FINANCIAL MANAGEMENT

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 PROBLEMS BEFORE
MAHAVITARAN
 Shortage of Power and Load Shedding of more than 4000 MW

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 High Distribution Losses (31.14% in 04-05)

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

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 Highly Deteriorated Distribution Infrastructure
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 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%
 WHAT IS FINANCIAL
MANAGEMENT ?
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By Financial Management we mean efficient use of economic

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resources namely capital funds. "Financial management is concerned
with the managerial decisions that result in the acquisition and

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financing of short term and long term credits for the firm". Here it
deals with the situations that require selection of specific assets (or
combination of assets), the selection of specific problem of size and
growth of an enterprise. Here the analysis deals with the expected
inflows and outflows of funds and their effect on managerial
objectives.
 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.
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Financial Management

procurement of funds

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effective use of funds
 PROCUREMENT OF
FUNDS:
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As funds 0001
can be 0100 from
obtained 1011 different sources so procurement of
funds is considered as an important problem of business concerns.
Funds procured from different sources have different characteristics

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in terms of risk, cost and control.

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Funds issued by the issue of equity shares are the best from risk point

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of 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.
 UTILIZATION OF FUNDS:
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Effective utilization of funds as an important aspect of financial

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management avoids the situations where funds are either kept idle

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

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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.
 CONCEPTS OF FINANCIAL
MANAGEMENT
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Management can be described with four cardinal functions: planning,
organizing, leading/coordinating, and controlling.

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 Planning: leading a reflection resulting in the actual accomplishment

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of goals

 Organizing: defining everyone’s responsibilities and channeling

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complementary energies of all intervening parties

 Leading or coordinating: making dissimilar results converge towards

a common result, with rigor and perspicacity

 Controlling: comparing, with pre-established indicators and

parameters, the results obtained with the needs expressed in the goal
definition.

Finally, management is known as an administrative science that

requires collecting, and analyzing information, leading to decision-
making.
 SCOPE OF FINANCIAL
MANAGEMENT
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A sound financial management is essential in all types of
organizations whether it may be profit or non-profit. Financial

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

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

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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.
 Contd…..
Financial management optimizes the output from the given
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input of funds. In the country like India where resources are scarce
and the demand for funds are many, the need of proper financial

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

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high growth rate it is more important to have sound financial
management since finance alone guarantees their survival.

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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.
 WHAT IS RISK MANAGEMENT?
Risk management is the systematic process of identifying, analyzing, and
responding to project risk. It includes maximizing the probability and
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consequences of positive events and minimizing the probability and
consequences of adverse events to project objectives. It includes:

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 Risk management planning — deciding how to approach and plan the risk

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management activities for a project.
 Risk identification — determining which risks might affect the

 Qualitative risk analysis —
 Quantitative risk analysis —
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project and documenting their
characteristics.
performing a qualitative analysis of risks
and conditions to prioritize their
effects on project objectives.
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 threats
from risk to the project’s objectives.
 Risk monitoring and control — monitoring residual risks, identifying new
risks, executing risk reduction plans, and
evaluating their effectiveness throughout
 FINANCIAL RESTRUCTURING
PLAN
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 Balance sheet restructuring:-

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(i) Adjustment of State Government loans against subsidy

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receivables from Government
(ii) Recognition and treatment of unfunded staff terminal

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liabilities

 Transition period assistance, including equity support for

investment

 Business plan for turnaround

 Tariff rationalisation
 Contd…..
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improvement :-

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 T&D Loss Reduction

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 Energy Audit
 Consumer Metering

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 Collection Efficiency

 Investment Plan
 BUDGET CYCLE
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Preparatio
n of
Budget

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Authorizatio

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Feedback n of Budget

Audit

Expenditure
Accounts
4Execution of
Budget
 FINANCIAL ANALYSIS
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General
Environment

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Technologi Economi
cal Specific Environment c
Industry-Competitors

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Substit Current
ute Organization Rivalry
Product
sBargaini Potenti
ng
Power of Bargaini al
Political- Supplier ng Entrant Demograp
Legal s Power of s hic
Buyers
Sociocultu
ral
 FINANCIAL CONTROL
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Financial control is exercised through a framework, consisting of the
following elements: -

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i. Principles

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ii. Procedures

iii. Instruments
 PRINCIPLES
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In line with the broad principles, there are separate procedures for

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different types of expenditure, such as Establishment Charges, TA,

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Medical Charges, Purchases and Repairs of Durable Goods, and

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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

 PROCEDURES
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In line with the broad principles, there are separate procedures for

different types of expenditure, such as Establishment Charges, TA,

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Medical Charges, Purchases and Repairs of Durable Goods, and

Commodities & Services. Separate Rules have been framed to regulate

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these different types of expenditure. Examples TA Rules, Medical

Attendance Rules and Leave Rules etc.

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

different types of expenditure. For example:

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 Manual and Computerized Pay Rolls are used for drawing Salary and

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Leave Salary

 TA/DA is drawn through TA Bills.

 Contingent Expenditure is drawn through Contingent Bills