Paper Solution 2007

Q1) What do you understand by Goal Congruence? What are the infor al factors that influence goal congruence?
Answer:- This term is used when the same goals are shared by top managers and their subordinates. This is

one of the many criteria used to judge the performance of an accounting system. The system can achieve its goal more effectively and perform better when organizational goals can be well aligned with the personal and group goals of subordinates and superiors. The goals of the company should be the same as the goals of the individual business segments. Corporate goals can be communicated by budgets, organization charts, and job descriptions. Goal Congruence! "eaning Individuals work in different hierarchies and handle different ut they must come together as far as Company!s "oal is

responsibilities & may have different goals.

concerned #there action must speak Co!s language.$ Goal Congruence %&ample '( The )* manager has devised a )* training program to enhance the skills of its sales personnel, with an objective to enhance their productivity ut if company is in strategic need of attaining a certain sales volume in a given +uarter, it can not do so on account of non availability of personnel. %&ample ,( The marketing department has planned an impressive advertising campaign, which promises good returns, ut say due to cash crunch Company!s current financial position may not let to lose the strings %&ample - ( .roduction /anager may get a good applause for reducing cycle time0 ut at what cost1

uilding up the high inventory i.e. higher investment in current assets. 2hile doing so he just overlooked the financial interest of the company. 3 4fter completing the given activity in more efficient manner the concerned manager scores the point5s on his score card. 3 2hether his actions are leading to scoring of points on the organization!s score card too1 if it is so then only one can say the organization is marching towards a common goal. %very individual working in an organization has got his own motive to do the work. Individuals act in their own interest, based on their own motivations. 4nd it is always not necessarily consistent with the Co!s goal. In a goal congruence process, the actions the people are led to take in accordance with their perceived self interest are also in the best interest of the organization i.e. "oal congruence ensures that the action of manager taken in their best interest is also in the best interest of the organization.

#nfor al factors that influence goal congruence$ %&ternal 'actors %&ternal factors are norms of desirable behavior that e&ist in the society of which the organization is a part. These norms include a set of attitudes, often collectively referred to as the work ethic, which is manifested in employees6 loyalty to the organization, their diligence, their spirit, and their pride in doing a good job #rather than just putting in time$. 7ome of these attitudes are local that is, specific to the city or region in which the organization does its work. In encouraging companies to locate in their city or state, chambers of commerce and other promotional organizations often claim that their locality has a loyal, diligent workforce. 8ther attitudes and norms are industry9specific. 7till others are national0 some countries, such as :apan and 7ingapore, have a reputation for e&cellent work ethics. #nternal 'actors Culture

The most important internal factor is the organization6s own culture9the common beliefs, shared values, norms of behavior and assumptions that are implicitly and e&plicitly manifested throughout the organization. Cultural norms are e&tremely important since they e&plain why two organizations with identical formal management control systems, may vary in terms of actual control. 4 company6s culture usually e&ists unchanged for many years. Certain practices become rituals, carried on almost automatically because ;this is the way things are done here.; 8thers are taboo #;we just don6t do that here;$, although no one may remember why. 8rganizational culture is also influenced strongly by the personality and policies of the C%8, and by those of lower9level managers with respect to the areas they control. If the organization is unionized, the rules and norms accepted by the union also have a major influence on the organization6s culture. 4ttempts to change practices almost always meet with resistance, and the larger and more mature the organization, the greater the resistance is. Management Style

The internal factor that probably has the strongest impact on management control is management style. <sually, subordinates6 attitudes reflect what they perceive their superiors6 attitudes to be, and their superiors6 attitudes ultimately stem from the C%8. /anagers come in all shapes and sizes. 7ome are charismatic and outgoing0 others are less ebullient. 7ome spend much time looking and talking to people #management by walking around$0 others rely more heavily on written reports.

