Sample Assignment MS-43 Jan-June 2017

Course Code MS - 43 Course Title Management Control Systems Assignment Code MS-43/SEM - I/2017

Assignment Coverage All Blocks

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School of Management Studies

INDIRA GANDHI NATIONAL OPEN UNIVERSITY MAIDAN GARHI, NEW DELHI – 110 068

1. What are the implications of the ethical dimension in Management Control? Explain with the help of organisation of your choice. Give your suggestions on how the Management Control System could be made more effective? Ethics is defined as the rules or standards ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------, ethical decision ideology, other individual factors, organizational/position-related factors, and external environmental factors. The ethical system of an individual consists of his/her ethical philosophy and ethical decision ideology. An individual's ethical philosophy represents the collection of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------set-up. These are - utilitarianism, individual rights, and justice. The ethical decision ideology is concerned with ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------based on two dimensions: idealism, the belief that behaving ethically ensures positive results, and ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------on both idealism and relativism is called an 'exceptionist'. A person who scores ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------to as a 'subjectivist'. An individual's value system is an important ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------influence ethical behavior include the age of the person, the ego strength, his/her locus of control, and the level of moral development. The decisions taken by the individuals in the past are important factors that influence the present ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ethical decision ideology impact his/her decision history. Organizational factors directly impact the ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------are the organizational culture and structure, performance measurement systems, reward systems, and the position-related ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------operates, and the social factors. The integrated framework for ethical behavior ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------, and the external environmental factors. It helps in understanding the steps involved in ethical decision---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- can be controlled by managers. In the context of management control, ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------slack and managing earnings. Budgetary slack is a deliberate understatement of revenues and/or overstatement of expenses in the budget. It is caused by managerial intention rather than by an unforeseen error in the estimation process. Whether ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of open communications possible between the manager and his/her superiors regarding the ability and the support ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------. This may misguide stakeholders who use the financial statements to assess the organization's financial strength. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------incentives or recognition. In the operations function, ethical issues may arise in terms of productivity and quality or on the safety front. Better quality leads to more efficient utilization of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------for greater lead times, or accepting relatively poor quality. If the managers and employees in an organization are highly ethical and if the business environment and organization/job-related factors encourage ethical behavior, it can have a ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------increase their profitability, organizations may ask the employees to work in unhealthy or dangerous working conditions. Some issues that are important in terms of their ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------scrutiny and control over employees, and discrimination. The management control systems of any organization ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------; measuring performance through a set performance measurement system; and integrating the reward systems of the organization with the accomplishment of objectives and in turn

encouraging the employees to perform. Organizations use different mechanisms to control and monitor the ethical behavior of employees.

An organization’s Code of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and also the methods of implementing them.

In order to regulate ethical conduct, one of the best practices followed by organizations is to constitute an Ethics Committee. The Ethics Committee has to strike a balance between ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------face at all levels of functioning.

Ethics training for employees is the basic ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ethical implications of their decisions and actions. The ethics training program should be such that it strengthens the organization's stand ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------penalties for wrongdoing.

Corporate governance is an important aspect of the ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and all employees is monitored to check for compliance with the ethical code at all levels as well as with the mission statement and functional strategies of the organization.

Whistle blowing is an act whereby an employee ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------organizations in tracking and curbing unethical practices, which would otherwise damage the reputation of the organization and also cause harm to the well-being of employees.

It is necessary for organizations to incorporate reward ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of the employees toward the ethical programs of the organization. The system should ensure ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ or take proactive decisions that benefit the organization. Example:- Ethics Case Study

"We do not claim to be more unselfish---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of the shareholders, our own health and welfare of our employees... the sure foundation of our prosperity" – J.N. Tata

A strong focus on Value ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------approaches.

The values and principles, which have ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------to as the 'Code' ), which was first formally articulated in 1998. This was intended to serve as a guide to each ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------in Tata Steel through its four pillars concept.

In 2008, in line with changing times ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------was adopted by the Tata Steel Group Board in October 2008. It addresses contemporary issues of concern for global business along with the importance of implementing a sustainability protocol

The TCOC is a testament to Tata Steel’s ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------document serves as the ethical road map for Tata employees and Group companies.

National Interest being given foremost importance, The Code also embodies such values as clarity of communication, transparency, respect for others and an ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------involvement with all stakeholders.

