Learn About HR Finances Now!: An Interview with Joe Knight

Contributor:  Joe Knight
Posted:  12/08/2008  5:01:00 PM EST  |  0

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The current economic crisis has brought Wall Street and the flailing economy front and center. And it’s not just the financial industry that's hurting. Everyone is affected. To make your job recession-proof, it has become crucial to not only understand, but manage your position’s return on investment.

Joe Knight, who has written several books on the importance of understanding finances in managerial positions, turns his attention to human resources professionals. His new book, Financial Intelligence for HR Professionals: What You Really Need to Know About the Numbers (Harvard Business Press, 2008), written with Karen Berman and John Case, explains the necessity of human resources professionals taking control of the financial aspects of their positions. Knight shares with HR iQ his HR tips for financial success.

What are some essential areas of finance that pertain specifically to human resources professionals?

Of course, understanding the financial impact of personnel costs is important. And being able to budget in a way that supports the financial goals of the company is also critical. Both of those are based on understanding the income statement. Then there is benefit cost analysis, which is also critical. But the most important area is ROI analysis for HR initiatives. HR professionals need to evaluate HR spending in terms of return more than it does. Even when some of those returns are soft.

Can HR professionals, who probably do not have a degree in finance, easily understand the financial aspects of the job? How can this be made easier?

Yes, everyone can understand finance; it really is not that tough. As we tell our students, most of finance is addition and subtraction, and when we get really fancy, we multiply and divide. HR professionals should always ask questions and get involved in the company’s numbers. Listen in to the quarterly earnings conference call (anyone can dial in and listen) and ask questions of your finance people. Training is also a great way to get started, and I know people who know how to do that.

How can HR professionals calculate the return on investment for their companies?

The key concepts are: First, future projections, which are always the toughest to get. Then remember that everything needs to be computed in terms of cash flows. Estimates are OK and even necessary. Try to be honest with yourself in these estimates. Once you have all of your estimates done and in cash, the math is pretty easy.

In light of the economic downturn, what is especially important for HR professionals to understand in terms of their companies’ financial aspects?

Learn about the balance sheet and cash flow statement. As we go forward, understanding those statements as well as the income statement will be critical.

How can learning about finances make HR professionals better leaders for their teams?

All business is measured by the numbers. If you can’t understand the numbers in the business, you do not know how the game is scored. As an HR professional, at some point in your career you will be limited by your ability to understand finance. The higher up you move in an organization the more relevant financial analysis becomes.

What are some of your upcoming projects?

Educating people about how and why the financial crisis occurred. Working with clients to develop and deliver training programs that ensure their employees, managers and leaders understand how financial success is measured and how they make an impact. Especially during times like this, it is critical that everyone understand the financial situation of their company and how they can support financial health.

Read the review for Financial Intelligence for HR Professionals here.

Interview by Jessica Livingston, editor