Professional Documents
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VASAVA..
Module 1.
Introduction to Management Control Systems and the
Environment of Management Control.
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)
Concepts of MCS
• The MCS builds on concepts from
• Business Strategy,
• Organizational Behavior,
• Human Resource and
• Financial & Managerial Accounting.
Thermostat
Body temperature
Automobile Driver
• Assume you are driving on a high way where the legal speed 65 kmph.
Your control system acts as the following.
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 organization’s
strategies. It includes
• Planning
• Coordinating
• Communicating
• Evaluating
• Deciding
• Influencing
• 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.
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
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
STRATEGY:
1. Before making a decision managers have to look into the course of deciding since
Strategy involves situations like: -
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”.
7. Companies can outperform rivals only if it can establish a difference it can preserve
and deliver greater value at a reasonable cost.
10. Strategy is the future plan of action, which relates to the company’s 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 (SBU’s).
CORPORATE LEVEL
FUNCTIONAL LEVEL STRTEGIES [CORPORATE]
SBU1 SBU2 SBU3 (SBU LEVEL)
FUNCTIONAL LEVEL STRATEGIES
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: It’s 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 SBU’s. 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 SBU’s.
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) It’s 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.
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
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".
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
• 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.
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.
• 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.
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:
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.
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).
There are three factors that are generally seen as determining the success of an SBU:[
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.
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.
That is
1. team building,
2. communication,
3. culture,
4. leadership,
5. Objectives and
6. Setting goals.
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.
Goal Congruence
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.
INFORMAL FACTORS
FORMAL FACTORS
………………………………………………………………………………………………
…………………………………
MODULE.2 THE STRUCTURE OF
MANAGEMENT CONTROL SYSTEMS.
1. RESPONSIBILITY CENTERS.
Responsibility Centers
• Revenue centers.
• Expense centers.
• Profit centers.
• Investment centers.
REVENUE CENTER
OR
• Responsible for expenses (i.e., the costs) incurred but does not
measure its outputs in terms of revenues.
OR
ENGINEERED COSTS
u Should be measurable in monetary terms, outputs in
physical quantities.
DISCRETIONARY COSTS
PROFIT CENTERS
R E SP ON SIBILITY C ENTE RS
Cost Centre
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
I N VE STME NT C ENTR E
OR
PROFIT CENTERS
Measures of Performance
What is EVA?
• What is EVA
Components of EVA
• NOPLAT
• Operating capital
• Cost of capital
• Capital charge
CALCULATING EVA
E NGIN EE RE D COSTS
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
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.
Measures of Performance
What is EVA?
• Economic Value Added
EVA
• What is EVA
Components of EVA
• NOPLAT
Net operating profit after tax
• Operating capital
• Cost of capital
• Capital charge
C ALCULATING EVA
-- ROI
ROI = Income
……………………….
Invested Capital
Some companies break ROI down into two components: profit margin and
investment turnover as follows:
Prof. Marg. Turnover
Income Sales
5. EXPLAIN WHY USING A MEASURE OF PROFIT TO EVALUATE PERFORMANCE CAN LEAD TO RETURN ON
1. Financial
2. Customer
3. Internal processes
4. Innovation
1. INVESTMENT CENTERS
ROI = Income
………………………..
Invested Capital
Some companies break ROI down into two components: profit margin and
investment turnover as follows:
Income Sales
AUDITING
BENEFITS OF AUDITING
• Enhance teamwork
• Reality check
• Concepts like JIT, TQM, and SIX SIGMA have brought out the growing
importance of non financial measures for evaluating the organizations overall
performance.
EVA
• WHAT IS EVA
COMPONENTS OF EVA
• NOPLAT
• Operating capital
Net operating working capital, net PP&E, goodwill, and other operating assets
• Cost of capital
• Capital charge
Calculating EVA
BUDGETS
• Budgets are business plans that are stated in quantitative terms and are
usually based on estimations.
• 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
4. TRANSFER PRICES
Transfer Prices
Revenue for selling center and cost for the receiving center.
• Based on price for same product between independent parties, i.e., a market
price or, equivalently, an arm’s length price.
TRANSFER PRICING
A transfer price is the price one subunit charges for a product or service supplied
to another
TRANSFER-PRICING METHODS
Goal congruence
Management effort
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.
-Basing transfer prices on depressed market prices will not always lead to optimal
decisions for an organization.
When transfer prices are based on full cost plus a markup, suboptimal
decisions can result.
-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!
