Techniques and Approaches for Effective Decision Making in Financial Management

This article discusses the range of techniques and approaches used in decision making in financial management. It explores the factors that contribute to effective decision making and the value of management accounting techniques in cost control and maximizing shareholder value. The article also covers the techniques for fraud detection and the approach to ethical decision making in financial management.

Financial Management

INTRODUCTION
Financial management purpose is to evaluate the financial activities of the organizations and
issue which affect the business. By using financial management framework, managers able to
produce financial reports for the future decision making process. It leads to the growth of a
corporation and improve the production performance as well (Abrahamsen And et.al., 2018). It
allows the business to take effective financial decisions. The financial judgment would affect the
operational activities since there is a close relationship with different departments of the
organization such as marketing, sales staff etc. Financial managers must track everyday
operating records, such as receivables and payments, to ensure the organisation has adequate
cash to fulfil its obligations. The financial advisor must research carefully over a broader time
period whether and where the company will open a new fabrication plant. The finance managers
may also recommend the most effective or useful means of funding the project, collecting the
funds and then overseeing the overall performance and return of the project. This assessment
based on continental clothing company which is UK based company. This report based on two
different scenarios where first part is based on different approaches used in decision making
process and another one is based on the performances which are used for ling term sustainability.
MAIN BODY
Scenario A
1. Explain range of techniques, approaches and the factors which contribute for effective
decision making
Approaches which contributes in decision making process in context of the organization:
 Knowledge based approach: It recognizing information as a resource for achieving
productivity in companies; intelligence implies a strategy for managing and maximizing
performance in organizations. Providing a knowledge-based approach is essential for a
business enterprise, so that the decisions taken for reform have some empirical basis
(BLŠTÁKOVÁ And et.al., 2019). It has a massive impact on the company's managerial
decision-making process. Management of continental clothing company can use this
approach to make effective decisions on the basis of the collected knowledge.
 Formal or Informal approach: This allows the organisation's decision-making process
to make coherent strategy (de Azevedo And et.al., 2020). This strategy avoids the rational
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decision and provides explanations of the factors which required for making decision. It
helps in increasing the possibility of selecting strategies that fulfil the company's various
stakeholder requirements. The uncertainty includes with the operational activities is
reduced by logical alternatives being available. The approach allows for a faster
revaluation of the partners' requirements, expectations or changes in objectives. It helps
companies make more informed choices about all facets.
Techniques used for decision making process:
 T-Chart: The graph is constructed to maintain plus and minus options (Arnaboldi,
Lapsley and Steccolini, 2015). This means the consideration is taken of both negative and
positive considerations when making important decisions
 Decision Matrix: Managers should evaluate chosen policy at the time of taking decisions
(Chand, 2019). Within this matrix, all options are put in the table's first, and the factors
affecting the first segment decisions. This involves rating and weighing criteria according
to their importance and choosing the absolute best choices.
 Ratio analysis: This benefit from the details given in these financial statements when
taking decisions. Effective use of accounting ratios allows managers to share knowledge
that is important and purposeful for decision makers to balance organization success
within the business (Fich, Nguyen and Officer, 2018). This analysis is used to measure
the organizational profitability, efficiency, liquidity performance etc. It further helps the
managers of continental clothing to use such information in the effective decision making
process.
 Financial analysis: In relation to business, financial information is essential for the
managers to make strategies and it further helps in decision making process (Banerjee,
2015). It is the most appropriate techniques which are used by the managers to maximise
the operational efficiency as well as effectiveness.
Above discussion provide the better understating related to the techniques which can be used
by the managers of continental clothing company to make effective decision to improve final
outcomes.
Factors which affecting decision making process:
 Financial factors: The making of a corporate decision relies on the capital structure of a
company (Piatti-Fünfkirchen and Schneider, 2018). Therefore the equity and the
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opportunity to make decisions on the investments on those projects expenses organization
can easily bear. Manager of continental clothing company evaluate such financial factors
which impact the decisions making process and further impact the overall profitability as
well as productivity.
