Experiences in change management
Profit Blog
Jarmo Manninen & Muutosdraiveri Oy
When change is managed the right way at the right time, it is always a possibility. In my blog I write about a business's change management from multiple angles. If any questions arise, I would be happy to answer them!
Rolling budgeting is a budgeting method in which the budget is updated regularly, such as monthly or quarterly. This means that the budget is not static, i.e., annual, but is constantly reviewed and updated to reflect changing circumstances and forecasts. The advantages of rolling budgeting are often cited as: 1. Flexibility: The budget is updated regularly, which allows for quick response to changes and the exploitation of new opportunities. 2. Timeliness: Because the budget is reviewed frequently, it always remains up-to-date and better reflects current circumstances. 3. Better predictability: Regular updates help improve the accuracy of forecasts and reduce uncertainty. 4. Improved decision-making: An up-to-date budget provides a better basis for decision-making and strategic planning. I completely disagree with the above-mentioned benefits of rolling budgeting. Here are my reasons for disagreeing with each of the above-mentioned benefits: 1. Flexibility: Budget targets should not be flexible, but all of the company's operations should be flexible so that the budget targets are met. Budgeting by financial period does not prevent you from reacting quickly to changing needs. New opportunities can also be utilized in budgeting by financial period. 2. Timeliness: The budget should not be changed according to the results of the results. If budget targets are always changing, the efficiency of the company's resources and the capacity utilization rate do not have to be high. 3. Better predictability: Predictability does not improve by constantly changing the forecast. Constantly changing forecasts shows that the basis for the forecasts is wrong. 4. Improved decision-making: Decision-making is not improved by constantly changing the budget. In fiscal year-specific budgeting, the results achieved must be compared with the budget targets at regular intervals, e.g. in two-week periods or monthly, and any deviations must be reported. The reporting of the company's financial management results must be at such a level that the root causes of deviations can be identified from the reporting and the right corrective measures can be taken based on them. Rolling budgeting requires much more resources for administration and technology than fiscal year-specific budgeting, which unnecessarily increases financial management costs. As you have probably noticed from the text above, I am definitely a supporter of fiscal year-specific budgeting. I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen
All the company's resources are all the machines and also all the people working in the company, from employees to top management. All the company's investments in resources are investments. Before a company makes any investments, an investment payback calculation must be made for each investment. The investment payback calculation represents a financial plan for how much the company's operating margin will increase with the investment and how quickly the company can pay back the investment with the increase in the company's operating margin. Once the investment decided by the company has been implemented, the implementation of the investment calculation must be monitored against the payback period of the investment calculation and if deviations occur, they must be reacted to in the right way. This procedure must be followed for investments in all the company's resources. Every investment by a company is either an investment to increase the company's operating margin or an investment in the company's profitable growth. The goal of these investments can be, for example, to improve the efficiency of operations or to invest in new products, new services or new business. If a company does not know how profitable each product and service produced by the company is, what value added each resource of the company produces and what the company's capacity utilization rate is, then the company's financial management conditions are not in order. When this is the situation in a company, in practice this also means that the company does not have sufficient conditions to make reliable investment payback calculations, because concrete actual figures for investment payback calculations are not available from the company. In other words, when the company's financial management conditions are not in order, investment payback calculations are made entirely based on guesses and assumptions. Such an action is as uncertain as playing the lottery with an investment. Once you have guessed the figures for the investment payback calculation, all that remains is to wait for the results of the investment's implementation, blindly believing that this investment will surely pay back itself in accordance with the objectives, even though there is no basis for this belief. I hope your company has the financial management conditions in order, or does it? I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen
In this blog, I use the word service providers for subcontractors and suppliers, because both subcontractors' and suppliers' deliveries already involve more and more services now and in the future. In this context, I use the word services for service providers. In this context, I use the word client for the purchasing company. The perspective of the review is the client's financial management prerequisites for achieving performance targets. The starting point for the review is that the client has determined that it is worth purchasing the comparable services because the service providers are able to produce the services more cheaply than the client can produce them themselves. The first thing that is worth finding out is whether the service providers' price levels are such that the client can achieve its performance targets with them? When comparing the price levels of service providers with each other, typical mistakes are made in the following areas: 1. A typical problem for suppliers in tender inquiries is that the liability limits of the supply chain are not defined precisely enough. For example, delivering goods to the customer's door is a completely different matter than delivering to a shelf location specified by the customer. This is not only a matter of the difference in transportation costs, but also of the fact that when delivering to a shelf location, the customer is not responsible for the storage costs. 2. Problems with subcontractor deliveries are typically related to either an increase in costs due to hourly pricing or, in fixed-price services, ambiguities in the content of the service, which results in additional costs for the customer. 3. Depending on the flexibility requirements related to the customer's business, a typical problem is that not all situations of flexibility requirements are defined with sufficient precision for service providers during the tendering phase, when exceptional situations in the customer's business increase the service providers' invoicing prices, causing even profitability problems for the customer in the worst case. In terms of the final result, one of the most important things is that the client tells the service providers about their service needs in sufficient detail, openly and comprehensively during the tendering phase, so that they understand the client's service needs in different situations and are able to price their offer with the correct content. The biggest problems are typically that the client's service needs are not defined or limited precisely enough, or that for one reason or another there have been misunderstandings about the content of the service need. In the worst case, the selected subcontractor has been filed for bankruptcy. Does your company face challenges in these matters? I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen
A company's revenue financing refers to a company's own internal financing, i.e. the funds it receives from its business operations without external financing, such as loans or investments. Revenue financing usually arises from the company's profit, i.e. when the company's income exceeds its expenses. These funds can be used, for example, for investments, paying off debts or growing the company. It is an important part of a company's financial independence and sustainable operations. When the prerequisites for a company's financial management have been implemented in the right way for each company, the company has the prerequisites to achieve its profit goals with the right kind of management. This opens up opportunities for the company to use the company's profit, i.e. revenue financing, for investments. When should a company use the company's revenue financing for company investments? Using the company's revenue financing for investments makes sense especially when the following conditions are met: 1. Sufficient cash flow: The company has a stable and sufficient cash flow that covers daily business expenses and leaves excess funds for investments. 2. Avoiding debt: The company wants to avoid taking on debt, for example due to high interest rates or an uncertain economic situation. Using revenue financing saves on interest on loans and repayment pressure. 3. Reasonable investment costs: The planned investment is relatively small or medium-sized, and it does not endanger the company's short-term financial stability, even if it is covered with its own money. 4. Long-term return expectation: The investment is expected to have a long-term benefit for the company, which justifies the use of its own funds without an immediate return requirement. 5. Utilizing existing assets: The company wants to use the capital it has already accumulated efficiently, instead of having it remain unused or in low-yield assets. In addition, it is important to assess the profitability of the investment and its impact on the company's financial situation. Using revenue financing can prove to be particularly sensible, for example, when it concerns an investment that improves the company's competitiveness or efficiency. By using the company's own funds for investments, the company avoids interest on debt and potential risks related to loan terms. This can increase financial stability, as the company does not have to worry about repaying the loan. In addition, it is important to assess the profitability of the investment and its impact on the company's financial situation. The use of revenue financing can prove to be particularly sensible, for example, when it comes to an investment that improves the company's competitiveness or efficiency. I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen
When you ask companies what principles they use in managing a company, I have received, among others, the following list of answers: 1. The company's management leads the company and the company's other personnel produce results, because the company's management is responsible for the company's results. 