Paper Solution 2007

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

one of the many criteria used to judge the performance of an accounting system. The system can achieve its goal more effectively and perform better when organizational goals can be well aligned with the personal and group goals of subordinates and superiors. The goals of the company should be the same as the goals of the individual business segments. Corporate goals can be communicated by budgets, organization charts, and job descriptions.

Goal Congruence- Meaning Individuals work in different hierarchies and handle different

responsibilities & may have different goals. But they must come together as far as Company’s Goal is concerned (there action must speak Co’s language.) Goal Congruence Example 1– The HR manager has devised a HR training program to enhance the skills of its sales personnel, with an objective to enhance their productivity But if company is in strategic need of attaining a certain sales volume in a given quarter, it can not do so on account of non availability of personnel. Example 2– The marketing department has planned an impressive advertising campaign, which promises good returns, But say due to cash crunch Company’s current financial position may not let to lose the strings Example 3 – Production Manager may get a good applause for reducing cycle time; But at what cost? Building up the high inventory i.e. higher investment in current assets. While doing so he just overlooked the financial interest of the company. • After completing the given activity in more efficient manner the concerned manager scores the point/s on his score card. • Whether his actions are leading to scoring of points on the organization’s score card too? if it is so then only one can say the organization is marching towards a common goal. Every individual working in an organization has got his own motive to do the work. Individuals act in their own interest, based on their own motivations. And it is always not necessarily consistent with the Co’s goal. In a goal congruence process, the actions the people are led to take in accordance with their perceived self interest are also in the best interest of the organization i.e. Goal congruence ensures that the action of manager taken in their best interest is also in the best interest of the organization.

Informal factors that influence goal congruence: External Factors External factors are norms of desirable behavior that exist in the society of which the organization is a part.

Certain practices become rituals. some countries. such as Japan and Singapore. the rules and norms accepted by the union also have a major influence on the organization's culture. and their superiors' attitudes ultimately stem from the CEO. specific to the city or region in which the organization does its work. others are less ebullient. Organizational culture is also influenced strongly by the personality and policies of the CEO. Usually. Cultural norms are extremely important since they explain why two organizations with identical formal management control systems. In encouraging companies to locate in their city or state. the greater the resistance is. although no one may remember why." Others are taboo ("we just don't do that here"). Still others are national. the official authority and responsibilities-of each manager. for example. which is manifested in employees' loyalty to the organization. Some spend much time looking and talking to people (management by walking around). The chart may show. Management Style  The internal factor that probably has the strongest impact on management control is management style. The Informal Organization  The lines on an organization chart depict the formal relationships-that is. chambers of commerce and other promotional organizations often claim that their locality has a loyal. diligent workforce. But in the course of fulfilling his or her responsibilities. may vary in terms of actual control. shared values. others rely more heavily on written reports. If the organization is unionized. subordinates' attitudes reflect what they perceive their superiors' attitudes to be. often collectively referred to as the work ethic. A company's culture usually exists unchanged for many years. have a reputation for excellent work ethics. Internal Factors Culture  The most important internal factor is the organization's own culture-the common beliefs. and by those of lower-level managers with respect to the areas they control. carried on almost automatically because "this is the way things are done here. norms of behavior and assumptions that are implicitly and explicitly manifested throughout the organization. and their pride in doing a good job (rather than just putting in time). Some are charismatic and outgoing. Some of these attitudes are local that is. and the larger and more mature the organization.These norms include a set of attitudes. their spirit. Attempts to change practices almost always meet with resistance. Other attitudes and norms are industry-specific. Managers come in all shapes and sizes. their diligence. that the production manager of Division A reports to the general manager of Division A. the .

