Introduction:
The aim of the assignment deals with the unit of 520 in managing finance of the business. Financial management skills are essential for the managers in the upper level management apart from whether there is dedicated finance team within an organization. Financial shrewdness further enhances decision making skills, which provides support to the management related projects, tasks and functional areas. Basically, the implication of the unit has been designed to enable learners to understand how financial systems performs within an organization. Learners will evaluate the sources of finance for organizations, and understand the principles for setting and managing budgets in line with regulatory and organizational guidelines. This unit has been designed to enhance the learner’s confidence and credibility in financial management, which will translate into improved management skills[1].
The leadership and the management decisions of the company must be effective and the parameters which are needed to improve it are depicted in the conducted study. The significant management responsibilities are discussed along with the changes which are made accordingly. The regulatory framework of the company have been discussed along with the necessary measures which must be undertaken are also evaluated. The budgeted forecast of the IT organization has been depicted along with the variances of the company has been made. The changes which must be made by the upper level management of the company has also been highlighted accordingly.
Discussion:
PART A – FINANCE FUNCTIONS OPERATIONS
This unit mainly focuses on the skills of the financial management which are significant for the managers apart from whether there is an enthusiastic finance team within an organization. Financial shrewdness generally enhances the decision making skills within an organization which further supports the management for the projects, tasks and the functional areas performed within an organization. The main implication of the particular unit is that it is actually designed in order to enable the learners to understand the financial system which is operated within an organization. The principles are needed to be understand in that scenario for setting and managing the budget within the regulatory and the organizational guidelines. The unit has been designed to further enhance the confidence of the learners and further the credibility in the financial management will further improve the overall management skills.
1. Understanding Finance within Organization
The key functions of the financial management are the financial planning where the main motive of the management is to increase the flow of cash in the business. The investment of the business must be effective in order to improve the overall financial wellbeing of the organization in that case. The key tools which are used to analyze the ICT Engineers are the Skills Matrix (Excel Spreadsheet) and Ivanti (Call logging system). These tools helped the IT organization to analyze drive quality, measure performance productivity, preventing poor performance and further identifying talent and potential.
1.1 Relationship between the financial function and other functional areas
It is needed to understand the financial situation of the organization by further analyzing the financial functions and the other key functional areas of the IT organization. In order to understand the skill measurement of the ICT engineers there are some application of tools and techniques. Further this tools helps to understand the existing skills, identifying the shortage in the skills and other mismatches and then train people in order to improve their performance. It is needed to manipulate the cost as per the current financial performance of the organization. The financial functions in the organizations are basically within the macro level and the project office teams treat in the same micro level.
The role of the finance department of the organization is that to manage the business functions associated in the financial department. The main business functions are the planning, organizing, staffing, directing and controlling the financial situation of the company. The role of the financial function is to evaluate the financial information’s. The financial departments used to calculate the Net present Value, Future Value, Present Value of the company and many more. The above discussed functions are the tools which are used to analyze the current financial position of the company. The decision undertaken by the financial management plays significant role regarding the acceptance or rejection of the projects in that case. The goals of the financial management are to make decisions in order to accomplish the financial goals of the organization.
1.2 Impact of financial objectives on decision making within organization
The objective of decision making in corporate finance is to maximize the value or the stock price of the firm. The financial objectives of the company are based on the size of the company and business of the company. The significance of financial decisions in the business is based on various factors in order to provide the growth in the overall business of the organization. The main reason behind the business failures is that the lack of financial planning, lack of capital, limited access to funding, unplanned growth, low strategic and financial projections, excessive fixed asset investment and capital mismanagement. The above mentioned failures are the challenges for an organization which must taken care by the upper level management of the company. The management in this particular situation needs to take stringent financial strategies which must be implemented by the organization in this kind of circumstances.