 Social factors: Continental clothing company associations with new established business,
the trusted relationship with the consumer and their corporation has a complete impact on
their organizational life cycle (Famulska and Rogowska-Rajda, 2018). To build trust with
managers to the public is necessary to take acts that are publicly supportive. At the time
of making strategic decisions, social factors should consider to maintain the interest of
public which maximise their involvement.
 Risk: Every organization faces some risk at the time of implementing any strategy in
order to expand their business operations. Managers need to evaluate such risk because it
will might affect the decision making process of the organization (Rampini, Viswanathan
and Vuillemey, 2019). In context of continental clothing, managers identify the risk
which can further affect the productivity as well as overall performance of the business. It
further affects the decision making process, so it is essential to evaluate and then build
strategy accordingly.
2. Stakeholder management and the management of conflict objective of different stakeholder
groups
Stakeholders Management is also an essential part of a successful implementation of any
program, strategy or project (Romano And et.al., 2018). Any individual, group or organization
that may be inspired, impacted or deemed to be affected by a structure is a stakeholder.
Management of stakeholders covers the process of engagement of people and the growth of
productive relationships with participants. The investors are individuals or organizations
interested in the company, portfolio and prepare when they engage in research or are affected by
the findings. There is a very wide range of participants especially in projects, business ventures,
or campaigns.
Such people have a strong impact on the project’s success or failure. Control of partners
relies on utilising positive forces and reducing negative impacts. This begins by defining
stakeholders, identifying priorities and impacts, developing a strategy for client relations and
featuring and influencing stakeholders (Finkler, Smith and Calabrese, 2018). The continental
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clothing must have a suitable stakeholder engagement strategy for managing stakeholders of the
firm. Identification of a stakeholder basically includes all parties concerned whose availability
directly and indirectly affects the company. The borrowers are also considered to be clients,
production, operators, and lenders. At the time of making decisions, stakeholders play a vital role
when the company takes action focused on the wishes of its stakeholders.
Managing conflict objective: It is predicted that the company should understand the
requirement to balance the individual stakeholder’s interests from various stakeholders. Sales
manager is the person who is linked with producing profit and having a reasonable return on
their investments (Vakhrushina and et.al., 2018). The financial manager aims to finish the task in
less time to improve its performance. Each institution and stockholder has their own preferences
and the manager must define his or her goals and objectives.
3. Value of management accounting techniques in cost control or maximising shareholder value
Management Accountant carries out a variety of functions to maintain financial security by
managing all monetary aspects of the company (Yap, Komalasari and Hadiansah, 2018). Values
of management accounting are as follow:
 Management accounting helps the organizations to drive its policy and strategies. The
management accountant need to maintain all processes and operations are run properly
while maintaining all costs under control.
 Company need to make sure that use of the management accounting to prevent fraud and
the unethical issues generated within the business.
 Management accounting seeks to build true practices and procedures.
 It would also include a financial system which aimed at control financial asset related
functions and taking essential business decisions on different financial aspects (Birch,
2017).
Organizations utilize different types of accounting techniques, continental clothing company
used to reduce the cost of operational activities. The main cost management methodology is
method of accounting for costs.
Cost accounting method is a technique related to calculating costs of different types of
activities and matching them with real costs (Huang And et.al., 2018). They use this costing
system in continental clothing to manage their expenses or minimise the overall production cost
to maximise the profitability.
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Management accounting techniques helps in generating value for the shareholders through
controlling cost over the manufacturing period. Such techniques help in managing financial
resources and allocate as per the requirement. It also helps in preventing fraud which improve the
financial accuracy or create shareholder’s values. With the help of costing techniques, managers
of the company identify the expenses and try to manage it throughout the period.
4. Identify the techniques for fraud detection and the approach to ethical decision making
There are also several methodologies used to identify or prevent the fraud those are
mentioned below:
 Create a portfolio of possible fraud that also contains the risk evaluation, defining the
places in which fraud is likely to occur in the business and the possible forms of fraud
inside the locations.
 Then evaluate the risk, based also on total visibility of the company (Calabrese and
Ward, 2018).
 Concentrated on the risk those are the most likely to reduce shareholder value.
Systems impacting the extended supply chain, for example, such as reliability,
performance, inventory quality, and operations.
