What is The Basic Of Strategic Financial Management?

Any notion someone might have that running a successful business is easy would quickly get set aside if the individual was put in a position where they had to run a business. The truth is it’s difficult to simply run a business. It becomes increasingly more complicated if the business’s owner(s) and management have designs on being consistently successful. That covers pretty much every organization on planet earth. If a company’s stakeholders and shareholders expect their company to be profitable and succeed, they need a strategy to deliver on those expectations. That’s where the concept of strategic financial management comes into play. How important is the strategic financial management concept to companies that expect to succeed? It’s important enough that companies like Revolution Financial get hired to help organizations built their financial strategies. In the following sections, we want to go more into depth about the meaning of and the concepts surrounding strategic financial management.

The Definition of Strategic Financial Management

It’s worth noting that the terms strategic finance and strategic financial management are both interchangeable. By definition, strategic financial management refers to the process of a company developing a very specific competitive strategy to help ensure the company’s profitability. We are not talking about specific tactics a company would use to get from point A to point B. We are talking about a well-defined strategy that serves to drive the company towards its stated long term goals. To be clear, the term goals could relate to almost any aspect of the business cycle, including a mission statement or an employment objective. When discussing strategic financial management, the definition of goals tends to narrow. In most cases, the focus of the goal is about ensuring the company’s profitability for the specific benefit of the company’s stakeholders and or shareholders. More specifically, the goal is about directing the company’s long term prospects for profitability without giving much emphasis on the here and now.

More About the Strategic Financial Management

In large corporations, there might be an entire department of financial managers who are responsible for developing and implementing the company’s overall strategic financial plans. In a smaller organization, this responsibility might fall on the shoulders of one qualified individual. If a company wants a long term financial plan but doesn’t have the on house resources to get it done, they could choose to outsource such responsibilities to organizations like Management Principal Financial Group Strategic Management or Revolution Financial. Regardless of whom or which entities are put in charge of developing and implementing the company’s strategies, the process is going to require input from strategic managers and or ownership throughout the organization’s vision. This is necessary to ensure all of the owner’s and management’s needs and goals remain in focus. Financial managers will also work closely with accounting departments and financial analysts. They work closely with accounting personnel to get a general idea of the company’s current financial position. They typically do this by reviewing and deciphering balance sheets and income statements. When working with financial analysts, financial managers turn their focus to the metrics. They want an opportunity to analyze certain financial ratios to help identity corporate strengths and weaknesses. They will also coordinate efforts to develop the future measurement tools they will need to measure the effectiveness of new strategies in the future.

The Strategic Financial Management Process

With all the right human resources and tools in place, everything boils down to the process, which many times includes these four common key elements:

  • Planning
  • Budgeting
  • Managing and Assessing Risk
  • Establishing Ongoing Procedures

Let’s look at these four elements a little more closely.

Planning

No strategy will begin until someone develops a comprehensive plan. Everyone has to have a sense of direction or success could be fleeting. A good strategic plan has to start with a well-defined set of objectives. For instance, a company might adopt a goal of returning dividends of X amount to shareholders based on a certain level of profitability. Reaching that level of profitability and issuing dividends would be the company’s stated goals. To that end, a plan has to identify all the resources (human, financial, technology) that are available to carry out any given plan. With the goals in place and the resources properly identified, the strategic planning process concludes with the development of formal innovation and a specific business financial plan.

Budgeting

Preparing a budget is necessary to help managers use company resources as efficiently as possible. This is critical because most companies have limited resources. A budget serves to do several things within an organization, including:

  • determining the allocation of financial resources throughout the organization
  • Identifying financial strengths and weaknesses
  • Identifying areas where cost savings might be available
  • Identifying alternate ways assets like cash can be used to create more earnings
  • Provide management with a tool by which to measure the company’s success

Managing and Assessing Risk

As part of the planning and budgeting processes, strategic financial managers have to have an eye out for the potential of unexpected circumstances. They have to designate alternate plans should something unexpected happen during the strategic management course of business. They need a develop a realistic idea of what outcomes they can expect if certain decisions are made at points along a “decision tree.” To do this, they must develop metrics they can use to identify when something is going awry. Variance analysis and standard deviation analysis are common tools financial managers use to identify problems. They can also use these tools to identify and assess risks to a company’s strategic plan.

