finance problem solving examples

• Get started with computers
• Learn Microsoft Office
• Apply for a job
• Improve my work skills
• Design nice-looking docs
• Getting Started
• Smartphones & Tablets
• Typing Tutorial
• Online Learning
• Basic Internet Skills
• Online Safety
• Social Media
• Zoom Basics
• Google Docs
• Google Sheets
• Career Planning
• Resume Writing
• Cover Letters
• Job Search and Networking
• Business Communication
• Entrepreneurship 101
• Careers without College
• Job Hunt for Today
• 3D Printing
• Freelancing 101
• Personal Finance
• Sharing Economy
• Decision-Making
• Graphic Design
• Photography
• Image Editing
• Learning WordPress
• Language Learning
• Critical Thinking
• For Educators
• Translations
• Staff Picks
• English expand_more expand_less

Money Basics  - Financial Problem Solving Strategies

Money basics  -, financial problem solving strategies, money basics financial problem solving strategies.

Money Basics: Financial Problem Solving Strategies

Lesson 2: financial problem solving strategies.

/en/moneybasics/why-financial-literacy/content/

Financial problem-solving strategies

Have you ever experienced a financial problem? Do you feel like finances are holding you back from reaching your goals? This lesson will give a brief overview of the general problem-solving process and how to apply it to the most common financial problems.

The problem-solving process

First, let's take a look at a general problem-solving process that you can apply to any situation, not just a financial one.

• Identify the problem . The first step in solving a problem is to identify it. What exactly do you need to overcome?
• Make a plan. What are the steps you need to take in order to overcome the problem?
• Implement the plan . This step actually puts the plan you created in place. While it sounds fairly straightforward, this is usually the most difficult step.
• Evaluate the plan . Although this is listed last, this step might actually occur simultaneously with implementing the plan. Things happen and circumstances change, so you may need to re-evaluate your plan as it is happening.

Identifying the problem

The first step in the problem-solving process is to get to the root of the problem and understand what you need to overcome. Here is a list of the most common financial problems people may face:

• Lack of income/job loss
• Unexpected expenses
• Too much debt
• Need for financial independence
• Overspending or lack of budget
• Lack of savings

When thinking about these common problems, each one falls into one of three areas: You need more money, you need to reduce your debt, or you need to change how you spend.

Making a plan

After identifying the problem you need to overcome, it's time to make a plan. Not sure where to start? No worries! We have you covered with some tips and places to begin.

Problem 1: You need more money . Whether you've lost your job, met an unexpected expense, or are working on becoming more financially independent, a form of income is necessary.

If you are a looking for additional work or maybe just a better-paying job, take some time to update your resume and cover letter. Make sure they are neat, up to date with your most current information, and free of spelling and grammar errors.

Be wary of any advertisements or jobs that offer fast, easy money. A lot of quick-cash methods come with unintended consequences. More often than not, if something sounds too good to be true, it probably is.

Problem 2: You need to reduce your debt . With high interest rates or the need to live paycheck to paycheck, high debt can be debilitating. Sometimes it feels like climbing a neverending mountain with an invisible peak. However, by prioritizing and negotiating your debt, you can make it more manageable.

Try listing all of your debt and the interest rates associated with each. Focus on paying off the ones with the highest interest rates first. If you're having trouble making payments, call the loan company and see if it can offer any solutions for you. The company may be able to lower your interest rate or offer a temporary forbearance to help you get back on your feet. If you need more help tackling your debt, you may want to contact a professional debt counselor like Consolidated Credit.

Problem 3: You need to change how you spend . Going from financial problems to a healthy financial status often requires organization and a shift in thinking. Avoiding overspending, building your savings, and gaining financial independence can often be accomplished with good spending habits.

The first thing you may want to try is creating a budget. There are many templates and resources available to help you create one. Sticking to one can be challenging, but simply having a budget laid out can help you see where you need to start spending less.

In addition to your budget, create a savings plan. Start out small. Even stowing away an extra dollar or two here and there can make a big difference. Also, try placing your savings in a place you cannot easily access. For example, create a savings account at a bank you don't usually use. The more difficult it is to access your money, the less likely you are to spend it.

Implementing the plan

Although the explanation of this part is the simplest, this is often the most difficult part to actually execute. It requires self-discipline and perseverance. The most important part of this step is to know that if your plan doesn't work or if you have a difficult time sticking to it, all is not lost. If it happens, move on to the next step, evaluate your plan, then repeat the process.

Overcoming financial obstacles can require changing your lifestyle, and this does not happen overnight. However, just having a plan itself can help to give you confidence and reassurance that you can eventually overcome whatever is in your way.

Evaluating your plan

As you implement your plan, you'll need to continually evaluate it. Maybe something happens and your original plan needs to change. Perhaps you've learned more along the way and realize that your original plan was incomplete. Or maybe your first plan went as planned and was a success. No matter the circumstances, it is always a good idea to look back and re-evaluate. Try answering these questions:

• Was your problem solved? Did a new problem arise?
• What went right?
• What went wrong?
• What circumstances changed?
• Was there anything you didn't account for?
• What was easy about implementing your plan?
• What was difficult about implementing your plan?

Financial obstacles can often seem debilitating and impossible to overcome. They often create a significant source of financial anxiety . We hope this lesson will help give you the confidence to take on your problem one step at a time so you can conquer your anxiety and move forward.

/en/moneybasics/assessing-how-you-manage-money/content/

26 Expert-Backed Problem Solving Examples – Interview Answers

Published: February 13, 2023

Interview Questions and Answers

Actionable advice from real experts:

Biron Clark

Former Recruiter

Contributor

Dr. Kyle Elliott

Career Coach

Hayley Jukes

Editor-in-Chief

Biron Clark , Former Recruiter

Kyle Elliott , Career Coach

Hayley Jukes , Editor

As a recruiter , I know employers like to hire people who can solve problems and work well under pressure.

 A job rarely goes 100% according to plan, so hiring managers are more likely to hire you if you seem like you can handle unexpected challenges while staying calm and logical.

But how do they measure this?

Hiring managers will ask you interview questions about your problem-solving skills, and they might also look for examples of problem-solving on your resume and cover letter. 

In this article, I’m going to share a list of problem-solving examples and sample interview answers to questions like, “Give an example of a time you used logic to solve a problem?” and “Describe a time when you had to solve a problem without managerial input. How did you handle it, and what was the result?”

• Problem-solving involves identifying, prioritizing, analyzing, and solving problems using a variety of skills like critical thinking, creativity, decision making, and communication.
• Describe the Situation, Task, Action, and Result ( STAR method ) when discussing your problem-solving experiences.
• Tailor your interview answer with the specific skills and qualifications outlined in the job description.
• Provide numerical data or metrics to demonstrate the tangible impact of your problem-solving efforts.

What are Problem Solving Skills? 

Problem-solving is the ability to identify a problem, prioritize based on gravity and urgency, analyze the root cause, gather relevant information, develop and evaluate viable solutions, decide on the most effective and logical solution, and plan and execute implementation. 

Problem-solving encompasses other skills that can be showcased in an interview response and your resume. Problem-solving skills examples include:

• Critical thinking
• Analytical skills
• Decision making
• Research skills
• Technical skills
• Communication skills
• Adaptability and flexibility

Why is Problem Solving Important in the Workplace?

Problem-solving is essential in the workplace because it directly impacts productivity and efficiency. Whenever you encounter a problem, tackling it head-on prevents minor issues from escalating into bigger ones that could disrupt the entire workflow. 

Beyond maintaining smooth operations, your ability to solve problems fosters innovation. It encourages you to think creatively, finding better ways to achieve goals, which keeps the business competitive and pushes the boundaries of what you can achieve. 

Effective problem-solving also contributes to a healthier work environment; it reduces stress by providing clear strategies for overcoming obstacles and builds confidence within teams. 

Examples of Problem-Solving in the Workplace

• Correcting a mistake at work, whether it was made by you or someone else
• Overcoming a delay at work through problem solving and communication
• Resolving an issue with a difficult or upset customer
• Overcoming issues related to a limited budget, and still delivering good work through the use of creative problem solving
• Overcoming a scheduling/staffing shortage in the department to still deliver excellent work
• Troubleshooting and resolving technical issues
• Handling and resolving a conflict with a coworker
• Solving any problems related to money, customer billing, accounting and bookkeeping, etc.
• Taking initiative when another team member overlooked or missed something important
• Taking initiative to meet with your superior to discuss a problem before it became potentially worse
• Solving a safety issue at work or reporting the issue to those who could solve it
• Using problem solving abilities to reduce/eliminate a company expense
• Finding a way to make the company more profitable through new service or product offerings, new pricing ideas, promotion and sale ideas, etc.
• Changing how a process, team, or task is organized to make it more efficient
• Using creative thinking to come up with a solution that the company hasn’t used before
• Performing research to collect data and information to find a new solution to a problem
• Boosting a company or team’s performance by improving some aspect of communication among employees
• Finding a new piece of data that can guide a company’s decisions or strategy better in a certain area

Problem-Solving Examples for Recent Grads/Entry-Level Job Seekers

• Coordinating work between team members in a class project
• Reassigning a missing team member’s work to other group members in a class project
• Adjusting your workflow on a project to accommodate a tight deadline
• Speaking to your professor to get help when you were struggling or unsure about a project
• Asking classmates, peers, or professors for help in an area of struggle
• Talking to your academic advisor to brainstorm solutions to a problem you were facing
• Researching solutions to an academic problem online, via Google or other methods
• Using problem solving and creative thinking to obtain an internship or other work opportunity during school after struggling at first

How To Answer “Tell Us About a Problem You Solved”

When you answer interview questions about problem-solving scenarios, or if you decide to demonstrate your problem-solving skills in a cover letter (which is a good idea any time the job description mentions problem-solving as a necessary skill), I recommend using the STAR method.

STAR stands for:

It’s a simple way of walking the listener or reader through the story in a way that will make sense to them. 

Start by briefly describing the general situation and the task at hand. After this, describe the course of action you chose and why. Ideally, show that you evaluated all the information you could given the time you had, and made a decision based on logic and fact. Finally, describe the positive result you achieved.

Note: Our sample answers below are structured following the STAR formula. Be sure to check them out!

EXPERT ADVICE

Dr. Kyle Elliott , MPA, CHES Tech & Interview Career Coach caffeinatedkyle.com

How can I communicate complex problem-solving experiences clearly and succinctly?

Before answering any interview question, it’s important to understand why the interviewer is asking the question in the first place.

When it comes to questions about your complex problem-solving experiences, for example, the interviewer likely wants to know about your leadership acumen, collaboration abilities, and communication skills, not the problem itself.

Therefore, your answer should be focused on highlighting how you excelled in each of these areas, not diving into the weeds of the problem itself, which is a common mistake less-experienced interviewees often make.

Tailoring Your Answer Based on the Skills Mentioned in the Job Description

As a recruiter, one of the top tips I can give you when responding to the prompt “Tell us about a problem you solved,” is to tailor your answer to the specific skills and qualifications outlined in the job description. 

Once you’ve pinpointed the skills and key competencies the employer is seeking, craft your response to highlight experiences where you successfully utilized or developed those particular abilities. 

For instance, if the job requires strong leadership skills, focus on a problem-solving scenario where you took charge and effectively guided a team toward resolution. 

By aligning your answer with the desired skills outlined in the job description, you demonstrate your suitability for the role and show the employer that you understand their needs.

Amanda Augustine expands on this by saying:

“Showcase the specific skills you used to solve the problem. Did it require critical thinking, analytical abilities, or strong collaboration? Highlight the relevant skills the employer is seeking.”  

Interview Answers to “Tell Me About a Time You Solved a Problem”

Now, let’s look at some sample interview answers to, “Give me an example of a time you used logic to solve a problem,” or “Tell me about a time you solved a problem,” since you’re likely to hear different versions of this interview question in all sorts of industries.

The example interview responses are structured using the STAR method and are categorized into the top 5 key problem-solving skills recruiters look for in a candidate.

1. Analytical Thinking

Situation: In my previous role as a data analyst , our team encountered a significant drop in website traffic.

Task: I was tasked with identifying the root cause of the decrease.

Action: I conducted a thorough analysis of website metrics, including traffic sources, user demographics, and page performance. Through my analysis, I discovered a technical issue with our website’s loading speed, causing users to bounce. 

Result: By optimizing server response time, compressing images, and minimizing redirects, we saw a 20% increase in traffic within two weeks.

2. Critical Thinking

Situation: During a project deadline crunch, our team encountered a major technical issue that threatened to derail our progress.

Task: My task was to assess the situation and devise a solution quickly.

Action: I immediately convened a meeting with the team to brainstorm potential solutions. Instead of panicking, I encouraged everyone to think outside the box and consider unconventional approaches. We analyzed the problem from different angles and weighed the pros and cons of each solution.

Result: By devising a workaround solution, we were able to meet the project deadline, avoiding potential delays that could have cost the company $100,000 in penalties for missing contractual obligations.

3. Decision Making

Situation: As a project manager , I was faced with a dilemma when two key team members had conflicting opinions on the project direction.

Task: My task was to make a decisive choice that would align with the project goals and maintain team cohesion.

Action: I scheduled a meeting with both team members to understand their perspectives in detail. I listened actively, asked probing questions, and encouraged open dialogue. After carefully weighing the pros and cons of each approach, I made a decision that incorporated elements from both viewpoints.

Result: The decision I made not only resolved the immediate conflict but also led to a stronger sense of collaboration within the team. By valuing input from all team members and making a well-informed decision, we were able to achieve our project objectives efficiently.

4. Communication (Teamwork)

Situation: During a cross-functional project, miscommunication between departments was causing delays and misunderstandings.

Task: My task was to improve communication channels and foster better teamwork among team members.

Action: I initiated regular cross-departmental meetings to ensure that everyone was on the same page regarding project goals and timelines. I also implemented a centralized communication platform where team members could share updates, ask questions, and collaborate more effectively.

Result: Streamlining workflows and improving communication channels led to a 30% reduction in project completion time, saving the company $25,000 in operational costs.

5. Persistence 

Situation: During a challenging sales quarter, I encountered numerous rejections and setbacks while trying to close a major client deal.

Task: My task was to persistently pursue the client and overcome obstacles to secure the deal.

Action: I maintained regular communication with the client, addressing their concerns and demonstrating the value proposition of our product. Despite facing multiple rejections, I remained persistent and resilient, adjusting my approach based on feedback and market dynamics.

Result: After months of perseverance, I successfully closed the deal with the client. By closing the major client deal, I exceeded quarterly sales targets by 25%, resulting in a revenue increase of $250,000 for the company.

Tips to Improve Your Problem-Solving Skills

Throughout your career, being able to showcase and effectively communicate your problem-solving skills gives you more leverage in achieving better jobs and earning more money .

So to improve your problem-solving skills, I recommend always analyzing a problem and situation before acting.

 When discussing problem-solving with employers, you never want to sound like you rush or make impulsive decisions. They want to see fact-based or data-based decisions when you solve problems.

Don’t just say you’re good at solving problems. Show it with specifics. How much did you boost efficiency? Did you save the company money? Adding numbers can really make your achievements stand out.

To get better at solving problems, analyze the outcomes of past solutions you came up with. You can recognize what works and what doesn’t.

Think about how you can improve researching and analyzing a situation, how you can get better at communicating, and deciding on the right people in the organization to talk to and “pull in” to help you if needed, etc.

Finally, practice staying calm even in stressful situations. Take a few minutes to walk outside if needed. Step away from your phone and computer to clear your head. A work problem is rarely so urgent that you cannot take five minutes to think (with the possible exception of safety problems), and you’ll get better outcomes if you solve problems by acting logically instead of rushing to react in a panic.

You can use all of the ideas above to describe your problem-solving skills when asked interview questions about the topic. If you say that you do the things above, employers will be impressed when they assess your problem-solving ability.

