Corporate Financial Management
The article focuses on the strategic planning process of financial management. In order for an organization to be successful, they must create a strategic plan that will position the firm for growth and competitiveness. The senior management team will need to analyze all data, including the financial records, to ensure that the organization can make a profit, remain competitive and be in position for continued growth. The use of the strategic financial process in other sectors is discussed. In addition, there is an exploration of how different types of financial risk are key components in the enterprise risk management process.
In order for an organization to be successful, it must create a strategic plan that will position the firm for growth and competitiveness. The senior management team will need to analyze all data, including the financial records, to ensure that the organization can make a profit, remain competitive and be in position for continued growth. "In discussing corporate financial strategy, the question can well be asked as to how strategy differs from more modest decision making" (Bierman, 1980, p. 1).
Bierman (1980) provided five elements and four approaches that he believed should be considered by corporate financial managers as they planned their strategies for the organizations in which they worked. The five elements were to:
- Identify the problems and opportunities that existed.
- Set goals and objectives.
- Develop a procedure for providing potential solutions or "paths" that the organization could follow in order to find a solution.
- Choose the best solution given the possible solutions and the organization's objectives.
- Implement a review process where the best solution can be evaluated on its performance.
These elements are very broad so that the corporate finance manager has an opportunity to consider a wide range of financial decisions. For example, the organization's main goal may be to pursue substantial growth with minimum risk. Therefore, the financial management team has to take these factors into consideration when developing the strategic financial plan for the organization.
Financial Planning in Other Sectors
Although the focus of this article is on corporate finance, strategic financial planning is important in other sectors as well. Having a sound financial planning process is essential to a healthy organization. This section discusses how a non-profit organization evaluated its financial position and implemented processes in order to keep them on track.
A social service organization (Making Ends Meet, n.d.) identified four important stages in the financial planning process. These stages are: Reviewing the past, forecasting the future, setting strategies and plans, and setting annual budgets. Each of these phases is of equal importance and some of the tasks at each phase include:Reviewing the past:
- Audit current and recent trends in demand and consumption.
- Watch the trends in funding streams.
- Follow and research the true performance and results, such as end-of-year position and conduct against certain signs for social services.
- Collect similar research regarding the real costs incurred and the cost drivers.
- Review the results and evaluate the recommendations from any additional research reports and administration letters from outside auditors.
- Evaluate the force behind countries' policies and plans of action.
- Find and approximate levels of the differing funding streams.
- Review the force of nearby policy initiatives and prerogatives.
- Decide what the future results of known trends may be in relation to supply and demand.
- Recognize the economic significance of demographic tends and similar drivers of demand that the council does not control.
- Include the recognition of institutional context for strategic planning.
- Include the linking of economic planning with service, human resources and asset management initiatives.
- Include the collection of research on the knowledge and abilities needed in order to effectively budget all levels of organizational management.
- Include the engagement of every key stakeholder in the planning of strategic finances.
- Come to consensus on what the budget process should be.
- Make sure that budgets include the recognition of financial plans.
- Integrate budget managers into budget setting initiatives.
- Connect every commitment and foreseen change in demand with the nearby and usable resources.
- React to unintended and unforeseen differences.
- Review budget structures.
- Engage with key stakeholders.
- Make sure that short term choices regarding budget setting don't weaken the priorities of long-term strategizing.
As the organization goes through the process, key decision makers should determine the types of policies that need to be in effect in order to be successful at each of the individual phases. Although these steps apply to a non-profit organization, the steps are valuable for any type of organization. Therefore, the corporate sector may benefit by comparing and contrasting how each of the sectors operate and discussing what works for both.
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(The entire section is 2739 words.)