In an organization there are various kind of strategies which are involved in the decision making of an organization which are the investment decision making, funding decision making and working capital management of the company. Analyzing the financial position of the company for the last five years or more will automatically provide a clear picture to the management of the company for taking decision in that case. The performance of investment, funding and the working capital management of the company must be analyzed for the last 5 years or more will further help the managers of the company in order to take decisions in that case. The year is basically the time which is used as a parameter for the organization in order to take managerial decision[2].
1.3 Management Accounting and Financial Accounting
The term accounting refers to the recording, classifying and summarizing the monetary terms which are the day to day business transaction and further interpreting the results of the company. Based on the evaluation of results, the upper level management of the company takes certain decision in order to improve the overall financial position of the company in that case. Financial accounting deals with the preparation of the financial statement along with the income statement and balance sheet.
The financial accounting covers the entire financial aspects of the company, while on the other side the management accounting deals with the performance of the products and costs related aspect of the company. In case of the managerial accounting, the reports of the IT Company are generated based on daily, weekly or monthly basis. Report are used by the upper level management in order to forecast the performance of the business. But the financial reports are prepared based on the period of time which is based in term of years.
Management accounting is also referred to as the branch of accounting which deals with the financial reports and further used by the upper level management of the IT organization. These preparation of the reports are basically used by the upper level management of the company for the purpose of decision making. This report includes the sales forecast reports, budgetand comparative analysis, feasibility studies along with the potential merger and the consolidation reports. Whereas the financial accounting on the other hand deals with the production of the reports for the IT organization which includes the basic reporting requirements which are the profitability, efficiency , liquidity and solvency. This are the main parameters which are considered here in order to evaluate the overall financial performance of the IT organization [3]
1.4 Impact of Organization and Regulatory Framework
The financial management of the company must be effective which further means that strong financial management along with effective regulatory framework within the organization will automatically maximize the profit in the short term. In case of long term aspect,it will further help the company to increase the value of the shares. Effective financial management would further bring transparency in the figures and values of the business. The rules and regulation adhere must be duly followed by the company in order to achieve its potential business growth. The management system must utilize the effective tools and techniques associated with the organization in order to bring accuracy and transparency in the overall financial report of the company[4].
The company must always concentrate on the overall production of the business and try to minimize the cost of production. The profitability of the business must be maximized and the company must further keep in mind about the current economic situation. The IT organization must also ensure that effective flow of working capital in the firm which will automatically enhance the firm’s capacity to meet the current obligations of the business. The internal management of the organization must be responsible for the glitches in the system. It is then needed to remove the potential glitches from the system. If the operation of the company is constantly decreasing then it is the duty of the upper level management of the company in order to focus on the regulatory framework[5].
Certain changes in the regulatory framework will automatically boost the performance of the company. The term regulatory and conceptual frameworkmeans the set of rules and regulation associated in the accounting process. It is hence significant for the management to follow certain rules which are further based on the accounting standards.
1.5 Challenges Organization Faces in Finance
There are various challenges faced by the organization in case of recording or at the time of data entry. The potential errors in accounting are the error of omission, error of commission and many more. The organization must be error free and also be careful regarding the adjustments in the reports. The example related to the PESTEL analysis has been provided in the following table:
| Element | Factor | Business Impact |
| Political | The element that has been identified The key issues which are reflected here is that government spending and funding in the new projects. The political factors and decision taken by the government is ineffective. | What is the business impact of this factor This will definitely create impact on the project which is adopted by the organization. Government funding in the new projects are significant in order to improve the overall business objectives and further enhance the productivity in the business. |
| Economic | Inflation is one of the main economic issues which are faced by most of the organization in recent days. The economic challenges and the global economic system create a lot of problem in the system of the organization. | This factor actually puts impact in the pricing strategy of the goods and services provided by the organization. Hence, in such a situation the company needs to adopt some of the main policies in order to improve the business through effective productivity and pricing strategy in such a situation. |