More Interview Resources

• 3 Answers to “How Do You Handle Stress?”
• How to Answer “How Do You Handle Conflict?” (Interview Question)
• Sample Answers to “Tell Me About a Time You Failed”

About the Author

Biron Clark is a former executive recruiter who has worked individually with hundreds of job seekers, reviewed thousands of resumes and LinkedIn profiles, and recruited for top venture-backed startups and Fortune 500 companies. He has been advising job seekers since 2012 to think differently in their job search and land high-paying, competitive positions. Follow on Twitter and LinkedIn .

Read more articles by Biron Clark

About the Contributor

Kyle Elliott , career coach and mental health advocate, transforms his side hustle into a notable practice, aiding Silicon Valley professionals in maximizing potential. Follow Kyle on LinkedIn .

About the Editor

Hayley Jukes is the Editor-in-Chief at CareerSidekick with five years of experience creating engaging articles, books, and transcripts for diverse platforms and audiences.

Continue Reading

12 Expert-Approved Responses to ‘What Makes You Unique?’ in Job Interviews

15 most common pharmacist interview questions and answers, 15 most common paralegal interview questions and answers, top 30+ funny interview questions and answers, 60 hardest interview questions and answers, 100+ best ice breaker questions to ask candidates, top 20 situational interview questions (& sample answers), 15 most common physical therapist interview questions and answers.

• Search Search Please fill out this field.

1. Unnecessary Spending

2. never-ending payments, 3. living large on credit cards, 4. buying a new vehicle.

• 5. Spending Too Much on a Home

6. Misusing Home Equity

7. not saving, 8. not investing in retirement, 9. paying off debt with retirement savings.

• 10. Not Having a Plan

The Bottom Line

• Personal Finance

Top 10 Most Common Financial Mistakes

Katie Miller is a consumer financial services expert. She worked for almost two decades as an executive, leading multi-billion dollar mortgage, credit card, and savings portfolios with operations worldwide and a unique focus on the consumer. Her mortgage expertise was honed post-2008 crisis as she implemented the significant changes resulting from Dodd-Frank required regulations.

Nastasic / Getty Images

Many people struggle with money. Though a difficult economy and sociocultural factors may be to blame, you can still do your part to try to make smart choices with your money. Here, we'll take a look at some of the most common financial mistakes that can lead people to economic hardship.

Key Takeaways

• Avoiding common mistakes during economic challenges can make a big impact on your financial health.
• Small, regular expenses can affect financial stability, especially during hardships.
• Overspending on housing leads to higher taxes and maintenance, straining monthly budgets.
• Over-relying on credit cards and financing depreciating assets can worsen financial woes.

It may not seem like a big deal when you pick up that double-mocha cappuccino or have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week spent on dining out costs you $1,300 per year, which could potentially go toward credit cards or other payments, if you have debt. If you're enduring financial hardship, avoiding this mistake really matters.

That said, the key word here is "unnecessary." That's subjective. Maybe you really look forward to or need those cappuccinos or dinners or movies to maintain your mental wellness. A healthy financial life can include all of that. This type of spending just needs to be part of your budget . If you plan for it, and you can afford it, then enjoy it.

The number of adults who said their finances were worse compared to a year earlier was 35%, the Federal Reserve's 2022 Survey of Household Economics and Decisionmaking report found. 35% — basically 1 in 3—is the highest ever since the study began in 2012.

Ask yourself if you really need items that keep you paying every month, year after year. Consider things like streaming services and high-end gym memberships. Are these needs or wants? A cheaper gym may get the job done, allowing you to save the difference.

When money is tight, creating a leaner lifestyle can go a long way to cushioning yourself from financial hardship.

Using credit cards to buy non-essentials is kind of common. But even if some people are willing or able to pay double-digit interest rates on luxury clothing and a host of other expensive items, it's not always wise to do so—unless you can pay off the card before the end of the month. Credit card interest rates make the price of the charged items a great deal more expensive. In some cases, using credit can mean you'll spend more than you earn.

According to research by Investopedia, the median rate of interest across all credit cards in the Investopedia database for June 2024 was 24.62%.

Millions of new vehicles are sold each year, although few buyers can afford to pay for them in cash. But financing can get tricky. After all, being able to afford the payment is not the same as being able to afford the vehicle.

Furthermore, by borrowing money to buy a vehicle, you pay interest on a depreciating asset, which amplifies the difference between the value of the vehicle and the price paid for it. Worse yet, many people trade in their vehicles every few years and lose money on every trade.

Maybe you have no choice but to take out a loan to buy a vehicle. But do you really need a large SUV? Such vehicles are expensive to buy, insure, and fuel. Unless you tow a boat or trailer or need an SUV to earn a living, it can be disadvantageous to purchase one.

If you need to buy a vehicle and to borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain. Vehicles are expensive, and if you're buying more than you need, you might be burning through money that could have been saved or used to pay off debt.

5. Spending Too Much on Your Home

When it comes to buying a home, bigger is not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance, and utilities. Before you buy a home, consider the carrying and operating costs beyond your monthly mortgage payment. Do you really want to put such a significant, long-term dent in your monthly budget?

As you consider your housing arrangement, think through what's important to you. For example, how passionate are you about having a large yard? If it's at the top of your list, that's fine. Just be mindful that upkeep and maintenance may cost you in the form of hiring services, buying machinery, complying with HOA requirements, and paying for various home repairs that arise.

Refinancing and taking cash out of your home means giving away ownership to someone else. In some cases, refinancing might make sense if you can lower your rate or if you can refinance and pay off higher-interest debt.

However, the other alternative is to open a home equity line of credit (HELOC). This allows you to effectively use the equity in your home like a credit card. This could mean paying unnecessary interest for the sake of using your home equity line of credit.

The U.S. household personal savings rate was just 3.6% in April 2024.

Many households live paycheck to paycheck —and there's no sign of improvement.

Unfortunately, this puts people in a precarious position—one in which every dollar matters, and even one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits. 

Many financial planners will tell you to keep three months' worth of expenses in an emergency fund account where you can access it quickly. Loss of employment or changes in the economy could drain your savings and place you in a cycle of debt paying for debt. A three-month buffer could be the difference between keeping or losing your house. 

Household savings rose considerably during the pandemic. However, for many people, that pandemic nest egg has since been spent down.

If you do not get your money working for you in the markets or through other income-producing investments, you may never be able to stop working. Making monthly contributions to designated retirement accounts is essential for a comfortable retirement.

Take advantage of tax-deferred retirement accounts and/or your employer-sponsored plan. Understand the time your investments will have to grow and how much risk you can tolerate . Consult a qualified financial advisor to match this with your goals if possible. 

You may be thinking that if your debt is costing 24% and your retirement account is making 7%, swapping the retirement for the debt means you will be pocketing the difference. But it's not that simple.

In addition to losing the power of compounding , it's very hard to pay back those retirement funds, and you could be hit with a 10% early withdrawal fee if you're younger than age 59 ½. With the right mindset, getting a loan from your 401(k) might be a viable option, but even the most disciplined planners have a tough time placing money aside to rebuild these accounts.

When the debt gets paid off, the urgency to pay it back usually goes away. It will be very tempting to continue spending at the same pace, which means you could go back into debt again. If you are going to pay off debt with savings, you have to live like you still have a debt to pay—to your retirement fund. 

10. Not Having a Plan

Your financial future depends on what's going on right now. Maybe you spend a lot of time watching streaming services or scrolling through your social media feeds, but haven't carved out any time to go through your finances. That's too bad, because you need to know where you are going. Make this a priority now.

Why Are Credit Cards a Problem?

Relying on credit cards can worsen financial difficulties. While it may provide a short-term solution, the long-term consequences, such as high-interest payments and accumulating debt, can lead to a cycle of financial stress. This financial stress can snowball, leading to higher expenses in the future that continue to make it harder and harder to catch-up.

How Much Is Too Much for a Home?

Overspending on a home can strain monthly budgets due to higher taxes, maintenance costs, repairs and maintenance, and utilities. Consider using the 28/36 rule , which recommends that you spend no more than 28% of your gross monthly income on your home and no more than 36% of your gross monthly income on total debt.

When Should You Not Use Your Home Equity?

Using home equity like a piggy bank, whether through refinancing or a home equity line of credit (HELOC) , can have detrimental consequences. While it may provide access to cash, it comes at the cost of increased debt and interest payments.

Why Is Having a Well-Defined Financial Plan Important?

Having a well-defined financial plan is essential for securing a stable and prosperous financial future. A comprehensive plan helps you set clear goals. It also encourages you to allocate money wisely and navigate economic uncertainties. Your financial plan serves as a roadmap for making informed financial decisions, including budgeting, saving, investing, and preparing for future milestones such as homeownership , education , and retirement .

Though some factors may be out of your control, it's still wise to try to get your finances on track. At the very least, review where you are, and create a sound financial plan.

It's possible that there's nothing you can do differently. There's no extras in your budget. There's nothing you can cut.

But for many people, there are a few things that can change. Maybe you're overspending . So be honest with yourself. Review your credit card statements. Make a realistic budget . Try to stick to it. If you don't—and most people don't—give yourself grace, and try again.

And before you make life-changing moves, such as buying a home, make sure to do your due diligence.

Finally, if you can, try to make saving some of what you earn a priority.

You may not be able to afford much now, but hopefully your circumstances will improve. Have an attitude of growth. Keep trying.

Board of Governors of the Federal Reserve System. " Report on the Economic Well-Being of U.S. Households in 2022-May 2023 ."

Investopedia. " Average Credit Card Interest Rate for June 2024: 24.62% APR ."

Federal Trade Commission. " Home Equity Loans and Credit Lines ."

Federal Reserve Bank of St. Louis. " Personal Saving Rate (PSAVERT) ."

• Terms of Service
• Editorial Policy
• Privacy Policy

Up to 32% Off CIPD Courses - Ends Soon

How to Conduct a Problem-Solving Session with Finance?

October 26, 2023

Discover the secrets to conducting a successful problem-solving session with finance in this comprehensive guide.

Arpit Bhavsar

In the fast-paced and dynamic world of finance, problem-solving skills are invaluable. Whether you are a financial manager, a business owner, or an aspiring finance professional, being able to effectively address and solve financial issues is crucial for success. In this article, we will explore the importance of problem-solving in finance and provide a step-by-step guide on how to conduct a problem-solving session with finance.

Understanding the Importance of Problem-Solving in Finance

Problem-solving is a fundamental skill in financial management. It involves identifying, analyzing, and resolving financial issues that may arise in a business or organizational setting. Successful problem-solving not only helps in mitigating risks but also contributes to the overall growth and profitability of a company.

When it comes to financial management, problem-solving plays a pivotal role in ensuring the smooth operation and sustainability of a business. Financial managers are responsible for making strategic decisions that can impact the organization’s financial performance. By effectively addressing problems and finding innovative solutions, financial managers can enhance financial stability, optimize resource allocation, and foster growth.

Effective problem-solving in finance offers numerous benefits. Firstly, it helps in identifying and rectifying financial inefficiencies, thus improving cost-effectiveness. For example, if a company is experiencing cash flow issues, a financial manager can analyze the problem and implement strategies to improve cash flow, such as negotiating better payment terms with suppliers or implementing more efficient billing processes.

Secondly, effective problem-solving in finance aids in identifying potential opportunities and enhancing revenue generation. Financial managers who are skilled problem solvers can identify market trends, analyze customer needs, and develop innovative financial strategies to capitalize on emerging opportunities. This could involve launching new products or services, entering new markets, or implementing cost-saving measures.

Moreover, successful problem-solving fosters teamwork, promotes critical thinking, and strengthens decision-making abilities within the finance department. When financial managers and their teams work together to solve complex financial problems, it encourages collaboration and knowledge sharing. This not only leads to better problem-solving outcomes but also cultivates a culture of continuous improvement and learning within the organization.

Preparing for a Problem-Solving Session

Before conducting a problem-solving session, thorough preparation is essential to ensure its effectiveness. Here are the key steps involved:

Identifying the Financial Issues at Hand

The first step is to clearly identify the financial issues that need to be addressed. This could include problems with cash flow, budgeting, financial reporting, investment decisions, or any other challenge affecting the financial performance of the organization.

For example, if the organization is experiencing cash flow problems, it is important to determine the root cause of the issue. Is it due to slow-paying customers, high expenses, or ineffective collection procedures? By identifying the specific financial issues, the problem-solving session can be focused and targeted.

Gathering Relevant Financial Data

Once the issues have been identified, gather all the relevant financial data that is necessary for analysis and decision-making. This may include financial statements, sales reports, budget details, and any other financial information related to the problem at hand.

For instance, if the problem is related to budgeting, it is crucial to gather information on the organization’s current budget, actual expenses, and projected revenue. This data will provide a comprehensive understanding of the financial situation and enable the team to make informed decisions during the problem-solving session.

Assembling the Right Team for the Session

Next, assemble a team of individuals who possess the required expertise and knowledge to contribute to problem-solving. This could include financial analysts, accountants, business strategists, and other relevant stakeholders. Ensure that the team members have diverse perspectives and can bring fresh insights to the table.

For example, having a financial analyst on the team can provide valuable insights into financial data analysis and forecasting. An accountant can offer expertise in identifying financial discrepancies and suggesting corrective measures. By assembling a diverse team, the problem-solving session can benefit from a wide range of perspectives and expertise.

Additionally, it is important to consider the dynamics of the team. Are the members able to collaborate effectively? Do they have good communication skills? These factors can significantly impact the success of the problem-solving session.

Conducting the Problem-Solving Session

Once the preparation phase is complete, it’s time to conduct the problem-solving session. Follow these steps to ensure a productive and efficient session:

Before diving into the problem-solving session, it is important to understand the significance of this phase. This is where the real work happens, where ideas are shared, and solutions are generated. It is a collaborative effort that requires effective communication and critical thinking.

Setting the Agenda for the Meeting

Start by setting a clear agenda for the problem-solving session. Outline the goals, objectives, and topics that need to be discussed during the meeting. This ensures that everyone is aware of the purpose of the session and can come prepared with relevant information and ideas.

When setting the agenda, consider the time constraints and prioritize the most pressing issues. This will help keep the session focused and ensure that valuable time is not wasted on less important matters.

Facilitating Open and Constructive Dialogue

During the session, encourage open and constructive dialogue among the team members. Create a safe and non-judgmental environment where everyone feels comfortable expressing their opinions and challenging existing beliefs. This fosters creativity and innovation, leading to better problem-solving outcomes.

As the facilitator, it is important to actively listen to each team member and ensure that their voices are heard. Encourage active participation and discourage any form of dominance or bias. This will help create a collaborative atmosphere where diverse perspectives can be explored.

Utilizing Problem-Solving Techniques in Finance

There are several problem-solving techniques that can be applied in a finance context. These include brainstorming, SWOT analysis, financial modeling, cost-benefit analysis, and root cause analysis, among others. Apply the appropriate techniques to systematically analyze the financial issues and generate potential solutions.

Brainstorming is a valuable technique that allows team members to freely share their ideas and thoughts without any judgment. This can lead to innovative solutions that may not have been considered otherwise. SWOT analysis helps identify the strengths, weaknesses, opportunities, and threats associated with the problem at hand. Financial modeling allows for a quantitative analysis of different scenarios, helping to evaluate the potential outcomes of each solution.

Cost-benefit analysis helps weigh the financial costs and benefits of each solution, enabling decision-makers to make informed choices. Root cause analysis helps identify the underlying causes of the problem, allowing for targeted solutions that address the core issues.

By utilizing these problem-solving techniques, the team can approach the financial issues from different angles, ensuring a comprehensive analysis and a wider range of potential solutions.

Remember, the problem-solving session is not just about finding a quick fix. It is about understanding the problem, exploring various options, and making informed decisions that will have a positive impact on the financial health of the organization.

Post-Session Actions and Follow-ups

Once the problem-solving session is over, there are critical steps to take to ensure the proposed solutions are implemented effectively:

Analyzing the Results of the Session

Review and analyze the outcomes of the problem-solving session. This step is crucial as it allows for a comprehensive understanding of the proposed solutions and their potential impact on the organization. By carefully evaluating the feasibility, potential impact, and alignment with the organization’s goals, finance professionals can make informed decisions on which solutions to prioritize.

