Financial performance management monitors financial results and compares them to budgets or forecasts to achieve specific goals. It applies to investment management and business operations, with constant adjustments to meet changing market conditions. It involves analyzing income and expenses to make decisions on increasing sales, reducing costs, and managing financial performance. It is a necessary aspect of business management, and courses and resources are available to learn more.
Financial performance management is a series of processes used to monitor long-term and short-term financial results. This term is most commonly applied to investment management but can also be applicable to business operations. The primary purpose of financial performance management is to compare actual results with budgets or forecasts and make adjustments to achieve specific financial goals.
In the investment industry, financial performance specifically refers to the rate of return on a financial portfolio. A portfolio is made up of multiple financial instruments, with a variety of risks and rates of return. While it is impossible to predict the future, statistics are used to predict the financial performance of these instruments over a specific period of time.
Specific performance benchmarks are set based on predictions and actual performance is measured against these values. Based on the results, changes are made to the portfolio to increase the rate of return to meet these requirements. There is a constant process of adjustment, which is a necessary response to changing market conditions and circumstances.
In a traditional business context, financial performance management refers to the profitability of the business. A regular review of income and expenses provides valuable insights into business operations, risks and issues. Typical financial statements are not ideal for this purpose, as these reports are a summary of overall activity. Instead, many companies create custom reports on sales, costs, cash flow, and fixed expenses.
These values are compared with budgets or forecasts, which are created as part of a long-term management strategy. Positive or negative changes are then analyzed to help make decisions. Business decisions about how to increase sales, reduce costs, and otherwise manage financial performance are made and then implemented.
The whole process of reviewing, comparing, analyzing and deciding is repeated on an ongoing basis. It is a necessary aspect of business management. Companies that fail to perform these tasks and effectively implement business changes tend to face ongoing financial difficulties. In many situations, businesses that failed could have been saved if the appropriate changes had been made.
There are financial performance management courses available from most local colleges or universities. Reference books and online resources are another way to learn more about the different techniques used in financial performance management. Reading case studies is a great way to learn from the experiences of others.
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