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Strategic Financial Management
9 February 2012Jacqueline Williams
AAA Consultancy Services Ltd
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Aims of the session
• Understand the role played by strategic financial management in making and implementing decisions
• Highlight the importance of using key financial management tools to develop, deliver and monitor local priorities implemented in accordance with national policies
• Explore ways of comparing own strategies and budgets with those of colleagues, and to carry out benchmarking exercises as appropriate.
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What is Strategic Financial Management?
Strategic planning Financial planning
Strategic financial planning
The individual activities of a strategic plan are translated into financial figures to estimate future funding needs, and corresponding resources are analyzed for the strategic plan’s implementation. 3
Key Elements of Financial Management:
• Good governance and leadership • Strategy and planning • Budgeting • Monitoring, forecasting and reporting • Risk management and internal control • A thorough understanding of costs, cost
behaviours etc • Roles, responsibilities, skills and competencies • Value for money
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A look at Strategy Development
• Strategy is about giving an organisation purpose and direction, motivating governance, staff and collaborators to engage meaningfully with the external and internal environment – linking in to resources and end beneficiaries
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Three Big Strategic Questions
• Where Are We Now?
• Where Do we Want to Go?
• How Will We Get There?
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Developing a Strategy is a Journey
Developing aVision/mission
Setting objectives Implementing the plan
Evaluating performanceEnvironmental
Analysis
Crafting the plan
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The Steps in Detail
Developing aVision/mission
National Requirements
Local priorities
Aims 1)
2)
3)
4)
Vision: tends to be aspirational – where the organisation wants to be in the futureMission: statement of purpose – describes what an organisation is there to do
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Steps in detail Cont …
EnvironmentalAnalysis
External
Internal
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Steps in detail Cont …
Setting objectives
Strategic
Financial
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Steps in detail Cont …
Crafting the strategy – the service plan
Writing the plan
Budgeting
Setting the goals/targets
Identifying keyStakeholders
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Steps in detail Cont …
Implementing the plan
Change management
Project Management
PerformanceManagement
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Steps in detail Cont …
Evaluating performance
Outcome Assessment
Continuous Learning
Monitoring and Review
Measurement andAnalysis
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Financial planning – Four Stages
Review the past
Forecast the future Set annual budgets
Set the strategy
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Why is it Important?
• Financial management:– is essential to good corporate governance;– forms part of the firm foundations of an organisation,
underpinning service quality and improvement; and– is the basis of accountability to stakeholders for the
stewardship and use of resources.
• It is about managing performance and achieving an organisation’s strategic objectives, as much as about managing money.
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Poor Financial Planning :
• Adversely affects end beneficiaries• Will lead to money being spent inappropriately • Will result in failure to achieve national and local
priorities
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What are Budgets?
• The financial description of an action plan for a given period
• Expressed in money terms• Detailing both Income and Expenditure • Based on knowledge and assumptions• Against which actual performance can be
measured.
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The Purposes of a Budget Are:
• To coordinate different activities toward a single plan
• To communicate and set targets• To maximise and allocate resources• To identify financial problems• To establish a system of control by having a
plan against which actual results can be compared
• To compel planning
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Setting Budgets
Servicecommitments
Demands Priorities
Annual Budget
Financial Plan 19
Learning
Budget Preparation
Calculating
Negotiating
Revising
Agreeing
Budgetary Control
Checking
Investigating
Projecting
Acting
Budget Management – Two Processes
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Who should be involved in budget creation
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Value for Money
Inputs
Objectives
Outputs
Econ
omy Effectiveness
Efficiency
Where an organisation acquires resources at the lowest cost
Where an organizationobtains maximum output from
a level of acquired resource inputs
The extent to which the desired objectives
are achieved
Outcomes
Value for
Money
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Good Financial Management – Underpinned by:
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Organisation Culture Impact on Financial Management
Centralised Devolved
Power to make important decisionsvested in only a few
Power to make important decisions
delegated to different levels
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Linking financial management and Strategic Planning
Strategic planning
Fin
anci
al p
lan
nin
g
Short Term Long Term
Short Term
Long Term
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SFM for us
Strategic financial management in councils
Delivering services with a reduced income (audit commission report September 2010)
Identifies the challenges:• Demand for local services is growing; while• Income from fees and charges is reducing• Decline in investment returns and interest rates• Govt aim to eliminate the structural deficit
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SFM for us
Strategic financial management in councils
Delivering services with a reduced income (audit commission report September 2010)
Audit Commission research shows:• Councils that take a long term view are well placed to
respond proportionately• Those that have focused on a closer horizon are likely to
find it harder to adjust
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SFM for us
Strategic financial management in councils
Delivering services with a reduced income (audit commission report September 2010)
Audit Commission recommends that:• Councils should review the relevance and the volume of
services they provide and challenge the design, management and delivery of services
• Councils use the financial management checklist to test their financial management approaches, and
• use the value-for-money self-assessment to assess how prepared they are for the future
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SFM for us
Strategic financial management in councils
Delivering services with a reduced income (audit commission report September 2010)
• Councils have to review their priorities and reassess their definitions of front-line services to fit their reduced income
• Everyone needs to understand the financial impact of objectives, priorities and actions
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SFM for us
• Assess how well you are managing money in the changed economic circumstances
• Identify improvements needed to achieve good outcomes
• Using the spending review framework 9 questions as part of this assessment
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SFM for us
• Expecting and managing financial risks for the short, medium and long term
• This can be done using financial and other information to base decisions on the impact, likelihood and potential financial effects of risks
• Enables recommendations relating to contingency planning and (use of) reserves
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