Keyur D Vasava Pharmacy+MBA Dist.

Narmada
"ACCEPT EVERYTHING ABOUT YOURSELF -- I MEAN EVERYTHING, YOU ARE YOU AND THAT IS THE BEGINNING AND THE END -- NO APOLOGIES, NO REGRETS." ( 14/03/12)

MANAGEMENT CONTROL SYSTEMS (MCS) VASAVA..

KEYUR D

Module 1.
Introduction to Management Control Systems and the Environment of Management Control.

1. INTRODUCTION

TO

MANAGEMENT CONTROL SYSTEMS

A management control systems (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole considering the organizational strategies. Finally, MCS influences the behavior of organizational resources to implement organizational strategies. MCS might be formal or informal

Management Control is the process by which managers influence other members of the organization to implement the organizations strategies. Management control systems are tools to aid management for steering an organization toward its strategic objectives and competitive advantage. Management controls are only one of the tools which managers use in implementing desired strategies. However strategies get implemented through management controls, organizational structure, human resources management and culture.

Management control is concerned with coordination, resource allocation, motivation, and performance measurement. The practice of management control and the design of management control systems draw upon a number of academic disciplines. Management

control involves extensive measurement and it is therefore related to and requires contributions from accounting especially management accounting. Second, it involves resource allocation decisions and is therefore related to and requires contribution from economics especially managerial economics. Third, it involves communication, and motivation which means it is related to and must draw contributions from social psychology especially organizational behavior

Management control systems use many techniques such as

Balanced scorecard Total quality management (TQM) Kaizen (Continuous Improvement) Activity-based costing Target costing Benchmarking and Bench trending JIT Budgeting Capital budgeting Program management techniques, etc.

THE MANAGEMENT CONTROL SYSTEMS (MCS) In the management parlance , control traditionally refers to the activities of establishing standards of performance, evaluating actual performance against these standards, and implementing corrective actions to accomplish organizational objectives

The nature of MCS The central focus of MCS is Business Strategy Implementation. MCS provides knowledge , insight, and analytical skills related to how a corporations senior executive design and implement the on going management systems that are used to plan and control the firms performance

The elements of MCS

Elements of MCS include Strategic Planning, Budgeting, Resource Allocation , Performance Measurement, Evaluation, And Rewards, Responsibility Centers, Transfer Pricing

Concepts of MCS
The MCS builds on concepts from Business Strategy, Organizational Behavior, Human Resource and Financial & Managerial Accounting.

Elements of Control System

Every control system has at least four elements

1. Detector or Sensor a device that measures what is actually happening in the process being controlled. 2. An Assessor a device that determines the significance of what is actually happening by comparing it with some standard or expectation of what should happen 3. An effectors a device that alters behavior if the assessor indicates the need to do so. 4. A communications network a device that transmit information between the detector and the assessor and between the assessor and the effectors

The Three examples of CS

1. Thermostat 2. Body Temperature 3. Driver of an automobile

Thermostat
1. Thermometer which measures the current temperature of a room (detector) 2. An Assessor which compares the current temperature with the accepted standard for what the temperature should be. 3. An effectors which prompts a furnace to emit heat or activates an air conditioner which also shuts off these appliances when the temperature reaches the standard levels 4. A communication network, which transmit information from thermometer to the assessor and from the assessor to the heating or cooling element

Body temperature
1. The sensory nerves scattered through the body 2. The Hypothalamus center in the brain, which compares information received from detectors with the 98.6 f standard. 3. The muscles and organs (effectors) that reduce the temperature when it exceeds the standard and raise the temperature when it falls below the standard 4. 4. The overall communications system of nerves is self regulating. If the system is functioning properly, it automatically corrects for deviations from the standards without requiring conscious effort.

Automobile Driver
Assume you are driving on a high way where the legal speed 65 kmph. Your control system acts as the following.

1. Your eyes measures actual speed by observing the speedometer. 2. your brain compares the actual speed with desired speed, and, upon detecting a deviation from the standard. 3. Directors your foot to ease up or press down on the accelerator. 4. As in body temperature regulation your nerves form the communication system that transmits information from eyes to brain and brain to foot.

Management
An organization consist of a group of people who work together to achieve certain common goals. The CEO decides on the overall strategies that will enable the organization to meet its goals. Subject to the approval of the CEO , the various business unit mangers formulate additional strategies that will enable their respective units to further these goals The management control process is the process by which managers at all levels ensure that the people they supervise implement their intended strategies.

Systems
A system is a prescribed and usually repetitious way of carrying out an activity or a set of activities. Systems are characterized more or less rhythmic, coordinated, and recurring series of steps intended to accomplish a specified purpose.

Control
Management control is the process by which managers influence other members of the organization to implement the organizations strategies. It includes Planning Coordinating Communicating Evaluating Deciding

Influencing

:FACTORS INFLUENCING MANAGEMENT CONTROL

The nature and purpose of the organization, Organization structure and size National culture Strategic mission and competitive strategy Corporate strategy and organizational diversification Competitive strategy Managerial styles Organizational slack Stakeholders expectations and controls

2. THE ENVIRONMENT
LEVELS

OF

MANAGEMENT CONTROL- STRATEGIES

OF DIFFERENT

STRATEGY

OPERATES AT DIFFERENT LEVELS ;

Corporate level Business level Functional level

There are basically two categories of companies; one, which have different businesses organized as different directions or product groups known as profit centres or strategic business

units (SBUs) and other, which consists of companies which are single product companies. Eg. Reliance Industries and Ashok Leyland Limited. The SBU concept was introduced by General Electric Company (GEC) of USA to manage product business. The fundamental concept in the SBU is the identification of dicrete independent product/market segments served by the organization. Because of the different environments served by each product, a SBU is created for each independent product/segment. Each and every SBU is different from another SBU due to the distinct business areas (DBAs) it is serving. Each SBU has a clearly defined product/market segment and strategy. It develops its strategy according to its own capabilities and needs with overall organizations capabilities and needs. Each SBU allocates resources according to its individual requirements for the achievement of organizational objectives. As against the multi product organizations, the single product organizations have single strategic business unit. In these organizations, corporate level strategy serves the whole business. The strategy is implanted at the next lower level by functional strategies. In multiple product company, a strategy is formulated for each SBU (known as business level strategy) and such strategies lie between corporate and functional level strategies. The three levels of strategy are explained as follows;

Corporate level strategy:

At the corporate level, strategies are formulated according to organization wise policies. These are value oriented, conceptual and less concrete than decisions at the other two levels. These are characterized by greater risk, cost and profit potential as well as flexibility. Mostly, corporate level strategies are futuristic, innovative and pervasive in nature. They occupy the highest level of strategic decision making and cover the actions dealing with the objectives of the organization. Such decisions are made by top management of the firm. The examples of such strategies include acquisition strategies, diversification, structural redesigning, etc. The board of directors and chief executive officer are the primary groups involved in this level of strategy making. In small and family owned businesses, the entrepreneur is both the general manager and the chief strategic manager

Business Level Strategy:

The strategies formulated by each SBU to make best use of its resources given the environment it faces, come under the gamut of business level strategies. At such a level, strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas and coordination between them for achievement of corporate level objectives. These strategies operate within the overall organizational strategies i.e within the broad constraints and policies and long term objectives set by the corporate strategy. The SBU managers are involved in this level of strategy. The strategies are related with a unit within the organization. The SBU operates within the defined scope of operations by the corporate level strategy and is limited by the assignment of resources by the corporate level. However, corporate strategy is not the sum total of business strategies of the organization. Business strategy relates with the how and the corporate strategy relates with the what. Business strategy defines the choice of product or service and market of individual business within the firm. The corporate strategy has impact on business strategy.

Functional level Strategy:

This strategy relates to single functional operation and the activities involved therein. This level is at the operating end of the organization. The decisions at this level within the organization are described as tactical. The strategies are concerned with how different functions of the enterprise like marketing, finance, manufacturing, etc contribute to the strategy of other levels. Functional strategy deals with a relatively restricted plan providing objectives for specific function, allocation of resources among different operations within the functional area and coordination between them for achievement of SBU and corporate level objectives Sometimes a fourth level of strategy also exists. This level is known as the operating level. It comes below the functional level strategy and involves actions relating to various sub functions of the major function. For example, the functional level strategy of marketing function is divided into operating levels such as marketing research, sales promotion, etc OR INTRODUCTION: - To understand the process of strategic management the concept
should be understood and controlled. The term strategy is derived from the Greek word STRATEGOS

Definition: William Glueck, a Management Professor defined it as A unified,

comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved. Alfred Chandler defined Strategy as:- The determination of the basic long term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals. Thus strategy is: - a. A plan / course of action leading to

a direction. b. It is related to companys activities. c. It deals with uncertain future. d. It depends on vision / mission of the company to reach its current position.

STRATEGY:
1. Before making a decision managers have to look into the course of deciding since Strategy involves situations like: a) How to face the competition. b) Whether to undertake expansions/diversification c) To be focused/ broad based d) How to chart a turn around e) Ensuring stability/should we go in for disinvestments etc 2. An establishment and successful company would start to face new threats in the environment. This is due to its success and emergence of new competitors. It has to rethink the course of action it has been following. This is called strategy. 3. With such rethinking and environment analysis, new opportunities may emerge and be identified.

4. To make use of these opportunities, the company might fundamentally rethink and

reason the ways and means, the actions it had been following in the past. These are called strategies .

5. For a company to survive and to be successful strategy is one of the most significant concepts to emerge in the field of management. According to Alfred chandler the determination of basic long-term goals and objectives of an enterprise and the adoption of the course of action and the allocation of resources for carrying out these goals. William Glueck defines strategy as a unified, comprehension and integrated plan designed to assure that the basic objectives of the enterprises are achieved.

6. Michael Porter views strategy as the core of general management is strategy.

Managers must make companies flexible, respond rapidly, benchmark the best practices, outsource aggressively, develop core competencies; in fact should know how to play new roles every day. Hyper competition is a common phenomenon that rivals copy very fast. 7. Companies can outperform rivals only if it can establish a difference it can preserve and deliver greater value at a reasonable cost.

8. Strategy rests on unique activities The essence of strategy is in the activities

choosing to perform things differently and to perform different activities than rivals.

9. Strategy is long term. If company focus is only on operational effectiveness. It can become good and not better. Overemphasis on growth leads to the dilutions of strategy. Growth is achieved by deepening strategy.

10. Strategy is the future plan of action, which relates to the companys activities and its
mission/vision i.e. when it would like to reach from its current position.

11. It is concerned with the resource available today and those that will be required for

the future plan of action. It is about the tradeoff between its different activities and creating a fit among these activities.

LEVELS OF STRATEGY:
1. When a company performs different business/ has portfolio of products, the company will organize itself in the form of strategic business units (SBUs). 2. In order to segregate different units each performing a common set of activities, many companies are organized on the basis of operating divisions/decisions. These are known as strategic business units.

CORPORATE LEVEL FUNCTIONAL LEVEL STRTEGIES [CORPORATE] SBU1 SBU2 SBU3 (SBU LEVEL) FUNCTIONAL LEVEL STRATEGIES 3) Strategies are looked at corporate level SBU level 4) There exists a difference at functional levels like marketing, finance, productions etc. Functional level strategies exist at both corporate and SBU level. It has to be aligned and integrated. 5) CORPORATE LEVEL STRATEGY: Its a broad level strategy and all its plan of actions is at corporate level i.e. what the company as a whole. It covers the various strategies performed by different SBUs. Strategies needs should be in align with the company objective. 6) Resources should be allocated to each SBU and broad level functional strategies. To ensure things there would need to have co-ordination of different business of the SBUs. 7) For most companies strategies plans are made at 3 levels. a) FUNCTIONAL STRATEGY b) SOCIETAL STRATEGY c) OPERATIONAL STRATEGY FUNCTIONAL STRATEGY:

As the SBU level deals with a relatively. Smaller area that provides objectives for a specific function in that SBU environment are marketing, finance, production, operation etc. SOCIETAL STRATEGY: Larger Companies like conglomerates with multiple business in different countries needs larger level strategy. 1) A relatively smaller company may require a strategy at a level higher than corporate level. 2) Its how the company perceives itself in its role towards the society/ even countries in terms of vision/ mission statement/ a set of needs that strives to fulfill corporate level strategies are then derived from the societal strategy.

OPERATIONAL LEVEL STRATEGY: In the dynamic environment & due to the complexities of business strategies are needed to be set at lower levels i.e. one step down the functional level, operational level strategies. There are more specific & has a defined scope. E.g. Marketing Strategy could be subdivided into sales Strategies for different segments & markets, pricing, distribution etc. Some of them may be common & some unique to the target markets. It should contribute to the functional objectives of marketing function. These are interlinked with other strategies at functional level like those of finance, production etc MISSION/VISION LEVEL CORPORATE LEVEL FUNCTIONAL LEVEL STRTEGIES [CORPORATE] SBU1 SBU2 SBU3 (SBU LEVEL) FUNCTIONAL LEVEL STRATEGIES OPERATIONAL LEVEL Corporate level is divided from the societal level strategy of a corporation S.B.U Level are put in to action under the corporate level strategy. Functional Strategies operate under SBU Level. Operational Level is derived from functional level strategies

Conclusion: These are the levels at which strategies are formulated. Strategy is a plan or an action leading to a particular direction. We have corporate level Strategy and Strategic Business Unit level to fulfill the objectives of the company.

OR

Strategy at Different Levels of a Business

Strategies exist at several levels in any organisation - ranging from the overall business (or group of businesses) through to individuals working in it.

Corporate Strategy - is concerned with the overall purpose and scope of the business
to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a "mission statement".

Business Unit Strategy - is concerned more with how a business competes

successfully in a particular market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc.

Operational Strategy - is concerned with how each part of the business is organised
to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc. OR

HIERARCHICAL LEVELS

OF

STRATEGY

Strategy can be formulated on three different levels:

corporate level business unit level Functional or departmental level.

While strategy may be about competing and surviving as a firm, one can argue that products, not corporations compete, and products are developed by business units. The role of the corporation then is to manage its business units and products so that each is competitive and so that each contributes to corporate purposes. Consider Textron, Inc., a successful conglomerate corporation that pursues profits through a range of businesses in unrelated industries. Textron has four core business segments:

Aircraft - 32% of revenues Automotive - 25% of revenues Industrial - 39% of revenues Finance - 4% of revenues.

While the corporation must manage its portfolio of businesses to grow and survive, the success of a diversified firm depends upon its ability to manage each of its product

lines. While there is no single competitor to Textron, we can talk about the competitors and strategy of each of its business units. In the finance business segment, for example, the chief rivals are major banks providing commercial financing. Many managers consider the business level to be the proper focus for strategic planning.

