The IMPACT OF FINANCIAL MANAGEMENT

SYSTEM ON HUMAN RESOURCE

UTILIZATION (A CASE IN GONDAR
MUNICIPALITY)

By
Adviser:- YONAS GIRMA

GONDAR UNIVERSITY
College of Business and Economics
Department of Management

JUNE, 2019
Gondar , Ethiopia
 Acknowledgement

First of all, we would like to thank our GOD, for his unlimited

willingness and the almightily and the most pass not to finalize and

perform this study.

Secondly our deepest gratitude goes to our advisor Alem

G/medhin( MA) for his wonderful consultancy and effective advisory

role throughout this study.

Finally, our acknowledgment goes to different individual’s including

the HRM manager of Ethiopian Telecommunication Gondar branch

and the employees for giving information and providing different

support for the study.

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 Abstract
This study is focused on the impact of financial management system
on human resource utilization in Gondar municipality. The main
objective of this study is to investigate the impact of financial
management system on human resource utilization in Gondar
municipality.

In order to answer the above mentioned objectives the study used

both primary and secondary source of data. These primary data were
collect by structure questionnaire and interviews, where as secondary
data from Bookes Company’s journal and different documents collect
through document analysis (document review) techniques.

The method of sampling I use is simple random sampling because it

gives equal chance for all employees and free from biases. In order to
analyze and present the data collected from different parts, the
researcher used descriptive type of data analyze through percentage
and tabulations.

Finally this study is believed to provide valuable information, to

minimize some problems that related to financial management system
in human resource utilization.

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 Table of Content
Acknowledgement..........................................................................................................I
Abstract.........................................................................................................................II
Table of Content..........................................................................................................III
Chapter one...............................................................................................................1
1. Introduction..........................................................................................................1
1.1. Background of the study.....................................................................................1
1.2. Statement of the problem....................................................................................3
1.3. Objectives of the study..................................................................................5
1.3.1. General objective.........................................................................................5
1.3.2. Specific objectives.......................................................................................5
1.4. Significance of the study....................................................................................5
1.5. Scope of the study...............................................................................................6
1.6. Limitation of the study........................................................................................6
Chapter Two..............................................................................................................7
2. Review of the Related Literature...............................................................................7
2.1.1. An over view of financial management.......................................................7
2.1.2. Basic principles of financial management...................................................9
2.1.3. Evaluation of financial management.........................................................10
2.1.4. Functions of financial management...........................................................11
2.1.5. Objectives of financial management.........................................................12
2.2.1. Human resource utilization........................................................................12
2.2.2. Responsibility of human resource department..........................................14
2.2.3. Function of human resource......................................................................15
2.2.4. Objectives of human resource...................................................................17
Chapter three..........................................................................................................18
3. Research methodology....................................................................................18
3.1. Research design................................................................................................18
3.2. Source of data and data collection method.......................................................18
3.3. Sample size determination................................................................................18
3.4. Sampling method..............................................................................................19
3.5. Methods data analysis.......................................................................................20
3.6. Data interpretation and presentation.................................................................20
Chapter Four...........................................................................................................21
4. Data Presentation, Analysis and Interpretation.....................................21
CHAPTER FIVE.........................................................................................................38
5. Summary, conclusions and recommendations.........................................................38
5.1. Summary of the finding................................................................................38
5.2. Conclusion....................................................................................................40
5.3. Recommendation..........................................................................................41
Bibliography................................................................................................................42
Bibliography.............................................................................................................52

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IV
 Chapter one

1. Introduction

1.1. Background of the study

Financial management is about planning incomes and expenditure and making
decision what will able you to survive financially. It concerned with the
acquisition of financially and management of assets with some over all goals. It
concern with rising of funds, creating value to the asset of the organizing by
efficient allocation of funds. (Singh, 2008)

Financial managements are most concern with managing the flow of fund into
and out of the organization and help to deter mine how company’s fund can be
most effectively used. Individual manager in this functional area are
responsible for granting and using their company’s credit, investigating
company’s fund, safeguarding company’s asset, keeping track of the company’s
fanatical health and preparing budget. (Plunkett, 1999)

Human resource utilization is the human power or employees to use properly

and wisely in the organization and also it is the policies, Practice and systems
that influence employ’s behavior, attitudes and performance and it implies that
employees are resource of the employer. It is critical to the success of
organization because human capital has certain quality that it makes value.
(Noe, 2004)

Human resource utilization is to recruit, develop and utilize the organizational

personnel on the way which most appropriate to the achievement of the firm’s
aim and objectives.