2. The company's management does not directly produce results for the company, but the company's management's task is to indirectly influence the company's results through its actions. The effects of a company's operations are diverse, and especially because of this, it is impossible to measure the impact of the company's management's actions on the company's results. I disagree with all of the opinions presented above. Here is my reasoning. When the prerequisites for a company's financial management are in place, it means that the company's goals have been implemented throughout the entire company's organization by all of the company's resources, so that each resource in the company knows which changes they are responsible for implementing in order to achieve the company's budget goals. In this case, each resource in the company is consciously responsible for their part in the company's results to the company's management, who is ultimately responsible for the company's results to the company's owners. The basic task of a company's management is to put the company's financial management conditions in order and keep them in order. When the company's management has put the company's financial management conditions in order, only then will it enable the company to be managed effectively so that the resources invested by the company are constantly operating efficiently. After this, the company's management must influence the company's performance and results in particular in the following three key ways: 1. By leading 2. By indirectly serving management 3. By direct work There are management performance indicators for all of these. All markets today are so efficient that the operating methods according to the companies' answers I described above are no longer sufficient for economic success in them. Today, all people working in a company must define measurable goals for the company's performance, monitor their implementation and react to deviations. In companies, every resource must understand how their work affects the company's performance and how they can influence the company's performance and results by changing their operations. This is a requirement for continuous development of companies, which creates the foundation for the continuation of the company's business. I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen
In the following text, the word company has been replaced by the word enterprise. The responsibilities and duties of the company's management and board of directors are defined in the Limited Liability Companies Act 624/2006. The law states that it is a general principle that the company's management must act diligently to promote the company's interests. The law also states that the company's board of directors is responsible for ensuring the company's administration and the proper organization of its operations (general authority). The law also states that the company's board of directors is responsible for ensuring that the company's accounting and financial management are properly organized. All of these are legal provisions, or requirements. They are not recommendations, meaning they cannot be ignored. For these reasons, the company's board of directors and management must know what these requirements mean in practice and how the company must act in such a way that the provisions defined by the law are met. In my experience, the phrase “the management of a company must act diligently in the best interests of the company” means that the board of directors, the CEO and other management are obliged to make decisions and actions that require: 1. Due diligence: Managers must act professionally and with due judgment when making decisions. They must obtain sufficient information before making significant decisions on behalf of the company. 2. The primacy of the company’s interests: Decisions must promote the company’s financial success and sustainable operations, not, for example, the interests of individual shareholders, managers or external parties. 3. Responsibility: The company’s interests also include long-term actions that take into account, for example, the impact of employees, customers and environmental aspects on the business, as these can affect the company’s future success. My experience is that in order for the company's management to have sufficient information when making decisions, the company's financial management conditions must be in order, as explained in my previous blog posts, so that the company's management is not held liable for neglecting these obligations. Another important clause in the Limited Liability Companies Act is that the company's board of directors is responsible for ensuring that the company's accounting and financial management control is properly organized. In practice, this means the following responsible actions: 1. Organizing accounting: The board of directors must ensure that the company's accounting meets the requirements of the Accounting Act and that it is up-to-date and accurate. This must include a deep understanding and cooperation with the accountant. 2. Financial management control: The management of the company's assets, such as monitoring cash flow, payment transactions and investments, must be organized in such a way that abuses and financial risks are minimized. 3. Organizing internal control: The board must create and maintain internal control systems that help detect and prevent financial errors or abuse. 4. Oversight of the audit: If the company has an auditor, the board must ensure that the audit is carried out properly and that the auditor's recommendations are taken into account. In practice, the board is responsible for the company's financial operations and ensures that all financial activities support the company's profitable development in line with its goals, the company's stability and compliance with the law. My experience is that the company's operational management and the board must have access to the company's internal goals, budget figures, action plans and actual figures for each company. I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen
The prerequisite for developing a company's profitability is that you know the STARTING SITUATION, i.e. how the company's realized profitability figures and the number of deliveries are distributed by product and service. Although profitability is definitely the most important indicator of a company's performance figures, knowledge of the company's BASELINE is not necessarily sufficient for the company's financial management. For this reason, in the following, I will examine issues related to the company's business change needs from several perspectives. The development of a company's business begins with defining goals. When they are known, the difference between the goals and the STARTING SITUATION, i.e. the company's current realized figures, is equal to the company's change needs to achieve the goals. In order for the company's financial operational management to be comprehensive, the following perspectives must be taken into account in its planning: 1. Realized profitability figures and the distribution of the number of deliveries by product and service. 2. Realized efficiency of all the company's operations. 3. The actual utilization rates of the company's resources, i.e. all people and invested machines. 4. The actualization of the company's working capital tied up in inventories (raw materials, semi-finished products and finished products). In practice, this means that the company plans a solution for how to monitor the actual profitability figures in the company's financial management system. At the same time, the company must plan solutions for how to make the actual efficiencies of all activities, the actual utilization rates of resources and the actualizations of working capital tied up in inventories available to the company's operational management. In this context, it is worth noting that not all of these realizations need to and should be collected from all companies, but the need for collection must be determined based on each company's business and need for change. I am happy to help companies find solutions for company-specific needs. I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen
Achieving the company's financial goals must be based on PROFITABLE GROWTH, which requires that the company's financial management conditions are in order. When a company has the conditions for financial management in order, this means in practice that the company knows what results the company can achieve with its current investments and current products and services. By internal services, I mean the services needed in the company's business, which the company can either produce itself or purchase from an external supplier. Such services include, for example, maintenance services and financial management services needed in the company's business. Should the company produce the necessary internal services itself or purchase them from an external service provider? There is no single correct answer to this question, because companies' businesses and their situations are different. No two cases are the same. For this reason, giving the correct answer requires investigating the matter on a case-by-case basis. As we know, conjecture is not worth knowing. In the following, I will examine the matter from the perspective of the company's financial management. When I ask companies whether their internal services are competitive, the answer is always that the internal services my company needs are competitive. When I next ask companies for the reasons for the answer given, the reasons for the answer are always as follows: for example, a company that needs maintenance services in its business. When my company needs to replace a burnt-out lamp, for example, it costs 30 euros when replaced by my company's internal maintenance service. When I buy this service from an external supplier, it costs 90 euros. This comparison is incorrect. In this case, the price of the company's internal maintenance service typically includes only the purchase price of the lamp and part of the costs required to replace the lamp without the necessary cost factors. Instead, the external supplier's price includes the total costs of replacing the lamp. When comparing the competitiveness of a company's internal service, the comparison must always consider the total costs of the service being compared. When this is done, the costs of the company's own internal maintenance service turn out to be surprisingly high in the company's opinion. When the price of the company's internal maintenance service for replacing a lamp was calculated correctly in the above case, it was surprisingly 110 euros. I would like to emphasize that this is not always the case, but that the comparison must always be carried out correctly and on a case-by-case basis. The question I posed above must also be put the other way around. Is the service provided by an external service provider that your company uses competitive compared to if this service were actually produced as an internal service? In this case too, the comparison must always be carried out correctly and on a case-by-case basis. Has your company made comparisons based on the total prices of the services required for your company's business, either as internal services or as purchased services from outside the company? I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen
Achieving the company's financial goals must be based on PROFITABLE GROWTH, which requires that the company's financial management conditions are in order. When a company has the financial management conditions in order, this practically means that the company knows what results the company can achieve with its current investments and current products and services. In the following, I will examine the company's production function from the perspective of the financial management of a company. In my terminology, production occurs in all companies, not just companies that manufacture something. For example, in a shoe store, purchasing shoes for sale is production. In companies that manufacture products, production includes all procurement, subcontracting, manufacturing, logistics and maintenance of manufacturing machines. In companies that produce services, all procurement and subcontracting are production. Internally, the customer of production is sales, and the external customer is the customer who buys the company's products and services. The company's production objective is to deliver all products sold by the company's sales so that the efficiency and cost-effectiveness