Managing Information: Core Management

Diana Bedward, John Stredwick

• Publisher: Routledge
• Year: 2007
• Print ISBN: 9781138160712
• eBook ISBN: 9781136383939
• Topic: Business
• Subtopic: Business General
• Index: Business

The authors focus on the following topics:
Information Systems
*Contribution of IS/IT to organisations
*Systems concepts and attributes
*Planning, reviewing and controlling with IS
*Serving the end user - spreadsheets, databases, e-mail and DTP
*Software application for HR and other areas
*Legislation and Security

Finance
*Sources and application of funds
*Accounting documentation - cash statements, profit and loss accounts, balance sheets
*Interpretation of accounts - management ratios
*Costing and budgeting

Statistics
*Sources and uses of statistics
*Presentation of statistics
*Interpretation - measures of average, measures of distribution, correlation, time series, index numbers, significance tests
*Use of current software for computation of statistics

Part One

Finance

1 Introduction to Finance

Objectives of this Chapter

When you have completed this chapter, you will be able to:

• explain the role of financial information in accounting, analysing, planning, controlling and decision-making
• understand the various sources of capital for large and small organizations
• appreciate the value of understanding finance from the viewpoint of different managers in the organization, such as the human resources manager or the marketing manager.

Introduction

Accounting is one of the oldest professions. Double-entry book-keeping, which was central to the development of contemporary profit and loss accounts and balance sheets, was invented by the Italian church authorities in the Middle Ages while the earliest UK accounting professional bodies were established over 100 years ago. The age of the profession indicates its importance to the operation of any organization. Without effective financial information, the owners and managers will be working in the dark, unable to take sensible and realistic decisions.

In fact, helping decision-making is at the heart of financial information. Just as you and I need to read our bank statement each month and our mortgage statement each year to know if we can afford to buy that new pair of shoes or replace the car, so organizations need to know how much money they have, how much money they are making, how this compares to other organizations and what are the wisest financial decisions.

You will find in this book that each chapter shows how the information provided should be managed to help the decision-making process.

Chapter 2 deals with the production of the essential financial statements – the cash statement, trading, profit and loss account and balance sheet. We follow the fortunes of Simon, an entrepreneur starting up a business. We see how he puts the statements together and how the drafting process helps the organization to decide on a whole raft of financial and operating decisions. These include the pricing of the product, the labour rates to pay, the contracts with suppliers and customers and the level of expenses. The financial statements are required by law and by accounting standards set out by the accounting profession. They tell you how much cash you have, where it has gone and whether you have a profit or not, and why. They also tell you about the state of the assets the organization possesses, such as property, machinery and vehicles. The statements produced on a regular basis are key to all major business decisions such as capital investment, expansion, retrenchment or even bankruptcy! If you are a shareholder, you will be sent this summarized information each year and you can decide whether to hang on to the shares or increase your holdings.

Financial statements are quite detailed and practice is needed to understand them fully so Chapter 3 continues to follow the fortunes of Simon for three years, giving you examples and exercises to work on.

Chapter 4 covers the comparative analysis of financial statements. This analysis takes the form of well-known ratios and formulae which indicate not just whether a company is profitable or not, but how this information compares with previous years and with other organizations in the industry or service. Apart from profitability, financial statements also provide information on efficiency, liquidity and solvency. By analysing this information, organizations can take decisions on whether they need to perform better in these areas, by how much and in what ways. The information is also very useful to outsiders who can find out how attractive the company is as an investment.

Chapter 5 deals with budgeting. All organizations need to have a master plan to work to, which involves employees in all departments. The plan will inevitably include spending money and, for many departments (primarily sales and service departments but also many others), producing an income. You will almost certainly work in a department that has a budget for the current year. You may not know all the details of the budget but the further you move up the organizational ladder, the more you will get involved with helping to devise the budget and implementing the agreed version. In doing this you are involved in many decisions about what the department’s objectives are, the resources it needs and how the objectives are to be achieved. This chapter deals with all these aspects, together with monitoring and evaluating the actual spending and earning process in the department, and how remedial action can be taken.