The Informal Organization

The lines on an organization chart depict the formal relationships9that is, the official authority and responsibilities9of each manager. The chart may show, for e&ample, that the production manager of =ivision 4 reports to the general manager of =ivision 4. ut in the course of fulfilling his or her responsibilities, the production manager of =ivision 4 actually communicates with many other people in the organization, as well as with other managers, support units, the head+uarters staff, and people who are simply friends and ac+uaintances. In e&treme situations, the production manager, with all these other communication sources available, may not pay ade+uate attention to messages received from the general manager0 this is especially likely to occur when the production manager is evaluated on production efficiency rather than on overall performance. The realities of the management control process cannot be understood without recognizing the importance of the relationships that constitute the informal organization. Perception and Communication

In working toward the goals of the organization, operating managers must know what these goals are and what actions they are supposed to take in order to achieve them. They receive this information through various channels, both formal #e.g., budgets and other official documents$ and informal #e.g., conversations$. =espite this range of channels, it is not always clear what senior management wants done. 4n organization is a complicated entity, and the actions that should be taken by anyone part to further the common goals cannot be stated with absolute clarity even in the best of circumstances. /oreover, the messages received from different sources may conflict with one another, or be subject to differing interpretations. >or e&ample, the budget mechanism may convey the impression that managers are supposed to aim for the highest profits possible in a given year, whereas senior management does not actually want them to skimp on maintenance or employee training since such actions, although increasing current profits, might reduce future profitability. Q2) (riefly define )iscretionary %&penses Centre* %ngineering %&penses Centre* Profit Centre and #n+est ent Centre? ,o- is budget prepared in )iscretionary %&penses Centre? ,o- is perfor ance of anager e+aluated in a )iscretionary e&penses Centre? .ns-er$ /1) %ngineered %&pense centers ( It has following characteristics a. Their inputs can be measured in monetary terms. b. Their output can be measured in physical terms. c. The optimum rupee value of input re+uired to produce one unit of output can be

determined. /2) )iscretionary %&pense center$! 2here the output centres cannot be measured in terms of money, they are known as ?=iscretionary %&pense Centre!. The word ?=iscretionary must be properly understood. %&ample of such e&penses centres are human resource department, accounting department, legal department, industrial relations department etc. in other words all administrative and support functions fall within the ambit of discretionary e&pense centres. In case of discretionary e&pense centre an optimal relationship cannot be established between inputs & output /0) Profit Centres$ In the language of 4nthony @when financial performance in a responsibility centre is measured in terms of profit, which is the difference between the revenue and e&penses, the responsibility centre is called a profit centreA. Thus if the performance in a responsibility centre is measure in terms of both the revenue it earn and and the cost it incure, it is called as profit centre. .rofit as measure of performance is especially useful since it enables senior management to use one comprehensive measure instead of several measures that points to different directions. The profit centre concept is powerful one. /1) #n+est ent Centre$ 4n investment centre is a responsibility centre in which the manager is held responsible for the use of assets as well as for revenue & e&penses. It is therefore the ultimate e&tension of the responsibility idea. The manager is e&pected to earn a satisfactory return on capital employed in the responsibility centre. /easurement of the investment base or capital employed gives rise to many difficult problems and the idea of the investment centre being new, there is considerable disagreement as to best solution of these problems. (udget Preparation in )iscretionary %&penses Centre 2hile preparing a budget for a discretionary e&penses centre, management by objectives techni+ue is generally used,. To +uote 4nthony,A / 8 is a formal process in which a budgeted proposes to accomplish specific tasks and states a means for measuring whether these tasks have been accomplishA. In so far budget for =iscretionary e&penses centres are concerned, two methods are used. They areB /i) #ncre ental (udgeting$! In case if incremental budgeting the e&penses incurred during a particular period in a discretionary e&penses centre is taken as given. In other words, the present level of e&penses is assumed as the starting point. .roper adjustment are made to the e&penses in order to arrive at budgeted amounts. The adjustment are carried out for special tasks, for e&penses changes in the work load of continuing tasks, for inflation, for cost of compaaraable work in similar units. "enerally, organizations in India have been found to use this method. The merits of this method are simplicity and saving in time. The shortcoming are that during business downturns, change in management etc, such

e&penses are substantially reduce without making a bad impact on the business. 7econdly, this has a tendency to increase overheads e&penses from period to period. /anagers of =%C are interested in providing additional services and as a result they have a tendency to make re+uest for e&tra resources during budgeting, which is generally sanctioned. 4vailable evidence suggest that the same is not necessary