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In terms of business strategy an organization can success if it is suitable
competitive advantage and it is the organization employees, described in terms
of their training, experience, judgment intelligence, relationship and insights.
(Etal)
This research contains five chapters these are chapter one introduction,
chapter two literature reviews, chapter three research methodologies, chapter
four data analysis and presentation, and chapter five summaries, conclusion
and recommendation.
This study would help the municipality to improve its financial management
system and it would provide information for all level managers.

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1.2. Statement of the problem
Financial management is the part of the total management function which is
concern with the effective and efficient rising and utilization of funds. It must
be operate with the framework of clearly understood objectives and with the
basis of logical concept. Financial management is recognize or a very
important branch of management, it is dynamic subject, and responsible for
operating company’s resource efficiently. It is also to work among conflicting
goals of equity and profitability in accompany and also financial management
covers different functional areas in a firm including supply function,
production function, distribution function, and personnel function.
(Singh,2008).
Human resource is the most strategic and critical determinant for growth of
any organizing and human effort is required to mobilize and use those
resources effectively and efficiently to achieve organizational objectives. (Jon. R,
1987).

Human resource utilization is critical to organization because it can serve as to

improve the overall productivities and minimize any cost. (Et al)

The assessment of financial management system and its impact on human

resource utilization in Gondar municipality is not been sufficiently assess or
studies by identifying the impact of financial management system on human
resource utilization. So this research is vital in filling this gap, beside this in
my preliminary study in Gondar municipality I have got there is problem relate
with proper use of financial management system .So this proposal is conduct
so as to fill this gap.
In this proposal, the researcher would try to investigate the impact of financial
management system on human resource utilization in Gondar municipality. To
this effect, the researcher would try to answer the following basic questions:
1. How the financial management system works in Gondar municipality?

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2. What are the relationship between financial management system and
human resource utilization in Gondar municipality?
3. What are the impacts of financial management system on human
resource in Gondar municipality?

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1.3. Objectives of the study

1.3.1. General objective

The main purpose of the study is to analyze the impact of financial
management system on human resource utilization in Gondar municipality.

1.3.2. Specific objectives

1. To assess the financial management system on Gondar municipality.
2. To identify the relationship between financial management system and
human resource utilization in Gondar municipality.
3. To show the impact of the financial management system on Gondar
municipality.

1.4. Significance of the study

Primarily this research is conduct as requirement in partial fulfillment to
acquire a bachelor degree in management. Beside this the result of this study,
however, were expect to have the following significance:- it might serve as a
stepping stone for further research conduct by interest researchers.

Additionally the study would help the municipality to improve financial

management system and it would provide information for all level of managers
and it may help the concern body/ stakeholder/ to be aware regarding the
existing constraints.

Finally the government can modify and make different policies, strategies and
to aware of any service delivery organizing feel a sense social responsibility,
and to be ethical on their activities.

1.5. Scope of the study

The study is delimit to the investigation of financial management system on
human resource utilization in Gondar municipality because of time and

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financial constraint. It also believe that the study area is available for getting
reliable information from managers and employees of the organization.

1.6. Limitation of the study

The possible limitations that encounter in this study are lists of as follows:-
 Time is one of the basic limitations that put its restriction on the
investigation area.
 Budgetary limitation is also among the expect limitation that is result in
lack of stationary typing and editing problems absence of transportation
cost and the lire.
 Lack of adequate data from the organization on is also another problem.
 During data analysis some respondents gave less attention to the question
and it resulted data lose.
 Lack of experience from research.

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 Chapter Two

2. Review of the Related Literature

2.1.1. An over view of financial management

plunkett, (1997) defined as “finance is the function of a business that acquires
funds from the firm and manages those funds within the firm and management
is the process of planning, organizing and controlling to achieve the limit
resources of the organizational goals and also financial management is the job
of managing a firms resource so it can meet its goals and objectives.”

Financials manager examine the financial data prepare by accountants and

make recommendation to job executives regarding strategies for improving the
health (financial strength) of the firm. (MCKUgh. 2005).