The TCOC has added significance in the Group’s aspiration to be the global industry benchmark for value creation and corporate citizenship. It highlights the importance ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------process of production and sale of its products and services, the Company will strive for economic, social and environmental sustainability.

In the context of Tata Steel’s increasing ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------cultural and business related issues are addressed universally across the Group. The Tata Code of Conduct was launched in Tata Steel (Thailand), NatSteel in July 2007 and in Corus in January 2009.

All employees have a clear responsibility ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and modified constantly to ensure that they are not subjected to unethical practices.

The Communications function of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and goals for the future. The senior leadership team in the Company is actively engaged in communication on business ethics at various levels and forums. The Company does not ever hesitate to take visible disciplinary actions when necessary and no violation of TCOC---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------sense of accountability. July is celebrated as ‘Ethics Month’ every year, with numerous ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------proactively incorporated in the existing system.

ETHICS AND MANAGEMENT CONTROL SYSTEMS

During the recent time, the ethical ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of conduct. However, we need to answer the following questions: Why individuals in ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------explanations:

The overall environment in the nation ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------that should be tackled by the enlightened citizens of the nation through a collective voice and collective choice.

At the organizational level, the ethical ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and misappropriates the ethical misconduct can be checked only through properly designed norms and standards. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------its simplified version is as follows:

Decide the desired stat--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- and ethics policies.

Measure ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------an `ethical audit'.

Initiate remedial action: ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------practices, issue proper warning signals to prevent unethical behaviour, "It is better to foster ethical ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------for moral and ethical correction

Maciariello and Kirby (1997---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------iour and preventing "ethical violations".

Step 1: Goal setting: -------------------------------------------------------------------- of the organization. Step 2: Sensitizing: Sensitize ------------------------------------------------------------------ unethical behaviour. Step 3: Ethical audit: Audit --------------------------------------------------------------, standards and code of conduct. Step 4: Reporting: Report significant deviations from ethical conduct. Step 5: Investigation: ---------------------------------------------------------------------- violations. Step 6: Remedial Action: Implement ------------------------------------------------------------ behaviour.

In respect of ethics, there are two types of organizations viz., reactive and proactive. Reactive organizations tend to take the policing, witch-hunting and scape-goat approach. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------putting the expectations, norm and standards in writing in the form of a "rule book". This achieves two purposes. First, the alleged violations can be compared with the norms and standards and unnecessary ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------as well as through ethical counselling. Many a time, the question of ethics in -----------------------------------------------------------------------------------------------------------------------------------------------------------------many ethical failures can be avoided and ethical violations can be prevented.

2. ‘Every Responsibility Centre Manager in an organisation is an Expense Centre Manager also’. Do you agree with this statement and if so, try to demonstrate the same by giving examples. A responsibility center is a part or -----------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------responsibility centers. The most common

responsibility centers are the departments within a company.

When the manager of a responsibility center can control only costs, the responsibility center is referred to as a cost center. If a

manager can control both costs and ---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------center. If a manager has authority and responsibility for costs, revenues,

and investments the responsibility center is referred to as an investment center.

The organization is ------------------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------put under the charge of a responsibility manager.

The targets or budgets of each responsibility centre are set in consultation with the manager of responsibility centre, so that he

may be able to give full information about ------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---------------------------------------responsibility and authority of each centre should be well defined.

Managers are charged with the items and --------------------------------------------------------------------------- of direct control.

Goals defined for each -------------------------------------------------------------------------------------------------- performance.

The actual performance is communicated to ----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------are also conveyed so that responsibility may be fixed.

The purpose of all these steps is to assign responsibility to different individuals so that their performance is improved and costs

are controlled. The personal factor in -------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------the initiative and the will of the workers to execute it

Expense center or cost center is a term that refers to departments, services or machines within organizations that are considered

to be of no direct financial benefit to --------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------for this reason they are considered to be something of a drain on the finances of the

organization. Expense centers are usually maintained ----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------sort of obligation or expectation.

Examples include ---------------------------------------------------------------------------------------------- contact centres.

Although they are not always demonstrably profitable, a expense centre adds value indirectly or fulfils some other corporate

mandate. For example, research and ----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------- increased customer loyalty.