Moreover. although increasing current profits. Engineering Expenses Centre. They receive this information through various channels. For example.g. and people who are simply friends and acquaintances. the budget mechanism may convey the impression that managers are supposed to aim for the highest profits possible in a given year. operating managers must know what these goals are and what actions they are supposed to take in order to achieve them. c. and the actions that should be taken by anyone part to further the common goals cannot be stated with absolute clarity even in the best of circumstances.production manager of Division A actually communicates with many other people in the organization.. the messages received from different sources may conflict with one another. The word ‘Discretionary must be properly understood. both formal (e. Example of such expenses centres are human resource department. Q2) Briefly define Discretionary Expenses Centre. industrial relations department etc. accounting department. whereas senior management does not actually want them to skimp on maintenance or employee training since such actions. (2) Discretionary Expense center:. An organization is a complicated entity. conversations). Their output can be measured in physical terms. may not pay adequate attention to messages received from the general manager. The optimum rupee value of input required to produce one unit of output can be determined. budgets and other official documents) and informal (e.  Perception and Communication In working toward the goals of the organization. the production manager. or be subject to differing interpretations. in other words all administrative and support functions fall within the ambit of . with all these other communication sources available. legal department. might reduce future profitability. as well as with other managers. support units. this is especially likely to occur when the production manager is evaluated on production efficiency rather than on overall performance. Profit Centre and Investment Centre? How is budget prepared in Discretionary Expenses Centre? How is performance of manager evaluated in a Discretionary expenses Centre? Answer: (1) Engineered Expense centers – It has following characteristics a. b. they are known as ‘Discretionary Expense Centre’. Despite this range of channels.Where the output centres cannot be measured in terms of money. In extreme situations.. Their inputs can be measured in monetary terms.g. The realities of the management control process cannot be understood without recognizing the importance of the relationships that constitute the informal organization. it is not always clear what senior management wants done. the headquarters staff.

The profit centre concept is powerful one. The merits of this method are simplicity and saving in time. for cost of compaaraable work in similar units. it is called as profit centre. The shortcoming are that during business downturns. management by objectives technique is generally used. which is the difference between the revenue and expenses. Secondly. In case of discretionary expense centre an optimal relationship cannot be established between inputs & output (3) Profit Centres: In the language of Anthony “when financial performance in a responsibility centre is measured in terms of profit. They are: (i) Incremental Budgeting:In case if incremental budgeting the expenses incurred during a particular period in a discretionary expenses centre is taken as given. Available evidence suggest that the same is not necessary . change in management etc. for inflation. the present level of expenses is assumed as the starting point. Managers of DEC are interested in providing additional services and as a result they have a tendency to make request for extra resources during budgeting. the responsibility centre is called a profit centre”. this has a tendency to increase overheads expenses from period to period. such expenses are substantially reduce without making a bad impact on the business. organizations in India have been found to use this method. In so far budget for Discretionary expenses centres are concerned. Thus if the performance in a responsibility centre is measure in terms of both the revenue it earn and and the cost it incure.. It is therefore the ultimate extension of the responsibility idea. Measurement of the investment base or capital employed gives rise to many difficult problems and the idea of the investment centre being new. Profit as measure of performance is especially useful since it enables senior management to use one comprehensive measure instead of several measures that points to different directions. which is generally sanctioned. To quote Anthony. (4) Investment Centre: An investment centre is a responsibility centre in which the manager is held responsible for the use of assets as well as for revenue & expenses. The manager is expected to earn a satisfactory return on capital employed in the responsibility centre. Proper adjustment are made to the expenses in order to arrive at budgeted amounts. In other words. Generally.” MBO is a formal process in which a budgeted proposes to accomplish specific tasks and states a means for measuring whether these tasks have been accomplish”.discretionary expense centres. for expenses changes in the work load of continuing tasks. Budget Preparation in Discretionary Expenses Centre While preparing a budget for a discretionary expenses centre. The adjustment are carried out for special tasks. two methods are used. there is considerable disagreement as to best solution of these problems.

