There is a lot of ambiguity and confusion about finance capabilities, competencies, and capacity. Many folks, who are qualified professionals in their own right, make the mistake of using these terms – finance capabilities, competencies, and capacity interchangeably. Of course, if the receiving party of your communication knows precisely what you mean, generally it is OK to use the standard terms in your enterprise.
However, when you are trying to define what these terms mean, either for your data dictionary or your IT teams as technology enablement requirements, a more precise definition and clarity about these terms will be invaluable.
Difference between Finance Capabilities, Competencies, and Capacity:
In the enterprise context, particularly as it relates to the business/IT intersection, Finance Capabilities mean “What Finance function does and has the ability to do” and is an encapsulation of the essence of finance functions at an abstract level. Finance Capabilities are an integral part of the overall enterprise capabilities, and these are a part of the business architecture nomenclature. Practitioners also use other terms like Finance Capability, Finance Business Capability, or the collective grouping as Finance Capabilities Model or Finance Capabilities Map. For example, “Capital Allocation” or “Risk Management” are capabilities which are typically a part of a finance capabilities model.
Finance Competencies relate to the skills and attitudes of the people involved in the finance function in an enterprise. For example, “Analyzing a Balance Sheet” or “Modeling in Excel” are competencies that people may have. Of course, there are generic competencies as well, such as “Ability to listen” or “Being Collaborative.”
Financial Capacity: There are two variations which most people use – Financial Capacity and Finance Capacity. Financial Capacity is the ability of the person or the enterprise to shoulder a fiscal responsibility. For example, “Do you have the financial capacity to shoulder the second mortgage?” or in a corporate context, “We don’t have the financial capacity to make this acquisition.”
There you have it. The difference between Finance capabilities, competencies, and capacity. So, next time you talk to your IT folks understand what the term “Finance capability or finance capabilities” may mean for them, and you.