Because expense centres has a -----------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------by cost considerations. Investments in new equipment, technology, and staff are

often difficult to justify to -----------------------------------------------------------------------------------------------------------------------------

------------------------------------ into bottom-line figures.

Business metrics are sometimes employed to quantify the ---------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------------------------------------time,

service level, and cost per call are used to justify current or improved funding.

Another example of an expense center is a customer service center that may be one of the services perceived to drain the finances

of a company. Such a company ----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------from the returns. This is perhaps the reason why human customer service

representatives are often replaced with computerized systems wherever possible in a bid to reduce the perceived drain on

resources. Some companies even outsource customer --------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------have a hard time

communicating with them. This is a result of the perception of such services as expense centers and a bid by the companies in

question to reduce the money spent on such services at all costs.

One common denominator linking expense --------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------in the event of any financial crisis within the organization. The reason

for such an action is the fact that these departments do not contribute -------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------hand, the departments that are considered

essential — especially the ones that generate revenue — will still be maintained.

As we know that an expense center in ------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------- is known to be expense manager for that responsibility center.

Example of Responsibility Centre

The Sarva Shiksha -------------------------------------------------------------------------------------------------------------------------------------------------

---------------------------------levels are identified. These groups would oversee the policy, planning, implementation and monitoring

of all quality related interventions. Their major role would be to advise and assist at various levels in curriculum development,

pedagogical improvement, teacher -----------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------------operational levels, namely -

national, state, district and sub district. The following could be involved in the groups:

National level - ------------------------------------------------------------------------- and eminent educationists.

State level - SCERT, ------------------------------------------------------------------, experts and eminent educationists.

District level - DIETs, -------------------------------------------------------, innovative teachers from the districts, NGOs.

Sub-district - BRC/BEO, ----------------------------------------------------------------------------------- teachers.

3. Explain Performance Reporting in detail? What are the uses and limitations of Performance Reports? Performance reporting is an --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------, utilization of resources, and forecasting future progress and status to various stakeholders, ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------to the project performance baseline. These performance reports include:

Status -------------------------- ------------------------ Reports ----------------------- Reports ------------------------------- Variance ------------------ During the process of performance reporting, the work results of other processes are also analyzed and combined into performance reports. They are -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------formats these reports can take are Bar charts, S-Curves, Histograms, Tables etc. Understanding the definitions of ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------we need to look at the various inputs, that these reports takes into account. 1. Project ---------------------- Plan – The Project Management Plan ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------the project performance baseline. The performance measurement baseline typically integrates the scope, ------------------------------------------------ technical and quality parameters. 2. Work Performance Information (WPI) – This is the -------------------------------- on performance results such as-

----------------------- status Schedule ---------------------------- ------------------------------------ 3. Work Performance Measurement – Work Performance ----------------------------------------------------------------------------------------------------------------------------------------------------- compared to planned progress. These metrics include –

Planned --------------------------------- performance Planned -------------------------------------------- performance Planned --------------------------------------------- performance 4. Budget Forecasts – Budget Forecasts provide ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------the completion of project work. 5. Organizational Process Assets – The Organizational ----------------------------------- project performance includes, but is not limited to –

Report -----------------------------------------------------. ------------------------------------------------------ indicators to be used. Organizationally ------------------------------------------ limits. Now let’s us move on the types of reports. Status reports: This gives the current state ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------baseline. Using this, managers can also get the current snapshot of project with respect to the scope, time, cost ,and quality parameters.

Progress Reports: This reports ---------------------------------------------------------------------- the last time/last report. Forecasting Report: This report states what is ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and allocation of resources for better utilization. Trend Report: This report shows a ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------compared monthly, quarterly, semi-annually or annually. This report examines project performance over time to see if it is improving or degrading. Variance Report: This report shows a comparision between the planned progress and actual progress made. Earned Value Report: This report ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------this report are merged into status reports. Top 5 reasons why performance reporting is a priority-