During the analysis, it is essential to consider various factors, such as the resources required for implementation, the potential risks involved, and the expected timeline for achieving the desired outcomes. By conducting a thorough evaluation, finance professionals can identify the most viable options and prioritize them based on their urgency and significance.

Implementing the Proposed Solutions

Once the proposed solutions have been analyzed and prioritized, the next step is to develop an actionable plan for their implementation. This plan should outline the specific steps required to execute each solution effectively.

Assigning responsibilities is a critical aspect of the implementation process. By clearly defining who is accountable for each task, finance professionals can ensure that everyone involved understands their role and can contribute to the successful execution of the solutions. Additionally, setting deadlines is crucial to keep the implementation process on track and avoid unnecessary delays.

Furthermore, allocating the necessary resources is essential for the successful implementation of the proposed solutions. This includes financial resources, human resources, and any other required assets. By ensuring that the necessary resources are available, finance professionals can increase the likelihood of achieving the desired outcomes.

Effective implementation also requires clear communication and coordination among all stakeholders. Regular updates and progress reports should be shared to keep everyone informed and aligned. Additionally, monitoring the progress of the implementation is vital to identify any potential issues or roadblocks early on and take corrective actions as needed.

Monitoring the Impact of Implemented Solutions

Implementing the proposed solutions is not the end of the problem-solving process. It is crucial to regularly monitor the impact of the implemented solutions on the financial performance of the organization. This step allows finance professionals to assess the effectiveness of the solutions and make any necessary adjustments to optimize the outcomes.

Tracking relevant key performance indicators (KPIs) is an effective way to measure the impact of the implemented solutions. These KPIs can include financial metrics, such as revenue growth, cost savings, and profitability, as well as non-financial metrics, such as customer satisfaction and employee productivity. By monitoring these indicators, finance professionals can gain valuable insights into the success of the implemented solutions and identify areas for improvement.

Continuous feedback gathering is also essential in monitoring the impact of the implemented solutions. By seeking input from various stakeholders, including employees, customers, and partners, finance professionals can gain a holistic understanding of the outcomes and identify any potential issues or areas of improvement.

Based on the feedback and performance data gathered, finance professionals can make necessary adjustments to optimize the outcomes of the implemented solutions. This iterative approach ensures that the organization remains agile and responsive to changing circumstances.

In conclusion, conducting a problem-solving session with finance is an essential process for mitigating financial risks and driving organizational growth. By understanding the importance of problem-solving in finance, adequately preparing for the session, conducting it effectively, and taking post-session actions and follow-ups, finance professionals can effectively address financial challenges and steer their organizations toward success.

Check out Avado, the UK’s most trusted CIPD course provider today for HR and L&D courses:

CIPD Level 3 HR Courses : The CIPD Level 3 Certificate in people practice is ideal for anyone looking to start a career in either HR or Learning and Development. CIPD Level 5 HR Course : The CIPD Level 5 Associate Diploma in People Management will help you build on your existing HR knowledge. CIPD Level 5 L&D Course : The CIPD Level 5 Diploma in Organisational Learning and Development is the most comprehensive course available for L&D professionals, ideal for you if you want to formalise your existing experience, skills and knowledge. CIPD Level 7 HR Course : The CIPD Level 7 Advanced Diploma is aimed at expanding learners’ autonomy so they can strategically direct organisations and their people.

If you aspire to become a digital marketing manager or explore the senior level of your career have a look at the squared  digital marketing programme .

HR training, delivered seamlessly online for busy professionals

About the author, related articles.

Navigating the ever-evolving landscape of employee benefits in the UK can be challenging. With shifting workforce expectations and a fluctuating economic climate, staying ahead is crucial. Key trends for 2024 include health and wellness initiatives, flexible work arrangements, financial wellness programs, and technology-driven benefits. These trends are transforming HR practices and significantly enhancing employee satisfaction and retention.

Discover the secrets to conducting a successful decision-making meeting with finance.

• Search Search Please fill out this field.

Fix Your Financial Problems and Get Back on the Right Track

A monthly budget and a plan can be mighty tools

Budgeting Problems

Create a budget.

• Track Your Spending

Budget Meetings

• Spending Issues

If You Have Debt Problems

Debts in collections, find extra money.

• Don't Add On
• An Emergency Fund

Credit Problems

People face a wide variety of financial problems. The trouble might begin because you have a hard time or a distaste for budgeting, then it blooms from there into additional issues that can have serious implications.

The key might be as simple as taking the time to identify the source of the problem. You can begin to fix it from there and take control of your finances.

You might be having budgeting problems if you're consistently running out of money before you run out of month, and you find yourself relying on credit cards to make ends meet. You look at what you earn and wonder why it doesn't seem to be enough to cover all your bills even though you earn a good salary.

You might even have a written budget that you try to follow each month, but it never seems to work. This is a prime indicator that you have a budgeting problem. 

Start by creating a budget if you don't yet have one. The easiest way to do this is to look at what you spent in each category last month and adjust from there. Common budget categories include:

• Housing (rent or mortgage)
• Savings (emergency fund, sinking fund, and retirement)
• Insurance (auto, health, and life)
• Medical care
• Transportation (car payment and/or commuting expenses)
• Debt service (credit cards, personal loans, home equity loans, and other credit accounts - see our payment calculator below if you're considering one)
• Health care
• Discretionary spending (entertainment, dining out, and "extras")

You might have others that don't appear here, such as child care. Add them in.

Some of these expenses are fixed. They remain the same month after month. Others might fluctuate beyond your control — utility costs can vary by season, or maybe your child-care provider has upped its rates.

Still others, like discretionary spending and groceries, are within your control. You can spend less on these things if you have to.

Track Your Spending and Adjust as Necessary

Add up all the categories you've determined in your budget. You have some tweaking to do if the total is more than your monthly take-home pay. You'll have to cut somewhere, typically from those expenses that you have control over. You do not want to put less toward your savings or debt service if at all possible.

The key to making your budget work is realizing that it's flexible. You can take money from one category and use it in another category if you overspend. For example, you might splurge on concert tickets, but then you'll have to adjust your grocery budget to cover the extra you spent in your discretionary/entertainment category.

Budget meetings are essential if you're married and want to succeed financially. You and your spouse should communicate on a regular basis about the budget, and who's spending what and where.

Again, budgeting software can come in handy here because you can update it when you're shopping and it can prevent you from overspending when you're on separate errands.

Spending Issues: Stick to a List & Play the Waiting Game

Most people have an area in which they consistently overspend. You can address these "leaks" in your budget in a few ways.

• Limit when you go "pleasure" shopping and don't take a credit card with you.
• Create a menu plan , a grocery list and make meals ahead if you tend to spend too much money eating out. Stick to your list no matter what's on sale. If you didn't need steak or five bottles of cola when you were making your list, odds are that it hasn't become a must-buy just a few hours later.
• Time is your friend when it comes to not spending needlessly. You might really, really want that classic bottle of bourbon today. Wait a month to buy it. You're not denying yourself. You're procrastinating. That little gift to yourself can be something like a reward if you find that you've really stuck to your budget at month's end.

You might also switch to the envelope budgeting system. This is basically a cash-only budget — or part of your budget — where you pay cash for your "controllable" categories like groceries and discretionary spending. Put the money you budgeted into an envelope for each category at the beginning of the month and stop spending in that category when the envelope is empty. You might realize that you think twice about dipping into an envelope if you consider that doing so now might empty it out before the month is up.

Too much debt can be crippling. Address this issue as quickly as possible because you won't be able to get ahead financially if you're carrying a large amount of debt.

Consider creating a debt payment plan. List your debts in order of the smallest balance to the largest, or the highest interest rate to the lowest interest rate. This is the order in which you're going to pay them off.

Take the money you were paying toward the first and add it to the payments you're making on the second debt after you've paid the first one off. Continue rolling the money over until you've paid off everything.

But avoid closing credit cards as you pay them off because this can lower your credit score. Part of your score depends on how long you've been borrowing, so closing a card that you've hard for a while can cost you some points. You should always leave at least your oldest card open, ideally with a very minimal or zero balance.

You can often settle debts that have gone to collections by paying less than you actually owe. The creditor will "forgive" or write off the balance.

It's all about negotiation. Call the creditor, start with a low amount and offer a one-time payment. Maybe you owe $3,000. Offer to remit $1,500 right now if possible, if the creditor will "erase" that remaining $1,500 balance. The credit might counter with $2,000. Keep trying.

Do not give the creditor access to your checking account over the phone. Send a cashier’s check by certified mail once you've received a letter confirming your deal and keep a copy of that letter in case there's a question later on.

You might be responsible for paying income taxes on any debt that's forgiven. You could receive an IRS Form 1099-C from the creditor, and a copy is sent to the Internal Revenue Service as well, showing how much of your debt was erased. You must generally report this amount as taxable income on your tax return.

Check with a tax professional to be sure before you report this money on your tax return. You might not receive one at all because these forms generally apply to $600 or more of canceled debt.  

You can begin moving forward more quickly if you can get your hands on some extra money to pay off your debts. You might consider selling items you no longer use or look in your budget for things you can cut out without feeling the pain too much.

You might want to consider cutting your cable or cellphone service back to a less expensive package. You might be surprised at just how much you can pay off if you sacrifice a bit of your lifestyle for a while.

Another option is to take on a second job. In fact, you might want to try a combination of all three approaches if you're serious about conquering your debt.

Don't Add On

There's no point in working to get out of debt if you continually add onto it each month. Stop using your credit cards as much as possible. You're effectively just treading water if you make payments then turn around and charge right back up to your previous balance.

Don't Forget That Emergency Fund

Budgeting gurus came up with the concept of an emergency fund for good reason. Maybe life is moving along nicely, then the company you work for goes out of business. You're out of work through no fault of your own. Or maybe you're crossing the street when a taxi hits you. You're out of work while you recuperate and you might have uninsured medical expenses as well.

Having some cash stashed away in an  emergency fund might not save the day entirely, but life will be a lot easier than it would have been if you hadn't saved for the unexpected.

It's recommended that you have at least three months' living expenses set aside, and some experts say six months. Yes, that can be an intimidating number if your monthly nut is $3,500 or more. Start small if you must, but start. You'll get there eventually and you might be glad you did.

Credit problems can make it difficult to land a job, rent an apartment, or buy a home. Poor or even iffy credit can affect the interest rates on your car loan and negatively affect your finances. Understand how your credit works so you can identify why your credit score is low and start to fix it.

Two common culprits are making late payments and maxing out credit cards. Paying a week or two late might not ding your score too horribly, but paying 30 days late — or even worse, 60 — can deal it a serious blow.  

Your credit utilization ratio is also critical to your credit score. Ideally, you'll want to keep it at less than 30%. This means that your total balances add up to no more than $3,000 if you have credit limits of $10,000.

Internal Revenue Service. " About Form 1099-C, Cancellation of Debt ."

Experian. " Can One 30-Day Late Payment Hurt Your Credit? "

Training for Financial Services

Creative Problem-Solving in Financial Challenges: Strategies and Examples

In the domain of financial challenges, the ability to creatively solve problems can be a key differentiator between success and stagnation. When conventional methods fall short, innovative strategies often pave the way for unprecedented solutions.

By understanding the intricacies of financial obstacles and harnessing creativity to navigate them, organizations and individuals can access a world of possibilities.

From unconventional budgeting techniques to out-of-the-box investment approaches, the landscape of financial problem-solving is rich with inventive examples waiting to be explored further.

Key Takeaways

• Innovative problem-solving techniques are vital in addressing complex financial issues.
• Encourage out-of-the-box thinking and value innovative solutions.
• Leveraging creativity in budgeting leads to strategic resource allocation.
• Real-life examples highlight successful creative approaches in financial challenges.

Importance of Creative Problem-Solving

The utilization of creative problem-solving techniques plays a pivotal role in addressing complex financial challenges with innovative and effective solutions. Critical thinking and problem-solving skills are essential in steering through the intricate landscape of financial decision-making. By approaching challenges with a strategic mindset, organizations can uncover new opportunities and devise tailored solutions that align with their objectives.

Innovation is key to overcoming financial hurdles. By thinking outside the box and exploring unconventional approaches, businesses can discover innovative ways to optimize resources and maximize financial outcomes. Resourcefulness, coupled with a deep understanding of the financial landscape, enables organizations to adapt to changing circumstances and proactively address potential issues.

Creative problem-solving empowers teams to explore various scenarios, anticipate risks, and develop contingency plans. It fosters a culture of adaptability and resilience, positioning organizations to thrive in dynamic financial environments. Embracing creativity in problem-solving not only enhances decision-making processes but also drives sustainable growth and competitive advantage in the ever-evolving financial sector.

Understanding Financial Challenges

Exploring the intricacies of financial landscapes demands a thorough grasp of the challenges that organizations face in today's dynamic economic environment. Financial stress and economic hardships are common hurdles that businesses encounter, requiring a strategic approach to navigate successfully.

To understand financial challenges better, consider the following:

• Market Volatility : Fluctuations in the market can lead to uncertain returns on investments and impact overall financial stability.
• Regulatory Changes : Adapting to evolving regulations requires time, resources, and expertise, adding complexity to financial management.
• Debt Management : Balancing debt levels while ensuring operational efficiency is crucial to avoid financial strain and maintain liquidity.
• Risk Assessment : Identifying and mitigating financial risks, such as interest rate fluctuations or currency risks, is essential for long-term sustainability.

Strategies for Innovative Solutions

Deciphering financial complexities in today's ever-changing economic landscape necessitates the implementation of innovative problem-solving strategies. Innovative thinking is vital when tackling financial challenges. One effective strategy is to encourage brainstorming sessions where team members can freely share unique ideas without judgment. This fosters a creative environment that can lead to innovative solutions. Additionally, utilizing problem-solving techniques such as root cause analysis can help identify the underlying issues causing financial challenges. By addressing these root causes, long-term solutions can be implemented to prevent similar issues from arising in the future.

Furthermore, thinking outside the box and considering unconventional approaches can often result in breakthrough solutions. This could involve exploring new technologies, partnerships, or business models to address financial problems in a novel way. Implementing a culture that values and rewards innovative thinking can also encourage employees to proactively seek out creative solutions to financial challenges. By combining innovative thinking with proven problem-solving techniques, organizations can navigate financial complexities with agility and resilience.

Leveraging Creativity in Budgeting

To optimize financial decision-making and resource allocation, leveraging creativity in budgeting is imperative for organizations seeking to adapt to dynamic market conditions and drive innovation in their financial strategies. When thinking outside traditional methods in budgeting, organizations can benefit from:

• Zero-Based Budgeting : This approach requires justifying all expenses for each new budgeting period, encouraging a thorough review of spending habits and the identification of areas for potential cost savings.
• Activity-Based Budgeting : By linking budgeting to specific activities, this method provides a more accurate reflection of the costs associated with each activity, enabling better resource allocation.
• Rolling Budgets : Unlike static budgets, rolling budgets continuously update throughout the year, allowing for strategic shifts in resource allocation based on changing circumstances.
• Cross-Functional Collaboration : Involving teams from various departments in the budgeting process promotes diverse perspectives and innovative ideas that can lead to more effective financial strategies.

These approaches empower organizations to break free from conventional budgeting constraints and foster a culture of innovation in financial management.

Real-Life Examples of Success

In examining instances of successful implementation of innovative financial problem-solving strategies, concrete evidence emerges of the tangible benefits derived from embracing unconventional approaches in budgeting. Case studies and success stories provide valuable insights into how organizations have overcome financial challenges through creative solutions. One such example is Company X, which faced a cash flow crisis due to delayed payments from clients. By implementing a dynamic discounting strategy, Company X offered clients discounts for early payments, greatly improving cash flow and reducing outstanding receivables.

Through these real-life examples, it is evident that thinking outside the box and implementing innovative financial solutions can lead to positive outcomes, even in the face of challenging financial obstacles.