it takes a lot time and energy and can be nightmare for responsibility centre heads whose operations are being reviewed. Where the amount expended is higher than the budget. actual expenses incurred by him are viewed in relation to the desired output. Cost and output measures of the expenses centre are compared with averages of similar units within the firm. it causes concern. Responsibility centre heads consider such review as unnecessary evil. . Accordingly. Performance Evaluation in Discretionary Expenses Centre In case of an Engineered Expenses Centre the financial performance report is used for evaluating the manager’s efficiency. This is known as ‘intra-firm comparison. Such an exercise is called interfirm comparisons. Managers who spend in accordance with the budget amount or less are considered efficient. Secondly. What should be the level of quality? Are we doing to much? Is it desirable to perform the function in this manner? What should its cost be? Intra firm comparisons. a new base is derived. Zero base review is not a rose without thorns. Similar comparisons may be made with data which is published by trade associations and other outside organizations. There is no starting point. the main job of the discretionary centre head is to accomplish the planned output. such reviews are difficult. The people also speared rumors and create doubts in the minds of the people regarding the efficacy of the exercise.. They make concerted efforts to justify their present expenditure and of then do their best to foil the entire exercise. the spending is according to the budget the situation is looked upon with satisfaction. it goes by the name of ‘benchmarking’. The review which is extremely extensive in nature is builds up from scratch the resources that an activity needs. and bench marking are also used as a part of approach. When a comparison is made with information obtained by visits to a firm in which the performance is believed to be outstanding. In case. Each discretionary expenses centre is thoroughly analyzed. The management prepares a schedule that would cover all discretionary expenses over a period of five years or so. As a result off this exercise. The questions raised are: (i) (ii) (iii) (iv) It is necessary to perform the function at all? Does the same add the value from the view point of end uses (Customer). interfirm comparisons. It has its drawbacks also Firstly. It raises certain fundamental questions and challenges established norms.(ii) Zero Base Budgeting:Using Zero base review involves through analysis. The Zero base review does not take things for given. In contrast. Expenses incurred may be lower then the budget and this is an indication that the planned work has not been done.

If internal capacity is unavailable the company will buy from outside at the “Competitive Price”. .2009 Question No. a proper arbitration system. it is likely to use external sources. the buying and selling profit centre manager should be free to source but it may be unfeasible by company policy. (ii) (iii) If the company is a sole producer of a differential product then no external source exists. Integrated Oil companies send crude oil from the production unit to the refining unit even if there is an external market for the crude oil. Even though outside capacity exists it may be unavailable to the integrated company unless used on a regular basis or it may have trouble getting it externally when capacity is limited. a proper product classification system. (I) Ideal Transfer Price in the Situation of: (a) Limited market: Market for buying & selling profit centres may be limited due to: (i) The existence of internal capacity might limit the development of external sales. Even in the case of limited markets. Q3) Every SBU is a profit center but every profit center is not a SBU? What are the conditions that should be fulfilled for an organization unit to be converted into a profit center? What are the different ways to measure the performance of profit centers? Discuss their relative merit & demerits. a proper conflict resolution system.The manager of a Discretionary Expenses Centre plays a vital role in expenditure control. Answer:. unless the external selling price is equal to variable cost which is unusual. When internal capacity become tight.3 Q4) What are the objectives of Transfer Pricing? What is ideal transfer price in the situation of: (a) Limited Market (b) Shortage of capacity in the industry Answer: Transfer price can be very simple or complex depending on the business. The system should ensure that his approval is obtained before there is a budget overrun. Ideally. All of these have to be present for a market price based transfer price system to induce goal congruence. freedom to source and full information. competitive managers. the market is flooded with demand for the intermediate product. Most of the large companies in an industry are highly integrated hence production capacity for an intermediate product is limited. Ideally we need a proper negotiation system. These profit centres can handle only a limited amount of demand. good atmosphere. If a comaapy has invested in facilities. Hence the produced products are captive. the best transfer price satisfying all requirement of a profit centre is the “Competitive Price”. However. in reality a nominal percentage of overrun is allowed without prior approval. available market price. The difference between the “Competitive Price” and the internal cost is money saved by producing rather then buying.