| Sociological | The main social challenges which are faced by most of the organization is that poverty and the [6]poor education system. There are other various social factors which are caused in the society[7]. | Each and every organization have certain objectives towards the corporate social responsibility which the company needs to ascertain as it directly or indirectly creates impact on the sociological factors of the business. |
| Technological | The key challenges in the IT industry is regarding the security issue or rather the cyber crime in finance. Stealing the big data through the process of cyber hacking is a major issue in that case | This will create definite impact on the performance of the business in such a way like certain loss of big data. This will definitely harm the overall production and record keeping of the business. |
| Legal | The misrepresentation in the financial statements of the company affects the growth of the business. This happens as there includes lots of glitches in the rules and regulations or the regulatory framework of the company. | This create impact on the framework and policies adhered by the company. In such a situation the company needs to revise the current norms and improvise some of the new policies for the business perspective. |
| Environmental | The environmental challenges are the usage of plastics and gas omission by the company which generally increases the pollution of the company in various manne[8]r. This pollution actually harms the environment. | This further impacts the business in various ways like it generally hamper the reputation or goodwill of the company. |
PART B – MANAGING FINANCE
Budget of the company refers to the set of organizational goals and plan executed in order to accomplish the overall objectives of the organization in the coming months. Mainly the budget is forecasted on the current performance of the business in an organization. Budget actually involves the basic goals and objectives associated with the organization. The budget also helps to evaluate and further track the current performance of the business in an organization.
2.1 Budget Setting and Financial Forecasting
The financial forecast of the company is based on the current and past performance. In case of each and every organization, the firms tries to increase the rate of efficiency which the company will be achieving in the coming years. In this way the organization sets targets by executing the whole scenario by considering some of the key financial aspects and parameters in this case. In budgeting, the targets are time based and quantifiable which means that the increase in the volume of sales in the production process of the business
Budgeting is powerful tool used in order to manage the financial position of the business. This further helps the management to execute financing of the assets along with the projected balance sheet. The management of the company adopts certain policies and strategies in order to enhance the current performance along with the future perspective of the business
2.2 Budget Setting Approach Used by Organization
Basically budget is the outline expectation which the organization is trying to achieve in a particular period of time. The approaches used in the financial budgeting are the estimation of revenues and expenditures along with the expected cash flow system of the company. Budgeting and financial forecasting are the two major concepts where the financial forecasting estimates the amount of revenues which will be achieved by the company after a certain period of time.
The financial budget represents the overall financial position, cash flows and the goals along with it. The company’s budget actually evaluates the periodic performance which mainly depends on the management system and information related to the financial aspects of the business. By examining the future financial outcomes of the business from the historical data, accordingly strategies are taken by the company in order to accomplish the overall objective of the firm in terms of setting the budget. Regular update is done on the operation, inventory and the business plan. The management team utilizes the forecasted financial data along with the changes associated with it in order to take immediate action regarding the loopholes in the systems
PART C – BUDGETARY CONTROL
2.3 Financial Budget
From the above evaluation of the projected financial budget of the company has been forecasted by considering all the basic and additional requirements. From the evaluation of the above table it can be interpreted that from the budgetary expenses, the actual are slightly high which a good factor is the prediction is almost equivalent to the resultant output. The actual findings are comparatively higher than the budget which the management of the company needs to find reasons behind such huge variance. The above budget table further signifies that the strategy which is adopted by the management is effective regarding the formulation of such effective budget by ascertaining the fundamental risk associated with it.
The expenditure in the budget of the company must be analyzed in a detailed manner. Accuracy in forecasting the expenditures of the business is hereby significant in order to predict the revenue in the business. The main motive of every company while preparing the budget is to consider revising the expenditures in order to minimize it. Increased revenue in the business will automatically increase the tax which the company needs to keep in mind and hence take necessary actions accordingly. The economic and the current market situation create impact on the financial forecast of the company in various aspects. If the rate of return outperforms the prediction in the budget, then the company will likely to have potential surplus out of such financial forecast.