Implementing Creative Solutions

An essential aspect of tackling financial challenges effectively involves the strategic implementation of innovative solutions that address underlying issues with precision and foresight. When it comes to implementing creative solutions, thinking outside the box and adopting unconventional approaches can greatly enhance problem-solving capabilities. Here are four key strategies to ponder:

• Cross-Functional Collaboration: Encourage collaboration between different departments or teams to leverage diverse perspectives and expertise, fostering innovative solutions that take into account various angles simultaneously.
• Pilot Programs: Implement small-scale pilot programs to test the feasibility and effectiveness of new ideas before full-scale implementation, reducing risks and allowing for adjustments based on initial feedback.
• Technology Integration: Embrace cutting-edge technologies to streamline processes, improve efficiency, and open up new opportunities for revenue generation or cost savings.
• Customer-Centric Design: Prioritize understanding customer needs and preferences to tailor financial solutions that truly resonate with the target audience, driving satisfaction and loyalty.

To sum up, creative problem-solving is like a beacon of light in the darkness of financial challenges, guiding individuals towards innovative solutions and successful outcomes.

By leveraging creativity in budgeting and implementing creative strategies, individuals can navigate through complex financial situations with ease and efficiency.

Real-life examples serve as proof that thinking outside the box can lead to remarkable results, inspiring others to embrace creativity in overcoming their own financial obstacles.

Similar Posts

Making Informed Asset Allocation Decisions: A Strategic Guide

Start your journey towards financial success with a strategic guide to making informed asset allocation decisions – setting the stage for smart investing.

Financial Statement Analysis: Unlock Insights

Financial analysis is a vital component in understanding the performance and health of a company. It involves evaluating financial statements, ratios, and other relevant data to gain insights into the company’s financial position, profitability, and potential risks. By analyzing financial information, investors, stakeholders, and management can make informed decisions, identify trends, and assess the company’s…

Quantitative Trading Algorithms

Tantalizingly mysterious, quantitative trading algorithms hold the key to unlocking financial success – but at what cost?

How to Sell Financial Products: Techniques and Persuasion Strategies

Tune into the art of selling financial products with tantalizing techniques that will transform your sales approach.

Time Series Analysis in Finance

Peek into the future of finance with Time Series Analysis to unravel hidden patterns and make informed decisions…

Global Economic Trends Explained: What You Need to Know

Tune in to unravel the intricacies of global economic trends and gain valuable insights for navigating the complex financial landscape.

How to master the seven-step problem-solving process

In this episode of the McKinsey Podcast , Simon London speaks with Charles Conn, CEO of venture-capital firm Oxford Sciences Innovation, and McKinsey senior partner Hugo Sarrazin about the complexities of different problem-solving strategies.

Podcast transcript

Simon London: Hello, and welcome to this episode of the McKinsey Podcast , with me, Simon London. What’s the number-one skill you need to succeed professionally? Salesmanship, perhaps? Or a facility with statistics? Or maybe the ability to communicate crisply and clearly? Many would argue that at the very top of the list comes problem solving: that is, the ability to think through and come up with an optimal course of action to address any complex challenge—in business, in public policy, or indeed in life.

Looked at this way, it’s no surprise that McKinsey takes problem solving very seriously, testing for it during the recruiting process and then honing it, in McKinsey consultants, through immersion in a structured seven-step method. To discuss the art of problem solving, I sat down in California with McKinsey senior partner Hugo Sarrazin and also with Charles Conn. Charles is a former McKinsey partner, entrepreneur, executive, and coauthor of the book Bulletproof Problem Solving: The One Skill That Changes Everything [John Wiley & Sons, 2018].

Charles and Hugo, welcome to the podcast. Thank you for being here.

Hugo Sarrazin: Our pleasure.

Charles Conn: It’s terrific to be here.

Simon London: Problem solving is a really interesting piece of terminology. It could mean so many different things. I have a son who’s a teenage climber. They talk about solving problems. Climbing is problem solving. Charles, when you talk about problem solving, what are you talking about?

Charles Conn: For me, problem solving is the answer to the question “What should I do?” It’s interesting when there’s uncertainty and complexity, and when it’s meaningful because there are consequences. Your son’s climbing is a perfect example. There are consequences, and it’s complicated, and there’s uncertainty—can he make that grab? I think we can apply that same frame almost at any level. You can think about questions like “What town would I like to live in?” or “Should I put solar panels on my roof?”

You might think that’s a funny thing to apply problem solving to, but in my mind it’s not fundamentally different from business problem solving, which answers the question “What should my strategy be?” Or problem solving at the policy level: “How do we combat climate change?” “Should I support the local school bond?” I think these are all part and parcel of the same type of question, “What should I do?”

I’m a big fan of structured problem solving. By following steps, we can more clearly understand what problem it is we’re solving, what are the components of the problem that we’re solving, which components are the most important ones for us to pay attention to, which analytic techniques we should apply to those, and how we can synthesize what we’ve learned back into a compelling story. That’s all it is, at its heart.

I think sometimes when people think about seven steps, they assume that there’s a rigidity to this. That’s not it at all. It’s actually to give you the scope for creativity, which often doesn’t exist when your problem solving is muddled.

Simon London: You were just talking about the seven-step process. That’s what’s written down in the book, but it’s a very McKinsey process as well. Without getting too deep into the weeds, let’s go through the steps, one by one. You were just talking about problem definition as being a particularly important thing to get right first. That’s the first step. Hugo, tell us about that.

Hugo Sarrazin: It is surprising how often people jump past this step and make a bunch of assumptions. The most powerful thing is to step back and ask the basic questions—“What are we trying to solve? What are the constraints that exist? What are the dependencies?” Let’s make those explicit and really push the thinking and defining. At McKinsey, we spend an enormous amount of time in writing that little statement, and the statement, if you’re a logic purist, is great. You debate. “Is it an ‘or’? Is it an ‘and’? What’s the action verb?” Because all these specific words help you get to the heart of what matters.

Want to subscribe to The McKinsey Podcast ?

Simon London: So this is a concise problem statement.

Hugo Sarrazin: Yeah. It’s not like “Can we grow in Japan?” That’s interesting, but it is “What, specifically, are we trying to uncover in the growth of a product in Japan? Or a segment in Japan? Or a channel in Japan?” When you spend an enormous amount of time, in the first meeting of the different stakeholders, debating this and having different people put forward what they think the problem definition is, you realize that people have completely different views of why they’re here. That, to me, is the most important step.

Charles Conn: I would agree with that. For me, the problem context is critical. When we understand “What are the forces acting upon your decision maker? How quickly is the answer needed? With what precision is the answer needed? Are there areas that are off limits or areas where we would particularly like to find our solution? Is the decision maker open to exploring other areas?” then you not only become more efficient, and move toward what we call the critical path in problem solving, but you also make it so much more likely that you’re not going to waste your time or your decision maker’s time.

How often do especially bright young people run off with half of the idea about what the problem is and start collecting data and start building models—only to discover that they’ve really gone off half-cocked.

Hugo Sarrazin: Yeah.

Charles Conn: And in the wrong direction.

Simon London: OK. So step one—and there is a real art and a structure to it—is define the problem. Step two, Charles?

Charles Conn: My favorite step is step two, which is to use logic trees to disaggregate the problem. Every problem we’re solving has some complexity and some uncertainty in it. The only way that we can really get our team working on the problem is to take the problem apart into logical pieces.

What we find, of course, is that the way to disaggregate the problem often gives you an insight into the answer to the problem quite quickly. I love to do two or three different cuts at it, each one giving a bit of a different insight into what might be going wrong. By doing sensible disaggregations, using logic trees, we can figure out which parts of the problem we should be looking at, and we can assign those different parts to team members.

Simon London: What’s a good example of a logic tree on a sort of ratable problem?

Charles Conn: Maybe the easiest one is the classic profit tree. Almost in every business that I would take a look at, I would start with a profit or return-on-assets tree. In its simplest form, you have the components of revenue, which are price and quantity, and the components of cost, which are cost and quantity. Each of those can be broken out. Cost can be broken into variable cost and fixed cost. The components of price can be broken into what your pricing scheme is. That simple tree often provides insight into what’s going on in a business or what the difference is between that business and the competitors.

If we add the leg, which is “What’s the asset base or investment element?”—so profit divided by assets—then we can ask the question “Is the business using its investments sensibly?” whether that’s in stores or in manufacturing or in transportation assets. I hope we can see just how simple this is, even though we’re describing it in words.

When I went to work with Gordon Moore at the Moore Foundation, the problem that he asked us to look at was “How can we save Pacific salmon?” Now, that sounds like an impossible question, but it was amenable to precisely the same type of disaggregation and allowed us to organize what became a 15-year effort to improve the likelihood of good outcomes for Pacific salmon.

Simon London: Now, is there a danger that your logic tree can be impossibly large? This, I think, brings us onto the third step in the process, which is that you have to prioritize.

Charles Conn: Absolutely. The third step, which we also emphasize, along with good problem definition, is rigorous prioritization—we ask the questions “How important is this lever or this branch of the tree in the overall outcome that we seek to achieve? How much can I move that lever?” Obviously, we try and focus our efforts on ones that have a big impact on the problem and the ones that we have the ability to change. With salmon, ocean conditions turned out to be a big lever, but not one that we could adjust. We focused our attention on fish habitats and fish-harvesting practices, which were big levers that we could affect.

People spend a lot of time arguing about branches that are either not important or that none of us can change. We see it in the public square. When we deal with questions at the policy level—“Should you support the death penalty?” “How do we affect climate change?” “How can we uncover the causes and address homelessness?”—it’s even more important that we’re focusing on levers that are big and movable.

Would you like to learn more about our Strategy & Corporate Finance Practice ?

Simon London: Let’s move swiftly on to step four. You’ve defined your problem, you disaggregate it, you prioritize where you want to analyze—what you want to really look at hard. Then you got to the work plan. Now, what does that mean in practice?

Hugo Sarrazin: Depending on what you’ve prioritized, there are many things you could do. It could be breaking the work among the team members so that people have a clear piece of the work to do. It could be defining the specific analyses that need to get done and executed, and being clear on time lines. There’s always a level-one answer, there’s a level-two answer, there’s a level-three answer. Without being too flippant, I can solve any problem during a good dinner with wine. It won’t have a whole lot of backing.

Simon London: Not going to have a lot of depth to it.

Hugo Sarrazin: No, but it may be useful as a starting point. If the stakes are not that high, that could be OK. If it’s really high stakes, you may need level three and have the whole model validated in three different ways. You need to find a work plan that reflects the level of precision, the time frame you have, and the stakeholders you need to bring along in the exercise.

Charles Conn: I love the way you’ve described that, because, again, some people think of problem solving as a linear thing, but of course what’s critical is that it’s iterative. As you say, you can solve the problem in one day or even one hour.

Charles Conn: We encourage our teams everywhere to do that. We call it the one-day answer or the one-hour answer. In work planning, we’re always iterating. Every time you see a 50-page work plan that stretches out to three months, you know it’s wrong. It will be outmoded very quickly by that learning process that you described. Iterative problem solving is a critical part of this. Sometimes, people think work planning sounds dull, but it isn’t. It’s how we know what’s expected of us and when we need to deliver it and how we’re progressing toward the answer. It’s also the place where we can deal with biases. Bias is a feature of every human decision-making process. If we design our team interactions intelligently, we can avoid the worst sort of biases.

Simon London: Here we’re talking about cognitive biases primarily, right? It’s not that I’m biased against you because of your accent or something. These are the cognitive biases that behavioral sciences have shown we all carry around, things like anchoring, overoptimism—these kinds of things.

Both: Yeah.

Charles Conn: Availability bias is the one that I’m always alert to. You think you’ve seen the problem before, and therefore what’s available is your previous conception of it—and we have to be most careful about that. In any human setting, we also have to be careful about biases that are based on hierarchies, sometimes called sunflower bias. I’m sure, Hugo, with your teams, you make sure that the youngest team members speak first. Not the oldest team members, because it’s easy for people to look at who’s senior and alter their own creative approaches.

Hugo Sarrazin: It’s helpful, at that moment—if someone is asserting a point of view—to ask the question “This was true in what context?” You’re trying to apply something that worked in one context to a different one. That can be deadly if the context has changed, and that’s why organizations struggle to change. You promote all these people because they did something that worked well in the past, and then there’s a disruption in the industry, and they keep doing what got them promoted even though the context has changed.

Simon London: Right. Right.

Hugo Sarrazin: So it’s the same thing in problem solving.

Charles Conn: And it’s why diversity in our teams is so important. It’s one of the best things about the world that we’re in now. We’re likely to have people from different socioeconomic, ethnic, and national backgrounds, each of whom sees problems from a slightly different perspective. It is therefore much more likely that the team will uncover a truly creative and clever approach to problem solving.

Simon London: Let’s move on to step five. You’ve done your work plan. Now you’ve actually got to do the analysis. The thing that strikes me here is that the range of tools that we have at our disposal now, of course, is just huge, particularly with advances in computation, advanced analytics. There’s so many things that you can apply here. Just talk about the analysis stage. How do you pick the right tools?

Charles Conn: For me, the most important thing is that we start with simple heuristics and explanatory statistics before we go off and use the big-gun tools. We need to understand the shape and scope of our problem before we start applying these massive and complex analytical approaches.

Simon London: Would you agree with that?

Hugo Sarrazin: I agree. I think there are so many wonderful heuristics. You need to start there before you go deep into the modeling exercise. There’s an interesting dynamic that’s happening, though. In some cases, for some types of problems, it is even better to set yourself up to maximize your learning. Your problem-solving methodology is test and learn, test and learn, test and learn, and iterate. That is a heuristic in itself, the A/B testing that is used in many parts of the world. So that’s a problem-solving methodology. It’s nothing different. It just uses technology and feedback loops in a fast way. The other one is exploratory data analysis. When you’re dealing with a large-scale problem, and there’s so much data, I can get to the heuristics that Charles was talking about through very clever visualization of data.

You test with your data. You need to set up an environment to do so, but don’t get caught up in neural-network modeling immediately. You’re testing, you’re checking—“Is the data right? Is it sound? Does it make sense?”—before you launch too far.

Simon London: You do hear these ideas—that if you have a big enough data set and enough algorithms, they’re going to find things that you just wouldn’t have spotted, find solutions that maybe you wouldn’t have thought of. Does machine learning sort of revolutionize the problem-solving process? Or are these actually just other tools in the toolbox for structured problem solving?

Charles Conn: It can be revolutionary. There are some areas in which the pattern recognition of large data sets and good algorithms can help us see things that we otherwise couldn’t see. But I do think it’s terribly important we don’t think that this particular technique is a substitute for superb problem solving, starting with good problem definition. Many people use machine learning without understanding algorithms that themselves can have biases built into them. Just as 20 years ago, when we were doing statistical analysis, we knew that we needed good model definition, we still need a good understanding of our algorithms and really good problem definition before we launch off into big data sets and unknown algorithms.

Simon London: Step six. You’ve done your analysis.

Charles Conn: I take six and seven together, and this is the place where young problem solvers often make a mistake. They’ve got their analysis, and they assume that’s the answer, and of course it isn’t the answer. The ability to synthesize the pieces that came out of the analysis and begin to weave those into a story that helps people answer the question “What should I do?” This is back to where we started. If we can’t synthesize, and we can’t tell a story, then our decision maker can’t find the answer to “What should I do?”

Simon London: But, again, these final steps are about motivating people to action, right?

Charles Conn: Yeah.

Simon London: I am slightly torn about the nomenclature of problem solving because it’s on paper, right? Until you motivate people to action, you actually haven’t solved anything.

Charles Conn: I love this question because I think decision-making theory, without a bias to action, is a waste of time. Everything in how I approach this is to help people take action that makes the world better.

Simon London: Hence, these are absolutely critical steps. If you don’t do this well, you’ve just got a bunch of analysis.

Charles Conn: We end up in exactly the same place where we started, which is people speaking across each other, past each other in the public square, rather than actually working together, shoulder to shoulder, to crack these important problems.

Simon London: In the real world, we have a lot of uncertainty—arguably, increasing uncertainty. How do good problem solvers deal with that?

Hugo Sarrazin: At every step of the process. In the problem definition, when you’re defining the context, you need to understand those sources of uncertainty and whether they’re important or not important. It becomes important in the definition of the tree.

