Financial Management Techniques and Decision Making

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Financial Management
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Contents
Introduction......................................................................................................................................3
1. The techniques, factors and approaches which contribute to effective decision making.........4
2. Stakeholders management and management of incompatible objectives of different
stakeholders.....................................................................................................................................7
3. Role of management accountant in an organisation.................................................................9
4. Techniques of fraud detections and preventions....................................................................12
Conclusion:....................................................................................................................................14
References......................................................................................................................................15
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Introduction
Finance is the lifeline and blood for every business. Like other resources, finance is limited
therefore it is very important for the business or to the person to manage the finance efficiently.
It is an organic function of the business to invest in the company in the form of money and
capital. Every organisation needs finance to obtain physical resources, to precede the production
activities or any other business activity. It the activity of providing funds to the company needed
by the organisation and procuring the funds and effective utilisation of funds. In many
companies it is easy to procure funds but difficult for the effective utilisation of it.
The report is based on financial management and approaches and techniques of financial
management. This report will provide the principles of financial management and the role of the
financial accounting control system in a company and the ways through which financial
decision-making supports sustainable development and performance. The report is brief
discussion presented for financial management.
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1. The techniques, factors and approaches which contribute to effective
decision making
According to Finkler, (2018) financial management is the area of business which is dedicated to
careful use of capital and carefully selecting the source of the capital to enable the spending unit
or finance department to move into the direction of achieving goals. Financial management
involves various techniques and approaches for the decision-making process and they are as
follows:
Approaches to financial management
Knowledge-based decision making
Knowledge-based decision making in finance refers to the decision-making process which
includes the agreed criteria, which means that to measure and ensure that the most suitable and
profitable outcome can be generated from specific capital and investment. This process is used in
the form of guideline to take effective and deliberate decisions (Finkler, et al., 2018). This
decision is taken on the basis of knowledge of the person who has expertise in finance and
accounting. There are many experts who can provide this kind of decision on the basis of their
knowledge and experience.
Formal and informal approaches to decision making
The formal structure of decision making involves the system and structure of the organisation
which the organisation is following.
The system refers to the internally organised approach of as a whole in which the elements are
connected so close that they operate as one body in relation with external systems and conditions
(Zopounidis et al., 2018). Every system is comprised of a whole but not every hole in the system.
Usually, a part of the system is called as an element and these elements comprising make a
system.
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The structure is a system which outlines how the activities of an organisation are carried forward
or directed so that the company can achieve the goals of the organisation. These activities
involve roles and responsibilities and rules and regulations (Zopounidis et al., 2018).
Factors of financial management
There are two types of factors in financial management which contribute to decision making and
they are as follows:
Limiting factor analysis
In accounting limiting factor analysis refers to constrictions for availability in the resources of
production like shortage of labour, material hours which leads business to minimise the profit
and controls to maximise the profit of the company (Karadag, 2015). They are also called as
principle budget factors or governing factors, these factors put the limitation on the performance
or capacity of the organisation to achieve the desired goals (Swartz and Perkins, 2016). This
factor allows the person to take a decision regarding investment in the production department on
the basis of availability of labours and material.
Key factor analysis
The key factor is a factor of activities which limits the volume of output of an organisation for a
particular period of time. This factor is governed by both internal and external factors which help
in calculating the profitability of the product. These factors help to take a decision about how
much an organisation should invest in the product on the basis of forecasting of demand and
supply of the product (Swartz and Perkins, 2016).
Shareholders role in decision making
For making any important decisions, the key shareholders must be involved in the process of
decision making. The key stakeholders provide their suggestions about a critical situation in the
organisation. Some of the decisions are easy and some are complex (Karadag, 2015).
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Stakeholders provide effective ways to deal with the situation because of their involvement in the
organisation in the form of profit holder. Decisions regarding the budgeting, investment and
capital are taken by the company but somehow the stakeholders provide their interference in
decision making.
Make or buy decision making:
Make or buy the decision-making process is the process in which the organisation has to decide
whether the product will be produced internally or it has to bought externally from the outside
supplier. This analysis is conducted at strategic and operational level on the basis of requirement
of finance and spending of finance. The buy side of decision is also known as the outsourcing of
the product. This decision totally depends on the organisation by taking into account the finance
utilised and required for the company (Alfaro et al., 2015).
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2. Stakeholders management and management of incompatible objectives
of different stakeholders
Stakeholders
Stakeholders are the people who can be a group or an individual, impacted or affected by the
success of the organisation or the success of the outcome of the project. Usually, these people
have a keen interest in the success of the project. This people normally have a share in the profit
of the organisation through purchasing the shares in the company.
Key financial management principles to achieve financial strategies for long term
sustainability
Setting short term and long term goals to achieve financial goals
Short term objectives are the goals of an organisation or goals of the departments for a short
period of time such as completion of a particular project within a particular period of time of six
months. These objectives are as essential as long term objectives because they also need the
finance and capital to achieve its (Busch, et al., 2016) Long term objectives are the objectives
which have been developed for a long period of time like five years. These objectives need a lot
of time and effort to achieve them. The objectives are formed to achieve the financial goals of
the company in the long run.
Ethical financial management
Ethics are the principles which are based on doing the right things. This ethics teach us the basic
moral values of an individual and business on which they run. Every company should apply the
ethical financial management in the organisation for effective use of finance in the company. A
comprehensive financial policy and effective organization control are very important for the
company (Busch, et al., 2016). Various unethical practices in the area of financial management
are keeping the pressure on the internal environment and external environment of the
organisation and this is somehow affecting the shareholders of the company. Unethical financial
practices like diversion and misappropriation of funds, money laundering activities etc (Froko,
2017).