e. the market price is always best “TP”. but purchase only half of the product externally and produce the balance internally. only if the lowest bidder gets the business. Here the output of the buying profit centre is restricted & company profit may not be optimum. transfer prices may be set on the basic of cost plus a profits. i. Conversely the selling profit centre will benefit by selling internally when the Buying Profit Centre cannot buy from outside because there is a shortage of supply in the industry. Even is a constrains on sourcing exists. (b) Shortage of capacity: If the selling profit centre sells externally all of its production. Top management should be aware of the politics involved in “TP” Negotiations. -How a define cost -How to calculate the profit mark-up. Buying profit centre deal externally arguing that outsiders provide better service. Companies put out a bid for all products. it can duplicate the ‘Competitive Price’ internally. it has excess capacity. which leads to rivalry in a decentralized company. then the company may not optimize profits if the buying profit centre purchases from outside.e. Top management does not interfere. (c) If the Buying Profit Centre purchases similar products from suppliers. (b) Market prices may be set by using ‘Bids’. if the company is producing in bulk.The usual basic is standards costs.enen though such transfer price may be complex to calculate and the result less satisfactory than a market based price there are tow based decisions must b in a cost transfer price system.Methods of finding ‘Competitive Price’ if there are no External Transaction (a) If published market prices are available they can be used to establish the “TP”. actually costs should not be used because production inefficient . based on the theory that keeping the profit centre independent will set-off the loss from sub-optimizing company’s profits. in spite of the capacity being available internally. Selling profit centre appeals if buying profit centre continue to buy from outside even when capacity is available internally & buying profit centre appeals if selling profit centre continue to sell externally even when internal demand exists. (II)When use the cost based transfer prices If companies prices are not available. it should find the external wholesale market price instead of the retail price. -The cost basic . which means there is a shortage of Demand in the industry. but these must be actual figures & consideration & consistent with “TP” for similar quantities i.

The seconds problems with the profit allowance is the amount of profits .an incentives is needed to tight standards and improve standards . Professionals: . Small in size: Generally. Consequently.the investment would be calculated at a “standards “level with fixed assets and inventories at current replacement costs. The skill of its human resources that is professional staff is its main asset.senior managements precipitations of the financial performance of a profit allowance should approximate the rate of return that would be earned if the business units an independent company selling required to meet the volume needed by the buying profit centre . Another goal of professional organization is to expand. -The profit makeup -In calculating the profits makeup there also are two decisions -What are the profits mark-up is based on the The level of profit an allowed. organizations are small in size and are small in size and are located at one place. Goals: While earnings a satisfactory return on assets is the main goal of a manufacturing organization. 2. While this leads to scale economics through better utilization of staff at corporate headquater it also reflects the success of the organization as size is an indicator of success. 3. professional. While such organizations are small. there is still the need to tie remuneration to actual performance. personal observation is possible on the part of senior management and this forms the basis for motivation of employees.if standards coasts are used . the need to have profit centres and formal reports of performance is less felt. Q5) What are the different methods to evaluate the performance of investment centre? Discuss the merit & demerits of each? Which method would you recommend? Answer:Q6) (a) What are the special characteristics of Professional Service organization? How marketing done in them? How do we evaluate the performance of a Professional Organization? Answer:(I) Special Characteristics of Professional Service Organization 1. the main financial goal of such organization is to pay adequate remuneration to its professional staff.-Will be passé on to the buying centre . prepare a budget. This means that the need to have an intricate management control system is lower. Accordingly. This being the case. it is not possible to calculate the same for non-profit organization as it possesses only a few tangible assets. regularly compare actual performance against the budget etc.

