Finance management

What is Finance management?

Usually as part of Finance management, Management accounting, Statutory accounting and Tax, Funding, Treasury and Performance measurement are considered. Management accounting is defined as follows:
 
- Planning;
- Budgeting, pricing and costing;
- Accounting;
- Reporting.


Performance measurement may be considered in conjunction with reporting, but because of its close connection to Business strategy, I consider it as a separate category conforming to Finance management.

Why is Finance management important?

Finance management can be perceived as a specialised management activity on one hand; and on the other hand it can be viewed as a source of information of a certain regulatory function for all other management decisions. The role of Finance management is changing today. It is not any more sufficient for a finance manager just to prepare plans and budgets and then stringently monitor their compliance. Today’s competitive business environment requires from a finance manager to become a partner of other managers in order to provide them with his/her expertise for making decisions. This amends the qualification requirements of the successful finance manager; who must be knowledgeable of legislative frameworks as well as the problem at hand of the particular business.
There is a link between this change and the information for decision-making, provided by corporate finance systems. This information has to be designed and made available in such a way so as to support managers in their typical decision-making requirements. These decisions must consistently lead to achieving financial objectives of the company. Additionally, the finance department needs to prepare information and analyses for non-regular and sometimes unique decisions that usually have a long-term impact on a company’s performance.
 

What is the aim of improvements in Finance management?

Each operating company has to have a Finance management system. However, in many companies, the external function of Finance management is often considered to be of key importance. This is concentrated on statutory accounting, tax management and funding from external sources. Such an approach prevents finance departments to become partners of other managers in their decision-making, because they are not able to deliver necessary information. Objectives for the improvement of the finance function are therefore, finance information better tailored to the specific business, and more accurate data specifically for cost items - and sometimes this may include cost reduction in finance departments. There is also an overall objective in the implementation of better, integrated information systems for Finance management. Typical objectives for individual segments of Finance management are as follows:

- Financial controlling: re-design of the system to reflect new requirements of the business development;
1.Planning: creation of a better link between business strategy and business plans, application of planning methods that generate better motivation, risk management;
2.Budgeting, pricing, cost accounting: pricing policies, budgets for specific activities (R&D, capital expenses, etc.);
3.Management accounting: modern methods of allocation of overhead costs (Activity Based Costing), review of information for decision-making;
4.Reporting: information for control, ad hoc analyse;
- Accounting: outsourcing, establishment of Shared Service Centres;
- Funding: cash management (cash pooling), risk management utilising financial market tools (treasury);
- Performance management: implementation of new financial performance criteria methods (Value Based Management), connections between objectives, performance criteria and business strategy (Business Balanced Scorecards).

What is the result of improvements in Finance management?


Project outputs are changes in its format and the content of reports for management, changes in methods and processes, reviews of organisation structure and the implementation of new systems. These changes do not only influence finance departments, but in most cases also affect all other departments too.


What are the benefits of improved Finance management?
Cost savings in finance departments are negligible compared to possible leapfrog improvements in the quality of the management of all business activities. The benefits arising from better Finance management are therefore, to identify improvements in overall performances of the company - both by cost reduction and by revenue increases. However, similarly as in other projects encompassing change, one has to identify, quantify and solve possible benefits in advance.

Why engage an external consultant?

Despite differences of Finance management in various businesses, there exists a relative capacity for the utilisation of standard and proved solutions. Provided that the consultant has experience from other companies, he/she can save much time and resources so as to prevent the development of something that already exists.

My own experience

- Process improvement in dealing with accounting information for decision-making in a subsidiary company of an multinational engineering company;
- Review of management accounting methods in a large Czech chemicals company;
- Pilot project of overhead cost allocation (Activity Based Costing) in a large Czech insurance company;
- Pilot project of a management information system based on Balanced Business Scorecards in a large Czech insurance company;
- Implementation of treasury in an important Czech financial services company;
- Pilot project of the utilisation of Value Based Management in a department for the production of engines and gear boxes in Škoda Automobiles;
- Improvement of management accounting in the production of single purpose machinery for companies involved in a project funded by CzechInvest;
- Implementation of Balanced Business Scorecards for performance measurements in several companies in relation to broadly defined projects.