Professional Documents
Culture Documents
The following are the general guidelines for the State level Public Enterprises
(SLPEs) for preparing the Memorandum of Understanding (MOU) with the State
Government. This is prepared in the same lines of the MOU guidelines of the
Department of Heavy Industries, GoI. The MOU should take into account the new
opportunities and new threats that may have emerged as a result of the changing
environment. The new priorities for management’s attention should be reflected in
the performance criteria and weight pattern provided in the MOU. The performance
criteria/parameters should be of relevance to the prevailing situation.
A brief description of the enterprise may be given at the beginning of the MOU. The
contents of the MOU may be divided into following five parts.
Mission/Vision
Objectives
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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. These objectives
should cover both quantitative and qualitative aspects, commercial and non-
commercial aspects and static as well as dynamic aspects of the operations of the
enterprise.
The objectives should not be too many in number. Repetitions and contradictions
should therefore be avoided.
Outcome objectives that measure end results rather than process objectives that
measure the means only should be included in the MOU.
It is to be noted that efforts should be made to ensure that all objectives get
reflected in the performance parameters in the MOU assessment format.
It is not necessary to include any social (or non-commercial) obligation unless it has
been cast on the SLPE by the Government (Statutory obligations or voluntary action
by the SLPE in the interest of good industrial or neighbourhood relations do not
qualify for inclusion).
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All performance criteria should be defined clearly and translated into measurable
qualitative or quantitative indicators. In respect of qualitative indicators, the method
of evaluation should 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
and dynamic indicators).
Part A
Common Parameters for all SLPEs (Manufacturing/Production)
(d) Production 04
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II. Dynamic Parameters (30%)
(ii)Customer Satisfaction
(Customer orientation - Strategic Business Unit-wise/product-wise): 04
If the BPE, after deliberations, comes to the conclusion that any of the above
dynamic parameter(s) is not relevant to a particular SLPE, then the balance
weightage may be adjusted by evolving new parameters relevant to that particular
SLPE or against the remaining dynamic parameters. The SLPE concerned may also
make suggestions in draft MOU document in this regard.
However, in order to address the specific nature of some of the SLPEs, special
provisions like the following may be incorporated.
Welfare SLPEs: BPE would set parameters in consultation with the SLPEs which
reflect return on funds deployed in programmes for comparison with the cost of
raising these funds. These parameters may include No. of
beneficiaries/agencies/schemes assisted, total financial assistance provided,
financial assistance received from Govt., Financial Institutions, Local Self
Governments, etc., beneficiary contribution received, no. and outlay of schemes
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completed and new schemes introduced, employment generated, no. and outlay of
MOU signed, etc.
Further, the BPE may effect change weightages in the static financial parameters
category to maintain uniformity within the welfare/developmental SLPEs as different
from commercial enterprises.
Part B
Specific Parameters(20%)
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get reflected in increased profits either during the year of investments or later but
considered important from the viewpoint of the society.
BPE can alter weights in consultation with Administrative Machinery where fine-
tuning is felt necessary as a matter of exception but not in a routine manner.
The targets set should be realistic and growth oriented and be significantly higher
compared to targets and achievements, for the previous year. Eg., Targets and
achievements for the year 2005-06 should be reflected in the Budget Estimate for
the year 2006-07.
It should be ensured that the MOU targets flow from the Corporate Vision/Plans
formulated, if any by the SLPEs and there is linkage between them. In case there is
any variation, reasons thereof should be clearly specified.
Budget Estimate (BE) 2005-2006 and BE 2006-2007 figures for various performance
criteria are to be indicated in the MOU assessment format as separate columns.
All the performance evaluation parameters and targets may also be given on a 5
point scale, viz. excellent, very good, good, fair and poor. BE 2006-2007 in respect
of the performance indicators is the basic target and will be placed in "Good"
column in respect of SLPEs which are in growth phase and are operating below
100% capacity utilization. SLPEs which are performing near or above 100% capacity
utilization and are fully operative, BE will be placed in Very Good column. The
proposed Good/Very Good target should indicate an improvement over BE for 2006-
2007 and Provisional/RE(2005-2006).
The difference in target values between "Very Good" and "Good"; "Good" and ”Fair";
and "Fair" and "Poor" columns should be uniform at 5%.
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The difference between “Excellent” and “Very Good” targets should be significantly
higher than 5%. For manufacturing/production SLPEs in the growth phase operating
below 100% capacity utilization, the differential of 10% between Excellent and Very
Good should be maintained. In case of SLPEs operating at or above 100% capacity
utilization, the Task Force may fix the differential of 5% to 10% between Excellent
and Very Good targets.
For qualitative indicators, the targets for each of the points on the 5-point scale
should be indicated in the MOU assessment format itself. If these targets are on a
time scale, only such target which falls within the MOU year (ending 31st March,
2007) should be included.
Additional Points
Absolute values of Gross Profit (GP), Net Profit (NP), Net Worth (NW) and Capital
Employed (CE) should be indicated in the footnote of the MOU assessment format.
Capital Employed and Net Worth figures should invariably be as at the end of the
year of performance. Comparable data for earlier year may be given separately.
The MOU should contain the past five years' performance data on criteria included
in the MOU in an appendix. It should also indicate the projections for the next five
years, as far as possible consistent with the corporate plan, if any.
While drafting the MOU the targets for various parameters should be based on
bottoms up approach where all individual units within the SLPE are actively involved
in target setting.
Various SLPEs have subsidiaries or have entered into Joint Ventures or propose to
have mergers or acquire other companies. It is necessary that the MOU should
reflect the essential aspects in regard to all such activities. In respect of
subsidiaries and Joint Ventures the SLPE should develop parameters which would
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broadly relate to the main objectives with which the subsidiary or Joint Venture was
entered into. Some parameters should also be there to indicate the expected
financial or physical (or both) returns during the year. Suitable weightages should
be provided for them.
Specific areas in which further autonomy and financial powers desired may also be
incorporated with justification as to how these additional powers will stimulate the
growth of the company. The delegation of powers asked for should be relevant and
related to agreed performance targets.
Action plan for implementation of MOU with expected gains from each of the MOU
criteria should be clearly mentioned in the MOU.
The Information flow from the SLPEs should be precise, clear and simple.
MOU Evaluation :
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MOU Composite score Grading
3. Net Profit :- It is the gross profit less interest and less provision for tax less
extra ordinary items(Net).
4. Net Worth :- It is the paid-up capital plus reserves less accumulated losses
and deferred revenue expenditure to the extent not written off.
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6. Capital Employed :- It is the Gross Block less accumulated depreciation
plus working capital.
7. Gross Sales :- It means the total turnover and includes elements of excise
duty, commission and discounts, etc.
8. Added Value :- Added value is the residual after meeting the due returns
to labour, capital and materials that reflects the overall efficiency of the
SLPEs. Added value may be computed as gross margin less returns to capital,
which in turn may be computed as capital recovery factor @4 % the capital
employed for social sector SLPEs and @10% for all other SLPEs.
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