Manage budgets and financial plans
Element 2 – Monitor and adjust
performance strategies
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Monitor and adjust performance strategies
• Organisations use financial information to control the activities of the
business and to plan future activities. They also use this information to
raise finance and report various activities to relevant stakeholders.
Information is not only provided concerning the whole organisation but its
different departments, work units and individual employees.
• If the organisation is a company, there is a legal requirement to publish
financial information. This information provided to stakeholders by
organisations is usually through annual reports and financial reports.
• There needs to be a high level of integrity when developing information
about an organisation’s financial performance. Since some of the
information produced will be available publicly, the public will also include
your competitors.
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Users of financial information
• No matter whether financial information relates to the
individual or the organisation the users of this
information fall into two categories:
– Internal users: those inside the organisation, such as mangers
or the business owner
– External users: those outside the organisation, such as banks,
taxation authorities, investors and so on.
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When are reports done?
•
The answer to this will vary from one organisation to another. Generally
organisations will agree on particular cyclical periods such as:
– monthly reports
– quarterly reports
– and an end of year (close off) report.
•
A balance sheet is a statement that shows all the resources controlled at one point
in time, and a profit and loss statement is a report listing the revenues, expenses,
and net profit (loss) over a period of time. Therefore these two financial reports
can be prepared any time.
•
Some organisations have sophisticated IT and accounting systems that allow ‘real
time’ reports to be prepared on an as-needed basis.
•
External stakeholders of the financial information may seek information for
taxation purposes, investment purposes and so on. They may seek this information
quarterly, six monthly or annually. Companies must prepare end of year reports
sometimes in the form of annual reports.
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What type of activities get reported on?
•
This will vary from one organisation to another. It will also depend on whether you
are providing information internally or to external stakeholders.
•
The financial performance of any organisation is gauged by comparing the actual
outcome of the organisation’s activities against the planned outcome.
•
Information is useful to the user only when:
– it provides details for decision making
– is provided quickly in order to make these decisions
– is in a format that is understood by the user.
•
Often non-financial reports are prepared in conjunction with the financial reports.
Occupational health and safety and environmental activities are some of the nonfinancial information that is typically reported. We could argue though, that these
two activities – if they’re not managed effectively – can have a huge financial
impact on an organisation. The combination of all these activities reveal the
overall performance of the organisation.
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Who prepares the reports?
•
This will vary depending upon the business structure, eg a sole trader or a
company, and depending upon the size of the organisation.
•
Smaller organisations or sole traders may engage their accountant to prepare the
relevant reports. Alternatively some software programs, including MYOB, QUICKEN
and Microsoft SMALL BUSINESS have reporting tools allowing anyone who has
access to this software to generate reports. You can find other software by
entering ‘Financial information systems’ to your internet search engine.
•
In larger firms, specialist people may prepare these reports. For example a local
council would have a separate accounting department that would manage all the
finance matters including accounts receivable, accounts payable, payroll and
procurement. They would also generate the reports and distribute them to the
relevant people.
•
In very large organisations, eg multinationals that operate several businesses and
in many countries, sophisticated IT systems are needed to integrate and support
the collecting, storage, processing and reporting of financial reports and
associated information. For this reason it is not unusual in such organisations that
IT staff are involved in report generation.
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Techniques for managing financial performance
• We can use a number of techniques for financial analysis. They range from
simple techniques, such as studying the financial statements, and forming
a rough opinion of what is happening to detailed and expensive statistical
techniques.
• As a manager it is important for you to consider the following when
analysing most financial information:
– look at it in the wider context of industry, consider the political and social
environment and any trends that have been occurring over the last few
financial periods
– ensure it has been targeted to meet the needs of the user
– ensure the base information was good to start with, otherwise it could result
in what is commonly known as Garbage In Garbage Out (GIGO)
– if it involves comparisons both over time and between firms, this may impose
limitations, for example, how accurate is the other firm’s financial
information?
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Monitor and adjust performance strategies
In the next elements we will continue to
explore the monitoring, adjusting and
controlling of performance strategies and
finances.
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