/ii) 2ero (ase (udgeting$! <sing Cero base review involves through analysis. %ach discretionary e&penses centre is thoroughly analyzed. The management prepares a schedule that would cover all discretionary e&penses over a period of five years or so. 4s a result off this e&ercise, a new base is derived. The Cero base review does not take things for given. There is no starting point. The review which is e&tremely e&tensive in nature is builds up from scratch the resources that an activity needs. It raises certain fundamental +uestions and challenges established norms. The +uestions raised areB #i$ #ii$ #iii$ #iv$ It is necessary to perform the function at all1 =oes the same add the value from the view point of end uses #Customer$. 2hat should be the level of +uality1 4re we doing to much1 Is it desirable to perform the function in this manner1 2hat should its cost be1

Intra firm comparisons, interfirm comparisons, and bench marking are also used as a part of approach. Cost and output measures of the e&penses centre are compared with averages of similar units within the firm. This is known as ?intra9firm comparison,. 7imilar comparisons may be made with data which is published by trade associations and other outside organizations. 7uch an e&ercise is called interfirm comparisons. 2hen a comparison is made with information obtained by visits to a firm in which the performance is believed to be outstanding, it goes by the name of ?benchmarking!. Cero base review is not a rose without thorns. It has its drawbacks also >irstly, such reviews are difficult. *esponsibility centre heads consider such review as unnecessary evil. They make concerted efforts to justify their present e&penditure and of then do their best to foil the entire e&ercise. The people also speared rumors and create doubts in the minds of the people regarding the efficacy of the e&ercise. 7econdly, it takes a lot time and energy and can be nightmare for responsibility centre heads whose operations are being reviewed. Perfor ance %+aluation in )iscretionary %&penses Centre In case of an %ngineered %&penses Centre the financial performance report is used for evaluating the manager!s efficiency. /anagers who spend in accordance with the budget amount or less are considered efficient.

In contrast, the main job of the discretionary centre head is to accomplish the planned output. 4ccordingly, actual e&penses incurred by him are viewed in relation to the desired output. %&penses incurred may be lower then the budget and this is an indication that the planned work has not been done. In case, the spending is according to the budget the situation is looked upon with satisfaction. 2here the amount e&pended is higher than the budget, it causes concern. The manager of a =iscretionary %&penses Centre plays a vital role in e&penditure control. The system should ensure that his approval is obtained before there is a budget overrun. )owever, in reality a nominal percentage of overrun is allowed without prior approval. Q0) %+ery S(3 is a profit center but e+ery profit center is not a S(3? What are the conditions that should be fulfilled for an organi4ation unit to be con+erted into a profit center? What are the different -ays to easure the perfor ance of profit centers? )iscuss their relati+e erit 5 de erits6 4nswerB9 ,DDE Fuestion Go.Q1) What are the ob7ecti+es of 8ransfer Pricing? What is ideal transfer price in the situation of$ /a) 9i ited "ar:et /b) Shortage of capacity in the industry .ns-er$ Transfer price can be very simple or comple& depending on the business. Ideally we need a proper negotiation system, a proper arbitration system, a proper conflict resolution system, a proper product classification system, competitive managers, good atmosphere, available market price, freedom to source and full information. 4ll of these have to be present for a market price based transfer price system to induce goal congruence. Ideally, the buying and selling profit centre manager should be free to source but it may be unfeasible by company policy. /#) #deal 8ransfer Price in the Situation of$ /a) 9i ited #i$ ar:et$ /arket for buying & selling profit centres may be limited due toB The e&istence of internal capacity might limit the development of e&ternal sales. /ost of the large companies in an industry are highly integrated hence production capacity for an intermediate product is limited. These profit centres can handle only a limited amount of demand. 2hen internal capacity become tight, the market is flooded with demand for the intermediate product. %ven though outside capacity e&ists it may be unavailable to the integrated company unless used on a regular basis or it may have trouble getting it e&ternally when capacity is limited. #ii$ #iii$ If the company is a sole producer of a differential product then no e&ternal source e&ists. If a comaapy has invested in facilities, it is likely to use e&ternal sources, unless the e&ternal selling price is e+ual to variable cost which is unusual. )ence the produced products are captive.

Integrated 8il companies send crude oil from the production unit to the refining unit even if there is an e&ternal market for the crude oil. %ven in the case of limited markets, the best transfer price satisfying all re+uirement of a profit centre is the @Competitive .riceA. If internal capacity is unavailable the company will buy from outside at the @Competitive .riceA. The difference between the @Competitive .riceA and the internal cost is money saved by producing rather then buying.