Corporate Level Strategy

Corporate level strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses. Corporate level strategy is concerned with:

Reach - defining the issues that are corporate responsibilities; these might include identifying the overall goals of the corporation, the types of businesses in which the corporation should be involved, and the way in which businesses will be integrated and managed. Competitive Contact - defining where in the corporation competition is to be localized. Take the case of insurance: In the mid-1990's, Aetna as a corporation was clearly identified with its commercial and property casualty insurance products. The conglomerate Textron was not. For Textron, competition in the insurance markets took place specifically at the business unit level, through its subsidiary, Paul Revere. (Textron divested itself of The Paul Revere Corporation in 1997.) Managing Activities and Business Interrelationships - Corporate strategy seeks to develop synergies by sharing and coordinating staff and other resources across business units, investing financial resources across business units, and using business units to complement other corporate business activities. Igor Ansoff introduced the concept of synergy to corporate strategy. Management Practices - Corporations decide how business units are to be governed: through direct corporate intervention (centralization) or through more or less autonomous government (decentralization) that relies on persuasion and rewards.

Corporations are responsible for creating value through their businesses. They do so by managing their portfolio of businesses, ensuring that the businesses are successful over the long-term, developing business units, and sometimes ensuring that each business is compatible with others in the portfolio.

Business Unit Level Strategy

A strategic business unit may be a division, product line, or other profit center that can be planned independently from the other business units of the firm.

At the business unit level, the strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage for the goods and services that are produced. At the business level, the strategy formulation phase deals with:

positioning the business against rivals anticipating changes in demand and technologies and adjusting the strategy to accommodate them Influencing the nature of competition through strategic actions such as vertical integration and through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and focus) that can be implemented at the business unit level to create a competitive advantage and defend against the adverse effects of the five forces.

Functional Level Strategy

The functional level of the organization is the level of the operating divisions and departments. The strategic issues at the functional level are related to business processes and the value chain. Functional level strategies in marketing, finance, operations, human resources, and R&D involve the development and coordination of resources through which business unit level strategies can be executed efficiently and effectively. Functional units of an organization are involved in higher level strategies by providing input into the business unit level and corporate level strategy, such as providing information on resources and capabilities on which the higher level strategies can be based. Once the higher-level strategy is developed, the functional units translate it into discrete action-plans that each department or division must accomplish for the strategy to succeed.

CORPORATE

AND

STRATEGIC BUSINESS

UNITS

Strategic Business Units

Strategic Business Unit or SBU is understood as a business unit within the overall corporate identity which is distinguishable from other business because it serves a defined external market where management can conduct strategic planning in relation to products and markets. The unique small business unit benefits that a firm aggressively promotes in a consistent

manner. When companies become really large, they are best thought of as being composed of a number of businesses (or SBUs). In the broader domain of strategic management, the phrase "Strategic Business Unit" came into use in the 1960s, largely as a result of General's many units. A Strategic Business Unit can encompass an entire company, or can simply be a smaller part of a company set up to perform a specific task. The SBU has its own business strategy, objectives and competitors and these will often be different from those of the parent company. Research conducted in this includes the BCG Matrix. An SBU is an sole operating unit or planning focus that does not group a distinct set of products or services, which are sold to a uniform set of customers, facing a well-defined set of competitors. The external (market) dimension of a business is the relevant perspective for the proper identification of an SBU.
SBUs are also known as strategy centers, Independent Business Unit or even Strategic Planning Centers.

Strategic Business Unit (SBU) is necessary when corporation starts to provide different products and hence, need to follow different strategies. SBUs are also known as strategy centers, Independent Business Unit or even Strategic Planning Centers. Strategic Business Unit (SBUs) is necessary when corporation starts to provide different products and hence, need to follow different strategies. To ease its operation, corporate set different groups of product/product line regarding the strategy to follow (in terms of competition, prices, substitutability, style/ quality, and impact of product withdrawal). These strategic groups are called Strategic Business Units (SBUs).

Each Business Unit must meet the following criteria:

1. 2. 3. 4. Have a unique business mission, independent from other SBUs. Have clearly definable set of competitors. Is able to carry out integrative planning relatively independently of other SBUs. Should have a Manager authorized and responsible for its operation.

There are three factors that are generally seen as determining the success of an SBU:[ 1. the degree of autonomy given to each SBU manager,

2. 3.

the degree to which an SBU shares functional programs and facilities with other The manner in which the corporation is because of new changes in market.

SBUs, and

These strategic business units are also referred to as independent business units or strategic planning units. The main philosophical concept behind the formation of strategic business units is to serve a clear and defined market segment along with a clear and defined strategy. These business units have to contain all the needs and corporate capabilities of the respective organization. The entire portfolio of the concerned business has to be managed by allocation of managerial and capital resources for serving the overall interest of the entire organization. This helps in developing a balance in the earnings, sales and the assets at a level which is controlled and acceptable for taking the right amount of risks.

The strategic business unit (SBU) is created with the application of set criteria which consist of the competitors, price models, customer groups and the overall experience of the company. It is also sometimes seen that a number of different verticals present in the same organization having similar competitors and target customers are amalgamated to form a single SBU. This helps in strategically planning the overall business of the organization. This is also true for the company which has different product ranges and some of them have similar capabilities in terms of research and development, marketing and manufacturing. Such products can also be amalgamated to form a single unit.

4. BEHAVIOR ASPECTS

OF

ORGANIZATIONS

Organizations are collections of interacting and inter related human and non-human resources working toward a common goal or set of goals within the framework of structured relationships. Organizational behavior is concerned with all aspects of how organizations influence the behavior of individuals and how individuals in turn influence organizations.

Organizational behavior is an inter-disciplinary field that draws freely from a number of the behavioral sciences, including anthropology, psychology, sociology, and many others. The unique mission of organizational behavior is to apply the concepts of behavioral sciences to the pressing problems of management, and, more generally, to administrative theory and practice.

six aspects of organizational behavior That is 1. team building, 2. communication, 3. culture, 4. leadership, 5. Objectives and 6. Setting goals.

What are different aspects to Organizational Behavior? Organizational behavior attempts to target the root cause of interactions between two professionals at workplace. As an example, for a company which does not have any organizational behavior practices will have their employees calling each other with abusive names. And though, it may acceptable with some, it may not be a compulsion that everyone suit to that kind of addressing. Organizational Behavior accomplishes laying rules and guidelines for human behavior at work and asking the employees to focus and adhere to the micro-level practices. Interaction between two employees is said to be one of the backbones of success for organizations. Organizational Behavior targets this factor which goes a long way in targeting in managing people further leading to the effective management of the organization.

5.GOAL CONGRUENCE

AND

FACTORS INFLUENCING

THE

CONGRUENCE.

Goal congruence is present when individuals, departments and divisions focus their efforts on meeting organizational goals. To ensure as far as possible that managers and their subordinates work toward the achievement of organizational goals requires attention being paid to their levels of motivation.
Goal Congruence Organizational goals are goals of top management and board of directors. Participants act in their own self interest. Management control system should be designed so that incentives/goals of participants are consistent with the goals of the organization.

Goal congruence is achieved when individuals in the organization strive or are induced to strive towards the company goals. This assumes, of course, individuals are aware of company goals and the derivative performance criteria. The essence of companys goals is conveyed by planning process, which expresses these goals in terms of budgets, standards and other formal measures of performance. Management must tailor the planning activities to encourage goal congruence at various levels of management. To achieve goal congruence the following ideas are important The firm should be viewed as pluralist entity where coalitions of individual seek to express their own aspirations within the structure of the firm. Personnel cannot be viewed as people sharing the same goal, but also as people striving for such rewards such as power, security, survival, and autonomy. SIGNIFICANCE
OF

GOAL CONGRUENCE

Ensures frictionless working. Ensures achievement of organizations goal/strategic objective Ensures coordination & motivation of all concerned Ensures consistency in the working of all concerned. Gives fair chance to its employees to achieve their personal goals. Enhances the loyalty towards the company.

FACTORS

THOSE INFLUENCE THE

GOAL CONGRUENCE

INFORMAL FACTORS I. External factors set of attitudes of the society, work ethics
of the society

II . Internal factors (Factors within the organization)

Culture- Common beliefs, shared values, norms of behavior & assumptions implicitly accepted and explicitly built into. Mgt. Style Informal/Formal The Communication Channels Perception and Communication e.g. Budget (meaning): A strict profit control plan, Budget: A tentative guiding profit plan

FORMAL FACTORS
Management Control System A Strategy itself Rules Instructions, manuals and circulars, Physical controls, system safeguards, task control system.

MODULE.2 THE STRUCTURE OF MANAGEMENT CONTROL SYSTEMS.

1. THE STRUCTURE
OF

MANAGEMENT CONTROL SYSTEMS

1. RESPONSIBILITY CENTERS.

Responsibility Centers

Output measured in monetary

terms

 Input measured in monetary terms

Output measured in monetary

terms

Output measured in monetary terms

Commonly perform work related to several products. Inputs to a responsibility center are called cost elements or line items (on a department cost report).

TYPES

OF

RESPONSIBILITY CENTERS

Important business goal: earn a satisfactory return on investment: ROI = (Revenues - Expenses) / Investment Leads to 4 types of responsibility centers: Revenue centers. Expense centers. Profit centers. Investment centers.

REVENUE CENTER

Responsible for outputs of center as measured in monetary terms (revenues). Not responsible for the costs of goods or services that the center sells. E.g., sales organization. Also responsible for selling expenses (e.g., travel, advertising, point-of-purchase displays, sales office salaries, rent).

OR
u Responsibility Centers whose members control revenues but, u Not the manufacturing or acquisition cost of the products or service they sell, or u The level of investment in the responsibility center. u In other words, you cannot link the input to the output. u Most revenue centers may not set selling prices u They definitely have no control over the costs of input acquired (service manager of an automobile workshop does not control gasoline costs) u These centers are generally not allocated costs of the goods that they market (there are exceptions). Manager is responsible only for costs directly incurred by his/her unit. u They are evaluated on the basis of actual sales or orders booked against budgets or quotas and

u Example: a unit of a chain store in a mall. u

EXPENSE CENTERS/COST

CENTERS

Responsible for expenses (i.e., the costs) incurred but does not measure its outputs in terms of revenues. E.g., production departments, staff units such as accounting.

OR
u Responsibility centers whose employees control costs, but u Do not control their revenues or investment level. u Examples: Production department in a manufacturing unit, a dry cleaning business u Two types of costs: Engineered: those costs that can be reasonably associated with a cost center direct labor, direct materials, telephone/electricity consumed, office supplies. Discretionary: where a direct relationship between a cost unit and expenses cannot be reasonably made; Management allocates them on a discretionary basis (e.g. depreciation expenses for machines utilized).

ENGINEERED

COSTS

u Should be measurable in monetary terms, outputs in physical quantities. u Works well in units such as production, distribution, accounting receivables, payables where repetitive tasks are performed. u Developing standard costs for such activities is more reliable than in other cases. u Multiply standard cost per unit x no. of units produced or processed = this is the ideal cost. u Compare it to actual costs and the difference is indicative of efficiency or lack thereof.

ENGINEERED

COSTS

IMPORTANT

TO REMEMBER

u The fundamental purpose of all responsibility centers is accountability; evaluating performance. And a engineered cost center, u Does not merely compare costs but also u Holds the managers accountable for obtaining/producing right quality of product u Volume of production, speed of processing.

DISCRETIONARY

COSTS

u Mostly administrative and support service costs u More difficult to measure in physical quantities or precisely on monetary terms (e.g. customer relations or even R & D).

u Discretionary means, management allocates them based on established polices (not arbitrarily). u More caution is required while using discretion cost numbers. u Difference between budgeted expenses and actual expenses does not indicate efficiency. u Suppose if the actual cost is less than budget, does it mean good or bad? u Suppose if the actual cost is higher than budget, does it mean good or bad?

PROFIT CENTERS

Performance measured as difference between revenues and expenses. E.g., independent division of a company, factory that sells its output to the marketing division.

ADVANTAGE

OF

PROFIT CENTER

Encourages managers to act as if they are running their own business.

CRITERIA

FOR

PROFIT CENTER

Only useful if manager influences both revenues, and costs. If senior management requires service performed by other responsibility center at no charge, than not a profit center, e.g., internal audit. If output is homogeneous (e.g., tons) no advantage to monetary measure of revenue. Multiple profit centers create spirit of competition.

R E SP ON SIBILITY C ENTE RS A responsibility centre is an organizational subsystem charged with a well-defined mission and headed by a manager accountable for the performance of the centre. "Responsibility centers constitute the primary building blocks for management control." It is also the fundamental unit of analysis of a budget control system. Responsibility centre is an organization unit headed by a responsible manager. There are four major types of responsibility canters: cost centres, revenues canters, profit canters and investment canters. Cost Centre A cost centre is a responsibility centre in which manager is held responsible for controlling cost inputs. There are two general types of cost canters: engineered expense canters and discretionary expense canters. Engineered costs are usually expressed as standard costs. A discretionary expense centre is a responsibility centre whose budgetary performance is based on achieving its goals by operating within predetermined expense constraints set through managerial judgment or discretion. R E VE NU E C E NTRE

A revenue centre is a responsibility centre whose budgetary performance is measured primarily by its ability to generate a specified level of revenue. P R OFIT C ENTR E In a profit centre, the budget measures the difference between revenues and costs. I N VE STME NT C ENTR E An investment centre is a responsibility centre whose budgetary performance is based on return on investment. The uses of responsibility canters depend to a great extent on the type of organization structure involved. Engineered cost canters, discretionary expense centre, and revenue canters are more often used with functional organization designs and with the function units in a matrix design. In contrast, with a divisional organization designs, it is possible use profit canters because the large divisions in such a structure usually have control over both the expenses and the revenues associated with profits.

OR
PROFIT CENTERS u u Managers of profit centers control both the revenues and costs of the product or service they deliver. It is like an independent business except it is part of a larger organization (e.g. departmental stores of larger chains Wal Mart, restaurants, corporate hotels such as Hilton, Holiday Inn). The store manager would have responsibility for pricing, product selection, and promotion. Cost for these units vary depending on ability to control labor, waste, and hours. Revenues also will vary depending on the units service level, location, etc.

u u u

u u u u u u

In other words, local discretion would affect revenues and costs. Investments and some costs (e.g. centralized purchasing). Therefore, profits represent a broader index of both corporate and local decisions. If performance is poor, it may reflect poor conditions that no one in the organization could control as well as poor local conditions. For this reason, organizations should not evaluate performance only based on costs and profits, but Perform detailed evaluations that include quality, material use, labor use, and service measures that the local unit can control.

Measures of Performance
Return on investment = Profit/Investment Return on assets = (net income) / (total assets). Residual income = Pre-interest profit (Capital charge * investment) EVA is a form of residual income

What is EVA? Economic Value Added EE VE AYE, not a womens name!

One of a number of shareholder value metrics. CFROI, SVA, EP,

Shareholder value is the goal. Not inconsistent with stakeholder theory!

EVA

What is EVA EVA = Economic profit Not the same as accounting profit Difference between revenues and costs Costs include not only expenses but also cost of capital Economic profit adjusts for distortions caused by accounting methods Doesnt have to follow GAAP R&D, advertising, restructuring costs, ...

Cost of capital accounted for explicitly Rate of return required by suppliers of a firms debt and equity capital Represents minimum acceptable return.