Business organizations need to understand ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------out business processes blindfolded can plunge an entity into pitfalls since it is not able to measure its key metrics. To enhance business process optimization, there are different parameters, which need to be measured ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------well as production output. The following are top 5 reasons why companies need to prioritize performance reporting in their business processes; 1. Set benchmarks for improved performance One of the immediate benefits of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------to new ideals and methods that improve effectiveness and efficiency while enhancing customer satisfaction. Through performance reporting, a company is able to gather essential data that helps stimulate thought-provoking discussions and identify ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and eliminate guesswork. It is also able to prioritize its improvement opportunities. 2. Measure, control and monitor the workforce Businesses need to use key performance indicators- KPIs in the top-down command and control method. This helps in controlling workers behavior and their actions---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------there are any variances, a feedback is provided. This helps improve conformity and eliminates variance in performance. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------business process but also strengthens cohesion among subordinates, management and the employer. 3. Demonstrate compliance and produces external reports Within a business set up, it is important for the entity ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------such as annual financial statements and accounts or it could be voluntary where the company produces reports to help strengthen its corporate social responsibility. If businesses do not produce their mandatory reports as required by the ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------, which they provide when it’s required. 4. Learn and enhance performance In the day-to-day business process management, ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------provides real time information about the business performance. The reports are used to inform management on key ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------among the employees leading to increased productivity and profitability. 5. Improves communication among, investors, managers, subordinates and customers Performance reporting improves customer ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------, employees understand the needs of the consumers. On the other

hand, senior managers can understand the demands of the employees thus reducing workplace conflicts. Investors are able to understand the current status of the business performance and where it’s heading. Uses of Performance Reports Very often it is found that ------------------------------------------------------------------------------------------------------------------------------------------------------------------! While this aspect of utility of reports cannot be totally ruled out, it needs also to be kept in view that the primary purpose of a report is to trigger of decisions - decisions for better planning and more effective control. Coming to the planning part first, reports should ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------on special issues or one-off situations and planning process follows accordingly. The Routine Reports also improves planning process through improved decision making in a large and diverse number of operational matters. In ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------than providing just feedback information. Next we come to the control dimension. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------or performance yardsticks (e.g. budgets, standard costs, etc.) throw up the divergences (favourable / adverse and large / small) and thus draw the attention of the recipients to the areas that need managerial action. As a sequel certain ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------possible the emerging gap between what is happening (actuals) and what should be happening (norms). ' We have to sound a note of caution at this ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------crumbled down and managers realised that these are two sides of the same coin. A good manager ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------the immediate next period. Limitations of Performance Reporting and Cost Controllability First and foremost one should remember ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------do the job; it is the human beings - the managers receiving such reports who will have to do it. This brings us to a very important dimension in the decision making process the human dimension or as it is called the Human Factor in Management. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- wary of taking decisions or initiating actions even when performance reports would warrant them to do so. The next intriguing aspect or ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------facts. Otherwise it would not be possible to take right decisions based on the figures alone. Finally, reports are reports only - these ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------using his own judgement a manager may have to take a decision that are at variance with the contents and ----------------------------------------------------------- might be found to be in order. Last but not the least is the Cost --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- as controllable and non-controllable and this is strongly advocated by the accountants. But the fact of the matter is that controllability of costs would depend on four factors:

The ---------------------------------------- The level of ---------------------------------- in the organisation The ---------------------------------------------------- at the moment The time-frame (for e.g. everything is controllable in the long run but uncontrollable in the very short run)

This, the classification of costs into ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of management, different situations and different time-frames, the management accountant should work out ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------meaningfully and effectively as a tool for cost control, otherwise not.

4. What are the difficulties that you may face while designing the Management Control System for service organisations. You may select any service organisation of your choice. Broadly, management control ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------planning and control systems.

The term ‘management control systems’ emphasises on two distinct, but highly interrelated and sometimes indistinguishable, subdivisions of controls systems:

(i) Structure or organisation structure or ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------measures and the information that flows among these responsibility centres.

(ii) Process or set ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------purposes.

The process consists of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------, measurement and evaluation of actual performance.

The structure of a management control system ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------the organisation together so that each part, by exercising the autonomy given to it, fulfills a purpose that ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of the organisation.

The control system should be designed to ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------control is the achievement of unity in diversity through coordination, in pursuit of short-term objectives and long-term goals.

