compiled by Dib Mossavi
There are many articels that describe the importance of business finance. They include internal controls, capital planning and managing working capital. While almost every business pays attention to financial performance, studies do show that small and medium sized businesses in particular, frequently do not engage in thorough financial planning, if not at all.
This time, lets try to cover the important aspects of planning and the continous improvement process approach to enhance performance-setting; review objectives; and finally taking appropriate actions.
Reviewing The Importance of Balance
Many articles occasionally refer to Kaplan & Norton’s concept of a Balanced Scorecard. Interestingly, someone was heard discounting the Balanced Scorecard during a business improvement presentation with the claim that there is no real balance in business. But reality is, there has to be CLEAR PRIORITIES.
Kaplan & Norton probably didnt mean balance in an exact and literal way that there has to be perfect balance in all areas of business. I believe their point was something like, – in order to be successful, a business needs to pay attention to, and work to improve, all key business areas. They are presented by 4 major basic segments :- Customer ; Learning & Growth ; Internal Processes and Financial.
According to Kaplan & Norton, many companies pay too much attention to, and guide their business dis-proportionately by the financial aspects of their business. Too frequently, they also gauge success only by short term financial factors. Of course financial factors are important. Without financial success virtually no business will be around for long. On the other hand, financial success no matter how great, will be short lived if a business is not paying attention to satisfying customers or its internal processes.
Financial Objectives Drives Financial Performance
All companies pay attention to financial performance, sometimes too much so. But monitoring financial performance alone, is a lagging indicator because we are looking at results of previous performances. Obviously at that point, it is too late to do or change anything. What really drives financial performance is setting SMART objectives based on clear goals, and then creating detailed action plans or strategies that will lead us to achieve those objectives.
Setting objectives that can be measured on weekly and monthly basis means you are measuring leading indicators of financial performance; numbers that indicate or predict the end results. Leading indicators provide valuable information about financial performance, and they provide the opportunity to take corrective or improvement action instead of passively waiting for results, only to learn that it was too late.
However, financial numbers are not the only factor employed in driving a business. Key components of well-defined processes are objectives that should be consistently measured and reviewed. Having control of your business or department means having control of your processes that make your business run on a daily and weekly basis, including a clear picture of what you are trying to accomplish and how well you are doing. Are you in control?
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