I dedicate this dissertation to my father, Stanley Uglumu, and my mother, Martha Mng'anzagala Semkina, for sending me to school. To my wife Rehema Ugulum and my son Elisha Mwamgombavanu Ugulum for their love and endurance. Secondly, my special thanks go to the management and staff of the Evangelical Lutheran Church in the Diocese of Iringa, Tanzania, for allowing me to collect and use secondary and primary data that made my research sustainable.
EXECUTIVE SUMMARY
INTRODUCTION
- INTRODUCTION TO THE TOPIC
- THE PROBLEM STATEMENT
- RESEARCH METHODOLOGY
- ANTICIPATED BENEFITS
Capital budgeting in the private, public sector and non-profit organizations presents unique challenges at this time. DCF remains very important to non-profit organizations, as all organizations live or die by cash. Several methods were used to collect data relevant to the study of non-profit organizations.
LITERATURE REVIEW
- CAPITAL BUDGETING
- CASH FLOW DETERMINATION
- COST- BENEFIT ANALYSIS
- CAPITAL STRUCTURES
- TAXES AND THE NON-PROFIT ORGANIZATIONS
- DETERMINATION OF THE DISCOUNT RATE
- RISK
- EVALUATION OF AN INVESTMENT PROJECT PROFITABILITY
- NET PRESENT VALUE (NPV)
- QUALITATIVE FACTORS
- CAPITAL BUDGETING IN THE CONTEXT OF BALANCED SCORECARD
In their study, they found that capital budgeting decisions in nonprofit organizations are similar to procurement decisions. Social value defines the benefits that non-profit organizations can obtain from an investment in addition to economic returns. Seitz and Ellison (1999) argued that opportunity costs applied to for-profit businesses can also be applied to non-profit organizations when discounting future cash flows.
Nonprofits are said to be mission-focused, and in the case of healthcare, the mission varies from hospital to hospital. Where: Ct- means the net cash flow at time t I - means the cost of investment K - means the cost of capital.
CASE STUDY: ELCT - IRINGA DIOCESE
- PLANNING AT CHURCH LEVEL
- STRATEGIC PLANNING
- JOINT PLANNING
- STAGE 3
- COMMON BASKET
This chapter revisits and discusses a number of key issues that enable the Diocese of Iringa to involve itself in the capital budgeting for its programs and projects. Strategic plans are concerned with an attempt to design a desired and expected long-term direction for the organization's activities. Planning for the Evangelical Lutheran Church in Tanzania is done for projects and activities over short and long term periods.
The final decision on the approval of programs and projects rests with the Lutheran Mission Co-operation of Tanzania (LMC). LMC is a joint instrument of the Evangelical Lutheran Church in Tanzania (comprising the 20 dioceses and headquarters) and its partners (donors), who are churches, related agencies and missionary societies of Europe and America. Collaborative planning involves all members of the Lutheran Mission Cooperation (Le. Church programs and the programs and partners of its dioceses in Europe and America) in identifying needs and mobilizing resources.
The planning includes both long-term and short-term plans for all dioceses (by ELCT). Assesses which projects and programs should be integrated into short- and long-term plans. At this stage, the donors/contributors use the plans to mobilize resources that will meet the financial needs of identified plans, while the ELCT founders undertake the monitoring of the plans in their respective areas.
The Common Basket ensures that the ELCT and its dioceses can achieve their strategic objectives and includes financial resources, including block grants, designated funds, contributions from the ELCT and bilateral funds.
CAPITAL BUDGETING: ELCT IRINGA DIOCESE
- INTRODUCTION
- ADMINISTRATIVE STRUCTURE
- FINANCIAL PLANNING
- CASH FLOWS ESTIMATION
- RISK AND RETURN
- INVESTMENT CONSTRAINTS
- CHURCH FINANCIAL SITUATION
The section that follows discusses the practical aspects of long-term capital budgeting in Iringa before the diocese's plans are forwarded to the higher levels of the church and the LMC. The estimated capital expenditure is either parts of major works or the commitment to long-term plans of the church and its institutions of financial regulations (Financial Regulations, 1997). The dioceses within the Evangelical Lutheran Church in Tanzania also contribute to the common basket.
The guidelines compare the progress of the project with the original plans to enable the projector manager to continuously observe changes or impacts caused by the project and be aware of the risks expected to affect the project. The financial regulations for the church projects/programmes state that capital expenditure is limited to the approved budget, but in the case of any required funding, extra provision is subject to the national executive committee's approval (Financial Regulations, 1997). According to the five-year strategic plan of Haydom Lutheran Hospital (www.m-produksjon.netlhaydom). the hospital used a similar approach to plan for the effects of risk.
For example, in the projected expenditures within the strategic time frame, the hospital derived the expected costs from the continuation of expenditures from 2000 and adjusted only for 6% inflation and 3% as real growth. Steffen Flessa (1997) in the study of the cost of health services of 16 hospitals owned by ELCT, it was found that external donors contributed to the greatest extent, the income for the establishment of new projects such as construction and equipment. The decline in capital expenditure estimates had major effects on the implementation of various projects in ELCT dioceses and institutions.
