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CMI 520 Assignment Task 1: Understand finance within organisations

1.1 Analyse the relationship between the financial function and other functional areas within organisations

The financial function is concerned with the handling of the finances of an organisation. This includes budgeting, forecasting, and doing financial analysis. Other functions within the organisation, for example, marketing, operations, and human resources interact closely with the financial function to ensure effective management of the organisation’s finances.

• Marketing: This is one of the functions which will contribute to the revenue of the organisation. It entails research on the market, design of products, and advertisements. In regard to financial information, a company’s marketing department would require them to make sound decisions in the determination of prices on their products.
• Operations: The operations function is responsible for the running of the day-to-day affairs of the organisation. Operations will cover the aspects of production, distribution, and customer services. Production cost might have to be accessed for the determination purpose and for other decisions of the organisation through the operations function.
• Human Resources: The human resources function is responsible for managing the organisation’s workforce. Some of these activities include recruitment, training, and employee relations. In some organisations, the human resources department may require working with the finance team in handling employee benefits and payroll.

1.2 Examine the impact of financial objectives on decision-making within organisations

 The financial objectives of an organisation are the goals set about its financial performance. These may include revenue targets, profit targets, cash flow targets, and targets for investment. The financial objectives of an organisation will go on to have a huge influence on decision-making. For example, if the objective were to increase profit, then the decisions would be made in terms of this objective. These steps include cost-cutting or raising their prices. If the bottom line is to increase their cash flow, then any decision that will be arrived at will be based upon generating cash. This means that there could be considerations such as reducing credit periods and increasing sales.

1.3 Differentiate between management accounting and financial accounting

Management accounting and financial accounting are two distinct but closely related fields. Both these types of accountants encompass recording, classifying, and summarising financial transactions.

However, the main goal of management accounting is to provide information that can be used by managers to decide on running the business. In contrast, financial accounting focuses on producing information that is required for external reporting purposes.

While the most common output for financial accounting is in the form of financial statements, the reports coming out of the management accountants take on an astonishing variety since they cater to the needs of a manager.

Management accounting is, therefore, often more flexible and fitted to the needs of the organisation but is standardised financial accounting.

1.4 Analyse the impact of organisational and regulatory frameworks on an organisation’s approach to financial management

 Organisational and regulatory frameworks have a role to play in financial management. Organisations have to adhere to regulations regarding finances, which might change how they handle their finances. For instance, an organisation may be required to reveal certain information regarding their finances to the regulators or to abide by specific requirements for the reporting of their finances.

In addition, the legal system in which the organisation conducts its operations will have variations that may affect the management of finances. For instance, by law, an organisation can be compelled to maintain a certain minimum cash balance as it complies with its legal liabilities. Therefore, such structures exert a significant influence on the choices that organisations make concerning managing their finances.

1.5 Analyse the challenges organisations face accessing finance

 The most common challenge is always finding the right sources of funding.

A second challenge is ensuring that the financial statements are updated and accurate. This shall be important in securing financing by banks and other lenders.

Organisations must also have the right business plan to convince a potential investor that they shall be providing funding to the right kind of venture.

The last requirement is to manage cash flow in such a way that the organisation does not miss out on important payments or default on loans.

All these are very challenging, but if all of them are met, the financing for the organisation can be secured.

CMI 520 Assignment Task 2: Know how to set and manage budgets

2.1 Differentiate between budget setting and financial forecasting

Budget setting and financial forecasting are both important tools for businesses of all sizes.

Both involve making plans based on expected future income and expenses. However, there are some key differences between the two processes.

The process of budget setting usually takes place at the start of a firm’s fiscal year. Money is set aside to meet certain expenses. Financial forecasting looks at the big picture for a company, which gives the projection of income and expenses for the future. Financial forecasting may be done more often than budget setting, enabling a business to alter spending when the business or the economy changes.

For the above reasons, budgetary setting and financial forecasting are integral parts of sound financial management.