Minimum transfer price = Incremental costs per unit incurred up to the point of
transfer
1. Slowcar Company
• Direct labor 20
• Total $114
• 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 division’s profit to near zero. BUY can purchase the
part from an outside supplier for $14.00. The cost figures for Supply are:
• A. If Supply ceases to produce the parts for BUY, it will be able to avoid one-
third 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:
• B. What is the min. & max. transfer price if BUY and SUPPLY negotiate?
Comparison of Methods
Negotiated: Yes
Negotiated: Yes
Cost-Based: Yes, if based on budgeted costs; less incentive if based on actual cost
Negotiated: Yes
Preserves Subunit Autonomy
Negotiated: Yes
Other Factors
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 (arm’s
length).
These are:
Need for a more robust set of control variables than exists with the
Current dollar based budget.
Conglomerate).
and much the same kind of changes can be identified for public sector
organizations.
• What drives the organization? What is its motivation for getting the MF? Development of
Profit?
• What roles does Management Information System (MIS) play in the organization’s MCS?
• Fit between the organization’s structure and policies and its strategy;
…………………………………………………………………………………………………………
• Establishment of Standards
• Measurement
• Comparing performance with the standards
• Taking corrective actions
OR
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.
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 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:
Target Group
This process description is intended for:
Activities
This process description concerns Planning & Control, related activities, and
documents and reports to be drafted.
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
Verification
Evaluation
Budgeting
Zero-based Review
(Zero-based Budgeting)
• A systematic way of analyzing ongoing programs.
• 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).
Budget Uses
Operating Budget
• Identical in format to the actual financial statements.
• 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.
Cash Budget
• Revenues and expenses from the operating budget translated into cash
inflows and outflows for cash planning.
• Costs at one particular level, budgeted or planned level, are used in the
operating budget.
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.
1. Accuracy. In general, performance data obtained using sampling techniques are less
accurate than data obtained by using counters or timers. In the case of timers, the
accuracy of the clock must be taken into account.
2. 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.
3. 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.
4. 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.
5. 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.
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
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 organization’s value
• It can help to achieve culture change by, for example, assisting with the
development of a performance culture
• 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 it’s 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.
It’s 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 it’s 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.
There are many approaches to strategic planning but typically a three-step process
may be used:
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 don’t 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 don’t 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).
Organizational structure:-
The management team with input from the rest of the staff.
A simplified view of the strategic planning process is shown by the following diagram:
Mission &
Objective
s
Environmen
tal
Scanning
Strategy
Formulatio
n
Strategy
Implementat
ion
Evaluatio
n
& Control
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 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
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 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.
BUDGETS
• Budgets are business plans that are stated in quantitative terms and are
usually based on estimations.
• 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
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.
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.
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 year’s 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 execution—the
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.
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 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.:
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 can’t make a comment on your results without some idea about where
you wanted to end up. Whether it’s 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 month’s 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.
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.
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).
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.
Financial statements
Examples
Profitability
Net income
Return on assets
Financial position
Debt position
Stock price
Examples
Market share
Lack of relevance
Short-term thinking
Local optimization
“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”
Irrelevant
Redundant
Questionable
Must be balanced
Performance-based compensation
Powerful motivator
Who participates?
General guidelines
Other entities
Useful
Customer service
Goal attainment
Innovation
Employee involvement
Frequently difficult to measure
Many companies believe they could be useful, but do not measure them
Difficult to measure
Resistance to change
Resistance to change
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 organization’s 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:
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."
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.
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 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 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]
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.
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.
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 District’s contribution for Management Staff who participate in the district’s
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
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.
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 employee’s 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. WORKER’S 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
separation/retirement, the total of time used and vacation cash-out may not
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.
2. 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.
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 employee’s
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
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
employee’s 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.
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
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2. Transfer Pricing
(When service providing unit is defined as Profit center)
Hours billed
6. Client reports.
3. Revenue generated out of allied activities – cousin, bar, shops, parlor, boutique
4. HR budget
5. Package mix
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.
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.
5. Quality control possible through peer review or through outside review agency.
•3.Fund accounting –
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.
"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.
OR
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:
· Increasing donations from current donors as well as enhancing donor loyalty and retention
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.
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;
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.
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.
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.
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.
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:
(4) Leadership.
(5) Keep clear lines of communication and responsibility open between staff and the
board of directors.
1. Project objectives –
2. Project culture –
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.
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.
9. Responsiveness to client
13. Trouble-shooting
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
Project reporting
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
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