Beruflich Dokumente
Kultur Dokumente
(AMSIG)
Demystifying Financial
Management
24th April 2001
Presentation Outline
Part 1 - Financial Management (Chris Adam)
Overview of Financial Management
Coming to terms with Financial Management:
The Big picture.
Investment analysis.
Financial
M.ment
Business Activities (eg, O&M, Capex)
Service standards drive capital works planning (new and replacement) which
then have to be tempered by funding restrictions.
Infrastructure/CapX planning
Pricing Strategy (OpX Revenue/Expenses)
Links to Service Standards
Link to Corporate Plan
Better Decision Making/Corporate Management
Water
requirements
WaterAct
Act2000
2000
Owners
Owners
Customers
Customers
Competitors
Competitors
Increased
Increasedemphasis
emphasison
on
commercial
issues
commercial issues
Increased
Increasedexpectations
expectationsofofanan
efficient/quality
efficient/qualityservice
service
Increased
globalisation
Increased globalisationpressure
pressure
on
downstream
industries
on downstream industries
Benchmarking
Benchmarking
Competition
Competitionfor
forcapital
capitalfunds
funds
Your
Your
Water
Water
Services
Services
Business
Business
Operating Statement:
Does the organisation generate enough revenue to meet its long
term requirements (ie, does it sufficiently cover depreciation)?
Is the organisation profitable?
Balance Sheet:
Does the net value of assets increase over time?
Are our borrowing's manageable?
4,617.0
6,355.4
50
Movement in year
2,269.6
408.8
1,148.6
790.0
1,738.4
1,865.7
1999/00
2000/01
2001/2
2002/3
2003/4
2004/5
51
Balance C/F
2,269.6
2,678.4
3,827.0
4,617.0
6,355.4
8,221.1
$'000
$'000
$'000
$'000
$'000
$'000
949.2
1,911.9
2,876.3
2,876.3
2,876.3
2,876.3
0.0
0.0
0.0
0.0
0.0
0.0
1.01
1.00
1.00
1.00
1.00
280 $
283 $
283 $
283 $
283 $
283
3,574.3
3,512.9
3,530.4
3,548.1
3,565.8
3,583.7
19.7
20.0
0.0
0.0
0.0
0.0
0
12.5
12.75
13.005
13.2651 13.530402
31.0
17.6
28.0
4.0
0.0
0.0
1,314.4
646.0
40.0
40.0
40.0
40.0
75.0
75.0
75.0
75.0
75.0
75.0
326.9
503.1
327.0
327.0
327.0
327.0
5,621.3
5,069.9
4,296.0
4,289.9
4,303.9
4,322.0
883.0
589.0
0.0
568.4
25.4
949.2
0.0
3,015.0
2,606.3
974.0
650.0
0.0
606.7
40.3
962.7
1,530.0
4,763.7
306.2
974.0
650.0
0.0
606.7
53.5
967.9
974.0
650.0
0.0
606.7
72.1
980.8
108.6
650.0
0.0
606.7
86.7
993.3
120.6
650.0
0.0
606.7
96.2
1,002.3
3,252.1
1,043.9
3,283.6
1,006.3
2,445.3
1,858.6
2,475.8
1,846.2
0.0
APPROPRIATIONS
To Capital Account:
17
0.0
0.0
0.0
0.0
0.0
18
(31.0)
(17.6)
(28.0)
(4.0)
0.0
0.0
19
(Donated assets)
(75.0)
(75.0)
(75.0)
(75.0)
(75.0)
(75.0)
20
Unfunded depreciation
0.0
0.0
0.0
0.0
0.0
0.0
21
22
0.0
0.0
0.0
0.0
0.0
0.0
(106.0)
(92.6)
(103.0)
(79.0)
(75.0)
(75.0)
To Reserve Accounts:
23
24
(Other reserve)
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
SURPLUS / (DEFICIENCY)
0.0
0.0
0.0
0.0
0.0
0.0
2,500.3
213.6
940.9
927.3
1,783.6
1,771.2
1,378.3
(75.0)
1,303.3
720.0
(75.0)
645.0
261.0
(75.0)
186.0
645.0
(75.0)
570.0
622.0
(75.0)
547.0
450.0
(75.0)
375.0
31.0
1,314.4
75.0
0.0
254.5
0.0
0.0
1,674.9
270.0
21.0
291.0
17.6
646.0
75.0
(144.1)
125.5
0.0
0.0
720.0
380.0
36.5
416.5
28.0
40.0
75.0
86.4
31.6
0.0
0.0
261.0
820.0
52.9
872.9
4.0
40.0
75.0
412.8
113.2
0.0
0.0
645.0
830.0
