Why is Financial Management Important for NGOs

In many NGOs financial management is given a low priority. This is often characterised by poor financial planning and monitoring systems.

But NGOs operate in a rapidly changing and competitive world. If their organisations are to survive in this challenging environment, managers need to develop the necessary understanding and confidence to make full use of financial management tools.

Good practice in financial management will:

1) help managers to make effective and efficient use of resources to achieve objectives and fulfil commitments to stakeholders

2) help NGOs to be more accountable to donors and other stakeholders

3) gain the respect and confidence of funding agencies, partners and beneficiaries

4) give the NGO the advantage in competition for increasingly scarce resources

5) help NGOs prepare themselves for long-term financial sustainability.

SO WHAT IS FINANCIAL MANAGEMENT?

i. Financial management is not just about keeping accounting records. It is an important part of programme management and must not be seen as a separate activity left to finance staff.

ii. Financial management entails planning, organising, controlling and monitoring the financial resources of an organisation to achieve objectives.

iii. Financial management to an NGO is rather like maintenance is to a vehicle. If we don’t put in good quality fuel and oil and give it a regular service, the functioning of the vehicle suffers and it will not run efficiently. If neglected, the vehicle will eventually break down and fail to reach its intended destination.

In practice, financial management is about taking action to look after the financial health of an organisation, and not leaving things to chance.

This will involve:

a) MANAGING SCARCE RESOURCES: NGOs operate in a competitive environment where donor funds are increasingly scarce. We must therefore make sure that donated funds and resources are used properly, and to the best effect, to achieve the organisation’s mission and objectives.

b) MANAGING RISK: All organisations face internal and external risks which can threaten operations and even survival (eg funds being withdrawn, an office fire or a fraud). Risks must be identified and actively managed in an organised way to limit the damage they can cause.

c) MANAGING STRATEGICALLY: Financial management is part of management as a whole. This means managers must keep an eye on the ‘bigger picture’– looking at how the whole organisation is financed in the medium and long term, not just focussing on projects and programmes.

d) MANAGING BY OBJECTIVES: Financial management involves close attention to project and organisation objectives. The financial management process–Plan, Do, Review– takes place on a continuous basis.

Source: Mango (Management Accounting for Non-governmental Organisations
Chester House, 21-27 George Street, Oxford OX1 2AU