While professional organization are not capital intensive like manufacturing organization but labour intensive in nature. Similarly this affects the attitude of non-professional and other approved staff. (c) The number of patients that is treated by the physician daily. Another problem that arises in performance measurement is the unwillingness of professionals to maintain records relating to time spent. and evaluation of performance become a difficult task. . 4. planning the time required. drafting simple contracts. While output is the effectiveness of the professional work. this cannot be measured by: (a) The number of hours a consultant spends with his client or the number of pages in report. Whereas. wills. the problem arises in connection with the amount to be charged per hour for time spend on a job. the major portion of the work done by them can be considered as non-repetitive. Most of them do not possess a formal management education. This results in virtually ignoring the financial implications of their decisions. However. in respect of non repetitive tasks. they are interested in doing the job in the best possible manner without having any regards for the cost. Although this problem can de resolved if senior management takes the initiatives in ensuring accurate reporting of time. senior partners of consulting frims play an active role in consultancy assignment. Although some professional organization employs revenue as a measure of output. By virtue of their background. establishing standards considered reasonable for performing tasks. Senior partner of law firms have client. It is possible to develop standards for such tasks and use them profitably. professionals working in such organizations possess a number of characteristic. This is because traditional measures of performance which are used in manufacturing industry such as tons. some tasks performed by professional are repetitive in nature. deeds by lawyers etc. (b) The number of hours a lawyer spends in the court room or the number of pages a brief has. Measurement of Output & Input:One of the problems confronting a professional organization is how to measure the outputof its professionals. it must be appreciated that this measures volume of services provided by the organization and not their quality. As a result of the above characteristic. professionals have low regards for managers. and senior partner of accounting firms take an active part is audit assignments. The labour is of special kind Those amongst them who also work in the capacity of managers devote only part time attention to management activities. There are: (i) (ii) (iii) (iv) They like to work independently. Instances of repetitive work are physical stocktaking by auditors. units etc cannot be used in these organizations.

Skill of a consulting engineer can be measured by the quality of construction. (III) Measurement of performance and evaluation While it is possible to arrive at a judgment regarding the performance of the professional at the extremes. most of the organizations need to engage in marketing as its an essential activity. Generally. it must be mentioned that the audit reports of the entire firm is ‘peer reviewed’ by another firm. that is devote most of their time and energy to production make speeches. senior management uses its partially to give increments and promotions.(II) Marketing in Professional Service Organization: Whereas there exists a strict demarcation between manufacturing and marketing activities in manufacturing organizations. it is difficult to evaluate the performance of the major percentage of professional who figure within either extreme. However. There are objective measures of performance available for some situations such as: (a) (b) (c) Skill of a surgeon can be gauged by the success ratio of an operation. it is hard to find such dividing line in professional organizations. they have to be duly qualified. play golf. establish contacts and similar activities to market the organizational services. In the case of the matrix organization the head of the professionals functional unit and his project leader evaluates his performance. self. clients and subordinates may play a role in making such judgment. In the case of numerical ratings. Consequently. professional who work for clients. While some systems require non-numerical ratings of given attributes of performance. This are discussed with the concerned professional and forms the basis of personnel decisions. However. Performance appraisals are collected using formal systems. The superior. judgments are made by superiors in professional organizations. law and medical are debarred from openly marketing the firm’s services by virtue of their professional code of ethics. Professional working in professional firms is like accounting. The time actually spent can be compared with the planned time and cost . Whereas it is customary for a partner (other than the partner responsible for it) of an accounting firm to review the audit report. Internal audit procedures form the basis of quality control in respect of certain professions. peer. The human judgment forms the basis of evaluation of performance. The investment analysts recommendations can be compared with the market behavior actually displayed by securities. We have seen that budgeting control of discretionary expenses is useful both for manufacturing organization as well as for professional firms. there are others which call for numerical ratings of such attributes and a weighted average of the rating is derived.

