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Funds, Funding, and Funding Support
Definitions Meaning in Business, Accounting, and Finance

The term funds is used more or less interchangeably with the term cash. However, funds can have a broader meaning when the term refers to financial support available for a specific purpose.

What are funds?

In business, generally, the term funds is used more or less interchangeably with the term cash, although the two terms differ slightly in connotation and scope.

The term "funds" is sometimes defined as the totality of the organization's financial resources, so as to include cash on hand but also accounts receivable, short term notes receivable, money on deposit in banks, and other components of current assets that will soon be turned into cash.

Business people prefer the term funds when referring to money designated and available for a specific purpose. A project manager might say, for instance, "Funds for our project are now in the budget." The project manager would be less likely to use the term "cash" in that statement.

"Funds" available for use may also refer to money not yet owned by the user, but which will be available for use from external sources (e.g., from a government grant). In brief, a business person claiming to have sufficient funds for a proposed action may be referring to more than the current balance of a cash account.

Note that the financial accounting report, Statement of Changes in Financial Position (SCFP) has two alternate names. In financial accounting, the SCFP is also legitimately called either the Cash Flow Statement or the Funds Flow Statement. In this instance, the terms cash and funds are completely interchangeable.

What is the Meaning of Funding? How is Funding Decided?

The term funding is also used, extensively to refer simply to money approved,  budgeted, and designated for implementation of specific investments, acquisitions, programs, projects, initiatives, or management plans. Funding in this sense is usually implemented as a multi-step process within the the organization's budgeting and planning cycle.

     Funding Capital Acquisitions

A decision to fund a proposed capital acquisition may be the final step in a process that begins when the organization creates or updates a capital investment strategy. In large organizations, implementation of this strategy may be led by the director and staff of a Capital Management Office (or a similarly named organization), who work closely with Budgeting and Finance, to set a maximum capital spending limit (capital spending ceiling) for each budgeting cycle. Budgetary funds set aside for capital spending and the capital spending ceiling are often referred to as the organization's capital funds.

Capital acquisition proposals
are then invited from managers throughout the entire organization, who include a specific funding request with each proposals. Funding requests are typically reviewed and prioritized in a capital review process by a Capital Review Committee established for that purpose.

Capital Review Committees normally require a business case analysis with each funding request. Reviewers expect the case to show credibly that (1) the proposed acquision supports the organization's strategic objectives, (2) investment in the acquisition will produce a desirable return on investment (e.g. by exceeding an established hurdle rate), and (3) the level of risk associated with the proposed capital investment is manageable and acceptable. When the business case fails on any of these points, the proposal request is normally rejected by the committee, receiving no further considertation.

For proposals whose buisness case succeeds on points 1-3, however, funding is not assurred until the Review Committee compares the sum of requested funds to the established capital spending ceiling. In cases where the sum of requests exceeds the established capital spending ceiling, individual proposals are put into competition with each other for available capital funds. The review committee prioritizes competing proposals, primarily on the basis of business case evidence described above. Funding is then granted to individual proposals, starting with the proposal ranking highest in priority, then second highest in priority, and so on, until the total spending ceiling is reached.

     Funding Projects

A single project, incidently, may require funding from both the Capital expenditure budget (CAPEX) as well as funding from the Operating expense budget (OPEX).

  • Where the project results in the creation of capital assets, in fact, the entire project proposal may be considered a capital project, whose funding is reviewed and and decided through the normal capital review process described above.
  • Alternatively, project planning and funding decisions may be managed by a Project Management Office (PMO) within the organization. In such cases, the PMO plays a role very similar to that of the capital review committee described above. Normally, project proposals are brought to the PMO by individual project managers.
  • PMO's expect each project proposal to be accompanied by a (a) preliminary project plan, (b) complete time and resource requirement estimates, and (c) a business case analysis showing credibly that the proposed project . . .
    • Supports overall organization/company strategy and objectives.
    • Supports objectives for the invidiual departmentIndividual project managers bring their project proposals to the PMO.
    • Contributes positively to the PMO's project portfolio, that is, synchronizes with other projects, does not conflict with other projects.