Establishing Ongoing Procedures

As the company proceeds in its endeavors, a strategic manager will be collecting data and analyzing results. They will use this information to help the organization make important decisions, strategic decision that must be consistent and in line with the company’s overall goals. When problems do arise, there have to be procedures in place to keep management aware of these problems, the sooner the better immediately. The faster management can fix a problem, the more effectively and efficiently they can mediate the effects of the problem. If you look at how the financial managers at Management Principal Financial Group Strategic Management approach the strategic management process, you would soon realize the importance of planning to any organization. We gave directed the above discussion more towards larger organizations because such organizations have more moving pieces and need more direction. However, strategic planning will work for organizations of any size. If your company doesn’t have the vision to get from point A to point B, how can you possibly determine the real success of the organization?

FAQ

What is strategic management model?

Strategic management is the “art and science” of designing, executing, and reviewing multidisciplinary strategic initiatives allowing the company to achieve its aims and organizational objectives. Action and results are also short-term in the management and constructive approaches to remain unbeaten in the coming decades. It is essential to point out that Strategic Management is a skill and a responsibility that every member of the organization must have in a management strategy execution. The model, or more precisely, the strategic process management is split-up into four stages: stage I – determination of the vision, mission, values, and strategic objectives; stage II – strategic analysis; stage III – strategy formulation/construction, strategy implementation, and monitoring of the strategy; stage IV – strategic control.

What is the role of strategic management?

Strategic management is an issue that should not be understood in a  superficial way if one aspires, as is common sense, to obtain tangible results from it. The strategy leader, or strategic financial management, is a figure who is responsible for ensuring if those objectives are achieved and for putting strategy planning into action. We can not forget strategic thinking is essential. Therefore, formulating the strategy and executing it are two always interrelated actions. Besides, planning requires strategy leaders to conduct both internal and external competitive analyses taking into account many factors. Here, the role of maintenance and updating through strategic management is essential.

What is the purpose of strategic management?

The purpose is to define long-term objectives and a business strategy with the own resources needed to implement and achieve those goals. It seeks to optimize and make the operations effectively in business. This management method exists to direct and manage a company following strategies that go through the entire corporate structure. Strategy management is responsible for what is established in strategic planning. That is the primary purpose. Now there are details and responsibilities within the target for the control and the organization’s strategy, like the important monthly meetings. At these meetings, corporate strategy issues are reviewed, and adjustments are made as necessary. It is the perfect occasion to share learning, document, and propose new actions. 

 How do you write a strategic plan?

Just like a GPS navigator needs a destination to tell us the best route to take, the organizational structure needs a strategy map to define its goals and what it must do to accomplish them. When it comes to strategy development, it takes time and effort, but it is an essential step in moving an organization forward plus growing. It is a program of action that sets out to achieved and how to make it. If we are at the critical moment of developing this corporate strategy in our organization, and we are not very clear about how to start, nor which guidelines we should follow, here we can find some keys that will help us to write it step by step. By preparing the planning process, if we wish to have a competitive advantage overall, we must first make sure of:

  • We have a clear motivation to do so.
  • Corroborate that our organization’s strategy is ready for this process.
  • Involve the relevant people.
  • Promote planning and evaluate strategic performance.
  • Organize the planning work.
  • Concrete actions and procedures that will be carried out.
  • People in charge will ensure that progress is made on time and in the right way.
  • Inputs and budget that will be needed.
  • Estimate dates and deadlines of the done work.

 What skills should a strategic leader have to achieve ambitions?

Leadership is about a whole team believing in the same vision for success and working together to make the goals a reality. There are many skills that a person needs to activate their leadership and its entrepreneurship. As first, it is the vision to know where we are, where we want to go, and how we can go there with the team. The second is the ability to handle challenges, not be afraid to challenge obstacles, and to do things differently from what is conventionally set. The third is communication skills to keep the team informed and prevent impediments. The fourth is Integrity and honesty, as these are two fundamental points for people to believe in the leader and its vision. Lastly, the fifth and last is the inspiration; a leader must have the ability to inspire the team to understand their role. These five skills are fundamental to being a strategic leader. Because a person with strategic leadership shows great curiosity about external trends, he or she raises disruptive questions, has a broad perspective, can strike a balance between the interests of all parties that might be affected. Also can be aware of individual strengths and weaknesses or behavioral trends.