You need to think carefully about the branches of the tree that are more certain and less certain as you define them. They don’t have equal weight just because they’ve got equal space on the page. Then, when you’re prioritizing, your prioritization approach may put more emphasis on things that have low probability but huge impact—or, vice versa, may put a lot of priority on things that are very likely and, hopefully, have a reasonable impact. You can introduce that along the way. When you come back to the synthesis, you just need to be nuanced about what you’re understanding, the likelihood.

Often, people lack humility in the way they make their recommendations: “This is the answer.” They’re very precise, and I think we would all be well-served to say, “This is a likely answer under the following sets of conditions” and then make the level of uncertainty clearer, if that is appropriate. It doesn’t mean you’re always in the gray zone; it doesn’t mean you don’t have a point of view. It just means that you can be explicit about the certainty of your answer when you make that recommendation.

Simon London: So it sounds like there is an underlying principle: “Acknowledge and embrace the uncertainty. Don’t pretend that it isn’t there. Be very clear about what the uncertainties are up front, and then build that into every step of the process.”

Hugo Sarrazin: Every step of the process.

Simon London: Yeah. We have just walked through a particular structured methodology for problem solving. But, of course, this is not the only structured methodology for problem solving. One that is also very well-known is design thinking, which comes at things very differently. So, Hugo, I know you have worked with a lot of designers. Just give us a very quick summary. Design thinking—what is it, and how does it relate?

Hugo Sarrazin: It starts with an incredible amount of empathy for the user and uses that to define the problem. It does pause and go out in the wild and spend an enormous amount of time seeing how people interact with objects, seeing the experience they’re getting, seeing the pain points or joy—and uses that to infer and define the problem.

Simon London: Problem definition, but out in the world.

Hugo Sarrazin: With an enormous amount of empathy. There’s a huge emphasis on empathy. Traditional, more classic problem solving is you define the problem based on an understanding of the situation. This one almost presupposes that we don’t know the problem until we go see it. The second thing is you need to come up with multiple scenarios or answers or ideas or concepts, and there’s a lot of divergent thinking initially. That’s slightly different, versus the prioritization, but not for long. Eventually, you need to kind of say, “OK, I’m going to converge again.” Then you go and you bring things back to the customer and get feedback and iterate. Then you rinse and repeat, rinse and repeat. There’s a lot of tactile building, along the way, of prototypes and things like that. It’s very iterative.

Simon London: So, Charles, are these complements or are these alternatives?

Charles Conn: I think they’re entirely complementary, and I think Hugo’s description is perfect. When we do problem definition well in classic problem solving, we are demonstrating the kind of empathy, at the very beginning of our problem, that design thinking asks us to approach. When we ideate—and that’s very similar to the disaggregation, prioritization, and work-planning steps—we do precisely the same thing, and often we use contrasting teams, so that we do have divergent thinking. The best teams allow divergent thinking to bump them off whatever their initial biases in problem solving are. For me, design thinking gives us a constant reminder of creativity, empathy, and the tactile nature of problem solving, but it’s absolutely complementary, not alternative.

Simon London: I think, in a world of cross-functional teams, an interesting question is do people with design-thinking backgrounds really work well together with classical problem solvers? How do you make that chemistry happen?

Hugo Sarrazin: Yeah, it is not easy when people have spent an enormous amount of time seeped in design thinking or user-centric design, whichever word you want to use. If the person who’s applying classic problem-solving methodology is very rigid and mechanical in the way they’re doing it, there could be an enormous amount of tension. If there’s not clarity in the role and not clarity in the process, I think having the two together can be, sometimes, problematic.

The second thing that happens often is that the artifacts the two methodologies try to gravitate toward can be different. Classic problem solving often gravitates toward a model; design thinking migrates toward a prototype. Rather than writing a big deck with all my supporting evidence, they’ll bring an example, a thing, and that feels different. Then you spend your time differently to achieve those two end products, so that’s another source of friction.

Now, I still think it can be an incredibly powerful thing to have the two—if there are the right people with the right mind-set, if there is a team that is explicit about the roles, if we’re clear about the kind of outcomes we are attempting to bring forward. There’s an enormous amount of collaborativeness and respect.

Simon London: But they have to respect each other’s methodology and be prepared to flex, maybe, a little bit, in how this process is going to work.

Hugo Sarrazin: Absolutely.

Simon London: The other area where, it strikes me, there could be a little bit of a different sort of friction is this whole concept of the day-one answer, which is what we were just talking about in classical problem solving. Now, you know that this is probably not going to be your final answer, but that’s how you begin to structure the problem. Whereas I would imagine your design thinkers—no, they’re going off to do their ethnographic research and get out into the field, potentially for a long time, before they come back with at least an initial hypothesis.

Want better strategies? Become a bulletproof problem solver

Hugo Sarrazin: That is a great callout, and that’s another difference. Designers typically will like to soak into the situation and avoid converging too quickly. There’s optionality and exploring different options. There’s a strong belief that keeps the solution space wide enough that you can come up with more radical ideas. If there’s a large design team or many designers on the team, and you come on Friday and say, “What’s our week-one answer?” they’re going to struggle. They’re not going to be comfortable, naturally, to give that answer. It doesn’t mean they don’t have an answer; it’s just not where they are in their thinking process.

Simon London: I think we are, sadly, out of time for today. But Charles and Hugo, thank you so much.

Charles Conn: It was a pleasure to be here, Simon.

Hugo Sarrazin: It was a pleasure. Thank you.

Simon London: And thanks, as always, to you, our listeners, for tuning into this episode of the McKinsey Podcast . If you want to learn more about problem solving, you can find the book, Bulletproof Problem Solving: The One Skill That Changes Everything , online or order it through your local bookstore. To learn more about McKinsey, you can of course find us at McKinsey.com.

Charles Conn is CEO of Oxford Sciences Innovation and an alumnus of McKinsey’s Sydney office. Hugo Sarrazin is a senior partner in the Silicon Valley office, where Simon London, a member of McKinsey Publishing, is also based.

Explore a career with us

Related articles.

Strategy to beat the odds

Five routes to more innovative problem solving

7.3 Methods for Solving Time Value of Money Problems

Learning outcomes.

By the end of this section, you will be able to:

• Explain how future dollar amounts are calculated.
• Explain how present dollar amounts are calculated.
• Describe how discount rates are calculated.
• Describe how growth rates are calculated.
• Illustrate how periods of time for specified growth are calculated.
• Use a financial calculator and Excel to solve TVM problems.

We can determine future value by using any of four methods: (1) mathematical equations, (2) calculators with financial functions, (3) spreadsheets, and (4) FVIF tables. With the advent and wide acceptance and use of financial calculators and spreadsheet software, FVIF (and other such time value of money tables and factors) have become obsolete, and we will not discuss them in this text. Nevertheless, they are often still published in other finance textbooks and are also available on the internet to use if you so choose.

Using Timelines to Organize TVM Information

A useful tool for conceptualizing present value and future value problems is a timeline. A timeline is a visual, linear representation of periods and cash flows over a set amount of time. Each timeline shows today at the left and a desired ending, or future point (maturity date), at the right.

Now, let us take an example of a future value problem that has a time frame of five years. Before we begin to solve for any answers, it would be a good approach to lay out a timeline like that shown in Table 7.1 :

The timeline provides a visual reference for us and puts the problem into perspective.

Now, let’s say that we are interested in knowing what today’s balance of $100 in our saving account, earning 5% annually, will be worth at the end of each of the next five years. Using the future value formula

that we covered earlier, we would arrive at the following values: $105 at the end of year one, $110.25 at the end of year two, $115.76 at the end of year three, $121.55 at the end of year four, and $127.63 at the end of year five.

With the numerical information, the timeline (at a 5% interest or growth rate) would look like Table 7.2 :

Using timelines to lay out TVM problems becomes more and more valuable as problems become more complex. You should get into the habit of using a timeline to set up these problems prior to using the equation, a calculator, or a spreadsheet to help minimize input errors. Now we will move on to the different methods available that will help you solve specific TVM problems. These are the financial calculator and the Excel spreadsheet.

Using a Financial Calculator to Solve TVM Problems

An extremely popular method of solving TVM problems is through the use of a financial calculator. Financial calculators such as the Texas Instruments BAII Plus™ Professional will typically have five keys that represent the critical variables used in most common TVM problems: N , I/Y , PV , FV , and PMT . These represent the following:

These are the only keys on a financial calculator that are necessary to solve TVM problems involving a single payment or lump sum .

Example 1: Future Value of a Single Payment or Lump Sum

Let’s start with a simple example that will provide you with most of the skills needed to perform TVM functions involving a single lump sum payment with a financial calculator.

Suppose that you have $1,000 and that you deposit this in a savings account earning 3% annually for a period of four years. You will naturally be interested in knowing how much money you will have in your account at the end of this four-year time period (assuming you make no other deposits and withdraw no cash).

To answer this question, you will need to work with factors of $1,000, the present value ( PV ); four periods or years, represented by N ; and the 3% interest rate, or I/Y . Make sure that the calculator register information is cleared, or you may end up with numbers from previous uses that will interfere with the solution. The register-clearing process will depend on what type of calculator you are using, but for the TI BA II Plus™ Professional calculator, clearing can be accomplished by pressing the keys 2ND and FV [ CLR TVM ].

Once you have cleared any old data, you can enter the values in the appropriate key areas: 4 for N , 3 for I/Y , and 1000 for PV . Now you have entered enough information to calculate the future value. Continue by pressing the CPT (compute) key, followed by the FV key. The answer you end up with should be displayed as 1,125.51 (see Table 7.3 ).

Important Notes for Using a Calculator and the Cash Flow Sign Convention

Please note that the PV was entered as negative $1,000 (or -$1000). This is because most financial calculators (and spreadsheets) follow something called the cash flow sign convention, which is a way for calculators and spreadsheets to keep the relative direction of the cash flow straight. Positive numbers are used to represent cash inflows, and negative numbers should always be used for cash outflows.

In this example, the $1,000 is an investment that requires a cash outflow. For this reason, -1000 is entered as the present value, as you will be essentially handing this $1,000 to a bank or to someone else to initiate the transaction. Conversely, the future value represents a cash inflow in four years’ time. This is why the calculator generates a positive 1,125.51 as the end result of this calculation.

Had you entered the present value of $1,000 as a positive number, there would have been no real concern, but the ending future value answer would have been returned expressed as a negative number. This would be correct had you borrowed $1,000 today (cash inflow) and agreed to repay $1,125.51 (cash outflow) four years from now. Also, it is important that you do not change the sign of any input value by using the - (minus) key). For example, on the TI BA II Plus™ Professional, you must use the +|- key instead of the minus key. If you enter 1000 and then hit the +|- key, you will get a negative 1,000 amount showing in the calculator display.

An important feature of most financial calculators is that it is possible to change any of the variables in a problem without needing to reenter all of the other data. For example, suppose that we wanted to find out the future value in our bank account if we left the money from our previous example invested for 20 years instead of 4. Before clearing any of the data, simply enter 20 for N and then press the CPT key and then the FV key. After this is done, all other inputs will remain the same, and you will arrive at an answer of $1,806.11.

Think It Through

How to determine future value when other variables are known.

Here’s an example of using a financial calculator to solve a common time value of money problem. You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account after five years?

Follow the recommended financial calculator steps in Table 7.4 .

The result of this future value calculation of the invested money is $2,433.31.

Example 2: Present Value of Lump Sums

Solving for the present value (discounted value) of a lump sum is the exact opposite of solving for a future value. Once again, if we enter a negative value for the FV, then the calculated PV will be a positive amount.

Taking the reverse of what we did in our example of future value above, we can enter -1,125.51 for FV , 3 for I/Y , and 4 for N . Hit the CPT and PV keys in succession, and you should arrive at a displayed answer of 1,000.

An important constant within the time value of money framework is that the present value will always be less than the future value unless the interest rate is negative. It is important to keep this in mind because it can help you spot incorrect answers that may arise from errors with your input.

How to Determine Present Value When Other Variables Are Known

Here is another example of using a financial calculator to solve a common time value of money problem. You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. How much value would this have in today’s dollars, assuming a 5% interest rate?

Follow the recommended financial calculator steps in Table 7.5 .

The present value of the lottery jackpot is $39,176.31.

Example 3: Calculating the Number of Periods

There will be times when you will know both the value of the money you have now and how much money you will need to have at some unknown point in the future. If you also know the interest rate your money will be earning for the foreseeable future, then you can solve for N, or the exact amount of time periods that it will take for the present value of your money to grow into the future value that you will require for your eventual use.

Now, suppose that you have $100 today and you would like to know how long it will take for you to be able to purchase a product that costs $133.82.

After making sure your calculator is clear, you will enter 5 for I/Y , -100 for PV , and 133.82 for FV . Now press CPT N , and you will see that it will take 5.97 years for your money to grow to the desired amount of $133.82.

Again, an important thing to note when using a financial calculator to solve TVM problems is that you must enter your numbers according to the cash flow sign convention discussed above. If you do not make either the PV or the FV a negative number (with the other being a positive number), then you will end up getting an error message on the screen instead of the answer to the problem. The reason for this is that if both numbers you enter for the PV and FV are positive, the calculator will operate under the assumption that you are receiving a financial benefit without making any cash outlay as an initial investment. If you get such an error message in your calculations, you can simply press the CE/C key. This will clear the error, and you can reenter your data correctly by changing the sign of either PV or FV (but not both of these, of course).

Determining Periods of Time

Here is an additional example of using a financial calculator to solve a common time value of money problem. You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals will be made?

Table 7.6 shows the steps you will take.

The result of this calculation is a time period of 8.7667 years for the account to reach the targeted amount.

Example 4: Solving for the Interest Rate

Solving for an interest rate is a common TVM problem that can be easily addressed with a financial calculator. Let’s return to our earlier example, but in this case, we know that we have $1,000 at the present time and that we will need to have a total of $1,125.51 four years from now. Let’s also say that the only way we can add to the current value of our savings is through interest income. We will not be able to make any further deposits in addition to our initial $1,000 account balance.

What interest rate should we be sure to get on our savings account in order to have a total savings account value of $1,125.51 four years from now?

Once again, clear the calculator, and then enter 4 for N , -1,000 for PV , and 1,125.51 for FV . Then, press the CPT and I/Y keys and you will find that you need to earn an average 3% interest per year in order to grow your savings balance to the desired amount of $1,125.51. Again, if you end up with an error message, you probably failed to follow the sign convention relating to cash inflow and outflow that we discussed earlier. To correct this, you will need to clear the calculator and reenter the information correctly.

After you believe you are done and have arrived at a final answer, always make sure you give it a quick review. You can ask yourself questions such as “Does this make any sense?” “How does this compare to other answers I have arrived at?” or “Is this logical based on everything I know about the scenario?” Knowing how to go about such a review will require you to understand the concepts you are attempting to apply and what you are trying to make the calculator do. Further, it is critical to understand the relationships among the different inputs and variables of the problem. If you do not fully understand these relationships, you may end up with an incorrect answer. In the end, it is important to realize that any calculator is simply a tool. It will only do what you direct it to do and has no idea what your objective is or what it is that you really wish to accomplish.

Determining Interest or Growth Rate

Here is another example of using a financial calculator to solve a common time value of money problem. Let’s use a similar example to the one we used when calculating periods of time to determine an interest or growth rate. You still want to help your child with their first year of college tuition and related expenses. You also still have a starting amount of $15,000, but you have not yet decided on a savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years before you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time period, again with no other deposits or withdrawals?

Follow the steps shown in Table 7.7 .

The result of this calculation is a necessary interest rate of 6.194%.

Using Excel to Solve TVM Problems

Excel spreadsheets can be excellent tools to use when solving time value of money problems. There are dozens of financial functions available in Excel, but a student who can use a few of these functions can solve almost any TVM problem. Special functions that relate to TVM calculations are as follows:

Excel also includes a function called Payment (PMT) that is used in calculations involving multiple payments or deposits (annuities). These will be covered in Time Value of Money II: Equal Multiple Payments .

