Approaches for Effective Decision Making in Financial Management

FINANCIAL MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
LO1 .................................................................................................................................................3
Different Approaches used for supporting the effective decision making..................................3
Role of stakeholders in decision making ....................................................................................5
LO2..................................................................................................................................................6
Setting objectives for achieving the financial goals....................................................................6
Ethical Financial management.....................................................................................................6
Maximising shareholder wealth...................................................................................................6
LO3..................................................................................................................................................6
Role of management accountants and management accounting control systems .......................6
Techniques for fraud detection and prevention...........................................................................8
LO4..................................................................................................................................................8
Evaluating the ways in which financial decision making supports sustainable performance. .. .8
Investment appraisals for making informed decisions ..............................................................11
Cash flow statements, balance sheet and break-even for financial decision making ...............12
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial management refers to strategic planning, to organise, direct and control of
financial undertakings of the organisation. Financial management include application of
management principles over financial assets of organisation. It plays and important part in fiscal
management of business (Matthew, 2017). Present report will be providing approaches used for
supporting the financial decisions. It will also provide principles for supporting the effective
financial strategies. The role of accountants and management accounting in business and the
ways in which the financial decision making helps in sustainable performance.
LO1
Different Approaches used for supporting the effective decision making.
Knowledge based approach
Knowledge based approach involves recognizing knowledge as the resource to gain
organisational competitiveness, knowledge suggests the method for managing and improving
the performance of organisation. It is essential for the business enterprise to have knowledge
based approach so that the decisions taken for the improvements are having some authentic base.
This have significant impact over the decision making approach of the executives of
organisation.
Formal and Informal approach
It provides an structured approach to the organisation in the decision making process.
This approach reduces subjective approach of making the decisions and expose details of
decision rationale. It helps in improving probability of selecting solutions meeting the multiple
expectations of the stakeholders of company (Ward and Forker, 2017). The uncertainty
associated with the tasks is reduced by having reasonable alternatives. The approach permits
more quickly re-assessment of the criteria, requirements or the stakeholders changes in
expectations. This enables the organisations to make more informed decisions considering all the
factors.
Techniques used in decision making
Decision making occurs at various levels in business. Decisions are to be taken
considering various relevant facts and figures. Proper evaluation and analysis is important for the
organisation to make effective decisions. Techniques used for making decisions are :

Decision matrix – It is used by managers in evaluating all options for decisions. In this matrix all
options are placed in first column of the table and factors affecting the decisions in first row. It
involves scoring and weighing factors based on their importance and selects the best options.
T -Chart – The chart is made for weighing plus and minus of options. This ensures that all the
negatives and positive are considered in making decisions.
Decision Tree – The tree is a model or graph which involves contemplating the options and
outcomes of each options. It is also used in statistical analysis
Pareto Analysis – Technique is used mainly when multiple decisions are required to be taken. It
helps in ranking the options depending on their importance and the ones having the greatest
impact overall on the decisions.
All these techniques are used by the organisation in their management processes. They
provide the management the relevant information about the decisions to be taken. The
information is useful for making decisions. The performance is improved by carrying out the
tests and flowing the approaches of different techniques. Using this approach it could make
effective decisions for the business.
Factors contributing in effective decision making
Factors which contribute in effective decision making are
State of Economy
Economic conditions greatly contribute in decision making process. Strong economic
conditions attract high investments for the organisations. The expectations are also high of the
investors.
Capital structure and money market.
It is easy to make decisions for raising capital in companies having strong and developed
capital market. This provides the manager with the bargaining powers.
Nature of Businesses
Decisions are highly contributed by the nature of business. Managers have to take
decisions keeping in mind the industry that is being served by them (Ward and Forker, 2017).
As the manufacturing concerns require investments mostly in capital assets.
Probabilities of steady and regular earnings