Raj Mohan XIME_Voltas Project Report

1 Improving Spinning service financials XIME

Voltas Limited

Improving financial utilization of employees and assessment of credit management across branches

Raj Mohan


PROJECT REPORT

ON

“IPROVING FINANCIAL UTILIZATION OF EMPLOYEES AND

ASSESMENT OF CREDIT MANAGEMENT ACROSS BRANCHES”

VOLTAS LIMITED

COIMBATORE

Submitted in partial fulfilment of the requirement for the award of

POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)

By

Raj Mohan C P

Roll No. 98, PGDM, 16th Batch (2010-2012)

Submitted on

27 August 2011

Under the guidance of

Mr. Hameed

Project guide

Voltas Limited

And

Mr.Muthu Goplalakrishnan

Project guide

XIME


Xavier Institute of Management & Entrepreneurship

Electronics City-Phase II, Bangalore-560100


Acknowledgements

My internship with Voltas Limited was a great learning experience. I learnt a lot about challenges faced

in service industry during my internship.

I thank Voltas’ management and Mr. Kamatchi Sundaram, General Manager, Textile Machinery

Division, Voltas limited for providing me an opportunity to work with Voltas. I also thank Mr. Hameed

and Mr. Dhayala Sundaram for their guidance throughout the project. I thank Mr. C Thangavelu for

getting me this opportunity.

I thank Mrs. Sunitha for providing the data required for my project.

I thank all the Voltas employees at Textile Machinery Division for their immense support, guidance and

for the valuable inputs that they provided.

I thank Mr. Muthu Gopalakrishan for his guidance and support.

I thank XIME for providing me an opportunity to work with Voltas.


Executive Summary

About Voltas

Voltas Limited offers engineering solutions for a wide range of industries in areas such as heating,

ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, mining and

construction equipment, materials handling equipment, water management & treatment, cold chain

solutions, building management systems, and indoor air quality. Textile Machinery division (TMD) of

Voltas does the sales and provides service for textile machines manufactured by its principals namely

Lakshmi Machine Works (LMW). They operate at ten branches all over India. The service division of

Voltas TMD deputes engineers to textile mills for services and charges the mills on the basis of number of

man-days. Charges per man-day depend on the type of service provided. TMD operates at ten branches

across India, namely Ahmadabad, Coimbatore, Delhi, Hyderabad, Indore, Nagpur, Kolhapur, Mumbai

and Madurai. TMD has annual revenue of Rs.9 crores. TMD has two subdivisions namely spinning and

post spinning. Spinning division provides services to spinning mills. Post spinning division provides

services to weaving mills. I worked with spinning service division.

Objectives

Objectives of this research titled “Improving spinning service financials” at TMD Voltas Limited are

1. To find out the opportunities to enhance service revenue in TMD spinning service by analyzing

the financial utilization of employees.

2. To study the effectiveness of TMD Service credit management across branches.

Results

Analysis of financial utilization of employees

In order to enhance service revenue, the financial utilization of engineers was studied.

I developed worksheets for the analysis of financial utilization of engineers. Using these worksheets,

information regarding the financial utilization of engineers can be obtained in the form of graphs by

feeding the data already available.

As the existing ratios cannot be used to determine the financial utilization of engineers, the following

ratios were used revenue to cost ratio of engineers, earning per man-day and utilization of engineers


during the financial year 2010-11. Revenue to cost ratio of an engineer is the ratio of the revenue earned

by an engineer to the cost spent on him. Field days are the days during which engineers earn revenue.

Utilization is the fraction of field days in a year. Earning per man-day is revenue earned per field day.

Earning per man-day is the indicator of the type of service for which an engineer is deputed. There are

two types of services, basic services which are charged Rs.2800 and value added services which are

charged at more than Rs.3000. Besides this an engineer might be deputed for free services.

Revenue to cost ratio depends on the utilization of engineers, charges for the service for which engineers

are deputed (this is measured by earning per man-day) and salary cost of employees.

