Financial Management to Promote Organizational Success

 


Regardless of which industry(s) businesses operate in, it could be said that they are all in the business of financial management. A business could become unviable and close to shutting its doors if it loses control over its financial state. There are many companies that fell into this category, such as Enron, Blockbuster, British Home Stores (BHS), Woolworth, Comet, Kmart, Compaq, Northern Rock, Lehman Brothers, and countless others not as prominent as these. Managers can better avert this fate by analyzing companies’ financial practices resulting from the decisions made given their current processes, as well as by making the most appropriate and ethical financial decisions based on the evidence available. In this Discussion, you will examine the practices and culture of an organization in regard to financial management and how those aspects impacted the organization’s success.

For this Discussion and for the Discussions throughout this course, you will be asked to refer to personal and professional experiences, as well as use examples from your research. In doing so, it is important to remove any personal biases that you may have about organizations you discuss and instead focus on the areas of financial management. For example, you may have disliked a previous employer, but that should not prevent you from extracting important financial lessons from them, whether the lessons are good or bad. Or, if you admire a company or business leader that you plan to research, be careful not to allow your preconceived ideas about them sway your observations. Aim to focus on the financials, allowing the numbers to speak for themselves.

Additionally, as noted in the Course Introduction, the Business Skill for Good for this course is evidence-based decision making, and therefore you are encouraged to keep this in mind as you discuss organizations and their financial situations. You may not always have access to real financial information due to it being proprietary or undisclosed, but you should aim to use as much evidence as possible to justify your assertions in the Discussions for this course.

 

Consider a company where you have worked (or one with which you are familiar) that demonstrated solid or poor financial practices. Be prepared to discuss the company, as well as provide some details on how the financial practices were demonstrated.
Post an analysis of the impact of an organization’s financial management practices on its success.

Briefly describe the organization you selected. Note: When using specific examples from your      professional experience, be sure to disguise the names of any individual or organization and/or any proprietary or sensitive information. 
Identify the practices within that organization that reflect good financial management (or a lack thereof).
Describe the aspects of the organization’s culture that support those financial practices (whether good or bad).
Examine how the organization’s financial management practices have impacted on its overall success. Be sure to include at least one specific example of how the company was successful.

 

Sample Answer

 

 

 

 

 

 

That's a very insightful introduction to the critical role of financial management in business viability. I can certainly provide an analysis of an organization's financial practices and their impact on success.

For this analysis, I will focus on a mid-sized, privately-held manufacturing company (which I will refer to as "ManuCorp" to maintain anonymity) that demonstrated a significant lack of sound financial practices which ultimately limited its growth and led to ongoing operational instability.

Analysis of Financial Management Practices at "ManuCorp"

 

 

Description of the Organization

 

ManuCorp was a $\sim$150-employee company specializing in custom, high-precision metal components for the aerospace and medical device industries. It had been operating for over 25 years. The company's core competency was its skilled labor and specialized machinery, but its weakness lay squarely in its administrative and financial oversight.

 

Practices Reflecting a Lack of Good Financial Management

 

The following practices demonstrated ManuCorp's poor financial management:

Inadequate Cash Flow Management and Forecasting:

The company operated on a reactive basis, constantly chasing late payments from customers to cover immediate operational expenses, such as the bi-weekly payroll.

There was no formal 13-week cash flow forecast or budget-to-actual variance analysis done by the operations team. Decisions about purchasing raw materials or equipment maintenance were often delayed until a crisis point was reached or a large customer payment was unexpectedly received.

Poor Inventory Management and Valuation:

A significant amount of Work-In-Progress (WIP) and finished goods inventory was allowed to become obsolete or damaged due to poor storage and lack of quality control processes.

The financial records often used outdated or inconsistent methods for inventory valuation, leading to an inaccurate portrayal of the Balance Sheet and Cost of Goods Sold (COGS).

Lack of Capital Budgeting and Investment Strategy:

Investment in new, efficient Computer Numerical Control (CNC) machinery was sporadic and often based on the owner's personal interest or an immediate need, rather than a thorough Net Present Value (NPV) or Internal Rate of Return (IRR) analysis to ensure a positive return on investment. This resulted in a haphazard mix of old and new equipment, driving up maintenance costs.

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