Principles of Financial Management: Decision Making Report

This report delves into the core principles of financial management, emphasizing the significance of effective decision-making within a business context. It explores both formal and informal approaches to decision-making, highlighting techniques like decision matrices, decision trees, and Pareto analysis. The report also examines crucial factors influencing effective decisions, including capital structure, economic conditions, and the nature of the business. Furthermore, it addresses stakeholder management, the role of management accounting in cost control, and techniques for maximizing shareholder value, such as financial planning, marginal analysis, and budgeting. The report also covers techniques for fraud detection and prevention, alongside ethical considerations in decision-making, concluding with an emphasis on the importance of financial management for business success.

FINANCIAL MANAGEMENT

TABLE OF CONTENT
INTRODUCTION
MAIN BODY
CONCLUSION
REFERENCES

INTRODUCTION
 Financial management refers to managing the
financial operation of the business.
 It is very important for the business to have a well
defined financial structured to be followed by the
organisation.
 Present report cover the role of business decision
making in the financial management.
 It will enhance the understanding about the financial
management and effectiveness of decision making
for sustainability of business.

Approaches used for supporting effective decision
making
 Formal and Informal approach of
decision making
 Formal & informal approach are used by the
organisation for making informed decision
in organisation.
 The approach helps in reducing the
subjective approach used in decision making
and for exposing the decisions rationale.
 The approach helps managers in taking
decisions related to the strategies and
policies to be framed analysing all the
information.

Knowledge Based Approach of Decision making
 This approach is concerned with the
identification of the knowledge
associated with the different sources of
information.
 Knowledge based approach promotes
decision on the basis of information
and experiences related to the
decisions.
 The approach aims at improving the
organisational performance by gaining
knowledge about the decisions.

Techniques used for decision making
 Decision matrix
 Decision Tree
 Pareto Analysis

Factors contributing the effective decision making.
 Capital Structure
 Economic State
 Nature of Business
 Liquidity

Stakeholder management and management of
conflicting of the stakeholder groups.
 Stakeholder management refers to process
of maintaining the good relations with
people who are having the most impact in
decisions.
 It is essential for the business enterprise to
communicate with everyone in right
manner.
 Stakeholders are the group of people that
are associated with the company and have
interest in the success of failure of the
business operations.
 Stakeholders of the company include its
suppliers, customers, creditors, employees
and its shareholders.

Management accounting techniques in cost control
and maximising the shareholder value.
 Role of management accountant
 Management accountant performs the tasks and
concepts of management accounting.
 They have the role of managing the financial
operations of company. Accountant records all the
financial information related to the cost operation
of company.
 It plays and important role in framing the
strategies and policies for the business.
 Main motive of management accountant is to carry
out the business operations in cost efficient manner
and taking measures for controlling overspendings.

Management accounting techniques for cost
control
 Financial planning
 Financial planning refers to planning all
the expenditures and operations of
business.
 Objective of firm is to achieve growth by
keeping is cost to the minimum.
 Financial planning helps managers in
taking decisions after analysing the
outcomes of various investments.
 A company without structured plan to
follow often faces difficulty in keeping its
costs under control

CONT..
 Marginal Analysis
 Margin analysis provides the additional
benefits that could be gained on raising
the productions of company.
 Marginal analysis is used in
management accounting as control
measure.
 In marginal analysis break-event points
are identified for deciding the sales
where the costs and revenues of the
company

CONT..
 Budgeting
 This is the most common management
accounting technique that is used for cost
control. Budgeting refers to preparing
budgets for various production process.
 Budgets are the spending plans of the
business. They are prepared by making
prediction on income and expenditures on
the basis of past trends.
 Budget helps the business to follow a well
defined path. It helps in efficient allocation
of resources and preventing overspendings.

Techniques for fraud detection and prevention and
approach for ethical decision making
 Fraud Detection
 Auditing - Auditing refers to inspection of all
the transactions carried out by the business.
Auditors ensure that every transaction is
supported with true evidence such as invoices
and receipts.
 Monitoring - Monitoring helps the managers
in keeping check over the actions of its
employees. Any action or task that appears to
be not related with business could be checked
and inspected.

CONT..
 Fraud Prevention
 Corporate Governance - Corporate governance
involves refers to establishment of internal control
procedures within the business. Effective governance
prevents frauds as all the processes are properly
controlled and checked at timely intervals. Test
controls are used by organisation for preventing the
fraud.
 Ethical approach in decision making.
 Organisations are required to follow ethical approach
when taking decisions about the company. Ethical
approach refers to not depriving the interest of others.

CONCLUSION
 From the above report it is concluded that financial management is
very essential for business.
 Companies for making informed business decisions are required to
have knowledge of the various financial management concepts.
 Decision making is very important task to be performed by the
management therefore it should be taken after analysing all the facts
and figures.

REFERENCES
 Shapiro, A.C. and Hanouna, P., 2019. Multinational financial
management. Wiley.
 Madura, J., 2020. International financial management. Cengage
Learning.
 Jones, C. And et.al., 2018. Financial Management for Nurse Managers
and Executives-E-Book. Elsevier Health Sciences.
 Barr, M.J. and McClellan, G.S., 2018. Budgets and financial
management in higher education. John Wiley & Sons.
 Martin, L.L., 2016. Financial management for human service
administrators. Waveland Press.