New Jersey Insurance Company

Parth Vikrant Purohit 18 PGP IBM - 10/12

---------Overview Of The Company: It is typical case of Management Control Mechanism where various responsibilities have been assigned at the respective units of the organisation so as to control the unit in an efficient manner. In order to do that managers are required to submit the budget to the management before the operations actually begin. After the budget get approved by the management the operations starts according to the set standards. After the budgeted period gets over the actual performance is compared with the budgeted standards and then the causes of deviations are found out. The given case discusses about the two sections of the organisation. a) Individual Loan Section. b) Corporate Loan Section. Different responsibilities were assigned to the section according to the requirements of the section and a control mechanism has been set to look after the performance of the unit. Q 1) In what ways does Mr. Somersby control the operation of the sections of his division? In what ways does top management control the operation of the Law division? Ans 1) The task which was performed by the two sections was the legal processing of the loans but the operation and control mechanism was different. In case of Individual loan section independent companies would batch together a number of loans and sell them to NJIC in a package. After the loan gets approved by the Investment division of the company it would forward it to the Law division to look after the legal issues. Now to control the operation of this section the section was divided into three groups, each headed by the attorney and each responsible for a geographical section of the country. A) Atlantic Coast B) Midwest C) Pacific Coast.

In addition to the three attorneys, there was one who helped out in busy spots and took over a group in case of sickness or vacation and was in the training status. Apart from five attorneys and a secretarial staff, the section also comprised of 26 so called mortgage examiners. All these attorneys and mortgage examiners were under the Supervisor or the Head of the Individual loan section, John Wallace. He controlled the operation in the Individual Loan Section and reported to the Vice President of the Law Division, Mr. William Somersby. Since the Corporate loan, generally used to be of a much larger amount than an individual loan and was directly made by NJIC to a borrower, such as Industrial or commercial enterprise the operation and control was quite different. The corporate loan section used to work closely with the investment division people because of the size and complexity of the corporate loans. The corporate loan section without exception also retained wellknown outside counsel. The extent to which the company attorneys relied on outside counsel to perform parts of this work depended on the complexity of the transaction and how busy company attorneys were. Even though the borrower paid the fee for the outside counsel, the head of the corporate loan section, Mr. Carlisle, checked closely in the fees charged by the outside counsel. A great degree of control was also exercised through weekly staff conferences with Mr. Carlisle. He also tried to equalize the work load of the various attorneys and also held discussions on current negotiations which made it clear that in case of illness another lawyer would be prepared to take over the work. Mr. Carlisle use to report to Mr. Somersby on the operation of the Corporate Loan Section. The Top Management at the NJIC controlled the operation of the law division by asking the head to prepare a budget for the operation of the division during the following year. The Top Management through this budget checked the total expected cost and revenue to ensure that the overall anticipated profits was satisfactory. When the actual results come the management compares the actual result with the budgeted report and use to find the deviation and the reasons for that deviation. Question 2 Que 2) What possibilities for improving control, if any, do you think should be explored? Ans 2) 1) As control over the entire section was seemed to be difficult a more stringent review of the budget could be put in place. As the division heads prepare the budget for the following year which is compared when the actual results come. So this can be done on a more regular basis so as to exercise more control. So the budget can be reviewed every month and any deviation can be handled more effectively. 2) In the corporate loan section the company attorney relied on the outside counsel to perform the tasks. The company was of the opinion that it would increase the marketability of the investment. The Law division can have a better control over these tasks if these tasks are fully executed by company lawyers and attorneys and it would reduce the cost as well, as was the case of Individual Loan Section. The company can

employ some of the experts in this section so that the quality of the work is not compromised. 3) There can be a better control over the current work which is been assigned to the lawyers, as there was no time limit for them to complete the work. The lawyers were required to submit the report at any time as per their convenience. So there should be a standard norm as to when this report has to be submitted so that a check could be exercised over these lawyers. Que 3) As Mr. Montgomery, what comments would you make and what questions would you ask Mr. Somersby about the performance of the two sections of the law division for the first six months of 1987? Ans 3) The comments that could be made by Mr. Montgomery in relation to the Individual loan section and Corporate Loan Section are as follows. There has been huge deviation in the actual performance from the budgeted reports in both the sections. Even if all the sections are taken jointly there has been a deviation of $25,374, which is over budgeted. The questions that can be asked to Mr. Somersby are: Is there any substantial reason for the deviation? What measures would you take to minimize the deviation? Why has there been an extra cost incurred as borrowed labour? Why were only 24 full time employees employed when the budgeted was 26? On what basis are the resources allocated? What will be the impact on cost if we employ experts instead of outsourcing the tasks in the corporate loan section?

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