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Strategic Financial Management 9 February 2012 Jacqueline Williams AAA Consultancy Services Ltd 1.

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Presentation on theme: "Strategic Financial Management 9 February 2012 Jacqueline Williams AAA Consultancy Services Ltd 1."— Presentation transcript:

1 Strategic Financial Management 9 February 2012 Jacqueline Williams AAA Consultancy Services Ltd 1

2 Aims of the session Understand the role played by strategic financial management in making and implementing decisions Highlight the importance of using key financial management tools to develop, deliver and monitor local priorities implemented in accordance with national policies Explore ways of comparing own strategies and budgets with those of colleagues, and to carry out benchmarking exercises as appropriate. 2

3 What is Strategic Financial Management? Strategic planningFinancial planning Strategic financial planning The individual activities of a strategic plan are translated into financial figures to estimate future funding needs, and corresponding resources are analyzed for the strategic plan’s implementation. 3

4 Key Elements of Financial Management: Good governance and leadership Strategy and planning Budgeting Monitoring, forecasting and reporting Risk management and internal control A thorough understanding of costs, cost behaviours etc Roles, responsibilities, skills and competencies Value for money 4

5 A look at Strategy Development Strategy is about giving an organisation purpose and direction, motivating governance, staff and collaborators to engage meaningfully with the external and internal environment – linking in to resources and end beneficiaries 5

6 Three Big Strategic Questions Where Are We Now? Where Do we Want to Go? How Will We Get There? 6

7 Developing a Strategy is a Journey Developing a Vision/mission Setting objectivesImplementing the plan Evaluating performance Environmental Analysis Crafting the plan 7

8 The Steps in Detail Developing a Vision/mission National Requirements Local priorities Aims 1) 2) 3) 4) Vision: tends to be aspirational – where the organisation wants to be in the future Mission: statement of purpose – describes what an organisation is there to do 8

9 Steps in detail Cont … Environmental Analysis External Internal 9

10 Steps in detail Cont … Setting objectives Strategic Financial 10

11 Steps in detail Cont … Crafting the strategy – the service plan Writing the plan Budgeting Setting the goals/targets Identifying key Stakeholders 11

12 Steps in detail Cont … Implementing the plan Change management Project Management Performance Management 12

13 Steps in detail Cont … Evaluating performance Outcome Assessment Continuous Learning Monitoring and Review Measurement and Analysis 13

14 Financial planning – Four Stages Review the past Forecast the futureSet annual budgets Set the strategy 14

15 Why is it Important? Financial management: –is essential to good corporate governance; –forms part of the firm foundations of an organisation, underpinning service quality and improvement; and –is the basis of accountability to stakeholders for the stewardship and use of resources. It is about managing performance and achieving an organisation’s strategic objectives, as much as about managing money. 15

16 Poor Financial Planning : Adversely affects end beneficiaries Will lead to money being spent inappropriately Will result in failure to achieve national and local priorities 16

17 What are Budgets? The financial description of an action plan for a given period Expressed in money terms Detailing both Income and Expenditure Based on knowledge and assumptions Against which actual performance can be measured. 17

18 The Purposes of a Budget Are: To coordinate different activities toward a single plan To communicate and set targets To maximise and allocate resources To identify financial problems To establish a system of control by having a plan against which actual results can be compared To compel planning 18

19 Setting Budgets Service commitments DemandsPriorities Annual Budget Financial Plan 19

20 Learning Budget Preparation Calculating Negotiating Revising Agreeing Budgetary Control Checking Investigating Projecting Acting Budget Management – Two Processes 20

21 Who should be involved in budget creation Managers Accountants Budget Holders 21

22 Value for Money Inputs Objectives Outputs Economy Effectiveness Efficiency Where an organisation acquires resources at the lowest cost Where an organization obtains maximum output from a level of acquired resource inputs The extent to which the desired objectives are achieved Outcomes Value for Money 22

23 Good Financial Management – Underpinned by: Culture Financial Skills Challenging assumptions 23

24 Organisation Culture Impact on Financial Management CentralisedDevolved Power to make important decisions vested in only a few Power to make important decisions delegated to different levels 24

25 Linking financial management and Strategic Planning Prudent financial management – not policy driven Supporting value for money Not supporting sustainable improvements Service strategy in place – not backed by resources Strategic planning Financial planning Short Term Long Term Short Term Long Term 25

26 SFM for us Strategic financial management in councils Delivering services with a reduced income (audit commission report September 2010) Identifies the challenges: Demand for local services is growing; while Income from fees and charges is reducing Decline in investment returns and interest rates Govt aim to eliminate the structural deficit 26

27 SFM for us Strategic financial management in councils Delivering services with a reduced income (audit commission report September 2010) Audit Commission research shows: Councils that take a long term view are well placed to respond proportionately Those that have focused on a closer horizon are likely to find it harder to adjust 27

28 SFM for us Strategic financial management in councils Delivering services with a reduced income (audit commission report September 2010) Audit Commission recommends that: Councils should review the relevance and the volume of services they provide and challenge the design, management and delivery of services Councils use the financial management checklist to test their financial management approaches, and use the value-for-money self-assessment to assess how prepared they are for the future 28

29 SFM for us Strategic financial management in councils Delivering services with a reduced income (audit commission report September 2010) Councils have to review their priorities and reassess their definitions of front-line services to fit their reduced income Everyone needs to understand the financial impact of objectives, priorities and actions 29

30 SFM for us Assess how well you are managing money in the changed economic circumstances Identify improvements needed to achieve good outcomes Using the spending review framework 9 questions as part of this assessment 30

31 SFM for us Expecting and managing financial risks for the short, medium and long term This can be done using financial and other information to base decisions on the impact, likelihood and potential financial effects of risks Enables recommendations relating to contingency planning and (use of) reserves 31


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