Writing Homework Help

Financial Management Practices

In this assignment, you will examine the financial management practices of your selected organization. This assignment builds upon your analysis of the organization’s financial statements in the Unit 5 assignment and examines the specific practices and strategies that organizations use in managing their finances.

In this assignment, analyze the following:

1. The revenue portfolio of the organization (for example, types and amount of revenue).
2. Strategies for performance management used by the organization.
3. Capital budgeting and financing approaches used by the organization.
4. Investment strategies used by the organization.
5. Internal controls used by the organization to manage funds.
6. Opportunities to develop and secure capital and financial resources.
7. Investment philosophies and policies adopted in conjunction with a board of directors or organizational stakeholders.

Cost-Benefit Analysis Scenario

Introduction

Cost-benefit analysis is basically how we describe our decision processes across a wide variety of settings. We use it many times a day in our personal lives-when choosing the route to take to work, what to eat, what to buy, et cetera. We do it so often that the process is intuitive. In many instances, the process is quite simple. Other times, it is complex. We can deal with that complexity in a number of ways-exhaustive analysis or simplified choices and processes are two examples.

For business analysis, the same process may or may not be appropriate depending on the setting and other factors. It is important for a business analyst (BA) to know the criteria and practice good judgment in choosing and implementing a decision process. Too often, we carry our assumptions about cost benefit analysis from life into our roles as decision makers. BAs need to help people make better decisions, so they must be very aware of such pitfalls.

Let’s walk through a simple cost-benefit analysis to illustrate both hidden complexity and intangible factors such as risk.

Scenario

Picture yourself with a promotion requiring you to move…

“Congratulations on your new position and welcome to your new town! Are you going to rent an apartment or buy a home?”

That’s a simple question-is it a simple decision? What information would you need to know to make this decision? What factors would you consider?

PRICING

First, consider the prices of homes you would like versus prices of comparable apartments you would like. The schools, neighborhoods, living space, yard, and utilities are comparable. That should be enough information. Anything else you would need to know?

MONTHLY PAYMENTS

Interest rates (and points and loan costs) will affect your monthly payments for the purchase, as will taxes. That will determine your monthly payment and, finally, you can compare that to the rent for an apartment, right?

DEDUCTIBLES

Home mortgage interest is deductible, so your effective monthly payment for a house may be lower because you will pay less in taxes. Now you have all the information you need, or do you?

TAX RATE

What is your tax rate? That will determine the value, if any, of your mortgage interest deduction. Ok, now are we ready to decide to rent or buy?

EQUITY

Of course not, but you knew that. If everything else was equal, the buy option is advantageous because you are building equity in the purchased home. So is buying a better option?

HOUSING MARKET

Maybe. What if the housing market is declining? Wouldn’t that mean that your investment is losing value? This is as complex as most investing. Still, at the end of the mortgage period, you own the home. It will be worth something. Paying rent all those years would leave no residual value.

TIMEFRAME

If you stay for 30 years or whatever the mortgage term is, the house has value. But if you leave before then, you could actually lose money. Not historically likely, but it needs to be considered, especially if you are staying for a short time. OK, anything else?

ETC.

Of course. Homeowner association fees, liens, insurance-renters and homeowners, liability, flood, etc. There is likely an infinite list of considerations. Take a look at the topics above we have included so far in our “simple” decision. We could have considered many other factors.

Conclusion

We have not included intangibles to any significant extent-the prestige of home ownership, the maintenance of a home, et cetera. What happened to our simple decision of rent versus buy? The answer is, it is not simple.

This was a rather overt and obvious example. In business, there are many decisions with less obvious and often intangible factors that must be considered. Once considered, the BA needs to appropriately influence the decision with those factors. The BA needs to have a broad perspective that supports good judgment about what to consider heavily, what to discount, what to ignore. That in and of itself is part of the decisions process.

The decision process is too complex if improperly managed. The amount of information is generally overwhelming, and dealing effectively with it all is crucial to good decisions. Simply ignoring some or all of it is exceedingly risky and, well, ignorant. Not all information and knowledge is important to the decision. Organizing the decision through judicious inclusion and exclusion-working with the client-is the BA’s responsibility.