By Luke Miller
Finance professionals are no longer expected to only present the numbers and statements. Leadership is becoming more dependent on the finance team to provide thoughtful insights and decisions with the information it presents.
AFP caught up with Luke Miller, upcoming instructor of the AFP 2021 Virtual Workshop, “Financial Analytics: Effective Decisions With Critical Thinking,” to get his take on critical thinking skills, financial data analysis and systems thinking to improve value-added decision-making.
AFP: What is “systems thinking,” why is it different, and why does it matter for finance?
Miller: Systems thinking considers all the relevant variables to the decision process. Our job as analysts is to identify the “answer”, number, KPI and graph — but our mission is not done there. We must build a story or relevant context for that metric to improve the decision process. Systems thinking allows us to factor in the macro-events that might be impacting outcomes. For example, something like coronavirus pandemic was dramatic in terms of a system’s impact on what we are evaluating. Recessions, monetary policy and competition could be factors, as well. Systems thinking factors in all the different processes.
AFP: What is the difference between critical thinking, financial analysis (which seems like critical thinking) and systems thinking?
Miller: Critical thinking identifies the values and standards by which we make decisions, and it is more broadly applied to the organization. Examples of these values and virtues include having the courage and confidence to go about decision-making, or standing up against the herd. Critical thinking could be thought about in terms of how organizations and analysts raise vital questions, and then formulate those questions clearly before beginning the analysis journey. Critical thinkers must gather and assess the most relevant data and information that is most pertinent to their analysis and then think open-mindedly within the whole system’s decision process. After the analysis, critical thinkers need to reach well-reasoned conclusions and communicate that effectively up the decision hierarchy.
While systems thinking is identifying the relevant variables in which we are making those decisions, critical thinking is identifying the values and standards. Then, we get into what exactly is going on in the world around us that might be impacting the data we are evaluating. Finally, the financial analysis itself are the detailed metrics and KPIs that needs to be put in context.
AFP: How does critical thinking for finance differ from critical thinking for other parts of the organization?
Miller: On some level, there is not a difference. It is more about the application of the critical thinking process. For example, when we are evaluating data, we must start with the idea of clarity — understanding with a clear vision why we have begun this journey. We are data detectives, clearly defining a path by which we are going to analyze data. There is also a certain level of accuracy and precision to your data. Sometimes you can have an accurate statement, but you do not have enough precision to move on or make a better decision. It’s important to have the appropriate depth and breadth of your analysis.
Another example is the idea of significance — understanding the profit levers and what is driving value in both the decision process and at the organization itself. What is the most significant? What is going to move the needle?
AFP: What part of a practitioner’s finance background will aid with this type of thinking? What part inhibits this type of thinking?
Miller: At the practitioner level, it comes down to their experiences, education, work, keeping up with industry best practices and being aware of what competitors are doing. A practitioner’s background aids in this decision process.
Our human nature tendencies are what inhibits this thinking, as we have some self-deceptive tendencies and biases. For example, most analysts probably majored in business, economics, finance or accounting in college. They may view the world through a quantified lens. However, it is important take a step back and realize the solution or path forward might be different than the way we have always done it. That is where the critical thinking analogy comes into play.
AFP: How can a leader institutionalize this kind of thinking in the daily activities of the finance team?
Miller: They need to lead by example. Leaders can empower their people, and they must get away from micromanagement. They need to view their own organization from a systems perspective.
A leader's role is to oversee the entire organizational system, as well as all the different subsystems and how they communicate with one another. Then, they must empower people to analyze data and have a seat at the table. A financial analyst’s job used to be to query the database, come back with a number, and that was it. However, those days are gone, and we now utilize various data collection technologies. Our role as analysts now is to not only determine the KPI or metric but also have a seat at the table and make observations that move the needle in the decision-making process.
AFP: If attendees can only walk away from this workshop with one key insight, what would you want them to incorporate into their day-to-day job?
Miller: Tell those stories. While your job may be to analyze data, it is also to tell a story. Be a CSI agent dissecting a crime scene. Tell the story of the macro-events from a systems perspective.
Is it also important to understand the world around you and apply that perspective to your micro-analysis. Analysts know the datasets that they are looking at better than anyone else on earth, and they should bring that confidence to the team. They must embrace that they have a level of experience and interpretation of the dataset. Communicate the story effectively and help organizations make better decisions from a critical thinking and systems perspective.
Register for AFP 2021 by September 24 to receive complimentary access to both of the virtual conference workshops: “Financial Analytics: Effective Decisions With Critical Thinking” and “Maximizing Treasury’s Impact In Today’s Companies.” Learn more about the workshops.