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p. 5 of 203 BACK | NEXT Foreword 1. Introduction to the Guidelines 1.1. Introduction 1.2. Rationale 1.3. Objectives 1.4. Structure 1.5. Project File 1.6. Guideline Updates 1.7. Roles of Financial Analysis Specialists and Financial Management Specialists 2. User Instructions 3. Preparing and Appraising Investment Project 4. Financial Management of Executing Agencies 5. Reporting and Auditing 6. Financial Institutions 7. Knowledge Management

Financial Management and Analysis of Projects : 1. Introduction to the Guidelines

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1.3. Objectives

1.3.1. With the intention of (i) ascertaining the financial viability and sustainability and (ii) appropriate management and use of funds in ADB-funded projects, these Guidelines are intended to provide a framework for ADBs financial due diligence requirements throughout the ADB project cycle. Thus, the Guidelines' scope includes:

• financial analysis of projects
• project and entity financial management assessment
• auditing requirements for projects

1.3.2. The Guidelines' due diligence framework is intended to provide broad guidance for all ADB projects irrespective of specific funding source modalities. (Further guidance on due diligence in ADB private sector projects can also be accessed in the Private Sector Operations-Staff Instructions). The Guidelines provide specialized and appropriate financial analysis and financial management techniques to be utilized for all ADB projects and for every stage of the project cycle-CSP and concept stage, feasibility and Project Preparatory Technical Assistance (PPTA) stage, loan negotiations and agreements stage, supervision and monitoring stage as well as post-evaluation, where appropriate. This includes where necessary, the prescription by ADB staff of the design and installation of suitable financial systems by borrowers to assure ADB's management on project financial viability and sustainability. The latter must be confirmed by timely, accurate financial reporting by borrowers and by timely and rigorous project supervision by financial analysts.

1.3.3. It was also considered that ADB's project portfolio contains a wide array of projects that require specialized financial management and measurement techniques, ranging from public sector revenue-earning operations to nonrevenue-earning ones such as in the health and education sectors; from public and private sector financial institutions (FIs) to public utilities and transportation, plus the many specialized elements of agriculture. These financial management techniques include sectoral and project-specific financial analysis, financial performance measurement, design, and operation of institutional financial management systems, including accounting, financial reporting and auditing, supported by the loan management and disbursement techniques.

1.3.4. ADB's staff, borrowers, consultants, and development partners should have access at any time to guidelines on all these aspects of project, entity, and financial management. The aim, in this regard, is to ensure that each project and entity is financially well managed and that borrowers and ADB staff have immediate access to identical information and guidance on using these techniques.

1.3.5. The Guidelines have, therefore, been designed to provide a complete set of reference and training materials to fulfill these requirements and to set up a knowledge management base to enhance and sustain these necessary professional skills in ADB.

1.3.6. The Guidelines' overall objective is to enhance the quality of ADB's portfolio by:

• establishing the norms for financial analysis and financial management of revenue-earning and nonrevenue- earning projects for use during the project cycle;
• defining the financial management requirements for projects and project entities of borrowers, EAs, and other organizations charged with efficient use of funds provided by ADB;
• explaining to borrowers the project and institutional financial performance requirements of ADB to achieve successful implementation and the sustainability of ongoing operations;
• providing financial knowledge management for the guidance and training of ADB staff and borrowers; and
• providing ready access to ADB's project financial management requirements to all interested parties.
  

1.3.7. The Guidelines' specific purpose is to provide ADB management, staff, and borrowers with an understandable, comprehensive and transparent directory of standards of financial analysis, and financial management for the implementation and operation of projects, including:

• a cross-referenced methodology note which lays out a standardized approach to financial due diligence (financial analysis and financial management assessment);
• a summarized quick reference guide and detailed checklist on project financial management for ADB staff;
• a concise reference booklet for the use of borrowers on ADB's requirements for the financial management of projects and project entities; and
• a financial knowledge management base for ADB staff engaged in the project cycle.
  

1.3.8. The Guidelines aim, in this regard, to provide fundamental parameters, designs and measurement techniques on which to construct the necessary institutional and financial analyses of investment projects and, where appropriate, of EAs. They are designed to achieve consistency in the presentation of findings and recommendations by ADB staff and borrowers in studies, reports, and documents for which these forms of analysis are required.

1.3.9. The advice, directions, and recommendations in these Guidelines should not be regarded as a substitute for the professional judgment of ADB staff. The Guidelines should be considered as reference guide to assist staff in conducting an appropriate degree of financial due diligence during project processing and should guide staff in determining the appropriate level of financial management safeguards required for a given project and/or EA.

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