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

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.

What is Strategic Financial Management? Strategic planning Financial 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.

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

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

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

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

The Steps in Detail National Requirements Aims 1) 2) 3) 4) Developing a Vision/mission Local priorities 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

Steps in detail Cont … External Environmental Analysis Internal

Steps in detail Cont … Strategic Setting objectives Financial

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

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

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

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

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.

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

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.

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

Setting Budgets Annual Budget Financial Plan Service commitments Demands Priorities Financial Plan

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

Who should be involved in budget creation Managers Accountants Budget Holders

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

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

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

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 Long Term Financial planning Short Term Strategic planning Long Term Short Term

Strategic financial management in councils 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

Strategic financial management in councils 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

Strategic financial management in councils 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

Strategic financial management in councils 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

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

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