Financial Goal Setting

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Financial Goal Setting
Life is like riding a bicycle. To keep your
balance you must keep moving. - Albert Einstein

• Dr. Jatin Pancholi
• Website http//www.jatinpancholi.com

Dr. Jatin Pancholi has compiled and prepared this
note from various sources, as the basis for class
discussion rather than to illustrate either
effective or ineffective handling of a management
situation. The handling of a management
situation requires personal guidance by a
professional. To obtain copies, request
permission to reproduce and to send feedback,
please contact via website http//www.jatinpanchol
i.com. Those wishing to co-author next edition of
this handout are requested to contact via email.
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BUSINESS SCENARIO

• Midst of a revolutionary transformation.
• Cross Functions Approach.
• Increasing significance of Suppliers Customers.
• Profiling Segmentation of Customers.
• Local v/s Global
• Persistent Innovation.
• Knowledge Workers Management.

GLOCAL
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Meaning of Finance?

• Money
• Management of Money
• Utilisation of Finance optimally
• ARTH SACHIVA (Finance reigns Supreme)

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GOAL?

• Meaning of GOAL ?
• Target?
• Aim?
• Intentions?
• Strategy?
• Dreams v/s Mirage?

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GOALS

• Sometimes when firms write down their goals, they
  discover that some of the goals are broad and
  far-reaching, while others may seem smaller in
  scope.
• Dare to dream, but be realistic about what you
  can attain.

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GOAL - TYPES

• Long term
• Medium term
• Short term

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GOALS OF ORGANISATIONS

• Maximisation of Sales
• Maximisation of Market Share
• Maximisation of Profits
• Maximisation of Returns on Investments
• Maximisation of Earnings per Shareholder

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FINANCIAL PLANNING

• Financial Planning (FP) is a process of deciding
  how to to commit the firms resources across its
  business activities to create value.
• The success of FP depends on the extent to which
  the firm understands itself and the environment.
• Ratios or Firms vis-à-vis Markets / Industry.

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FP

• Most FP involves preparing dense documents filled
  with numbers and jargons. But building the
  process AROUND A PICTURE yields much better
  results.

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VALUE CREATION

• The process of Value Creation (VC) is highly
  complex in a competitive business environment.
• Firms produce earnings by using real assets and
  managing the cost within the sale price fixed by
  the market forces.
• The earnings improved if the firm is successful
  in improving the asset turnover and/or minimizing
  the cost.
• Risk (business finance) is an important
  element in this.

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EARNINGS DRIVER

• Business Risk
• Finance Risk
• RONW
• Asset Management
• Leverage Management
• Strategic Cost Management

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ASSET, COST, LEVERAGE
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FINANCE GOALS

• Managerial activity which deals in planning and
  controlling firms financial resources.
• Three important activities - finance, production
  and marketing.
• Finance involves securing of capital and
  employing it which generates Return on capital
  through production and marketing activities.
• Finance functions include a. Investing decision
  b. Financing decision c. Dividend decision
  d. Liquidity decision e. Financial Analysis
  and planning
• Financial goal - Profit vs. wealth.

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MEASUREMENTS OF GOALS

• If you cant measure it, you cant manage it.
• People in the organisations behave in the way
  they are being measured.
• MEASUREMENTS?
• EVA
• BSC

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HISTORY OF BALANCED SCORE CARD(1)

• 1990 Nolan Norton Institute study Measuring
  Performance in the Organisation of the Future.
• David Nortan (CEO, NNI) and Prof. Robert Kaplan
  (HBS).

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History of Balanced Score Card(2)

• Corporate Scorecard (Analog Devices)
• The Balanced Scorecard Measures that Drive
  Performance (HBR Jan-Feb 1992).
• Putting the Balanced Scorecard to work (HBR
  Sep-Oct 1993).
• Using the Balanced Scorecard as a Strategic
  Management System (HBR Jan-Feb 1996)
• Book The Balanced Scorecard 1996)

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Why does a business need BSC?

• If you cant measure it, you cant manage it.
• Performance can't be compensated  without
  measurement.
• People behave in the way they are being
  measured.
• Financial Measurement
• ROI, ROCE, Market Capitalisation
• Limitations of Financial Measurements

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Definition of BSC

• "The balanced scorecard retains traditional
  financial measures. But financial measures tell
  the story of past events, an adequate story for
  industrial age companies for which investments in
  long-term capabilities and customer relationships
  were not critical for success.
• These financial measures are inadequate, however,
  for guiding and evaluating the journey that
  information age companies must make to create
  future value through investment in customers,
  suppliers, employees, processes, technology, and
  innovation."

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BSC

• The balanced scorecard suggests that we view the
  organization from four perspectives, and to
  develop metrics, collect data and analyze it
  relative to each of these perspectives
  (Financial Perspective, Customer Perspective,
  Learning Growth Perspective and Internal
  Business Processes Perspective)

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BSC A Strategic Management

• Clarify and translate vision and strategy
• Communicate and link strategic objectives and
  measures
• Plan, set targets and align strategic initiatives
• Enhance strategic feedback and learning

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4 Perspectives of BSC

• Financial Perspective
• Customer Perspective
• Internal Business Processes Perspective
• Learning Growth Perspective

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Financial Perspective

• Linking Financial Objectives to Business Unit
  Strategy.
• Growth, Sustain, Harvest
• Revenue Growth and mix.
• Cost reduction, productivity improvement
• Asset utilization investment strategy.

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Customer Perspective

• Core Measures---
• Market Shares
• Customers Retention
• Customers Acquisition
• Customers Satisfaction
• Customer Profitability

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Internal-Business-Process (IBP) Perspective

• Innovation Process
• Operations
• Post sale Services

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Learning Growth Perspective

• Employee Capabilities
• Core Employee Measurement Group Satisfaction,
  Retention, Productivity
• Information Systems Capabilities
• Motivation, Empowerment and Alignment

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BSC IS v/s IS NOT
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BSC IS v/s IS NOT (2)
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BSC S O C

• Balanced Score Card
• Strategy
• Operations
• Change

(Doing the right things)
(Doing things right)
(Doing things differently)
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Thank you
If a man empties his purse into his head, no man
can take it away from him. An investment in
knowledge always pays the best interest. -
Benjamin Franklin
Dr. Jatin Pancholi Website http//www.jatinpanch
oli.com
Dr. Jatin Pancholi has compiled and prepared this
note from various sources, as the basis for class
discussion rather than to illustrate either
effective or ineffective handling of a management
situation. The handling of a management
situation requires personal guidance by a
professional. To obtain copies, request
permission to reproduce and to send feedback,
please contact via website http//www.jatinpanchol
i.com. Those wishing to co-author next edition of
this handout are requested to contact via email.