Finance for Strategic Managers

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- Financial information is required for the shareholders of the business organization so that they can explore and investigate whether company is operating in the right direction.[pic 5]

- Financial information is required for the employers of the business organization so that they can remain updated about their job security.

- Financial information is required for the staffs and employees of the business organization so that they can evaluate the financial capacity of the business to be ensured about their wages and earnings.

- Financial information is required for the suppliers and creditors of the business organization so that they can evaluate company’s ability to repay their loan and interest.

1.2 An identification of the business risks related to financial decisions.

Taking effective financial decision is the base for organizational success. And it has already been explained that taking financial decision is focused on two extremes including investment and expenses. This is why the strategic managers have to deal with these two crucial extremes so that the financial decision made can pave the right way towards achieving the desired outcome. Dealing with investment and expenses involves variety of business risks in every step of managing the financial resources that can directly or indirectly impact on the financial decision (Bhimani, 2005). Business risk is basically the possibility of incurring a loss or damage. But if the mangers are able to deal effectively with the risk, the gain is pretty much higher than the amount of the risk. This is why Business Risks are often considered as an opportunity to the business organization. There are several types of business risks related to the financial decision that the business organization must identify. These are described below.

- Strategic Risk

Strategic risk refers to the business risk that can evolve any time due to the failure of the managers to make the business plan strategically and effectively. Strategic risks are directly associated with the business operation. Strategic risk arises when the managers-

- Make ineffective business decision

- Fail to allocate resources effectively

- Be irresponsive to the changes

- Unable to conduct business research effectively[pic 6]

An example of strategic risk would be the entrance of a new competitor in the market that the managers were failed to identify.

- Compliance Risk

Compliance risk refers to the business risk that arises from the disobedience and denial of the organization to the legal rules and legislations. Compliance risk is associated with the nonconformity to the law. Compliance risk arises when the organization-

- Does not abide by the code of conduct

- Does not maintain best ethical practice

An example of compliance risk would be the risk of legal sanction for not complying with the Environment Protection Legislation.

- Operational Risk

Operational risk refers to the business risk that arises from the sudden and unpredicted failure in the internal business operation. Operational risk is associated with the production and administrative process. Operational risk can evolve due to-

- Malfunctioning of technology

- Loss of key equipment

An example of strategic risk would be the sudden disruption in the transport system.

- Legal Risk

Legal risk refers to the business risk that arises from the sudden alteration in the political decision and legal equivocation that can turn the business entity into an unlawful business organization.

An example of legal risk would be the sudden disruption in the business activity due to introduction of new legislation.

- Financial Risk

Financial risk refers to the business risk that arises from ineffective decision made regarding the distribution of financial resources and improper development of the financial structure (Helbæk, Lindest and McLellan, 2010). Financial risk is associated with the business’s financial activities. Financial risk evolves when-[pic 7]

- Financial resources are improperly allocated

- Investment is not made proportionately

- Organization fails to account the change in the interest rate

- Customer does not pay the money

An example of financial risk would be the sudden increment in the interest charges imposed on business loans.

- Reputational Risk

Reputational risk refers to the business risk that arises from the adverse publicity, product deficiency, bankruptcy etc. Reputational Risk is associated with the loss of business reputation.

An example of reputational risk would be the loss of customers of the company for being accused to the major lawsuit.

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1.3 A summary of the financial information needed to make strategic business decisions.

Strategic decision is the decision made by the organizational managers that exert influence on the aspects that measure the effectiveness of the organizational strategy. Basically strategic business decisions are future oriented and long term in nature. This is why proper collection of financial information is necessary to make strategic decision as it is concerned with the organizational growth (Fifield and Power, 2011). Therefore, the higher level management is responsible for utilizing the required financial information that would be needed to comply with organizational vision and mission. Basically most business organization requires following financial information to make strategic decision.[pic 8]

- Financial information regarding sales and purchases to determine Profitability.

- Financial information regarding regular