for these entities do not exist to earn profit.performance can also be measured using the budget. officer or director. For any organization. because acceptance must come from senior management. (II) Performance Evaluation: The evaluation of performance is not possible using financial measures. The organization can. staff. such financial measures are not important. (b) Staff and volunteer (individual) performance evaluation Most of us are familiar with employee performance appraisals. The performance is therefore evaluated on the basis of comparisons between budgeted expenditure and actual expenditure. Board members have no clear impression of how they are performing as members of a governing Board. discussing and debating topics to make wise decisions. Such organizations are not prohibited from earning a profit but are prohibited for distributing profits. Poor Board operations. What is important is the present appraisal quality and quantity of the work performed. (a) Board self-evaluation Members of the Board of Directors should regularly evaluate the quality of their activities on a regular basis. To do performance assessment effectively. Q6) (b) What is a Non Profit Organization? How is the performance of the organization evaluated? Answer:(I) Non Profit Organization: A non profit organization is one that cannot distribute assets or income to. which evaluate the quality of an individual’s performance in their position in the organization. and board members alike. those appraisals reference the individual’s written job description and performance goals to assess the quality of the individual’s progress toward achieving the desired results described in those documents. or for the benefit of its member. Probably the biggest problem with Board self-evaluation is that it does not occur frequently enough. Unfortunately. including officers and members. the most important reasons to measure performance are to improve effectiveness and to acquire information that will allow the organization to drive its agenda forward. The principle of earning profit is encouraged so as to provide funds for working capital and contingencies. funders. while evaluating the contribution made by the professional to the profitability of the professional organization. of course. Continued problems in individual performance often are the results of . Activities might include staffing the Board with new members. developing the members into well-trained and resourced members. If the motivation for doing evaluation remains outside an organization. for services rendered and for goods supplied. the evaluation will have limited impact. compensate its employees. can adversely affect the entire organization. an organization must commit to adopting a culture of measurement. when undetected. and supervising the CEO. Ideally. As a result.

problems in these processes can be the result of any type of ineffective planning. Because these cross-functional processes span so many areas of the organization. development and operating activities. useful evaluation information is not provided to the strategic and program planning processes.poor strategic planning. If overall planning is not done effectively. . However. particularly because donors demand them to ensure that their investments are making a difference in their communities. more systemic problems in the organizations. those evaluations usually are not done systematically. (e) Organizational evaluation Ongoing evaluation of the entire organization is a major responsibility of all leaders in the organization. such as programs. When strategic and program planning are done poorly. or at all. resulting in their poor overall performance. As a result. When program evaluations are not performed well. Consequently. (c) Program evaluation Program evaluations have become much more common. the entire organization is adversely effected. program planning and staff development. Program evaluations are typically focused on the quality of the program’s process. goals or outcomes. both processes can be ineffective because they do not focus on improving the quality of operations in the workplace. stress and low morale. there is little feedback to the strategic and program planning activities. (d) Evaluation of cross-functional processes Cross-functional processes are those that span several systems. individuals can experience continued frustration. The activities of organizational evaluation occur every day. Experienced leaders have learned that continued problems in performance are not always the result of a poor work ethic – the recurring problems may be the result of larger. An ineffective program evaluation process often is the result of poor program planning – programs should be designed so they can be evaluated. Sometimes. Common examples of major processes include information technology systems and quality management of services. functions and projects. leaders do not realize that they have the responsibility to verify to the public that the nonprofit is indeed making a positive impact in the community. It can also be the result of improper training about evaluation. Leaders sometimes do not recognize the ongoing activities of management to actually include organizational evaluations – but they do.

• A way of Balancing long term and short term actions. • A way of tying strategy to measures to action. consequently aligning the efforts both of individuals and of departments. In this role. In this role. it can assist in the communication of the chosen strategy. Customer. the Balanced Scorecard was seen as integrating financial/non-financial. • A way of Balancing different measures of success such as: Financial. supporting scorecards can be developed for each department within the firm. Within each department. In short. there is a clear link between the Balanced Scorecard and management by objectives (MBO). (II) Superiority of BSC over other measures: There are several benefits from implementing a Balanced Scorecard. a scorecard can be developed for each manager (or perhaps even for each individual member of staff) which links . Answer: Balance Score Card: David Chaudron defines BSC as: • A way of measuring organizational. Later it was realised that the Balanced Scorecard could play a pivotal role in the strategic management process. BSC is a business management concept that transforms both financial and non-financial data into a detailed roadmap. Given the overall corporate scorecard. Originally the Balanced Scorecard was seen as a useful tool for performance measurement. Effective implementation of a Balanced Scorecard project will generally involve the development of a series of hierarchical (cascaded) scorecards. business unit or departmental viewpoints. Internal operations and Human Resources systems & Development. internal/external and leading /lagging information on firm performance in a coherent fashion. Because the Balanced Scorecard requires management to clarify and obtain consensus on the strategic objectives of the firm. that help an enterprise measure performance and meet both short and long term objectives.Q7) What is Balance Score Card? Why is it superior to other methods of Performance Appraisal? Prepare Balance Score Card for any organization you are familiar with.