Financial management is the part of total management function which is

concern with the effective and efficient raising and uses of funds. It must be
operate with the frame work of clearly understood objectives and on the basis
of logical concepts. (Jon. R, 1987)

Financials management is broadly concerned with acquisition of and use of

funds by organization. Thus it depends on the system of an organization.
(Singh, 2008).

“Financial management in municipality is different from that of business and

other profit makers and organization because it is much concern with social
returns of the service they provide. And it used to provide information and
analyze to manager within the organization to assist in decision making and if
concern with measuring and reporting cost of production, marketing and other
function preparing budget (planning) and checking wither or not units are

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staying with in their budget (controlling) and designing strategies to minimize
taxes.” (Hodder and Stoughton, 2001).

Financial management is recognize or a very important branch of

management. And it is a dynamic subject and responsible for operating
accompany efficiently. Traditional financials management subject was treat
with a very narrow function but now the modern concept of financial
management is wide coverage. It is turn in to subject in to bringing about
analysis, planning and controlling of funds. Financial management has to work
amongst conflicting goals of equity and profitability in accompany. And if
covers different functional areas in affirm. If has to be part of supply function,
production function, distribution function and personal function.

Financial management involved traditionally with the approach of rising funds

for an enterprises. The modern approach of financial management consists of
dealing with managerial problems both of long terms and day to day nature of
accompany. And it is some of its functions include deter mining financial
requirements of firms. Determining source of funds, financial analysis,
establishing optimum capital structure, profit planning and control project
planning and evaluation and corporate taxation. (Singh, 2008).

2.1.2. Basic principles of financial management

1. Risk and return: - every financial decision has two aspects as “risk and
return”. Every decision involves a risk. This risk may be broad spectrum or
market risk, which is uncontrollable. It can be unsystematically risk,
which is specific to the firm and can be controlled. The degree of risk with
becomes different in each case depending on weather it is controllable or

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 uncontrollable risk. Financial management decisions are taken to optimize
return through the calculation of risk and return.
2. Time value of money: - it is evaluate cash flows expected to be generated at
different times. If is the timing of cash flows because money received today
is work more than the amount received at a future date.
3. Cash flow concept: - financial management is based on the inflows and out
flows of cash. It does not deal with none cash items like depreciation,
amortization of preliminary expense. It uses cash revenue and each
expense to find out the returnee its investment.
4. Incremental cash flow analysis: - cash flow is measure of the proposals
which are an addition to the already existing projects. This concept helps
in judging whether the new project is good for the firm. The feasibility
interims of cost and benefits can be considered.
5. Wealth maximization: - maximization of shareholder’s wealth considers a
cash flow pertaining to future decision. It is the concept based on cash flow
to measure the economic values of affirm profit maximization may be
considered as a part of wealth maximization. (Signh, 2008)

2.1.3. Evaluation of financial management

The evaluation of financial management can be discuss under two distinct
approaches those are the traditional approach and the modern approach. The
evaluation of the subject start in the 20 th c. it can be devised in to two periods.
The traditional phase is from 1920 – 1950 and the modern approach also
called insider approach. (Et al).

The traditional approach

I. Procurement of fund: - this approach is concern with the procurement of
funds through analysis of financial instrument, institutions and source of
funds.
II. Outsider looking approach: - it is a limit scope because it emphasis is on
the supplier of funds.

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III. Financial instruments: - the traditional approach its function for
procuring funds is trough the issue of financial instruments like equity
share, preference share and debt securities.
IV. Status of the subject: - financial management is not part of the
managerial function. It is operational in nature, limit to preparing
accounts, reports, and procuring funds.

In modern approach
The modern approach to financial management gave the subject increase
responsibility and brought about an integrate and analytical scope of finance.
In modern approach the following aspects are consider
I. Integrated finance function
II. Management function
III. Status position
IV. Techniques

2.1.4. Functions of financial management

I. Liquidity of funds: - financial manager has to match inflows and out flows
and those create liquidity continuously by managing the flow of the funds in
the firm continuously.
II. Profitability: - a financial manager is to measure the cost of capital raise
with by him as a source for the funds of company because cost of capital is
link with profitability of the company.
III. Management; - the financial manager is to coordinate different activities of
the company. It is to deal with long term and short term activities of the
company.
IV. Balance conflicting goal: - financial management is the scope of financial
decision making for along group of people. This group consists of
shareholders, debt investors, employees, customers, suppliers, public,
government and management.

