Chapter 12 - The Finance Function Flashcards
Importance of finance
From reporting to enhancing
Current roles of finance
formulate corporate objectives and strategy
strengthening management and info on risks and costs of strategies or products
dealing with complexity
pressured to cut costs while providing more effective advice
turning data into valuable info source
New roles of finance
recent down turn highlights value of finance function
focus on efficiency
focus long-term, sustainability
managing company life cycle events (going public, acquisition, refinancing)
well founded decision making is the basis for competitive advantage
Relationships of finance
Procurement:
- credit terms
- prices
- payments
- data/order capture
- inventory
- budgeting
Production:
- Cost measurement
- Budgeting
- Cost vs quality
- Inventory
Marketing:
- Budgeting
- Advertising (measure effectiveness, like via sales)
- Pricing (to ensure costs are covered)
- Market share (sales volume per product)
Finance function in the org (3)
embedded with business
Pro: info as and where required, business knowledge, relationship
Con: duplication of efforts, lack of knowledge sharing, isolation
Shared Service Centers (SSC)
Pro: HC reduction, fewer locations, lower wages, knowledge sharing, consistency (of data)
Con: loss of business know-how, removed from decision making, reduced ties to the business leaders
Business process outsourcing
Pro: cost reduction, access to specialists, focusing on business support
Con: Loss of control, reliance on 3rd party provider, confidentiality and IP risks, quality concerns
Outsourcing
Hierarchy (inhouse)
- staff recruiting and training
- provision of managerial supervision
- production planning
- payments and incentive schemes to motivate
- budget controls
- performance measure
- cost of maintenance
Market solution (buy or outsource)
- negotiations and legal agreements
- monitoring
- legal actions
- penalty payments or cancellation
External costs of market solutions driven by risks of:
- bounded rationality: limited capacity of individuals to process information
- difficulties measuring performance
- asymmetric information between 3rd party and own company
- uncertainty and complexity
- opportunistic behavior of 3rd party
Asset specificity (6)
Extent of which particular assets are of sue only tin one specific range of operations (how unique are some operations).
- Site specific
- Physical asset specific
- Human asset specific
- Dedicated asset specific
- Brand specific (loss of exclusivity)
- Temporal specificity
Contractual relationships and service level agreements (SLA’s)
Transaction cost theory applies because:
1 identification of distinctive competencies
2 support organisational structure
3 predicting the IT developments
Relationships with professional advisors (6)
Solicitors Accountants Tax Consultants Insurance Brokers IT specialists Environmental advisors
Why use advisors and when
Why
dispassionate, unbiased perspective
help turn problems into opportunities
When sales are low profits are low profits are high (or rise) entering contracts or projects upcoming litigation bringing in new finance sources / ownership Environmental reviews show need for improved performance or efficiency
Relationships with external stakeholders
- auditors
- finance stakeholders:
o investors or financiers
o small and emerging businesses
o tax and statutory authorities
Other functions finance interacts with
- support decision making across the org
- understanding of numbers to be spread
- able to challenge business partners
- maintain effective controls and enhance its value contribution