These ratios are calculated for each engineer and then collated branch wise and grade wise.

There are six grades of engineers from M6 to M1. M1 is the highest grade. Higher grade engineers have

lower utilization and earning per man-day. Revenue per man-day of higher grade engineers is low (M2 -

2632) and lower grades high, Except for M5 with revenue of only Rs 2600 which is the lowest.

From the study it was found that higher grade engineers had very low utilization and earning per man-

day. Delhi (1.15), Mumbai (1.36) and Hyderabad (1.40) are the branches that have low revenue to cost

ratio of employees against an overall average of 1.73. These branches have an opportunity for

improvement of financial utilization of engineers. Kolhapur, Chandigarh, Nagpur and Ahmadabad –

revenue to cost ratio around 2 which means that these branches have revenue of twice the staff costs of

engineers,

The average utilization of engineers all over India is 79%. Delhi and Mumbai have a lower utilization of

around 70%. Utilization is 86% at Hyderabad and Ahmadabad. By improving the utilization of engineers

with lower utilization to 80% revenue can be increased by Rs.50 lakhs.

Average earning per man-day of engineers is Rs.2732. By improving earning per man-day of engineers

with lower earning per man-day to Rs.2600, revenue can be increased by Rs. 23 lakhs. Mumbai

Coimbatore and Chandigarh have a higher average earning per man-day of around Rs. 2800. Hyderabad,

Kolhapur and Nagpur have lower earning per man-day of around Rs.2600.

Analysis of credit management


Hyderabad and Mumbai have longer average collection period of about 70 days. Indore and Nagpur have

a collection period of about 40 days. Coimbatore and Ahmadabad have an efficient credit management.

(Collection period around 10 days)

Hyderabad and Chandigarh have high percentage of services provided on credit (20%). Delhi, Nagpur and

Indore also provide about considerable amount of services on credit. (10%) Coimbatore and Ahmadabad

have 2 and 3 percentage of services provided on credit respectively.

Receivables older than 90 days are less likely to be paid. Mumbai, Nagpur and Hyderabad have higher

amount of outstanding older than 90 days. Madurai and Kolhapur have 2 lakhs outstanding older than 90

days.

Suggestions

To improve spinning service financials Voltas limited can adapt the following changes

1. Higher level engineers can be used more for value added services which are charged more.

2. Lower level engineers like M4, M5 and M6 can be used more for installation which is charged

less.

3. 32 % of the variation in revenue to cost ratio of engineers is due to utilization. Hence by

improving the utilization revenue to cost ratio can be improved

4. A portion of incentives of managers can be based on the financial utilization of engineers.

5. Engineers can be rewarded for early completion of trainings.

6. Ability to track information from MPMS especially manual debit notes can be improved.

7. Training could be planned during office days.

8. In order to avoid interest losses TMD can charge interests on late payments. This can be based on

the number of days in which most losses occur.

9. A portion of incentives of engineers can be based on average collection period.

10. Ability to track credit information can be improved. For example total value of services provided

on credit cannot easily be tracked.


11. I have developed a worksheet in which information regarding financial utilization of employees

could be obtained by feeding the corresponding data. Data for every month could be fed to this

book, results can be analyzed and necessary corrective action can be taken.


About Voltas

Voltas is an engineering solutions provider and a project specialist. It was founded in India in 1954.

Voltas Limited offers engineering solutions for a wide range of industries in areas such as heating,

ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, mining and

construction equipment, materials handling equipment, water management & treatment, cold chain

solutions, building management systems, and indoor air quality. The company had a turnover of Rs.4541

crores and a net profit of 344 crores during the financial year 2010-11.

Voltas runs a number of independent businesses. Textile Machinery division is one of them.

Textile Machinery Division (TMD)

I worked with the spinning division of textile machinery division (TMD) of Voltas Limited.

Voltas has been at the service of India's textile industry for about fifty years. They offer technology

solutions in just about every textiles segment. They work right from installation of machines to quality

improvement.

