Effect of Public Financial Management practices on operational performance: a case of Rural Electrification and Renewable Energy Corporation

Abstract

This study investigated the impact of public financial management (PFM) practices on the operational performance of the Rural Electrification and Renewable Energy Corporation (REREC) in Kenya. The research focused on three critical aspects of PFM: funding, budgeting processes, and financial reporting, examining their influence on REREC’s ability to deliver efficient and reliable energy services. The specific objectives were to establish the influence of funding on operational performance, to examine the effect of budgeting processes on operational performance, and to assess the impact of financial reporting on operational performance in REREC. Utilizing a quantitative research design, data were collected from 150 managerial staff members through structured questionnaires. Cronbach's alpha was used to verify reliability, and content validity was assessed by consulting domain experts. The study's conceptual framework is grounded in the New Public Financial Management (NPFM) theory and the Balanced Scorecard (BSC) framework, which collectively provide a comprehensive approach to understanding the interplay between PFM practices and operational performance. The data was analyzed using IBM Statistical Package for Social Sciences (SPSS) version 29. The findings revealed that effective financial reporting substantially impacts REREC’s operational performance, followed closely by budgeting processes and funding. Despite significant strides in implementing PFM practices, challenges such as delayed budget approvals, inconsistent funding streams and inadequate financial reporting mechanisms hinder REREC's operational efficiency. These issues result in project delays, increased operational costs and reduced customer satisfaction undermining the organization's ability to fulfill its mandate. This research contributes to the theoretical discourse on strategic financial management in public utilities, offering practical recommendations to enhance budgeting, resource allocation and financial reporting in Kenya's energy sector. It emphasizes the need for policy reforms, capacity building and the adoption of advanced financial technologies to strengthen PFM practices, improve service delivery and support Kenya's Vision 2030 goals for universal energy access.