Enhance legislation over transaction over the period and use frequent monitoring and
investigating to verify the accountability effectiveness (Jones And et.al., 2018). Frequent or
insistent fraud detection assesses involve implementing screenplays to run toward vast amounts
of data in recognising such abnormalities as they occur over time. This strategy would improve
the overall efficiency, accuracy and reliability of the fraud detection processes significantly.
That's not the only procedures, there was a lot more available to spot fraud. There are several
techniques to identify fraud such as:
Ethical decision making: There are many techniques for ethical decision including right
or justice approach, utilitarian approach, common good or virtual approach. Using these
strategies, management teams are capable of taking ethical action in regards of the company. It
also lets stakeholders create demand (Agrawal, 2018). Continental clothing firm should
implement a utilitarian approach for effective decision making by evaluating action based on its
expected outcome. It considers the gains and disadvantages before making any decisions. The
method aims to attain the highest benefit to the maximum amount while at the same
developments are taking place the least amount of damage or avoiding the greatest suffering.
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In order to identify the fraud in the organization, management should follow above
discussed methods which are beneficial to identify the fraud and it further helps in taking ethical
decisions in respect of the organizations. Ethical decisions help in maximising shareholder’s
value in the organization and attract them to invest in the organizations to increase their earnings.
5. Write a reflection on the basis of learning
The assessment included the several learning because of different methods and strategies to
take appropriate action (Bodie, Kane and Marcus, 2015). I experienced many challenges during
at the time of completing this project and learned many things.
Problems: The key challenge I faced during the process of this project was that of studying
assigned topics and tasks. I utilized search engines to locate helpful info, but there are many
possibilities that made things more difficult (Kopylov and et.al., 2020). It is because the time
frame to finish the project was too short. As well as shortage of websites which offer
relevant or credible information, I also considered it a major issue. Another issue which i face
during the completion of my assignment is that working in a team is very difficult because you
have to put your thoughts and it is not easy that other one will agree with it. It was creating lot of
issues in the perception of team members (Fang, Huang and Karpoff, 2016). Along with this,
another issue which I faced that was slow processing of my computer which makes me angry
because it take lots of time to accept each single command.
Learning: I gain knowledge from exceptional things such as the issues which I face during
this project helps me to perform better in the future. I am learning that how to locate appropriate
data from online sources (Feng And et.al., 2015). Along with learning information about
stakeholder management principle, successful decision-making strategies are essential. In
addition, i also learn to have patience when we all working with someone and it can be your
team mates or artificial intelligence that is my personal computer. Because sometimes machinery
will take enough time to respond, so i have to respond accordingly. Working in a team is
improving my patience level as well as make me able that how to lead people in team which
improve each of us efficiency. In addition, this assessment increases my overall knowledge
regarding the topic of financial management and how beneficial or important it is for
organization to maintain its financial resources.
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Scenario B
1. Evaluate how data obtained might help to inform operational or strategies decisions for the
organization
This has indicated that executives tend to work via their routine tasks. Management will
then have all of the latest discount rate details on the sector. This isn't as simple with anything
more accurate or cost-effective (Madura, 2020). Knowledge learning is also a major process and
can have a huge effect on business over a period of time. The managers collect a lot of everyday
functional information. Every decision-making relevant is based on the aspect and role of the
organization. This helps the expertise and perspectives of the managers and many others who
guide their daily decision-making needs. It is necessary to apply the financial statements that
are used to determine their actual status. The following is the study of the business ratio utilizing
information from the annual statements of the organization which will direct the organizational
strategic decisions of the continental cloths limited.
Ration Analysis: This is typically used as an effective tool for analyzing financial
accounts. Financial reports, the figures create a numerical or correlative relationship between two
facts and figures to assess the capabilities and weaknesses of an organization, its money
situations and current efficiency (Nguyen And.al., 2018). That lets other investors evaluate
different aspects of a product's results. Continental cloths limited and its research complement
the profits and financial main decisions of a business in this context. Here are some of the ratios
calculated::
Net profit margin:
The above calculation indicates the net profit ratio of the continental clothing according
to the annual report can be seen 6.52% in 2018, which declined and then became a net loss
income of -2.75% (Hugos, 2018). That's because in 2019 the company suffered from net loss
around -1225 million. They ended up against net loss as a result. In 2019, too many running costs
were incurred, resulting in net loss for 2019.
