Managing Finance

Introduction

Financial Management has two components to make the managing of finance successful. It should be a combination of financial responsibility and accountability. The financial responsibility means understanding the revolving issues and ensuring the organization about its future position. The responsibility primarily involves the budgeting, income generation, risk analysis, cash-flow analysis, book-keeping and record keeping, and financial reports. All these responsibilities are critically assessed because it may affect the decision making of a firm.

On the other hand, the financial accountability is the most serious part of an organization. Its main function is to clear the issues about the money and control over it in many of the financial decisions. The accountability adopted the organizational budget and cash-flow to determine if the organization is still on the track and keeping the market. Parts of the report are the income and expenditures of the business, assets or the values that the business owns, and the liabilities or what was the business owes (Khan, 2006).

The financial management function of a firm, deals with the management of the sources and utilizing the finances. It is a common strategy for the firm to enter in a transaction with the suppliers of finance, like debt-holders or equity-holders, when raising capital. A firm should understand that different type of financing is also associated with different levels of costs (Kochhar, 1997). It is a thrust for a firm to seek in a sound financial management which provides the firms with the capability to obtain the economic stability. It is believed that the capability and control to utilize the resources will reflect on the performance of the firm.

Company Demonstration and Application

Cost Concept and Application to the Decision Making Process

As the economical conditions continuous to threat many business enterprises, it is expected that these firms will go through series of brainstorming and risky decision making. The most common decision that they made is downsizing the financial attributes to answer the call for competition and community welfare (Spitzer and Tobia, 1993).

The concept cost is founded by four elements: the material, labor, expenses, and overhead. If a firm attempted to cut theses elements, the goal of the business might be at risk because the loss of force is the loss of chances to win. There is nothing wrong with the plan to lessen the financial advantage but in reality, the organizations use to risk it all. It is so plain to see that the firms that chose to cut the cost more than the expected or anticipated interval is more prone in repeating their actions.

Cost-cutting actions do not remove work, only the people who do it that is why expenses are the one affected. It is in favor in some organizations like the small enterprises that can fully function without the aid of the other. But in organizations that find difficulty in adopting the concept, they will discover that the work itself remains and a need for help is intense. To answer this dilemma, they hire and the cost-cutting cycle repeats itself (Spitzer and Tobia, 1993). The concept of opportunity costs is more popular alternative than letting the cost-cut. Opportunity cost means something a firm must sacrifice in exchange of something. Although the opportunity cost is only ideal when there is an alternative for the needed materials of firm, more specifically on manufacturing firms.

Control Cost and Budgetary Process

A good managing financial aspect effectively reduces the expenditures without the use of their defensive strategies but can face strategic consequences for an organization’s products, customer relations, and people. Therefore, strategically managing costs are indeed needed. Managers and workers should improve their quality of work despite of cutting the costs allotted for them. A strive to please the customers, intense productivity control even in shrinking workforce, and improve decision making are the activities that goes after the cost-cutting decisions. The firm may not be brought into the strategic vision and might minimize their competitive advantage (Spitzer and Tobia, 1993).

When a company has a research and development department, the budget allotted to the department is also a subject for cost-cutting that can affect the entire industry. The potential way to deal with the research program can cause the people too much stress and the investment given to a new product has a probability to make the return slow. Many executives and managers look to the financial report insight but only few can understand the essence of it or what was the report is trying to convey. The misinterpretations can contribute for the misleading information in making decisions (Spitzer and Tobia, 1993). Successful business leaders work hard to understand the cost of doing business. When the true costs are known, the leaders move to eliminate products that are produced at loss and providing other alternative or option to satisfy the demand.

When an organization identified the true costs, the right decisions about the critical issues of products and services can be offered and can reduce complexity. In a well-managed firm, management undertakes the necessary analyses and looking at all activities with a critical eye toward improvement. As part of their daily routine, managers initiate immediate actions to change business practices and systems and improve the work environment. Effective cost managers retain their organization’s decision-making prerogatives and do not depend on recommendations from outside consultants. It is better to involve the workers in making decisions because they are the key people that can implement the settled decisions (Spitzer and Tobia, 1993).

Scope and Practicalities

The scope of any decisions and managing costs can be varied most especially when a firm is too big. The scope is usually comprises with the developmental cost, operational and maintenance costs, the skill level of the people and the field in use. The feasibility of the decision whether success or failure may affect the project’s reliability, accuracy, sensitivity, discrimination, response, robustness, yield, operability, and purity (Harckham, 2002).

References:

Harckham, A., (2002) Project Management, APEC R&D Management Training Program [Online] Available at: http://www.ordinoinc.com/Project%20Management%20Lecture.pdf [Accessed 22 October 2009].

Khan, A., (2006) Managing Finance, Governing and Managing Organizations [Online] Available at: http://www.akdn.org/publications/civil_society_booklet7.pdf [Accessed 22 October 2009].

Kochhar, R., (1997) Strategic Assets, Capital Structure, and Firm Performance, Journal of Financial and Strategic Decisions, 10(3) [Online] Available at: http://www.studyfinance.com/jfsd/pdffiles/v10n3/kochhar.pdf [Accessed 22 October 2009].

Spitzer, T., & Tobia, P., (1993) Try Managing Costs, Not Cutting Them, USA Today Magazine, 122(2582)