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Maximising shareholders wealth
A firm’s appropriate goal is to maximise the wealth of the shareholders in a capitalist society, the
capitalist society involves private ownership of goods and services by an individual. The very
first way of the company to increase the wealth of the organisation is by increasing the stock
price of the company, as the stock price increases the value of the firm goes up and the wealth of
the shareholders also increases (Froko, 2017). Many companies motivate their employees to
become the shareholders of the companies so that whenever the company faces the loss situation
it will buy its own shares from employees. The shareholders are an essential part of an
organisation and they can build or break an empire or business.
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3. Role of management accountant in an organisation
Management accountant is the person who is responsible for the designing the format of
financial and cost control system, as these reports are presented in front of each level of
management with the specified data on a particular time. The person is responsible to gather the
data, break the data and organise it into a useful category (Quattrone, 2016). The management
accountant prepares the data according to the requirement of the management.
Management accountant plays a vital role in the decision-making process of the company. The
person is solely dedicated and responsible for the installation, efficient functioning and
development of management accounting system (Quattrone, 2016). The person computes the
differences of actual performance with the standard budget estimates and interprets the result to
all levels of management. In the different organisations, he is assigned with different names such
as financial controller, financial advisor and controller of finance.
The functions of management accountant are:
 To establish the plan for control of operations and to administer and coordinate with an
integral part of management.
 To compare the actual performance with the standards and operating plans and report the
result to all the levels of management. It involves the admi9nstration and formulation of
accounting policy and accumulation of statistical records (Busch, et al., 2016).
 It also administers the tax policies of the company.
Financial management system:
It is a methodology and which an organisation uses to administer and manage the income,
expenses, assets and liabilities with the organisational objective to maximise the profit and
ensuring sustainability (Busch, et al., 2016). An effective financial management system will
always try to improve the business performance for a long term and short term by rearrangement
the invoices, bill collection, reducing accounting errors and minimising recordkeeping
redundancy. Financial management involves some basic features like it keeps the transparency in
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payments and receivable, pay off the prepaid expenses, depreciates the assets according to the
schedules and keeps the track of liability (Froko, 2017).
Use of new technologies in the financial management system
The financial management system is getting advanced and developed by the use of new financial
technologies. These financial technologies are used in almost every organisation by the financial
management accountant (Maas, 2016). This technology has made the calculations easy and
accountable. Managing finance like providing finance to different departments, invoicing the
bills, reduction accounting errors etc have become easy for the accountants.
Use of Blockchain
This technology provides many possibilities to financial institutions as it is used to optimise the
internal processes to check and make the transactions and rationalize the data management in
another service. This has brought the transformational change in the companies not in the
financial department but also in every department of the company (Anderson and Hamadi,
2016).
Hybrid cloud
In the upcoming years, the hybrid cloud computing will become the mainstream in the corporate
sector. With the help of the hybrid cloud, companies will have the flexibility and advantage of
both public cloud as well as private cloud system for data security, compliance and governance
(Maas, 2016). This hybrid cloud will include the benefit of reduced cost in financial
management, enhanced innovation and operational efficiency.
Artificial intelligence
Artificial intelligence has taken importance due to its capabilities and business needs. The
artificial intelligence has provided the benefits to the companies like back-office operations,
product delivery, customer services, financial accounting and risk management. Due to this
technological development company can take out the historical data of the financial department
(Anderson and Hamadi, 2016).
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Cost control in effective financial planning
Cost control refers to the search for a better and more cost-effective way of completing a target.
It simply means the prevention of cost of operations from the existing environment (Anderson
and Hamadi, 2016). It is the procedure through which the actual performance is compared with
the standards to accumulate the waste and takes corrective measures for that. The aim of a cost
control system is to achieve the target of sales.
Decision-making process in cost control for financial planning is an important aspect of any
organisation. The finance department is responsible for planning to invest the money in the
operation and other activities of the company (Maas, 2016). Cost control is the way to control the
waste of the money in the company and to control this finance department needs to forecast the
data and conditions where the cost has to be invested and effective use of the cost in a different
department. Taking financial decisions is a critical task and a company needs to take the
corrective steps to control the wastage of cost.
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4. Techniques of fraud detections and preventions
Accounting control system
The accounting control system is the method and procedure which forms the complete internal
system of an organisation. This system is concerned with ensuring compliance with the
accounting policies, preventing the organisation's assets and preparing consistent and timely
financial reports for the organisation (Laudon and Laudon, 2016). Accounting control system
involves an internal control system which is designed to ensure that the employees are
performing their duties ethically and efficiently. It especially deals with internal financial
integration and accuracy of financial record provided outside. Establishing an effective
accounting system will lead to creating a better culture and ethical financial management system
in the organisation (Laudon and Laudon, 2016).
The accounting system has various methods to detect and prevent fraud in the organisations;
these methods help the organisation to apply the better accounting system in the organisation, the
methods are as follows:
Cash control
Cash control is one of the most important parts of an internal accounting system, where only the
trusted employees will make the deposits. Checking the deposits and the bank account slips and
comparing them with bank statement for each month. It involves the system of approval of
selected few employees for cash payment with payrolls, return from customers and account
payable etc (Osadchy and Akhmetshin, 2015).
Documentation
The organisation must involve the store copies of all registered receipts, invoices, cancelled
cheque and any other documents which hold the record of cash transaction. The company can
use these documents to investigate the loss of cash if occurred and discrepancies between bank
statements and internal records (Maas, 2016).
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