Financial management in a competitive and resource constrained world
The traditional view of financial management is that it provides
- systems and procedures for ensuring compliance with the information requirements of capital and fund providers; and
- information for the day to day decision making of operational management.
FJP is accomplished at designing, implementing and running such systems, sometimes on an outsourced basis for our clients. Such traditional reporting and decision support systems can be labelled as systems that provide “financial control”. When properly developed with the right expert advice and experience, an organisation can find itself in the “financial control” position of the planning and control matrix shown below.
Some organisations never get there. Entities vary greatly in the way in which they attempt to control planning outcomes. The attempt to control and evaluate planning outcomes is complicated by the degree to which planning has been undertaken in the first case. “Loose Control” organisations, in the sense of the classification of the matrix, have a high planning influence but adopt a flexible approach to evaluation and control.
Simply put, they plan, but do not deliver. In these cases, managers are not provided with the type of incentive and evaluation which consistently relates their actions to the overall purposes of the strategy. They may end up as freebooters acting on their own account, rather than in the interests of the entity.
A Planning & Control Matrix
In times of economic prosperity, as in the decade leading up to the global financial crisis of 2008, organisations can often sail through, relying primarily on traditional financial control systems. However, Financial Control entities rely largely on financial measures of performance which can miss many of the aspects of strategic control which are necessary to ensure that plans are actually being achieved; this type of organisation may use tight financial control as a substitute for a holistic planning approach. In a harsh competitive environment, such as in the period since the 2008 financial crisis and the 2010 sovereign debt threat, survival may require much more!
In the middle of the matrix is the entity which uses a variety of control methods and gives a balanced weighting to planning and control influences from both financial and operational sources. This approach to integrating financial management with operational performance measures to achieve “strategic control” can be the difference between survival or demise in a demanding and harsh economic environment. As the sovereign debt crisis of 2010 shows, this reality applies to all forms of entity – private, not for profit and public.
FJP commands the knowledge, experience and skills that are required for making the transition to strategic control by ensuring the integrated deployment of financial management information. We recommend that:
- The first stage in the control process should involve the selection of relatively few appropriate objectives within an appropriate performance management system (see our capability building services).
- From these objectives, suitable targets, for results and staff behaviours, can be derived so that pressure can be created for effective strategic performance, but without setting up a costly bureaucracy to achieve it.
- A series of milestones can be identified which are tracked over time; these serve as benchmarks for evaluating strategic performance, and provide early warning of deviations from expected outcomes.
- Financial measures must be integrated with operational indicators to provide the overall strategic view which is necessary for survival and/or competitive advantage.
- Many of the operational objectives and targets cannot be measured with accuracy, and a great deal of subjective evaluation is necessary.
The experience of your expert adviser in designing and providing guidance to a feasible strategic financial management process will be essential. Finally, the inherent capability of your staff to cope with:
- the judgement calls
- the discipline demanded by the process and
- the likely demand to implement a change of staff behaviours and corporate values to sustain the strategic change will be central to your success.
If you are ready to move beyond traditional uses of financial management for private, not-for-profit or public sector environments, then you need to talk to FJP.