Financial Management Capability Model – What Is It and Why Should You Care?
OTUS Group is proud to have recently completed a Financial Management Capability Assessment for the Government of Nunavut (GN) drawing upon the Office of the Auditor General of Canada’s (OAG) Financial Management Capability Model (FMCM). The project will help the GN to set a direction to strengthen its financial management which is important because a capable and mature financial management function is essential to help the GN to make decisions on competing priorities.
The post outlines what a Capability Maturity Model (CMM) is, describes the OAG’s FMCM, and describes how you can get value from an FMCM.
What is a Capability Maturity Model?
A CMM is a tool that can be used to benchmark a process and help an organization to move through a series of defined levels to improve it.
The CMM was originally developed by the Software Engineering Institute (SEI) at Carnegie Mellon University during the 1980’s through a study funded by the U.S. Airforce in an attempt to determine why contracted software projects were running over budget and being delivered late. The initial purpose of the CMM was to objectively assess the capability of software contractors when awarding a contract.
Initially focused on software engineering, the CMM has been adapted to other areas, including, for example, human resource management, project management and financial management.
Financial Management Capability Model – Office of the Auditor General
The Financial Management Capability Model (FMCM) was developed by the OAG as a self-assessment tool for use in assessing the level of financial management in government institutions and to provide a road map for improvement. It is based on an adaptation of the SEI’s “Software Capability Maturity Model”.
It provides a framework that describes the key elements of effective financial management, and sets out a path that an organization can follow to develop progressively more sophisticated financial management practices.
The FMCM can be used as a diagnostic tool that can help increase the confidence level that a given financial management function is adequate. If a given financial management function is not adequate, the FMCM can help identify the steps involved to advance the function to the appropriate level of maturity.
The FMCM shows the steps in progressing from a level of financial management typical of a start-up organization (Level 1) to the strong, effective, financial management capabilities associated with a more mature and complex organization (Level 5).
The model illustrates the stages through which an organization can evolve as it defines, implements, measures, controls, and improves its financial management processes. These steps have been organized into five progressive maturity levels (see Exhibit 1).
Exhibit 1 – Financial Capability Model: Maturity Levels
Each level represents a well-defined stage toward developing a mature financial management regime:
- Start-up. Organization that has not yet established its key financial management policies and practices or its control framework.
- Control. Adequate resources are available, assets are safeguarded, data are reliable, and operations are monitored and controlled and conducted with prudence and probity.
- Information. The focus is on integrating the organization’s financial and non-financial systems, practices and procedures to provide information that can be used to manage resources with prudence and probity and in an efficient and economical manner.
- Managed. The information developed at Level 3 is used to balance two competing objectives: using resources economically and efficiently, and producing cost-effective results. The organization understands the financial implications of the choices and trade-offs it makes between these objectives.
- Optimizing. Information from inside and outside the organization is used to set and achieve strategic targets or objectives for improvement. Achieving these targets enables the organization to increase the value of its services or products to clients or consumers.
How Can You Get Value From a Financial Management Capability Model?
An FMCM can help you identify areas most in need of improvement in your financial management function, determine objectives, and develop a plan to reach your goals. Without a benchmark, it is difficult to establish the gaps that might exist between your current level of financial management maturity and your desired future state.
Are you confident that your financial management function is sufficiently mature to support your organization in meeting its objectives? OTUS Group has helped numerous organizations across multiple sectors to enhance their financial management maturity.
Take a look at what our clients say about us here.