They work through a network of 16 branch locations, and over 350 textiles engineers. Through these,

Voltas provides sales and service for machinery manufactured by their principals. Textile machinery

division of Voltas is further divided into subdivisions like spinning, weaving and knitting.

Lakshmi Machine Works (LMW) is Voltas’ principal in spinning.

The spinning service division of TMD provides services like erection of machines, trouble shooting and

value added services like productivity improvement and power saving to spinning mills. TMD serves its

customers on request by customers themselves, principals or its own engineers. There are different grades

of engineers from M6 to M1. M1 is the highest and M6 is the lowest.

Refer table 1 for number of engineers. This table shows the number of engineers across different branches

at various levels. For example there are two M2 engineers at Ahmadabad, and a total of 8 engineers at

Ahmadabad. Branch total shows the number of engineers at a particular branch and level total shows the

total number of engineers at a level.


Table 1: Number of engineers at different branches

Number of engineers

Level\Branch AHD CBE DEL MUM KOH NAG IND HYD CHD Level Total

M2 2 2 1 1 0 0 0 0 0 6

M3 1 10 0 2 0 2 3 3 7 28

M4 3 6 2 0 4 3 7 6 8 39

M5 1 6 0 0 2 1 0 1 0 11

M6 1 6 1 0 1 0 1 4 8 22

Branch total 8 30 4 3 7 6 11 14 23

Billing method

TMD charges its customers on the basis of number of days of service. TMD normally deputes engineers

only on the receipt of advance payment of charges. After the services are provided debit notes are raised

for the services.

There are two types of services as far as charges are concerned

1. Basic Services charged at Rs 2900 per day

2. Value Added Services at Rs 3750 per day.

Basic services include installation of machines and troubleshooting, while value added services include

productivity improvement, quality improvement, power saving etc.


Objectives

The main objectives of the research are

3. To find out the opportunities to enhance service revenue in TMD spinning service by analyzing

financial utilization of employees and to make worksheet customized for the analysis.

4. To study the effectiveness of TMD Service credit management across branches

Methodology

Methodology for Analysis of financial utilization of engineers

Financial utilization of each engineer is to be analyzed. Since existing ratios cannot be used, following

parameters can be used to measure the financial utilization of engineers.

Revenue to cost ratio gives the financial utilization of engineers directly. Salary cost or staff cost forms

the major portion of expenses.

Utilization gives the fraction of days in a year during which an engineer generates revenue (works on an

assignment). Engineers spend days at office when there are no assignments or at training. Engineers do

not generate revenue during office or training days.

The value of Earning per man-day is an indicator of whether an engineer is deputed on low revenue or

high revenue services. As mentioned earlier there are two types of services namely basic services and

Value added services.

These ratios give a clear picture of financial utilization of engineers. Revenue to cost ratio of an engineer

is influenced by the following factors


1. Utilization of engineers

2. Charges for the service for which an employee is assigned (given by Earning per man-day)

3. Salary costs and travel expenses

Of these factors the first two can be changed by the allocation of engineers. While staff cost cannot be

influenced as it depends on the experience and performance of engineers. By plotting revenue to cost

ratio, earning per man-day and utilization on the same graph a clear picture of utilization can be obtained.

A worksheet was developed for the above analysis. Using this worksheet, the above analysis can be

obtained just by feeding the data already available.

Flowchart 5: Methodology used in analysis of financial utilization of engineers

Utilization reports and manual debit note reports of different branches for the financial year 2010-11 are

obtained from MPMS. From these reports revenue to cost ratio, earning per man-day and utilization of

These ratios are compared grade wise and branch wise

Revenue to cost ratio and earnings per man-day for each engineers are calculated

These reports are consolidated and manual debit note values added.

Utilization reports for different branches are collected


each engineer is calculated. These ratios are compared grade wise and branch wise to find the variations.

(Refer flowchart 5)

A worksheet was developed for the above analysis. All the graphs pertaining to financial utilization of

employees can be obtained by feeding the data in the worksheet.

