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Practical finance applications for HR Eng - TMS Consulting
- 1. Practical finance applications forPractical finance applications for HRHR - and why it is business critical- and why it is business critical Philip ChowPhilip Chow 周子诺周子诺 tms.philip.chow@gmail.comtms.philip.chow@gmail.com http://t.qq.com/tmsphilipchowhttp://t.qq.com/tmsphilipchow tmsphilipchow.blogspot.hktmsphilipchow.blogspot.hk
- 2. “The Strategic Talent Management Model” Corporate Branding -Best practices - public recognitions - local /overseas awards - publicity in medias - Icons Succession Planning -Hi performers -Career choices -Development programs - Sr mgt mentorship - BSC w/ KPIs - Assessment panel - mentee > mentor - Strategic Partner -BD involvement -L&D / Performance review provision - Service, OD models -BSC, KPIs - strategic workshop - strategy /culture map -Staff survey Training & Development - technical & mgt competence analysis - training curriculum - project mentoring - mgt process models -- certification & awards Com and Ben -Market intelligence -Reward for the best -Educate and outplace worst - continuous reward the best - retention Performance Review -BSC and competence base - career planning - rating/feedback t standardization - hi/lo performers - continuous monitoring Recruitment -Job description - structured interview - interview template - assessment centers and tool -S r. mgt buy-in - performance follow up Competence Compensation, performance review – HR meets Finance
- 3. Some basic definitionsSome basic definitions Sales Expenses Profits- = Salaries People cost Non-people cost Traditionally HR’s key concern…
- 4. Figures in HK$ millions TV Station and Furniture MakerTV Station and Furniture Maker Salaries 1,533 687 Total expenses 3,261 3,177 Salaries as % of expenses 47.0% 21.6% TV Station Furniture Maker Q: Assuming a 5% increase in salaries, which company will suffer a steeper decline in profits?
- 5. +5% salaries -77 -34 New profit 2,110 65 Fall in profit -3.5% -34.7% Sales 5,448 3,276 TV Station Furniture Maker Salaries 1,533 687 Total expenses 3,261 3,177 Salaries as % of expenses 47.0% 21.6% TV Station and Furniture MakerTV Station and Furniture Maker Profit 2,187 99 Profit margin 40.1% 3.0% Same answer?
- 6. +5% salaries -77 -34 New profit 2,110 65 Fall in profit -3.5% -34.7% Sales 5,448 3,276 TV Station Furniture Maker Salaries 1,533 687 Total expenses 3,261 3,177 Salaries as % of expenses 47.0% 21.6% TV Station and Furniture MakerTV Station and Furniture Maker Profit 2,187 99 Profit margin 40.1% 3.0%
- 8. How salary rise affects profit depends on ◦ Salaries as % of total expenses ◦ Operating leverage/company profit margin A life-and-death gatekeeping roleA life-and-death gatekeeping role Port terminal 34.8% 15.3% Margin % Salaries as % of expenses TV station 40.1% 47.0% Restaurant 8.8% 29.4% Property agency 11.3% 61.6% Export factory Fall in profits if salaries +5% 3.0% 21.6% -1.4% -3.5% -15.3% -24.2% -34.7%
- 9. “The Strategic Talent Management Model” Corporate Branding -Best practices - public recognitions - local /overseas awards - publicity in medias - Icons Succession Planning -Hi performers -Career choices -Development programs - Sr mgt mentorship - BSC w/ KPIs - Assessment panel - mentee > mentor - Strategic Partner -BD involvement -L&D / Performance review provision - Service, OD models -BSC, KPIs - strategic workshop - strategy /culture map -Staff survey Training & Development - technical & mgt competence analysis - training curriculum - project mentoring - mgt process models -- certification & awards Com and Ben -Market intelligence -Reward for the best -Educate and outplace worst - continuous reward the best - retention Performance Review -BSC and competence base - career planning - rating/feedback t standardization - hi/lo performers - continuous monitoring Recruitment -Job description - structured interview - interview template - assessment centers and tool -S r. mgt buy-in - performance follow up Competence
- 10. Sales as a KPI –how to cheat…Sales as a KPI –how to cheat… Sales 2,704 2,076 +30.3% 2010 2009 Change % Profit 272 226 +20.2% Profit Margin 10.06% 10.91% -0.84% Net assets 2,303 1,518 +51.8% Good year for company M. Sales +30% CEO asks Chairman for performance bonus Should he get it?
- 11. Sales as a KPI –how to cheat…Sales as a KPI –how to cheat… Sales 2,704 2,076 +30.3% 2010 2009 Change % Profit 272 226 +20.2% Profit Margin 10.06% 10.91% -0.84% Net assets 2,303 1,518 +51.8% Profit increase less than sales increase “Cheating” with expenses
- 12. Sales as a KPI –how to cheat…Sales as a KPI –how to cheat… Sales 2,704 2,076 +30.3% 2010 2009 Change % Profit 272 226 +20.2% Profit Margin 10.06% 10.91% -0.84% Net assets 2,303 1,518 +51.8% Performance measurement should also refer to profit margin
- 13. Sales as a KPI –how to cheat…Sales as a KPI –how to cheat… Sales 2,704 2,076 +30.3% 2010 2009 Change % Profit 272 226 +20.2% Profit Margin 10.06% 10.91% -0.84% Net assets 2,303 1,518 +51.8% Assets +50% - e.g. 50% bigger factory; +50% uncollected cash from customers
- 14. What is wrong with more assets?
- 15. Collecting CNY5,950mil means Interest income of 200mil per year from bank deposits Interest expense savings of 400mil per year – if used to repay debts Use cash for business development – returns = ???? Opportunity costs! All things equal companies should strive to be asset light… AA certain PRC company’s accountscertain PRC company’s accounts receivables – ie. Uncollected cashreceivables – ie. Uncollected cash 22,720m CNY 16,770mil +5,950mil 2012 2011 Change
- 16. Sales as a KPI – how to cheat…Sales as a KPI – how to cheat… Sales 2,704 2,076 +30.3% 2010 2009 Change % Profit 272 226 +20.2% Profit Margin 10.06% 10.91% -0.84% Net assets 2,303 1,518 +51.8% Return on net assets 11.82% 14.92% -3.10% Performance measurement should refer to return on net assets too Assets +50% - grew faster than sales and profit Should be penalized
- 17. Sales as a KPI – how to cheat…Sales as a KPI – how to cheat… Sales 2,704 2,076 +30.3% 2010 2009 Change % Profit 272 226 +20.2% Profit Margin 10.06% 10.91% -0.84% Net assets 2,303 1,518 +51.8% Return on net assets 11.82% 14.92% -3.10% Performance measurement should refer to return on net assets too
- 18. Some basic definitionsSome basic definitions Profit Net assets Return on net assets ____________ =
- 19. AP Moeller Maersk – World’s #1 shipping company Returns as a KPI – widely employedReturns as a KPI – widely employed by MNCsby MNCs
- 20. ConclusionConclusion Operating leverage – A small increase in salaries can completely wipe out profits Setting KPIs – Sales growth is easy to cheat! Refer to expenses and assets also
- 21. Where do I find all these? Sales Profits A variety of expenses, some other items too
- 22. Where do I find all these? Usually “hard” labour – e.g. factory Head office costs, salespersons, etc
- 23. More details in the footnotes
- 24. Directors’ rewards as well…
- 25. Assets/Liabilities on the balance sheet Assets Liabilities Net assets- =
- 26. Other topics I talk about…Other topics I talk about… Capital raising – China and overseas Best investor relations practices Cyclical industry analysis