Financial management means a way by which appropriate expenses are been budgeted, planned, reported, tracked, controlled, evaluated and approved. Financial management process is actually concerned with decision making in consider toward stage as well as strategy of corporate finance plus structure and size of assets.
The primary goal of financial management is in respect to maximizing wealth of shareholders. To accomplish this goal, financial managers and supervisors need to ensure that an organization obtains best possible source of funds, that is requires to achieve the goal. The most significant purpose of all of the businesses is to improve revenue through business operations. Example of financial management process includes manufacturing and distributing goods, providing services, etc. The accomplishment of the goal needs continuous availability of capital from various sources of finance to run the business operations.
Financial Management Process
The 3 key elements of financial process management are Financial Planning, Financial Control and Financial Decision Making. The importance of financial management process is to record accurate financial transactions throughout a various different types of projects life-cycle. Estimated financial requirements for projects have always been formally documented for planning and for the purpose of raising funds. Here we will see the steps in financial management process as well as financial management process flow chart.
Budget Planning documentation includes planned financial requirements information for a project expected to take place during the project life-cycle. To well establish project budget, project supervisor, project managers as well as project sponsors must describe the project activities and strategies which will occur and also calculate their estimated cost.
Also while planning one should keep in mind the limitations, dependencies and other effected cause that might impact your estimated cost while budget planning. This initial financial budget has to be drafted and need to be signed and approved by the respective project sponsors.
Once the estimate cost described in budget planning is approved and the project is actually started, the project supervisor must start to keep track of all the expenses at regular intervals, ideally on weekly basis. Through this financial management process, the project supervisor should verify and justify:
- Whether expenses happened towards valid task.
- Whether these expenses have been originally budgeted and approved.
- Whether non-budgeted expenses look fair and justifiable before forwarding for approval to project sponsors.
Project supervisor have authority to only approve budgeted expenditures as well as non-budgeted expenditures up to certain limit. Considering these above notes project manager might
- Accept expenses and process payments.
- Request for additional information from the individual who have raised expenses.
- Decline expense and raise an issue with all the individual raising expenses.
After formal approval for the expense through their project manager, payments will likely be issued with respect to cover expenses.
This financial management process involves revisiting and upgrading their financial expense report along with the revised project plan with relevant informational documentation. Notifying the respective project sponsors of any change in budget as well as exclusions of actual expenses. Here are some of the steps to update it.
Revisiting / Revising Project Plan
Firstly, financial expenses report should be revisited and updated to ensure that a valid report of the approval and repayment is reported. Although the report needs to be revised after the expense has been approved or disapproved by project sponsors. This is to ensure that project supervisor always has correct expense report throughout the stages of project life-cycle.
Secondly, on a weekly basis your project plan need to be revisited and updated with all the expenses recorded against the respective project. Main benefit of this is to have all the financial expenses and project plan up to day for any kind of reviews undertaken by company. It also assists project managers / supervisors to identify exceptions, time duration or budget issues well before time.
Thirdly, project supervisor identifies any other expenditure deviations to date. Based on your deviation from strategy, project supervisor should reallocate resources, change of allocated task, request assistance from third party, raising concerns to project board as well as project sponsor.
Finalize and Close Budget
As soon as task is accomplished, the individual task in the project plan is should be marked as 100% completed with no more expenditures. Immediately making sure that project expenses are approved and paid as well as no other tasks / expenditures is pending for project.
Project supervisor need to raise final financial expense report to respective project sponsor for further approval. As soon as approved, this information is included in project closure form for review and historical purposes.
Financial Management Process Flow Chart
There are specific objectives of financial management that provide the basic process framework for optimum financial decision. As we seen the steps in financial management process, let us see the same in diagram template. Below you can view the financial management process flow chart for the mentioned steps.
Financial Management Process PDF
This is just the basic of all the different types of financial management process but there are lot more processes for different projects and companies. For example: Unit Financial Management Process, Credit Flows Management Processes, Integrated Logistics Analysis Process, End-of-Year Financial Review Process and many more. Below you can just unlock and download Financial Management Process PDF for free to study in-depth about this topic.
Here we have seen that accounting, budgeting, planning, controlling, monitoring, evaluating and reporting as some of the key steps in financial management process. Following this steps appropriately will definitely result in achieving objectives and goals of an organization.
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Financial Management Basics For Beginners
- Chapter 1: What is Financial Management with Examples
- Chapter 2: Importance of Financial Management
- Chapter 3: Objectives of Financial Management
- Chapter 4: Functions of Financial Management
- Chapter 5: Types of Financial Management
- Chapter 6: Nature and Scope of Financial Management
- Chapter 7: Investment Valuation and Project Valuation Methods and Techniques
- Chapter 8: Goals of Financial Management
- Currently Reading: Financial Management Process
- Chapter 10: Financial Management Notes
- Chapter 11: Financial Management for Startups
- Chapter 12: Financial Management for IT Services
- Chapter 13: Financial Management Quiz - Question and Answers
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