FINANCIAL MANAGEMENT MPMC

8/14/2019 FINANCIAL MANAGEMENT MPMC

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FINANCIAL MANAGEMENT
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PROBLEMS BEFORE

MAHAVITARAN Shortage of Power and Load Shedding of more than 4000 MW

High Distribution Losses (31.14% in 04-05)

Large Amount of Outstanding Arrears (Rs. 8130.61 Cr.)

Highly Deteriorated Distribution Infrastructure

Large Pending Applications for Ag Connections (1.7 Lakhs Paid App)

Power Purchase Cost has increased from Rs 10707 Crore in FY 04 to

Rs 16335 Crore in FY 07 The average cost of supply (ACOS) has increased from Rs. 3.07 per

kWh to Rs. 4.22 per kWh.

The average increase in tariff works out to 28.8%


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So the analysis simply states two main aspects of financial

management like procurement of funds and an effective use of funds

to achieve business objectives.

Financial Management

procurement of fundsprocurement of funds

effective use of fundseffective use of funds


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PROCUREMENT OF

FUNDS:As funds can be obtained from different sources so procurement of

funds is considered as an important problem of business concerns.

Funds procured from different sources have different characteristics

in terms of risk, cost and control.

Funds issued by the issue of equity shares are the best from risk pointof view for the company as there is no question of repayment of equity

capital except when the company is under liquidation.

From the cost point of view equity capital is most expensive source of

funds as dividend expectations of shareholders are normally higher

than prevalent interest rates.

Financial management constitutes risk, cost and control. The cost of

funds should be at minimum for a proper balancing of risk and

control.


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UTILIZATION OF FUNDS:

Effective utilization of funds as an important aspect of financial

management avoids the situations where funds are either kept idle

or proper uses are not being made. Funds procured involve a

certain cost and risk. If the funds are not used properly then

running business will be too difficult. In case of dividend

decisions we also consider this. So it is crucial to employ the

funds properly and profitably.


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SCOPE OF FINANCIAL

MANAGEMENTA sound financial management is essential in all types of

organizations whether it may be profit or non-profit. Financial

management is essential in a planned Economy as well as in a

capitalist set-up as it involves efficient use of the resources.

From time to time it is seen that many firms have been liquidated

not because their technology was obsolete or because their

products were not in demand or their labour was not skilled and

motivated but there was a complete mismanagement of financial

affairs. Even in a boom period, when a company make high profits

there is also a fear of liquidation because of bad financial

management.


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Contd..

Financial management optimizes the output from the giveninput of funds. In the country like India where resources are scarce

and the demand for funds are many, the need of proper financial

management is required. In case of newly started companies with a

high growth rate it is more important to have sound financial

management since finance alone guarantees their survival.

Financial management is very important in case of non-profit

organizations, which do not pay adequate attentions to financial

management.

How ever a sound system of financial management has to be

cultivated among bureaucrats, administrators, engineers,

educationalists and public at a large.


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Risk management is the systematic process of identifying, analyzing, and

responding to project risk. It includes maximizing the probability andconsequences of positive events and minimizing the probability andconsequences of adverse events to project objectives. It includes:

Risk management planning deciding how to approach and plan the risk

management activities for a project.

Risk identification determining which risks might affect theproject and documenting theircharacteristics.

Qualitative risk analysis performing a qualitative analysis of risksand conditions to prioritize theireffects on project objectives.

Quantitative risk analysis measuring the probability and

consequences of risks and estimating their

implications for project objectives. Risk response planning developing procedures and techniques to

enhance opportunities and reduce threatsfrom risk to the projects objectives.

Risk monitoring and control monitoring residual risks, identifying newrisks, executing risk reduction plans, andevaluating their effectiveness throughout

WHAT IS RISK MANAGEMENT?


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FINANCIAL RESTRUCTURING

PLAN Balance sheet restructuring:-

(i) Adjustment of State Government loans against subsidy

receivables from Government

(ii) Recognition and treatment of unfunded staff terminalliabilities

Transition period assistance, including equity support for

investment

Business plan for turnaround

Tariff rationalisation


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Contd..

Efficiency improvement :-

T&D Loss Reduction

Energy Audit

Consumer Metering

Collection Efficiency

Investment Plan


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BUDGET CYCLE

Preparation ofBudget

Authorization of Budget

Execution ofBudget

ExpenditureAccounts

Audit

Feedback


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FINANCIAL ANALYSIS

Organization

Specific EnvironmentIndustry-Competitors

Substitute

ProductsBargaini

ngPower ofSupplier

s

Bargaining

Power ofBuyers

Potenti

alEntrant

s

CurrentRivalry

GeneralEnvironment

Technologi

cal

Political-Legal

Sociocultural

Demographic

Economi

c


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FINANCIAL CONTROL

Financial control is exercised through a framework, consisting of the

following elements: -

i. Principles

ii. Procedures

iii. Instruments


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PRINCIPLES

In line with the broad principles, there are separate procedures fordifferent types of expenditure, such as Establishment Charges, TA,

Medical Charges, Purchases and Repairs of Durable Goods, and

Commodities & Services. Separate Rules have been framed to regulate

these different types of expenditure. Examples are FR&SR, TA Rules,

NWFP Medical Attendance Rules and Leave Rules etc


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PROCEDURES

In line with the broad principles, there are separate procedures fordifferent types of expenditure, such as Establishment Charges, TA,

Medical Charges, Purchases and Repairs of Durable Goods, and

Commodities & Services. Separate Rules have been framed to regulate

these different types of expenditure. Examples TA Rules, Medical

Attendance Rules and Leave Rules etc.


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INSTRUMENTS

Different Types of Forms, Bills and the Checklists used for drawl of

different types of expenditure. For example:

Manual and Computerized Pay Rolls are used for drawing Salary and

Leave Salary

TA/DA is drawn through TA Bills.

Contingent Expenditure is drawn through Contingent Bills

Documents

FINANCIAL MANAGEMENT MPMC