INTRODUCTION

The term ‘financial management’ makes many people nervous. The reasons for this are two-fold: there is a tendency to equate financial management with accounting, and many people are uncomfortable with the idea of working with numbers. Financial management is not the same as accounting, however. It involves looking at the financial impact of decisions, using financial information to make informed business decisions, and managing financial resources. Although it involves working with numbers, the numbers are not an end in themselves. Rather, it is the information that is contained in the numbers which managers can use to inform their decision-making.

Chapters 6 and 7 will explore strategic (organization-wide, long-term) and operational (routine) financial management, which have different applications at different levels of LTO management. An LTO director will have strategic responsibilities including the overall financial picture, long-term organizational growth and stability, and possibly debt financing or investment opportunities. This means that an LTO director is likely to use strategic financial management concepts and tools. Directors of studies (DOS), in comparison, have a different set of responsibilities primarily connected with the day-today operation of the LTO, so they will be more likely to use operational financial concepts and tools.

This chapter will explore strategic planning, whose focus is long-term planning and goal-setting, and we will consider how financial management is a vital component of the process. In addition, we will look at some tools that aid in the creation of strategic plans.

Decision-making and communication

What, then, is strategic financial management? It is a set of financial managerial decisions and actions aimed at the achievement and/or maintenance of the financial health of an organization. As financial management is one aspect of overall management, financial outcomes are also one aspect of informed decision-making. In for-profit LTOs, the financial outcomes may be a significant driver in decision-making. In NFP or social sector LTOs, the most significant driver is the mission of the organization; the financial outcomes are not a measurement of profit but of how effectively resources are employed to achieve the goals of the LTO.