How Financial Management is key to a high performing property function.
Following the introduction to our property assessment framework, we are taking a deep dive into the elements that make up this framework.
Finance underpins the entire operations of a business. And of course, property is fuelled by finance being the second largest overhead after staff costs and usually the largest fixed asset class.
However, these costs are usually viewed as simple outgoings, not as the tools to achieve the business and strategic goals of the organisation.
So, finance is a foundational part of the property portfolio, let us take look at the overview of the key functions and activities of the finance function:
- Financial policy, procedures, and processes – accurate, timely and complete data is your goal
- Discretions and authorities for commitments and spending – clear accountabilities for spending decisions and making commitments is essential
- Cost allocation methodologies – how consumption decisions need to be linked to the cost impact of decisions
- Budgeting processes and budget ownership – are you centralised, or do you decentralise costs?
- Capital management and asset allocation – how depreciation is managed and how the cost of capital is reflected in owned assets.
Not only are the above functions and activities key to the property function, but there needs to be a consideration as to how much of the financial management of property directly forms part of the property function and how much is delivered via central or shared services capability.
While central and shared services models work, the specifics of the property and asset-related costing, depreciation, tax, and other management accounting issues need to be addressed.
What you need to look for to make the most of your financial management.
Follow the money (as they say) and you will understand the business, the ownership and control of property and asset spend – this is a key consideration in the diagnostic of any function!
A centralised model works well for cost control, but then requires the policing of demand from business units. Decentralised budget ownership to business units delivers a better level of self-management of demand but requires the property team to spend more time explaining and justifying costs.
Think you might have a problem in your financial management capabilities?
A poorly designed financial system or cost management model will result in:
- Annual increases in your spend irrespective of business performance
- An inability to pinpoint where and how cost increases are occurring
- Constant budget overruns on projects
- Strained internal relationships where business units constantly question property costs
- No ability to change the behaviours impacting costs
- The constant pressure to reduce spend without a plan to deliver on it.
If you want to ensure your financial management capabilities are functioning as they should, a bottom-up assessment is usually required. This will need to look at the linkages to other capabilities with a focus on the data and management information systems (MIS) and the capabilities of your team.