Managing Finance Efficiently

1. Managing Finance Efficiently Welcome to Participants RAMU PRASAD DOTEL

3. 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

4. Managing the finance efficiently "Reduce the cost of resources" "Making the most uses of available resources" "Achieving the stipulated aims or objectives"

6. Financial Management cycle

8. 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

9. 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.

10. 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

11. 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.

13. 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.

14. 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

15. 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

16. 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

17. Discuss in a table, what are the characteristic of good Financial Management ?

18. 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.

19. 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.

20. 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.

22. Thank You