Components of EVA

NOPLAT Net operating profit after tax

Operating capital Net operating working capital, net PP&E, goodwill, and other operating assets

Cost of capital Weighted average cost of capital %

Capital charge Cost of capital % * operating capital

Economic value added NOPLAT less the capital charge

CALCULATING EVA

Net operating profit after tax (NOPAT) Capital charge (= WACC * Capital)

= Economic value added (EVA)

E N GINE ER ED

AND

D ISCR ETIONA RY E X PEN SE C E NTER S

A cost centre is a responsibility centre in which manager is held responsible for controlling cost inputs. There are two general types of cost canters: 1. Engineered expense canters and 2. Discretionary expense canters. Engineered costs are usually expressed as standard costs. A discretionary expense centre is a responsibility centre whose budgetary performance is based on achieving its goals by operating within predetermined expense constraints set through managerial judgment or discretion.

For expense centers the budget is a spending plan For discretionary expense centers, fixed spending targets

For engineered expense centers, flexible spending targets (i.e., the budget has two components, a discretionary component and a component that varies directly with volume)

Two types of costs:

E NGIN EE RE D : those costs that can be reasonably associated with a cost center direct labor, direct materials, and telephone/electricity consumed, office supplies. D ISCRE TIONAR Y : where a direct relationship between a cost unit and expenses cannot be reasonably made; Management allocates them on a discretionary basis (e.g. depreciation expenses for machines utilized).

E NGIN EE RE D

COSTS

Should be measurable in monetary terms, outputs in physical quantities. Works well in units such as production, distribution, accounting receivables, payables where repetitive tasks are performed. Developing standard costs for such activities is more reliable than in other cases. Multiply standard cost per unit x no. of units produced or processed = this is the ideal cost. Compare it to actual costs and the difference is indicative of efficiency or lack thereof. E NGIN EE RE D
COSTS

Important to remember

The fundamental purpose of all responsibility centers is accountability; evaluating performance. And a engineered cost center, Does not merely compare costs but also Holds the managers accountable for obtaining/producing right quality of product Volume of production, speed of processing. D ISCRE TIONAR Y
COSTS

Mostly administrative and support service costs More difficult to measure in physical quantities or precisely on monetary terms (e.g. customer relations or even R & D). Discretionary means, management allocates them based on established polices (not arbitrarily). More caution is required while using discretion cost numbers. Difference between budgeted expenses and actual expenses does not indicate efficiency. Suppose if the actual cost is less than budget, does it mean good or bad? Suppose if the actual cost is higher than budget, does it mean good or bad?

6. V A RIOU S M E ASUR ES

OF

P R OFITS .

Gross Profit & Gross Margin

The gross profit (also known as gross operating profit) is the sales or revenue less cost of goods sold (COGS). This number divided by sales is the gross margin (in percentage terms). It is represented mathematically as follows:

Gross Profit = Sales - COGS Gross Margin = Gross Profit*100/Sales The calculations above, as with most of the calculations in this website, are simple. But it is important that you understand the information you can get out of the numbers. What gross margin tells you is how profitable the business is before subtracting SGA, R&D, and ITD expenses. You are likely to see high gross margins for technology and Internet companies. For example, Microsoft Corporation's gross margin was around 90% at the time of this writing. This means that for every $1 Microsoft gets from customers, it keeps 90 cents and spends 10 cents to deliver its products or services to the customer (although the 90 cents it keeps for each dollar it takes in still has to be reduced by other indirect costs of doing business such as SG&A, R&D, and ITD). PepsiCo and Motorola Inc. had gross margins of approximately 64% and 38%, respectively, at the time of this writing. We recommend that if Teenvestors are looking at large-cap companies, they stick to companies that have gross margins of 35% or more, unless the company is very solid in all other ways discussed in this chapter. For medium-capitalization firms, stick to gross margins of over 50% unless the companies have other strong features.

Measures of Performance
Return on investment = Profit/Investment Return on assets = (net income) / (total assets). Residual income = Pre-interest profit (Capital charge * investment) EVA is a form of residual income

What is EVA?

Economic Value Added EE VE AYE, not a womens name!

One of a number of shareholder value metrics. CFROI, SVA, EP,

Shareholder value is the goal. Not inconsistent with stakeholder theory!

EVA

What is EVA EVA = Economic profit Not the same as accounting profit Difference between revenues and costs Costs include not only expenses but also cost of capital Economic profit adjusts for distortions caused by accounting methods Doesnt have to follow GAAP R&D, advertising, restructuring costs, ...

Cost of capital accounted for explicitly Rate of return required by suppliers of a firms debt and equity capital Represents minimum acceptable return.

Components of EVA

NOPLAT

Net operating profit after tax Operating capital Net operating working capital, net PP&E, goodwill, and other operating assets Cost of capital Weighted average cost of capital % Capital charge Cost of capital % * operating capital Economic value added NOPLAT less the capital charge

C ALCULATING EVA

Net operating profit after tax (NOPAT) Capital charge (= WACC * Capital)

= Economic value added (EVA)

-- ROI
One of the primary tools for evaluating the performance of investment centers is return on investment. ROI is calculated as follows:

ROI =

Income . Invested Capital

Since ROI focuses on income and investment, it has a natural advantage over income (alone) as a measure of performance. It removes the bias of larger investment over smaller investment. Some companies break ROI down into two components: profit margin and investment turnover as follows:

Prof. Marg. Turnover

Income ROI = Sales x .... Sales Inv. Capital

In calculating ROI, companies measure income in a variety of ways; net income, income before interest and taxes, controllable profit The text uses the commonly used net operating profit after taxes, NOPAT. This formula does not hold managers responsible for interest. Further, invested capital is measured in a variety of ways In the text, invested capital is measured as total assets - noninterest-bearing current liabilities (accounts payable, income taxes payable, and accrued liabilities). A major problem with ROI is that the denominator, invested capital, is based on historical costs net of depreciation. As those assets become fully depreciated, the invested capital denominator becomes extremely low and the ROI number quite high. And to compound the problem, managers may therefore be compelled to put off purchases of new equipment necessary for long-term success. They under invest. 5. EXPLAIN
WHY USING A MEASURE OF PROFIT TO EVALUATE PERFORMANCE CAN LEAD TO RETURN ON

INVESTMENT

(ROI)

CAN LEAD TO UNDERINVESTMENT.

Additional problems with ROI exist. Managers of investment centers with high ROIs may be unwilling to invest in assets that will dilute their current ROI. This will lead to underinvestment. Conversely, evaluation in terms of profit can lead to overinvestment. we would like managers to invest in assets that earn a return in excess of the cost of capital. Since You Get What You Measure, managers may overinvest to grow profits (because their compensation package is based on total profits) even though the return on invested capital is less than the cost of capital. Perhaps the solution to the overinvestment problem on the previous slide is to measure performance based on ROI. The problem here is that managers will have a tendency not to invest at less than their current ROI even if this reduced return is greater than the cost of capital. A problem with assessing performance with only financial measures, like profit, ROI, and RI/EVA, is that financial measures are backward looking.

Balanced Scorecard is a set of performance measures constructed for four dimensions of performance: 1. Financial 2. Customer 3. Internal processes 4. Innovation Balanced Scorecard uses performance measures that are tied to the companys strategy for success. Balance is a key factor using this technique. Note how balance is achieved: 1. Performance is assessed across a balanced set of dimensions (financial, customer, internal processes, and innovation). 2. Quantitative measures are balanced with qualitative measures. 3. There is a balance of backward-looking measures

Module.3 Transfer of Goods & Services between Divisions and its pricing.

1. INVESTMENT CENTERS An investment center is a subunit that has responsibility for generating revenues, controlling costs, and investing in assets. Since managers of investment centers have control over inventory, receivables, equipment purchases and so on, it makes sense to hold them responsible for generating some kind of return on them.

An investment centre is responsible for the production, marketing and investment in the assets employed in the segment. An investment centre manager decides on aspects such as the credit policies, inventory policies, and within broad framework. Investment centre manager responsible for profit in relation to amounts invested in the division. Financial performance of the manager of the division is measured by comparing the actual with projected rate of return on investments of the canters

Examples: Nordstrom, Inc. subunit Faconnable. Managerial goal: to maximize return on investment. Evaluation: rate of return (%) relative to a benchmark/budget rate of return or relative to other investment center rates of return. Evaluating Investment Centers with ROI

One of the primary tools for evaluating the performance of investment centers is return on investment. ROI is calculated as follows: ROI = Income .. Invested Capital Since ROI focuses on income and investment, it has a natural advantage over income (alone) as a measure of performance. It removes the bias of larger investment over smaller investment. Some companies break ROI down into two components: profit margin and investment turnover as follows:

Income ROI =

Sales

x .... Sales Inv. Capital

3. MEASURES AUDITING

AND

CONTROLS

OF

ASSETS.

Audit category Financial statement audit Internal audit

Brief description
Gives an opinion on the accuracy of the financial statements Ensures compliance with the relevant accounting standards and reporting framework An independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization Need not be limited to books of accounts and related records Deters, detects, investigates, and reports fraud Forensic: related to the legal system, especially issues of evidence Audits operational aspects of the enterprise Quality audit, R&D audit, etc

Fraud auditing and forensic audit Operational audit

Information systems audit Management audit

Audit of computer systems Checks whether the computer system safeguards assets, maintains data integrity, and contributes to organizational effectiveness and efficiency Audit of the management, as a tool for evaluation and control of organizational performance Examines the conditions and provides a diagnosis of deficiencies with recommendations for correcting them Audit of the enterprise's reported performance in meeting its declared social , community, or environmental objectives Environmental compliance audit: a checking mechanism Environmental management audit: an evaluation mechanism

Social audit Environmental audit

THE
AUDITING PROCESS

Staffing the audit team Creating an audit project plan Laying the ground work Conducting the audit Analyzing audit results Sharing audit results

Writing audit reports Dealing with resistance to audit recommendations Building an ongoing audit program
OF

BENEFITS

AUDITING

Identify opportunities for improvement Identify outdated strategies Increase managements ability to address concerns Enhance teamwork Reality check

THE BALANCE SCORECARD In the rapidly changing world of business, considering only the financial measures of performance gives an incomplete picture of the overall organizational performance. It has become increasingly necessary for organizations to simultaneously look at non financial measures for this purpose. Concepts like JIT, TQM, and SIX SIGMA have brought out the growing importance of non financial measures for evaluating the organizations overall performance. A combination of financial and non financial measures gives a better picture of organizational performance. One concept which has received universal acclaim is the Balance Scorecard (BSC), proposed by Robert Kaplan and David Norton in 1992.

The BSC framework considers the customer perspective, internal business perspective, and the innovation/learning and growth perspective, in addition to the financial perspective

perspective Customer perspective

Underlying question
To achieve our vision, how should we appear to our customer

Financial perspective Internal business perspective Innovation/learnin g growth perspective

IMPLEMENTING
THE

To succeed financially, how should we appear to our shareholders To satisfy our customer and shareholders, at what business processes must we excel?

To achieve our vision, how will we sustain our ability to change and improve?

BSC

If an organization emphasizes only short-term or financial goals, it will not be able to successfully execute its strategies and excel in the business. The balance scorecard serves as a tool for strategic performance control by clarifying the vision and strategy of the organization and articulating the top management's expectations

EVA WHAT
IS

EVA

EVA = Economic profit Not the same as accounting profit Difference between revenues and costs Costs include not only expenses but also cost of capital Economic profit adjusts for distortions caused by accounting methods Doesnt have to follow GAAP

R&D, advertising, restructuring costs, ...

Cost of capital accounted for explicitly Rate of return required by suppliers of a firms debt and equity capital Represents minimum acceptable return.

COMPONENTS

OF

EVA

NOPLAT

Net operating profit after tax Operating capital

Net operating working capital, net PP&E, goodwill, and other operating assets Cost of capital

Weighted average cost of capital % Capital charge

Cost of capital % * operating capital Economic value added

NOPLAT less the capital charge Calculating EVA Net operating profit after tax (NOPAT) Capital charge (= WACC * Capital)

= Economic value added (EVA)

BUDGETS Budgets are business plans that are stated in quantitative terms and are usually based on estimations. These plans aid an organization in the successful execution of strategies.

Due to the uncertainties in the business environment and / or due to wrong estimation, there may be significant deviations between the a c t u a l s and the plans. Budgeting as a control tool, provides an action plan for the organization to ensure least deviations Budgets are used to give an overview of the organization and its operations. They are useful in resource allocation whereby resources are allocated in such a way that the processes which are expected to give the highest returns are given priority. Budgets are also used as forecast tools and make the organization better prepared to adapt to changes in the environment Budget preparation requires the participation of managers from different functions / departments. This helps in integrating the tactical and operational strategies of the departments with the corporate strategy of the organization. Budgets act as a means to verify the progress of the various activities undertaken to achieve the planned objectives. The verification is done by comparing the a c t u a l s against standards They help in the delegation of authority and allocation of responsibility and accountability to more people in an organization. They thus promote division of labor, which , in turn, promotes the process of specialization. Functional specialization leads to the overall efficiency of the organization
IN

STEPS

BUDGET FORMULATION

Creating a budget department or appointing a budget controller Developing guidelines for budget preparation Developing budget proposals at department/business unit level Developing the budget for the entire organization Determining the budget period and key budgets factors Benchmarking the budget Budget review and approval Monitoring progress and revising the budgets

Types of Characteristics Examples Budgets

Appropriation budget A ceiling is set for certainTraining, advertising, discretionary expenditures sales promotion and Based on the managementR&D decision A static amount is establishedThe static part: for discretionary andSalaries, committed fixed costs and adepreciation, property variable rate is determinedtaxes, and planned per unit of activity for variablemaintenance. The cost flexible part : direct material, direct labor, and variable overhead .sales commission Decisions regarding potential New plant and investments are made using equipment discounted cash flow techniques A comprehensive plan is All revenue and developed for all revenue and expenditures for any expenditure organization

Flexible budget

Capital budget

Master budget

4. TRANSFER PRICES

Transfer Prices Price at which goods or services are sold between responsibility centers within a company. Revenue for selling center and cost for the receiving center. 2 general types of transfer prices: Market based price. Cost based price.
MARKET-BASED TRANSFER PRICES

Based on price for same product between independent parties, i.e., a market price or, equivalently, an arms length price. Adjusted for quantifiable differences such as credit costs. Where available is widely used. Frequently not available.

COST-BASED TRANSFER PRICES

When no reliable market price is available. Cost plus a mark-up. If based on actual cost, little incentive to reduce costs.

TRANSFER PRICING ISSUES Negotiated by responsibility centers or set/arbitrated by top management. Should manager have freedom to use alternative source? Sub-optimization: maximize profits for a responsibility center may not maximize profit for the consolidated company.

OR
TRANSFER PRICING A transfer price is the price one subunit charges for a product or service supplied to another Subunit of the same organization.

Intermediate products are the products transferred between subunits of an organization.

