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Public Finance Management Act, 1999 (Act No. 1 of 1999)

Understanding and Using this Act

Normative Measures For Financial Management

Phase 1 : Perfecting The Basics

2. The need for proper standards of financial management in the public sector

 

Financial management is not an end in itself. It is, however, crucial to the successful functioning of any organisation since it relates to how resources available to the organisation are used.

 

In the private sector, the dominant objective of a profit-orientated firm is to earn a satisfactory return for its owners. In this regard, the profit measure is probably the most useful criterion to analyse and evaluate different options and to support a decision on the most appropriate course of action. Management performance is analysed and evaluated over a combination of activities that are ultimately reflected in the profit measure. The profit measurement further permits comparison of the performance between different organisations which is not possible with any other measure.

 

The absence of the profit measure in the public sector makes analysis and evaluation of management performance more difficult than in profit-orientated firms. Economy is to be measured by the relationship between quantity and quality of resource inputs and its related cost. Efficiency is to be measured by the relationship between resource inputs and outputs. Effectiveness is to be measured by the extent that outputs accomplish set outcomes. Appropriateness is to be measured by the extent that outcomes of a programme are the priority of Government and addresses the real needs of the community.

 

Whilst the profit measure provides an overall measure for these elements of performance, the dynamics of public sector organisations call for (as far as practically possible) the individual measurement and reporting of these elements of performance. It is recognised that this may be difficult to achieve since effectiveness and efficiency is not always quantifiable. This fact, however, does not justify any argument in favour of less vigorous financial management for public sector organisations.

 

 


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