This is finance ppt

1. Administrative approval process -
• Last stage in the investment decision making before
execution of project starts.
• The approval is necessary for the original cost and for
revised cost.
• Authority to sanction the proposal may be Chief
executive of the plant, Chairman of the company,
Board of directors, Ministry of finance for public sector
companies or Public investment board as the case may
be.

2. Delegation of Powers -
• For simplicity and timely decision making powers are
delegated to the subordinates.
• Delegation of power means granting of authority for
taking financial decisions.
• Powers are generally delegated on the basis of levels of
authorities.

3. Standing finance committee &
Public investment board -
• Standing finance committee (SFC) is appointed
for public sector company to approve the capital
expenditure proposals.
• While Public investment board (PIB) is a Body
of government recommending capital
expenditures of public sector and Government
corporations proposals having powers beyond
the ministry.

4. Documentation for Approval -
• For approval of original cost, investment proposals are
divided into –
• Major proposals and
• Proposals for additions, modifications & replacements.
• On the basis of value of investment proposals
documentation will be prepared.
• The main documents include management note,
chairman note, board note, SFC note and PIB note etc.

5. Contents of chairman/ board notes -
• Chairman or board notes mainly include –
• Background of the proposal
• Existing facilities
• Existing practices of operation in case of ongoing
organization
• Constraints
• Alternatives to remove such constrains
• Justification of selected alternative
• Provision for infrastructure
• Detailed chart of capital cost etc.
• On approval of this note the proposals are examined at
corporate level.

6. Approval for Public Sector Company-
• In case of public sector companies note once adopted
at corporate level is forwarded to concerned ministry.
• After that it is put up for consideration of SFC. For
approval by the government, same process will be
followed.
• SFC/PIB notes includes all the points of board notes
and additionally contain the points like evaluation of
proposals from national point of view, economic
evaluation, calculation of economic IRR etc.

7. Process of approval at
Government level -
• Pre-SFC or Pre- PIB meetings will be held.
• Respective notes will prepared & submitted to
concerned ministry.
• If proposal is agreed by all the members the same is
recommended for approval by cabinet and president of
the government of India.

8. Role of Planning commission -
• Planning commission helps for evaluation of proposal from national
point of view.
• It examines all the aspects of the proposals which effect the national
economy.
• It requires year wise phasing of expenditure, year wise breakup of
taxes and duties in capital cost included in manufacturing expenses,
year wise breakup of net income/ savings, details of foreign
exchange in manufacturing expenses etc.
• After evaluation is over, the remarks are incorporated in the SFC or
PIB notes.

9. Process of approval for addition
/ modification -
• The proposal must be initiated by the concerned
department.
• Then detail proposal shall be forwarded to special wing in
the project department
• Then meetings of IPU committee shall be convened.
• It will evaluate the proposal and management note will be
prepared.
• Then it will be forwarded for approval in front of
competent authority.

10. Process of approval for replacement
proposals -
• For that, proposals are bifurcated replacement
proposals for minor parts, major parts or
replacement of entire equipment.
• For Replacement of minor parts, authority may
be delegated to department chief himself. But
for replacement of major part, certificate of
survey committee is necessary.
• If the old equipment is uneconomical to operate
it will be replaced with a new one after approval
of competent authority.

11. Survey committee -
• Survey committees is formed on permanent basis to
check the condition of the equipment on reaching of
their useful period of life.
• This committee is constituted on permanent basis
either zone wise or areas-wise.
• Members of the committee includes senior officers as
chairman, representative from the unit of which the
equipment is belonging to be, representative from
finance department, engineering department & project
planning department etc.

12. Functioning of survey committee-
• First the proposal is raised by concerned department &
copy is forwarded to chairman of survey committee.
• Then, survey committee makes preliminary meeting of
the members and carries out physical verification of the
equipments.
• If the survey committee approves the proposal, it issue
formal management’s approval order

13. Revised cost estimates -
• During the project completion the actual cost or
revised cost of the project does not remain as
estimated which affects project cost & results in
cost over-run.
• If there is increase in cost over-run beyond the
limit, then approval for revised cost estimates
from the competent authorities is very
mandatory.

