Top challenges of financial management in the public sector undertakings

March 26 2021

Financial management in the public sector faces a lot of challenges and that is why public finance consulting firms like DTA are here to help. In this post, we will look at some of the problems of financial management in the public sector.

Lack of proper planning

Lack of proper planning makes public sector undertakings spend a lot of money on designing and construction projects. This lack of planning can result in the drainage of funds and cause a serious financial problem in its wake.

Cost of capital

The cost of capital at present in public sector undertakings doesn’t include the cost of raising capital of various types and this cost isn’t reckoned at market price. As a result, this leads to underestimating the capital cost. It also leads to non-realistic price-fixing and the underestimating of trends in the market. It even becomes hard to estimate the extent of losses and profits as well. This is why public finance management consulting firms are here to provide specialized services to tackle this problem.

Problems of pricing

Fixing the prices of the products produced is another problem of public sector undertaking. As we all know that unless pricing policy is thoughtful and sound, even good concerns can lead to losses. The public sector undertakings face serious financial problems as they aren’t following uniform policies for pricing.

Surpluses problems

Declaring surpluses is another problem in the financial field. When we say surplus, we mean the available resources as surplus after the deduction of normal replacements, working expenses, dividends and interest payments. In the public sector undertakings, it hasn’t been found possible to create a policy of surplus declaration.

The problem of raising loans

Another challenge that public finance consulting companies help deal with is the raising of loans. Public sector undertakings are usually run with government finance. This has raised a lot of problems as some governments find it hard to finance undertakings in the public sector.