Chapter 6 explains the process of costing in its many forms. When an organization plans to go ahead with a new product, process or service, it will need to costs this out clearly beforehand. The difference between fixed and variable costs is explained, together with the concepts of overheads and absorption. By examining the costing process it is possible to decide whether a new product or service may be profitable. It also shows how all the costs in the organization, including central departments such as human resources or marketing, need to be absorbed somewhere in the price determination process.

Chapter 7 takes the process of planning and decision-making a stage further by examining the techniques that can be used to decide which capital expenditure projects should be given the go-ahead and why.

You will find a Glossary of well-known accounting terms in Chapter 8.

Chapter 9 gives you a few more examples to work on, including some which are similar to those that may be faced by students taking the Chartered Institute of Personnel and Development and Chartered Institute of Marketing examinations.

Managing Finance In Different Sectors

Most of the accounting techniques dealt with in this book are those used commonly in the private sector. Traditionally, the motivation and objectives in the various sectors have been somewhat different:

• In the private sector, the financial targets for organizations will centre on generation of cash, achievement of profits and a sound balance sheet. Generally, departments will be monitored closely for achieving their objectives within their budget.
• In the public sector, the financial targets in spending departments, such as in health, education and most local authorities, will be to obtain the necessary funds from the Exchequer to match their needs and then to ensure that their outgoings remain, more or less, within the spending limits. Their finances may be augmented by other income (such as Council Tax for local authorities). It is still very common for departments to wish to spend all of their budget before the year end, because they fear that having balances at the end of the financial year would appear to indicate to their ‘masters’ that their allocated budget was too high and will run the risk of being cut for subsequent years.
• In the not-for-profit sector, such as charities, the financial objectives will centre primarily on fundraising and keeping expenses to a very small proportion of the fundraising total.

Having indicated these important differences, it must be said that there has been considerable merging of the objectives in recent years, especially in terms of the public sector adopting the accounting standards. The arrival of compulsory competitive tendering (CCT) followed by ‘best value’ initiatives has meant that service delivery departments in the public sector have had to adopt financial statements and costing processes as they compete with the private sector. Many public sector bodies have balance sheets and publish their accounts, although it still remains more likely to be one of ‘income and expenditure’ rather than profit and loss.

Whatever the method of operation and the differences in objectives, the need for correct and up-to-date financial information is absolutely crucial. This applies right across the organizational sectors. Unless the accounting skills are present, then there is a major risk for any organization of, at best, incorrect accounting and, at worst, cases of fraud and misappr...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Contents
• List of figures
• List of tables
• Introduction
• Part One Finance
• 1 Introduction to Finance
• 2 The Finances of Starting up a New Business
• 3 Following the Fortunes of 3P Ltd
• 4 Interpreting Financial Statements
• 5 Budgeting
• 6 Costing
• 7 Investment Appraisal
• 8 Glossary of Financial Terms
• 9 Sample Examination Questions Finance
• Part Two Statistics
• 10 Sources and Uses of Statistics
• 11 Presentation of Statistics
• 12 Analysing the Data Measures of Location and Spread
• 13 Probability and Probability Distributions
• 14 Statistical Inference
• 15 Linear Regression and Correlation
• 16 Index Numbers
• 17 Simple Forecasting Techniques
• 18 Glossary of Statistical Terms
• 19 Sample Examination Questions Statistics
• Part Three Informaion System
• 20 The Purpose and Benefits of Managing Information
• 21 Planning and Management Information Systems
• 22 Management Information Systems
• 23 Feedback and Other Monitoring Systems
• 24 Databases and Processing Data
• 25 Information Systems Design, Development and Maintenance
• 26 Information Systems for Human Resource Applications
• 27 Glossary of Information Management Terms
• 28 Sample Examination Questions Information Systems
• Appendix A. Areas in the tail of the Normal distribution
• Appendix B. Percentage points of the Normal distribution
• Appendix C. Percentage points of the χ2 distribution
• Index