The following are some examples of modern financial management theories formulated on principles considered as ‘a set of fundamental tenets that form the basis for financial theory and decision-making in finance’ (Emery et al.1991). Finance is also the focal point for information requested by creditors, lenders, and stockholders regarding the financial posture of the organization. Effective financial management must take into account the needs and concerns of those who supply capital to the organization – lenders and stockholders. Since risk cannot be avoided, it must be treated explicitly in the financial planning process.
The observe is also true: effective lending and investment requires a thorough understanding of the tools and practices of financial management. In assessing the desirability of a loan to a potential borrower, or the injection of capital by stockholders, the funders must assure themselves of the viability and financial potential of the enterprise or a project. Analysis of past financial statements, prevailing financial plans, and control procedures will provide the much relevant information. Equipped with an understanding of the financial planning process, students are better able to adapt to ever-changing economic conditions.
By understanding the financial language, tools and procedures, investors can place themselves in the decision and information framework of corporate management, thereby gaining a better appreciation of the risks their capital is exposed to and the returns they may realize. One of the key functions of financial management is the allocation of existing resources with the expectation of reaping benefits in the future.
Alternatively, small corporations may procure these programmes from external source, but the reliability and accuracy, and the assumptions incorporated into the system may be improper and unrealistic. The financial plan will then translates all these support plans into monetary terms, identify the source of fundings, and present an approach for the raising of capital from external source, if so required. Advertising, sales promotion and campaigning requires huge financial resources.
Project Cost Management includes the processes required to ensure that the project is completed within the approved budget (PMBOK, PMI, 2000). Project Cost Management is primarily concerned with the cost of the resources needed to complete project activities. The functions of finance should be handled in accordance with the goal and objectives of the organization. The line supervisors who are responsible for getting the job done and who are experienced and familiar with the work should be asked to develop the estimates at this level. There must be some change control system to define procedures for changing the cost baseline.