Future Value (FV)

The Future Value function in Excel is also referred to as FV and can be used to calculate the value of a single lump sum amount carried to any point in the future. The FV function syntax is similar to that of the other four basic time-value functions and has the following inputs (referred to as arguments), similar to the functions listed above:

Lump sum problems do not involve payments, so the value of Pmt in such calculations is 0. Another argument, Type, refers to the timing of a payment and carries a default value of the end of the period, which is the most common timing (as opposed to the beginning of a period). This may be ignored in our current example, which means the default value of the end of the period will be used.

The spreadsheet in Figure 7.3 shows two examples of using the FV function in Excel to calculate the future value of $100 in five years at 5% interest.

In cell E1, the FV function references the values in cells B1 through B4 for each of the arguments. When a user begins to type a function into a spreadsheet, Excel provides helpful information in the form of on-screen tips showing the argument inputs that are required to complete the function. In our spreadsheet example, as the FV formula is being typed into cell E2, a banner showing the arguments necessary to complete the function appears directly below, hovering over cell E3.

Cells E1 and E2 show how the FV function appears in the spreadsheet as it is typed in with the required arguments. Cell E4 shows the calculated answer for cell E1 after hitting the enter key. Once the enter key is pressed, the hint banner hovering over cell E3 will disappear. The second example of the FV function in our example spreadsheet is in cell E6. Here, the actual numerical values are used in the FV function equation rather than cell references. The method in cell E8 is referred to as hard coding . In general, it is preferable to use the cell reference method, as this allows for copying formulas and provides the user with increased flexibility in accounting for changes to input data. This ability to accept cell references in formulas is one of the greatest strengths of Excel as a spreadsheet tool.

Download the spreadsheet file containing key Chapter 7 Excel exhibits.

Determining Future Value When Other Variables Are Known . You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account in five years?

Note: Be sure to follow the sign conventions. In this case, the PV should be entered as a negative value.

Note: In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 4 percent must be entered as 4% or 0.04—not 4, as you would enter in a financial calculator.

Note: It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.

Note: The Excel command used to calculate future value is as follows:

You may simply type the values for the arguments in the above formula. Another option is to use the Excel insert function option. If you decide on this second method, below are several screenshots of dialog boxes you will encounter and will be required to complete.

This dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for FV by typing this in the search box and selecting Go, or you can simply choose FV from the list of most recently used functions (as shown here with the highlighted FV option).

Figure 7.6 shows the completed data input for the variables, referred to here as “function arguments.” Note that cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. You may also type values directly into the Function Arguments dialog box, but if you do this and you have to change any of your inputs later, you will have to reenter the new information. Using cell addresses is always a preferable method of entering the function argument data.

Additional notes:

• The Pmt argument or variable can be ignored in this instance, or you can enter a placeholder value of zero. This example shows a blank or ignored entry, but either option may be used in problems such as this where the information is not relevant.
• The Type argument does not apply to this problem. Type refers to the timing of cash flows and is usually used in multiple payment or annuity problems to indicate whether payments or deposits are made at the beginning of periods or at the end. In single lump sum problems, this is not relevant information, and the Type argument box is left empty.
• When you use cell addresses as function argument inputs, the numerical values within the cells are displayed off to the right. This helps you ensure that you are identifying the correct cells in your function. The final answer generated by the function is also displayed for your preliminary review.

Once you are satisfied with the result, hit the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The FV of this present value has been calculated as approximately $2,433.31.

Present Value (PV)

We have covered the idea that present value is the opposite of future value. As an example, in the spreadsheet shown in Figure 7.3 , we calculated that the future value of $100 five years from now at a 5% interest rate would be $127.63. By reversing this process, we can safely state that $127.63 received five years from now with a 5% interest (or discount) rate would have a value of just $100 today. Thus, $100 is its present value. In Excel, the PV function is used to determine present value (see Figure 7.7 ).

The formula in cell E1 uses cell references in a similar fashion to our FV example spreadsheet above. Also similar to our earlier example is the hard-coded formula for this calculation, which is shown in cell E6. In both cases, the answers we arrive at using the PV function are identical, but once again, using cell references is preferred over hard coding if possible.

Determining Present Value When Other Variables Are Known

You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. You are interested in knowing how much value this would have in today’s dollars, assuming a 5% interest rate.

• If you wish for the present value amount to be positive, the future value you enter here should be a negative value.
• In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 5 percent must be entered as 5% or 0.05—not 5, as you would enter in a financial calculator.
• It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.
• The Excel command used to calculate present value is as shown here:

As with the FV formula covered in the first tab of this workbook, you may simply type the values for the arguments in the above formula. Another option is to again use the Insert Function option in Excel. Figure 7.8 , Figure 7.9 , and Figure 7.10 provide several screenshots that demonstrate the steps you’ll need to follow if you decide to enter the PV function from the Insert Function menu.

As discussed in the FV function example above, this dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for PV by typing this into the search box and selecting Go, or you can simply choose PV from the list of the most recently used functions.

Figure 7.10 shows the completed data input for the function arguments. Note that once again, cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. As in the FV function example, you may also type values directly in the Function Arguments dialog box, but if you do this and you have to change any of your input later, you will have to reenter the new information. Remember that using cell addresses is always a preferable method of entering the function argument data.

Again, similar to our FV function example, the Function Arguments dialog box shows values off to the right of the data entry area, including our final answer. The Pmt and Type boxes are again not relevant to this single lump sum example, for reasons we covered in the FV example.

Review your answer. Once you are satisfied with the result, click the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function. The PV of this future value has been calculated as approximately $39,176.31.

Periods of Time

The following discussion will show you how to use Excel to determine the amount of time a given present value will need to grow into a specified future value when the interest or growth rate is known.

You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals are made?

• As with our other examples, interest and growth rates must be entered as percentages, not as whole integers. So, 6 percent must be entered as 6% or 0.06—not 6, as you would enter in a financial calculator.
• The present value needs to be entered as a negative value in accordance with the sign convention covered earlier.
• The Excel command used to calculate the amount of time, or number of periods, is this:

As with our FV and PV examples, you may simply type the values of the arguments in the above formula, or we can again use the Insert Function option in Excel. If you do so, you will need to work with the various dialog boxes after you select Insert Function.

As discussed in our previous examples on FV and PV, this menu allows you to either search for a function or select a function that has been used recently. In this example, you can search for NPER by typing this into the search box and selecting Go, or you can simply choose NPER from the list of most recently used functions.

• Once you have highlighted NPER, click the OK button, and a new dialog box will appear for you to enter the necessary details. As in our previous examples, it will look like Figure 7.12 .

Figure 7.13 shows the completed Function Arguments dialog box. Note that once again, we are using cell addresses in this example.

As in the previous function examples, values are shown off to the right of the data input area, and our final answer of approximately 8.77 is displayed at the bottom. Also, once again, the Pmt and Type boxes are not relevant to this single lump sum example.

Review your answer, and once you are satisfied with the result, click the OK button. The dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The amount of time required for the desired growth to occur is calculated as approximately 8.77 years.

Interest or Growth Rate

You can also use Excel to determine the required growth rate when the present value, future value, and total number of required periods are known.

Let’s discuss a similar example to the one we used to calculate periods of time. You still want to help your child with their first year of college tuition and related expenses, and you still have a starting amount of $15,000, but you have not yet decided which savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years until you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time, again with no other deposits or withdrawals?

Note: The present value needs to be entered as a negative value.

Note: The Excel command used to calculate interest or growth rate is as follows:

As with our other TVM function examples, you may simply type the values for the arguments into the above formula. We also again have the same alternative to use the Insert Function option in Excel. If you choose this option, you will again see the Insert Function dialog box after you click the Insert Function button.

Once we complete the input, again using cell addresses for the required argument values, we will see what is shown in Figure 7.16 .

As in our other examples, cell values are shown as numerical values off to the right, and our answer of approximately 0.0619, or 6.19%, is shown at the bottom of the dialog box.

This answer also can be checked from a logic point of view because of the similar example we worked through when calculating periods of time. Our present value and future value are the same as in that example, and our time period is now 8.5 years, which is just under the result we arrived at (8.77 years) in the periods example.

So, if we are now working with a slightly shorter time frame for the savings to grow from $15,000 into $25,000, then we would expect to have a slightly greater growth rate. That is exactly how the answer turns out, as the calculated required interest rate of approximately 6.19% is just slightly greater than the growth rate of 6% used in the previous example. So, based on this, it looks like our answer here passes a simple “sanity check” review.

• 1 The specific financial calculator in these examples is the Texas Instruments BA II Plus™ Professional model, but you can use other financial calculators for these types of calculations.

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution License and you must attribute OpenStax.

Access for free at https://openstax.org/books/principles-finance/pages/1-why-it-matters

• Authors: Julie Dahlquist, Rainford Knight
• Publisher/website: OpenStax
• Book title: Principles of Finance
• Publication date: Mar 24, 2022
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-finance/pages/1-why-it-matters
• Section URL: https://openstax.org/books/principles-finance/pages/7-3-methods-for-solving-time-value-of-money-problems

© Jan 8, 2024 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.

The 5 Whys of Problem Solving in Finance

Many Finance professionals are faced with the daily task of solving problems. Whether they come from IT Services, the Business Intelligence team, or even the next cube over, we can never seem to fix enough.

The first, and most important step in solving problems is to identify them, otherwise known as Root Cause Analysis. The “5 Whys” methodology is far and away one of the most efficient methods for honing in on and conceptualizing the root cause of any dilemma you might come across.

This technique requires five iterations of asking “why” to probe continuously deeper into the root cause of an event. (“Why 5 ?” you might ask? It was found through years of experimentation at Toyota to be the usual number of whys it takes to get oneself to the crux of the issue.)  1

The best way to understand the “5 Whys” methodology is through an example. As many of us are well aware, finance departments are plagued with an inability to submit their budgets on time. When managers ask themselves why this happens, the first answer tends to be “well, we’re not working fast enough” or “we don’t have enough resources.” When a follow-up “why” is asked, there is often some flustered arm-flapping and muttering. The reason the root-cause analysis stops early is because people inherently focus on what they can see and touch. The key, however, is to focus on “why did the process fail” and not on “why did my people fail.”

When we focus on the process, we begin to dig into the infrastructure of our tools and methodologies. I was brought onto a client project to build a financial planning model . When building the organization dimension, I was given a temporary file containing a hierarchy that could change at any given moment; the source database holding the hierarchy was going through a complete revamp while I was building the model that relies on it.

So I started the following question and answer thread:

Q1: Why are we running the source database upgrade now?

A1: This was the earliest the database upgrade could start.

Q2: Why are we running these upgrades in tandem?

A2: There was not enough communication between internal projects and consulting groups.

Q3: Why the breakdown of communication?

A3: There is no process in place.

Q4: Why is there no process?

A4 : We have never run an upgrade this large before and do not have experience with it.

Q5: Why do you not have experience with it?

A5: Ah, well…therein lies the root cause of the issue; we should have brought in someone with experience and process knowledge.

In this scenario, we ended up having to take special care to avoid going over budget or losing out on key functionality. However, if a better process for coordinating the two upgrades had been in place, the extra time and effort put into keeping the project on task could have been put toward adding extra functionality.

Upgrading infrastructure, such as tools and processes, and bringing in experience and education keeps us at the top of our game and allows us to work in unison instead of at odds. Next time you are looking at improving your business , consider looking at workflow, methodology, training, and technology options as key areas of improvement. But, never forget to ask yourself “why?”

1  Ohno, Taiichi. Toyota Production System: beyond Large-Scale Production. Productivity Press, 1988.

About Ironside

Ironside was founded in 1999 as an enterprise data and analytics solution provider and system integrator. Our clients hire us to acquire, enrich and measure their data so they can make smarter, better decisions about their business. No matter your industry or specific business challenges, Ironside has the experience, perspective and agility to help transform your analytic environment.

Ironside is a data, analytics, and AI consulting and technology implementation company. We work with clients to understand their business objectives and day-to-day challenges, then employ our deep expertise in data strategy, architecture and engineering, integration, business intelligence, AI, and generative AI. We create technical solutions and practical approaches designed to drive smarter, data-driven decisions across a company and help it move further and faster toward its business goals.

• AWS Ascent Solutions
• IBM Data Analytic Services

GET IN TOUCH

781-860-8840

For inquiries: [email protected]

For HR: [email protected]

Office Address 131 Hartwell Ave Lexington, MA 02421

Corporate Mailing Address Ironside Group, LLC 101 Great Rd, Suite #130 Bedford, Massachusetts 01730

Regional offices in Atlanta, Austin, Boston, Charlotte, New York City and Orlando

>> Managed Services Support

• AscentIQ: Migrating Enterprise...
• Data Science Best Practices: Feature...
• AscentAI Assessing your AI Viability

Finance Test

Assess your knowledge on finance concepts, definitions, and calculations

This Finance Test is designed to help you assess your knowledge of important finance concepts, terminology definitions, and frequently used calculations. We strongly encourage any students who are planning or are beginning their FMVA certification program  to take this test to determine whether you will need to take the prerequisite finance courses including Reading Financial Statements ,  Introduction to Corporate Finance , and Math for Corporate Finance . This is also a useful resource for employers to examine the technical knowledge of the candidates during a finance interview.

If you pass this test with 80% or above (16 questions or more), it is likely that you have a strong background in finance and are good to go ahead with our core courses!

Finance Test Questions

• The discount rate is always higher when you invest now than in the future
• The discount rate is always higher when you invest in the future than now
• The money you have now is worth less today than an identical amount you would receive in the future
• The money you have now is worth more today than an identical amount you would receive in the future
• FV = PV/(1+r)^n
• FV = PV/(1+r)*n
• FV = PV x (1+r)^n
• FV = PV x (1+r)*n

• An investment that has no definite end and a stream of cash payments that continues forever
• A stream of cash flows that start one year from today and continue while growing by a constant growth rate
• A series of equal payments at equal time periods and guaranteed for a fixed number of years
• A series of unequal payments at equal time periods which are guaranteed for a fixed number of years

• The amount borrowed by the issuer of the bond and returned to the investors when the bond matures
• The overall return earned by the bond investor when the bond matures
• The difference between the amount borrowed by the issuer of bond and the amount returned to investors at maturity
• The size of the coupon investors receive on an annual basis
• Trading at par
• Trading at a premium
• Trading at a discount
• Trading below par
• Coupon Rate > Current Yield > Yield to Maturity
• Coupon Rate
• Coupon Rate = Current Yield = Yield to Maturity
• The cash flows that occur earlier are more valuable than cash flows that occur later
• The cash flows that occur earlier are less valuable than cash flows that occur later
• The longer the time cash flows are invested, the more valuable they are in the future
• The future value of cash flows are always higher than the present value of the cash flows
• The market value of equity of the business
• The book value of equity of the business
• The entire value of the business without giving consideration to its capital structure
• The entire value of the business considering its capital structure
• Total assets/Net debt x Cost of debt + Total assets/Equity x Cost of equity
• Net debt/Equity x Cost of debt + Equity/Net debt x Cost of equity
• Net debt x Cost of debt + Equity x Cost of equity
• Net debt/Total assets x Cost of debt + Equity/Total assets x Cost of equity
• Private equity funds are pools of capital invested in companies which represent an opportunity for high rate of return
• Exit strategies for private equity funds include Initial Public Offerings (IPOs) and leveraged buyout (LBO)
• Venture capital is an example of private equity funds
• Private equity funds are usually invested for unlimited time periods
• Best efforts
• Firm commitment
• All-or-none
• Full-purchase
• Equity > Subordinated debt > Senior debt
• Suborindated debt > Senior debt > Equity
• Senior debt > Subordinated debt > Equity
• Senior debt > Equity > Subordinated debt
• Repayment of long-term debt
• Issuance of equity
• Investments in businesses
• Payment of dividends
• Equity Capital + Retained Earnings
• Equity Capital - Total Liabilities
• Total Assets - Total Liabilities
• Current Assets - Current Liabilities
• Goodwill needs to be evaluated for impairment yearly
• Goodwill is treated as a tangible asset in accounting
• Goodwill is a result of purchasing a company for a price higher than the fair market value of the target company's net assets
• Goodwill can be comprised of things such as good reputation, loyal client base, and brand recognition

More about CFI

Thank you for visiting our Test Center and for taking this Finance Test.