ELCT dioceses and institutions presented consolidated strategic and financial plans to donors and projects or programs were listed in three categories according to their urgency.
FINDINGS
- INTRODUCTION
- RESULTS
34;Present" in the questionnaire refers to what is known and practiced while "future" refers to what is most needed as. This study therefore analyzes a few of the findings in terms of capital budgeting practices in ELCT Iringa Diocese and appears in next chapter.
DISCUSSION
- INTRODUCTION
- STRATEGIC PLANNING
- FINANCIAL PLANNING
- COST-BENEFIT ESTIMATION
- COST OF CAPITAL
- RISK ANALVSIS
- DISCOUNTING
- QUALITATIVE FACTORS
Personal experience as treasurer of the diocese showed that some project and program heads were not able to link their plans' activities to the benefits and costs under the time frame of the program or project life. Appendix B (results number 6 and 7) provides some corroborating evidence that only 57.1 % of the 21 respondents surveyed indicated even moderate progress of their programs' work. The main focus of the church and Iringa diocese in particular was to preach the Christian philosophy based on Jesus Christ's mission.
Since the establishment of the church (ELCT) in Tanzania, donors from Europe and America have been at the forefront of decision-making involving capital expenditure. Income-generating activities have virtually collapsed ..The Diocese is heavily in debt ..Looking at the movement of local incomes, it seems that the diocesan head office has completely lost touch with the parishes. 38.1% of respondents praised the diocese for a training program (human resources) to improve their skills, 28.6% recommended that the diocese follow financial regulations, and 14.3% advised them to work as a team between leaders and managers.
Most of the guidelines for calculating the costs of activities are taken from ELCT's head office. Risks are observed directly during implementation or in the form of assumptions about problems that may arise during the life of the project. Answers (Appendix S, results number 30 to 31) from the 21 respondents from Iringa Diocese showed a misunderstanding of the importance and feasibility of risk inclusion when estimating cash flows.
ELCT Iringa is no exception during my tenure as Treasurer; there were cases of misallocation of resources.
RECOMMENDATIONS
- INTRODUCTION
- BACKGROUND INFORMATION
- RECOMMENDATIONS
- CONCLUSION
- Other Internet references available at
Another area of great concern is the area of public relations with other donors, especially from European countries. DCF capital budgeting techniques are just as important in nonprofits as they are in for-profits, because it is believed that a nonprofit will live or die on cash. The decision-making criteria for non-profit organizations should not change when evaluating programs and projects.
As a result of the unsatisfactory and deteriorating situation which is undoubtedly caused by not applying proper techniques to evaluate projects and programmes, it is hereby recommended that ELCT Iringa diocese in collaboration with ELCT management and other stakeholders such as donors and the Lutheran community in .Guidelines for capital budgeting: There is a strong need to develop guidelines that establish a basis for analyzing and comparing future cash flows and cash flows for the period of analysis. According to a collection report by the Department of Public Administration of the City University of New York (1989), the number of non-profit organizations in the United States had increased to meet the needs of the growing demands.
The case study of the Diocese of ELCT Iringa found that there were problems with the level of knowledge of DCF capital budgeting techniques and a lack of guidance to guide managers in the correct calculation of appropriate future cash flows and cash flow discounting. What is urgently needed is a deliberate attempt by ELCT Iringa to train its human capital on capital budgeting issues and to use models of DCF's capital budgeting techniques to evaluate and implement programs or projects. C Multiple Objectives Capital Planning in Not-for-Profit Hospitals and Health Care Systems Champaign: University of Urbana, 2001.
Danmission in Africa and Asia: An Analysis of Danmission Work in Tanzania, Cambodia and Pakistan: Christiasfeld, Denmark, 2002.
APPENDICES
Appendix A: Survey questionnaire guide
This part of the questionnaire will help you find out whether you have participated thoroughly in the topic at hand. It also helps to know if you understand some of the key concepts that make up capital budgeting theories. Please circle what you believe best describes the following physical environment, equipment, or facilities at your facility. Circle the answer that best describes the place, publication, or people from whom you get the most information about the following topics.
From your knowledge of ELCT - IRINGA describe in one to four sentences what you would say in the general purpose of ELCT - IRINGA as an institution. Name at least one thing you would like to change at ELCT - IRINGA. Knowledge of the practical aspects of discounted capital budgeting techniques - presented as a percentage of total respondents.
Knowledge of the discounted capital budgeting method used or what more is needed to improve capabilities expressed as a percentage of total respondents. The source of information that guides capital investment decision-making and expressed as a percentage of total respondents.
TSHS '000'
GOAL/ISSUE OBJECTIVE ACTIVITIES INDICATOR IMPLEMENTER TIME BUDGET &
SOURCE
FAMILY NURTURE
GOAL/ISSUE OBJECTIVE ACTIVITIES INDICATOR IMPLEMENTER 6 BUDGET &
TIME