"ethods of finding ;Co petiti+e Price< if there are no %&ternal 8ransaction #a$ If published market prices are available they can be used to establish the @T.A, but these must be actual figures & consideration & consistent with @T.A for similar +uantities i.e. if the company is producing in bulk, it should find the e&ternal wholesale market price instead of the retail price. #b$ /arket prices may be set by using ? ids!, only if the lowest bidder gets the business. Companies put out a bid for all products, but purchase only half of the product e&ternally and produce the balance internally. #c$ If the uying .rofit Centre purchases similar products from suppliers, it can duplicate the ?Competitive .rice! internally. /b) Shortage of capacity$ If the selling profit centre sells e&ternally all of its production, i.e. it has e&cess capacity, which means there is a shortage of =emand in the industry, then the company may not optimize profits if the buying profit centre purchases from outside, in spite of the capacity being available internally. Conversely the selling profit centre will benefit by selling internally when the centre is restricted & company profit may not be optimum. Top management does not interfere, based on the theory that keeping the profit centre independent will set9off the loss from sub9optimizing company!s profits. 7elling profit centre appeals if buying profit centre continue to buy from outside even when capacity is available internally & buying profit centre appeals if selling profit centre continue to sell e&ternally even when internal demand e&ists. uying profit centre deal e&ternally arguing that outsiders provide better service, which leads to rivalry in a decentralized company. Top management should be aware of the politics involved in @T.A Gegotiations. %ven is a constrains on sourcing e&ists, the market price is always best @T.A. /##)When use the cost based transfer prices uying .rofit Centre cannot buy from outside because there is a shortage of supply in the industry. )ere the output of the buying profit

If companies prices are not available, transfer prices may be set on the basic of cost plus a profits.enen though such transfer price may be comple& to calculate and the result less satisfactory than a market based price there are tow based decisions must b in a cost transfer price system. 9)ow a define cost 9)ow to calculate the profit mark9up. 9The cost basic 9 The usual basic is standards costs, actually costs should not be used because production inefficient 92ill be passH on to the buying centre ,if standards coasts are used ,an incentives is needed to tight standards and improve standards . 9The profit makeup 9In calculating the profits makeup there also are two decisions 92hat are the profits mark9up is based on the The level of profit an allowed. The seconds problems with the profit allowance is the amount of profits ,senior managements precipitations of the financial performance of a profit allowance should appro&imate the rate of return that would be earned if the business units an independent company selling re+uired to meet the volume needed by the buying profit centre ,the investment would be calculated at a @standards @level with fi&ed assets and inventories at current replacement costs. Q=) What are the different .ns-er$! Q>) /a) What are the special characteristics of Professional Ser+ice organi4ation? ,oin the ? ,o- do -e e+aluate the perfor ance of a Professional ?rgani4ation? .ns-er$! /#) Special Characteristics of Professional Ser+ice ?rgani4ation 16 S all in si4e$ "enerally, professional0 organizations are small in size and are small in size and are located at one place. 4ccordingly, personal observation is possible on the part of senior management and this forms the basis for motivation of employees. Conse+uently, the need to have profit centres and formal reports of performance is less felt. This means that the need to have an intricate management control system is lower. 2hile such organizations are small, there is still the need to tie remuneration to actual performance, prepare a budget, regularly compare actual performance against the budget etc. 26 GoalsB ar:eting done ethods to e+aluate the perfor ance of in+est ent centre? )iscuss the ethod -ould you reco end?

