Question

Explain why Finance and HR should have a close working relationship.

Answer 1

Human Resources and Finance are two distinct business functions. HR and finance's ability to work together and understand each other's role can be critical to your organization.

Finance helps allocate resources to support an organization's goals, maintaining a balance between costs and revenue.

HR hires, recruits and motivates people to advance those same goals.This part of HR is often an organization's biggest expense.

While they are two different operations, it's important to have collaboration between HR and finance within an organization. Without that, it will be difficult for those respective entities to fully support organizational objectives.

Businesses must ensure that there is a free flow of information across departments, especially performance data to ensure that the overall goals and objectives are achieved.

The place to start is finding out how, exactly, the organization earns money. For HR in particular, it's also important to understand how money moves around an organization. Knowing this can help both departments understand where they fit into the organization's plan as it relates to earning revenue. With that understanding comes an opportunity to develop a more effective relationship across silos.

For human resources professionals, it's important to have a solid understanding of the financial aspects of running a business. Key subject areas include budgeting and managing for profitability (billing, write-offs, etc.), as well as reading and understanding financial statements. One key complaint many organizational leaders have is that the HR group does not have a good understanding of the business, how the business earns money, or how to have a meaningful conversation about the financial profile of the business. Learning and applying these concepts is critical in order to foster a healthy HR and finance collaboration.

For finance, some HR specific measures to understand would be cost-to-hire, compensation, benefits and labor laws. It would also be important to understand workforce planning. Not only is it about headcount, but also how critical investment in human capital (e.g., training and development, rewards and recognition programs) produce tangible bottom line results.

Breaking down the barriers between the human resources and finance functions can reap a number of benefits for an organization. When there is an understanding of the connections to the firm's overall strategic vision, comprehension of each other's purpose, and critical evaluation of their shared value in supporting that vision, an HR and finance collaboration can be truly effective.