Why financial management is important

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One of the biggest problems that today’s organizations present is the lack of instruments that allow them to permanently evaluate the possible deviations that occur within their core operations, for this reason, it is essential to forge a set of tools that help them to improve their work in front of the company as a whole.

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importance of financial management

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Economic organizations as entities designed by people to achieve individual and collective ends, currently have a great challenge compared to the control systems they apply in their daily operating activities,

which is why it becomes viable to establish some support points for establishing the necessary tools to have a good inspection and verification system, which in the short term will give us the lights to assess whether the procedures being implemented are adequate and those that provide us with the greatest benefit.

Since organizations can plan and implement changes in their fundamental character and structure for the aforementioned, the concepts of effectiveness take on great importance as they affect the relations between the organization and the environment and efficiency because they affect the internal structure and activities of the organization.

The instrumental activities at the service of corporate objectives are summarized in commercial exploitation, production, provisioning, investments and financial maintenance, for this reason it is vitally important to create the necessary links between the entire set in order to structure a good system that provides greater security and stability to the organization.

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Management systems

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The company permanently overlaps two different management optics:

  • Present: The management system is based on the philosophy of management by objectives, delegated by the general management.
  • Future : The management system must be supported by a planning philosophy, driven by actions for change.

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Financial management

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Financial management is closely related to decision-making related to the size and composition of assets, the level, and structure of financing, and dividend policy,

 focusing on two main factors such as profit maximization and wealth maximization, for achieving these objectives one of the most used tools for financial management to be truly effective is management control,

which guarantees to a high degree the achievement of the goals set by the creators, managers, and executors of the financial plan.

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Management control system

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It is active or proactive when it collaborates with the proper functioning of business management, structuring itself in essential stages, these are:

  • Establishment of hierarchical short and long-term objectives
  • Establishment of plans, programs, and budgets that quantify the objectives.
  • Establishment of organizational structure (Execution and control)
  • Measurement, recording, and control of results
  • Calculation of deviations
  • Explanation of the origin and causes of the deviations
  • Making corrective decisions
  • Management Control Objectives
  • Global interpretation of all managerial functions.
  • Integrate strategic and operational variables.
  • Correct decision-making for the present and the future.
  • Build the right management indicators.
  • Continuous improvement of results.
  • On-the-go correction of deviations
  • React to changes.

 Management control can be a very supportive tool for obtaining the results that the company wants to obtain in the immediate future.

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Instruments

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  • Financial Accounting
  • Internal audit
  • Management accounting
  • Ratio analysis
  • Internal audit and control
  • Control panel
  • Operational audit

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Fundamentals of management control

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  1. General management as an integrated business process

The economic-financial activity of a going concern consists of bringing together the factors of production (INPUTS), to sell (OUTPUTS) goods and services for consumption.

The general management is the one-person body that continually makes decisions within a framework of uncertainty that must obtain satisfactory results for all the internal and external factors of economic-financial activity.

  1. Control of managerial functions

It is conceived about a company that in its ordinary management is carrying out medium and long-term plans and programs coinciding with day-to-day management, continuously turning information into action through decision and control.

  1. The management control system through plans and budgets

It is an information-control system superimposed and linked to management that aims to define compatible objectives, establish appropriate follow-up measures and propose possible solutions to deviations.

Competitive Management Approach

Its objective is to achieve maximum customer satisfaction, it consists of a set of preventive actions that directs business management towards the desired future, then there are a series of steps that frame it:

Management control process

Annual budget

Continuous planning and budgeting process

  1. Other instruments of management control

Financial Accounting

External audit

Management accounting

Ratio analysis

Internal audit and control

Control panel

Operational audit

  1. The relevance of the analysis of the business environment

The globalization of competition and the speed of processing and communicating information, forces all companies to develop and maintain the flexibility necessary to follow the innovations and strategies of the competition.

Change Management

Scope of internal organization

External scope

Management accounting

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Financial cost management control

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The behavior of financial costs can be explained by the reasons for Total net investment, financing structure and onerous external liability. Control of financial costs implies control of the resources invested in the functional areas, control of the financing structure, and interest rates.

By analyzing all these components, it is possible to have a much clearer vision of the importance of effective control of the financial part of companies, since in one way or another this is what guarantees the achievement of the objectives established in a beginning and therefore those that guarantee the firmness of the organization.

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