In this episode of FinPod, we introduce our latest course: Making Effective Business Decisions—designed to help FP&A professionals and finance teams evaluate capital investments.

We walk through the course structure, including a four-step decision-making framework (idea generation, analysis, planning, and monitoring), NPV, IRR, and Excel Solver to prioritize projects under budget constraints. We also explore how this course differs from enterprise-level valuation training by focusing on granular, real-world decisions faced by FP&A teams—from equipment purchases to growth investments.

Whether you’re in financial planning and analysis or want to strengthen your strategic finance skills, this episode looks inside one of our most practical new courses.

Transcript

Meeyeon (00:13)
Hi everyone and welcome to another episode of What’s New at CFI. It’s been a while but I’ve been joined by my colleague Jeff Schmidt here who you’re very familiar with and we’re going to be talking about our latest course today which is Making Effective Business Decisions, something that’s applicable to basically anyone and everyone in finance and further beyond finance.

But Jeff, what’s this course all about? Tell us about how you’ve enjoyed it, authoring the course and take us through what our latest offering is.

Jeff Schmidt (00:47)
lot of fun with this course. It’s definitely it’s really for anybody but this course is designed for FP&A professionals and it will be part of our FP&A curriculum going forward, but

It’s geared towards understanding kind of investment decision making principles and a process. we go into what’s the actual process and we outline it in four steps. So it’s basically idea generation, analysis, planning and monitoring. And then we talk about the different types of investments.

So, you can have maintenance investments and you have growth investments. And we get further into types of maintenance investments, different types of growth investments. And we try to give, again, a good process in terms of how, if you were asked to do this at your company, let’s say you’re an FP&A analyst, this is actually how I begin the course. Say, okay, management comes to you and says they need you to figure out if they should purchase this piece of equipment, for instance.

How do you do that? Well, without some sort of guided process, it can be a little overwhelming. And so we have our four-step process, and when we talk about what types of investments need more analysis versus less analysis, we get into a kind of risk identification. So we talk about a lot of the risks. Again, it’s fairly high level because…

One thing with FP&A, one company’s FP&A team is going to be different than another company’s FP&A. So one company, FP&A, will do everything. They’ll even do due diligence in mergers and acquisitions, whereas another company might only forecast employee cost or headcount

and get really granular in there. So we have to speak to it at a bit of a high level. We talk about lot of the risks. So you just have general market risk. What could competitors do? What are borrowing costs or interest rates? And then we get into project risk and things like overestimation bias. So when you’re working through a project, lot of times revenues are…

Probably too high and costs are probably too low. The timeline’s probably too aggressive. Any sort of project tends to actually be longer than is always forecast. So we talk about things like that. So, but we do it in the guise of…

Not every decision needs a full-blown analysis. I think the example I use in the course is if you’re hiring a part-time employee to help sort mail in the mailroom, you don’t need to do a discounted cash flow analysis for that. So our focus is really on larger capital allocation decisions.

Meeyeon (03:48)
Yeah. And it’ll be so helpful because

I find that with FP&A like you said, it’s so dependent on the organization you work for. Like every, every company will have like an FP&A role. But for example, like Google will have an FP&A team that’s dedicated to each product. So they’ll have Android, they’ll have Google cloud, and they might have another layer for enterprise. But if you’re at, know, let’s say for example, CFI, when it was first starting, you know, several years ago, it was kind of

Jeff Schmidt (03:56)
Hmm.

Meeyeon (04:17)
like co-founder, CEO, and then like an analyst that was like, I don’t know, FP&A everything. And so the skillset that they need is very broad at the same time as like very narrow. And so this is going to be a great course for basically kind of anyone because it’s very, it’s general, but specific at the same time. And so with regards to the analytical tools that an FP&A professional will need for this.

Jeff Schmidt (04:25)
Mm-hmm.

Mm-hmm.

Meeyeon (04:46)
Tell us a little bit about that.

Jeff Schmidt (04:48)
So we spend most of our time calculating net present value, internal rate of return around those. Those are universal, the most common metrics used in evaluating any business decision. So when I was on the corporate side,

and we had to do this type of analysis, was NPV and or IRR. Every once in a while you get into payback. We actually don’t cover payback in this course. We have it other courses. The reason why we decided not to cover it in this course is payback has a lot of weaknesses. It doesn’t consider the time value of money. So we don’t technically cover that here.

We do also talk about some of the weaknesses with NPV and IRR and how they might give conflicting rankings. So what happens if you have two projects, you can only invest in one, IRR is higher

in one but the NPV is higher in the other. And we say, okay, generally you should use the NPV because that’s the, at least the theoretical increase in value that the company would receive when they undertake the proposed investment. So we get into that and one of the cool things we do is that when you have a lot of projects and you have a budget, so you’re constrained by your budget of course, but you have multiple projects.

And so the example in the course, we have four projects and you can choose one, two, three or four or a combination of the projects. so just with four individual projects, that results in 10 different combinations. And so you can do it manually and figure out which one is the best and which one comes in at or under budget with the highest value add.

But we included using Excel’s solver tools. It’s an add-in, and it’s a free add-in. You just have to install it. And I show learners how to install it properly.

