Definition and Concept of Financial Management

Definition of Financial Management has developed from the definition of management that only prioritize to the activity of obtaining funds until the activities of obtaining and using funds and management of assets. Financial Management (Finance Management) is the entire activity or activities of the company in the context of the use and allocation of company funds efficiently. According to George R. Terry, management includes four activities often known as POAC (Planning, Organizing, Actuating, and Controlling)

According to Bambang Riyanto: financial management is all company activities related to the procurement of funds required with minimal cost and most favorable conditions with efforts to use the funds as efficiently as possible.

Concept of Financial Management

To perform its functions, a company must perform the functions well, since in the implementation, each function relates each other. Financial management is the management of the financial functions. Meanwhile, the function of finance is the main activities performed by those who are responsible in the particular field. The functions of financial management are using and placing the funds.

Financial management is all company activities related to how the company obtains funds, uses the funds and manages assets in accordance with the overall company's objectives.

Financial management is related to three activities:

Activity of fund use, it is the activity to invest funds in various assets.

Fundraising activity, it is activity to obtain funding sources, both from internal and external funding sources.

Asset management activity, after funds are obtained and allocated in the form of assets, the funds should be managed as efficient as possible.

Financial management is all activities by asset acquisition, financing and management with some overarching objectives. Therefore, decision-making functions of financial management can be divided into three main areas: decisions in respect of investment, financing, and asset management.

Purpose and Steps of Financial Management

Purpose of Financial Management is to maximize the value of a company. Thus, if one day the company is sold, the price can be set as high as possible. A manager must also be able to suppress the flow of money circulation in order to avoid unwanted actions. Efficient financial management needs the existence of purposes and goals, which are used as standard in assessing the efficiency of financial decisions.

The company's goal is maximizing the welfare of the owner. The amount of stock owned shows the ownership evidence of a company. Shareholder wealth is shown by the market price of the company, which is also reflection of investment, financing and asset management decisions. The success of a business decision is judged by the impact on stock prices.

Steps in Financial Management

Management has three important steps; planning, implementation and research, the three steps when implemented financial management becomes financial planning, implementation and assessment steps.

1. Planning (Financial Forecasting)

Financial forecasting in financial management is used to estimate the financial needs in the future. If the financial management does not try to anticipate the future financing needs of the company, then crisis will happen when treasury income is less than treasury outcome. Good planning is intended to anticipate and prepare the company to face the future condition, which, when the company should require the presence of additional finance, and also when the company is not able to generate treasury income.

2. Implementation (financial planning and budgeting)

To obtain more accurate estimate of the amount and timing of financing needs, it requires treasury budget. Percentage method for financial forecasting provides very useful introduction and low cost to develop more detailed treasury budget, which will be used to estimate the financing needs.

3. Research (budget function)

Beside as a tool for planning and management control, budget is also a tool for management to lead an organization in strong or weak position (Nana Fatth, 2000).

Functions of Financial Management

Functions of Financial Management

a. Investment Decision

Investment is defined as an investment of company in real and financial assets. Financial decision is a decision on what assets will be managed by the company. Investment decision will directly influence to the amount of investment profitability (return on investment) and treasury flow of the company in the future.

b. Financing Decision

Financing decision studies funding sources on the liabilities side. Therefore, it needs to be considered a source of funds that has most minimal costs and favorable conditions. Fulfillment of funds can be done through internal and external company resources.

c. Dividend Decision

This decision is made to determine:

1. The amount of profit percentage distributed to shareholders in the form of cash dividends

2. The dividend stability to be distributed

3. Stock dividend

4. Stock split

5. Withdrawal of stock outstanding.

Here is a brief explanation of Financial Management Functions:

Financial planning, making income and outcome planning and other activities for a certain period.

Financial budgeting, following up of financial planning to make detailed outcome and income.

Financial Management, using company funds to maximize the funds available in a variety of ways.

Financial searching, finding out and exploiting the resources available for the operational activities of the company.

Financial storage, collecting funds and saving and securing the funds.

Financial control, evaluation and improvement of finances and financial systems in the company.

Financial Audit, internal audit on the financial company to avoid deviations.

Financial reporting, providing information about the company's financial condition as well as evaluation.

Principles of Financial Management

Principles of Financial Management

Financial Management in practice is an activity performed and appearing in order to make the finance of the company or organization ideal.

Therefore, in making financial management system, we need the following principles as the basis:

1. Consistency

In this principle, a system and financial policy must be consistent, not change from period to period, but keep in mind that the financial system does not mean that there is no adjustment if there is a significant change in the company.

2. Accountability

This principle is a moral or legal obligation, which is inherent to the individual, group or company to give explanation of how the funds or authority given to a 3rd party used.

