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Object of study - The role of finance in the strategic planning and decision making of business entities.
The subject of the study is financial strategy and organizational approach of it for the development of an organization.
The purpose of the work is to study the financial control and its formation of the DNB ASA Group organization.
To achieve this goal, it is necessary to solve a number of tasks:
to consider the concept, essence, functions and goals of the organization;
to study financial strategy and management of the organization DNB ASA Group;
to consider models and risk management of the organization's life cycle;
to study management development strategies at the stages of the life cycle of the organization.
When writing the work, various research methods were used: comparative analysis, the method of description and generalization.
The role of finance in the strategic planning and decision making of business entities
The growth of economic practice and financial system is characterized by the increasing role of strategic management in the area of finance that is determined by such trends as globalization, an increase in the amplitude of the fluctuations in the world financial market, an increase in energy prices, growth of the share of innovation in sectors of the economy, inefficient management practices in the current activity.
In such circumstances, It is critical to develop a realistic financial strategy that effectively integrates into the company's overall strategy and acts as a flexible tool to achieve their objectives, as the foundation for strengthening the company's competitive position. In this light, the company's financial strategy becomes a prerequisite for competitiveness and long-term growth.
Poor drafting of provisions of the modern theory of financial management in relation to the characteristics of the formation of a competitive position within the financial, strategic management, and the absence of such an assessment as strategy development in emerging markets have resulted in a situation where it is necessary to examine the issue from the perspective of financial strategy formation process problems. As a result, financial strategy is defined as a method of managing a company's capital structure through the interaction of its three main components: dividend, investment strategy, and funding strategy.
A finance strategy incorporates both financial and strategic planning. The end result is a functional roadmap that evaluates current resources, costs, and budgets in relation to the company's mission and goals. Despite changing and often unpredictable business conditions, it establishes a plan to align with enterprise goals to grow and innovate. To effectively finance critical initiatives, a finance strategy establishes priorities, manages trade-off decisions, and reduces the costs of change.
Formulation and implementation of financial strategy have the following stages1:
I. Formation of strategic aims in main areas of financial activity
party facilities formation – maximization of net cash flow (clear profit, amortization);
the effectiveness of allocation and intake of party facilities in all types of activities and structural units – maximization of ROE modeled using the DuPont formula, maximization of investment yield;
procuring company’s solvency – capital structure optimization (equity and loan);
selection of funding sources rational balance (equity, loan, raised);
estimate of costs of raised party facilities (WACC allowing to estimate the costs of the fund raising)
effective fund raising and use of capital in the given frame of ROE, financial stability, capital structure, cost of capital (method of economic value added (EVA): net income exclusive of the cost of fund raising).
II. The choice of strategy includes provision of sustainable growth based on efficient allocation and intake of party facilities. The choice of a strategy may be submitted based on a sustainable growth model (SGR). The model is used to determine business opportunities in the context of mutually agreed marketing, operational and financial requirements.
III. The choice of financial policy includes an increase of clear profit by the end of the strategic period due to different sources:
1) increase of proceeds, increase of profit from investing activities and other types of operational activities;
2) reduction of variable costs;
3) reduction of fixed costs;
4) changes in fiscal policy.
IV.Evaluation and selection of strategic financing alternatives based on sensitivity analyses method, scenario analyses and other methods. The criteria for selection of alternatives, in our opinion, may be the growth rate or absolute value of net cash flow addition, ROE, financial risk reduction.
V. Strategic financial development program includes financial standards, tasks and specific actions with orders to completion date for each strategic aims, as well as the financial unit responsible for its implementation.
VI.Estimated strategy includes an analysis of:
1) its consistency with the internal control mechanism;
2) consistency with the external environment (external support system, government regulation, market mechanisms);
3) internal balance of strategy parameters on the basis of financial techniques;
4) financial strategy feasibility (availability of derivative instruments: leverage, party facilities volume, implementation of investment projects);
5) acceptability of financial security;
6) economic effectiveness of the strategy based on predictive terminal wage of financial rations.
VII. Strategy marketing board includes:
1) financial activity strategic changes;
2) environment diagnosis;
3) the choice of strategy management methods;
4) strategy control;
5) strategic development program adjusting.
Finance roles can have a big impact on how finance interacts with the rest of the company. Personnel personalities, as well as roles and responsibilities within the finance team, can influence how a financial strategy is developed. Some companies delegate their financial mandates to various departments, which then shape their policies, while others solicit input and feedback from employees to help the finance team shape the financial planning process.
The financial mechanism of the enterprise is a system of management, distribution and use of capital, the purpose of which is to increase profits and decrease costs. The main structural elements of the financial mechanism:
• Investment method;
• Financial leverage;
• Information Support.
The financial strategy is a unique model of an organization's financial behavior that reflects management priorities in the areas of financing sources and forms, investment, and risk management. The content and detail of strategic financial decisions are also influenced by the size of the company. It is a mistake to believe that a strategy is only required for large companies with significant capital, and that small business plans for the short term are too vulnerable to environmental changes to shape long-term strategies.
However, the analysis of special literature and business practices suggests that small businesses that seek to secure their long-term competitiveness and development must have a financial strategy.
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