worth of a project by thinking in terms of the cost of money being most cost effective (discounted) to an organization rather than making a different investment.

In simple terms, think about a consumer mulling over the purchase of solar paneling versus stashing the cash away in an IRA. If the internal rate of return was higher on the solar paneling project than the IRA, the solar panels would be the better investment.

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For assistance with financial matters at your facility, contact Vanguard Resources.