Strategic Decision Making Framework

Strategic Financial Management

UNIT 1 

Strategic Decision Making Framework

Strategy

Strategy is a course of action that specifies the monetary and physical resources required to achieve a predetermined objective, or series of objectives. 

Strategic Management

Strategic management is the process of  planning, monitoring, analysis and assessment of all necessities an organization needs, to meet its goals and objectives , to make it more competitive.

Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance.

An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry.

Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance. The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to take right decisions.

Corporate Strategy 

It is an overall, long-term plan of action that comprises a portfolio of functional business strategies (finance, marketing etc.) designed to meet the specified objective 

Financial Strategy

 It is the portfolio constituent of the corporate strategic plan that embraces the optimum investment and financing decisions required to attain an overall specified objective(s).

Linking financial strategy with corporate strategy

 Management is ultimately responsible to the investors. Investors maximize their wealth by selecting optimum investment and financing opportunities, using financial models that maximize expected returns at minimum risk. 

We call this approach strategic financial management and define it as being the application to strategic decisions of financial techniques in order to help achieve the decision maker's objectives. 

 It is basically about the identification of the possible strategies capable of maximizing an organization's market value.  It involves the allocation of scarce capital resources among competing opportunities

The managers should conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) in order to - make the best possible utilization of strengths, minimize the organizational weaknesses, make use of arising opportunities from the business environment and shouldn’t ignore the threats.

Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. It is applicable to both small as well as large organizations as even the smallest organization face competition and, by formulating and implementing appropriate strategies, they can attain sustainable competitive advantage.

Strategic management is the ongoing planning monitoring analysis and assessment of all necessities an organization needs to meet its goals and objectives. Changes in business environments will require organizations to constantly assess their strategies for success. The strategic management process helps organizations take stock of their present situation, chalk out strategies, deploy them and analyze the effectiveness of the implemented management strategies. Strategic management strategies consist of five basic strategies and can differ in implementation depending on the surrounding environment. Strategic management applies both to on-premise and mobile platforms.

Presentation of Financial Statements  (IAS)Unit 2

Introduction to Indian Accounting Standards-(IAS)Unit 1

Strategic Decision Making Frame Work

1. Generate Alternatives

Generating alternatives that are as different as possible from each other is a great way to begin organising your company vision into day-to-day activities. If you polarise your options, you can see where they will lead. Looking into the future gives you the blueprint to avoid the potholes today.

2. Identify Barriers to Each Option

You may come up with multiple solutions that have good endings.The key here is to choose the option that is easier to get to. The barriers between you and your goal may actually decide your path for you. If you do not have the resources to get over a certain hurdle, then you narrow down your pathways to the one that you can actually achieve.

 3. Design Tests to Quantify Conditions

Testing to prove or disprove the conditions on a specific path helps determine the viability of that path. You may think that A leads to B leads to C, but this may not be the case once you quantify the path through case studies, precedent, and experimentation.

 4. Make the Decision

Make the decision on which path to take only after an appropriate number of tests.Once you have decided on a particular path, commit fully to it. Strategic Financial Management

The term strategic financial management is a combination of two terms viz. strategy and finance. Strategy, by definition, implies a long-term perspective. Hence, as explained above strategic financial management is about the management of the finances of any company in such a manner that it enables the meeting of the long-term goals. The assumption here is that the company has a clear idea of what its long-term financial goals are. This is because, in the absence of such knowledge, it is impossible to make any long-term decisions

Dynamics of Strategic Financial Management

Nature of Strategic Financial Management

The important characteristics of Strategic financial Management are the following:

 1. It is concerned with the long term management of fund with a strategic perspective 4

2. It aims at maximisation of profit and wealth of the concern 

3. It is both structured as well as flexible

4. It promotes growth, profitability and existence of the firm in the long run and maximises shareholder value

 5. It is an evolving and continuous process that constantly tries to adopt and revise strategies in order to achieve strategic financial objectives of the firm. 

6. It involves innovative, creative and multidimensional approach for finding solutions to the problems. 

7. It helps to formulate appropriate strategies and facilitates constant monitoring of action plans to match with the long term objectives. 

8. It makes use of analytical financial techniques with qualitative and quantitative judgment on factual information

 9. It is result oriented combining of resources, especially of financial and economic resources

 10. Strategic financial management offers a number of solutions while analysing the problems in the organisational context

Auditing and Reporting Unit 1 click here

Issues /Disadvantages of Strategic Financial Management

Expensive:  In order to develop a long-term financial strategy and to align it with the overall strategy of the company, managers with different skill sets need to be hired. These managers must have an overall understanding of how strategic thought has evolved over the past few years and how it is likely to evolve in the future. There are very few personnel who have this skill set. Hence, they are expensive to hire. 

Time Consuming:  The behaviours and objectives of the entire organization need to be aligned in order for the strategy to be effective. This means that the implementation of strategic finance requires time from line managers, the human resources department, the marketing department, and other such departments within the organization which is very time consuming. 

Less Accuracy: The entire philosophy of strategic financial management is based on making predictions about events that are far away in the future. The problem  is that the future does not unfold as the organization has expected. Hence, a lot of the time, the strategy created by this function gets invalidated. 

Uncertain External Environment: the strategic environment is not static. Hence, companies had to adapt to these changing strategies. The rapidly changing external environment and the inability of strategic financial management to keep up with the speed of change make it a disadvantage for many organizations.

Conflicting Goals: The major issue with strategic management is that a lot of the time, short-term goals conflict with long-term goals. Companies often face a lot of pressure from their shareholders to deliver results every quarter.  Hence, strategic financial managers do not have the freedom to perform their tasks as they are wary of any decision which causes a drop in their share price .

Impedes Flexibility: strategy is about choosing certain goals. If certain goals are chosen, that also automatically means that certain other goals have been excluded. The exclusion of these goals limits the flexibility of an organization. 

Auditing and Reporting Unit 1 click here

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