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Gross profit margin:
On the basis of the above figures, it can be noted that the continental company's gross
margin in 2018 was 25.01 percent, but it declined and became 23.80 percent in 2019. This
suggests that, compared to 2018, the organization is likely to achieve greater productivity in
2019 (Hilkens, Reid, Klerkx and Gray, 2018). This lower margin is caused by a decline in gross
margin volume in 2018. This decrease is due to significantly lower price of goods sold this year.
Current ratio:
The above calculation indicates, in both years such as 2018 and 2019, company is unable
to meet the optimal current ratio requirement which is 2:1 times. As in 2018, their present level
was 1.07 times lowered by a slight margin and 1.06 times lowered (Okanazu, 2018). The
explanation for this low liquidity situation would be in 2019 there are so many outstanding
liabilities and there is a faster rate of growth in existing liabilities relative to current assets.
Quick Ratio:
The figures reveal that, in 2018 and 2019, the organization seems unable to meet the
optimal quick ratio requirement that is 1.5:1 times (Klapper, Lusardi and Van Oudheusden,
2015). The quick ratio in 2018, was 0.77 times and it is same for the next year 2019. The
company is in a position to control its liquidity status at a high point.
Return on Equity ratio:
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From the above calculation it has been indicates that the business derives various
amounts of return on their investments as they generated a return on their equity markets of
16.23 per cent in 2018 (Lasserre, 2017). In 2019, company’s return was negative because of net
deficit in 2019.
Debt in equity ratio:
The following table indicates that the ratio in 2018 was 79 percent and in 2019 it was
reduced to 56.66 percent lower (McNeil, Frey and Embrechts, 2015). That was attributed to
shortages of equity markets and high debts in 2019 relative to 2018. As a result, in 2019 they
confronted a lower ratio problem.
2. Different investment appraisal techniques and evaluate their effectiveness to help to maximise
return on investment (ROI)
The company' follow the different investment appraisal methodology to decide the correct
investment option among several alternatives. These techniques are a part of capital budgeting
approach (Píchová and Raušer, 2018). The manager of continental company uses this technique
to assess possible initiatives which will have more benefit in future. Once the optimal strategy
has been developed for investment managers, they should create strategies that can help raising
the cost of producing products. An example of various investment assessment techniques is
given below which is as follows:
Payback period: It is the important approach which shows recovery period on an initial
investment of a particular project (Jayaprawira, 2019). It shows the irrespective of net cash
inflows from the production.
Initial Investment = £110,000
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Life = 5
Formula:
Payback period= Year before cost recovered + amount to be recover / next year cash flow
= 2 + 40000/90000
= 2 + 0.44
= 2.44 years
This result shows that company recover their initial investment in 2.44 years which
means within 3 year.
Net Present Value (NPV): It is a critical method that demonstrates the benefits of a
particular investment or initiative with the current values (Rendon and Snider, 2019). This
measures the various equity gains the business will reap from such an investment. Further its
calculation mentioned below:
Formula:
NPV = Net cash inflow – depreciation
Calculation:
Cost of capital = 10%
Investment = 110000
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NPV = 303,010 – 110,000
= 193,010
Net present value of this project is positive, so company select this proposal to invest and
further take actions accordingly.
Accounting Rate of Return (ARR): This strategy is necessary for a project 's true
viability. It means that a project's cumulative cash flow is directly proportional, and net
investment is generated in each budget (Rendtorff, 2019). This strategy helps to assess future
returns on the acquisitions or projects. The process is simplified to calculate the estimated sales
income, all cash flows are used and split down by company period. The approximate cost is then
divided by the initial and actual cumulative expenditure on the initiative. The percentage benefit
on a project indicates returns.
Formula:
ARR = Average net income / Initial investment * 100
Calculation of net income:
Formula:
Net income = Net cash inflow – depreciation
Depreciation = Initial investment / life of project
= 110000/5
= 22000
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Net cash flow:
Average net income:
Average net income = 320,000 / 5
= 64,000
So,
ARR = 64,000 / 110,000*100
= 58.18 %
AAR of this investment is 58.18 % that is very good and company should accept this
proposal to invest because it provides good return which is beneficial for the business.