Difficulties in designing the Management Control System for service organisations-

Service organizations are those ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------, beauty parlors and other personal service; repair services; motion picture, television and other ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------organizations. There are some differences between management control system in service organizations and those in manufacturing organizations. There are ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and responsibility centers, including profit centers and investment centers for organization units that meet the ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of performance, and the appraisal of that performance. Because of their relatively recent development, ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------difficulty of measuring both the quantity and the quality of output, judgments about both the efficiency and the effectiveness of performance are more subjective than is the case when output consists of physical goods, which ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------not easy to measure; this suggests that a search for better tools for improving its measurement is likely to be eminently worthwhile.

The service organization I am referring here is insurance sector.

The central management control problem in ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------years later. They set premiums based on their best estimates of inflows and outflows associated with the policy. The profit of any policy can't be known until the maturity of the policy and settlement of the final, claims, but management ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of performance for current business therefore for control purposes insurance managers give more attention to expense control and product pricing.

1) Product pricing

Any insurance company may have ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------features like tax saving, financial planning, capital appreciation etc. The pricing of the policy will depend upon the ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of premium consider's the following factors.

Acquisition cost: The commission paid to the sales ------------------------------------------------ sales organisation.

Servicing cost: Cost associated with collection ------------------------------------------------------------- overhead.

Lapse probability: The probability that ------------------------------------------------------------------------ of premium.

Investment income: The income that --------------------------------------------------------------------------- is paid.

Probability of payment: For life policies this depends on the age of the person insured and the probability of death is determined from mortality tables and other demographic data. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------amount of payment against these events.

Income taxes and statutory regulations: Income tax ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------profits and bonus as per the norms specified.

Required earning rate: The rate at which ------------------------------------------------------ at their present value.

2) Sales Performance

Up till recently the insurance business in ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------here is that apart from hard core selling, efforts should be made for product development viz. designing policies which caters to the need of a large proportion of insurable population.

3) Expense control

As with any other industry expense ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------the holding of assets. In order to ensure that contractual liabilities of policy holders are meet the assets hold be managed in a prudent manner taking in account the profile of liabilities held by the company and the risk return profile of the assets. The ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------control system should focus on the following areas.

1) Assets Liability Management: A key ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------, term and liquidity to meet those liabilities which becomes due. This requires the testing of resilience of the ---------------------------------- and it's impact on solvency position of the company.

2) The Investment Process: Depending ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------third party investment managers,

a) Bonds and ------------------------------------ securities b) Equities and -------------------------------- instruments c) Debts, --------------------------------------------) Property The holding of a given asset portfolio carries a range of investment related risks, technical provision and solvency which needs to be monitored, measured, reported and controlled. The main risks are a) market risk b) credit risk c) liquidity risk d) operational risk. The ---------------------------------------------- the following steps. a) Formulation and ---------------------------------------------------------------------------- policy.

b) Implementation of the investment -------------------------------------------------------- precise investment mandate.

c) Control, measurement and analysis ------------------------------------------------ been achieved and the risk taken.

d) ---------------------------------------------------------------------------------- level of authority

For a successful investment strategy the insurance companies must ensure the existence of the following

a) The definition of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------incurred by the company and its risk appetite.

b) Ongoing Board and -------------------------------------------------------------------------------- for investment activities.

c) Comprehensive, accurate and flexible system which allow identification, assessment and measurement of investment risks, and the aggregation of risks prevailing ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------capturing and measuring all significant risks in a timely manner understood by all relevant personnel at all level

d) Key control structures-----------------------------------------, verification and reallocations.

e) Adequate procedures ------------------------------------------------------ of investment performance

f) Adequate and timely ------------------------------------------------------------- activities at all levels.

g) Internal procedure to --------------------------------------------------------- and procedures in place

h) Rigorous and effective --------------------------------------------------------------- control and compliance

i) Procedure to identify and control the ------------------------------- the process to key personnels and systems.

Formulation and approval of the investment policy is the responsibility of the Board of Directors. The main factors considered by the board for formulation of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and solvency.

3) Risk Management Function

A part of the premium collected by ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------returns from these investments is used to pay bonus on policies and settlement of claims. Bad investment can give risk to non fulfillment of contractual obligation and default on payment of bonus and settlement of claims. In order to avoid this the ---------------------------------------------------------------------------------------------------------------------------------------------------------------investment activities. The risk management team should be responsible for

a) Monitoring ------------------------------------------------ investment policy

b) Formally ------------------------------------------------------ breaches.

c) Reviewing asset risk ------------------------------------------ over the past period

d) Reviewing the ---------------------------------------------------- position

e) Assessment of the appropriateness of the allocation limit, to do this regular resilience testing should be undertaken for a wide variety of market scenario ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------should ensure that appropriate change are made in policies and procedures as defined in it's investment manual.

