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MoU Guidelines

MoU Guidelines

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Published by: api-3842058 on Oct 18, 2008
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Guidelines for Memorandum of Understanding (MOU)
 The MoU should be drafted by taking into account the new opportunities and new threatsthat may have emerged as a result of the changing environment. The new priorities formanagement’s attention should be reflected in the performance criteria and weight patternprovided in the MoU. The performance criteria should be of relevance to the prevailingsituation. Such an approach is necessary to enhance the quality of MOU document makingby linking it to current ground realities.A brief description of the enterprise may be given at the beginning of the MoU. Thecontents of the MOU may be divided into following five parts.
Part IMission/Vision & Objectives of the SLPEPart IIPerformance Evaluation Parameters and TargetsPart III Exercise of Autonomy and delegation of Financial PowersPart IVCommitments /Assistance from the GovernmentPart VAction Plan for implementation and monitoring of the MOU
Part IMission/Vision & Objectives of the SLPE1.1Mission/Vision
1.1.1Mission/Vision statements should be concise incorporating the rationale for existenceof the enterprise and also the business/activities in which the enterprise is engaged.1.1.2 The Mission/Vision statements should be formulated keeping in view the freshinitiatives being planned/under active consideration by the enterprise.
1.2.1 The objectives should be related to the mission of the enterprise and listed in order of priority as approved by the Board of Directors of the enterprise.1.2.2 These objectives should cover both quantitative and qualitative aspects, commercialand non-commercial aspects and static as well as dynamic aspects of the operationsof the enterprise.
1.2.3These objectives should not be too many in number. Repetition & contradictionsshould therefore be avoided.1.2.4Outcome objectives that measure end results rather than process objectives thatmeasure the means only should be included in the MOU.1.2.5 Efforts should be made to ensure that all objectives get reflected in the MOUassessment format.
Part IIPerformance Evaluation Parameters and Targets(A)
Selection of performance parameters/criteria
While selecting different performance parameters and assigning weight against them, theissues concerning strategic factors, profitability, growth, project implementation, etc. haveto be kept in focus. Critical aspects such as customer satisfaction, modernisation,upgradation of technology, quality improvement (like ISO certification), merger andacquisition, diversification, productivity, ,organisational restructuring, manpowerrationalisation, employee’s skill upgradation, R&D, safety, health, etc., which enhance thelong-term competitiveness of the PSE, have been taken into consideration.It is not necessary to include any social (or non-commercial) obligation unless it has beencast on the SLPE by the Government (Statutory obligations or voluntary action by the SLPEin the interest of good industrial or neighbourhood relations do not qualify for inclusion).All performance criteria should be defined clearly and translated into measurable qualitativeor quantitative indicators. In respect of qualitative indicators, the method of evaluationshould be laid down in the MOU. The selected key performance criteria should cover all the aspects of enterprises'performance (viz. qualitative, quantitative, commercial, non - commercial, static anddynamic indicators). The weights to various parameters should be assigned as follows.
Part ACommon Parameters for all SLPEs other than Social, Financial, Trading andConsultancy EnterprisesI. Static Financial Parameters (50%)
(a) Financial performance indicators(i) Gross Margin/Gross Block:02(ii) Net Profit/Net Worth:10(iii) Gross Profit/Capital Employed :10(b) Financial indicators - Size(i) Gross Margin:08(ii) Gross Sales:04(c) Financial returns – Labour productivity and Total Factor productivity(i) PBDIT/Total Employment :07(ii) Added Value/Gross Sales:09
II. Dynamic Parameters (30%)
(i) Quality (ISO certification, internalisation of quality):04(ii)Customer Satisfaction(Customer orientation - Strategic Business Unit-wise/product-wise):04(iii) HRD (Employee training & motivation):03(iv) R & D for sustained & continuous innovation(R&D investment as percentage of sales turnover):04

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