erit 5 de erits of each? Which

2hile earnings a satisfactory return on assets is the main goal of a manufacturing organization, it is not possible to calculate the same for non9profit organization as it possesses only a few tangible assets. The skill of its human resources that is professional staff is its main asset. This being the case, the main financial goal of such organization is to pay ade+uate remuneration to its professional staff. 4nother goal of professional organization is to e&pand. 2hile this leads to scale economics through better utilization of staff at corporate head+uater it also reflects the success of the organization as size is an indicator of success. 06 Professionals$ 2hile professional organization are not capital intensive like manufacturing organization but labour intensive in nature, professionals working in such organizations possess a number of characteristic. There areB #i$ #ii$ #iii$ #iv$ They like to work independently. The labour is of special kind Those amongst them who also work in the capacity of managers devote only part time attention to management activities. /ost of them do not possess a formal management education. 7enior partner of law firms have client, senior partners of consulting frims play an active role in consultancy assignment, and senior partner of accounting firms take an active part is audit assignments. 4s a result of the above characteristic, professionals have low regards for managers. y virtue of their background, they are interested in doing the job in the best possible manner without having any regards for the cost. This results in virtually ignoring the financial implications of their decisions. 7imilarly this affects the attitude of non9professional and other approved staff. I. /easurement of 8utput & InputB9 8ne of the problems confronting a professional organization is how to measure the outputof its professionals. This is because traditional measures of performance which are used in manufacturing industry such as tons, units etc cannot be used in these organizations. 2hile output is the effectiveness of the professional work, this cannot be measured byB #a$ The number of hours a consultant spends with his client or the number of pages in report. #b$ The number of hours a lawyer spends in the court room or the number of pages a brief has. #c$ The number of patients that is treated by the physician daily. 4lthough some professional organization employs revenue as a measure of output, it must be appreciated that this measures volume of services provided by the organization and not their +uality. 2hereas, some tasks performed by professional are repetitive in nature, the major portion of the work done by them can be considered as non9repetitive. Instances of repetitive work are physical stocktaking by auditors, drafting simple contracts, wills, deeds by lawyers etc. It is possible to develop standards for such tasks and use

them profitably. )owever, in respect of non repetitive tasks, planning the time re+uired, establishing standards considered reasonable for performing tasks, and evaluation of performance become a difficult task. 4nother problem that arises in performance measurement is the unwillingness of professionals to maintain records relating to time spent. 4lthough this problem can de resolved if senior management takes the initiatives in ensuring accurate reporting of time, the problem arises in connection with the amount to be charged per hour for time spend on a job.

/##) "ar:eting in Professional Ser+ice ?rgani4ation$ 2hereas there e&ists a strict demarcation between manufacturing and marketing activities in manufacturing organizations, it is hard to find such dividing line in professional organizations. .rofessional working in professional firms is like accounting, law and medical are debarred from openly marketing the firm!s services by virtue of their professional code of ethics. )owever, most of the organizations need to engage in marketing as its an essential activity. Conse+uently, professional who work for clients, that is devote most of their time and energy to production make speeches, play golf, establish contacts and similar activities to market the organizational services. /###) "easure ent of perfor ance and e+aluation 2hile it is possible to arrive at a judgment regarding the performance of the professional at the e&tremes, it is difficult to evaluate the performance of the major percentage of professional who figure within either e&treme. The human judgment forms the basis of evaluation of performance. The superior, self, peer, clients and subordinates may play a role in making such judgment. There are objective measures of performance available for some situations such asB #a$ 7kill of a surgeon can be gauged by the success ratio of an operation. #b$ 7kill of a consulting engineer can be measured by the +uality of construction. #c$ The investment analysts recommendations can be compared with the market behavior actually displayed by securities. )owever, they have to be duly +ualified. "enerally, judgments are made by superiors in professional organizations. .erformance appraisals are collected using formal systems. This are discussed with the concerned professional and forms the basis of personnel decisions. In the case of the matri& organization the head of the professionals functional unit and his project leader evaluates his performance. 2hile some systems re+uire non9numerical ratings of given