4) Internal Controls:

Adequate system of internal control must be ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------procedure should include the following.

a) Reconciliations --------------------------------------------------------------------------------- and the accounting systems.

b) Procedure to ensure that limits and ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------compliance', legal and documentation divisions.

c) Procedure to ---------------------------------------------------------------------------- is completed promptly.

d) Procedure to ensure -------------------------------------------------------------------------- and other intermediaries.

e) Procedure to ensure that trades------------------------------------------------------------------ receipts are identified

f) Procedure to -------------------------------------------------------------------------------------------- and conditions.

g) Procedure to ensure that ---------------------------------------------------------------------------------- immediately.

h) Procedure to ensure --------------------------------------------------------------------------- for rate/price information.

5. Study the ‘Thana District co-operative Fisheries Project (B)’ case given in Block 5 of this course and analyse it.

The Thana district had a coastline of about 110 km, and its coastal waters were endowed with the most important commercial sea fish-pomfret,' It had 45 fishing villages ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------membership of about 19,000. All these societies were affiliated to the Thana Zilla Machhimar Madhyawafti Sahakari Sangh Limited, Palghar (TZM S) - a federation of fisheries co-operatives at the district level. The principal activities of TZMS were marketing of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------capacity of about 100 tonnes at Palghar.

Though pomfret constituted the most ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------on, fishermen of the Thana district, particularly from Satpati, first started using nylon twine for the gill nets. These nets were tried in ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------fishing. Since then their use had been increasing. The sanctioned project involved the following activities and capital investment.

The capital ----------------------------------------------------------------- as under:

1. Rs. 41,52,460 as a loan at ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Maharashtra State Co-operative Bank and the Thana Zilla Central Co-operative Bank.

2. Rs. 13, 48,000 as special ------------------------------------------------------- ultimately be treated as subsidy.

3. Rs. 43,--------------------------------------------------------------------------------------------- TZMS.

The working capital requirements --------------------------------------------------------------------------------------------------------------------------------------------------------Bank by way of cash credit arrangement at an interest rate of6'/n % per annum.

Economics of the Project The operation of fishing boats was ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------a fishing trip and their estimated wages for the nine-month fishing

season. TZMS, which was responsible for operating the scheme, was expected to earn Rs. 6, 22,581 annually from different schemes under the project as detailed below:

Allotment of Boats, their Cost, and the Repayment of Instalment Each boat was allotted to a group ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------operations delivery of catch to the project, repayment of loan, etc. The estimated cost of each boat was Rs. 1.20 lakhs. it was to be financed from TZM S' funds (Rs. 910), a special subsidy by the state government (Rs. 29,500), and a bank loan (Rs. 89,590). However, the ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of Rs. 8625.68 towards loan repayment plus an interest on the outstanding amount for the next ten years. TZMS, in turn, was to recover the amount from the groups of fishermen through the sale proceeds of their catches to repay ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------gears, and (3) Rs. 910 contributed by TZMS before the title to the boat was passed on to the group.

Management and Administration

The project was to work under the policy ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Manager responsible for the administration of the project, Mr. Divekar was assisted by a staff of 23 persons (an accountant, a cashier, seven clerks, three supervisors, 10 packers, and a peon) to discharge his responsibilities. His functions were ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------of sales from the Bombay office and keeping an individual account for each boat, arranging for supplies (both required for each trip as ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------loan, and settling the accounts of the groups.

Operation of Boats, Procedures followed for Handling Catches, their Sales, Supplies and Requisites, and Settlement of Accounts

Each boat-was allotted to a group of ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------employed three contract labourers (on an average) and paid them monthly wages of Rs. 75 to Rs. 100 besides their food expenses while on trips. Thus, a crew of 10 persons operated the boat for fishing. Most of the fishermen who were allotted these boats had ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------training, under stipend scheme, to at least one person from the group in each boat.

