Financial Management is one of the 19 functional FM knowledge areas that are categorized into four key knowledge domains.

Definition: Financial management refers to the process of planning for, organizing, controlling, and administering the funds used in a business. It involves efficient and effective money management to accomplish the objectives of the organization.

Facility managers need to understand how their department finances work—the big picture, how to stay on budget, and evaluate the financial strengths and weaknesses of alternative options. They use financial management principles and rules when they prepare and present operating or capital budgets (and individual project budgets), business cases that demonstrate value for the money, and financial forecasts or operating results in reports. Successfully presenting financial information to decision makers can be the difference between sufficient and insufficient funding for administration, maintenance, operations, and initiatives.

Having a basic understanding of finance can determine what facility managers can tackle on their own and when they need to approach a financial expert for assistance. A basic understanding of finance will help facility managers frame questions or needs in a way that makes sense to the analyst so he or she can do the right type of analysis and get the right data. Since finance professionals won’t be experts at facility management, facility managers need to provide specifics on processes such as which programs are mandatory for compliance versus which are discretionary. In many cases, talking to finance professionals can prevent redundant work.

Key Concepts:

• Facility management forecasting methods.
• Financial forecasting tools.
• Cash flow forecasting.
• Budget types (e.g., top down, bottom up, rolling).
• Budget submission process and requirements.
• Inputs required to create budgets.
• Budget costs (e.g., fixed vs. variable, direct vs. indirect).
• Budget components.
• Common budgeting methods.
• Financial statements (e.g., balance sheet, income statement, statement of cash flows).
• Accrual accounting.
• Depreciation methods.
• Financial ratios.
• Trend analysis.
• Financial analysis of capital expenditures.
• Return on investment (ROI).
• Investment value.
• Internal rate of return (IRR).
• Payback period.
• Managing against a budget.
• Chargebacks.
• Presenting financial results.
• Financial risks (exchange rates, escalation rates, inflation).

Financial Management Proficiency Indicators (Task Statements)

• Demonstrates knowledge of budget submission requirements.
• Performs budget forecasting.
• Demonstrates ability to use LCCA in budget preparation.
• Demonstrates knowledge of historical budget records and costs and how to use in forecasting.
• Manages operating budget and produces required financial reports.
• Manages capital budgets.
• Demonstrates ability to quantify potential for cost savings and cost avoidance.
• Advocates for funding using economic analysis.
• Demonstrates ability to prioritize projects/programs based on funding levels.
• Demonstrates knowledge of invoice/expenditure approval processes.
• Demonstrates ability to recommend/conduct funding reallocation based on changing priorities.
• Conducts periodic financial reviews and produces required reports.
• Evaluates financial metrics to determine whether to repair or replace.
• Analyzes and interprets financial statements.
• Understands basic financial ratios (e.g., ROI, simple payback, net present value, IRR) and performs trends and ratio analysis.
• Presents and sells the FM budget to the organization’s leadership.
• Demonstrates basic understanding and awareness of exchange rates.
• Demonstrates basic understanding and awareness of financial differences between private vs. public sectors.
• Demonstrates basic understanding and awareness of escalation rates.

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