CFI is the official global provider of the  Financial Modeling and Valuation Analyst (FMVA)™ certification program , designed to transform anyone into a world-class financial analyst. Enroll now to gain the skills you need to take your career to the next level. Also, see all our valuation resources.

• Share this article

Create a free account to unlock this Template

Access and download collection of free Templates to help power your productivity and performance.

Already have an account? Log in

Supercharge your skills with Premium Templates

Take your learning and productivity to the next level with our Premium Templates.

Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI's full course catalog and accredited Certification Programs.

Already have a Self-Study or Full-Immersion membership? Log in

Access Exclusive Templates

Gain unlimited access to more than 250 productivity Templates, CFI's full course catalog and accredited Certification Programs, hundreds of resources, expert reviews and support, the chance to work with real-world finance and research tools, and more.

Already have a Full-Immersion membership? Log in

Adaptability and Problem-Solving: Are your next power skills in the Financial Sector

Jessamy Amic

Table of contents.

The finance sector has seen huge disruptions over the last two decades. Developments in FinTech , cryptocurrencies, cloud computing and automation have changed the jobs – and skills requirements – of everyone in the industry, from financial managers and analysts to stockbrokers, traders, fund managers and bankers. And hot on these heals comes a slew of new regulations that have a ripple effect on an organisation’s operations.

This makes it important for anyone working in the field to upskill and reskill to stay ahead of the game and meet challenges head-on. In today’s blog, we look at two of the most important skills you need to thrive in the digital financial economy: problem-solving and adaptability, and why these are important.

Why is problem-solving important in finance?

Problem-solving is a complex soft (power) skill involving critical thinking, decision-making, creativity, and information processing and refers to your ability to handle unexpected or difficult situations and solve complex business challenges.

How problem-solving is used in finance:

• It’s essential in risk management to assess potential threats and develop mitigation strategies and contingency plans. 
• Helps in understanding customer needs and creating customer-centric solutions that enhance the user experience. 
• Makes it easier to interpret regulatory and compliance changes, navigate grey areas, and develop compliant frameworks. 
• Allows you to make ethical decisions and establish practices that align with both technological progress and societal values.
• Helps streamline processes, allocate resources efficiently, and minimise wastage to optimise resources while managing changing priorities.

How to enhance your problem-solving skills

Being a good listener, seeing problems as opportunities and thinking outside of the box are key traits of problem solvers. You can develop this skill by taking a course in problem-solving and critical thinking – it will show you how to break problems into their parts, define the root causes vs. symptoms, and establish a solutionist mindset. You can further hone this skill with these actions:

Engage design thinking

Explore the principles of “ design thinking ” – a human-centred approach to problem-solving and innovation that focuses on the solution to a problem instead of the problem itself.

Collaborate with others

Problem-solving involves creativity, a skill that is heightened when collaborating with others, exploring diverse perspectives and questioning assumptions. For instance, team members could discuss the problem during brainstorming, generate novel ideas and create as many solutions as possible.

Problem-solving through data

Data gathered from a range of sources is a problem-solver’s secret weapon. Using different techniques and tools to analyse and interpret data , such as statistics, formulas, functions, or visualisations, you can look for evidence, explanations, and hypotheses to help you solve the problem.

Why is adaptability important?

We previously wrote about the adaptability quotient , a metric that measures your ability to overcome challenges or adversity. At its core, adaptability is a combination of five other important soft skills: flexibility, proactivity, resilience, emotional intelligence, and creative and analytical thinking.

How adaptability is used in finance:

• Being able to quickly and easily adapt to new technologies means you stay relevant in a tech-driven landscape.
• Sudden market fluctuations, economic downturns, and regulatory changes require agile decision-making so you can reevaluate risk management, investment options, and market forecasts.
• You’ll need to quickly respond to changing consumer demands by customising products, services, and communication channels.
• To proactively anticipate and embrace industry changes, you must engage in lifelong learning, readily seeking out new information and skills to stay current. 
• Disruptions go hand-in-hand with setbacks and failures. Adaptable individuals are more resilient, using their flexibility to explore alternative paths.

How to become more adaptable

Being able to change your thoughts and actions to better suit a new environment is vital in the modern workplace. Here are some ways to become better at managing constant change:

Stay informed

Being adaptable hinges on staying abreast of changes in your industry or field. Do this by researching and asking questions, attending workshops and seminars, and taking on new roles and responsibilities through, e.g., stretch assignments.

Keep on learning

Personal development and continuous learning are key to handling change. Explore training in our courses in technology and innovation , or hone the important soft skills with our Power Skills Essentials and Power Skills for Team Building online short courses. Look for opportunities to learn from other people through networking or mentorship programmes.

See change and failure as opportunities

When faced with a seemingly insurmountable problem, reset and reframe your focus to find the positives in the situation. By taking a step back and viewing things less critically and more objectively, you’ll be able to overcome them more easily. And don’t be afraid to fail – learning from your mistakes is a great way to share newfound knowledge and test alternative solutions.

The synergy of problem-solving and adaptability

Adaptable employees are more likely to be observant, think creatively, experiment with new approaches and pivot when necessary. They also thrive in uncertainty and enjoy proactively seeking out challenges. These are key qualities needed to solve problems and find new solutions.

The combination of these power skills makes for more effective leadership , allowing you to guide others through change and keep your teams and employees focused and motivated through challenging periods. In fact, great leaders continuously seek out change, understanding that embracing disruption is essential to being innovative and finding novel solutions.

Future-proof your financial career with MasterStart

MasterStart has developed three key online short courses that arm you with the soft skills needed to secure your future in finance. Explore the Power Skills for Team Building and Power Skills Essentials courses, as well as our Problem-Solving and Critical Thinking course, which will ensure you grow and develop along with the fluid financial industry.

Enjoyed reading this post? Please consider sharing with friends

Featured articles.

Celebrating a Decade of MasterStart: Milestones and Achievements

Generative AI use cases for marketing, social media and strategic advising

Understanding Advanced Risk Management: A Critical Skill for the Modern Workplace

• Skills Development
• MasterStart B-BBEE Category B
• Industry Experts
• Academic Partners
• Learning & Development Trends 2024 Report
• Learner Terms and Conditions
• Terms and Conditions
• Privacy Policy
• POPIA & PAIA Manual

+27 21 201 1167

Icon Center 24 Hans Strijdom Ave Cape Town City Centre Cape Town 8000

Oblivious Investor

Low-Maintenance Investing with Index Funds and ETFs

• 2024 Tax Brackets
• 2023 Tax Brackets
• How Are S-Corps Taxed?
• How to Calculate Self-Employment Tax
• LLC vs. S-Corp vs. C-Corp
• SEP vs. SIMPLE vs. Solo 401(k)
• How to Calculate Amortization Expense
• How to Calculate Cost of Goods Sold
• How to Calculate Depreciation Expense
• Contribution Margin Formula
• Direct Costs vs. Indirect Costs
• 401k Rollover to IRA: How, Why, and Where
• What’s Your Funded Ratio?
• Why Invest in Index Funds?
• 8 Simple Portfolios
• How is Social Security Calculated?
• How Social Security Benefits Are Taxed
• When to Claim Social Security
• Social Security Strategies for Married Couples
• Deduction Bunching
• Donor-Advised Funds: What’s the Point?
• Qualified Charitable Distributions (QCDs)

Get new articles by email:

Oblivious Investor offers a free newsletter providing tips on low-maintenance investing, tax planning, and retirement planning.

Join over 20,000 email subscribers:

Articles are published every Monday. You can unsubscribe at any time.

Example Accounting Problems

These sample problems are intended as a supplement to my book Accounting Made Simple: Accounting Explained in 100 Pages or Less .

Chapter 1: The Accounting Equation

Question 1: Define the three components of the Accounting Equation.

Question 2: If a business owns a piece of real estate worth $250,000, and they owe $180,000 on a loan for that real estate, what is owners’ equity in the property?

Answer to Question 1:

• Assets: All the property owned by a business.
• Liabilities: A company’s outstanding debts.
• Owners’ Equity: The company’s ownership interests in its property after all debts have been repaid.

Answer to Question 2: $70,000

Chapter 2: The Balance Sheet

Question 1: Categorize the following accounts as to whether they’re Asset, Liability, of Owners’ Equity accounts.

• Common Stock
• Accounts Receivable
• Retained Earnings
• Notes Payable

Question 2: For each of the following assets or liabilities, state whether it is current or non-current:

• Accounts Payable
• Property, Plant, and Equipment
• Note Payable
• Common Stock: Owners’ Equity
• Accounts Receivable: Asset
• Retained Earnings: Owners’ Equity
• Cash: Asset
• Notes Payable: Liability

Answer to Question 2:

• Accounts Payable: current liability
• Cash: current asset
• Property, Plant, and Equipment: non-current asset
• Note Payable: non-current liability (Though if a portion of the note is due within the next twelve months, that portion should be shown as a current liability.)
• Inventory: current asset

Chapter 3: The Income Statement

Question 1: Given the following information, calculate ABC Corp’s Net Income:

• Sales: $260,000
• Cost of Goods Sold: $100,000
• Salaries and Wages: $20,000
• Rent Expense: $15,000
• Advertising Expense: $35,000
• Cost of repairs resulting from fire: $50,000

Question 2: Using the above information, calculate ABC Corp’s Operating Income.

Question 3: Using the above information, calculate ABC Corp’s Gross Profit.

Answer to Question 1: $40,000 (Sales of $260,000 minus $220,000 of total expenses.)

Answer to Question 2: $90,000 (Operating Income is intended to represent income from typical business operations.  As a result, expenses resulting from a fire would certainly not be included when calculating Operating Income.)

Answer to Question 3: $160,000 (Sales minus Cost of Goods Sold)

Chapter 4: The Statement of Retained Earnings

Question 1: Using the following information, calculate the ending balance in Retained Earnings:

• Beginning Retained Earnings: $10,000
• Net Income: $5,000
• Dividends Paid: $4,000

Question 2: Calculate Net Income given the following information:

• Consulting Revenue: $50,000
• Rent Expense: $5,000
• Software Licensing Fees: $3,000
• Dividends Paid: $6,000
• Advertising Expense:$20,000

Question 3: Using the following information, calculate how much was paid out in dividends during the year:

• Beginning Retained Earnings: $40,000
• Net Income: $15,000
• Ending Retained Earnings: $30,000

Answer to Question 1: $11,000

Answer to Question 2: $22,000 (Remember, dividends are not an expense! They are a distribution of net income rather than a reduction of net income.)

Answer to Question 3: $25,000

Chapter 5: The Cash Flow Statement

Question 1: Calculate cash flow from operating activities using the following information:

• Cash sales: $10,000
• Credit sales: $15,000
• Cash received from prior credit sales: $8,000
• Rent paid: $3,000
• Inventory purchased: $6,000
• Wages paid:$5,000

Question 2: Categorize the following cash flows as to whether they are operating, investing, or financing activities:

• Dividends paid to shareholders
• Interest paid on loans
• Dividends received on investments
• Purchase of new office furniture

Answer to Question 1: Net cash inflow of $4,000. (Remember not to include the $15,000 of credit sales when calculating cash flow.)

• Taxes paid: Operating Activities
• Dividends paid to shareholders: Financing Activities
• Interest paid on loans: Operating Activities (Note: Principal paid on loans is a financing activity.)
• Dividends received on investments: Operating Activities
• Cash sales: Operating Activities
• Purchase of new office furniture: Investing Activities

Chapter 6: Financial Ratios

Questions 1-3: Use the following income statement and balance sheet to answer the following questions.

Question 1: Calculate the company’s current ratio and quick ratio.

Question 2: Calculate the company’s return on assets and return on equity.

Question 3: Calculate the company’s debt ratio and debt to equity ratio.

Answer to Question 1: Current ratio = 1.5 (30,000 current assets ÷ 20,000 current liabilities). Quick ratio = 0.75 (15,000 non-inventory current assets ÷ 20,000 current liabilities).

Answer to Question 2: Return on assets = 21.4% (60,000 net income ÷ 280,000 total assets). Return on equity = 27.3% (60,000 net income ÷ 220,000 shareholders’ equity)

Answer to Question 3: Debt ratio = 21.4% (60,000 liabilities ÷ 280,000 assets). Debt to equity ratio = 27.3% (60,000 liabilities ÷ 220,000 shareholders’ equity).

Chapter 7: What is GAAP?

Question 1: Who is required to follow GAAP?

Question 2: Who creates the rules for GAAP?

Question 3: What is the purpose of Generally Accepted Accounting Principles (GAAP)?

Answer to Question 1: Publicly-traded companies. (Governmental entities are required to follow GAAP as well, but the rules that make up GAAP for governmental entities are significantly different from the rules for publicly-traded companies.)

Answer to Question 2: The Financial Accounting Standards Board (FASB)

Answer to Question 3: To purpose of GAAP is to ensure that companies’ financial statements are prepared using a similar set of rules and assumptions. This helps to enable meaningful comparisons between the financial statements of multiple companies.

Chapter 8: Debits and Credits

Questions 1-3: Show how the following transactions would affect the Accounting Equation

Question 1: James purchases a $5,000 piece of equipment.

Question 2: James writes his monthly check for rent: $3,000.

Question 3: James takes out a $25,000 loan with his bank.

Questions 4-6: Create journal entries to record the following transactions

Question 4: James purchases a $5,000 piece of equipment.

Question 5: James writes his monthly check for rent: $3,000.

Question 6: James takes out a $25,000 loan with his bank.

Answer to Question 3:

Answer to Question 4:

Answer to Question 5:

Answer to Question 6:

Chapter 9: Cash vs. Accrual

Questions 1-5: Prepare journal entries to record each of the following events.

Question 1: Tom’s Tax Prep’s monthly rent is $3,500. At the end of February, they had not yet received their monthly rent invoice.

Question 2: In early March, Tom’s Tax Prep receives and pays their rent bill for February.

Question 3: Marla, a marketing consultant, performs services for a client. The agree-upon price was $10,000, due 30 days from the date the services were completed.

Question 4: ABC Hardware makes a sale (on credit) for $2,500 worth of lumber. The lumber originally cost them $1,300.

Question 5: Julie takes out a $10,000 loan for her business. Repayment is due in one year along with $1,200 interest.

When the loan is taken out:

At the end of each month during the year:

When the loan is repaid:

Chapter 10: The Accounting Close Process

Prepare closing journal entries for Mario’s Mobile Products, which has the following end-of-year trial balance:

Alternatively, the above can be combined into one journal entry:

In either case, the following closing journal entry is also required in order to close out the Income Summary account and transfer the balance — representing the business’s net income for the period — into Retained Earnings:

Chapter 11: Other GAAP Concepts and Assumptions

Question 1: Andy runs a real estate development firm. Five years ago, he purchased a piece of land for $250,000. This year, an appraiser tells Andy that the land is worth $300,000. At what value should Andy report the land on his balance sheet? Why?

Question 2: Andy is the sole owner of his firm. In June, he moves $30,000 from his business checking account to his personal checking account. If Andy wants his financial records to be in accordance with GAAP, should he record the transaction or not? Why?

Answer to Question 1: Andy should report the land at its original cost: $250,000. Under GAAP’s “Historical Cost” assumption, assets are reported at their historical cost rather than at their current market value. This is done in order to remove subjective asset valuations from the reporting process.

Answer to Question 2: Yes, in order to be in compliance with GAAP, Andy must record the transaction. GAAP’s “Entity Assumption” considers businesses to be separate entities from their owners. As such, transactions between a business and its owners must be recorded as if they were between the business and an entirely separate party.

Chapter 12: Depreciation of Fixed Assets

Questions 1-6: Prepare journal entries to record each of the following events:

Question 1: Liliana spends $20,000 (cash) on a piece of equipment for use in her restaurant. She plans to use the straight-line method to depreciate the equipment over 5 years. She expects it to have no value at the end of the 5 years.

Question 2: After 4 years,  Liliana sells the equipment for $4,000.

Question 3: Same as question 2, except she sells the equipment for $6,000.

