Strategic Financial Management

9 February 2012Jacqueline Williams

AAA Consultancy Services Ltd

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Aims of the session

• Understand the role played by strategic financial management in making and implementing decisions

• Highlight the importance of using key financial management tools to develop, deliver and monitor local priorities implemented in accordance with national policies

• Explore ways of comparing own strategies and budgets with those of colleagues, and to carry out benchmarking exercises as appropriate.

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What is Strategic Financial Management?

Strategic planning Financial planning

Strategic financial planning

The individual activities of a strategic plan are translated into financial figures to estimate future funding needs, and corresponding resources are analyzed for the strategic plan’s implementation. 3

Key Elements of Financial Management:

• Good governance and leadership • Strategy and planning • Budgeting  • Monitoring, forecasting and reporting   • Risk management and internal control • A thorough understanding of costs, cost

behaviours etc • Roles, responsibilities, skills and competencies • Value for money

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A look at Strategy Development

• Strategy is about giving an organisation purpose and direction, motivating governance, staff and collaborators to engage meaningfully with the external and internal environment – linking in to resources and end beneficiaries

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Three Big Strategic Questions

• Where Are We Now?

• Where Do we Want to Go?

• How Will We Get There?

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Developing a Strategy is a Journey

Developing aVision/mission

Setting objectives Implementing the plan

Evaluating performanceEnvironmental

Analysis

Crafting the plan

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The Steps in Detail

Developing aVision/mission

National Requirements

Local priorities

Aims 1)

2)

3)

4)

Vision: tends to be aspirational – where the organisation wants to be in the futureMission: statement of purpose – describes what an organisation is there to do

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Steps in detail Cont …

EnvironmentalAnalysis

External

Internal

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Steps in detail Cont …

Setting objectives

Strategic

Financial

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Steps in detail Cont …

Crafting the strategy – the service plan

Writing the plan

Budgeting

Setting the goals/targets

Identifying keyStakeholders

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Steps in detail Cont …

Implementing the plan

Change management

Project Management

PerformanceManagement

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Steps in detail Cont …

Evaluating performance

Outcome Assessment

Continuous Learning

Monitoring and Review

Measurement andAnalysis

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Financial planning – Four Stages

Review the past

Forecast the future Set annual budgets

Set the strategy

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Why is it Important?

• Financial management:– is essential to good corporate governance;– forms part of the firm foundations of an organisation,

underpinning service quality and improvement; and– is the basis of accountability to stakeholders for the

stewardship and use of resources.

• It is about managing performance and achieving an organisation’s strategic objectives, as much as about managing money.

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Poor Financial Planning :

• Adversely affects end beneficiaries• Will lead to money being spent inappropriately • Will result in failure to achieve national and local

priorities

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What are Budgets?

• The financial description of an action plan for a given period

• Expressed in money terms• Detailing both Income and Expenditure • Based on knowledge and assumptions• Against which actual performance can be

measured.

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The Purposes of a Budget Are:

• To coordinate different activities toward a single plan

• To communicate and set targets• To maximise and allocate resources• To identify financial problems• To establish a system of control by having a

plan against which actual results can be compared

• To compel planning

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Setting Budgets

Servicecommitments

Demands Priorities

Annual Budget

Financial Plan 19

Learning

Budget Preparation

Calculating

Negotiating

Revising

Agreeing

Budgetary Control

Checking

Investigating

Projecting

Acting

Budget Management – Two Processes

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Who should be involved in budget creation

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Value for Money

Inputs

Objectives

Outputs

Econ

omy Effectiveness

Efficiency

Where an organisation acquires resources at the lowest cost

Where an organizationobtains maximum output from

a level of acquired resource inputs

The extent to which the desired objectives

are achieved

Outcomes

Value for

Money

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Good Financial Management – Underpinned by:

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Organisation Culture Impact on Financial Management

Centralised Devolved

Power to make important decisionsvested in only a few

Power to make important decisions

delegated to different levels

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Linking financial management and Strategic Planning

Strategic planning

Fin

anci

al p

lan

nin

g

Short Term Long Term

Short Term

Long Term

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SFM for us

Strategic financial management in councils

Delivering services with a reduced income (audit commission report September 2010)

Identifies the challenges:• Demand for local services is growing; while• Income from fees and charges is reducing• Decline in investment returns and interest rates• Govt aim to eliminate the structural deficit

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SFM for us

Strategic financial management in councils

Delivering services with a reduced income (audit commission report September 2010)

Audit Commission research shows:• Councils that take a long term view are well placed to

respond proportionately• Those that have focused on a closer horizon are likely to

find it harder to adjust

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SFM for us

Strategic financial management in councils

Delivering services with a reduced income (audit commission report September 2010)

Audit Commission recommends that:• Councils should review the relevance and the volume of

services they provide and challenge the design, management and delivery of services

• Councils use the financial management checklist to test their financial management approaches, and

• use the value-for-money self-assessment to assess how prepared they are for the future

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SFM for us

Strategic financial management in councils

Delivering services with a reduced income (audit commission report September 2010)

• Councils have to review their priorities and reassess their definitions of front-line services to fit their reduced income

• Everyone needs to understand the financial impact of objectives, priorities and actions

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SFM for us

• Assess how well you are managing money in the changed economic circumstances

• Identify improvements needed to achieve good outcomes

• Using the spending review framework 9 questions as part of this assessment

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SFM for us

• Expecting and managing financial risks for the short, medium and long term

• This can be done using financial and other information to base decisions on the impact, likelihood and potential financial effects of risks

• Enables recommendations relating to contingency planning and (use of) reserves

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