of production operations correspond to the objectives defined for the company's production in the budgeting. If, in exceptional cases, other objectives are defined for production operations and cost-effectiveness in order to obtain individual deals, these must be agreed with production during the offer phase before the deals are agreed. Production must also be able to implement these objectives agreed in exceptional cases. In order for the company to achieve its profit targets with the best possible results, this requires excellent cooperation between sales and production. This means understanding that crosses the boundaries of functions. In other words, production must train sales to understand what and under what conditions sales can make promises to customers on behalf of production. And on the other hand, sales must train production to understand how production must be able to develop its operations to enable it to obtain deals in the future. Did this interest you? I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen
The prerequisite for developing a company's profitability is that you know the STARTING SITUATION, i.e. how the company's realized profitability figures and the number of deliveries are distributed by product and service. Since profitability is definitely the most important key figure among the company's performance figures, in the following I will focus on examining the company's business change needs from the perspective of profitability. If you do not know the STARTING SITUATION of your company's change needs, the following problems will arise: 1. When you do not know how the company's realized profitability figures and the number of deliveries are distributed by product and service, you are not in a position to make strategic decisions about the direction in which the company's products and services and their offerings should be developed in the future, so that the company can achieve its strategic goals. 2. When you do not know how the company's realized profitability figures are distributed by product and service, then you do not know the actual cost of production by product and service, the cost structure, or the sub-costs of the cost structure. 3. When you do not know how the actual product-specific and service-specific profitability and delivery volumes differ from each other and you do not have concrete, data-based grounds for determining how much product-specific and service-specific profitability must be improved and delivery volumes increased in order for the company's need for change to achieve its profitability goals. 4. When you do not know how much their profitability needs to be developed and delivery volumes increased per product and service in order to achieve the profitability goals of the company's need for change, you are unable to determine how much their delivery volumes need to be increased per product and service in the company and how factors affecting profitability, such as price increases, cost reductions and operational efficiency increases, need to be implemented in the company so that the profitability goals of the company's need for change can be achieved. 5. When you lack the information I presented above, you do not have information-based bases to draw up action plans on how their delivery volumes need to be increased per product and service in the company and how to develop the company's products and services so that the profitability goals of the company's need for change can be achieved. 6. When you lack the information, I have presented above, in a possible adjustment situation of the company you will not be able to make sufficiently accurate action plans for the changes required by the need for adjustment, for example in the company's products and services, functions and operations. In practice, this means that you only have at your disposal the company's actual income statement, in which you divide the target figures for the company's need for change line by line and GUESS how they will change the company's operations. If the company operates in this way, then based on my experience, it is impossible for the company to plan the results of the adjustment in a sufficiently accurate and sustainable manner. Adjustments made in this way have almost always led to new adjustments, i.e. an adjustment cycle, which of course is not in anyone's interest. In the worst cases, the adjustment cycle has driven the company into bankruptcy. 7. In practice, all of the above means that you do not have the prerequisites for the company's financial management in place, i.e. YOUR MANAGEMENT IS ONLY BASED ON YOUR GUESSES. In addition, all of the above means that YOU DO NOT HAVE THE CONDITIONS TO LEAD YOUR COMPANY SYSTEMATICALLY AND TOWARDS CONCRETE GOALS AND YOU HAVE TO RELY ON INDEFINITE EXPLANATIONS OF WHY YOU CAN ACHIEVE THE DEFINED RESULTS GOALS WITH YOUR MANAGEMENT. In this case, the company is not managed, but the company's results are driven by coincidences. All of the problems I have described above can be avoided when you have a known STARTING SITUATION as the basis for planning the necessary results change in the company. It is too often said that the GROWTH of a company's business is the best solution to achieve the company's results goals. The fact is that only with PROFITABLE GROWTH CAN A COMPANY ACHIEVE ITS RESULTS GOALS and WITH UNPROFITABLE GROWTH, A COMPANY WILL BE FILED FOR BANKRUPTCY. I encourage you to share this blog post of mine on social media. If you have any suggestions for the topics of the next blog posts, I will gladly accept them. I hope that you were interested in this matter and that you can continue to be involved. I have written four books on creating the conditions for the company's financial management, and they are available in well-stocked bookstores and online bookstores in Finland, for example from BoD (Books On Demand) at: https://kirjakauppa.bod.fi/catalogsearch/result/?q=jarmo+manninen