attributes of performance, there are others which call for numerical ratings of such attributes and a weighted average of the rating is derived. In the case of numerical ratings, senior management uses its partially to give increments and promotions. Internal audit procedures form the basis of +uality control in respect of certain professions. 2hereas it is customary for a partner #other than the partner responsible for it$ of an accounting firm to review the audit report, it must be mentioned that the audit reports of the entire firm is ?peer reviewed! by another firm. 2e have seen that budgeting control of discretionary e&penses is useful both for manufacturing organization as well as for professional firms. The time actually spent can be compared with the planned time and cost performance can also be measured using the budget. <nfortunately, while evaluating the contribution made by the professional to the profitability of the professional organization, such financial measures are not important. 2hat is important is the present appraisal +uality and +uantity of the work performed. Q>) /b) What is a @on Profit ?rgani4ation? ,o- is the perfor ance of the organi4ation e+aluated? .ns-er$! /#) @on Profit ?rgani4ation$ 4 non profit organization is one that cannot distribute assets or income to, or for the benefit of its member, officer or director. The organization can, of course, compensate its employees, including officers and members, for services rendered and for goods supplied. 7uch organizations are not prohibited from earning a profit but are prohibited for distributing profits. The principle of earning profit is encouraged so as to provide funds for working capital and contingencies. /##) Perfor ance %+aluation$ The evaluation of performance is not possible using financial measures, for these entities do not e&ist to earn profit. The performance is therefore evaluated on the basis of comparisons between budgeted e&penditure and actual e&penditure. >or any organization, the most important reasons to measure performance are to improve effectiveness and to ac+uire information that will allow the organization to drive its agenda forward. If the motivation for doing evaluation remains outside an organization, the evaluation will have limited impact. To do performance assessment effectively, an organization must commit to adopting a culture of measurement, because acceptance must come from senior management, staff, funders, and board members alike. /a) (oard self!e+aluation

/embers of the oard of =irectors should regularly evaluate the +uality of their activities on a regular basis. 4ctivities might include staffing the oard with new members, developing the members into well9trained and resourced members, discussing and debating topics to make wise decisions, and supervising the C%8. .robably the biggest problem with oard self9evaluation is that it does not occur fre+uently enough. 4s a

result,

oard members have no clear impression of how they are performing as members of a governing

oard. .oor oard operations, when undetected, can adversely affect the entire organization. /b) Staff and +olunteer /indi+idual) perfor ance e+aluation /ost of us are familiar with employee performance appraisals, which evaluate the +uality of an individual!s performance in their position in the organization. Ideally, those appraisals reference the individual!s written job description and performance goals to assess the +uality of the individual!s progress toward achieving the desired results described in those documents. Continued problems in individual performance often are the results of poor strategic planning, program planning and staff development. If overall planning is not done effectively, individuals can e&perience continued frustration, stress and low morale, resulting in their poor overall performance. %&perienced leaders have learned that continued problems in performance are not always the result of a poor work ethic ( the recurring problems may be the result of larger, more systemic problems in the organizations. /c) Progra e+aluation .rogram evaluations have become much more common, particularly because donors demand them to ensure that their investments are making a difference in their communities. .rogram evaluations are typically focused on the +uality of the program!s process, goals or outcomes. 4n ineffective program evaluation process often is the result of poor program planning ( programs should be designed so they can be evaluated. It can also be the result of improper training about evaluation. 7ometimes, leaders do not realize that they have the responsibility to verify to the public that the nonprofit is indeed making a positive impact in the community. 2hen program evaluations are not performed well, or at all, there is little feedback to the strategic and program planning activities. 2hen strategic and program planning are done poorly, the entire organization is adversely effected. /d) %+aluation of cross!functional processes Cross9functional processes are those that span several systems, such as programs, functions and projects. Common e&amples of major processes include information technology systems and +uality management of services. ecause these cross9functional processes span so many areas of the organization, problems in these processes can be the result of any type of ineffective planning, development and operating activities. /e) ?rgani4ational e+aluation 8ngoing evaluation of the entire organization is a major responsibility of all leaders in the organization. Jeaders sometimes do not recognize the ongoing activities of management to actually include organizational evaluations ( but they do. The activities of organizational evaluation occur every day. )owever, those evaluations usually are not done systematically. 4s a result, useful evaluation information is not provided to

the strategic and program planning processes. Conse+uently, both processes can be ineffective because they do not focus on improving the +uality of operations in the workplace.

Q7) What is (alance Score Card? Why is it superior to other 4nswerB /#) (alance Score Card$ =avid Chaudron defines 7C asB 4 way of measuring organizational, business unit or departmental viewpoints. 4 way of alancing long term and short term actions. 4 way of alancing different measures of success such asB >inancial, Customer, Internal operations and )uman *esources systems & =evelopment. 4 way of tying strategy to measures to action.

ethods of Perfor ance .ppraisal?

