Crafting a Financial Strategy from the Top Down
Financial strategy, an important part of the overall plan in most cases, can be favorably determined by looking at the goals and interrelationships of an organization from the top down.
Financial strategy is a very hot topic these days, what with the critical condition of the economy and financial markets. Many companies, including giants such as automobile manufacturers and investment firms, have already admitted their dire straits and have asked for government help. Such is the reality of the crisis the world is undergoing. However, companies should turn away from despair and instead focus on attempting to adapt and continue to provide excellent products and services as much as possible.
Financing is all about ensuring that there are enough resources available for the organization to be able to perform all its activities properly. In many cases, this translates in practical terms to balancing profits against risks and losses, while attempting to increase wealth and held assets. That is, it is in a lot of cases not enough just to be able to break even or get enough inflow to cover outflow.
Now, especially for larger corporations, managing finances is no simple task. Imagine, for instance, the many financial factors that would go into the making of an automobile. Costs would include raw materials, transport of these materials, the capital outlay in building a manufacturing plant, wages of the workers, operating costs, and so on. Once it has been made, costs would then shift to advertising and marketing to ensure that consumers would know about and be attracted to these automobiles. Many carmakers would then also have to set up a service infrastructure for their customers. It is quite easy to be overwhelmed at this point by the seemingly innumerable metrics to keep track of!
This is why it is very important to have a sound strategy and business plan beforehand. Such a framework would help guide not only managers but also every other part of the organization to ensure that they are working well together in order to fulfill the overall goals. Constructing a strategy map is most often performed from the top down. This means that the high ups in the company should meet and agree upon the very highest-level goals of the company. Then, down through the various levels, each department and part of the company should formulate their own more specific goals in line with the general objectives. This will help to flesh out a general strategy for the group, because with clear goals will come a clearer idea of the conditions and criteria that would need to be met for these goals to be achieved.
Along with this general plan would also come the financial strategy. By making a concrete representation of the relationships between goals and company departments, the flow of cash will also be more easily seen. At each unit and as a system, finance officers would then be able to identify how to optimize the different processes that have to do with creating value and offsetting costs. This would enable them to craft a tailored – and hence more effective – strategy that takes into consideration all the particular characteristics and circumstances of the company.