TRANSFER
PRICING SHOULD:

(1) Help achieve a companys strategies and goals. (2) fit the organizations structure (3) promote goal congruence (4) promote a sustained high level of management effort

TRANSFER-PRICING METHODS 1. Market-based transfer prices 2. Cost-based transfer prices 3. Negotiated transfer prices

1. MARKET-BASED

TRANSFER PRICES

By using market-based transfer prices in a perfectly competitive market, a company can achieve the following: Goal congruence Management effort Subunit performance evaluation

Subunit autonomy Market prices also serve to evaluate the economic viability and profitability of divisions individually. -When supply outstrips demand, market prices may drop well below their historical average. -Distress prices are the drop in prices expected to be temporary. -Basing transfer prices on depressed market prices will not always lead to optimal decisions for an organization. 2. COST-BASED TRANSFER PRICES When transfer prices are based on full cost plus a markup, suboptimal decisions can result.

Dual Transfer Prices

-An example of dual pricing is for Larry & Co. to credit the Selling Division with 112% of the full cost transfer price of $24.64 per barrel of crude oil.

-Debit the Buying Division with the market-based transfer price of $23 per barrel of crude oil. And debit a corporate account for the difference!

3.NEGOTIATED TRANSFER PRICES

Negotiated transfer prices arise from the outcome of a bargaining process between selling and buying divisions. General Guideline: min. & max. transfer price Maximum transfer price = Market price Minimum transfer price = Incremental costs per unit incurred up to the point of transfer + Opportunity costs per unit to the selling division Incremental cost often times = variable cost Opportunity costs often times = lost CM Opportunity costs could = lost savings

Min. & Max. Transfer priceexamples (1) Slow car (2) S.F. Manufacturing 1. Slowcar Company The Assembly Division of SLOWCAR Company has offered to purchase 90,000 batteries from the Electrical Division (ED) for $104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are: Direct materials Direct labor 20 12 42 $114 $40

Variable factory overhead Fixed factory overhead Total

The Electrical Division has been selling 250,000 batteries per year to outside buyers for $136 each. Capacity is 350,000 batteries/year. The Assembly Division has been buying batteries from outside suppliers for $130 each. Should the Electrical Division manager accept the offer? Will an internal transfer be of any benefit to the company?

2.SF Manufacturing The SF Manufacturing Co. has two divisions in Iowa, the Supply Division and the BUY Division. Currently, the BUY Division buys a part (3,000 units) from Supply for $12.00 per unit. Supply wants to increase the price to BUY to $15.00. The controller of BUY claims that she cannot afford to go that high, as it will decrease the divisions profit to near zero. BUY can purchase the part from an outside supplier for $14.00. The cost figures for Supply are: Direct Materials Direct Labor Variable Overhead Fixed Overhead $3.25 4.75 0.60 1.20

A. If Supply ceases to produce the parts for BUY, it will be able to avoid onethird of the fixed MOH. Supply has no alternative uses for its facilities.

Should BUY continue to get the units from Supply or start to purchase the units from the outside supplier? (From the standpoint of SF as a whole). (What is the min. & max. transfer price if BUY and SUPPLY negotiate?) Now, assume that Supply could use the facilities currently used to produce the 3,000 units for BUY to make 5,000 units of a different product. The new product will sell for $16.00 and has the following costs: Direct Materials $3.00 Direct Labor Variable Overhead 4.30 5.40

B. What is the min. & max. transfer price if BUY and SUPPLY negotiate? C. What should be done from the companys point of view? Why?

Comparison of Methods Achieves Goal Congruence Market Price: Yes, if markets competitive Cost-Based: Often, but not always Negotiated: Yes

Useful for Evaluating Subunit Performance Market Price: Yes, if markets competitive Cost-Based: Difficult, unless transfer price exceeds full cost Negotiated: Yes

Motivates Management Effort Market Price: Yes Cost-Based: Yes, if based on budgeted costs; less incentive if based on actual cost Negotiated: Yes

Preserves Subunit Autonomy

Market Price: Yes, if markets competitive Cost-Based: No, it is rule based Negotiated: Yes

Other Factors Market Price: No market may exist Cost-Based: Useful for determining full-cost; easy to implement Negotiated: Bargaining takes time and may need to be reviewed MULTINATIONAL TRANSFER PRICING

IRC Section 482 requires that transfer prices for both tangible and intangible property between a company and its foreign division be set to equal the price that would be charged by an unrelated third party in a comparable transaction (arms length). This still leaves a little room to wiggle.

5.

VARIOUS CONTROL These are:

ISSUES .

(a) The increasingly unstable external environment which results in a Need for a tighter linkage of the management control system to The formal planning system.

(b) The lack of stability in the external environment which causes a Need for a more robust set of control variables than exists with the

Current dollar based budget.

(c) The increasing diversification of large corporations which often Will be creating more complex organizational forms (at the extreme, The matrix structure) operating in widely differing environments (the Multi-dimensional corporation) and in very different businesses (the Conglomerate).

Even for small or medium-sized organizations these three factors are changing, and much the same kind of changes can be identified for public sector organizations. COMMON MCS
ARE THE FOLLOWING:

ISSUES IN

What drives the organization? What is its motivation for getting the MF? Development of Profit? How well do organizational structures and policies fit the strategy? How does organizational performance get measured? How are reporting and review done? How is MCS operationalized at the center level? What roles does Management Information System (MIS) play in the organizations MCS?

Motive driving the organization;

Fit between the organizations structure and policies and its strategy;

Measurement of organizational performance, and the issue of including vision, mission

and objectives in performance measurement;

System for reporting and review;

Role of MIS and internal control in the organizations MCS.

Module 4. The Process Part of Management Control

Steps involved in management control process

The essential elements of any control process are Establishment of Standards Measurement Comparing performance with the standards Taking corrective actions

Establishment of Standards is the first step in control process.

Standards represent criteria for performance. A standard acts as reference line or a basis of appraisal of actual performance. Standards should be set precisely and preferable in quantitative terms. Setting standard is closely linked and is an integral part of the planning process. Standards are used or bench marks by which performance is measured in the control operations at the planning stage, planning is the basis of control.

Measurement of Performance after establishing the standards, the

second step is to measure actual performance of various individuals, groups or units. Management should not depend upon the guess that standards are being met measurement of performance against standards

should ideally be done on a forward looking basis so that deviations may be detected in advance of their occurrence and avoided by appropriate actions.

Comparing Performance with Standards Appraisal of performance

or comparing of actual performance with pre-determined standards is an important step in control process. Comparison is easy where standards have been set in quantitative terms as in production and marketing. In other cases, where results are intangible and cannot be measured quantitatively direct personal observations, inspection and reports are few methods which can be used for evaluation. The evaluation will reveal some deviations from the set standards. The evaluator should point out defect or deficiencies in performance and investigate the causes responsible for these.

Taking Corrective Actions Managers should know exactly where in the

assignment of individual or group duties, the corrective action must be applied. Managers may correct deviations by redrawing their plans or by modifying their goals. Or they may correct deviations by exercising their organizing functions through reassignment or clarification of duties. They may correct, also, by additional stapling or better selection and training of subordinates. OR

Steps in the Control Process

The control process is a continuous flow in Taj between measuring, comparing and action. Naturally Taj follows the four steps in the control process: establishing performance standards, measuring actual performance, comparing measured performance against established standards, and taking corrective action. Step 1: Establish Performance Standards. Taj's Standards are created when objectives are set during the planning process. Its standard is a guideline established as the basis for measurement. It is a precise, explicit statement of expected results from a product, service, machine, individual, or organizational unit. It is usually expressed numerically and is set for quality, quantity, and time. Tolerance is permissible deviation from the standard. Time controls relate to deadlines and time constraints. Material controls relate to inventory and material-yield controls. Equipment controls are built into the machinery, imposed on the

operator to protect the equipment or the process. Cost controls help ensure cost standards are met. Employee performance controls focus on actions and behaviors of individuals and groups of employees. Examples include absences, tardiness, accidents, quality and quantity of work. Budgets control cost or expense related standards. They identify quantity of materials used and units to be produced. Financial controls facilitate achieving the organization's profit motive. One method of financial controls is budgets. Budgets allocate resources to important activities and provide supervisors with quantitative standards against which to compare resource consumption. They become control tools by pointing out deviations between the standard and actual consumption. Operations control methods assess how efficiently and effectively an organization's transformation processes create goods and services. Methods of transformation controls include Total Quality Management (TQM) statistical process control and the inventory management control. Statistical process control is the use of statistical methods and procedures to determine whether production operations are being performed correctly, to detect any deviations, and to find and eliminate their causes. A control displays the results of measurements over time and provides a visual means of determining whether a specific process is staying within predefined limits. As long as the process variables fall within the acceptable range, the system is in control. Measurements outside the limits are unacceptable or out of control. Improvements in quality eliminate common causes of variation by adjusting the system or redesigning the system. Inventory is a large cost for Taj like other manufacturing firms. The appropriate amount to order and how often to order impact the firm's bottom line. The economic order quantity model (EOQ) is a mathematical model for deriving the optimal purchase quantity. The EOQ model seeks to minimize total carrying and ordering costs by balancing purchase costs, ordering costs, carrying costs and stock out costs. In order to compute the economic order quantity, the supervisor needs the following information: forecasted demand during a period cost of placing the order, that value of the purchase price, and the carrying cost for maintaining the total inventory. The just-in-time (JIT) system is the delivery of finished goods just in time to be sold, subassemblies just in time to be assembled into finished goods, parts just in time to go into subassemblies, and purchased materials just in time to be transformed into parts. Communication, coordination, and cooperation are required from supervisors and employees to deliver the smallest possible quantities at the latest possible date at all stages of the transformation process in order to minimize inventory costs. Step 2: Measure Actual Performance. Supervisors collect data to measure actual performance to determine variation from standard. Written data might include time cards, production tallies, inspection reports, and sales tickets. Personal observation, statistical reports, oral reports and written reports can be used to measure performance. Management by walking around, or observation of employees working, provides unfiltered information, extensive coverage, and the ability to read between the lines. While providing insight, this method might be misinterpreted by employees as mistrust. Oral reports allow for fast and extensive feedback.

In Taj computers give supervisors direct access to real time, unaltered data, and information. On line systems enable supervisors to identify problems as they occur. Database programs allow supervisors to query, spend less time gathering facts, and be less dependent on other people. Supervisors have access to information at their fingertips. Employees can supply progress reports through the use of networks and electronic mail. Statistical reports are easy to visualize and effective at demonstrating relationships. Written reports provide comprehensive feedback that can be easily filed and referenced. Computers are important tools for measuring performance. In fact, many operating processes depend on automatic or computer-driven control systems. Impersonal measurements can count, time, and record employee performance. Step 3: Compare Measured Performance against Established Standards. Comparing results with standards determines variation. Some variation can be expected in all activities and the range of variation - the acceptable variance - has to be established. Management by exception lets operations continue as long as they fall within the prescribed control limits. Deviations or differences that exceed this range would alert the supervisor to a problem. Step 4: Take Corrective Action. The supervisor must find the cause of deviation from standard. Then, he or she takes action to remove or minimize the cause. If the source of variation in work performance is from a deficit in activity, then a supervisor can take immediate corrective action and get performance back on track. Also, the supervisors can opt to take basic corrective action, which would determine how and why performance has deviated and correct the source of the deviation. Immediate corrective action is more efficient; however basic corrective action is the more effective.

PLANNING OBJECTIVES
The objective of the planning and control process is planning, monitoring and adjusting the activities of the function involved in providing information provision so that the necessary use of information provision in the organization is realized on time with an optimal use of capacity, by means of: Planning Checking Evaluating

Reason

Reasons for starting Planning & control processes include: Setting up an annual information provision plan Need (request) to adapt existing information provision plan Gain insight into operational Functional Management capacity requirements

Target Group
This process description is intended for: Business information managers Employees from the user organization involved with associated information provisions IT staff

Activities
This process description concerns Planning & Control, related activities, and documents and reports to be drafted. Planning & Control comprises the following activities:

Planning
Defining necessary capacity Planning for necessary capacity Defining the required time lines Recognizing risks and the countermeasures to be taken Allocation of capacity for changes Coordination with other management processes

Checking
Checking availability Monitoring hours worked Monitoring progress/time lines

Evaluation
Evaluating the results Recognizing problems Establishing deviations and taking measures

Results
Results of Planning & Control processes include:

Planning
Annual information provision plan and Annual FM Plan Capacity Plan Detailed Plans Risk Analyses Deployment Reports

Verification
Progress report, actual time spent Amended plans and schedules

Evaluation
Developments in Functional Management Key IP issues Discrepancies in actual vs. budgeted Statistics

Budgeting
Budgeting
Strategic planning looks forward several years. Budgeting focuses on next year. Budget = a plan expressed in quantitative, usually monetary, terms that covers a specified period of time usually one year. Budget is developed as a result of negotiations between managers of responsibility centers and their managers

Zero-based Review (Zero-based Budgeting)

A systematic way of analyzing ongoing programs. Cost estimates are built up from scratch or zero. Contrasts with taking the current level of costs as the starting point as is customarily done in the budgeting process (i.e., an incremental approach). May overcome complacency.

Limitation of Zero-base Review

Time consuming and upsetting to normal functioning. Cannot be effectively conducted every year.

Budget Uses
Aid in coordinating short run plans. Essentially a refinement of strategic plans.

A device for communicating plans. A way of motivating managers. A benchmark for controlling ongoing activities. Actual compared to budget provides a red flag. Directs attention where needed.

A basis for evaluating performance of responsibility centers and their managers. A means of educating managers about detailed workings of their responsibility centers, and interrelationships with other centers.

The Master Budget

Complete budget package. 3 principal parts, with budgeted balance sheet Operating budget = Revenues, expenses, and changes in inventory and other working capital items for the coming year. Cash budget = anticipated sources and uses of cash in the coming year. Capital expenditure budget = planned changes in property, plant and equipment. Budgeted balance sheet is derived from other budgets.

Operating Budget
Identical in format to the actual financial statements. Budget committee consisting of member of top management prepares guidelines. Generally, line positions make the significant decisions. Budgets are usually prepared once a year, covering the next fiscal year, and are broken down by month.

Some companies preparing a rolling 12-month budget in which every three months, the quarter just completed is dropped and three additional months are added on. OB is a control device used to compare to actual. Variances are identified.

Cash Budget
Revenues and expenses from the operating budget translated into cash inflows and outflows for cash planning.

The Capital Expenditure Budget

List of investments that management plans to make in long-term (= fixed = property, plant, and equipment) assets in the coming year. Usually separated from preparation of operating budget.

Flexible (Variable) Budgets

Shows planned behavior of costs at various volume levels. Usually expressed in terms of a cost-volume relationship Costs at one particular level, budgeted or planned level, are used in the operating budget. Usually same level used for setting standard costs.

3.PERFORMANCE ANALYSIS
Performance Analysis

AND

REWARDING.

1. Finance: Examination of various financial performance indicators (such as return on assets and return on equity) in comparison with the results achieved by the competing firms of about the same size.

2. Human resource management: Examination of the performance of current employees to determine if training can help reduce performance problems such as low output, uneven quality, excessive waste. See also activity analysis, job analysis, and task analysis.