Prepare (alance Score Card for any organi4ation you are fa iliar -ith6

In short, 7C is a business management concept that transforms both financial and non9financial data into a detailed roadmap, that help an enterprise measure performance and meet both short and long term objectives. /##) Superiority of (SC o+er other easures$

There are several benefits from implementing a alanced 7corecard. 8riginally the alanced 7corecard was seen as a useful tool for performance measurement. In this role, the a coherent fashion. Jater it was realised that the process. ecause the alanced 7corecard could play a pivotal role in the strategic management alanced 7corecard re+uires management to clarify and obtain consensus on the alanced 7corecard was seen as integrating financial5non9financial, internal5e&ternal and leading 5lagging information on firm performance in

strategic objectives of the firm, it can assist in the communication of the chosen strategy, conse+uently aligning the efforts both of individuals and of departments. In this role, there is a clear link between the alanced 7corecard and management by objectives #/ 8$. %ffective implementation of a alanced 7corecard project will generally involve the development of a series of hierarchical #cascaded$ scorecards. "iven the overall corporate scorecard, supporting scorecards can be developed for each department within the firm. 2ithin each department, a scorecard can be developed for each manager #or perhaps even for each individual member of staff$ which links the objectives on each perspective for that manager back to the objectives for each perspective outlined in the scorecard for the department and finally, back to the objectives listed in the firm!s overall scorecard. The alanced 7corecard could be used to assist in corporate restructuring. In recent years, many firms have migrated away from a traditional hierarchical structure to a flatter, team9based organisational structure. The alanced 7corecard can support such changes, as it can help clarify the objectives and the critical success factors for the newly formed teams. 4part from the communication and co9ordination roles of the alanced 7corecard in strategic implementation, the alanced 7corecard can be used to link strategy to specific critical success factors in the customer, internal business process and growth5learning perspectives. y setting both short and long9term targets for driver and outcome measures and by comparing actual attainment against target, feedback is obtained on how well the strategy is being implemented and on whether the strategy is working. uilding on the alanced 7corecard!s use as a strategic management tool, it has been suggested that the alanced 7corecard can play a role in the investment appraisal process#K$. Traditional methods of investment appraisal such as discounted cash flow do not cope well with investments which generate indirect rather than direct financial returns. %&amples of these include investments which enhance the future ?fle&ibility! of a firm or investments in the firm!s infrastructure, such as an enhanced management information system. The alanced 7corecard can assist management!s investment appraisal decisions as it provides managers with a mechanism to incorporate the strategic aspects of the investment into the appraisal process. This could be achieved by using a weighting system developed from a firm!s alanced 7corecard measures to evaluate new projects. 4n inde& score would be calculated for each investment opportunity and projects would then be ranked and selected based on this score

/###) (alance Score Card of Aoc:-ater$ 7C shown below is of *ockwater, a wholly owned subsidiary of rown & *oot, a global engineering and construction company, which is a worldwide leader in underwater engineering and construction. The measures have been divided into four broad category. This enable the company to be viewed from four different perspective. Lou will find that all the measures given in the company!s 7C are specifically related to strategy. *ockwater strategy is to be the preferred provider in the underwater engineering and construction industry. They select the measures like %&ternal #eg. /arket share, customer ranking survey$ and internal measures #%g. .roject .erformance Inde&, 7afety Incident Inde&$. There are also derived measures namely staff attitude survey, time spent with customer on new work and outcome measures such as *8C%.

FN$ What are the different types of strategies .ns-er$!

ission at S(3 le+el? ,o- do these

issions affect

strategic planning process and budgeting at S(3 le+el? usiness unit strategies deal with how to create and maintain competitive advantage in each of the industries in which a company has chosen to participate. The strategy of business unit depend on two interrelated aspectB '$ its mission #what are its objective$ and ,$ its competitive advantage #@how should the business unit compete in its industry to accomplish its missionA$ . (usiness unit ission In a diversified firm one of the important task of senior management is resource deployment. /ake decision regarding the use of the cash generated from some business unit. 7everal planning model have been developed to help corporate level manager of diversified firms to effectively allocate resource. These models suggest that a firm has business unit in several categories, identifies by their mission the appropriate strategies for each category differ. Together the several unit make up a portfolio, the component of which differ as to their risk5 reward characteristic just as the component of investment portfolio differ. oth corporate office and business unit general manager are involved in identified the mission of individual business unit. 8f the many planning model two of the most widely used are oston consulting group two by two growth share matri& and general electric company 5 mc Oinsey & company three9by three industry attractiveness ( business strength matri& while these model differ in the methodology they use to develop the most appropriate mission for the various business unit, they have same set of mission from which to chooseB harvest, & divest. (uild This mission implies an objective of increased market share, even at the e&pense of short term earning and cash flow. ,old This strategic mission is geared to protection of the business unit market share and competitive position. #I / Computer$ ,ar+est This mission has the objective of ma&imizing short term earning and cash flow , even at the e&pense of market share. )i+est This mission indicates a decision to withdraw from the business either through a process of slow li+uidation or outright sale. uild, hold,

