Manage budgets and financial plans

1. Manage budgets and financial plans Element 2 – Monitor and adjust performance strategies

2. 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.

3. 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.

4. 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.

5. 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 non-financial 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.

6. 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.

7. 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?

8. Monitor and adjust performance strategies In the next elements we will continue to explore the monitoring, adjusting and controlling of performance strategies and finances.