2.4 Factors that impact on Budget
The factor which creates impact on the budget is the economic and political factors. The certain changes in the authorities of the organization also create potential impact on the budget. The organization needs to focus on the changes related to these factors or rather the targets which are set by the management in such circumstances. Hence identifying the potential political and economic factors are significant for the organizationin that case. The change in government of the country will also put impact on the overall performance of the financial management of the company.
The necessary measures are needed to be taken and various facts must be kept in mind by the high level authorities in order to bring some of the significant changes in the organization. The political factors may or may not influence he financial position of the business. In order to enhance performance of the business as a whole the company needs to increase the level of production. It will only be possible to increase the level of production by considering the cost which is incurred for the initial procurement of raw material. Hence in this situation the inflation rate varies on the economic and political factors associated in the country. The company needs to forecast the impact of the economic and political factors in the business. Accordingly it is significant for the company to take decision in order to improve the overall performance of the business.
Apart from that, the prediction of the budget creates impact positivelyor negatively, when the actual revenue received is not as much as the anticipated one. The above discussed externalfactors affects the revenue in various way such as the economic downturn, unexpected competition causing the lower sales along with the inability to sustain the level of growth needed. There are also the internal factors which are the inadequate collection and improper account receivable management of the company will also create negative impact on the revenue of the company. Aggressive projection assumes that higher rate of growth or rather increase in the revenue of the business shows much greater potential of inaccuracy, rather than the conservative way of predicting the previous year’s data.
2.5 Corrective Measures taken in case of budgetary variance
The significant role is played by the management of the company in terms of the budget variance. The variance takes place when the actual differs from the predicted budget made in the system. The company in that case needs to take preventive measures in order to understand the reason behind such difference. The variance may be favorable as well as unfavorable for the business of the organization[9]. The positive variance of the company refers to that variance when the actual amount of the company exceeds the budgeted amount. The negative variance of the company refers to that variance when the budgeted amount is higher than the actual amount of the company; hence the actual amount falls short on the budget. [10]
The effective can be analyzed from the cash flow statement of the organization where entities cash is being generated is cash inflows, and where its cash is being spent is cash outflows, over a specific period of time usually quarterly and annually. It is important for analyzing the liquidity and long term solvency of a company. The cash flow statement uses cash basis accounting primarily used for preparing balance sheet and income statement of the organization. This is significant as company may accrue accounting revenues but may not actually receive the cash
Effective investigation regarding such major variance can result in the decrease of such variance in the future. This depends on the potential of the management to identify the glitches associated with such major variance in the business. Managers of the company must execute the reason of such variance and must take effective measures in that case In case of shortfall or losses in the variance it indicates that company is ineffective to forecast the performance of the business. Hence the upper level management of the company must take certain steps to bring transparency in the forecast. Due to the external disturbances or problems is the main reason behind the huge differences in the shortfall of the company[11]. In case of the static budget, the actual variance is similar to the budgeted variance of the company. This further means that the company is effective in predicting or rather making the financial forecast.[12]
2.6 Reporting Procedures for authorizing corrective actions of the budget
Budget monitoring plays significant role which is the comparison of the actual and budgeted income and expenditure. SAP is software used to prepare budgetary reports which further minimizes cost and risk, enhances the business operations through productivity and financial management. Based on the preparation of the report, the upper level management of the company must take corrective measures [13]in that case. Improving some of the business parameters will definitely improve the overall performance of the IT Company [14]
Conclusion
From the above discussion it can be concluded that, the managers in upper level management of the business takes initiative in order to improve current business of the company. The whole assignments are rather divided into three sections which are the operations related to the financial functions, managing finance and the budgetary control. In case of the financial function within an organization as well as the challenges faced during the process has been outlaid in this assignment. In case of managing finances, the operation and the financial performance within an organization has been depicted in the conducted study. It is significant for the organization to analyze the past performance and the glitches associated with it in order to rectify it for enhancing the overall performance of the organization in recent and coming years. Necessary budget has been formulated in order to certain the accumulated risk and strategies involved with it. Details of the budget and further the corrective measures which are needed to be taken are being depicted in this assignment.
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