Financial Contingency Planning: Alternative Sources of Funding

Financial Contingency Planning: Alternative Sources of Funding

Introduction

Financial contingency planning is a part of broad finance strategic plan. Contingency planning is also a part of firm's risk management plan. Contingency planning is undertaken to ensure that fund does not fall short of funds during times of economic crises. US financial market is open to many cyclical financial problems. Apart from cyclical economic and financial issues, financial markets are also open to financial crises and risks. Recent crises known as subprime mortgage crises was one the most severe in the history of US, and many organizations were forced to halt development plans due to shortage of funds. As a result, many organizations, today, develop contingency plans. Other organizations identify ad-hoc sources of funding during times of credit shortage (Harker & Zenios 2000, pp.2).

Some organizations and countries argue that planning for contingencies can result into constructive ambiguity. They fear that contingency plans will encourage gaming and arbitrage by market participants. Measures for contingencies should be identified through planning, and these measures should help in mitigating risks and providing funds when needed.

According to studies, inadequate planning for funding, during the times of crisis, can lead further problems in the organization. Therefore, managers must identify the proper sources of funding to ensure completion of projects on time. The research paper focuses on some of the alternative sources of funding and revenues, which can be used in contingency planning. The research paper will also highlight the importance of financial efficiency for obtaining funds.

Discussion

Alternative Source of Revenues

Alternative sources of revenues are major part of business diversification and risk mitigation. Alternative sources of revenue are different for different companies. For instance, an airport may start a new route to diversify revenue source; Auto manufacturers may diversify business into related industry such as tire manufacturing to diversity its revenue base. A government may diversify its revenue base by increasing tax rate or introducing new tax scheme.

One way of improving revenues is by improving costs. Many organizations decide to control cost when faced with financial constraints. Diversifying revenues is not possible in short term and company needs to develop strategic plans to expand business and diversify business.

Business models describe the way through which businesses generate revenues. Many companies use innovative businesses models to generate revenues. For instance, many firms sell products through physical, as well as, online presence. Similarly, many companies offer multiple products, which results in multiple sources of revenues (Harker & Zenios 2000, pp.2).

During the financial crises of 2008, many auto manufacturers were saved through government bail-out package. These manufactures were reliant on proceeds from sale of cars. These companies were not diversified and faced concentration risk. Many companies sell financial securities such as corporate bonds to earn additional funds. However, these instruments are part of alternative source of funds, described in detail in the following discussions.

Public-Private Partners

The public-private partnerships are voluntary collaborative efforts among various public sector actors (state) and private (not state), in which ...