How does the financial manager operate in an unpredictable business environment.

The financial manager is responsible for the financial health of the organization. The financial manager carries out three main financial management decisions. These are investment decision, financing decision and dividend decision. These three financial decisions are carried out with financial planning and financial control. These financial management tools will not be enough to achieve corporate goals in the business environment without analyzing the business environment.

The business environment is a complex environment. The dynamics of the business environment can change the financial performance of the organization in less than a day. In light of these circumstances the financial manager requires a business strategy which analyses the business environment. This analysis will expose the strength and weakness of the company. This will serve as a guide to achieve organizational goals.

The business environment is an amalgam of internal factors and external factors that affects a business. A company can control the internal factors that affect its business. Managing the strengths of the internal operations of a company can lead to the success of a business if there are favourable external factors. Unlike the internal factors, a company cannot control the external factors in the business environment.

Political change is considered to be an external factor in the business environment. A political change can either create an opportunity which can lead to an economic boom or add a risk factor and this can lead to a major loss. Companies should prepare good business strategies to deal with the local and international outcomes of politics. Changes in government policy make up the political factors. The change can be economic, legal or social. It could also be a mix of these factors. Lack of political stability in a country effects the business environment. This is especially true for the companies which operate internationally.

A hostile takeover could overthrow a government. This could lead to riots, looting and general disorder in the environment. These disrupt business operations. Sri Lanka was in a similar state during a civil war. Egypt and Syria faced disturbances too. During this period, business cannot operate fully as it used to be in the business environment. It is certain that the business will incur major losses as corporate goals cannot be achieved when politically the country is not stable. Governments could alter their rules and regulations. This could in turn have an effect on a business.

After the accounting scandals of the early 21st century, the US Securities and Exchange Commission became more attentive on corporate compliance. The government introduced the Sarbanes-Oxley compliance regulations of 2002. This was a reaction to the social environment. The social environment urged a change to make public companies more liable.

Nike Inc is an American athletic equipment company that has earned high profits from the growth orientated policies of US government. The policies maintained low-interest rates. Currency exchange stability and internationally competitive tax arrangements were also maintained. The company has also benefited from government initiatives in terms of transparency in the global value chain. One example of this is in membership of the Clinton administration’s 1997 Apparel Industry Partnership.Nike enjoyed changes in the political factors in many ways. However, political pressures had a negative impact on Nike’s employment practices.

Technological change is also an external factor that affects a business in the business environment. A technological change involves the practical application of scientific or other new ideas in a business or industrial context. The railway industry in the United Kingdom has changed in many ways in the last 30 years. The industry was privatized by the previous Conservative government. This was a political change. The railway industry moved from being run by British Rail, which was a public corporation, to a new structure where the track and stations are maintained by Rail track. There are a range of private railway companies seeking to make profit in the various regions of the UK.

Generally standard of living has risen as a result of economic change which has been made possible partly because of political changes in the business environment. Most families now have cars, so the rail companies are competing vigorously with road transport for customers. A major social change has been that many people are working from home today using home computers to communicate with their offices.

This has led to a reduction in demand for rail transport, although many office workers commute by rail on the days when they visit their offices. Changes in technology mean that on some rail lines there are new developments of high speed trains, as pioneered by billionaire Richard Branson's Virgin Rail. These trains reduce the time taken for long distance travel and are helping to win back customers to rail.

The social environment is a sum of a society's beliefs, customs, practices and behaviours. It is, to a large extent, an artificial construct that can be contrasted with the natural environment in which we live. Every society has its own social environment. Some of the customs, beliefs, practices and behaviours are similar across cultures but some are not. A Ghanaian will see many familiar practices when he or she visits Nigeria. In a case where the Ghanaian visits India he or she will see many unfamiliar practices.

If a business operates in a multicultural society, then the social environment is even more complicated because the environment will consist of diverse sub-populations with their own unique values, beliefs, and customs. A business also has its own social environment. This is referred to as internal social environment. These are the customs, beliefs, practices, and behaviours within the confines of the business.

A business has much more control over its internal social environment than it does with its external social environment. A company should utilize and adapt to its external social environment in order to survive. A business must be keenly aware of the society's social preferences regarding its needs and wants. These preferences will be influenced by a population's values, beliefs, and practices. A change in beliefs and values towards energy conservation and global climate change may create a change in consumer preference away from gas guzzling car. This will mean that SUVs or hybrid sedans producers will experience a drop of sales in such areas.

 Some cultures treat a meal as a long social event so this means that a fast food will not be appropriate for this culture. Social preferences relating to fashion are constantly changing. Skirt lengths go up and down depending upon the years, as do the preference for single-breasted and double-breasted suits. If a business refuses to adapt to changing social preferences, its sales will drop, and it will fail. Of course, sometimes the change in social preferences may be so large that a business simply can't adapt. For example, a social movement led to the outlawing of alcohol in the early 20th century, which was known as Prohibition. During Prohibition, it was illegal to sell alcohol. Distilleries were put out of business until Prohibition was repealed.

While there are risks with social change, there are also opportunities. Businesses often try to influence social values through the use of marketing, advertising and targeted public relations strategies. Marketing campaigns are used in an attempt to create trends. The fashion industry is a prime example. Public relation campaigns are often used to build up or repair a business' image. For example, BP launched a massive public relations campaign to improve its image after a massive oil leak in the Gulf of Mexico caused by offshore drilling. Fast food restaurants may include healthier choices on their menus and sponsor health-related activities.

Broader social values will also affect the success of a business. A society that values higher education will provide a better workforce that will lead to more productivity and innovation. Likewise, a society that supports investment in public infrastructure will have access to good transportation and communication systems. And if the social values of a community include a hard work ethic, a business will have access to productive workers and a population that has money to spend on goods and services.

A business also creates a social environment consisting of its own organizational values, norms, customs and practices. Many of these values, norms, and beliefs will reflect the external social environment, but some will be unique to the organization. Businesses need to operate as a cohesive unit, so it is important that a strong and productive organizational culture is built. It's also important to ensure that the culture is stable and positive. Thus, a business should carefully monitor the relations between its members to detect any hostility or other dysfunction that needs to be corrected.

Economic factors affect the business environment. Economic factors that commonly affect businesses include consumer confidence, employment, interest rates and inflation. Consumer confidence is an economic indicator that measures the overall consumer optimism about the state of the economy. Confident consumers tend to be more willing to spend money than consumers with low confidence, which means businesses are more likely to make profit when consumer confidence is high. Periods of high consumer confidence can present opportunities for new businesses to enter the market, while period of low confidence may force companies to cut costs to maintain profits. This can increase unemployment in the economy.

The economy tends to follow a business cycle of economic booms followed by periods of stagnation or decline. During boom periods, jobs tend to be plentiful, since companies need workers to keep up with demand. When unemployment is low, consumer spending tends to be high because most people have income to spend, which is good for businesses and helps drive growth. When unemployment is high, consumer spending tends to be low because unemployed people don't have excess income to spend.

Inflation is the rate at which prices in the economy are increasing. Inflation causes increases in business expenses such as rent, utilities, and cost of materials used in production. Rising costs are likely to force businesses to raise prices on their own products and services to keep pace with inflation and maintain profits. Inflation can reduce the purchasing power of consumers unless employers increase wages based on the level of inflation.

An interest rate is the amount that a lender charges an individual or business to borrow money. Some small businesses rely on loans from banks or other financial institutions as a source of financing. Higher interest rates result in higher total business expenses for companies with debt. High interest rates can also reduce consumer spending, because high rates make it more expensive for consumers to take out loans to buy things like cars and homes.