14. Points to be considered for
revised cost of the project -
• Total cost of the original project : Represents the cost
of project sanctioned by the competent authority.
• Base date:It denotes the period of prices and rates
adopted in working out cost estimates.
• Commissioning Schedule:A chart representing planned
activities in the project form starts till its completion.

15. Points to be considered for
revised cost of the project -
• Foreign exchange component included in the cost
estimates :Import cost on the prevailing exchange rate
shall also be considered.
• Mode of execution of the project :Sanctioned order will
be given stating how the project should be executed
either on turnkey basis or dividing into various
packages or purchasing equipment separately and
getting same erected on separate contract.

16. Note for approval of revised cost
estimate -
• Note for approval of chief executive or
chairman / BOD / Government for revised
cost shall include the following -
• Revised cost of each activity shall be prepared
including foreign exchange component if any.
• committed costs which represents the value of
finilised contract.

17. Note for approval of revised cost
estimate -
• Non committed costs i.e non contracted project costs,
• firm costs i.e. cost of actual incurred expenditure
• Non firm costs i.e costs subject to variations due to
escalation provided in the contract
• Cost over-run statement showing increase in cost over
the sanctioned cost along with the reasons.

18. Note for approval of revised cost
estimate -
• Focus on cost of time over run - The main purpose of
focusing the cost of time over run is to highlight the
areas in which cost is increasing and try to eliminate the
same.
• Responsibility fixing for the delay - In the approval
note details of delay will be furnished including the
action taken against those delays.

19. Note for approval of revised cost
estimate -
• Revised time schedule : Detailed chart of revised
commissioning schedule shall be indicated in the
approval note.
• Revised Profitability : Revised profitability includes all
information for approval of original cost of the project.
• Revised phasing of expenditure : Phasing of
expenditure shall also be mentioned for the balance
period based on revised commissioning date.

20. Process for approval of revised cost -
• Process is the same like approval of original cost if
increase as per revised cost exceeds the allowable
limits approved earlier.
• Issue of Sanction Letter : It is done by authority who
sanctions the revised cost. If the revised cost
approved by the government, sanction letter shall be
issued by the concerned ministry.

21. Process for approval of revised cost -
• Allotment of Scheme Number - After sanction
of proposal a scheme number is allotted to it.
• It is the control number & quoted on all
documents in relation to execution of scheme
till its completion and post completion audit
report.

22. Process for approval of revised cost -
• Economic Rate of Return must be calculated
for projects requiring approval of government.
• It is examined by planning commission.
• In this case evaluation of economic rate of
return of the project will be done by planning
commission and thereby approval will be
granted.

23. Developments in the approval
process -
• With the passage of time new developments have taken
place in the field of processing activities for the
administrative approval of the project.
• Formation of administrative committees in the
government for approval of project: Committees like
SFC, departmental expenditure finance committee,
main expenditure finance committee, public investment
board are formed to give the recommendations to the
project.

24. Developments in the approval
process -
• Significance of financial closure has increased now a
days, as without completing the financial tie ups and
arrangements, projects would not be processed for
approval.
In-principle approval v/s two stage approvals : For
major projects in-principle approval is obtained first.
Once the approval has obtained then cost benefit
analysis will be carried out which is termed as the
second stage of the approval.

25. Guidelines for revised cost
estimates of government projects-
• For public sector project following guidelines should
be considered for approval of revised cost.
1. Delegation and approval process are divided on
financial limits.
2. Cost increase due to change in statutory levies,
exchange rates, price escalation will not change the
approval authority but for other increase in cost
approval authority will change.

26. Other important points -
• Enhanced powers to public sector companies : For
taking investment decisions more powers has been
given to Navratna/ Miniratna public sector companies.
• Costing of the project / scheme : Now a days costing
will be done both on constant price and completion
cost basis so as to calculate IRR/ERR.

27. Other important points -
• The responsibilities for time and cost over run can be
decided on the basis of – administrative and procedural
delays, delay in pre-investment, activities, fund
constraints, technical problems, tendering,
implementation plan and monitoring mechanism.
• All these are the reasons which cause delay in the
execution of project. For this purpose responsibility will
be fixed to avoid the delay.

28. Conclusion -
• Thus the process for approval is very important
stage.
• It gives all required information to the
approving authorities for enabling them to make
correct decision.