76.3
906.3
0.0
40.0
75.0
397.6
109.4
0.0
0.0
622.0
720.0
99.9
819.9
0.0
40.0
75.0
260.0
75.0
0.0
0.0
450.0
700.0
122.8
822.8
0.0
0.0
0.0
0.0
237.0
54.0
0.0
0.0
0.0
0.0
340.5
76.0
0.0
0.0
3.5
0.0
705.4
164.0
0.0
0.0
980.8
0.0
(240.5)
166.0
0.0
0.0
993.3
0.0
(317.4)
144.0
0.0
0.0
1,002.3
0.0
(319.5)
140.0
Balance B/F
RECONCILIATION OF CASH
52
0.0
(1,314.4)
(1,960.4)
(2,000.4)
(2,040.4)
(2,080.4)
(2,120.4)
54
Other reserves
(237.0)
(433.5)
(1,225.3)
(1,397.5)
(1,477.7)
(1,418.2)
55
(602.2)
(482.0)
(349.3)
(561.6)
(681.8)
(662.3)
64,898.0
31,600.0
33,298.0
64,898.0
31,600.0
33,298.0
65,543.0
32,182.7
33,360.3
65,729.0
32,330.6
33,398.4
66,299.0
32,481.4
33,817.6
66,846.0
32,754.7
34,091.3
67,221.0
33,057.0
34,164.0
58
59
60
61
62
0.0
0.0
0.0
0.0
33,298.0
2,269.6
0.0
0.0
0.0
35,567.6
2,678.4
0.0
0.0
0.0
36,038.7
3,827.0
0.0
0.0
0.0
37,225.3
4,617.0
0.0
0.0
0.0
38,434.5
6,355.4
0.0
0.0
0.0
40,446.7
8,221.1
0.0
0.0
0.0
42,385.1
63
64
65
66
67
68
69
Capital account
Accumulated surplus /(deficiency)
Constrained Works Reserve
Other reserves
29,968.2
0.0
0.0
0.0
29,968.2
0.0
29,968.2
30,074.2
2,500.3
(1,314.4)
(237.0)
31,023.0
287.4
31,310.5
30,507.3
2,713.8
(1,960.4)
(433.5)
30,827.3
452.4
31,279.6
31,315.7
3,654.7
(2,000.4)
(1,225.3)
31,744.8
595.1
32,339.9
31,154.2
4,582.0
(2,040.4)
(1,397.5)
32,298.2
798.0
33,096.3
30,911.8
6,365.6
(2,080.4)
(1,477.7)
33,719.2
951.6
34,670.8
30,667.3
8,136.8
(2,120.4)
(1,418.2)
35,265.4
1,043.8
36,309.2
Equity
Loans from external lenders
Total equity and loans
1999/00
2000/01
2001/2
2002/3
2003/4
2004/5
$'000
$'000
$'000
$'000
$'000
$'000
Projections for:
Population
Percentage of population served
Number of assessments
Volume of water supplied (ML/annum)
26,200
26,331
26,463
26,595
26,728
26,862
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
12,360
12,422
12,484
12,546
12,609
12,672
4,234
4,255
4,276
4,298
4,319
4,341
Performance indicators:
Average rates & charges per assessment
$289
$283
$283
$283
$283
$283
$136
$133
$133
$133
$133
$133
342.6
342.6
342.6
342.6
342.6
342.6
Cost per ML
$712
$1,120
$760
$764
$566
$570
$46
6.7%
$49
-0.2%
$49
2.0%
$48
1.9%
$48
4.4%
$48
4.4%
Balance Sheet
16
3,827.0
K ey Performance Indicators
12
13
14
15
Total Revenue
EXPENDITURE
Operating costs
Maintenance
TMP initiatives (not included elsewhere)
Administration
Loan interest
Depreciation
Other operating expenses (specify by way of note)
Total Expenditure
OPERATING SURPLUS/(DEFICIENCY)
2,678.4
O perating Statement
10
11
2,269.6
Appropriation Statement
1
2
3
4
9
OPERATIONS
REVENUE
Base Charge per Property
Rates and charges
Interest earned
Non-capital grants & subsidies
Capital subsidies & grants
Infrastructure charges
Donated assets
Other revenue
0.0
Line
Cashflow
Depreciation Funding:
It is not necessary to fully fund depreciation in order to have a
viable business (in terms of cashflow). (Dr John Sing to
explain)
strategic/corporate objectives
OrganisationWide Issues
System-Wide Issues
Facilities
Age (years)
Material (Steel or other)
Number of Previous Failures
Years since Previous Failure
Operating Pressure (kPa)
Useful Life (years)
Estimated Residual Life (years)
Condition rating
Augmentation proposed in next 10 yrs?