3. Demonstrate the value of techniques in helping to inform financial decision making
In context of the organization, financial management techniques generate value or
importance at the time of making financial decisions. Some of the importances are discussed
below:
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 Help to determine profit: The financial management strategies usually involve
breakeven analysis, cash flow, capital budgeting strategies, etc. Such methods allow
business to predict future revenue from sales activities (Shapiro and Hanouna, 2019).
Through this, managers at the Continental clothing company can calculate their initial
profit margin amount.
 Long-term goal determination: It allow entities to determine corporations' long-term
targets as managers decide with their growth objectives by assessing its financial
importance and cash income for a given period of time (Khitrin and Pachkova, 2016).
 Help in policy formulation: management teams use break even analyzes to formulate
strategies for their influence of cash flow (Moutinho and Vargas-Sanchez, 2018).
Corporations use other managerial finance tools to evaluate the performance of their
businesses within a certain period of time. Plans to gain maximum market share after
assessment of financial data managers.
 Capital structure determination: Decisions have to be taken based on the financial
capital status of an entity. It helps to understand the financial arrangement of an
organization (Spearman, 2019). Cost of capital help the department to assess cost
structure and capital structure of the company. Continental clothing executives should use
this approach in determining their capital structure. It also lets management identify that
it should devote money and services to different operations.
 Management of financial activities: cash balance analysis used to identify net income
and cash equivalents for a given period of time. Cash balance analysis used to describe
surplus funds and produce equal equity (Njenga and Jagongo, 2019). To control the
garbage-cash outflow processes, manager of Continental clothing will use optimization
process.
 Help in making decisions on profit distribution: Management accounting techniques
have included ratio and market trends (Shapiro and Hanouna, 2019). This method assists
in determining the shareholders' benefit ratio. These devices are also useful in assessing
the level of production at a given time. Continental clothing company executives use cash
accounting methods to agree on the dividend payment and compensation for their
prospective owners.
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4. Analyse that how financial decisions making support the long term sustainability
Decision making process in the organization for taking actions regarding strategic growth
is used. Management teams' skill sets focus on the expertise of attempting to develop an
investment plan that can help boost the company's potential performance (Zietlow And et.al.,
2018). The financial judgment was used to ensure the company entity's long-term, sustainable
growth. Executives make decisions regarding their institution's capital, investment, financial
reporting, stock market policy, inventory control decisions and responsibility for implementing.
A working company's main responsibility is to ensure its competitiveness in the market for some
time.
If a corporation has an appropriate organizational culture and good financial management,
it can long prosper in profitable markets. They cannot compete in the international economy if
companies are making misplaced acquisitions or emerging technologies (Okanazu, 2018). A
company's reputation relies on how successfully its executives make financial choices about their
corporate practices. This involves having a strong reputation in the market and defending rivals.
Organizations are taking financial steps using efficient strategies which can monitor the workers
of the company. Managing of Continental clothing needs to adopt an optimal corporate approach
that improves their productivity and gives them comparative advantages in ensuring the viability
of their business activities.
5. Recommend that how management accountant helps to improve financial sustainability
In the present day, many organisations also should not use management accounting methods
to help deliver environmental knowledge for decision taking and impact. This may have a
negative impact on the success of businesses (Suprayitno and Soemitro, 2018). That's
also because it is essential to capture information accurately for better performance
of organizations and this can be possible with the help of strategic management. So businesses
need to use these accounting techniques to take appropriate action. This accounting approach
will be followed by their supervisors, as well as in Continental apparel business.
CONCLUSION
From the overall analysis it has been observed that financial management is one of the main
words that business organizations need to understand. There are several values that businesses
will remember. The study focuses on the numerous main decision taking strategies, approaches
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and variables. In order to measure stakeholder’s interest, it is indeed important for businesses
such as determining the financial status of the company. The next part of this report focuses on
different financial strategies that can be valuable for critical decision-making. There are a variety
of techniques including accounting ratios, investment appraisal techniques and many more.
Instances of NPV, payback time and ARR are clarified on behalf of the selected client. When
there seem to be a number of approaches and framework for accounting systems to solve
financial problems.
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REFERENCES
Books & Journals
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