Financial Management: Approaches, Techniques, and Stakeholder Management

FINANCIAL MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................1
SCENARIO A..................................................................................................................................1
1. Evaluating the range of approaches, techniques and the factors which contributes to
effective decision making............................................................................................................1
2. Evaluating the management of conflicting objectives and stakeholder management of
different stakeholder groups........................................................................................................3
3 Examining the value of management accounting techniques. .................................................3
4 Examining techniques detection and prevention of fraud and key approaches to ethical
decision making. .........................................................................................................................4
5. Reflection ................................................................................................................................5
SCENARIO B..................................................................................................................................6
1 & 2 Identifying how data obtained could help in informing operational and strategic
decisions of company. .................................................................................................................6
3. Comparing and contrasting investment appraisal techniques and evaluating their
effectiveness to maximise the return on investments. ..............................................................11
4. Value of techniques helping in financial decision making ...................................................15
5. Financial decision-making in supporting the long term sustainability .................................16
6. Recommendations for management accountant to help in improving financial stability .....16
CONCLUSION .............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Financial management could be described as function or area in organization that is
concerned with the profitability, cash, expenses and credit so the organization is having means
for carrying out the objective as effectively as possible. It is also referred as dealing with money
investments of firm to help them in better decision-making (Erin and et.al., 2018). It involves
raising finance from various sources that is best suited for the organization and will bring
maximum benefits. Financial management ensures that there is adequate supply of the funds to
concern and ensuring adequate returns Report will provide about the range of techniques,
approaches and the factors that contribute to effective decision making. It will also discuss about
the different stakeholder groups and conflicts between shareholders and management. Further the
study will provide about the value of management accounting techniques and the different
techniques used for fraud detection.
SCENARIO A
1. Evaluating the range of approaches, techniques and the factors which contributes to effective
decision making
There are various types of approaches and techniques which assists the management of
the organization in taking relevant business related decisions. Some of these approaches and
techniques are stated below.
Knowledge based approach: In this, the management takes into account the pre-
determined criteria for the purpose of measuring and ensuring that the optimal outcome has been
achieved. It involves taking the advice from the expertise in the relevant for the purpose of
taking meaningful business decisions as it primarily focuses on the quantitative aspects and other
factual information for undertaking meaningful business decisions. For instance, the organization
can make use of its income statement to know its profitability and draw opinion on the same.
Formal and informal approaches: The formal decision-making processes takes much
longer time as compared to the informal approaches. In the formal approach, it is clear that who
will participate in the decision-making process and is also documented properly and it develops
trust and equality (Kyheröinen, 2020). In the informal approach, it is unclear who will be
participating in the discussion and it lacks transparency but in the situation requiring instant
decision then this approach is very useful for undertaking prompt decisions. There is a complete
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set of structure to be followed in the formal approach which is not so in case of the informal
approach.
Make or buy decisions: This is an important factor having an influence over the
organizations decision-making process. Under this, the business requires to make a decision in
respect to whether to make or produce the product in-house or outsource it from outside. It takes
into account both quantitative and qualitative aspects in determining or evaluating and making of
the final decisions (Lee, Townsend and Wilkinson, 2020). For carrying it out properly and
effectively it will require undertaking all the relevant cost related factors into consideration
before making any change in the same.
It can be explained with the help of an example.
Cost of producing 6000 units of a component
Per unit Total
Direct Material 10 60000
Direct Labor 8 48000
Variable Factory Overhead 9 54000
Fixed Factory Overhead 12 72000
$1.5 per direct labor dollar
39 234000
The similar component can be purchased from outside at the market price of 29 per unit. It will
also result into reduction in the fixed factory overhead, that is, 25% will be saved.
Per unit Total
Make Buy Make Buy
Purchase price 29 174000
Direct Material 10 60000
Direct Labor 8 48000
Variable Factory Overhead 9 54000
Fixed Factory Overhead 9 54000
Total 36 29 216000 174000
Difference in favor of buying 7 42000
From the above example, it can be clearly seen that it is favourable for the company for
outsourcing the component. Therefore, make or buy decision-making helps the business
organization in taking right decision in respect to whether it will be beneficial for the company to
produce the product in-house or outsource it to the third party.
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2. Evaluating the management of conflicting objectives and stakeholder management of different
stakeholder groups.
Stakeholders
Stakeholder management is a significant process which is useful in maintaining good set of
relationship with the key people of the organization. A stakeholder is considered to be as a party
who has wide degree of interest in the affairs of company and is also influenced by the working
of business. Creditors: They supply raw material, financial capital and other services to the company.
They are interested in the company because they want to be paid in full within the
stipulated time period. They seek to the financial statements of the company as it
provides comprehensive look upon the financial health of company. Managers and Employees: They want to company to thrive to earn high wages and
remain invested in the company for long period of time (Kaplan and Atkinson, 2015).
They seek to the financial statements of the company to know the financial health of
company. Shareholders: They are interested in the business operations and count on business to
remain profitable to gain valuable set of return on investment. They seek information
from cash flow statement and ratios to examine the earning growth of company.
 Government: They need business to grow in order to gain taxes which supports various
government services.
Conflict between Management and Shareholders
The conflict between the shareholders and the managers of the company is mainly
referred to as the agency cost and has been borne by the shareholders. The agency theory tends to
state that, decision right of corporation has been given to mangers to effectively act in the
interest of the shareholders. The interest of the varied stakeholders group may conflict. For
example, the key goal of the owner or management of the company is to seek higher profits,
reduce business cost and pay optimum wages to the staff. On the other hand, the goal of the
shareholder is to gain higher returns from the investment they have made. This resulted in major
conflict of interest between the two parties.
3 Examining the value of management accounting techniques.
Management accounting
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Management accounting is considered to be as the branch of the accounting. It is
considered to be very useful for the financial managers of the Diageo Company because it helps
in taking long term as well as the short term decision to improve the financial health and
operational efficiency of the company. It is useful for the financial managers in carrying out
financial planning and effectively analyses the financial statements of the company. The
budgetary control technique is considered to be prominent because it helps the financial manger
to set specific budget and control cost to carry out business operations. The management
accounting techniques like break even analysis, marginal costing, standard costing, break even
analysis, capital budgeting, inventory valuation, trend analysis, etc. are of utmost value to the
financial manager because it helps in increasing the profit margins by effectively attaining
economies of scale and lowering operational expenses. It helps the financial manager in
evaluating the financial health of company and take necessary decision.
Role of management accountants
Management accountants in turn are referred to as the planners, risk managers,
strategists, budgeters and also the decision makers. They assess the key financial reports and
managerial reports of the company and engage in better decision making (Maas, Schaltegger and
Crutzen, 2016). They also focus on maintaining the effective financial health of the company for
greater sustainable success. Another key significant role of the management accountant is to
maintain optimum level of the capital structure. They analyses the accounts and also prepares
report for effective decision making. This way it is considered to be useful in contributing to the
greater success of the company.
Maximization of shareholder’s wealth
The shareholder’s wealth can be effectively maximized by considering those business
concern which helps in maximizing the market value of the shareholders. However, when the
company maximizes the wealth of the company then the individual shareholder can use the
wealth to maximize the individual utility. The market value of the share have been an effective
indicator associated with the key efficiency and effectiveness of the company.
4 Examining techniques detection and prevention of fraud and key approaches to ethical decision
making.
Fraud and detection of frauds
Any illegal activities and dishonest activities which has been carried out by the company or
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