Medium- to long term financial planning in the municipal sector is challenging

23 August 18

“Some SA Cities are on the brink of collapse.” – Minister Nhlanhla Nene (April, 2018).

Novus3 has developed a Budget Impact Simulator (BIS) to provide welcome perspective and assistance in this space.

What will happen to our financial position as a municipality if we approve our current capital budget? Can we afford it? What funding sources will we be using? Should I take up any loans? What should the conditions of our loans be? What exactly is my current financial position in terms of the relevant legislation? What will happen to my cash-flow? These are among the many fundamental questions that our municipal CFOs are faced with. Prudent and responsible decision-making at local government level is a veritable mine-field of challenges.

A reliable analysis of the combined financial impact of the operational and capital budgets is required to enable our Municipal Managers to answer some of these questions. All of this needs to happen in an environment where the goal-posts keeps on moving and the inputs and outputs keep on changing, month-to-month. In order to answer “what-if” scenario questions or perform goal-seeking analysis on a medium-term budget, the Budget Impact Simulator (BIS) module has been developed for our CP3 clients. CP3 is our online capital management system – CP3 stands for “Collaboration, Planning, Prioritisation, Performance.

Utilising a standardised financial model, the BIS empowers our municipal decision-makers to test the effect of budget approval scenarios by adjusting any of the BIS’s “levers”. This scenario testing is used to develop financial strategies, in order to achieve specific financial goals. The typical scenario outcomes from the BIS, are expressed in terms of the following indicators:

· Operating cash flows;

· Net cash flow position;

· Liquidity position;

· Borrowing position;

· Operating budget funding envelope; and

· Capital budget funding envelope.

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