Author Remarks: Wahid?s view is the special and helpful article, as financial analysis. I have explained a new method in this article from my point of view. That how to apply effective- informal and formal ways of regularity and fairly monitoring the progress & quality apply by financial /economic analysis on the basis the standards or level of expected business development,
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This Wahid?s view closely related to and directly determined by the method. How the financial /economic analysis should performed. & how to expressed in a business plan or strategy that need to execute the company ?object, financial /economic analyst need to investigate the current performance of their business and identify their business needs, this engages introducing them to a new and more powerful tools and method. Modern business decision making
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Introduction: The financial/economic analysis support and used by the economic manager can be viewed within a broad hierarchy of decision-making needs. In the traditional business where financial/economic analysis is a necessary component. This theoretical pyramid respites on the broadest area: day-to-day decisions and operational planning. It successively rises via
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01. Strategy planning improvement
02. Performance review and Incentives
03. Judgment and sponsor contact
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Above all of these areas controls deal and issues in the capable to apply of analysis and challenging business decision-making,
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Financial /Economic analysis Capability: Financial/ Economic analysis from the perspective of project owners (involving assessment of the project entities? financial statements) is common. For all irrigation projects, financial analysis was undertaken from the point of view of project beneficiaries through farm budget analysis.
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the economic/ Financial analysis are used as the primary input to the initial decision-making process on whether or not to continue with consideration of the project. Only when a project appears to be economically efficient from the viewpoint of the society, is a more detailed financial analysis conducted to ensure that the project is also financially viable (. that the financial returns for the various classes of financing are sufficient to compensate for the risks to which investors will be exposed).
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A project?s net economic benefits are measured as the difference in economic efficiency that is expected to emerge, in the economy as a whole, with the project compared to that without the project. The implementation of a large project typically involves the use of significant amounts of limited economic resources. An economic/ financial analysis investigates whether or not the use of these resources, at a particular point in time, in the project is expected to reap greater benefits to society than their use in alternative applications
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Decision of operational planning: One of the most important areas of applying basic financial/economic analysis is the support of day-to-day decisions made by managers and employees. I am discussion in this article about the operational part of the project, in which calculated direction and prepared plans are translated into accomplishment. Although its importance, analytical apply in this area often tends to be the least developed, because the demands of daily activities foreshortens the time for reflective thinking about operational issues and trade. Decision of operational planning is typically the operating or fiscal year of the company. The plan will recite the Overall goals of the company for the year then break those down into the individual goals and action items that each department must achieve or accomplish in order for the company as a whole to meet its goals. Further, for a plan to be effective
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The operational planning related the budget, the operating plan is usually the joint effort of every department in the company, coordinated by the Finance and/or Planning Department, and each department head will have participated in the planning process by writing the goals that his or her department will achieve during the plan year. The operating plan may outline the goals and targets of each major unit within the company, the P&L budget for the year, and a budget of planned capital expenditures. In addition, subsections of the plan may be devoted to individual departments
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Without such guidance, non- financial / economic and damaging choices such as spending funds because there?s room in the budget or in the allowable head count become decision criteria. Operational effectiveness should be a function of sound trade-offs, with careful cost management and close attention paid to the quality and efficiency of production or services rendered, and with constant vigilance in serving customers through sustainable pricing, credit, and support actions. Therefore the successful company will have a financial/ economic analysis that clearly supports quick business decision-making.
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The following view will help business decision-making all of these areas to understand what should be covered in each of these segments
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01. Strategy Planning improvement:
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What is Strategy Planning?
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Strategy planning establishes where an organization is going over the next year or more, how it?s going to get there and how it?ll know if it got there or not. The center of a strategy plan is usually on the entire organization, while the center of a business plan is usually on a particular product, service or program.
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There are a variety of perspectives, models and approaches used in strategic planning. The way that a strategic plan is developed depends on the nature of the organization?s leadership, culture of the organization, complexity of the organization?s environment, size of the organization, expertise of planners, etc. like
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1. Goals-based planning is probably the most common and starts with center on the organization?s mission. Goals to work toward the mission, strategies to achieve the goals, and action planning
2. Issues-based strategy planning often starts by examining issues facing the organization, strategies to address those issues and action plans.
3. Organic strategic planning might start by articulating the organization?s vision and values,
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Some plans are scoped to one year, many to three years, and some to five to ten years into the future. Some plans include only top-level information and no action plans. Some plans are five to eight pages long, while others can be considerably longer.
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Also, in addition to the range of the organization, differences in how organizations carry out the planning activities are more of a matter of the nature of the participants in the organization than its for-profit/nonprofit status.
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Benefits of Strategy Planning
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Strategy planning serves a variety of purposes in organizations, including to:
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1. Clearly define the purpose of the organization and to establish rational goals and objectives constant with that mission in a clear time frame within the organization?s capacity for achievement.
2. Communicate those goals and objectives to the organization?s constituents.
3. Develop a sense of ownership of the plan.
4. Ensure the most successful use is made of the organization?s possessions by focusing the possessions on the key priorities.
5. Provide a base from which progress can be measured and establish a method for informed change when needed.
6. Listen to everyone?s opinions in order to make agreement about where the organization is going.
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Why Take Time to Plan?
Every organization with a goal in mind will expand a plan to achieve targets. Every manager with a job to do will expand a plan to get his or her daily work done. Yet, for the most piece, these plans are informal, a lot people only carry them around in their minds and draw them out as needed, improvising and modifying along the way.