Approx No. of Customers Supplied by Main
Likelihood
(Probability)
Age of Main
No. of Previous Failures per 100 m
Condition of Main
Operating Pressure
Traffic Loading
Soil Characteristics
Consequence
(if failure occurs)
No. of Customers Supplied
Social/Political
Workplace & Public Safety
Commercial (i.e lost revenue)
Environmental
Legislation/Legal
:
:
:
:
:
:
:
:
:
Ipswich WSZ 3
East St
Node 7 to Node 8
450
500
1
1 Easy access
2 Average access constraints
3 Difficult access constraints
101
Steel
3
2
350
100
-1
1
No
8000
Rating
Weight
0=Low
0=Low
5=High
5=High
5
5
3
5
1
3
2
3
3
2
4
2
TOTAL PROBABILITY SCORE
Probability
Score
(RxW)
25
15
3
6
6
8
63
Rating
Weight
Consequence
0=Low
0=Low
Score
5=High
5=High
(RxW)
5
4
20
3
4
12
3
3
9
2
3
6
4
3
12
3
3
9
TOTAL CONSEQUENCE SCORE
68
DECISION MATRIX ZONE
POSSIBILITY x MATRIX SCORE
MODEL RECOMMENDATION
OPTION
Capital
NPV
NPV
Cost
5%
10%
-$33,868.25
-$22,990.57
$152,630.00
-$106,610.29
-$134,480.02
Do Nothing
Replace Main
= Replace main
2.
= Replace main if NPV (5%) of replacement > NPV (5%) for "Do Nothing"
3.
= Replace main if NPV (10%) of replacement > NPV (10%) for "Do Nothing"
4.
= Do nothing
Decision Matrix
100
80
Consequence
60
40
20
4284
20
40
60
Probability
Replace Main
COMMENTS:
80
100
Summary
Financial Management should be:
SIMPLE
Focus on CASHFLOW
Look for General Direction (not exact)
Questions?
DEPRECIATION OF
INFRASTRUCTURE ASSETS
& Resource Allocation Decision
Making
Dr John Sing
Director Corporate Services
Noosa Council
OBJECTIVES
General:
To determine the purpose of accounting for
the depreciation of IAs
OBJECTIVES Cont
Specific:
1) Review fin. accounting requirements
2) Consider the need to depreciate
3) Develop a framework for IA depreciation
4) Examine the conflict/problem faced by
accountants, engineers & asset managers
5) Offer a solution to the conflict/problem
IA Accounting
Pol. & Proc.
