Research consultancy

IMPACT OF FINANCIAL MANAGEMENT ON PERFORMANCE OF ORGANIZATIONS

A CASE OF NATIONAL WATER AND SEWERAGE COOPERATION – KAMPALA BRANCH

1.0 Introduction

This chapter will present the background of the study, statement of the problem, purpose of the study, objectives of the study, research objectives and questions, scope and significance of the study.

1.1 Background to the study

Financial management acts as an essential part of the economic and non-economic activities which leads to decide the efficient procurement and utilization of finance with a profitable manner. Nowadays, financial management has been enlarged with innovative and with dimensional functions in the field of business with the effect of industrialization. Financial management deals with the procurement of funds and their effective utilization in the business and the preferred practices are applied at different decision making organizational levels; institutions can achieve resource utilization (Babar and Ahmed, 2010).

Financial management is directly related with various functional departments like personnel, marketing and production. Financial managers must make proper use of financial management in planning, allocation and control activities of the organization (Horne, 2000).

Gitman (2007) defines financial management as the area of business management, devoted to a judicious use of capital and a careful selection of sources of capital, in order to enable an organization to move in the direction of reaching its goals. He further states that a good financial management system has got four main components which include , a clear finance strategy, a plan for generating income, a robust financial management system and a suitable internal environment, this helps in ensuring efficiency in the organizational financial management system.

The scope of financial management involves financial management and economics, financial management and Accounting which includes accounting records like financial information of the business, financial management or mathematics, financial management and production management, financial management and production, financial management and marketing, financial management and human resource. Financial management helps in financial planning in an important aspect of business concern, helps in acquisition of required funds and proper use of funds. It also takes sound financial decision in the business concern. Financial decision will affect the entire operation of the concern because there is a direct relationship with various department functions such as marketing, production, personnel and departments of organizations’ sector including new financial management (Hood, 2001).

Effective performance of the organization requires people to determine their information needs, implementing processes and systems to collect the right data and turning the data into information and insights in the context, financial management comprises of planning, controlling, implementation, and monitoring of budgets policies and activities (Barata and Clain 2000)

In developing countries, budget execution and account processes are done manually and supported by very old and inadequately appreciated. The complexity of financial management landscape, the problems of lack of strong leadership and political support, staff shortages, training and retention, poor reward systems and lack of public financial management infrastructure mean that the issues are more acutely felt in developing countries and emerging economies (Dr. Bouasy Lovauxay, 2009).

For over years, there has been an introduction of the Integrated Financial Management System (IFM’s) as one of the most common financial management practice aimed at promoting efficiency effectiveness, accountability, transparency, security of data management and comprehensive financial reporting. In July 2009, the International Federation of Accountants (IFAC), G20 summit in London, and the World Bank emphasized the need to develop and strengthen the finance profession in developing countries to achieve stable and stronger financial management.

In Uganda, financial management is carried out and covers the core modules of the application namely Budget management, general ledger, purchase order, Accounts payables, accounts receivables, cash management and financial reporting. The software package is essentially accrued based and provides a facility to allow the generation of cash based year ended financial statements to meet the audit requirements. Integrated financial management system (IFMs) implementation was motivated by the Ugandan Organization’s desire to improve efficiency in budget preparation and since 2003, the IFMs has been extended across all 22 ministries and central organization agencies. This implementation of IFMs has enabled the organization address many of fiduciary issues faced prior to 2003 (Lawrence Ssemakula and Robert Muwanga, 2012).

National Water and Sewerage Cooperation (NWSC) stands out a model utility in the African region because of its exemplary achievements. The water coverage is estimated at 78% which translates in 3.8 million people served in gazetted urban town country wide.

Financial management in National Water and Sewerage Cooperation has been administered through tariffs set by the minister of water, land and environment based on proposals made by NWSC. Its internal audits promote effective and efficient use of resources and ensure application of the corporations systems of internal control. The NWSC Act requires the board to prepare financial statements for each financial year using suitable policies and the board must state the accounting standards that have to be followed and maintained for effective financial management (Dr. William. T. Muhairwe MD NWSC, 2003).

NWSC is currently carrying out strategic plans which are a guide to continued improved financial management, financial sustainability and risk management. A good risk management plan should contain a schedule for control implementation and responsible persons for those Actions (Edward, 2005). These strategic plans are anchored on four strategic themes namely Revenue growth, cost optimization, asset management and efficient and stakeholder management.

1.2 Statement of the problem

For organizations to gain competitive advantage over their competitors, they have to ensure that financial management is correctly formulated carried out and well understood at all levels of the organizations. It allows management to maintain proper standards of the bank loans to avoid unnecessary risks and correctly assess the opportunities for business development (stoner and Nzotta 2004). Financial management is a prerequisite for organizations stability and continuing profitability. However despite the financial management carried out, performance among organizations remains low characterized with delays on collection of cash from debtors, increase in bad debts, low Labour turnover, affects customer relations and low profitability. Profitability is the measure of the overall performance and success of an organization. The test of profitability focuses on measuring the adequacy of income by comparing it with one or more primary activities that are measured in a financial statement (Sheffrin, 2003). Thus prompt the researcher to find out whether performance is due to inappropriate financial management because such a poor performance continues as a going concern of the business and will be in great doubt.

1.3 Purpose of the study.

The purpose of the study will be to examine the impact of financial management on performance of an organization.

1.4 Research objectives

To examine the different components of financial management used by organizations.
To evaluate the users, objectives and functions of the financial management.
To discuss the indicators and measures of performance in organizations.

1.5 Research Questions

What are the different components of financial management used by organizations?
What are the users, objectives and functions of financial management?
What are the indicators and measures of performance in organizations?

1.6 Scope of the study

The scope of the study will include the content scope, geographical coverage and time coverage as may be seen below;

1.6.1 Geographical scope

The study will be conducted in Kampala at National Water and Sewerage Cooperation located on plot 39, Jinja Road, P.O Box 7053 Kampala.

1.6.2 Content Scope

The study will be focused generally on examining the financial management and performance of organizations. Specifically the different components of financial management, the users objectives and functions of financial management and the indicators and measures of performance in an organization.

1.6.3 Time scope

The study will be carried out between February 2017 to August 2017. The period of data to be considered will be between 2012 and 2017. The period of body of knowledge will be longitudinal in nature from 2000 up to-date 2017.

1.7 Significance of the study

The study will help various organizations to identify their areas of weaknesses as far as credit management is concerned.

The organizations will also use the findings of this study as ground to negotiate appropriate financial management that will not constrain their performance.

The study will also add to the existing literature on financial management and performance of organizations.

Like any other research, the findings will be used as a reference as far as further studies are concerned and spark off further research in financial management and performance of the organization.