Role of the finance function Flashcards
What is an organization?
A social arrangement which has collective goals, controls its own performance and has a boundary sperating it from its environment
What are the factors that affect the finance function in different types of organizations?
- Owners and stakeholders : they have different goals and objectives
- Funding sources : Different types of organizations have different sources of funds
- Overall organizational goal : •Profit-orientated = maximize shareholder wealth
• Not-for-profit = provide goods and services - Organizational performance management : driven by organizational goals
-Use of technology : different types of organizations will have different levels of investment in tech
What are the factors that affect the finance function in different types of organizations?
- Owners and stakeholders : they have different goals and objectives
- Funding sources : Different types of organizations have different sources of funds
- Overall organizational goal : •Profit-orientated = maximize shareholder wealth
• Not-for-profit = provide goods and services - Organizational performance management : driven by organizational goals
-Use of technology : different types of organizations will have different levels of investment in tech
What is vision ?
The organizations view of where it sees itself going in the long-term
What is a mission ?
An organization’s basic purpose and it is trying to achieve
What is an objective ?
The result an organization aims to achieve inorder to accomplish its long-term vision
What does an objective do ?
It translates a mission until more specific milestones and targets for the business to follow and achieve
Why should an organization have objectives ?
So that it can implement strategy and manage performance
How should objectives be ?
SMART :
🟠Specific
🔴Measurable
🟣Achievable
🔵Relevant
🟢Time-related
What are the functions of objectives ?
PRIME
~ Planning : objectives define what the plan is about
~ Responsibility: they define the responsibilities of managers and departments
~ Intergration: Should support one another and be consistent
~ Motivation : they must be created for all areas of performance
~ Evaluation : Performance is assessed against objectives and control excercised
What are the objectives at organizational levels ?
• Strategic/Corporate objectives : To set the overall long-term objectives for the business as a whole
• Tactical objectives: To plan and control the functions within the organization
• Operational objectives : To act as day-to-day targets to ensure that the organization’s operations are carried out efficiently and effectively
What does the digital world mean ?
It means increasing levels of digital technology in out lives :
• Data and information collection
• Storage and communication about organizations and individuals through:
~ Computers
~ Smart phones
~ New digital technologies
What does the business environment mean ?
It means everything that surrounds an organization, physically or socially
What are the levels of the business environment?
- Macro environments
- Micro environments
What does the macro environment cover ?
It covers all the factors that can influence the organization indirectly, and generally, the organization has no control over these factors
What model is used to analyze the factors that can influence and organization in the Macro environment?
The PESTEL model :
Political
Economic
Social
Technological
Environmental
Legal
What does the micro-environment include ?
It includes those areas which have a direct impact on the organization such as :
- the ability to acquire raw materials
- Competitors
- Customers
- Suppliers
Which model is used to analyze the micro-environment factors that impact the organization?
Porter’s five forces model (check notes for the model)
How is value added to an organization?
Through processes which follow the principles of economy, efficiency and effectiveness
What is economy ?
The concept of performing an activity for the minimum at cost
What is efficiency?
The concept of performing an activity by consuming the minimum resources of input
What is effectiveness ?
The concept of achieving the maximum output given the resources of input
The concept of value ?
Value depends on the type of organization:
• Profit-making organization = increasing shareholder wealth
• Not-for-profit organization = achievement or goals and objectives; and benefits to members and or society
What are the basic finance activities ?
•Assembling information : Collecting, cleaning and connecting data into assembled information
• Analysis for insights : Analyzing financial and non-financial information to draw out patterns and relevant insights
• Advising to influence : Communicating the above insights and contributing to an objective, responsible perspective which will influence decision making
• Applying for impact : Guiding actions to help organizations to achieve the required impact
What does the finance function value matrix do ?
It communicates how the organization creates and preserves value to internal and external stakeholders
What are the value activities of the finance function ?
Key activities of the finance function that enable, shape and narrate value
- Planning and forecasting : literally planning and forecasting( estimating or predicting certain factors so that they can be used to drive the budget)
- Resource allocation : everything that an organization can use to meet its objectives
- Performance management: Control and taking corrective action and making the most of Performance which exceeds expectations
- Financial reporting: enables stakeholders to assess the value-adding activities of the organization