Three basic steps in the performance analysis process:

1. Data collection, 2. Data transformation, 3. Data visualization. Data collection is the process by which data about program performance are obtained from an executing program. Data are normally collected in a file, either during or after execution, although in some situations it may be presented to the user in real time. Three basic data collection techniques can be distinguished:

Profiles record the amount of time spent in different parts of a program. This information, though minimal, is often invaluable for highlighting performance problems. Profiles typically are gathered automatically. Counters record either frequencies of events or cumulative times. The insertion of counters may require some programmer intervention. Event traces record each occurrence of various specified events, thus typically producing a large amount of data. Traces can be produced either automatically or with programmer intervention.

Following issues should be considered:

1. Accuracy. In general, performance data obtained using sampling techniques are less

2.

3.

4.

5.

accurate than data obtained by using counters or timers. In the case of timers, the accuracy of the clock must be taken into account. Simplicity. The best tools in many circumstances are those that collect data automatically, with little or no programmer intervention, and that provide convenient analysis capabilities. Flexibility. A flexible tool can be extended easily to collect additional performance data or to provide different views of the same data. Flexibility and simplicity are often opposing requirements. Intrusiveness. Unless a computer provides hardware support, performance data collection inevitably introduces some overhead. We need to be aware of this overhead and account for it when analyzing data. Abstraction. A good performance tool allows data to be examined at a level of abstraction appropriate for the programming model of the parallel program. For example,

when analyzing an execution trace from a message-passing program, we probably wish to see individual messages, particularly if they can be related to send and receive statements in the source program. However, this presentation is probably not appropriate when studying a data-parallel program, even if compilation generates a message-passing program. Instead, we would like to see communication costs related to data-parallel program statements.

PERFORMANCE ANALYSIS TOOLS

1. 2. 3. 4. 5. 6. 7. HPM Toolkit PE Bench marker Toolset VampirGuideView (VGV) Paraver and Dimemas Performance Toolbox Dynamic Probe Class Library (DPCL) Other Multi-Platform Parallel Performance Analysis Tools

REWARDING
"Rewarding" means providing incentives to and recognition of employees, individually and as members of groups, for their performance and acknowledging their contributions to the agency's mission. There are many ways to acknowledge good performance, from a sincere "Thank You!" for a specific job well done to granting the highest level, agency-specific honors and establishing formal cash incentive and recognition award programs.

REWARDING PERFORMANCE Provide ample rewards to people who achieve objectives and Deny rewards to those not achieving objectives! 1. The reward is clearly and closely linked to accomplishment or effort people know what they
will get if they achieve defined and agreed targets or standards and can track their performance against them. 2. Reward are meaningful 3. Fair and consistent means are available for measuring or assessing performance, competence, contribution or skill 4. People must be able to influence their performance by changing their behavior and they should be able to develop their competences and skills. 5. The reward should follow as closely as possible the accomplishment that generated it.

Arguments commonly used in favor of contingent pay are that:

It acts as a motivator It encourages and supports desired behaviors It delivers the message that performance, competence, contribution and skill are important It provides a means for defining and agreeing performance and competence expectations It can reinforce the organizations value It can help to achieve culture change by, for example, assisting with the development of a performance culture

WHY PERFORMANCE-REWARD LINK IS IMPORTANT

Reward structure is managements most powerful implementation tool Kinds of incentives offered signal desired behavior & performance Rewards induce people to go all out to o Execute strategy effectively o Achieve objectives in strategic plan

THERE

ARE FOUR IMPORTANT STEPS WHEN CONSIDERING REWARDS:

Make a commitment. Choose rewards. Negotiate agreements. Maintain momentum.

Make a commitment
Every business needs to be clear about its reward and recognition system. To motivate staff and create a climate for improvement, organizations need to make a commitment to a strategy for recognizing and rewarding performance considering both financial and non-financial rewards. People need to be recognized for the performance that they achieve both individually and in teams. There needs to be a focus on the significant achievements that have occurred, particularly identifying teams that have performed well. A great way to commit is to involve staff consult with them about the nature of the rewards. Ask staff for ideas on what might work as a reward scheme.

Staff should be consulted in the planning and implementing of any reward system. This means openly discussing where improvement can be made and what reward system will work best. Consider your own business. What kinds of performance is rewarded and how?

Choose rewards
Once you have committed to the concept and principle of recognizing and rewarding performance, the first step is to plan how this will happen. What kinds of rewards are possible? What are the best ways of rewarding performance? It may be a celebration for a whole team. Maybe its an award for service delivery once a month. Some people want a financial incentive for profits and company gains. Everyone has a different expectation of reward and recognition. Most people want some kind of acknowledgement: I want to be acknowledged that I did something. Many businesses link rewards to KPIs (key performance indicators). Achieve them and get a reward. Achieve beyond the expectation and get a bigger reward! Recognition may be in the form of career development opportunities, or the chance to take on special projects. Some companies are very creative and clever with their awards and rewards for example giving people a chance to give back to the community, on company time. Its essential to choose rewards that are appropriate for your organization and possible within its structure. And rewards should cover individual performance as well as team or organization performance.

Negotiate agreements
Commitment to high performance is greater if reward and recognition systems are mutually agreed. Creating an opportunity for negotiation is an important part of establishing successful recognition and reward systems. Successful reward systems involve negotiated agreements, about pay or conditions, or sometimes profit share and bonuses. Negotiating is important because mutual agreement ensures greater commitment to high performance.

Maintain momentum
The benefits gained by initial improvements and rewards need to be consolidated and built on so that the momentum for improvement is sustained. Maintaining momentum and continuing to improve performance, is achieved by rewarding consistent high performance as well as improved performance.

A good manager will reward their staff and build on their strengths. As higher performance levels are achieved its important to set new targets and new challenges. Motivation, reward or recognition systems will always need to be updated, as they have a use-by date. Fresher approaches and different approaches need to be found.

4. STRATEGIC PLANNING.

Strategic planning is an organization's process of defining its strategy, or

direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ), PEST analysis (Political, Economic, Social, and Technological), STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors), and EPISTEL (Environment, Political, Informatics, Social, Technological, Economic and Legal).

There are many approaches to strategic planning but typically a three-step process may be used:

Situation - evaluate the current situation and how it came about. Target - define goals and/or objectives (sometimes called ideal state) Path / Proposal - map a possible route to the goals/objectives

Strategic planning is a very important business activity. It is also important in the public sector areas such as education. It is practiced widely informally and formally. Strategic planning and decision processes should end with objectives and a roadmap of ways to achieve them. One of the core goals when drafting a strategic plan is to develop it in a way that is easily translatable into action plans. Most strategic plans address high level initiatives and over-arching goals, but dont get articulated (translated) into day-to-day projects and tasks that will be required to achieve the plan. Terminology or word choice, as well as the level a plan is written, are both examples of easy ways to fail at translating your strategic plan in a way that makes

sense and is executable to others. Often, plans are filled with conceptual terms which dont tie into day-to-day realities for the staff expected to carry out the plan. The following terms have been used in strategic planning: desired end states, plans, policies, goals, objectives, strategies, tactics and actions. Definitions vary, overlap and fail to achieve clarity. The most common of these concepts are specific, time bound statements of intended future results and general and continuing statements of intended future results, which most models refer to as either goals or objectives (sometimes interchangeably).

What is strategic planning?

A strategy is an overall approach and plan. So, strategic planning is the overall planning that Facilitates the good management of a process. Strategic planning takes you outside the daytoDay activities of your organization or project. It provides you with the big picture of what You are doing and where you are going. Strategic planning gives you clarity about what you Actually want to achieve and how to go about achieving it, rather than a plan of action for daytoDay operations. Strategic planning enables you to answer the following questions: _ Who are we? _ What capacity do we have/what can we do? _ What problems are we addressing? _ What difference do we want to make? _ Which critical issues must we respond to? _ Where should we allocate our resources?/what should our priorities be?

STRATEGIC

PLANNING

PHASE & WHO

SHOULD BE INVOLVED ?

Planning the process:The management team of the project or organization.

Understanding the context:All staff and Board members: Administrative staff should be involved if it is important for them to understand the organizations issues and problems.

Vision, values and mission discussion:All staff and Board members. It is very important to involve all staff, including administrative staff in this discussion as it is likely to provide a set of operating principles in other words, to make it clear why people who work in the project or organization are expected to work and behave in a certain way.

Review of strengths and weaknesses, opportunities and threats:-

Programme or professional staff for the whole of this process; include administrative staff in the discussions around internal strengths and weaknesses.

Discussion of strategic options and goals:Professional staff and Board members.

Organizational structure:The management team with input from the rest of the staff.

The Strategic Planning Process

In today's highly competitive business environment, budget-oriented planning or forecast-based planning methods are insufficient for a large corporation to survive and prosper. The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track. A simplified view of the strategic planning process is shown by the following diagram:

The Strategic Planning Process

Mission & Objective s

Environmen tal Scanning

Strategy Formulatio n

Strategy Implementat ion

Evaluatio n & Control

MISSION

AND

OBJECTIVES

The mission statement describes the company's business vision, including the unchanging values and purpose of the firm and forward-looking visionary goals that guide the pursuit of future opportunities. Guided by the business vision, the firm's leaders can define measurable financial and strategic objectives. Financial objectives involve measures such as sales targets and earnings growth. Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation.

Environmental Scan
The environmental scan includes the following components:

Internal analysis of the firm Analysis of the firm's industry (task environment)

External macro environment (PEST analysis)

The internal analysis can identify the firm's strengths and weaknesses and the external analysis reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities, and threats is generated by means of a SWOT analysis An industry analysis can be performed using a framework developed by Michael Porter known as Porter's five forces. This framework evaluates entry barriers, suppliers, customers, substitute products, and industry rivalry.

Strategy Formulation
Given the information from the environmental scan, the firm should match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats. To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals. A competitive advantage can be based on cost or differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can choose.

Strategy Implementation
The selected strategy is implemented by means of programs, budgets, and procedures. Implementation involves organization of the firm's resources and motivation of the staff to achieve objectives. The way in which the strategy is implemented can have a significant impact on whether it will be successful. In a large company, those who implement the strategy likely will be different people from those who formulated it. For this reason, care must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do not understand why the particular strategy was selected.

Evaluation & Control

The implementation of the strategy must be monitored and adjustments made as needed.

Evaluation and control consists of the following steps:

1. 2. 3. 4. 5. Define parameters to be measured Define target values for those parameters Perform measurements Compare measured results to the pre-defined standard Make necessary changes

6.

BUDGET PREPARATION.

BUDGETS
Budgets are business plans that are stated in quantitative terms and are usually based on estimations. These plans aid an organization in the successful execution of strategies. Due to the uncertainties in the business environment and / or due to wrong estimation, there may be significant deviations between the c t u an l s and the plans. Budgeting as a control tool, provides an action plan for the organization to ensure least deviations Budgets are used to give an overview of the organization and its operations. They are useful in resource allocation whereby resources are allocated in such a way that the processes which are expected to give the highest returns are given priority. Budgets are also used as forecast tools and make the organization better prepared to adapt to changes in the environment Budget preparation requires the participation of managers from different functions / departments. This helps in integrating the tactical and operational strategies of the departments with the corporate strategy of the organization. Budgets act as a means to verify the progress of the various activities undertaken to achieve the planned objectives. The verification is done by comparing the a c t u a l s against standards They help in the delegation of authority and allocation of responsibility and accountability to more people in an organization. They thus promote division of labor, which , in turn, promotes the process of specialization. Functional specialization leads to the overall efficiency of the organization

Steps in Budget Formulation

1. Creating a budget department or appointing a budget controller 2. Developing guidelines for budget preparation 3. Developing budget proposals at department/business unit level 4. Developing the budget for the entire organization 5. Determining the budget period and key budgets factors 6. Benchmarking the budget 7. Budget review and approval 8. Monitoring progress and revising the budgets

BUDGETING

TECHNIQUES

Over the past twenty years or so, there has been a gradual evolution in the techniques used in public sector budgeting in countries such as Australia, New Zealand, Singapore and OECD countries where the focus has shifted from input controls to program performance. Over the past few years, a greater performance focus is also being adopted in a number of PICs.Whilst the three key forms of this evolution are often referred to differently, they can generally referred to as: Line-Item Budgeting; Program Budgeting; and Performance Budgeting.
LINE-ITEM BUDGETING is based on specifying and controlling inputs - for example, the number of

staff and the type of goods, services and assets required for the operation. Parliament approves budget appropriations for each agency at the line-item level - for example salary and wages, travel, maintenance, purchase of vehicles - which are often, referred to as the expenditure categories. This approach is associated with tight central expenditure control and compliance oriented management. This is often effective where there is weak financial management capacity in line-agencies, Both human and/or systems related. However, it does not provide any linkage between resource allocations and the objectives of government expenditure or, for that matter, consideration of the efficiency or effectiveness of that expenditure. Rather, the focuses of budget allocation decisions

tend to be at the micro level and short term. In addition, as the financial management capacity of government develops, such an approach significantly limits the ability of managers to actually manage and make the necessary resource allocation adjustments in response to changes in the operational environment as they arise.

PROGRAM BUDGETING emphasizes the objectives of government programs and endeavors to

link Program goals, objectives and resource allocations. It is also associated with the specification of program performance indicators (or targets) against which program performance is measured by government. Appropriations aremade to programs and/or sub-programs, often at the level of a limited number of aggregated expenditure categories (e.g. salary and wages, goods & services, capital) similar in the spirit of economic classification of state operations. This provides managers greater flexibility to reallocate resources without seeking central approval. However, a major weakness of program budgeting arose from the fact that in its purest form, programs do not necessarily align to the organizational structures. A number of units, including from different organizations, may have varying degrees of responsibility for contributing to the program delivery. This creates obvious difficulties associated with the allocation of resources and most importantly, the accountability for the program performance. Therefore overtime, countries have tended to redefine the scope of programs in accordance with organizational responsibilities.
PERFORMANCE BUDGETING is a further refinement, with an emphasis on specifying outputs: that is

Deliverables; and outcomes: what is to be achieved? Appropriations are made to organizational units for a limited number of specified outputs, the delivery of which should contribute to achieving the program outcome. Similar to program budgeting, performance measures and targets are specified as a tool for assessing how well an agency is doing in delivering its outputs and progress towards achieving the outcomes. The management philosophy of both program and performance budgeting is based on increasing Levels of devolution of authority to managers, in exchange for increased accountability. However, the experience of all countries has been that the specification of appropriate and measurable program outcomes/ outputs is a challenging and resource intensive task requiring refinement over many years. SDEs are at various different stages in this evolution, many exhibiting characteristics of the first two and a fewer number, in the early stages of the third. However, when considering which form is most appropriate for any particular country and the sequencing, it worth noting an often quoted observation5of lessons learnt from the financial management reforms in OECD countries, which highlighted the need to: Foster an environment that supports and demands performance before introducing performance Or outcome budgeting. Control inputs before seeking to control outputs. Budget for work to be done before budgeting for results to be achieved. Adopt and implement predictable budgets before insisting that managers efficiently use the

Resources entrusted to them. That is, the focus should be on Getting The Basics Right rather than any particular technique. Likewise, establishing an effective performance management framework, with appropriate incentives, rewards and sanctions, is the key driver of achieving better program performance.