Methodology used for analysis of credit management

Consolidated outstanding report (report of receivables) for all branches is obtained. From these

receivables at each branch is calculated. From these ratios like debtor turnover ratio, interest losses are

calculated and compared across branches. (Refer flowchart 6)

Flowchart 6: Methodology used in analysis of credit management

These ratios are compared across branches.

Outstanding as percentage of sales, debtor turnover ratio, interest losses and collection period of each

branch is calculated.

Consolidated outstanding reports for all branches are collected.


Results and discussions

Analysis of revenue to cost ratio of individual employees

Revenue to cost ratio of each employee is calculated. The average of revenue to cost ratios of employees

throughout TMD is 1.73 but the standard deviation is 0.84 which means that revenue to cost ratio varies

drastically. This is partly due to the difference in utilization and partly due to salary costs.

Chart 1: Histogram of revenue to cost ratios of employees during the financial year 2010-11

Chart 2: Cumulative frequency of revenue to cost ratios for the financial year 2010- 11

0 0.5 1 1.5 2 2.5 3 3.5 4

0

5

10

15

20

25

30

35

Ratio

Nu

mb

ar o

f en

gin

eers

Histogram of Revenue to cost ratios

0.5, 6 1, 12

1.5, 32

2, 65

2.5, 97 3, 104

3.5, 122 4, 125

0 1 2 3 4 5

Nu

mb

er o

f en

gin

eers

Ratio

Cumulative frequency

Cumulative freuency


Out of the 125 engineers analyzed 12 engineers have revenue to cost ratio less than 1.0. 32 engineers have

revenue to cost ratio less than 1.5 and 65 engineers have a ratio of less than 2. Comparing the revenue to

cost ratio of different branches would provide further insights. (Refer chart 1 and 2)

Correlation analysis of revenue to cost ratios

Table 2: Correlation analysis of revenue to cost ratios

Staff cost Per day earning

Utilization

Correlation with revenue to cost ratio

-0.54 0.28 0.57

Percentage variation of revenue to cost ratio based on

29 8 32

32 % of variation of revenue to cost ratio is based on utilization of engineers. Hence by increasing the

utilization, revenue to cost ratio can be improved. 29 % of variation of revenue to cost ratio is due to staff

costs but this cannot be controlled. Only 8 % of variation depends on the type of assignment i.e. Basic

Services, Value Added Services or free service. (Refer table 2)


Branch wise Analysis of revenue to cost ratios

Chart 3: Revenue to cost ratios at different branches during the financial year 2010-11

At Delhi, Mumbai and Hyderabad revenue to cost ratios are 1.15, 1.36 and 1.40. These are lower

compared with the overall average of 1.73. At Delhi this is due to the lower utilization of engineers which

is 69%. In Hyderabad utilization of engineers is 86% but the average revenue per man-day is 1.40 which

means that the engineers are deputed more for free services. (Refer chart 3)

Kolhapur, Chandigarh, Nagpur and Ahmadabad have revenue to cost ratio around 2 against an all India

average of 1.73. Utilization of engineers at Hyderabad and Ahmadabad is greater than 85% the average

utilization across all branches is 79%. (Refer chart 3)

It can be seen from chart 4 that the staff costs as a percentage of revenue at Delhi, Mumbai and Nagpur

are 83%, 71% and 60% respectively. Staff costs are high at these branches. This is also one of the reasons

for low revenue to cost ratios. (Refer chart 4)

1.73 1.94

1.73

1.15 1.40

1.85 1.92

1.36

2.05 2.18

2.721 2.631 2.825

2.498 2.584 2.719 2.600

3.278

2.514 2.842

0.79 0.87 0.77 0.69 0.86 0.74 0.81 0.72 0.78 0.84

Revenue to cost ratio at different Branches FY 2010- 11

Revenue to cost ratio Earnings Per Manday in thousands of rupees Utilization


Chart 4: Staff costs as percentage of gross margin for different branches

Staff costs refer to salary costs of engineers. Other O&A is the salary costs of managers, office staff and

office expenses.