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Most of the people don?t think of themselves as planners and yet they plan every day, either formally or informally. plan pretty much for the best motivations because planning helps to reach organizations goals, whether the goals relate to getting our daily work done, laying out the annual family leave, or financing ?retirement lifestyle.
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02. Performance review and Incentives:
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The main concern in this area is the relevance of the measures to the goals set, and the need to establish not only indicators of deviation from desired norms, but also to interpret these indicators so they can be used to highlight value creation. It?s an area where the quality of the concepts and tools employed varies widely in both established and new companies.
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A project?s net economic benefits are measured as the difference in economic efficiency that is expected to emerge, in the economy as a whole, with the project compared to that without the project. The implementation of a large project typically involves the use of significant amounts of scarce economic resources. A financial /economic analysis investigates whether or not the use of these resources, at a particular point in time, in the project is expected to reap greater benefits to society than their use in alternative applications
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Even when a project is financed by the private sector, where significant indirect costs, benefits and impacts exist a project is usually evaluated from an economic perspective (from the viewpoint of society), as well as from a financial point of view. The constant-year annual cash flow profiles that were computed in the initial financial analysis are modified for use in the economic analysis. Taxes and subsidies are eliminated since they do not represent a use of resources but are simply transfers within the economy; costs and benefits that are external to the project are included; and costs and benefits, both internal and external, are adjusted to reflect their opportunity values by applying ?shadow? prices., in an economic analysis, market prices should be adjusted to reflect economic costs.
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Above I have discussed my view of financial /economic analysis ability, area and responsibility that more effective to judgment the organizations Performance review and Incentives situation, although I have presented the following information to understand the reader and learner for financial / economic analysis task for provide Performance assessment
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If the bearing of measures employed has not been clearly established in an organization, performance data can be meaningless, or subject to manipulation. ?Gaming? the budget or the business plan is an ever-present temptation. The tools for analysis, and the judgments required for interpreting performance vary widely, whether one measures performance from outside the business, which is the task of investors, creditors, and suppliers, or internally, which is a necessary function of managing the various levels and segments of a company. One of the critical challenges in evaluating the performance of a business from the outside is to interpret the results as expressed in financial statements. These are the most readily available data for publicly held companies. But the various ratios and measures that can be applied to this information are subject to limitations inherent in the financial accounting process and to a number of choices management has in applying its rules and thus ?managing? the reported results.
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A vast range of statistical data can be used to measure effectiveness of operations, many of which are physical in nature, such as output data, failure rates, yields, customer contact frequencies, timeliness information, and project completions. Intangible data such as customer satisfaction, employee attitudes, and community feedback are important supplements. The point we?re making is that financial performance begins with the roots of operational activity, and evaluating financial ratios and measures must rest on an understanding of these activity-based indicators.
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There has been a secure evolution in these processes, in similar with a better understanding of the economic dynamics of the securities markets Incentives to enhance short- and long-term performance are the opposite side of the performance evaluation challenge I have just discussed. That won?t to deal directly with the complex issues of designing incentive programs, as this is a subject deserving full treatment by itself.
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The higher the level of management, the more emphasis should be given to long-term cash flow generation, to avoid the temptation for making short-term trade-offs that damage long run value creation. Finally, there is the always present issue of how high to set the standard to ensure some degree of excellence and significant effort, without making the incentive unachievable. In short, incentives represent a form of using financial/economic analysis heavily overlaid not only with challenges of interpretation but of human motivation and proper rewards.
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03. Judgment and sponsor contact:
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The most integrative aspect of financial/economic analysis is the area of valuation and investor communication. It is here that some of the most complex tools and methodologies are commonly employed, and it?s also the area where much of the theoretical and observed research of the past, As I?ll discuss in the final chapters, valuation is a function of the expectations held by the company?s existing and potential investors, and by the securities markets in general.
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The first point of analysis described Judgment and sponsor contact information requirements and provides important new information on the extent to which non-financial data influence the investment decision on aggregate. Most importantly, however, this stage of analysis offers justification for the more detailed modeling required in the second stage of the analysis? As described above, this second stage of work relies upon the data compiled from the experimental investment simulations
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The investigators were able to estimate the amount of influence each financial and each non-financial characteristic had on the investment decision
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I again am faced with a systems view of financial/economic analysis at the highest level, which integrates the insights about all aspects of the business under review. The external communication challenge similarly requires a systems view of the company?s performance and prospects. In both the analytical and communications areas a fully integrated approach is still lacking in the majority of corporate situations, the rediscovery of basic economics is coming none too soon for this important area of analysis.
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Conclusion: as my article? Wahid?s view- The cogent task and the confront of financial/economic analysis in the modern business decision making? I have describe how? financial/economic analysis will help on organization managers in support of more informed and therefore better business decision making ,
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Business planning is a systematic and formalized approach to accomplishing the planning, coordinating, and control responsibilities of management. It involves the development and application of long-range objectives for the enterprise; specific goals to be attained; long-range profits plans stated in broad terms; adequate directions for formulating annual, detailed budgets, defining responsibility centers, and establishing control mechanisms; and evaluative methods and procedures for making changes when necessary.
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I think I have made my readers understand that? the financial/ economic analysis is generally more capable to develop the business decision making, also support to qualify internal staff or outside advice,
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