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Managing Finance Efficiently. Welcome to Participants. RAMU PRASAD DOTEL. Efficiency. Efficiency is the accomplishment or ability to accomplish a job with minimum expenditure , time and effort. Doing the things in right way is efficiency
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Managing Finance Efficiently Welcome to Participants RAMU PRASAD DOTEL
Efficiency • Efficiency is the accomplishment or ability to accomplish a job with minimum expenditure, time and effort. • Doing the things in right way is efficiency • Good financial management refers to the efficient and effective management of fund in such a manner that accomplish objective of organization. • It involves planning, organizing controlling and monitoring financial resources in order to achieve objectives. • Measures by return and profitability in business sector and target achievement, service to the people in government sector. • Achieve value for money
Managing the finance efficiently "Reduce the cost of resources" "Making the most uses of available resources" "Achieving the stipulated aims or objectives"
Strategy & Strategic Interventions Activities & Subactivities Goal/ Objectives Financial Plan/Budgeting • Identify the goals, objectives and activities that are to be accomplished in a time period • Identify resources (manpower, money, material, equipment infrastructure) requirement • Estimate revenue and source of fund • Prioritize resources use • Allocate resources
Financial Analysis Net present Value • Consider time value of money- Same amount of money is worth right now than at some point in future. • Allows to find today's value of future cash flow of a project. • If value is greater than the cost, project will be profitable. • Alternative project can be evaluated. • Discount rate or cost of capital is important, however, in case of self finance market average rate is used. • Positive NPV earn more than cost of capital. • Measure true profitability. Internal rate of return (IRR) • Allow to calculate time value of money. • It is discount rate at which net present value of costs (Cash outflows) equal to the net present value of benefits ( Cash inflows) • Projects having IRR higher than cost of capital are profitable. • Also called economic rate of return. Rate where NPV is zero.
Financial Analysis cont-- Pay back period analysis • Time period to earn same amount of money that spend on the project. • Project having shorter payback is ranked higher. • Ignores time value of money and return after payback period. Cost effectiveness analysis • Compare relative costs and impact. • Monetary as well as non monetary. • Often used in health service and social sector. Cash flow analysis • Listing cash inflow and outflow in the time period. (Revenue vs. expenditure and treasury position) • Quickly point out the liquidity problems • Cash deficit- loan and borrowings
Tools for Efficient Financial Management/Budgeting Approach Rational Approach • Modern financial resources allocation and control model. • Determine available resources, determine objectives, determine alternative course of action, evaluate alternative, allocate resources, establish control measures, adjust future plan. Incremental approach • Gradual change adjustment in the allocation of resources. • Starting from current year's budget to arrive at next year's budget by a series of adjustment. • Minimum time spent on budget preparation. Zero based budgeting • Each year budget preparation starts from Zero or from scratch. • Link established between activity and budget. • Specifying objectives and considering cost-effective methods for achieving them. Planning programming and budgeting system • Planning programming and budgeting are main features- long range planning. • Objectives and time determination, weighing the alternative analyzing cost and benefits, It focuses on objectives, planning and policy Programme budget • Identification program, Prioritization, Estimation, Cost benefit analysis, Allocation, measuring result. Focus of program and end result.
Prioritization of Project/Programme in Nepal Prerequisites • Detail study • Environment Impact Assessment • Contribution to the Objectives of the Ministry • Contribution to national goals (Poverty Alleviation, Employment, Inclusion, Gender equity, SDG) • Economic Rate of Return • Technical Capacity.
Prioritization of Project/Programme in Nepal cont-- Evaluation Criteria (General) Weightage given for different criteria such as: • Contribution to Economic Growth • Contribution to Per-capita income • Employment Generation • Contribution to Poverty Alleviation • Inclusion • Participation • Gender mainstreaming
Prioritization of Project/Programme in Nepal cont-- Evaluation Criteria (Sector) Sectors- Social, Agriculture and Forest, Infrastructure, Economic Development, miscellaneous. Criteria • Contribution to sector-wise objectives • Contribution to SDG • Commercialization • Contribution access to market • Climate Change • Import Substitution/Export promotion • Supply management • Contribution to Good Governance
Resources Projection Nepal Revenue Projection Effective tax rate principle • Average rate which individual is taxed • Appropriate in progressive tax system • Total tax paid as a percentage of taxable income Tax Elasticity • Measure efficiency and responsiveness of revenue mobilization • Elastic when revenue increase more than proportionately in response to raise in national income. Trend analysis • Analysis of the affecting factors and environment • Previous year's trend of revenue increment Other resources • Foreign Assistance- loan, grant • Internal Loan
Discuss in a table, what are the characteristic of good Financial Management ?
How to Enhance Financial Efficiency? Efficiency in Planning • Define strategic vision, mission and activities to be accomplish within the period of time (Periodic plan, Strategic Plan). • Use of bottom up approach in planning (periodic, annual), Participation. • Focus on priority sector of the Organization (In case of government SDG, Poverty alleviation, economic growth, employment, inclusion; in case of business profit maximization, quality control, and customer satisfaction.) • Allocate resources efficiently by conducting financial analysis. • Define clear cut activities and allocate adequate budget. • Prioritize resources using the result of financial analysis. • Prepare project bank; Select activity and programme that can be implemented. • Conduct feasibility as well as detail study before investing money in the project. • Result based budgeting / Programme budgeting. • Select appropriate financial modality (funding modality)- internal resources, loan, grant. • Use of revenue forecasting technique- realistic projection, use revenue leakage control measures, identify areas for revenue growth. • Minimize overhead and administrative expenditure, control unproductive expenditure. • Use budget control measures- ceiling, approval, authorization, monitoring, review, virement. • Realistic budget/budget credibility.
How to Enhance Financial Efficiency? Cont-- Efficiency in Implementation • Implement project /programme complying prevailing laws. • Prepare and adhere the time schedule of implementation- Action plan • Focus on target achievement and impact. • Completion of project/ programme within approved cost estimate • Spend economically, minimize wastage of resources. • Maintain transparency, accountability and financial discipline. • Safeguarding assets and proper utilization of available resources. • Define roles and responsibility, segregation of duty and delegation of authority • Competitive, economic and transparent procurement. • Focus on quality and time. • Achievement of overall objectives and customer satisfaction. • Increase participation on implementation and coordination. • Improve technical capacity, simplification of legal provisions. • Establish effective internal control and audit. • Code of ethic and strict adherence and corruption control. • Collect resources in timely manner. • Adopt risk management framework- Inherent risk, control measures and control risk. • Establish problem redressal mechanism.
How to Enhance Financial Efficiency? Cont-- Efficiency in Monitoring Evaluation and Control • Design Management Information system and implemented. • Regular monitoring and feedback mechanism. • Evaluation of plan and adopt corrective measures. • Appropriate accounting system adopted. • Effective audit and settlement of audit queries in timely manner. • Determine indicators and standards for each employee and division. • Establish system of outcome analysis and reporting. • Reward and punishment mechanism. • Customer satisfaction survey and improvement.