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V. Economic value adding/ EVA/:- is financial tool, which provides to the
organizing knowledge of how much value the company is adding above the
total cost of capital.
The financial manager may as a measure of performance also functions to find
out the return on equity, market, capitalization and earnings per share by
adding the concept of market value added capital.

Financial decision making

Financial management is the study of financial decision making. And it is an
art and skill of developing techniques to create effectiveness in this process.
There are three basic financial decisions making. These are:-
1. Investment decision: - it is deals with long them and short finance of a firm.
This can be termed as fixed assets and current asset.
The long term process cover the area of capital budgeting. Fixed asset are
cost intensive and the profitability of the firm depends on the composition of
fixed assets.
Short term financing is to the day to day coverage and usage of techniques
for each flows, inventory management and bull receivable and payment on a
day to day basis.
2. Financing decision: - financial management also deals is financing issues,
such as making the business profitability, by analyzing breakeven point,
fixed costs and variable costs.
3. Dividend decision: - financial management is also applied to the
requirement of the shareholders. If is concerned with the amount of profit
that can and should be withdrawn to declare dividends to the owners of the
capitals of the shareholders.

2.1.5. Objectives of financial management

Financial management is concerned with the following aspects

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  It aims of optimum use of assets to maximize the profitability of the
company
 It’s the objectives to maximize the wealth of the shareholders.

2.2.1. Human resource utilization

What is human resource utilization?

Human resource is perhaps the most strategic and critical determinants or
growth of any organization and human effort is required to mobilize, organize
and use those resources effectively and efficiently for the production of the
required goods and services (Ahmed, 1999).

Human resource utilization is critical to organization because it conserve as to

improve the overall productivity and minimize penalties to the organization by
observing the humanities laws relevant to the utilization of human resource
(Etal).

According to (Ahmed, 1999) books Nalder says that human resource utilization
which component including recruitment, selection, placement, appraisal and
compensation. According to (Ahmed, 1999) books parcel and roe says that
human resource utilization has four major areas this are 1. Planning
administration 2. Human resource development 3. Job and salary 4. Worker
affairs.

Human resource utilization is to requite, develop and utilize the organization

personal on the way which is most appropriate to the achievement of the firm
aims and objectives (Hhodder and Stoughton, 2001).

Qualities of human resource

 Human resource is valuable: - high quality employee provides a ceded
service as they perform many critical functions.

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 Human resource is rate: - in the sense a person high level of the need skill
and knowledge is not common.
 Human resource cannot be imitate: - to mite human resource at a high
performing competitor, you would have to figure out which employees are
providing the advantage and how.
 Human resource have no good substitute:- when people are well trained and
highly motivated, they learn, develop their abilities and care about
customers.

2.2.2. Responsibility of human resource department

1. job analysis and design:-
 Job analysis: - the process so fretting detail information about job.
 Job design:- the process of defining the way work will be perform and
the tasks that a given job requires.
2. recruitment and selection of employees
 Recruitment: - is the process of through which the organization seeks
applicant for potential employment.
 Selection: - is the process of which the organizing attempts to identify
applicant with the necessary knowledge, skill, ability and their
characteristics that will help the organization achieve its goals.
3. training and development of employees
 Training: - is a plan effort to enable employees to learn job relate
knowledge, skill and behavior.
 Development: - is the acquisition of knowledge, skill and behavior that
improve an employee ability to meet change in job requirements and
in customer demand.
4. Managing performance:- is the process of ensuring that employees activities
and output match the organization goals.
5. Planning and administering pay and benefits:- the pay and benefits that
employees earn play an important role in motivating them. This is

17
 especially true when such as bonuses are link to the individuals or group
achievements.
6. Human resource planning;- is the process of identifying the members and
types of employees the organization will require in order to meet its
objectives.

2.2.3. Function of human resource

Human resource consists of several interleafed activities.
These are two functions those are
1. managerial function
2. operative function
1. Managerial function are perform by managers through the people in order
to achieve desire goals a human resource manager perform the following
managerial functions.
I. Panning II. Organizing III. Directing IV. Controlling
I. Planning:- is the first function of management which consist of broad
range of ideas and programs relative to various activities of people in the
organization. And it is the conscious determination of future course of
actions.
II. Organizing:- is the group of people working together to achieve common
goals. People are organized in an effective manner. Organizing is the
process of allocating tasks among the members of the group, establishing
authority responsibility relationship among them and integrating their
activities towards the comment objectives.
III. Directing:- is the process of motivating, leading and supervising of people
and it is the heart of the management process because it is concern with
initiating action.
IV. Controlling:- is the process of controlling. Everything is simplify and
conform base on the broad objective of an organization. And it implies
checking, verifying and regulation to ensure that everything occurs in
conformity with the plans adapted and the instruction issue.