Before starting on a trip, the group drew ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Rs. 450 to Rs. 500 for a trip of 4/5 days. For, keeping a control over these expenses, the general manager of the project in ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------cost of diesel, mobile oil, and ice alone, for a trip of 4/5 days, amounted to Rs. 350.

Most of these fishermen knew through ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------the coastal areas surveyed for a variety of prawn fish in the mid-60s. The Superintendent of Fisheries was to provide information for the development of fisheries and arrange meetings to discuss such

matters. However, fishermen rarely consulted the ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------place for delivering the catch to the project.

The supervisors of the project kept vigilance on ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------to the harbour only on high tides and, therefore, the supervisors remained present at the place during such times. However, as they resided close to the harbour, they Could be contacted at any time. As soon as a boat returned to the harbour ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------to the project.

All fish brought in the boat were sorted out in ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------and then sold by the group. Quality fish were further sorted out into saraga (white and silver pomfret of medium size) and other miscellaneous fish mostly consisted of Yam, Shingara, Ghol, Dara, Halva, Tamb, and Komda. The project kept ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------in the local market in case of demand, otherwise they were dried and sold by the groups. Proceeds from the sale of non-quality fish (sold in the local market) and dried fish were kept by the fishermen themselves. According to them, such ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------that was left with the group of fishermen.

Quality fish handed over ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------. from Satpati.

The fish auction market at Bombay had 46 commission agents and three co-operatives which sold fish in wholesale through auction. One commission agent handled ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------agents. About 700 to 800 fisherwomen and men purchased fish for retailing, about 50 to 60 persons purchased fish for parcelling to outstations, and 8 to 10 stockists purchased fish for deep freezing. Practically all commission agents and co----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------usually granted one per cent rebate out of their seven per cent commission to the co-operative societies offering fish for sale.

After verbal negotiations between the ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------These prices depended on the demand and supply. If fish were not lifted at this rate, either due to poor quality or some other reasons,' ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------the fishing seasons, when the supply was large; they were the highest during the monsoon-an off season.

Immediately after sales, the TZMS sales office ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------checked the calculation and kept the bill on file. At the end of the month, the TZMS sales office sent a consolidated statement for each fish boat and overall bill for the project indicating the total sales, value, expenses such as TZMS' ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------to the project. The project office completed each individual boat's current account in which debits for supplies and cash payment to the groups of boat were also recorded. They also kept accounts for each boat for the boat loan and temporary loan, besides the ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------current account as per the bank's requirements. Between the boat loan account and temporary loan account, the first recovery was. effected towards the temporary loan account.

The project office, after the completion of accounts, ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------the amount on account of supplies and requisites in the current account, the group could do very little to recover the amount.

Though the boat and engine lives were considered to ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------, accessories, and fishing gear had a much shorter life and needed replacement. Usually, in the off season (May-August) fishermen repaired their nets for which they required nylon twines, nets, ropes, floats, sinkers, etc., and overhauled some ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------payment of this amount to the fishermen's group at one time in the off season, to be recovered by the end of the next fishing season, i.e., May. Since the boat had gone into operation only a few months back, only a few payments had been made so far. ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------office first adjust any deduction from the sales proceeds of fish in their temporary loan account and thereafter, in the boat loan account as was done by the bank.

The General Manager's Problem

Mr. Divekar was concerned about ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------groups were handling over their catches to them since the operation of the scheme, but except for taking care of the variable expenses of the boat trips, the project had not paid them anything for their family needs. He was finding it difficult to enforce their decision to ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------diesel, mobile oil, and ice. Some of the groups which had brought large catches in the earlier season were bringing lower catches in this season. He wondered whether the season was bad that year for fishing or whether some boats were ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------and what the group to maintain a log book,' but this was not introduced so far.

He believed that he could do very little on the ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------by him. Should he hold supplies in anticipation of higher prices to fishermen? Sometimes fish was kept in the.Satpati Society's cold storage at a cost of 50 Ps. Per case, but this was only for one or two days either due to delay in transporting or if the catches ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------whether this should be done on behalf of the group of fishermen instead of the TZMS and if so who should take the decision.

He was also concerned about the ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------of the catches delivered to the project.

He wondered whether the overall systems ------------------------------------------------------------------------------------------------ any incentive for more production and delivery of catches to the project.

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