LEGISLATIVE

FRAMEWORK OF BUDGET PROCEDURES

From a legal point of view, what is at stake with the preparation stage of the budget is essentially Procedures, the design of which is closely related with the economics that was just dealt with: good procedures are those which permit good allocation of resources. The legislative framework for these procedures is typically provided by three categories of legal Documents: The constitution, which vests the power to make laws for the State in Parliament. It also sets out how these powers are to be exercised through the enactment of Bills and may set out the general responsibilities of the government, including the obligation for the executive to periodically prepare a budget, and submit it to parliament for approval by vote. Without this approval vote of a budget, all actions of either revenue or expenditure nature that the executive might take would be unconstitutional and thus liable for cancellation by courts. The organic budget law, which essentially contains the overall architecture of the budgetary Process. By this law, the parliament imposes on the executive the rules relating to the role and responsibility of key players (MoF,Departmental secretaries, etc.) in the preparation and execution of the budget, its contents, the timing of its presentation to Parliament, the requirements for amending the approved budget, as well as external audit requirements. Various financial regulations, finally, established by the executive itself and approved by Parliament, to correctly implement at the administrative level the budget preparation obligations.

BUDGET

PROCESS

A budget process refers to the process by which governments create and approve a budget. The Financial Service Department prepares worksheets to assist the department head in preparation of department budget estimates The Administrator calls a meeting of managers and they present and discuss plans for the following years projected level of activity. The managers can work with the Financial Services, or work alone to prepare an estimate for the departments coming year. The completed budgets are presented by the managers to their Executive Officers for review and approval. Justification of the budget request may be required in writing. In most cases, the manager talks with their administrative

officers about budget requirements. Adjustments to the budget submission may be required as a result of this phase in the process. Typically, the budget cycles occurs in four phases.

The first requires policy planning and resource analysis and includes revenue estimation. The second phase is referred to as policy formulation and includes the negotiation and planning of the budget formation. The third phase is policy execution which follows budget adoption is budget executionthe implementation and revision of budgeted policy. The fourth phase encompasses the entire budget process, but is considered its fourth phase. This phase is auditing and evaluating the entire process and system.

Revenue Estimation performed in the executive branch by the finance director,

clerk's office, budget director, manager, or a team. Budget Call issued to outline the presentation form, recommend certain goals. Budget Formulation reflecting on the past, set goals for the future and reconcile the difference. Budget Hearings can include departments, sections, the executive, and the public to discuss changes in the budget. Budget Adoption final approval by the legislative body. Budget Execution amending the budget as the fiscal year progresses.

STAGE 1: Estimates. Part A Expenditure.

STAGE 1: Estimates. Part B Revenue.

STAGE 2: First estimates of deficit.

STAGE 3: Narrowing of the deficit.

STAGE 4: The Budget

6. ANALYSIS

OF

PERFORMANCE

THROUGH

VARIANCE.

In budgeting (or management accounting in general), a variance is the difference between

a budgeted, planned or standard amount and the actual amount incurred/sold. Variances can be computed for both costs and revenues. The concept of variance is intrinsically connected with planned and actual results and effects of the difference between those two on the performance of the entity or company.

Types of variances
Variances can be divided according to their effect or nature of the underlying amounts. When effect of variance is concerned, there are two types of variances:

When actual results are better than expected results given variance is described as favorable variance. In common use favorable variance is denoted by the letter F - usually in parentheses (F). When actual results are worse than expected results given variance is described as adverse variance, or unfavorable variance. In common use adverse variance is denoted by the letter A or the letter U - usually in parentheses (A).

The second typology (according to the nature of the underlying amount) is determined by the needs of users of the variance information and may include e.g.:

Variable cost variances o Direct material variances o Direct labour variances o Variable production overhead variances Fixed production overhead variances Sales variances

VARIANCE ANALYSIS
Variance analysis, in budgeting (or management accounting in general), is a
tool of budgetary control by evaluation of performance by means of variances between budgeted amount, planned amount or standard amount and the actual

amount incurred/sold. Variance analysis can be carried out for both costs and revenues.

First set a Target. You cant make a comment on your results without some idea about where you wanted to end up. Whether its a budget made six months ago or a forecast put together at the beginning of the month the target should include the units you expect to sell and the average price you will sell them at. The same can be done on the cost side; how many units you expect to produce and at what cost per unit. Factor out non-relevant items. Many things can impact Revenue and these must be analysed and, in some cases, adjusted for which means they must be tracked.

Customer Refunds/Settlements. Was there a quality problem a few months ago that you are paying for now with a high number of customer settlements? Since these relate to a prior period they need to be factored out of this months sales figures to get an accurate picture of what happened. Lost Business. What customers cancelled their orders this month? How many units did they average a month and at what average price? New Business. What new customers submitted orders this month? How many units and at what average price? With these two items you can determine the net impact on overall sales for the period. Are the customers you are bringing on-board paying less then the customers lost? If this pattern repeats it can become a problematic trend.

Then analyze the Results. Once you have adjusted your sales to get the true sales figure for the month you can then determine how many units were sold and at what average price. Armed with the information above a Financial Analyst can tell you how much of the $25,000 variance was due to non-related factors, volume differences and price differences.

ADVANTAGES

OF VARIANCE ANALYSIS

As you may know that variance analysis is intrinsically connected with planned and actual results and effects of the difference between those two on the performance of the entity or company. This variance analysis can lead to the identification of certain types of task that frequently overrun their budget whilst other tasks may be seen to regularly come in under their budget. Occurrences such as these require further investigation in order to identify potential efficiency gains. The major problem with a variance analysis approach to project monitoring is the amount of time it takes to establish actual costs. On the majority of large projects, supported by a typical accounts department, there will be a time lag of around 6 weeks before spend information can be accurately reported. The shortcomings and disadvantages of VA can be addressed below:

The monitoring cycle can be so long that it renders the application of control impossible. Typically, by the time a problem has been identified through variance analysis it is too late to take corrective action. This is a major shortcoming of variance analysis and highlights the need for a monitoring system that depicts the current status of the project more effectively.

7. DEVELOPMENTS

IN

PERFORMANCE MEASUREMENT SYSTEM (PMS)

Building a Performance Measurement System

1. Bring together all stakeholders; i.e. everyone who has an interest in the PMS. The purpose of this first step is to build consensus on what should be accomplished from the PMS. What are the needs of your organization? A cross-functional team needs to be formed for directing the design of the PMS. 2. Next, your cross-functional team will need to formulate a plan for analyzing activities, collecting data, communicating to users, etc. Your main objective is to identify areas that need to be measured. Start by looking at how your business is organized. For example, if your business is organized around assembly plants, than your PMS should follow this path. 3. Once you have an understanding of what needs to be measured, you have to collect the data that will be used for decision making. It's usually best to have one member of the cross-functional team for each area that will be measured. For example, if you are collecting operating data, you should have an operating person on your cross-functional team. The purpose of step 3 is to determine how you will manage the data within your PMS. How often will the data be needed? Can it be measured and reported within the PMS? 4. The cross-functional team must select a test site within your company. Here you will run pilot tests to determine the feasibility of a PMS. When you select a site, make sure you are dealing with activities that can be measured. You should select a site that has room for improvement and current employees are not happy with the current system. However, you need a test site that can generate reliable data. So the existing system must be reasonably sound. 5. At the test site, you will need to collect lots of data. Several questions must be addressed. How easy is it to collect the data? How big should the test area be? How many people should be involved? Once again, you need to determine the feasibility of a PMS, the costs versus the benefits. Make sure you have support from users at this stage of the process. If not, you may need to go back to the drawing board. 6. Once you have collected and analyzed the data at the test site, you need to present the results of your performance measurements to management. Make sure you present the outputs in a useable and easy-to-understand format. For example, operating people will want performance information presented differently than marketing people. You must tailor the information to fit the user.

KEEP IN MIND THAT MANY NEW PROJECTS WILL FAIL DUE TO:

- Lack of support from upper-level management (single biggest reason for failure). - Inability to form a good cross-functional team. - The PMS doesn't fit the organization. - The organization is not willing to change.

REQUIREMENTS

OF

PMS

1.Hierarchical Approach:- whenever possible, the factors of PMS should be decomposed hierarchically into a practical level of detail without getting lost into operational details on the shop floor level.

2. Different dimensions: - The PMS should accent the interaction between customers and service providers. In addition the PMS should provide an opportunity to measure the customer perception.

3. Modularity: - The PMS should be able to provide a set of different target areas adaptable to specific company requirements and to different service environments.

4. Flexibility/Extensibility: - The PMS should be Flexible, extensible and adaptable in order to take environmental challenges and changing needs of operations and service processes into consideration.

5. Combination of top down and a bottom up Approach: - The PMS should integrate top down Approach (based on strategic objectives) and bottom approach (based on specific operational needs and processes) that ensure the practical applicability of the PMS

6. Measurment of customer benefits: - The PMS should be able to support the measurements of customers benefits to industrial services operations based on hard objectives PIs (e.g. cost) and soft but quantifiable PIs (e.g. satisfaction)

IMPORTANCE

OF

PERFORMANCE MEASUREMENT

What gets measured gets improved Focuses attention on the items measured Poorly designed measures can result in misguided decisions

TRADITIONAL SOURCES

OF

PERFORMANCE MEASURES

Financial statements Designed for reporting purposes, not guidance Historical, short-term focus Follow arbitrary rules Ignores non-financial information Much useful information is not reported

 Easy to manipulate through operating decisions Examples Profitability Net income Return on assets Financial position Debt position Stock price Cost / managerial accounting Primary purpose is to value inventory for financial statement purposes Designed to allocate costs, not to control them Historical, short-term focus Provide information for managerial decisions Examples Standard costing and related variances Comparisons of actual results to budgets or targets Market share

CRITICISMS

OF

TRADITIONAL MEASURES

Lack of relevance Many measures are interesting, but not useful Market share, revenue, etc. Trends may be useful Measures may be poorly designed or collected Customer satisfaction, employee morale, etc. Goals are arbitrarily determined, beyond the ability of the system

 Lack of vision Short-term focus impedes decisions with long lead times or long-term payoffs Focus on what is currently being done, not what should be done Fail to consider the overall organization Promote detrimental outcomes Short-term thinking Local optimization Manipulation of operations or measures Well-intentioned but detrimental actions The numbers these systems generate often fail to support the investments in new technologies and markets that are essential for successful performance in global markets

SIGNS

OF AN

INEFFECTIVE PERFORMANCE MEASUREMENT SYSTEM

Performance is acceptable on all dimensions except profit Measures are not aligned with strategy Measures do not reflect critical success factors Competitive price, but customers do not buy Functionality or quality may be more important to the customers No one notices if the measures are not produced Not using them anyway Irrelevant Redundant Questionable Managers debate the meaning of the measures Measures are confusing

 Share price is lethargic despite solid financial performance Measures are backward looking Share price reflects future expectations The market expects that current performance will not continue Have not changed the measures or targets in a long time Obsolete, easily met, do not foster change Corporate strategy has changed Measures become irrelevant

EFFECTIVE PERFORMANCE MEASUREMENT SYSTEMS

Initiative must start at the top Senior management has overview, power to implement the system Goals of lower levels determined by needs of higher levels Top down system prevents local optimization while emphasizing overall optimization Must be balanced Financial and non-financial measures Leading and lagging measures Must be relatively simple Limit measures to critical success factors Too many measures lead to confusion, redundancy, wasted effort, irrelevance Employees may ignore or subvert complex system Must promote intended behavior Employees actions must be aimed at improving the organization, not meeting arbitrary goals Poor measures promote dysfunctional behavior

 Employees must understand why something is being measured Should provide guidance, not just feedback Performance-based compensation Powerful motivator Who participates? General guidelines Must promote intended behavior Long-term or short-term goals? Employee must understand the performance/pay link Employee must have some control over the measures Must be significant enough to motivate Pay for ideas? Must look beyond the entity External groups can provide useful information Include measures of value chain performance? Measures should be benchmarked Other departments or divisions Other entities

NON-FINANCIAL PERFORMANCE MEASURES

Useful Not everything can be measured in monetary terms Customer service Goal attainment Innovation Employee involvement

 Frequently difficult to measure Rough measures or trends may be better than nothing Many companies believe they could be useful, but do not measure them Difficult to measure Resistance to change Even when measured, they may not be used Suspicious about the validity of measures Resistance to change

BALANCE SCORE CARD.

Balanced Scorecard Basics

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry,

government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance. While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950s and the work of French process engineers (who created the Tableau de Bord literally, a "dashboard" of performance measures) in the early part of the 20th century. The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The new balanced scorecard transforms an organizations strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies. This new approach to strategic management was first detailed in a series of articles and books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external

outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. Kaplan and Norton describe the innovation of the balanced scorecard as follows: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

Adapted from Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review (January-February 1996): 76.

Perspectives
The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives: The Learning & Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds

where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization. Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems." The Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants. The Customer Perspective

Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good. In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups. The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

OR The balanced scorecard (BSC) is a strategic performance management tool - a semi-standard structured report supported by proven design methods and automation tools that can be used by managers to keep track of the execution of activities by staff within their control and monitor the consequences arising from these actions.

Characteristics
The core characteristic of the Balanced Scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a 'target' value within a single concise report. The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. It is the method by which this 'most relevant' information is determined (i.e. the design processes used to select the content) that most differentiates the various versions of the tool in circulation. The first versions of Balanced Scorecard asserted that relevance should derive from the corporate strategy, and proposed design methods that focused on choosing measures and targets associated with the main activities required to implement the strategy. As the initial audiences for this were the readers of the Harvard Business Review, the proposal was translated into a form that made sense to a typical reader of that journal - one relevant to a mid-sized US business. Accordingly, initial designs were encouraged to measure three categories of non-financial measure in addition to financial outputs - those of "Customer," "Internal Business Processes" and "Learning and Growth." Clearly these categories were not so relevant to non-profits or units within complex organizations (which might have high degrees of internal specialization), and much of the early literature on Balanced Scorecard focused on suggestions of alternative 'perspectives' that might have more relevance to these groups. Modern Balanced Scorecard thinking has evolved considerably since the initial ideas proposed in the late 1980s and early 1990s, and the modern performance management tools including Balanced Scorecard are significantly improved - being more flexible (to suit a wider range of organizational types) and more effective (as design methods have evolved to make them easier to design, and use).

The four perspectives

The 1st Generation design method proposed by Kaplan and Norton was based on the use of three non-financial topic areas as prompts to aid the identification of non-financial measures in addition to one looking at Financial. Four "perspectives" were proposed:[20]

Financial: encourages the identification of a few relevant high-level financial measures. In particular, designers were encouraged to choose measures that helped inform the answer to the question "How do we look to shareholders?" Customer: encourages the identification of measures that answer the question "How do customers see us?" Internal Business Processes: encourages the identification of measures that answer the question "What must we excel at?" Learning and Growth: encourages the identification of measures that answer the question "Can we continue to improve and create value?".