Question 4: Same as question 2, except she sells the equipment for $2,000.

Question 5: Oscar is a self-employed electrician. He purchases a piece of equipment for $30,000 cash. He plans to use it for 10 years, at which point he plans to sell it for approximately $4,000.He elects to use the straight-line method of depreciation.

Question 6: Sandra runs a business making embroidered linens for wedding receptions. She purchases a new piece of equipment for $15,000 in credit. She plans to use the units of production method of depreciation. The equipment is expected to produce approximately 5,000 linens, at which point it will be valueless. During the first year after buying the equipment, Sandra uses it to produce 1,500 linens.

To record the purchase:

To record depreciation every year:

(Depreciable value is $26,000. If depreciated over 10 years, that’s $2,600 depreciation per year.)

When the purchase is eventually paid for:

To record depreciation for the first year:

($15,000 depreciable value ÷ 5,000 units = $3 of depreciation per unit. 1,500 units produce x $3 per unit = $4,500 depreciation expense.)

Chapter 13: Amortization of Intangible Assets

Questions 1-2: Prepare journal entries to record each of the following events.

Question 1: Trent runs a business as an engineering consultant. He invents a new system for preparing bridges to deal with extreme weather conditions. He spends $28,000 securing a 14-year patent for his invention. He expects the system to be used for the next few decades at least.

Question 2: Tina runs a business creating medical supplies for surgeries. Her team develops a new tool for assisting in heart surgery. She spends $42,000 on getting it patented. She receives a 14-year patent, but she only expects the technology to be used for about 7 years before a newer technology comes along to replace it.

To record receiving the patent:

To record amortization expense each year:

Chapter 14: Inventory and Cost of Goods Sold

Question 1: Using the following information, calculate Cost of Goods Sold:

• Beginning Inventory: $3,000
• Ending Inventory: $4,500
• Purchases: $6,000

Question 2-4: Use the following information to answer questions 2-4.

• Beginning Inventory: 1,000 units at $4/unit.
• Purchases: 600 units at $5/unit.
• Ending Inventory: 900 units.

Question 2: Calculate Cost of Goods Sold using First-In-First-Out (FIFO)

Question 3: Calculate Cost of Goods Sold using Last-In-First-Out (LIFO)

Question 4: Calculate Cost of Goods Sold using the Average Cost Method

Answer to Question 1: CoGS = $4,500

Answer to Question 2: CoGS = $2,800

Explanation:

The first thing to calculate is how many units were sold. In this case, 700 units must have been sold. Now we just have to figure out the cost for each unit of sold inventory.

Using FIFO, we assume that the first units purchased were the first units sold. Therefore, all 700 sold units must have been from the older ($4 per unit) inventory. 700 units x $4 per unit = $2,800

Answer to Question 3: CoGS =$3,400

Again, we know that 700 units were sold. Under LIFO, we assume that the most recently purchased units are sold first. Therefore, all 600 of the $5 units must have been sold. The remaining 100 sold units must have been from the older ($4/unit) inventory.

(600 units x $5 per unit) + (100 units x $4 per unit) = $3,400

Answer to Question 4: CoGS =$3,062.50

Using the Average Cost Method, we have to calculate the average cost per unit of inventory. We know that there were a total of 1,600 units available for sale and that–in total–they cost $7,000. That gives us an average cost per unit of $4.38 (or $4.375 to be precise).

To calculate CoGS, we multiply this average cost per unit by the number of units sold. 700 units x $4.375 per unit = $3,062.50

To Learn More, Check Out the Book:

• How to read and prepare financial statements
• Preparing journal entries with debits and credits
• Cash method vs. accrual method
• Click here to see the full list .
• Read other reviews on Amazon

Click here to read more, or enter your email address in the blue form to the left to receive free updates.

Recommended Reading

Accounting Made Simple: Accounting and Bookkeeping Explained in 100 Pages or Less See it on Amazon Read customer reviews on Amazon

My Latest Books

After the Death of Your Spouse: Next Financial Steps for Surviving Spouses See it on Amazon

More than Enough: A Brief Guide to the Questions That Arise After Realizing You Have More Than You Need See it on Amazon

• Create an account

• Business Analyst
• Mathematical Optimization
• Risk Analysis and Simulation
• Data Science Machine Learning
• Business Rules / Decision Tables
• Deployment - Business Value
• By Functional Area
• By Industry
• Analytic Solver Overview
• Analytic Solver Optimization
• Analytic Solver Simulation
• Analytic Solver Data Science
• Analytic Solver Academy
• RASON Decision Services
• Solver Engines
• Optimization and Simulation
• Forecasting and Data Mining
• Case Studies
• Optimization Webinar
• Simulation Webinar
• Data Science Webinar
• Optimization Tutorials
• Simulation Tutorials
• Data Science Tutorials
• Finance Examples
• Investment Examples
• Production Examples
• Distribution Examples
• Purchasing Examples
• Scheduling Examples
• Video Demos
• Technical Support
• Consulting Help
• Academy Courses
• Excel Solver Help
• Data Science Help
• Excel User Guides
• SDK User Guides
• Recommended Books
• Product Catalog
• Types of Licenses
• License Agreement
• Limited Warranty
• Standard vs Custom Terms
• Invoicing Payment

Optimization Solutions - Corporate Finance Examples

• Excel Examples

This free workbook contains seven example models from the area of corporate finance.  Click the model names to display each worksheet model in your browser.

You can use the worksheet that most closely models your situation as a starting point.  Solving your real problem may require "scaling up" the model to include more variables and constraints -- but rest assured that you can solve your full-size problem with the power of our Excel Solver upgrades , even if it requires hundreds of thousands of variables!

To download and save the workbook if you are using Excel 2007 or later:

• Right-click Finance Examples.xlsx and select Save Target As... from the context menu.

To download and save the workbook if you are using Excel 2003 or earlier:

• Right-click Finance Examples.xls and select Save Target As... from the context menu. 

You can then actually solve these small example models in Excel, using the standard Excel Solver, Analytic Solver Upgrade or Analytic Solver Optimization .

Or, if you would prefer to view the examples in your browser, rather than in Excel, click the links below.

• Finance - Working Capital Management :  Invest in 1-month, 3-month, and 6-month CDs to maximize interest while meeting cash requirements
• Budget1 and Budget2 - Capital Budgeting :  Choose a combination of capital projects to maximize overall  NPV (Net Present Value)
• Invent1 and Invent2 - Inventory Management :  Compare inventory stocking and reordering policies with the EOQ (Economic Order Quantity) model
• Lockbox - Cash Management :  Determine where to locate lockboxes to minimize the "float" or interest lost to due mailing delays
• Open - Capacity Planning :  Determine which plants or warehouses should be opened or closed

On each example worksheet, read the description at the bottom, then select Solver on the Data tab in Excel 2007, or Tools Solver... from the menu in Excel 2003.  When you see the Solver Parameters dialog box, click the Solve button to find the optimal solution.

We're here to help -- contact us if you'd like more information or advice on your application.

< Back to Examples Overview

• The Biggest Accounting Problems and...

The Biggest Accounting Problems and How to Overcome Them

Table of Content

Join Our 100,000+ Community

Sign up for latest finance stories.

Key Takeaways

• Accounting problems and challenges involve difficulties in managing financial transactions, records, and reporting due to factors like outdated systems, regulations, and human error.
• Streamline multi-currency management with advanced accounting software and international finance expertise to overcome complexities and ensure accurate financial processes.
• Modernize accounting operations by embracing technology and automation to eliminate inefficiencies caused by outdated systems and manual processes, ensuring accurate financial management and improved productivity.

Introduction 

In today’s dynamic business landscape, accounting professionals encounter a multitude of financial challenges and complexities. From outdated systems to regulatory compliance issues, these obstacles can impede financial progress and hinder business growth.

Navigating the intricacies of accounting is crucial for running a successful business, but overcoming these challenges can be daunting. That’s why we’ve compiled a list of the top 10 accounting problems and challenges, along with simple solutions to eliminate them. By addressing these issues head-on, your business can stay on track for success.

What Are Accounting Problems and Challenges?

Accounting problems and challenges refer to difficulties or obstacles encountered in the process of managing financial transactions, records, and reporting within an organization. These challenges can arise due to various factors, such as outdated systems, complex regulations, human error, or inadequate internal controls.

For example, a company may face challenges in accurately recording transactions, reconciling accounts, or complying with changing accounting standards and regulations. These problems can impact the reliability and accuracy of financial information, potentially leading to errors in financial statements and reports.

Addressing accounting problems and challenges requires proactive measures, including implementing efficient systems and processes, staying updated on regulatory changes, enhancing internal controls, and providing adequate training to accounting staff.

The Most Common Accounting Problems and Challenges

There’s a famous quote that you must have read somewhere, and it is relevant to this topic:

“Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.”

Mistakes are valuable lessons that we must cherish and learn from. However, it is even more important to identify the mistakes made by businesses or individuals like us, in order to gain insights on how to avoid them.

Keeping this in mind, we have compiled a comprehensive list of the top 7 accounting challenges that you are likely to encounter, along with effective solutions to overcome them.

Top 7 Accounting Problems and Solutions

1. difficulty in managing multiple currencies.

Accounting across borders presents a formidable challenge for businesses. Managing multiple currencies introduces complexities due to fluctuating exchange rates and intricate currency conversion calculations. These factors can complicate financial reporting and analysis, leading to potential errors and inefficiencies in accounting processes.

Solution:  To address this accounting challenge effectively, businesses can leverage advanced accounting software equipped to handle multi-currency transactions seamlessly. These tools automate currency conversions and provide real-time updates on exchange rates, ensuring accurate and efficient accounting processes. Additionally, seeking expertise in international finance and implementing hedging strategies can help mitigate currency risks and optimize financial management across borders.

2. Payroll errors

With the rapid evolution of the employment landscape, businesses are facing new challenges in managing payroll efficiently. The shift towards remote work and diverse geographical locations has introduced complexities in navigating tax laws and employment regulations, adding to the payroll management burden.

Research indicates that 54% of companies acknowledge the need for enhancements in their current payroll policies and practices, reflecting the widespread recognition of existing payroll challenges.

Payroll errors can have significant repercussions for businesses, ranging from financial losses to legal penalties, not to mention the adverse impact on employee morale and productivity. Despite the critical importance of accurate payroll processing, statistics show that 54% of Americans have encountered pay-related issues.

Solution:  To mitigate payroll errors, it’s essential to prioritize regular payroll reconciliation after each payroll cycle and promptly address any discrepancies with the assistance of an accountant. Moreover, leveraging automated payroll solutions can streamline processes, minimize errors, and ensure adherence to pertinent laws and regulations.

3. Cash flow management

Maintaining a healthy cash flow is crucial for the survival and growth of any business. Did you know that  82%  of all businesses fail due to poor cash flow management? Despite its importance, many businesses struggle with cash flow, leading to liquidity issues and potential insolvency.

Solution:  Investing in automation is the most effective way to manage cash flow and monitor your business’s financial performance. By leveraging automated  cash flow management tools , you can streamline treasury operations and reduce the need for manual tasks. This enables financial professionals to focus on liquidity and risk management, ultimately enhancing team efficiency.

4. Delayed accounts receivable collection

Delayed accounts receivable collection poses a significant accounting problem for businesses, impacting cash flow and operational efficiency. Late payments from customers disrupt financial stability and hinder the ability to meet obligations, leading to increased financial strain.

Solution:  To address this  problem of accounting, businesses must implement strategic accounts receivable management practices. This includes establishing clear payment terms and communicating them upfront to set expectations with customers. Additionally, prompt follow-up on overdue payments and incentives for early settlement can expedite collections and improve cash flow. By adopting a proactive approach to accounts receivable management, businesses can enhance financial stability and operational effectiveness.

5. Lack of internal controls

Internal controls are policies and procedures designed to safeguard assets, prevent fraud, and ensure accurate financial reporting. However, many businesses lack robust internal controls, leaving them vulnerable to errors and fraudulent activities.

Solution:  Develop and implement a comprehensive system of internal controls tailored to your business’s specific needs. This may include segregation of duties, regular audits, and implementing checks and balances throughout the organization.

6. Regulatory compliance and reporting burdens

Navigating the ever-evolving landscape of regulatory compliance and reporting requirements can be a daunting task for accounting professionals. With complex regulations such as GAAP and IFRS constantly evolving, staying compliant can feel like an uphill battle.

Solution:  To address these challenges effectively, businesses can implement solutions such as investing in advanced accounting software, providing regular training for financial professionals on regulatory changes, ensuring compliance with GAAP standards, and maintaining transparency in operations. By proactively addressing regulatory compliance issues and reporting burdens, businesses can enhance their financial reporting accuracy, compliance, and overall operational efficiency.

7. Outdated systems and manual processes

Technological advancements have transformed the accounting landscape, rendering outdated systems and manual processes inefficient. Despite this, finance teams, often considered the lifeblood of any successful business, still rely on obsolete systems and manual methods, struggling with technological obsolescence. Many of these teams continue to manually process and send payments, collect checks, reconcile financial data from a multitude of sources, and match a large volume of transactions.

This reliance on outdated methods hampers their ability to deliver accurate results and leads to hours of lost time. Without streamlined automation and digital integration, tasks such as data entry, reconciliation, and reporting become laborious and error-prone.

Solution:  To overcome this  issue in accounting, it’s imperative to embrace technology and automation. Regularly assess and upgrade accounting systems and software to stay current with technological advancements. Explore cloud-based solutions that offer scalability, automation, and real-time data access. Additionally, provide training and support to employees to ensure smooth adoption of new technologies.

By harnessing the power of innovative  accounting solutions  like HighRadius, accounting heads and managers can streamline processes and eliminate manual errors. HighRadius offers cutting-edge automation tools that seamlessly integrate with existing systems, revolutionizing the way businesses manage their finances.

1. How do you resolve accounting issues?

Resolving accounting issues requires a systematic approach, starting with identifying the root cause through audits and reviewing financial records. Implementing corrective measures in line with accounting standards, such as adjusting entries or implementing internal controls, is crucial. Also, effective communication with stakeholders is essential to ensure transparency and alignment.

2. What constitutes the most challenging aspect of an accountant’s role?

The role of an accountant comes with various challenges, but one of the most significant is striking the right balance between accuracy and efficiency while also meeting tight deadlines and managing a high volume of transactions.

3. How can we solve accounting problems?

Solving accounting problems demands a multifaceted approach. It starts with a thorough analysis followed by the implementation of appropriate solutions. Additionally, leveraging technology can streamline processes and help prevent future issues.

Related Resources

Gartner’s Top 10 Priorities CFOs Can’t Afford to Miss in 2023

IoT in Finance: Benefits and Use Cases

Holistic Financial Solution vs. Best-of-Breed Solutions for Finance Function Transformation

Streamline your order-to-cash operations with highradius.

Automate invoicing, collections, deduction, and credit risk management with our AI-powered AR suite and experience enhanced cash flow and lower DSO & bad debt

Please fill in the details below

Get the hottest Accounts Receivable stories

Delivered straight to your inbox.

• Order To Cash
• Collections Management
• Cash Application Management
• Deductions Management
• Credit Management
• Electronic Invoicing
• B2B Payments
• Payment Gateway
• Surcharge Management
• Interchange Fee Optimizer
• Payment Gateway For SAP
• Record To Report
• Financial Close Management
• Account Reconciliation
• Anomaly Management
• Accounts Payable Automation
• Treasury & Risk
• Cash Management
• Cash Forecasting
• Treasury Payments
• Learn & Transform
• Whitepapers
• Courses & Certifications
• Why Choose Us
• Data Sheets
• Case Studies
• Analyst Reports
• Integration Capabilities
• Partner Ecosystem
• Speed to Value
• Company Overview
• Leadership Team
• Upcoming Events
• Schedule a Demo
• Privacy Policy

HighRadius Corporation 2107 CityWest Blvd, Suite 1100, Houston, TX 77042

We have seen financial services costs decline by $2.5M while the volume, quality, and productivity increase.

Colleen Zdrojewski

Trusted By 800+ Global Businesses