By setting both short and long-term targets for driver and outcome measures and by comparing actual attainment against target. which is a worldwide leader in underwater engineering and construction. This enable the company to be viewed from four different perspective. In recent years. the Balanced Scorecard can be used to link strategy to specific critical success factors in the customer. The measures have been divided into four broad category. feedback is obtained on how well the strategy is being implemented and on whether the strategy is working. Market share. They select the measures like External (eg. Examples of these include investments which enhance the future ‘flexibility’ of a firm or investments in the firm’s infrastructure. Apart from the communication and co-ordination roles of the Balanced Scorecard in strategic implementation. Project Performance Index. team-based organisational structure. Safety Incident Index). Traditional methods of investment appraisal such as discounted cash flow do not cope well with investments which generate indirect rather than direct financial returns. The Balanced Scorecard can support such changes. You will find that all the measures given in the company’s BSC are specifically related to strategy. back to the objectives listed in the firm’s overall scorecard. such as an enhanced management information system. There are also derived measures namely staff attitude survey. The Balanced Scorecard could be used to assist in corporate restructuring. This could be achieved by using a weighting system developed from a firm’s Balanced Scorecard measures to evaluate new projects. The Balanced Scorecard can assist management’s investment appraisal decisions as it provides managers with a mechanism to incorporate the strategic aspects of the investment into the appraisal process. a global engineering and construction company. Building on the Balanced Scorecard’s use as a strategic management tool. customer ranking survey) and internal measures (Eg. as it can help clarify the objectives and the critical success factors for the newly formed teams. An index score would be calculated for each investment opportunity and projects would then be ranked and selected based on this score (III) Balance Score Card of Rockwater: BSC shown below is of Rockwater. many firms have migrated away from a traditional hierarchical structure to a flatter. it has been suggested that the Balanced Scorecard can play a role in the investment appraisal process(5). . time spent with customer on new work and outcome measures such as ROCE. a wholly owned subsidiary of Brown & Root.the objectives on each perspective for that manager back to the objectives for each perspective outlined in the scorecard for the department and finally. Rockwater strategy is to be the preferred provider in the underwater engineering and construction industry. internal business process and growth/learning perspectives.

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harvest.` Q8) What are the different types of strategies mission at SBU level? How do these missions affect strategic planning process and budgeting at SBU level? Answer:Business unit strategies deal with how to create and maintain competitive advantage in each of the industries in which a company has chosen to participate. hold. These models suggest that a firm has business unit in several categories. Of the many planning model two of the most widely used are Boston consulting group two by two growth share matrix and general electric company / mc Kinsey & company three-by three industry attractiveness –business strength matrix while these model differ in the methodology they use to develop the most appropriate mission for the various business unit. (IBM Computer) Harvest This mission has the objective of maximizing short term earning and cash flow . Build This mission implies an objective of increased market share. Make decision regarding the use of the cash generated from some business unit. & divest. Together the several unit make up a portfolio. even at the expense of market share. Divest This mission indicates a decision to withdraw from the business either through a process of slow liquidation or outright sale. even at the expense of short term earning and cash flow. identifies by their mission the appropriate strategies for each category differ. the component of which differ as to their risk/ reward characteristic just as the component of investment portfolio differ. Business unit mission In a diversified firm one of the important task of senior management is resource deployment. . The strategy of business unit depend on two interrelated aspect: 1) its mission (what are its objective) and 2) its competitive advantage (“how should the business unit compete in its industry to accomplish its mission”) . Several planning model have been developed to help corporate level manager of diversified firms to effectively allocate resource. Hold This strategic mission is geared to protection of the business unit market share and competitive position. they have same set of mission from which to choose: Build. Both corporate office and business unit general manager are involved in identified the mission of individual business unit.