2.2 Evaluate budget-setting approaches used by organisations

 There are many ways in which organisations can set budgets, and they can often choose the one that fits their needs best.

A common approach is to take a historical budget approach based on last year’s budget figures. It can prove useful as a starting point, but it may lead to problems if there are massive changes in the business environment, or if the organisation has seen a lot of change during the period.

The other common one is benchmarking, wherein the budget of the organisation compared with similar organisations is used, thereby giving a better comparison of those areas where the organisation might be doing well or at which it might improve itself.

Finally, there is zero-based budgeting: a yearly start from scratch whereby only activities that can demonstrate needs are granted funds. Although it would be very good to see resources being consumed effectively, this can become a real consumer and complicated to execute.

Whatever approach an organisation chooses, the budget-setting process needs to be well-planned and carefully considered.

2.3 Formulate and justify a budget for an area of management responsibility

 Budgeting in every organisation has different requirements and priorities. Thus, there is no single technique for budget preparation applicable to all. However, based on the general principles or guidelines, it is easy to develop an effective budget that will support an area of management responsibility.

Identify a specific set of goals or objectives that the budget will meet.

Once these have been set, the next step would then be to determine the actual resources needed to achieve these.  

These are the steps, followed which can develop a budget tailored exactly to your needs and help in the achievement of your desired result.

2.4 Analyse the factors that impact budget management

 There are lots of factors that can cause a problem in budget management.

Some of the most general ones are changes in the economy, changes in government regulations, new technology, and increased competition.

• Government regulations: the budget management process can also be affected by changes in government regulations. For example, if the government sets new taxes or cuts off funding for certain programs it will have a direct influence on the budget of the organisation.
• Technology: New technology can also affect budget management. For instance, if a new software program is introduced that can help to automate the budgeting process, this can save time and money for the organisation.
• Increased competition: In today’s business environment, organisations are under more pressure than ever to operate efficiently and effectively. As a result, increased competition can affect budget management.

Organisations have to keep vigil all the time to make sure that their budget is under control and not overtaken by competitors.

The following are some of the various reasons that might influence the management of budgets. All these factors, that could influence an organisation’s budget should be known by them, so they can plan beforehand.

2.5 Specify corrective actions to be taken in response to budgetary variance

 In general, budgetary variance allows several corrective measures to be initiated to address it.

Some of these measures include budgeted amount adjustments, the revision of the amount in the forecast, and issuing new guidance to managers.

Adjust Budgeted Amounts: Adjustment of budgeted amounts is the very first corrective action that may be implemented based on budgetary variance. In other words, it means that the amount allocated in certain areas may be either increased or decreased.

Revision of the forecast amounts: The other corrective measure taken would be revising the forecast amounts, hence requiring modification of the assumption that had been used to generate the actual budget.

Issuing New Guidance to Managers: Some of the other corrective actions that can be performed include issuing new guidance to the managers. This could entail new information on how one is supposed to manage the budget, or it could be changing the procedure that is used in maintaining the order of the budget.

These are but a few of the corrective actions that can be taken towards a budgetary variance.

2.6 Discuss reporting procedures for authorising corrective actions to a budget

 There are many reporting procedures which can be used in order to authorise corrective actions to a budget. These include preparing a report stating the proposed corrective actions, presenting such a report before a committee, and implementing the authorised corrective actions accordingly.

• Developing a report: The first part of the reporting process involves creating a report which outlines proposed corrective actions. This report should contain all the necessary information about the proposed changes as well as a justification for the need for these changes.
• Presenting the report: The final and ready report should be presented before a committee for approval. This committee should consist of senior managers, financial analysts, or other experts in budgeting.
• Implement the accepted corrective actions: After the presentation and acceptance of the committee, it is time for the implementation of the adopted corrective actions. This would involve adjustments in the budget, issuance of new managerial guidelines, or other corrective action measures.

These are just a few of the many reporting procedures that can be used in order to authorise corrective actions to a budget. Organisations need to choose the procedure that best fits their needs and the specific situation.