Internal requirements
IA Accounting
Information
Resource providers
Recipients of G&S
Osight/review gps
Management
2) DEPRECIATION
REQUIREMENT(S)
Mandatory
Aust Accounting standards
Prescribe traditional methods
Systematic allocation of cost concept
Relies on:
estimating useful life & residual
value of the IA
Prescribe backward looking focus
MANDATORY REQUIREMENTS
Issue
Financial Accounting
Requirement
AAS4
Method
Concept
Allocation of Cost
IAS DEFINED
According to supply & demand
characteristics ie:
a) composite asset where life extended by
replacement of components and;
b) demand for the service makes it desirable
MANAGEMENT REQUIREMENTS
Adopting a method that:
Tracks more closely the pattern of
consumption
Views depreciation as a measure of
consumption
Is arguably more relevant and reliable for
allocation decisions
Is forward looking
$000s
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Ren.
Exp
Annu
ALTERNATIVE APPROACH
Function of advanced asset management program
Based on life-cycle cost analysis
Not just a wish list for maintenance
ie Produce an optimised list of renewal activities
Subject to engineering audit
3) IA DEPRECIATION
FRAMEWORK
PURPOSE
Requirement
Objective
CONCEPT
Consumption Allocation of
or loss in
cost
service pot.
Cell 2
Cell 1
Internal
Asset Man.
Cell 3
External
AAS4
Cell 4
#
4) CONFLICT/PROBLEM
Fin. Accounting requires accounting for
what has happened in the past
Man. Accounting requires forecasting what
is to happen in the future
Therefore:
Determining 2 depreciation measures on
the one IA
5) WHAT WE NEED
A tool that enables the 2 measures to be
determined (easily)
Use this tool as the basis for comparing
backward measure with forward measure
(ie. S/L V Renewals annuity)
The ability to objectively determine the
amount of depreciation to be
funded/unfunded.
NSC Example
AIM 21 is a microsoft based application
that provides Noosa Council with a unique
solution for dealing with this conflict.
Overview
AIM 21 solution:
Based on asset class and catchment basis
Draws engineering and accounting
information together
Produces a comparison of book deprn. with
renewal annuity based concept
Enables level of funding/unfunding of depn.
to be objectively determined
Conclusion
Given that:
depn. means different things to different economic
decision makers
Go to Graphs
Go to "T ax"
"Solve" Butto n
Ca se Be ing M o d e lle d
Me dium
Me dium
G lo b a l Inp uts
CPI (Indexat ion)
W a te r D e ma nd Inp uts
CP I
2%
Y E AR
2000/01
W ACC
9.0%
T _LO W P O P 1 -4
0%
0%
0%
D E R AT IO
100%
T _M E D P O P 1 -4
1.5%
1.5%
1.5%
T _H IG H P O P 1-4
3%
3%
3%
LO AN BAL
LO AN IN T
65%
DPR
90,413
T OW N S P OP
2000-05
2005-10
2010-15
8,782,284
6.40%
50,000
T hP O P
T ERM
11
N E W IN T E R E S T
8.00%
T h_LO W P O P 1- 4
1%
1%
1%
N EW T ER M
20
T h_M E D P O P 1- 4
2.5%
2.5%
2.5%
S U BS ID Y 1
50%
T h_ H IG H P O P 1 -4
3%
3%
3%
S U BS ID Y
40%
S U BS ID Y O LD
2005-10
2010-15
0%
IN T E R E S T R E V
3%
D E P R E CIAT IO N
100%
S U R P LU S
3%
T AX1
36%
T AX2
34%
T AX3
30%
2000-05
600
LO W G R O 1 -4
-
M AIN S
2000-05
912
M E D G R O 1- 4
1000
H IG H G R O 1 -4
Assumed Consump t ionm (L/EP/day ) - T huringowa
2000-05
500
T hLO W G R O 1 -4
588
2005-10
2010-15
600
600
870
870
1000
1000
2005-10
2010-15
500
500
625
625
750
750
750
Ye ar
0
Yr 2000
0
2001-05
1
2005-10
NA
T hM E D G R O 1- 4
T hH IG H G R O 1 -4
V a ria b le Inp uts
Results
Internal rate of return (20 yea rs)
5.0%
0.0%
0.0%
2.0%
2.0%
2.0%
3.0%
3.0%
12.7%
Growt h in Ot her Revenue (rent als et c)
Growt h in Communit y Service Obligations
10.39392
0.0%
NA
5.6%