Measures

The Balanced Scorecard is ultimately about choosing measures and targets. The various design methods proposed are intended to help in the identification of these measures and targets, usually by a process of abstraction that narrows the search space for a measure (e.g. find a measure to inform about a particular 'objective' within the Customer perspective, rather than simply finding a measure for 'Customer'). Although lists of general and industry-specific measure definitions can be found in the case studies and methodological articles and books presented in the references section. In general measure catalogues and suggestions from books are only helpful 'after the event' - in the same way that a Dictionary can help you confirm the spelling (and usage) of a word, but only once you have decided to use it proficiently.

COMPENSATION

FOR

MANAGEMENT STAFF

There are two different types of compensation management: direct and indirect. Compensation is the combination of monetary and other benefits provided to an employee in return for their time and skill. The field of compensation management provides management with the ideal combination of the different remuneration types. The purpose of this type of program is to retain and motivate good employees. Direct compensation is typically comprised of salary payments and health benefits. The creation of salary ranges and pay scales for different positions within the company are the central responsibility of compensation management staff. The evaluation of the employee and employer portions of benefit costs is an important part of a compensation package. Effective compensation plans are routinely compared with other firms in the same industry or against published benchmarks. Although some jobs are unique within a specific firm, the vast majority of positions can be compared to similar jobs in other firms or industries. Direct compensation that is in line with industry standards provides employees with the assurance of fair compensation. This process helps the employer avoid the costly loss of trained staff to a competitor.

COMPENSATION FOR MANAGEMENT STAFF

During the term of this policy, the Board of Directors of the Seattle Public Schools shall provide the Management Staff, which includes administrators, professional/technical, other support staff and office/clerical employees on Management Staff Salary Schedules with salary and fringe benefits as set forth herein.

COMPENSATION The Board acknowledges the necessity to comply with applicable laws concerning compensation. A. The salary schedules for Management Staff positions covered by this policy shall be as adopted from time to time in compliance with legal constraints. Experience credit (step adjustments) shall also be granted as appropriate to the circumstances. B. The list of position titles appropriate to this policy which are paid according to the Management Staff Salary Schedule shall be maintained by the Classification and Compensation Department within the Human Resources Department. C. the Districts contribution for Management Staff who participate in the districts group medical benefits program shall be determined annually in accordance with state funding and local policy. D. the District assumes 100% of the Retiree Medical Subsidy (aka Retiree Carve Out).

EMPLOYEE BENEFITS A. GROUP MEDICAL INSURANCE

District employees are automatically covered by a group dental plan, vision plan and life/long term disability plan and may participate in a choice of medical plans. All employees who work more than .5 but less than 1.0 receive prorated health benefits equal to their current FTE. Refer to the Employee Benefits Program booklet for information on eligibility and plan options, or call the Benefits Helpline at (206) 957-7066, or on-line visit BENEFITS@seattleschools.org.

B. FLEXIBLE BENEFITS PLAN

A Flexible Benefits Plan, or Section 125 Plan, is offered to any employee who is eligible to participate in the group insurance plans. Premium Conversion, Health Care Reimbursement, Dependent Care Reimbursement and Premium Expense Account plans are available.

C. SICK LEAVE Each regular employee will be entitled to up to twelve (12) working days of sick leave for the work year, to be used for illness, injury or illness-emergencies, as follows: 1. Sick Leave Application: Sick leave days are to be used for absence caused by personal illness, injury, medical disability (including childbearing), poor health, or an emergency caused by family illness where no reasonable alternative is available to the employee.

1. Sick Leave Accumulation: Each employees portion of unused sick leave allowance shall accumulate from year to year as provided by state law and the rules and regulations of the Superintendent of Public Instruction under that law. 1. Sick Leave Cash out: Under specific circumstances, employees may be eligible to receive a cash out payment of part of their accumulated sick leave days. a. On or before January 15 of each year, employees with a sick leave accumulation may elect to be compensated at the ratio of 4:1 at their per diem rate for sick leave accumulated in excess of sixty (60) days which was earned but unused during the previous calendar year. b. Employees who leave the District (terminate employment) and then subsequently return to employment with the District at a later date, or employees transferring from another Washington State public school district or educational service district, may upon written request to Human Resources have their previously unused sick leave balance reinstated. c. Employees who retire shall be entitled, upon written request to Human Resources, to compensation for all unused Sick Leave up to the one hundred eighty (180) days maximum at the ratio of 4:1, at their per diem rate. d. In the event of the death of an employee, the estate representative may apply for payment of accumulated sick leave for the deceased employee by contacting Payroll Services. D. WORKERS COMPENSATION Management Staff employees are eligible for workers compensation time loss benefits as provided by law. Employees may supplement their time loss benefits with previously accrued sick leave and/or annual leave. However, the total of time loss benefits and sick leave and/or annual leave may not exceed the employees normal net pay. Net pay equals gross pay less statutory deductions. E. ANNUAL LEAVE All regular employees will be granted annual leave according to their scheduled work year as set forth on Attachment A. 1. Annual Leave Accumulation: Employees who work a full year may accumulate annual leave days from year to year as described below. Employees who work less than a twelve (12) month year do not accrue annual leave days. Effective 09/01/97, no employee may carry over more than two hundred forty (240) hours of annual leave from one school year to the next. Employees must reduce their leave balance to no more than two hundred forty (240) hours by the end of August of each year. 2. Annual Leave Cash out: The five (5) day annual leave cash out has been eliminated for management staff. No employee may cash out more than two hundred forty (240) hours of annual leave at the time of separation from District (i.e., resignation,

termination, death, layoff, etc.). If an employee uses vacation prior to separation/retirement, the total of time used and vacation cash-out may not exceed two hundred forty (240) hours. The two hundred forty (240) hour limit includes any annual leave which may have been cashed out during the current year. For example, if an employee cashes out forty (40) hours of annual leave on June 1, and resigns on August 15, that employee may only cash out the difference between the two hundred forty (240) hour limit and the forty (40) hours cashed out on June 1. The result is a limit of two hundred (200) hours based on the facts in this example. Change in Work Year: Employees who change from a full work year to a work year which is less than 12 months will be entitled to cash out some or all of the previously accrued annual leave days, not to exceed a maximum of thirty (30) days.

2.

F. PERSONAL LEAVE
Eligible employees will be provided up to two (2) days of personal leave per year with pay to deal with personal business of an emergency nature. The number of days granted will be dependent upon the individual employees assigned work year (see Item III, Work Year). Such days shall not accumulate from year to year. Application for and use of these days shall be as follows: Personal Leave days shall be used for hardships or other pressing needs and will be granted in situations which require absence during working hours for purposes of transacting or attending to personal or legal business or to family matters. HOLIDAYS

Management staffs are entitled to paid holidays, according to their work year, as listed below:
Full-Year Employees (12) Independence Day Labor Day Veterans Day Thanksgiving Day Day after Thanksgiving Christmas Eve Day Christmas Day New Years Eve Day New Years Day Martin Luther King Day Presidents Day Memorial Day 223 & 204 Day Employees (10) Veterans Day Thanksgiving Day Day after Thanksgiving Christmas Eve Day Christmas Day New Years Eve Day New Years Day Martin Luther King Day Presidents Day Memorial Day

H. BEREAVEMENT LEAVE Up to three (3) consecutive days of bereavement leave following the death of a member of the immediate family will be provided. Two (2) additional days for up to a total of five (5) may be granted upon application to and approval by the immediate supervisor. Such leave shall be without loss of pay, and must be applied for and used consistent with established District policies and procedures. I.PROFESSIONAL LEAVE Professional leave will be provided as an approved absence without loss of pay from an employees regularly assigned duties so that the employee may participate in activities directly related to the profession or professional growth, such as workshops, seminars and conferences. Such leaves will be available on a limited basis to management staff consistent with District guidelines and procedures. J. INCLEMENT WEATHER LEAVE Paid leave up to a limit of two (2) days per year may be requested for days which are normally worked but which fall on days that the work site is not open due to inclement weather. K. OTHER Other employee benefits related to leaves of absence and compensatory time

8. DIFFERENT COMPENSATIONS PLANS

FOR

CORPORATE OFFICERS

Corporate Compensation Plans (CCP) has created financially innovative retirement and insurance programs for many of the countrys most prestigious corporations and law firms. The objective of these programs is to provide financial security to their employees and partners by protecting their incomes and preserving their assets, and by doing so, help their organizations attract and retain the talent they need to compete in todays global economy. Our goal is to ensure individuals do not outlive their income and their families do not outlive their assets.

The Committee shall approve all incentive-compensation and

compensation plans for the Company's officers. In addition, the Compensation Committee shall
deferred approve all equity-based plans for the benefit of the Company's officers, directors, employees and/or consultants and may approve such other incentive, deferred and other compensation plans, retirement plans or other benefit plans that the Committee reasonably believes to be in the best interests of the Company and its stockholders.
Corporate Compensation Plans (CCP) has created financially innovative retirement and insurance programs for many of the country's most prestigious corporations and law firms. The objective of these programs is to provide financial security to their employees and partners by protecting their incomes and preserving their assets and by doing so, help their organizations attract and retain the talent they need to compete in today's global economy. Our goal is to ensure individuals do not outlive their income and their families do not outlive their assets. With our focus on protecting today's dollars to build tomorrow's assets, we developed specialized long term disability plan designs to do just that. The Disability Retirement Completion Plan was our pioneer concept for one of the largest investment banks in the country. Its implementation resulted in, at the time, the largest purchase of individual disability insurance policies covering over 2000 executives. Subsequently, Corporate Compensation Plans transformed the plan into a patented 401k plan feature "401kSecure" an insurance program that continues contributions directly into disabled employees' 401k accounts so their retirement assets will grow just as if they were working. To support these product innovations, CCP synthesized key factors such as personalized benefit and premium illustrations, modeling tools, and data security to create the first e-signature web-based enrollment platform for the communication and enrollment of individual disability insurance a platform that has been used by major disability insurance carriers for our joint marketing efforts in the public corporation sector. .

MODULE 5. MANAGEMENT CONTROL SYSTEMS

FOR

DIFFERENT ORGANIZATIONS:-

MCS

IN

SERVICE ORGANIZATION

Characteristics of Service Industry Determines the nature of MCS to be followed and strategy to be used to implement the said MCS. Service Industry Differs from Mfg. Industry in terms of
Inventory building - cannot store the product Different resources requirements - labor intensive Quality of product difficult to control (Relative concept and Professional Dependent) Pricing of product No sound cost base Multi-unit organization setup fast food chain

MCS

IN

SERVICE ORGANIZATION
1. Very few tangible assets ROI may be meaningless 2. Special class of labor seeks more autonomy in working. 3. Input and output measurement is difficult difficult to arrive at effectiveness and efficiency of a professional. 4. Usually of small size Viability of elaborate MCS is in question. 4.Marketing of the services is usually informal may lead to problem in arriving at inputs of revenues. 5. Cost of service s is of flexible nature such as traveling expenses, communication expenses therefore building standards is difficult process.

Characteristics of Service Industry

IN SERVICE ORGANIZATION ISSUES INVOLVED:1. Pricing Usually linked with time spent. 2. Transfer Pricing
(When service providing unit is defined as Profit center)

3. Strategic Planning and Budgeting usually long range staffing plan.

4. Control of operations Crux is in scheduling the professional time.

Hours billed

5. Billed time ratio = ---------------------------------------Professional hours available

GENERAL PERFORMANCE MEASURES

1. Recommendations of investment banker V/s Stock Market indicators. 2. Closeness of Diagnosis & Actual findings. 3. Judgments made by superiors. 4. Use of numerical ratings. 5. Appraisal by peer professionals/ self appraisal. 6. Client reports. 7. Budget to measure the cost/time performance. 8. Professional quality and quantity of work Clients referrals, Time taken to complete the task. 9. Internal audit to control quality and quantity. MCS in Service Organization

PERFORMANCE PARAMETERS
1. Time and cost budgets

FOR A

INSURANCE INDUSTRY

2. Revenue generated (to rank performance) 3. Quality control trough Metrics such as Client Satisfaction, Number of complains and average complains received, Complain disposal rate, Claim settlement period (average) 4. Client profile of a branch/center 5. Product range sold/promoted 6. Client relationship and dealer relationship 7. Promotional campaigns undertaken 8. Number of defaulting Clients and Amount overdue 9. Number of policies revived

MCS

IN

SERVICE ORGANIZATION

Performance Parameters for a Hospitality Industry

1. Occupancy rate, spread over a period 2. Revenue generated out of main activity 3. Revenue generated out of allied activities cousin, bar, shops, parlor, boutique 4. HR budget 5. Cost per customer/per day for cost control 6. Promotional efforts undertaken 7. Quality control through customer feedback, customer referrals, repeat customers 8. Booking register position 9. No of tie-ups, corporate clients 10. Number of complaints received and resolved 11. Time to taken to attend and render the desired service

MCS

IN

SERVICE ORGANIZATION

Performance Parameters for a Transportation Industry

1Average plying/idle time, spread over a period 2. HR cost and fuel cost budget 3. Maintenance cost budget 4. Revenue generated per vehicle/per employee 5. Number of customer complains 6. Cost of complain redress (Average and Total) 7. Number of breakdowns, accidents, insurance claims, average recovery period 8. Employee relationship/loyalty build 9. Average waiting time/loading/unloading 10. Time schedule, fleet schedule management 11. Average load carried V/s Ideal load capacity

MCS

IN

SERVICE ORGANIZATION

Performance Parameters for a Tourism Industry

1. Number of customers, Revenue generated and spread over a period 2. Quality control through Customer referrals, repeat customers 3. Time taken to attend and render the desired service 4. Cost and revenue per package/tours 5. Package mix 6. Allied services provided pick-up, drop, food, beverages

7. Promotional campaigns undertaken 8. CRM and Liaison maintained 9. Average number of customers or revenue per package V/s Ideal numbers 10. Discounts offered and revenue spurred 11. Number of complaints received and average time taken to resolve

MCS

IN

SERVICE ORGANIZATION

Financial Service Organization

1. Monetary assets primary resource 2. Time period for transaction may range from hours, days to number of years unsound base for input assessment 3. Risk and Rewards based trade therefore knowing the risk component of transaction one can decid e the reward. 4. Technology plays significant role Automated teller machines -, Electronic market places for securities.

MCS

IN

SERVICE ORGANIZATION

Organizations taking up Projects Characteristics

1. Single objective to built a flyover or supercomputer 2. Project organization and project management 3. Managements focus is project. 4. Need for trade off is vital - scope, schedule and cost. 5. Less Reliable standards 6. Frequent changes in plans. 7. Different rhythm in implementation of project 8. Greater external Environmental Influence

MCS

IN

SERVICE ORGANIZATION

Health Services Organization-Characteristics

1. Availability & Cost is primary concern ,the performance efficiency comes latter. 2. Wide variety in Service Mix of facilities many options are in offing. (Polyclinics, Total Health Care Centers) 3. Third party payers the costs have being subsidized by govt., NGO institutions. 4. Professionals loyalty is primarily to his profession rather than organization. 5. Quality control possible through peer review or through outside review agency.