Hence the required earning rate for such a business unit may be relatively high to motivate the manager to search for project with truly exceptional returns. Strategic planning While designing a strategic planning process.The mission for existing business units could be either build . Thus different mission often require systematically different management control system. nevertheless some strategic planning of the harvest business units may be necessary because the company overall strategic plan must encompass all of its business to effectively balance cash flow. The required information used to evaluate investment from harvest units is primarily financial.These mission constitute a constitute a continuum with “pure build” at one end and “pure harvest” at the other end. Given the product/market uncertainties financial analysis of some project . hold. A business unit responds to these issues tend to depend upon the mission its perusing. Management control system can be systematically varied to help motivate the manager to cope effectively with uncertainty and make appropriate short term versus long –term tradeoffs. Since the corporate office wants to take advantage of the opportunities in a growing market senior management may set a relatively low discount rate . If the environment is stable there may be no strategic planning process at all or only a broad brush strategic plan. A build unit is positioned on the growth stage of the product life cycle. When the environment is uncertain the strategic planning process is especially important. the strategic planning process is more critical and more important for build as compare with harvest . A harvest business unit operates in mature industry and does not offer tremendous new investment possibilities. Since harvest units tends to experience stable environment analysis often can be used more confidently. thereby motivating build managers to forward more investment ideas to corporate office. we develop the control mission “fit” using the following line of reasoning” • • • The mission of the business unit influences the uncertainty that general managers face and the short term versus long term trade off they make. several design issue need to be considered. or harvest . To implement the strategy effectively there should be congruence between the mission chosen and the type of control used. no financial data are more important. business unit s. . Thus . Management need to think about how to cope with the uncertainties and this usually requires a longer range view of planning than is possible in the annual budget. In screening capital investment and allocating resources the system may be more quantitive and financial for harvest units.

analyzing. thus manager knowledge less important. Q9) Short Note (d) Internal Control: ICAI state that “ Internal control is the plan. Build unit managers may have greeter input and influence than harvest unit managers in formulating the budget. complete and accurate accounting records. However a favorable variance neither imply favorable performance nor does an unfavorable or unfavorable variance. Protection of assets against possible losses. The following additional differences in the budget process are likely to exist between build and harvest units. job descriptions etc. one the one hand and favorable or unfavorable performance. budget revisions are likely to be more frequent for build units because their product/market environment changes more frequently. (ii) (iii) Accounting controls: This control covers the accounting systems and procedures.Budgeting Implication for designing budgeting system to support. Example: Delegation of authority. the accuracy and completeness of records and timely preparation of reliable financial information. varied mission is shown in figure. summarizing and reporting transactions. Timely preparation of financial information. posting. Generation of reliable. Physical controls: This includes providing for protective devices for safeguarding the assets. Administrative controls: This control deals with the functioning procedures that influence the decision making process and managerial authorization of transaction. adherence to management policies. Prevention and early detection of error and frauds. Objectives of Internal Control i) ii) iii) iv) v) vi) vii) (i) Adherence to managerial policies and directives. methods and procedures adopted by the management for the efficient conduct of the business. For harvest units with stable unit with stable environment. prevention and detection of fraud and error. depend upon the strategic context of the business unit under evaluation. calculating. This involves recognizing. on the other hand. The calculation of variance analysis comparing actual result with the budget identifies variances as either favorable or unfavorable. Compliance with statutory requirements. Adherence to management policies and authorization. This because build managers operate in rapidly changing environment and have better knowledge than senior management of these changes. safeguarding of the assets. • • In contrast to harvest units. Types of Internal Controls .

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