Chart 5: Pareto chart of non utilized man-days at TMD

37 % of non utilized days are office days and training days. Much cannot be done about leave days as

these are hardly avoidable. Holidays are avoidable only to a small extent. (Refer chart 5)

AHD CHD CBE DEL HYD IND KOH MDU MUM NAG

0.56 0.51 0.49

0.83

0.55 0.58 0.46 0.48

0.71 0.60

0.12 0.13 0.12

0.18

0.14 0.14

0.11 0.10

0.14 0.11

0.32 0.36 0.40

-0.01

0.31 0.28 0.44 0.42

0.15 0.28

Ratio of Net Margin to gross margin

Staff Cost to GM ratio Other O&A to GM ratio Net Margin to gross margin

34.41 28.35

22.86 14.39

34.41

62.75

85.61

100.00

Leave Days Holidays Training Days Office days

Non utilized mandays at TMD


Grade wise Analysis of revenue to cost ratios

Chart 6: Revenue to cost ratios for different levels during the financial year 2010-11

Revenue per man-day of M2 engineers is Rs.2600 and that of M6 engineers is Rs.2850. Generally

revenue per man-day for higher grade engineers is low and that of lower grade engineers is high except

for M5 engineers with revenue per man-day of Rs.2600. Higher level engineers can be used more for

value added services. Lower level engineers like M4, M5 and M6 can be used more for installation.

(Refer chart 6)

Utilization of M2 engineers is 70% and that of M6 engineers is 83%. Since the staff cost for higher grade

engineers is high they can be utilized effectively. (Refer chart 6)

Overall average

M2 M3 M4 M5 M6 GS MT ST

1.78

1.00

1.63 1.80

2.27 2.82 2.27 1.95

2.58

2.738 2.632 2.724 2.728 2.612

2.854 3.071

2.615 2.745

0.79 0.70 0.80 0.78 0.84 0.83 0.72 0.73 0.60

Revenue to cost ratio and Earnings per for different grades

Revenue to cost Ratio Earnings per manday in thousands of rupees Utilization


Analysis of revenue to cost ratio at different branches

Ahmadabad

Chart 7: Revenue to cost ratios at Ahmadabad for different grades during the financial year 2010-11

Utilization for the branch as a whole is 87% but earning per man day for the branch is Rs.2631.

M3 engineers have lower revenue to cost ratio of 1.61 against the branch Average of 2.25. This is because

of lower utilization. M3 and M5 engineers have lower earning per man-day less than Rs.2200.

M6 engineers have the highest earning per man-day of Rs.2800 and utilization of 92%. M6 engineers

have the highest revenue to cost ratio of 3.49.

Average revenue per man-day for the branch is Rs.2631. There is scope for improvement of revenue to

cost ratio of the branch. (Refer chart 7)

Branch Average

M2 M3 M4 M5 M6 GS ST MT

2.25

0.00

1.61

2.54 2.62

3.49

0.00 0.00 0.00

2.631

0.000

2.144

2.638

2.208

2.826

0.000 0.000 0.000

0.87

0.00

0.88 0.90 0.88 0.92

0.00 0.00 0.00

Revenue to cost ratio and Earnings per manday in Ahmedabad for different grades

Revenue to cost ratio Earnings per manday in thousands of rupees Utilization


Chart 8: Pareto chart of non utilized man-days at Ahmadabad

Training days contribute to a relatively higher percentage of 36% to non utilized days at Ahmadabad.

