The fundamentals of financial discipline  

Financial discipline has been one of the most discussed terms in recent years, especially when it comes to successful management of organisations. Even a well-performing organisation will not be stable, until and unless financial discipline (FD) is maintained in it.

Actually, FD is about knowing the appropriate numbers related to each organisation. If these numbers cannot be measured, they cannot be managed. It is as simple as that.

Financial professionals see and experiment with finance in their own ways when dealing with organisations working in particular sectors and the challenges that they face every day. Some of the challenges faced by organisations involve issues related to finance, marketing, supply chain, project planning and implementation, operations, strategy formulation and execution and, most importantly, human resource management.

Financial discipline can be ensured if the following factors are properly understood by a concerned professional.

• n Any organisation produces a good or delivers a service. Sale of the product or efficient delivery of the service will result in revenue and eventually lead to profit. One wing of finance is supply side or source of fund. This includes equity, retained earnings and short-term and long-term debts. The other side of finance is demand side or investment for man, machine, land, building, system and entrepreneurship. Proper balance and interaction between the two sides need to be ensured to maintain financial discipline in an organisation.
• n Strategic alignment of all activities of a company is a tricky thing. Still this is the single-most important element that can lead to its success. A strategic plan is required to achieve the mission and visions of a company, keeping in mind the core values of the company. First, a SWOT (strength, weakness, opportunity and threat) Analysis can be done to set a number of strategic goals. The purpose of having a strategic plan is to set some strategic goals for the company, cascade it down to operational activities so that these goals can be achieved and the actual activities kept on track in order to connect the dots between people, customers, stakeholders and system. Prior to setting strategic goals, the owners of business organisations need to validate their vision, mission and core values to their business professionals, who will be engaged in different activities to reach these strategic goals. Business professionals can do the job of connecting the dots well only if they are given the responsibility with appropriate authority to fulfil the professional responsibilities. Most of the time, owners of companies are reluctant to delegate the authority to the business professionals due to lack of confidence and trust. This is not helpful for the company in the long run. Top companies of the world leave the strategic planning process for the business professionals in their organisations.
• n Annual budget, marketing plan, operational plan, investment plan, financing plan, and human resource development plan needs to be rolled out on the basis of strategic plan. Strategic goals, activities, and KPIs (Key Performance Indicators) need to be measured properly.
• n There could be deviations during the execution of these plans. It is important to continuously monitor the activities against the plan and the outcomes. The reasons behind the deviations need to be sought and corrective actions taken.
• n The final outcome can be compared with the strategic plan and goals. Based on performance, rewards can be given out. Future strategic plans can be based on the final outcome of the process.

As in the case of any individual, financial discipline for a company cannot happen overnight and be maintained easily. It is a continuous process that needs to be monitored at each and every step.

Abdul Wadud is CEO & Management Consultant,

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