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FINANCIAL MANAGEMENT IN SCIENTIFIC ORGANISATIONS

The program covered a wide range of topics related to financial management which included the
following:
1) Financial Information Flows
Financial management deals with the control of flow of funds. This is classified as outflows and
inflows.Outflows refer to the payments made/ expenses incurred in an organisation. Inflows refer
to financial receipts which add to the funds.Each of these flow is further classified as capital
flows and revenue flows.

The expenses incurred for normal operations of an organisation is called revenue outflows. These
are recurring in nature and essential for normal functioning of the organisation. For example:
payment of salaries. The expenses incurred for purchasing capital which adds to the asset of the
company is called capital outflow. For example: Purchase of a new equipment. Sometimes, when
purchase of a capital asset is very small it is considered as a revenue outflow.
Similarly, Revenue inflow is the funds obtained during a regular operation for example the
revenue inflows for government are taxes, interests. Capital inflows are the funds received from
reducing the assets. For example: selling of shares(disinvestment), issue of bonds are sources of
capital inflow for the government.



Funds
Outflows

Revenue
Capital
Inflows
Revenue
Capital
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1) Comparison of financial statements of commercial and research organisations


The companies are divided into various types depending on the law governing them. The
research organisation such as ours falls under the first category (as shown in bold). IOCL, HPCL
etc fall under the joint stock companies category. LIC, GIC fall under statutory bodies.
The government funds are kept under three categories:
a) Consolidated fund(treasury)- all payments and receipts are made under this acount.
b) Public fund- which consists of fund such as providend fund.
c) Contingency fund- Those funds which are utilised during emergency such as floods,
famines etc.
The consolidated fund is further divided into general, social and economic sector. Each is further
divided in major heads of account. Each major head is sub divided into minor heads. These
minor heads are further divided into subheads which are further divided into detailed heads.This
constitutes the five-tier arrangement of classification of government account. This gives 15 digit
number to each account.
All accounting of payments and receipts under the consolidated fund are done for the year
ending on 31
st
March. These receipts and payments only show transactions done in hard cash.
Hence, this type of accounting is called cash basis accounting. It does not account for an
outstanding payment of already purchased equipment,generate any data about total value of
assets owned by the government etc. It does not provide any information regarding performance
Types of organisation
Public sector
Under
ministry/Department
of ministry
Joint stock company
Statutory bodies
Private sector
Sole propreitor
Partnership firm
Companies under
Indian company
Act(1956)
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of a programme or a government department. This is the major cause of unnescessary
operational rush at year end to carry out procurement transactions and to process payments. This
results in exhausting the budgetory allocations or reducing the level of unspent balances which
would otherwise lapse at the period end.
Incase of private firms, the outstanding payments, value of assets etc are accounted. It gives a
complete picture of financial position and helps in a more effective planning. This type of
accounting is called accrual accounting.
The government departments are gradually switching over to accrual accounting system.

2) Inventory management
It deals with the flow of material through the system. A large inventory is a capital investment
and costs the space it occupies(a warehouse) while a too small inventory will jeopardise the
operations of the plant. Hence it is essential to strike a balance between the two. There are
variuos tools available for analysing as to how much inventory one must possess, when to order
for more inventory etc. One such is the ABC analysis. Steps to be followed for this analysis are:
List out the items required to be purchased and its unit price.
Multiply the number of units with unit price.The product is called the usage value.
Put them in descending order of their usage value.
Find cumulative usage value.
The items accounting for 70% of the total money value consumption are considered as A
items. The ones accounting for 25% of the total money value of consumption are B items
and rest are C items.
The above helps in identifying vital few items which are required less in number but consume
major part of the finance. Hence these require greater scrutiny while purchase.
Other such analysis are economic order quantity which suggests the appropriate number of
articles to be ordered at a time, VED analysis which helps in determining the criticality of an
item and hence the quantity of such items to be stored as inventory.

3) Budget and budgetory control
A physical plan quantified in terms of money is a budget. It shows the planned expenses to be
incurred during a certain period of time. The approval sought before the period for budget.The
operational budgets includes the following:
a) Material purchase budget
b) Direct labour cost
c) Manpower requirements
d) Administrative expenses
e) Fixed costs such as that of equipments/ plants.
The budgeting system followed in research organisations is called the Zero Base
Budgeting(ZBB). There are two categories of projects while budgeting. One are those which
are continuiation of previous years project and second are the newly proposed
projects.Norrmally, budgeting is based on past years records. But incase of ZBB, thefund
allocation is not done on the basis of past year and the manager has to justify the requirements
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of funds for every activity whetehr on-going or new. Accordingly, lesser priority activities are
slowed down and activities of higher priority are funded.

4) Monitoring and evaluation of R&D Projects
Projects have milestone in terms of financial as well as physical aspects. Hence it is necessary
to review the impact, effectiveness at each milestone. Monitoring and evaluation is a tool to
carry out this review. Monitoring is to collect information related to project. Evaluation is to
analyse this information. The following diagram shows as to how monitoring and evaluation
helps in achieving the goal.

It enables us to assess the quantity or the impact of work done against the action plan.
This allows us to use resources more effectively by identifying problems and working on it.
It is essential to have a good plan for good monitoring and evaluation.

The other topics covered in the programme were management of personal investments,
public private partnership projects and preparation of financial statements. The above
topics were discussed and elaborated using case studies.



Archana T.M.
Plan Implement Monitor
Evaluate
continue with
project/replan
project/stop the
project.