(Refer Chart 8)

Coimbatore

Chart 9: Revenue to cost ratios at Coimbatore for different grades during the financial year 2010-11

36.08 29.93 29.00

4.99

36.08

66.01

95.01 100.00

Training Days Holidays Leave Days Office days

Non utilized mandays at Ahamadabad

Branch Average


1.73

1.29 1.26 1.60

1.92

3.25

2.27

0.00 0.00

2.825 2.567 2.695

2.856 2.657

3.064 3.071

0.000 0.000

0.77 0.80 0.74 0.72 0.82 0.83 0.72

0.00 0.00

Revenue to cost ratio and Earnings per manday in Coimbatore for different grades



Revenue to cost ratio for M2 engineers in Coimbatore is 1.29 due to lower earning per man-day of

Rs.2567. M3 engineers have a lower ratio of 1.26 due to lower utilization of 74%. M4 and GS engineers

are also utilized less. They have a utilization of 72%.

Highest utilization of 83% achieved for M6 engineers. Utilization for the branch is only 77% which

means that there is scope for improvement of utilization.

M6 and GS engineers have higher revenue per man-day of nearly 3100. (Refer chart 9)

Chart 10: Pareto chart of non utilized man-days at Coimbatore

Training days account for 27% of non utilized days at Coimbatore. Office days account for a mere 4%.

(Refer Chart 10)

35.60 33.38 26.78

4.24

35.60

68.98

95.76 100.00

Holidays Leave Days Training Days Office days

Non utilized mandays at Coimbatore


Delhi

Chart 11: Revenue to cost ratios at Coimbatore for different grades during the financial year 2010-11

Utilization and earning per man-day for the branch are 69% and 2500 respectively.

Earning per man-day and revenue to cost ratio are low for higher grades. For example M2 engineers are

utilized 55% and earn revenue of Rs.1597 per day. M6 engineers have a utilization of 65%. (Refer chart

11)

Since the utilization is low Pareto chart can be used to analyze utilization.

Leave days and training days are the major cause of poor utilization in Delhi. By minimizing these two,

utilization at this branch can be improved. (Refer chart 12)

1.154

0.36 0.00

1.57

0.00

2.32

0.00 0.00

1.76

2.498

1.597

0.000

2.762

0.000

2.605

0.000 0.000

2.661

0.69 0.55

0.00

0.76

0.00

0.65

0.00 0.00

0.90

Revenue to cost ratio and Earnings per manday in Delhi for different grades



Chart 12: Pareto chart of non utilized man-days at Delhi

Hyderabad

Chart 13: Revenue to cost ratios at Hyderabad for different grades during the financial year 2010-11

At Hyderabad Revenue to cost ratio for higher levels is high in anomaly with the general trend at other

branches. Utilization for the branch as a whole is 86%. M5 engineers have the highest revenue to cost

ratio of 1.90. M4 revenue per man-day is Rs.2600. (Refer chart 13)

44.56

20.35 19.82 15.26

44.56

64.91

84.74

100.00

Leave Days Training Days Holidays Office days

Pareto chart of non utilized days in Delhi

1.40

0.00

1.78 1.65 1.90

1.19

0.00 0.00 0.00

2.584

0.000

2.531 2.773

2.558 2.876

0.000 0.000 0.000

0.86

0.00

0.88 0.84 0.91 0.88

0.00 0.00 0.00

Revenue to cost ratio and Earnings per manday in Hyderabad for different grades



Utilization for the branch is 74% which means that there is scope for improvement. Training days and

leave days account for about 50 % of non utilized days at Hyderabad. (Refer chart 14)

Chart 14: Pareto chart of non utilized man-days at Hyderabad

Indore

Chart 15: Revenue to cost ratios at Indore for different grades during the financial year 2010-11

Utilization for the branch is 74%. M4 revenue per man-day Rs.2617. (Refer chart 15)

39.42

24.93 24.64

11.01

39.42

64.35

88.99 100.00

Holidays Training Days Leave Days Office days

Pareto chart of non utilized days at Hyderabad

Branch Average


1.85

0.00

1.64 1.81

0.00

3.38

0.00 0.00

2.00

2.719

0.000

2.820 2.617

0.000

2.937

0.000 0.000

2.554

0.74

0.00

0.75 0.72

0.00

0.87

0.00 0.00

0.71

Revenue to cost ratio in Indore for different grades



Chart 16: Pareto chart of non utilized days at Indore

Office days account for 29% of non utilized days at Indore. This can be reduced. (Refer chart 16)

