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Unit 13

This unit aims to provide learners with skills in applying financial principles and techniques relevant to strategic management. It covers topics such as costing systems, forecasting techniques, budgeting processes, cost reduction strategies, financial appraisal methods, and interpreting financial statements. The unit supports learners in developing skills such as applying forecasting to make cost and revenue decisions, participating in organizational budgeting, recommending cost reduction processes, using financial appraisal for investment decisions, and analyzing financial statements to assess organizational viability.

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Syedmunimejaz Ejaz
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84 views

Unit 13

This unit aims to provide learners with skills in applying financial principles and techniques relevant to strategic management. It covers topics such as costing systems, forecasting techniques, budgeting processes, cost reduction strategies, financial appraisal methods, and interpreting financial statements. The unit supports learners in developing skills such as applying forecasting to make cost and revenue decisions, participating in organizational budgeting, recommending cost reduction processes, using financial appraisal for investment decisions, and analyzing financial statements to assess organizational viability.

Uploaded by

Syedmunimejaz Ejaz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Unit 13: Managing Financial Principles and

Techniques
Unit code: A/602/2334
QCF Level 7 BTEC Professional
Credit value: 15
Guided learning hours: 45

Unit aim

This unit provides the learner with the skills to apply financial principles relevant to strategic
management in an organisational context, including forecasting, capital appraisal,
budgeting, financial appraisal and analysis.

Unit introduction

Organisations operate in a very competitive and continually changing environment where


effective decision making is crucial if an organisation is to survive or even be profitable. An
important resource for decision making is financial information and it is important for
managers to be able to interpret, analyse and evaluate this information effectively. This unit
will give learners a foundation in financial principles and techniques relevant to the strategic
management process. It encourages learners to explore the nature of cost-based financial
data and information, the impact of the budgeting process on the organisation, and the
development of cost reduction and management procedures and processes. It also focuses
on the management of these costs through the use of forecasting, appraisal and financial
reporting procedures. One of the main objectives of this unit is for learners to develop the
confidence to apply, analyse and evaluate financial and cost information. Learners will
develop the ability to judge the sources, nature, accuracy and completeness of cost-based
information and influence others to make decisions that are based on well-researched
options. These important decision-making skills will be enhanced further through the use
and validation of forecasting techniques, the consideration of financial statements and
making judgements on the validity of information sources used in the decision-making
process. Learners will also apply strategies associated with determining sound management
information with reference to sources of funds, the potential investment of resources and
the interpretation of financial statements.
Learners will study issues of cost, responsibility and control in the contexts of management
accounting and the management process. This unit gives learners the opportunity to
enhance their competency in the construction, review and evaluation of cost-based financial
information, and introduces them to the analysis and control or reduction of costs in a range
of situations.
Learning outcomes and assessment criteria
In order to pass this unit, the evidence that the learner presents for assessment needs to
demonstrate that they can meet all the learning outcomes for the unit. The assessment
criteria determine the standard required to achieve the unit.
On completion of this unit a learner should:
Learning outcomes Assessment criteria
1 Be able to apply cost concepts to the decision-making process
1.1 explain the importance of costs in the pricing strategy of an organisation
1.2 design a costing system for use within an organisation
1.3 propose improvements to the costing and pricing systems used by an organisation
2 Be able to apply forecasting techniques to obtain information for decision
making
2.1 apply forecasting techniques to make cost and revenue decisions in an organisation
2.2 assess the sources of funds available to an organisation for a specific project
3 Be able to participate in the budgetary process of an organisation
3.1 select appropriate budgetary targets for an organisation
3.2 participate in the creation of a master budget for an organisation
3.3 compare actual expenditure and income to the master budget of an organisation
3.4 evaluate budgetary monitoring processes in an organisation
4 Be able to recommend cost reduction and management processes for an
organisation
4.1 recommend processes that could manage cost reduction in an organisation
4.2 evaluate the potential for the use of activity-based costing

Learning outcomes Assessment criteria


5 Be able to use financial appraisal techniques to make strategic investment
decisions for an organisation
5.1 apply financial appraisal methods to analyse competing investment projects in the public
and private sector
5.2 make a justified strategic investment decision for an organisation using relevant
financial information
5.3 report on the appropriateness of a strategic investment decision using information from
a post audit appraisal
6 Be able to interpret financial statements for planning and decision making
6.1 analyse financial statements to assess the financial viability of an organisation
6.2 apply financial ratios to improve the quality of financial information in an organisation’s
financial statements
6.3 make recommendations on the strategic portfolio of an organisation based on its
financial information

Unit content
1 Be able to apply cost concepts to the decision-making process
Costs and prices: absorption and marginal costing – their nature, similarities, differences and
use in pricing; relationship to pricing policy; influences on pricing strategy
Cost systems: classifications in terms of object; function, product/service and behaviour;
opportunity cost, recording and analysing costs; job costing; batch costing; process costing;
contract costing; standard costing; variance calculations; variance analysis and
management by exception
Responsibility and control of systems: cost centre; profit centres; investment centres; accountable
management; planning and control methods
2 Be able to apply forecasting techniques to obtain information for decision making
Forecasting techniques: forecasting costs; cash flow forecasts; scatter graphs; linear regression;
time series methods; forecasting and price movement; using indices, limitations of index
numbers; forecasting problems and limitations; place of qualitative data; recommendations
Funds: sources; supporting proposals for obtaining funds internally and externally; gearing
ratios; effect of different types of funding on shareholder and market perception; selecting
appropriate sources of funds for different projects – comparison of costs
3 Be able to participate in the budgetary process of an organisation
Target setting: comparison to previous years; links between targets; realism; organisational
objectives
Process: importance to management; the steps in the process from subsidiary/ functional to
master budget; relationship to cost and quality control, resource utilisation and profitability;
computer-assisted processes
Budgets: types; flexible and fixed budgets; zero-based budgeting
Monitoring process: budgeted and actual figures, accounting for and investigating variances;
favourable and adverse variances; the need for prompt and relevant corrective action;
behavioural issues relating to budgeting eg management participation authority,
performance evaluation

4 Be able to recommend cost reduction and management processes for an organisation


Cost reduction: purpose compared with cost control (standard costing and budgetary control);
value analysis and value engineering; difficulties with introducing cost reduction
programmes; quality and value, Total Quality
Management (TQM), measuring the costs of quality
Activity-based costing: development of activity-based costing (ABC); use in calculating costs and
pricing policy; activity-based budgeting; merits and limitations of these systems
5 Be able to use financial appraisal techniques to make strategic investment decisions for an organisation
Investment: definition; capital and revenue expenditure; types and interaction with risk;
sensitivity analysis
Investment appraisal: accounting rate of return; payback period and cash flows, discounted cash
flow – net present value and internal rate of return, time value of money and allowance for
inflation in money and real rates of discount, taxation and project appraisal; post-audit
6 Be able to interpret financial statements for planning and decision making
Statements: estimates and assumptions relating to the profit and loss account; balance sheet
and cash flow statement; use of spreadsheets in financial planning; financial resource audits
and the use of balanced scorecards – Kaplan and Norton
Financial ratios: employment of financial ratios internally and externally; financial profiles of
organisations; calculation of key ratios reflecting business liquidity; efficiency and
profitability
Interpretation and limitations of ratio analysis: emphasis on the interpretation of ratios and
encouragement of the use of contingency and risk analysis to justify and make strategic
portfolio decisions

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