Managing Finance Principle Technique

Answer :

Role Of Financial Management

Financial management plays a very important role in managing the financial policies and strategies of the organization. In the present competent environment, effective decision making is very crucial for a company in order to be profitable. Funds are the utmost requirement to get all the relevant resources for the business. The following study helps in familiarizing with the financial principles and techniques related to the organization. For that purpose a UK based organization which functions at global level in the hospitality industry, Millennium & Copthorne PLC is taken into the context. This report helps in understanding the cost based financial data and information. It also talks about the forecasting techniques to gather the information for decision making. Apart from that it will evaluate the budgetary monitoring process adopted in the organization. At last the report will end in interpreting the financial statements and ratios of the company.

Importance of costs in the pricing strategy

Cost is the most significant factor in the pricing strategy of Millennium & Copthorne PLC. Generally the business decides the pricing of their product and services keeping in mind the cost realized in the production. An effectual pricing strategy is essential so that the firm can identify a point where they can maximize incomes & profits in order to achieve success. The company has to incur different types of costs such as direct costs, labour costs, overhead costs etc. When the production costs goes up the company likes to keep the prices higher for its services and vice-versa. While deciding the pricing strategy cost of each and every aspect is examined by the business (Banerjee, 2006). Various pricing strategy adopted by the company are cost-plus pricing, competition-based pricing, limit pricing etc. Another approach is the cost cutting which is applied by the business to increase the profit margin. In case of minor adjustments, constancy can be seen in their prices.

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For Millennium & Copthorne PLC service costing system can be designed which us used in the firm which are engaged in providing the services instead of products. For determining the prices of each service it is very essential to gather all the expenses related to it. Under this system the company can make a sheet in which all the costs concerned with the specific service can be reflected (Dayananda, 2002). All these costs are calculated on time basis. Each costs is treated as the separate units in operating costing and it includes expenses related to salary, insurance, road tax, license fee, interest on capital etc.

Improvements to the costing and pricing systems

Millennium & Copthorne PLC can adopt suitable approaches to improve their pricing and costing system. Their major costs are related to capital expenditure, room developments, staff, premises, transport, labour, raw-materials etc. Apart from that they have to incur the cost on improving their customer service. Standardization of major activities will help the firm in realizing long term opportunities in significant cost reductions. Adopting quality management process will help in checking the quality and effectiveness of the costing activities. These types of actions can be performed by evaluating the activities at regular point of time. Further they can bring the improvements by arranging the finance for the business through cheapest sources (Helfert, 2004). They can buy the raw materials from the market at time when prices are favourable for the business. Replication of actions must be avoided so that there should not be wastage of resources. The company can also remove the assets and processes which are not valuable for the business.

On the other side in order to improve the pricing system they can implement the approach of penetration. Under it they can keep the prices for their room and other services etc low as compared to their competitors. This will help them to retain the existing customers and engaging new clients for the company. Another approach is the price skimming under which they can change the prices as the demands and preferences of the people. It is considered as the temporal form of price discrimination and yield management (Vice, 2013).

Applying the forecasting techniques

Different types of forecasting techniques can be applied by the Millennium & Copthorne PLC which includes:

Qualitative forecasting – These types of forecasting approaches are subjective in nature and are based on the factors like emotions, opinions, thoughts, personal experiences etc. It does not take into account any type of statistical and mathematical computations. It includes approaches like Executive opinion, market survey, Delphi method etc.

Quantitative forecasting – These types of methods derive the results by using mathematical and statistical models and are objective in nature. Under this results and conclusions are made on the basis of mathematical computations (Elearn, 2013).

Time series analysis – This technique uses historical data to predict the future outcomes. It is a set of observations on a particular phenomenon collected over a period of time. It takes into account the information such as money supply, inventory level, money supply, exchange rates etc.

Explanatory methods – This method make use of data to determine the changes and on the basis of the existing data also project the future market conditions. It takes into consideration the terms like spending pattern, confidence indexes to derive the future performance.

Sources of funds

Millennium & Copthorne PLC can arrange finance from many sources in order to do expansion for its business:

Retained earnings – Company can raise the money from the portion of their net income called retained earnings. Business retains these earnings despite of distributing them among the shareholders as dividends.

Grant – The Company can take loan from the UK government as it is a British PLC. Granting finance from the government will be a easier process for th

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