2 Aims of the sessionUnderstand the role played by strategic financial management in making and implementing decisionsHighlight the importance of using key financial management tools to develop, deliver and monitor local priorities implemented in accordance with national policiesExplore ways of comparing own strategies and budgets with those of colleagues, and to carry out benchmarking exercises as appropriate.
3 What is Strategic Financial Management? Strategic planningFinancial planningStrategic financial planningThe 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.
4 Key Elements of Financial Management: Good governance and leadershipStrategy and planningBudgeting Monitoring, forecasting and reporting Risk management and internal controlA thorough understanding of costs, cost behaviours etcRoles, responsibilities, skills and competenciesValue for money
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
6 Three Big Strategic Questions Where Are We Now?Where Do we Want to Go?How Will We Get There?
7 Developing a Strategy is a Journey Vision/missionEvaluating performanceEnvironmentalAnalysisImplementing the planSetting objectivesCrafting the plan
8 The Steps in Detail National Requirements Aims 1) 2) 3) 4) Developing aVision/missionLocal prioritiesVision: tends to be aspirational – where the organisation wants to be in the futureMission: statement of purpose – describes what an organisation is there to do
9 Steps in detail Cont …ExternalEnvironmentalAnalysisInternal
10 Steps in detail Cont …StrategicSetting objectivesFinancial
11 Crafting the strategy – Steps in detail Cont …Writing the planSetting thegoals/targetsCrafting the strategy –the service planIdentifying keyStakeholdersBudgeting
12 Steps in detail Cont … Change management Performance Implementing the planPerformanceManagementProjectManagement
14 Financial planning – Four Stages Review the pastSet annual budgetsForecast the futureSet the strategy
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; andis 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.
16 Poor Financial Planning : Adversely affects end beneficiariesWill lead to money being spent inappropriatelyWill result in failure to achieve national and local priorities
17 What are Budgets?The financial description of an action plan for a given periodExpressed in money termsDetailing both Income and ExpenditureBased on knowledge and assumptionsAgainst which actual performance can be measured.
18 The Purposes of a Budget Are: To coordinate different activities toward a single planTo communicate and set targetsTo maximise and allocate resourcesTo identify financial problemsTo establish a system of control by having a plan against which actual results can be comparedTo compel planning
19 Setting Budgets Annual Budget Financial Plan Service commitments DemandsPrioritiesFinancial Plan
20 Budget Management – Two Processes Budget PreparationBudgetary ControlCalculatingCheckingNegotiatingInvestigatingRevisingProjectingAgreeingActingLearning
21 Who should be involved in budget creation ManagersAccountantsBudget Holders
22 Value for Money Value for Money Inputs Objectives Outputs Economy Where an organisation acquires resourcesat the lowest costThe extent to which the desired objectivesare achievedEconomyValueforMoneyEffectivenessEfficiencyWhere an organizationobtains maximum output froma level of acquired resource inputsOutcomes
23 Good Financial Management – Underpinned by: CultureFinancialSkillsassumptionsChallenging
24 Organisation Culture Impact on Financial Management CentralisedDevolvedPower to makeimportant decisionsvested in only a fewPower to makeimportant decisionsdelegated to different levels
25 Linking financial management and Strategic Planning Prudent financial management – not policy drivenSupporting value for moneyNot supporting sustainable improvementsService strategy in place – not backed by resourcesLong TermFinancial planningShort TermStrategic planningLong TermShort Term
26 Strategic financial management in councils SFM for usStrategic financial management in councilsDelivering services with a reduced income (audit commission report September 2010)Identifies the challenges:Demand for local services is growing; whileIncome from fees and charges is reducingDecline in investment returns and interest ratesGovt aim to eliminate the structural deficit
27 Strategic financial management in councils SFM for usStrategic financial management in councilsDelivering 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 proportionatelyThose that have focused on a closer horizon are likely to find it harder to adjust
28 Strategic financial management in councils SFM for usStrategic financial management in councilsDelivering 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 servicesCouncils use the financial management checklist to test their financial management approaches, anduse the value-for-money self-assessment to assess how prepared they are for the future
29 Strategic financial management in councils SFM for usStrategic financial management in councilsDelivering 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 incomeEveryone needs to understand the financial impact of objectives, priorities and actions
30 SFM for usAssess how well you are managing money in the changed economic circumstancesIdentify improvements needed to achieve good outcomesUsing the spending review framework 9 questions as part of this assessment
31 SFM for usExpecting and managing financial risks for the short, medium and long termThis can be done using financial and other information to base decisions on the impact, likelihood and potential financial effects of risksEnables recommendations relating to contingency planning and (use of) reserves