3. Transparency

Management should be open to the work, provide information about the plan and all the activities concerned, including providing reasonable, complete, timely and accurate financial report which can be accessed easily by an interested party, if it is not transparent, it can indicate that management has hide something.

4. Viability

To maintain the financial company, all operational outcome or at strategic level must be adjusted to the existing funds.

5. Integrity 

Every individual should have integrity level that is capable in running operations. In addition, the records and financial report must be maintained the integrity with the completeness and the accuracy of financial records.

6. Stewardship

Financial management should be able to manage capably of the funds obtained and provide assurance that funds received will be used to realize the goals that have been set.

7. Accounting Standards

Financial accounting system used must be in accordance with the principles and standards of applicable accounting rules to make the financial report produced easily perceived and understood by all interested parties.

Functions of Human Resource Management

There are some functions of human resource management:

1. Planning 

It is a conscious effort in making a decision that has been considered about what will be done in the future by a company to achieve the intended purpose.

2. Recruitment 

Effective recruitment will provide an employment opportunity for people who have the ability and skills meeting the qualifications and specifications of the job.

3. Selection

Selection of labor is the process of finding suitable and right employment of the candidates available.

4. Orientation, Training and Development

All activities to provide, obtain, and improve and develop job competence, productivities, discipline, attitude and work ethos at certain skill and expertise levels in accordance with the level and qualification of the job and position.

5. Work Evaluation

It is not less important than the other management functions. Evaluation Function of human resource management is useful so that the company no longer makes the same mistake.

6. Compensation

Compensation function is granting of fair and decent remuneration based on the labor responsibilities and achievement.

7. Integration

The integration is the activity to unite between the company interests and the needs of employees, thus it creates beneficial partnership to both parties.

8. Maintenance

Maintenance function is activity to maintain or even improve mental, physical and loyalty conditions of workers in order to create long cooperation.

9. Dismissal

It is discontinuation of employment relationship between the labor and the company caused by something that resulted in the rights and obligations ended between the employer (company) and employee. 

How to Measure Motivation

There are several ways to measure motivation:

1. Projective Test

One of projective techniques widely known is Thematic Apperception Test (TAT). In this test, client is given a picture and the client is asked to make a story out of the picture.

In theory of Mc Leland, it was explained that humans have three needs: need for achievement (n-ach), need for power (n-power), and need for affiliation (n-aff). From the content of the story, we can examine a client's underlying motivation based on the concept needs.

2. Questionnaire

The trick is asking client to fill out a questionnaire containing questions that can provoke the client�s motivation.

For example is EPPS (Edward's Personal Preference Schedule). This questionnaire consists of 210 numbers which each number consists of two questions. Client is asked to choose one of these two questions that is more representative of him. From filling the questionnaire, it will be known the motivation of the client.

3. Observation

Another way to measure motivation is creating a situation so that the client can bring the behavior that reflects his motivation.

For example, to measure the desire to excel, the client is asked to produce origami in a certain time limit. The behavior observed is, whether the client uses the feedback given, takes risky decisions and concerns with the quality rather than quantity of work.

Definition of Customer Behavior and How to Examine Customer Behavior

Definition of Customer Behavior and How to Examine Customer Behavior 

Costumer behavior is a person's processes and activities related to search, selection, purchase, use, and evaluation of products and services to meet the needs and desires. However, some people interpret costumer behavior as things underlying to make purchase decision, such as for something that has low selling price, then the decision process is done easily, while for things with high selling price, then the decision-making process will be done with careful consideration. 

According to some experts are as follows: 

a. Schiffman and Kanuk 

Costumer behavior is process passed by someone in finding, buying, using, evaluating and acting post-consumption of products and services, as well as ideas that are expected to meet their needs. 

b. Engel, Blackwell and Miniard 

Costumer behavior is act of service products, including the decision processes preceding and following the actions that are directly involved in obtaining, consuming and disposing a product or service, including the decision processes that precede and follow the action. 

There are three main approaches in examining costumer behavior. The first approach is interpretive approach. This approach digs deeply into costumer behavior and the underlying case. The study is conducted through long interviews and focus group discussions to understand what the meaning of a product and service to the costumers and what is perceived and experienced by costumers when buying and using it. 

The second approach is traditional approach based on the theory and methods of cognitive, social, and behavioral psychology and sociology. This approach aims to develop theories and methods to explain costumer behavior and decision-making. The study is conducted through experiments and surveys to test the theory and seek an understanding of how a costumer process information, make decisions, and the influence of social environment on costumer behavior. 

The third approach is called as science of marketing that is based on the theory and methods of economics and statistics. This approach is done by developing and testing a mathematical model based on the hierarchy of human needs according to Abraham Maslow to predict the effect of marketing strategy to the choice and consumption patterns, known as moving rate analysis.