FINANCIAL  MANAGEMENT

 

 

Issue 

 

The chief determinant of what an organisation will become in the future is the investment it makes today. The generation and evaluation of creative investment proposals is the ongoing responsibility of all managers throughout the organisation. In well-managed companies the process starts at a strategic level with senior management specifying the environment in which the organisation will compete and determining the means of competition. Operating managers then translate these strategic goals into concrete action plans involving specific investment proposals. A key aspect of this process is the financial evaluation of investment proposals, or what is frequently called capital budgeting. The achievement of an objective generally requires the outlay of money today in expectation of some future benefits. How do we decide, first, whether the anticipated future benefits are large enough, given the risks, to justify the current expenditure and, second, whether the proposed investment is the most cost-effective way to achieve the objective?

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Issue

 

When we need more capital to fund the acquisition of resources necessary to expand our markets, or increase the products or services we supply, or simply to cover the increasing operating requirements as our organisation grows, we can cast our net wider in search of the necessary funds. Whether we take in additional equity capital, or look to finance our growth with debt finance, the investors we approach will need to be sure that our organisation represents a sound investment for them. An organisation's finances and its operations are integrally connected. Our financial structure is fundamentally shaped by our activities, methods of operation and competitive strategy. The reverse is also true. Decisions that appear to be simply financial in nature may significantly affect our operations. This is particularly appropriate when we are considering the source of additional capital and we must do all we can to ensure we maintain a balance that is in the best interests of our organisation. What should we consider when making that decision?

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Issue

 

What do we mean by cost? In the context of an organisation, cost may be explained as the valuation in money terms of the effort, material, use of long-lived resources, consumption of utilities, wasted time, risks incurred, and opportunities foregone in making a product or service available to our customers. Let's be very clear though about one thing. Knowing the cost of doing business, in itself, will not enable us to differentiate ourselves from our competitors. How we go about our business – our knowledge of all things relative to our organisation – is what will make our organisation, our products, and our service solutions unique. The way we manage and lead our people, and how we organize our operations will determine whether we succeed. This requires us to make a choice among alternatives, which may be a daunting task. It involves a decision-making process that requires an understanding of the costs attaching to each of the alternatives. To be better prepared for making decisions like this we need to know more about the different measures of cost, about cost behaviour patterns, and about the different ways we are able to establish the total cost of a product or service. Armed with this better understanding, we shall find out more about how we may use our knowledge of costs to assist in choosing between the alternatives we are faced with on a day-to-day basis.

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Issue

 

Organisational performance should never be evaluated in isolation. A number of predetermined performance targets enable the effectiveness of activities to be evaluated. Various measurement criteria may be adopted but the important performance indicators are those that identify the degree of achievement of our strategic objectives. This means that we must have suitable measures in place, which must reflect the core values of our organisation. More importantly, the monitoring and reporting mechanisms we use should be designed to focus people's behaviour on the journey toward achieving our objectives. How is it best to achieve this?

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