CHAPTER 12:Managing the

Finance Function

Managing the Finance

Function
What Finance Function is ?

- It is an important management responsibility that

deals with the procurement and administration of funds
with the view of achieving the objective business.. If the
engineer manager is running the firm as a whole, he
must be concerned with the determination of the
amount of funds required, when they are needed, how to
procure them, effective and efficient usage.
- one of the three basic management function the other
2 was production and marketing.

Managing the Finance

Function

The Determination of Fund Requirements

- funds for specific requirement/s
1. to finance daily operations
2. to finance the firms credit services
3. to finance the purchase of inventory
4. to finance the major assets

Managing the Finance

Function
For Financing Daily operation

- day to day operations of a given firm

- for taking care of expenses as it comes
Examples :
Wages and salaries, rent, taxes, power light or some

marketing expenses like advertising, travel,

entertainment, printings etc. or some administrative
expenses like auditing legal, services

Managing the Finance

Function
For Financing Firms Credit Services
- it is unavoidable for customers upon extending credit
- if a firm finds difficulty in convincing distributors to carry

their products

Managing the Finance

Function
For Financing the Purchase of Inventory
- to maintain adequate inventory or the raw materials,

supplies and parts are needed to be kept in storage.

- must have sufficient funding and must be secured

Managing the Finance

Function

For Financing the Purchase of Major Assets

- used when you a certain company needs expansion or

if they want to make investment on capital assets like

land, plant, equipments
- must have long term sources

Managing the Finance

Function
The Sources of Funds

- if a firm will have to make use of its cash inflows came

from various sources :

1. Cash sales
2. Collection of Accounts Recievables
3. Loans and Credits
4. Sales Of assets
5. Ownership Contributions
6. Advances from customers

Managing the Finance

Function
Short term funds

- are those repayment schedules with less than 1 year.

Supplies of short term funds

1. trade creditors
2. commercial banks
3. commercial paper houses
4. finance companies
5. factors and insurance companies

Managing the Finance

Function
Long term sources of funds

- it has to tap long sources funds (necessary)

1. long term debts
2. common stocks
3. retained earnings

Managing the Finance

Function
The best source of financing :

As to Schall and Haley recommends, factors to be

considered are :
A. Flexibility
B. Risk
C. Income
D. Control
E. Timing
F. collateral values, floatation costs, speed, exposure

Managing the Finance

Function

Risk Management and Insurance

- risk is a very important concept that everybody must

be familiar with, risk refers to the uncertain loss or injury

Examples :
Fire
Theft
Flood
Accidents

Bad Debts
disablity and death
damage claim from other parties

Managing the Finance

Function
Types of Risks

Pure- means there is no way of making gains

Ex. Theft
Speculative- there is a chance of loss or gains
Ex. Investments in common stocks

Managing the Finance

Function
Risk Management
- is an organized strategy for protecting and conserving assets and people
- for us to know what to do upon risk occurances
- to have a choice on methods of dealing on it

Managing the Finance Function

Methods of Dealing with risk
1. The risk may be avoided
2. the risk may be retained
3. the hazard may be reduced
4. the losses may be reduced
5. the risk may be shifted

Managing the Finance

Function

short term

Determination
o
Of
o
Funds
Requirements

Procurement
Of funds

Long term
(process Flow)

effective
And efficient use