FINANCIAL MANAGEMENT

• Each firm exists for a purpose and has goals to accomplish.
• To ensure performance, the team must optimize the use of all

  resources and appropriate techniques available at their disposal.
• Such resources include money,

  manpower, materials, machines, methods, information and technology among others.

  
  

  Managerial techniques include organizational structures, policies, strategies, standards and operating procedures.
• budget is a detailed plan for acquiring and using financial and other resources over a specified time period.
• Budgeting is the act of preparing a budget and budgetary control is the use of budget to control a firm’s activities.
• Purposes of Budgets

  objective is to promote a deliberate, well-conceived business judgment instead of accidental success in business management.
• Formalize the Planning Process.

  Perhaps the foremost purpose of budgeting is to compel managers to think about the future.
• Create a Plan of Action

  The planning process brings together ideas, forecasts, resource availability and financial realities to create a course of action to achieve the firm’s goals and objectives. Build the plan, and then use it!
• Goal congruence refers to a firm’s striving to achieve a common set of objectives.
• Aid in Resource Allocation

  Budgeting enables the firm to allocate its resources to where they can be used most effectively.
• Motivate managers

  
  

  (a) they participated in its making and thus take pride in achieving it;

  (b) thru the budget, they see clearly how their roles fit together with the firm as a whole and

  (c) because their promotion and incentives are based on performance, which include meeting their budget targets.
• Create a Basis for Performance Evaluation

  A budget serves as a benchmark or standard against which actual results are measured and managers’ performance are evaluated.
• Promote Continuous Improvement

  Budgeting quantifies and integrates into operational plans many improvement processes such as redesigning processes, increasing productivity, eliminating non value adding activities and minimizing quality problems.
• Create an Aura of Control

  A budget system serves as a fiscal disciplinarian and helps ensure that managers understand their authority, responsibility and limitations.
• A good budgeting system provides for both planning and control.
• Planning

  involves developing objectives and preparing various budgets to achieve those objectives.
• Control refers to the steps taken by management to increase the likelihood of attaining the objectives set in the planning stage and that all parts of the organization are working together toward that goal.