Health Care Budget Paper Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds for an organization. It means applying general management principles to financial resources of the enterprise or organization. The scope of financial management can cut across a wide range of the organizations departments and can involve investment decisions including investment in fixed assets. Investment in current assets is also a part of investment decisions called working capital decisions.
Financial management also involves making financial decisions. These relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby. Dividend decisions are also part of financial management. The finance manager has to take decision with regards to the net profit distribution. Financial management is generally concerned with procurement, allocation and control of financial resources of a concern.
The objectives can be to ensure regular and adequate supply of funds to different departments of the organization, to ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders, to ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost. Also financial managers ensure safety on investment making sure funds should be invested in safe ventures so that adequate rate of return can be achieved. Finally they also plan a sound capital structure.
There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital. FINANCIAL MANAGEMENT PRACTICES EFFECTIVE IN CREATING AND MONITORING AN OPERATING BUDGET: Certain Financial management practices have shown a considerable amount of success in the area of developing and monitoring operational budgets. Some of these effective practices are discussed below: Link budget development to corporate strategy: The budget expresses how resources will be allocated and what measures will be used to evaluate progress thus, budget development is more effective when linked to overall corporate strategy.
Linking the two gives all managers and employees a clearer understanding of strategic goals. This understanding, in turn, leads to greater support for goals, better coordination of tactics, and, ultimately, to stronger companywide performance. Companies that apply best practices find that communication plays an important role in creating this link. Design procedures that allocate resources strategically: Within any company, competition for resources is inevitable. Every function and business unit needs funding for both capital and operating expenses – usually in excess of the actual resources available.
This makes it critically important for companies to design procedures so that resources are allocated to support key strategies. Organizations that adopt best practices find that resource allocation is part science, part art. Fortunately, following certain best practices leads to better results. One such practice is coordinating the review of operating and capital budgets. Doing this gives managers insight into the ways in which changes in one budget affect the other. Tie incentives to performance measures other than meeting budget targets: Many organizations still evaluate managers primarily on how closely they hit budget targets.
While this may seem logical, in reality this type of one-dimensional evaluation tempts manager to manipulate figures in order to hit budget targets. Such manipulations are not always in the Organization’s best interest. In organizations that adopt best practices, meeting budget targets is secondary to other performance measures. Such companies use a balanced set of performance measures to chart progress toward strategic goals, and use the same measures in their incentive programs. This reinforces the importance of key strategies and communicates what results will be rewarded.
Link cost management efforts to budgeting: By linking cost management efforts to budgeting, companies improve the quality of information available for managers to use in developing their budgets. Accurate cost information is fundamental to budgeting. Companies that use accurate cost management techniques and provide budget developers with ready access to cost information improve both the accuracy and the speed of their budget process. Reduce budget complexity and cycle time: Organizations strive to reduce budget complexity by streamlining budgeting procedures.
Such streamlining allows management to collect budget information, make allocation decisions, and communicate final targets in less time, at lower cost, and with less disruption to the company’s core activities. Develop budgets that accommodate change: By developing budgets that accommodate change, companies can respond to competitive threats or opportunities more quickly and with greater precision. They can use resources efficiently to take advantage of the most promising opportunities.
Furthermore, knowing that budgets have some flexibility frees budget developers from the need to cover a wide variety of possible developments. FINANCIAL MANAGEMENT PRACTICES LEAST EFFECTIVE IN CREATING AND MONITORING OPERATIONAL BUDGETS: Some financial management practices in Organizations make for poor budget creation and monitoring. Some of these practices include the following Running Parallel Budgets in the same organizations: In some organizations, different departments create and run individual budget separate from the organizational budgets.
This usually happens in very large facilities that run departments with huge budgets. In as much as it might be convenient in some situations, it makes for poor monitoring of the budget in such organizations. Complex and frequent budget cycles: Increasing the amount of detail reported in a budget can be counterproductive at best. This brings a lot of confusion resulting in poor understanding of the budget and consequently, vision of the organization. Also having frequent budget cycles leads to poor monitoring of the operational budget.
High cash flow systems: Organizational financial systems that accommodate increased amount of cash flow are usually susceptible to fraud and poor financial management. Cash flow is difficult to keep track of and thus this can result in poor monitoring of the budget. Poor resource allocation: Organizations that do not have a developed systematic method of resource allocation will find it difficult to create and monitor competent operational budgets. Resource allocation should be systematically and objectively mapped out so that the budget will have maximal positive impact on the organization. CONCLUSION:
Financial Management is an important component of every successful organization. The role of financial managers has been well illustrated in this paper and it is apparent that proper financial planning is essential for any organization to extract maximum benefits from their operational budgets. Creating and monitoring Operational budgets for organization is a very intensive process requiring business and financial articulation. Certain organizational financial management practices facilitate this process of budget creation and monitoring while certain practices actually undermine the process.
Some of these practices have been well discussed in this paper with the intention to enlighten and prepare managers for the task ahead. REFERENCES: 1. Financial Management- meaning, objectives and function. Retrieved from: http://www. managementstudyguide. com/financial-management. htm 2. Best Practices: Developing Budgets. Retrieved from: http://www. inc. com/articles/2000/01/16379. html 3. Finkler, S. A. , ; Ward, D. M. (2006). Accounting Fundamentals for Health Care Management. Retrieved from The University of Phoenix eBook collection.