Role Of Financial Manager

Role of the Financial Manager

The role of the financial manager has changed drastically during recent years. Previously, financial managers were seen as the stewards of the organization, since they were responsible to ensure the accountability of all organizational assets and to generate accurate financial reports. Today, their main goal is to maximize shareholder value. In order to achieve this goal, they have to be information managers, cost managers, controllers, consultants, and risk managers. However, there are critics that disagree with this shareholder value approach. Instead, in order to ensure long-term sustainability, financial managers should be focusing on the stakeholder value.

Financial manager's role

Traditional roles

Financial managers are often called controllers, treasurers, and financial officers in bigger organizations. Traditionally, the financial manager's role was that of a steward, being mainly involved in managing financial accounting, reporting, and cost controlling. The manager was also responsible to ensure proper policies compliance. With the increasing complexity and competitiveness of the business environment, the key role of financial managers today is to maximize shareholder's value, and financial managers are required to take on more proactive roles of leadership and consultation in nature (Catanach, 1999).

New emerging roles

Financial mangers often act as information managers. It is important that they participate actively in assisting other executive managers in the strategic planning process by identifying all potential risks, establishing objectives, and allocating proper resources for the process. Financial managers also need to properly and effectively communicate the company's financial objectives between different programs and also continuously monitor their progress. Lastly, they are also responsible for preparing and disseminating all the necessary reports to different users and for educating users in regards to the utilization of these reports (Catanach, 1999). According to Johnson (Anonymous, 2000), one of the roles of the financial managers is the ability to "Count" - that is to ensure the accuracy, usefulness, timeliness, and functionality of financial information.

Financial managers are also cost managers and must implement efficient and effective cost management strategies in order to maximize shareholder value. This could be achieved by performing a cost analysis on new programs or products in order to determine their market potential, all direct and in-direct costs, and their impact on the organization. Financial managers could also assist the organization in gaining a more competitive advantage in controlling costs and costs drivers. For example, the organization could contract out non-essential services in order to reduce variable costs such as labour costs, benefit, costs, and infrastructure costs.

Like the old controller job description, financial managers must also maintain their "Control" ability through strategic financial planning, annual budgeting, monitoring of financial variances, and financial corrective actions, as performance requires. (Anonymous, 2000) They are to manage the working capital and cash flow by overseeing the entity's accounts payable function. Often internal policies are established in order to stretch out payments to selected suppliers without damaging the relationship. (Phoenix, 2005).

Consulting is a value-added function that financial managers contribute in the shareholder value maximizing process. Financial managers acting as strategic business advisors provide valuable financial input to other executive managers in the organization during the strategic planning process (Anonymous, 2000). Financial managers must have the ability to thoroughly assess all risks inherent within the organization's operation structure and appropriately communicate and provide expert opinions to other managers.

Risk management is another important role. In order to maximize shareholder value, financial managers must endeavor to reduce capital costs by minimizing the risk to the capital while maximizing the return of this capital. Financial managers, therefore, must implement proper risk management by identifying all potential risks, determining of their financial impact, and making proper decisions regarding each risk. (Bozzo, 1998)

According to Lowell Johnson (Anonymous, 2004), financial managers must also have the capabilities to "Create" through creating capital, managing daily cash flow, and maximizing return, thus increasing the organization's ability to borrow money when needed.

Maximizing share value opinion

Maximizing shareholder value has become a prominent objective for many financial managers. It seems that more and more corporations are only focusing in increasing shareholder value. According to George, CEO of Medtronic, this practice is both short-term and shortsighted. The shareholder value strategy forces financial managers to focus their effort and strategies in meeting quarterly earnings expectations.