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2. Operating function:- also known as “service functional management” these
function are perform to ensure that the right man for right job, at right time
and right place. These function is divide in to four type these are:-
I. Employment II. Compensation
III. Human resource development IV. Human relation
I. Employment:- is the first function of operative function. If involves
recruitment, selection, and placement etc. … of the personnel.
II. Compensation:- this function concern with wage and salary of
employees. It deals with determination of adequate for their contraption
to the organizing goals. The personnel can be compensate both in terms
of monetary as well as non-monetary rewards.
III. Human resource development:- is the process of developing the skill and
knowledge, ability and talents and value and attitudes of the employees.
IV. Human resource relation:- is the process of association among the
people. It is the area of management in integrating people in to work
situation in way that motivates them employees to work together
productivity and job satisfaction in organization to fulfill both
psychological and social needs.

2.2.4. Objectives of human resource

1. To help the organization to attain its goals by providing well trained and
well-motivated employees.
2. To utilize the human resource effectively in the achievement of
organizational goals.
3. To manage changes to the mutual advantage of individuals, groups, the
organization and society.
4. To maintain high employees moral and sound human relations by
sustaining and improving the various conditions and facilities.
5. To enhance job ratification and self- actualization of employees by
encouraging and assisting every employees to resize his/her full potential.

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6. To establish and maintain productive, self-respecting and internally
satisfying working relationship among all the member is of the organization.
7. To recognize and satisfy individual needs and group goals by offering
appropriate monetary and non-monetary benefits.
8. To develop and maintain a quality’s of work life which makes employment in
the organization a desirable personal and social situations. (Chandramihan,
2008).

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 Chapter three
3. Research methodology

3.1. Research design

The research design I use is descriptive survey method, because it is the
appropriate research design to identify the impact of financial management
system on human resource utilization through various information regarding
Gondar municipality.

3.2. Source of data and data collection method

To collect the research data two data source were use these were primary and
secondary sources. The primary data provides firsthand information, more
information in depth and misinterpretation of the answer for the question is
easily avoided .And these primary data were collect through structure
questionnaire and interview. Additional secondary data is collecte by using
document analysis (review) techniques. The questioner method is use so as to
get adequate information from the respondents and it is cover a large number
of populations. By using interview method detail and adequate information
could be collected. Thus I use it so as to get more and adequate information
from managers and subordinates.

3.3. Sample size determination

The total sample size determination from among different methods, and the one
which is develop by Chavilo (1884), and Zelalem

(2005) is used. The method is present in table below.

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Table 1.1. Sample size determination table
Population size Low Medium High
51-90 5 13 20
91-150 8 20 32
151-280 13 32 50
281-500 20 50 80
501-1200 32 80 125
1201-10,000 50 125 200
10,001-35,000 80 200 315
35,001-150,000 125 315 500

Based on the above table my research total population is get from the range
between 51-90 that was 72 take the highest 20 employees in number.

3.4. Sampling method

The researcher use two sampling methods simple random sampling and
purposive sampling. I use simple random sampling to select the employees
because of it give equal chance to all employees save time and cost and free
form bias. Other method the researcher use is purposive sampling method so
as to select a sample from managers and subordinates because it involves
particular units of the universe and in addition misleading and inappropriate
information was eliminate.

3.5. Methods data analysis

After the data collection activity accomplish the data analysis comes. The data
collected through structure questioner and interviews were analyzed by using
tabulation, and percentages.
A. Tabulation: - the already process data is been arrange orderly in table and
other summary forms.

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B. Percentage: - the data is been express relative variables among categories.
And financial statements were analyze by using financial evaluation
techniques.

3.6. Data interpretation and presentation

The researcher integrates the study findings in such a manner that the final
user of the research will have a clear idea of the quantitative and qualitative
meaning of the data. Further more the researcher will believe that tables,
percentages and graphs simplify the research findings hence tables and graphs
are use to facilitate the summarization and communication of the meaning of
the data.

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