The mission for e&isting business units could be either build , hold, or harvest .These mission constitute a constitute a continuum with @pure buildA at one end and @pure harvestA at the other end. To implement the strategy effectively there should be congruence between the mission chosen and the type of control used. we develop the control mission @fitA using the following line of reasoningA The mission of the business unit influences the uncertainty that general managers face and the short term versus long term trade off they make. /anagement control system can be systematically varied to help motivate the manager to cope effectively with uncertainty and make appropriate short term versus long (term tradeoffs. Thus different mission often re+uire systematically different management control system.

Strategic planning 2hile designing a strategic planning process, several design issue need to be considered. 4 business unit responds to these issues tend to depend upon the mission its perusing. 2hen the environment is uncertain the strategic planning process is especially important. /anagement need to think about how to cope with the uncertainties and this usually re+uires a longer range view of planning than is possible in the annual budget. If the environment is stable there may be no strategic planning process at all or only a broad brush strategic plan. Thus , the strategic planning process is more critical and more important for build as compare with harvest , business unit s. nevertheless some strategic planning of the harvest business units may be necessary because the company overall strategic plan must encompass all of its business to effectively balance cash flow. In screening capital investment and allocating resources the system may be more +uantitive and financial for harvest units. 4 harvest business unit operates in mature industry and does not offer tremendous new investment possibilities. )ence the re+uired earning rate for such a business unit may be relatively high to motivate the manager to search for project with truly e&ceptional returns. 7ince harvest units tends to e&perience stable environment analysis often can be used more confidently. The re+uired information used to evaluate investment from harvest units is primarily financial. 4 build unit is positioned on the growth stage of the product life cycle. 7ince the corporate office wants to take advantage of the opportunities in a growing market senior management may set a relatively low discount rate , thereby motivating build managers to forward more investment ideas to corporate office. "iven the product5market uncertainties financial analysis of some project , no financial data are more important.

(udgeting Implication for designing budgeting system to support, varied mission is shown in figure. The calculation of variance analysis comparing actual result with the budget identifies variances as either favorable or unfavorable. )owever a favorable variance neither imply favorable performance nor does an unfavorable or unfavorable variance, one the one hand and favorable or unfavorable performance, on the other hand, depend upon the strategic conte&t of the business unit under evaluation. The following additional differences in the budget process are likely to e&ist between build and harvest units. In contrast to harvest units, budget revisions are likely to be more fre+uent for build units because their product5market environment changes more fre+uently. uild unit managers may have greeter input and influence than harvest unit managers in formulating the budget. This because build managers operate in rapidly changing environment and have better knowledge than senior management of these changes. >or harvest units with stable unit with stable environment, thus manager knowledge less important. QB) Short @ote /d) #nternal Control$ IC4I state that @ Internal control is the plan, methods and procedures adopted by the management for the efficient conduct of the business, adherence to management policies, safeguarding of the assets, prevention and detection of fraud and error, the accuracy and completeness of records and timely preparation of reliable financial information. ?b7ecti+es of #nternal Control i$ ii$ iii$ iv$ v$ vi$ vii$ #i$ 4dherence to managerial policies and directives. .rotection of assets against possible losses. 4dherence to management policies and authorization. "eneration of reliable, complete and accurate accounting records. Timely preparation of financial information. Compliance with statutory re+uirements. .revention and early detection of error and frauds. 4dministrative controlsB This control deals with the functioning procedures that influence the decision making process and managerial authorization of transaction. %&ampleB =elegation of authority, job descriptions etc.

8ypes of #nternal Controls

#ii$ #iii$

4ccounting controlsB This control covers the accounting systems and procedures. This involves recognizing, calculating, posting, analyzing, summarizing and reporting transactions. .hysical controlsB This includes providing for protective devices for safeguarding the assets.