Meeyeon (06:56)
And that’s like a super, super important thing to use. feel like, cause I mean, I’ve used it so many times and I’m not an FP&A. I think it’s a very universal tool to use.

Jeff Schmidt (07:06)
Yeah, the great thing about it is that it can take all of those combinations and it can synthesize it. You could say, you want the maximum. And our example is we want the maximum net present value subject to the budget constraint. And so it solves, goes in, and chooses the correct ones. And again, that’s only with like 10. So you have your four individual projects. And then

just the way we set up the math is that you have six where it’s project one plus project two or project two plus project three, stuff like that. So you end up with 10. But imagine if you’re at a company and you’ve got 50 projects. I don’t even know how many, what the combinations could possibly be. And so doing that manually would be really, really difficult. Using solver really helps.

Meeyeon (08:03)
And then in that vein, what else do you think generally an FP&A team should consider when evaluating a business decision? Because I recently did a podcast with a longtime friend of mine named Mimi Hu. And we published a podcast, I want to say last week, and she’s been in FP&A for the past 10-plus years. She’s a director at a major retail company here in Canada.

The way that she describes FP&A is like, at the end of the day, it’s actually just like, don’t, there’s not any like fancy tools or extremely complicated calculations you need to do. It’s really truly about just critical thinking, logical thinking, and just presenting those kind of analyses in legible ways and trying to understand like the story behind the numbers. That’s a, I know that phrase is overused, but she said the

base, like the most important thing is just logical thinking and critical analysis. And so what else do you think an FP&A team should consider when evaluating business decisions?

Jeff Schmidt (09:13)
Sure, first off, I should clarify a little bit. even though we’re doing NPV and IRR, we’re not doing it at the corporate level. So a lot of our courses at CFI, especially in the FMVA program where you do the discounted cashflow model, that’s a corporate level evaluation. And in many ways, a corporate level evaluation is a lot easier than what an FP&A analyst would have to do and say, okay, should we…

Invest in Project A. And what does that entail? So we have to be a little bit more granular when it comes to evaluating some of these decisions. So we have to think about things like sunk costs. Well, you don’t want to include sunk costs because they cannot be recovered. But what about opportunity costs? And we discuss how opportunity costs show up.

You know, it shows up in a discount rate or a hurdle rate, but it can also result in cash flows as well. We talk about things like company overhead. So if you have a company, you get supported by the executive team, the marketing, operations, you name it. And those costs are often pushed down

to a business unit. So if a business unit is trying to figure out, what should we, you know, how do we grow this business unit? What do we do about those allocated costs? How do they, how do those factor into

the invest or do not invest decision? So we talk about things like that. We talk about what if there’s excess capacity, so unused capacity somewhere. How should that be factored into the analysis? So we try to get as granular as possible because again, as an FP&A analyst, you’re gonna have more access to data and you’re gonna have to think about…

Some really complicated things again, allocated overhead is one of them. you know, again, just using a simple machine replacement scenario. Machine goes down. What are the opportunity costs? Well, there’s a couple, right? There’s some cash flows you’re going to miss out on. And there’s also kind of a cost of capital 

issue because you have to spend money to invest in the new machine. it’s more granular than our usual evaluation courses that you might have seen in the FMVA program.

Meeyeon (11:46)
Yeah, I think it’ll be interesting to have a course that focuses on project level, like MPV IRR analysis, rather than enterprise level, because I think this is probably the first course that’s going to go over that. But it sounds extremely practical. I think this is going to be a really hands on course for everyone. And I can’t wait for everyone to take it. I think this is going to be really additive to our FP&A curriculum. And if there is…

Jeff Schmidt (11:52)
Mm-hmm.

Meeyeon (12:14)
One tip you could give our learners as they go into this course or one thing that you hope that they’ll get out of it. Let’s close out on that note.

Jeff Schmidt (12:23)
I think it’s it’s less about even though we do get into NBV and IRR and we do Excel work like we do in most of our courses I think the key takeaway is less the Excel in this particular course and more about the critical thinking okay if I make this decision what will happen.

What happens if the decision is a bad one? Is there a way to scale back? So we talk about optionality, like the option to expand or the option to contract.

Meeyeon (13:07)
And like recover.

Jeff Schmidt (13:07)
Investments

is exactly so we get into that so it really gets into kind of critical thinking about okay how do I think about working capital for you know a finite life project you know in a regular DCF at the enterprise value at the enterprise level you can’t you include the working capital the changes work capital when you do a DCF but you don’t really think about. Okay, well,

at some point, a project is going to end. What happens to working capital? What happens to any of our, you know, what happens to that invested capital? Again, if it’s a machine, what happens at the end of its useful life? Is there a salvage value? Little things like that make it quite different from your regular DCF.

Meeyeon (13:56)
And so this is going to be, this is what really, I want to say.

I don’t know if innovative is the right word, but it’s going to be a very interesting analysis-based course that is quite different from what we have in FMVA. So I’m excited for everyone to take it. And I hope that if you do, you’ll join us on our community page and let us know what you think. And yeah, really, really looking forward to everyone being able to take this course.

And until next time, everyone, we’ll see you later.