Managing Financial Resources
Managing Financial Resources
Principles of Costing and Business Control Systems
Costing helps the management of a firm in obtaining the required information for effective management. The focus of costing is placed on various aspects of reducing costs. The principles of costing and business control systems can be used instead of balance sheets in understanding how an industry is operating (Chang, 2016). Also, costing and business control systems rely on crucial principles which include identification of costs, categorization of basic cost accounts, establishing the causes of costs, eliminating unnecessary expenses, as well as implying additional costs savings.
The systems for costing and business control focus on a specific project, activity, or product. It depends on the principle of identifying all costs that are associated with a particular area of interest no matter how they are generated or incurred. It is through relying on the estimated costs that the management can prepare a budget to guide on resource allocation, control expenditure, and manage operations to realize the most significant effect (Chang, 2016). The second principle of costing and business control systems concerns the aspect of cost accounting categories. In costing, expenses are either classified as either overhead or direct costs. Overhead costs refer to fixed expenses that a firm has to pay whether the project, production, or activity is completed or not. On the contrary, direct costs are the expenses that a firm can avoid if a specific activity is foregone. Typical examples of direct costs are material and labor costs. Company facilities, human resources, and general management are the typical overhead costs.
The process of cost accounting can also be used in identifying different cost items and the categories they originated from. This is important in establishing whether costs are justifiable or not. The primary aim of categorizing costs as a principle of costing and business control systems is to ease tracking and evaluation (Chang, 2016). For instance, individual overhead costs that result in unnecessary expenses should be eliminated. The same case is with high direct costs which do not result in a meaningful value. It is crucial to eliminate direct, and product costs through different cost-saving strategies. Costing can help in cutting down expenses which can be achieved by keeping track of historical cost data while projecting how future outlays will be. It is also vital to point out that a business control system is characterized by four primary elements of the activator, the comparator, the sensor, and the conditions to be controlled.
Information needed for Financial Resource Management
The overall performance and productivity of a firm largely depend on the ability to manage financial resources effectively. Further, it is also true that effective financial management requires that one has the right information (Mohamed, 2015). Incomes and expenses are the primary and broad category of information that financial management requires. The historical, as well as details on budgeted costs and expenses, are both needed in this case. It is key to financial management when the firm has excellent records of the money the company generates from the expenses incurred (Mohamed, 2015). All these information can be obtained from a firm’s financial reports and statements. Therefore, it is correct to indicate that one needs to have statements of equity change, statement of cash flows, balance sheets, and the income statement. These types of financial statements provided the required information about a business’ cash flows, financial position, and performance.
Information about changes in equity is required for financial management. Some of the critical changes in equity include losses, profits, issued dividends, as well as purchase and issuance of dividends. However, most financial management teams may not find the data about changes in equity to be useful when statements are issued internally (Altfest, 2016). The same case is with the statement of cash flows’ information, which are, in most cases, only given to external parties. The statement of cash flows’ data shows the inflows and outflows of cash in a certain period. As can be seen, it is vital for the management to keep track of how financial resources are moving. This financial statement provides essential information about financing activities, investment activities, and operating activities.
Balance sheets and income statement provide typical information that most financial resource management requires. It is essential for the management to understand the current financial position of a business, information which a balance sheet provides. It should be remembered that most of the investment decisions that a firm makes depend on their current financial standing (Altfest, 2016). The balance sheet information is divided into equity, liabilities, and assets. It is through such information that the management team, investors, and other key stakeholders can understand the financial health of a firm and the type of measures to take. The income statement information is vital in financial resources management, which deals with ensuring that a business attains the required levels of performance. This financial statement gives valuable evidence about the profitability or performance of a company in a given period. It is arguably true that the income statement provides the most necessary information required for financial resources management since it reveals the performance of a firm.
Regulatory Requirements for Managing Financial Resources
Management of financial resources, particularly in the publicly traded organizations and businesses need to adhere to different international and local regulations. For example, the World Health Organization (WHO) has developed financial regulation systems that provide rules and guidelines on how it finances can be used. The WHO financial requirements have provisions for the fiscal period, delegation, and application of authority, preparing and approving budgets, internal borrowing and working capital, revenue and its sources, internal controls, investment cash, custody of cash, external auditing, as well as accounts and financial statements among other regulations.
As it can be seen, WHO regulation requirements for managing financial resources revolve around several key areas. The organization has provisions for reporting and documentation of financial processes, which are supposed to be carried out transparently. It is an obligation that all financial reports have to adhere to a given set of data in the general ledger and accounting systems (Duffie, 2017). The financial reports should be retained for a given period after the submission date. Also, the regulations provide governance about the sources of finances and how they can be used. The organization needs to have internal control measures, managing inflows, and budget controls (Duffie, 2017). Moreover, there should be clear rules about the accounting standards that a healthcare organization chooses to adopt.
An Evaluation of Systems for Managing Financial Resources
Several features should be looked into to determine whether a healthcare organization’s system of managing resources is up to the task or not. The number one way of evaluating the effectiveness of a facility’s financial management system is by looking at its regulatory requirements (Neave, 2017). In regards to this aspect, it can be seen that the WHO has excellent regulatory standards which can be seen in the organization’s programs, award letters, as well as state requirements. Secondly, as it was stated before, the organizations have written procedures and policies about financial management. An effective healthcare financial resource management system should also have documented expenses and management of cash. In cash management, an organization should have adequate resources to meet its needs, request funds regularly, as well as keep monthly financial records and reconciliations. Qualities of an effective financial resource management system should include staffs knowing documentation requirements and proper retention policies of an organization’s records (Neave, 2017).
Budget controls, internal controls, matching in-kind contributions and requirements, time and activity documentation, as well as excellent reporting are crucial elements that can be used in evaluating the systems used in managing financial resources. Assessing the accounting system can provide vital details on how effective the organization is in managing financial resources. An excellent accounting system should have the capacity to distinguish grants and non-grants, establishing costs by budget category and program year, as well as differentiate between administrative costs and direct costs. Also, such systems should have the capacity to establish the correlation between financial reports and accounting information, as well as ensure that it is easy to access financial reports. The features of budgeting controls can also help in measuring the effectiveness of a healthcare’s system of managing financial resources (Neave, 2017). For instance, a budget that is well-prepared and approved gives the financial blueprint, which is key to helping a healthcare facility in meeting its objectives and requirements. Furthermore, the system needs to ensure that any budgetary changes are approved accordingly.
Altfest, L., 2016. Personal financial planning. McGraw-Hill Higher Education.
Chang, J.F., 2016. Business process management systems: strategy and implementation. Auerbach Publications.
Duffie, D., 2017. Financial regulatory reform after the crisis: An assessment. Management Science.
Mohamed, M.H., 2015. Financial statement analysis in the airline industry: A comparative study of Turkish Airlines and Royal Dutch Airlines (KLM) (Doctoral dissertation, Selçuk Üniversitesi Sosyal Bilimler Enstitüsü).
Neave, E., 2017. The economic organization of a financial system. Routledge.