Effective financial management innovations that perform beyond budgeting
As global business challenges have increased manifold, the need of the hour is having an effective financial management, which can deliver the results, instantly. Therefore, in the current competitive conditions, few organizations can afford to remain tied up to the yearly planning and budgeting process, which have proved as a constraint to the taking sharp decisions, in response to the changing needs. Accordingly, various dynamic organizations have invented different coherent models based on developing accountability to front-line mangers. However, it is essential to understand that each organization has particular type of financial needs and expectations. Hence, single yard stick may not apply to all companies.
In addition, the financial innovation and integration would largely depend on the type of industry and the forces of competition which are associated with it, locally and internationally.
Requirement of coherent model
Effective financial management requires demonstration of a consistent and result-oriented leadership. Hence, the Leadership principles of coherent model needs that each employee of the firm is focused on customers. In addition, this model includes organizing effective network of accountable teams, making every one responsible for his/her job, while the same should have freedom to act. These principles would also include bringing transparency in the organization, while values, goals and limits should be clear to all. The process principles of this model would require business groups setting targets that need continuous improvement, rewarding shared success based on performance, while planning should be an inclusive and continuous process. These principles also include monitoring processes with coordination of dynamic interactions, while ensuring the availability of resources, as they are needed.
Budgetary control blocks risk management
Financial service organizations have been feeling the importance of effective financial management in terms of better risk management, in their accounting processes. However, budgetary exercise has proved to impede the performance and success rate of risk management methods, as they are designed to support the budgetary controls, which cannot envisage all the risks that might take place, in the whole year. This in turn would motivate mangers suppressing uncertainty, which in itself means discouraging them to participate in risk management.
Therefore, allocation of resources and monitoring of different processes should be a continuous process, which goes beyond budgeting. However, the financial approach with a wider vision, which focuses on the needs of present as well as the future also, would prove to be the result-oriented action, in this direction. Nevertheless, each financial manager should have the liberty to develop tools for achieving such results.
As we will continue with our edits on effective financial management issues, in future entries on these pages, readers can also look at others to gain knowledge about other themes.