MCS

IN

SERVICE ORGANIZATION

Non Profit Making Organization-Characteristics

1. Absent of profit performance measure 2. NGOs have contributed capital 3.Fund accounting 4. Governance Usually NPO are managed by trusts

NON-PROFIT ORGANIZATION IS CONSIDERED TO INCLUDE THE FOLLOWING FEATURES:

The

main objective of the organization is to offer social services to citizens or to Their associates. Services offered are of diverse nature (can include health, education, culture, Sports, leisure, religion, environmental, labour, professional) and can act at Various regional contexts (local, national, international). Most of its members contribute to their work voluntarily. Usually, NPOs adopt a non-mercantile legal form (i.e. foundation, association, Sport organization, mutual organization, professional body, federation and so on). It has a non-governmental character. In the case of obtaining profit, this is not distributed amongst its partners but used To improve the services offered and/or reinvested in the structure of the organization. Although a NPO has access to the same sources of finance than private Companies, generally most resources come from private individual donations,

Other NPOs, private companies or the public sector. An NPO enjoys tax advantages (varying according to the type of NPO and the Country where it operates).

THREE MAJOR ASPECTS

OF

NONPROFIT STRUCTURE

The nonprofit operations are organized into major functions. These functions usually include central administration and programs. Governance - The governance function of a nonprofit is responsible to provide overall strategic direction, guidance and controls. Often the term "governance" refers to board matters. However, many people are coming to consider governance as a function carried out by the board and top management. Effective of governance depends to a great extent on the working relationship between board and top management. Programs - Typically, nonprofits work from their overall mission, or purpose, to identify a few basic service goals which must be reached to accomplish their mission. Resources are organized into programs to reach each goal. It often helps to think of programs in terms of inputs, process, outputs and outcomes. Inputs are the various resources needed to run the program, e.g., money, facilities, clients, program staff, etc. The process is how the program is carried out, e.g., clients are counseled, children are cared for, art is created, association members are supported, etc. The outputs are the units of service, e.g., number of clients counseled, children cared for, artistic pieces produced, or members in the association. Outcomes are the impacts on the clients receiving services, e.g., increased mental health, safe and secure development, richer artistic appreciation and perspectives in life, increased effectiveness among members, etc. Central administration - Central administration is the staff and facilities that are common to running all programs. This usually includes at least the executive director and office personnel. Nonprofits usually strive to keep costs of central administration low in proportion to costs to run programs.

Current Major Challenge: Devolution

"Devolution" is a word used a great deal these days among nonprofit funders and leaders. Essentially devolution is the short-hand word for a strong trend of cutbacks in federal funding to nonprofits (especially for programs such as welfare (AFDC and certain SSI programs) and the resulting changes in responsibility for administering such programs. Legislation passed by the Congress reduces (and in some cases) eliminates a federal commitment to automatically provide assistance to the poor. Instead, blocks of funds (usually in reduced levels) will be passed through to states, allowing them to decide who will receive aid and who will not. Thus, devolution is

associated with the end of what is often called entitlements to services previously guaranteed by the federal government. While devolution provides opportunity for more local control and possibly less bureaucratic waste, human services programs will be at great risk due to reduced federal (and therefore state) funding. Nonprofits (which, on average, receive approximately 30 percent of their revenues from federal sources) will suffer significant loss of funds which may be very difficult to replace. Meanwhile, public demand for human services continues to increase. Devolution brings many challenges to nonprofit leaders. They must operate more effectively in the face of reduced funding. They must consider substantial changes in the way they have operated. Concepts such as strategic alliances and restructuring will become commonplace.

NONPROFITS' THREE GREATEST CHALLENGES

1. Finding the Money to Accomplish Our Mission 2. Strategic planning/setting priorities 3. Managing donor and funder expectations 4. Building public trustin us and/or in the sector as a whole 5. Obtaining and/or incorporating the technology we need to accomplish our mission 6. Complying with state and federal requirements for our organization 7. Other:- Board-related issues appeared most frequently in the comments of respondents who selected "Other." "Finding people to take on core leadership responsibilities and the challenges of moving the organization to the next level in its lifecycle so that we can hire staff & get an office have just about wiped out the two founders. Other management issues participants cited included "change management" ("I've found too many non-profits whose battle cry is 'We always did it that way' and more emphasis needs to be place on training leadership to think outside the box"); "taking on too many new initiatives without adequate resources (HR, capital, etc.)"; and "burnout of our talented, committed senior staff."

OR

MAJOR CHALLENGES FACING NONPROFITS

Information abstracted from regional and national studies concerning the challenges facing nonprofits indicates that several issues are shared as concerns for nonprofit leaders. Board development and fundraising and are the main issues for nonprofits with a secondary emphasis on difficulties related to improving operations and more effectively managing resources.

EMERGENT THEMES
Some fundamental concerns were commonly identified in the studies, which surveyed nonprofit executive directors and board members. Five major themes clearly emerged from the various reports' inventories of issues. These suggest areas of the most pressing needs as indicated by nonprofit leaders:

1. Board Development - Building an active and strategically oriented board of

directors was the most frequent concern. Specific issues identified were: Recruiting high-impact board members Cultivating a dynamic and effective culture among board members Fostering a strategic orientation for boards

2. Marketing/Fundraising - Developing effective marketing programs to recruit and

retain donors was also a high priority. In particular, respondents were concerned about: Applying marketing/communications techniques to donor contact activities Expanding their current donor base Increasing donations from current donors as well as enhancing donor loyalty and retention

3. Information Management - Utilizing effective information management for

measuring and evaluating operations and programs was also very important. Establishing a clear set of quality benchmarks for assessing services Using IT to reduce costs and create value Evaluating programs/services against key performance measures Establishing a better model for measuring and reporting outcomes Measuring the real benefit of development and marketing investments Devising a consistent approach for measuring organizational performance and impact

4. Human Resources - Attracting, developing and retaining productive staff and

volunteers was a critical concern: Attracting and retaining skilled staff Attracting skilled, motivated volunteers Developing a leadership transition and succession plan Improving workforce performance Providing ongoing training and skill building

5. Collaboration - Pursuing constructive alliances, partnerships, and mergers was also a

significant issue. Developing collaborative partnerships with public sector agencies, including government Forging collaborative partnerships with the private sector Pursuing mergers with overlapping services/agencies Extrapolating from these topics, a sixth theme is implied as a supplementary concern:

6. Business Proficiency - the need to embrace the business skills and processes
essential to effectively addressing the needs identified in these five major themes.

EXTERNAL INFLUENCES
Several changes in the operating environment of the nonprofit sector are impacting leaders' perceptions of the issues facing them.

Funding Challenges - Many nonprofit organizations are simultaneously facing a

rapidly changing funding environment and a steadily rising need for services from the communities they serve. Reduced or tightly focused government funding is placing great pressure on the sector, which has also experienced a proliferation of new nonprofits during the past decade, thus increasing the competition for a smaller pool of funds. Countless nonprofit organizations are feeling the impact of federal reductions to their core funding streams at the same time foundation endowments and giving are down and many state and municipal governments are experiencing deficits that are reflected in reductions in spending on social programs.

Accountability Pressures - As a result of a few high profile cases, nonprofits are

facing powerful accountability pressures to provide measurable proof that the services they provide have an impact on the communities and populations they target. Funders and the public

want to know in detail if the funded organization is effective in doing what it sets out to do and if it is also efficient at what it does. While gaining and keeping the pubic trust is absolutely essential, calls for accountability can lead nonprofits to spend more time searching for financial support and accounting for funded task performance in order to continue receiving funding from the source. This can cause nonprofits to be more business-like but may also draw attention from responding in innovative or distinctive ways to community and/or client needs.

Collaboration Fascination - Government and foundation funders are increasingly

requiring the use of interorganizational relationships such as collaboration, partnerships, and alliances as an element of funded projects. However, while there is a growing body of knowledge about the factors that support effective negotiation and integration of strategic partnerships, much less is known about the actual outcomes nonprofits experience and how these compare to expected outcomes. Many nonprofits expend large amounts of organizational energy for questionable returns while pursuing interorganizational relationships. Nonprofits often encounter major barriers to collaboration, such as autonomy issues and "turfism," conflicting organizational cultures, and trust-building among organizations.

ADAPTIVE REPERCUSSIONS
Responding to these difficult circumstances necessitates adaptations that involve more than merely developing additional financial support.

Leadership Challenges - The health of the nonprofit sector depends on the quality of
its executive leadership. Agency leadership, including board members, must be able to raise fundamental questions related to strategy, mission, and accountability, as well as the roles that their organizations play within their communities. For many nonprofits, being responsive to changes in the environment means a heighten need to: Determine the most effective way to serve a client population that may be growing or changing; Develop strategies and processes to access and manage new funding streams; Decide where and how to make budget cuts; Develop technology to capture information for reporting and billing; Manage cash flow challenges; Consider new partnerships, explore possible collaborations, and consider mergers or acquisitions. Given the challenging changes in the typical nonprofit's task environment, effective board leadership becomes particularly crucial. The issues facing the nonprofit sector underscore the need for responsive, skilled and effective board leadership in maintaining and improving the quality of organizational performance. It is appropriate that nonprofit boards take a leadership role in assisting agency management on critical issues such as mission definition and strategic

planning, legal compliance and conflicts of interest, oversight of agency financial management, resource development, establishing interorganizational collaborations, cultivating community relationships, and opportunities for capacity-building training.

Management Challenges - Nonprofit managers are challenged to perform multiple

functions and roles as they guide their organizations through today's complex environment. They must be highly skilled not only in the technical aspects of their organizations' mission, but also in management areas such as finance, human resources, information technology, program evaluation, resource development, and many other management responsibilities. Also, an organization's human resources represent the collective capabilities and experiences of its people. Unfortunately, nonprofit organizations are often challenged when it comes to managing staff talent actively. Attracting and retaining skilled staff as well as heightened accountability and competition create a need to develop the specialized business skills and processes that are required of for-profit organizations. Consequently, like their counterparts in the business world, nonprofit managers need to continuously seek out and utilize the latest methods and techniques of organizational management and leadership.

IMPLICATIONS FOR SUCCESS

Restating the six identified needs as positive attributes indicates that resilient nonprofits will have: 1. A strong governance structure and visionary board members with the right skills and access to resources. 2. Sufficient and flexible funding. 3. A defined set of best practices in service and management functions and an effective way to measure performance against these benchmarks. 4. A skilled workforce operating in a culture that facilitates opportunities for innovation and growth. 5. Effective community relationships that include collaborative partnerships with other providers, funders and other organizations and systems. 6. Management capacity to support services, including accounting, human resources, technology and marketing/development functions.

A SEVEN-STEP PRESCRIPTION
Seen from this perspective, there are seven actions that nonprofits can take to achieve these characteristics and address the challenges they face: 1. Undertake an organizational assessment and create a strategic plan to address any capacity deficits.

2. Engage board members to ensure quality governance structures, practices and oversight. 3. Embrace and adopt sound marketing and communications strategies. 4. Build business skill sets and integrate basic business practices and tools. 5. Identify and implement appropriate metrics and make better use of technology to enable evaluation of the success and impact of delivery of services and programs as well as internal operations. 6. Institute progressive human resource practices focusing on skills and team building. 7. Explore and adopt new collaborative business models with complementary organizations.

OR
The current challenges facing nonprofit managers and public policy makers in at least four areas: (1) Markets and competition, (2) Effectiveness and accountability, (3) Policy and politics, and (4) Leadership.
The salient characteristics of an effective nonprofit organization are the tendency

to (1) Collaborate with other organizations, (2) diversify income sources and focus on earned revenues, (3) Measure outcomes, (4) Build flat, nonhierarchical, team-based workforces with open communications, and (5) Keep clear lines of communication and responsibility open between staff and the board of directors.

8. MANAGEMENT CONTROLS SYSTEMS

FOR

PROJECTS.

Project Management Control System Framework defines the means

by which as program or project is planned, managed and controlled, including: 1. Project objectives 2. Project culture 3. Cost and progress control Project Methodology Management 4. Operating rules and policies System 5. Work product templates 6. Records and documentation

Project management control systems are the modern tools for

managing project scope, cost and schedule.

They are based on carefully defined process and document controls, metrics,
performance indicators and forecasting with capability to reveal trends toward cost overrun and/or schedule slippage.

Identifying those trends early makes them more amenable to successful

management.

Traditionally, management systems have utilized data about planned and actual costs. Modern systems further incorporate, in their analysis of projects and tasks, the monetary value earned for actual work accomplished. They analyze the Planned Value of work scheduled (PV), Actual Cost of work performed (AC), and Earned Value of work performed (EV). Forecasting includes cumulative and incremental trends in key indicators such as the Estimate at Completion (AC + Estimate to Complete), Cost Variance (EV AC), Schedule Variance (EV PV), Cost Performance Index (EV/AC), and Schedule Performance Index (EV/PV). Earned Value Management (EVM) is a systematic approach to the integration and measurement of cost, schedule and scope accomplishments on a project or task, providing managers the ability to examine cost data in the context of detailed schedule information and critical program and technical milestones. EVM systems are in use at CERN and by leading project delivery contractors in commercial industry and government service.

For Project Success

1. Clearly defined goals done to identify sources of

2. Competent project manager success and failure 3. Top management support 4. Competent project team members Ranking of system 5. Sufficient resource allocation Implementation Success 6. Adequate communications channels 7. Project tracking (plans, schedules, etc.) Factors 8. Feedback capabilities in Project Management 9. Responsiveness to client 10. Client consultation 11. Technical execution 12. Client Acceptance successful project. 13. Trouble-shooting

Effective Project Management - Right Skills The lack of specific project

management skills presents minimal risk for small projects, but poses considerable risk to higher-profile, higher risk midsize to large projects. The skill requirements for a strong project manager are extensive.

Management committee structure

The key management committees will be the project management team and the Project Board. The latter may be called other things, for example a Steering Committee. You will need to give good consideration to how they are structured and how they are organised and run.
Project lifecycle

This refers to the entire project from start to end. It will be broken down into various stages which must be ratified at senior management level.

Note the use of the word lifecycle to describe the overall schedule of the entire project, the start, middle and end. This should not be confused with lifespan which is the period of existence of a product. The product lifespan will include various phases such as conception through to development, testing operation and final removal of a product that will be replaced with something else.
Project reporting

All projects will be managed by exception. That is, the project will be on track unless you report otherwise. The main reporting will be at milestones but other reports will be required to manage project progress. A simple template is provided in the product package.
Schedule

Control of the revision, issue and recall of the schedule and any other documents is paramount. This is covered under with the use of Configuration Management.

OR

PMCS OVERVIEW DESCRIPTION

The PMCS involves both software tools for development of the project databases and the processes and procedures needed to organize and manage the project.

THE PMCS

WILL HELP MANAGEMENT TO:

1. Determine project status 2. Make a comparison of project status to the baseline plan 3. Manage the change process 4. Track Earned Value if required

PMCS COMPONENT LIST

The Major Components of a PMCS are: 1. The Technical Document Database 2. The Detailed Cost Estimate Database 3. The Integrated Project Schedule Database 4. The Cost/Schedule Management Database 5. A Qualified Accounting System 6. The Change Control Board (CCB) Process

THANK YOU .