Nagpur

Chart 17: Revenue to cost ratios at Nagpur for different grades during the financial year 2010-11

39.19 28.50

17.56 14.76

39.19

67.68

85.24

100.00

Leave Days Office days Holidays Training Days

Non utilized mandays at Indore

Branch Average


1.92

0.00

1.72 1.75

3.24

0.00 0.00 0.00 0.00

2.600

0.000

2.555 2.586 2.689

0.000 0.000 0.000 0.000

0.81

0.00

0.86 0.75 0.87

0.00 0.00 0.00 0.00

Revenue to cost ratio and Earnings per manday in Nagpur for different grades



Though utilization is 0.81, revenue per man-day for the branch as a whole is 2600. M3 and M4 engineers

have very low revenue per man-day 2500. M3 and M5 engineers have a higher utilization of 86%. (Refer

chart 17)

Chart 18: Pareto chart of non utilized days at Nagpur

Office days account for 17% of non utilized days at Nagpur. (Refer chart 18)

Mumbai

Chart 19: Revenue to cost ratios at Mumbai for different grades during the financial year 2010-11

45.12

18.73 18.73 17.42

45.12

63.86

82.58

100.00

Leave Days Training Days Holidays Office days

Non utilized mandays at Nagpur

Branch Average


1.36 1.06

1.49

0.00 0.00 0.00 0.00 0.00 0.00

3.278 3.800

3.137

0.000 0.000 0.000 0.000 0.000 0.000

0.72 0.64 0.74

0.00 0.00 0.00 0.00 0.00 0.00

Revenue to cost ratio in Mumbai for different grades



Utilization for the branch is very low at 72%. Revenue per man day for the branch is higher than 3000. Pareto analysis would provide further insights into utilization. (Refer Chart 19)

Chart 20: Pareto chart of non utilized days at Mumbai

If office and leave days are reduced by half then utilization can be improved by ten percent. (Refer chart

20)

42.11 31.58

20.68

5.64

42.11

73.68

94.36 100.00

Leave Days Office days Holidays Training Days

Pareto chart of non utilized days

Percentage of non utilized days

Cumulative percentage of non utilized days


Kolhapur

Chart 21: Revenue to cost ratios at Kolhapur for different grades during the financial year 2010-11

Revenue per man-day for the M2 grade engineers at Kolhapur is very low. Utilization of M4 engineers is

also low (Refer chart 21)

Chart 22: Pareto chart of non utilized days at Kolhapur

Training days account for 36% of non utilized days at Kolhapur. (Refer Chart 22)

Branch Average


2.05

0.00 0.00

1.61

2.87 3.07

0.00 0.00 0.00

2.514

0.000 0.000

2.369 2.666 2.681

0.000 0.000 0.000

0.78

0.00 0.00

0.75 0.81 0.82

0.00 0.00 0.00

Revenue to cost ratio and Earnings per manday in Kohlapur for different grades


36.08 29.93 29.00

4.99

36.08

66.01

95.01 100.00

Training Days Holidays Leave Days Office days

Non utilized mandays


Chandigarh

Chart 23: Revenue to cost ratios at Chandigarh for different grades during the financial year 2010-11

Revenue to cost ratio for the branch is greater than 2. Average revenue per man-day for M4 engineers is

nearly 3000. Utilization for the branch is 84%. M3 engineers are utilized to the highest level of 87%.

Ahmadabad utilizes employees efficiently. (Refer chart 23)

Chart 24: Pareto chart of non utilized days at Chandigarh

Branch Average


2.18

0.00

2.12 1.92

0.00

3.20

0.00

2.58 1.98

2.84

0.000

2.820 2.962

0.000

2.732

0.000

2.745 2.684

0.84

0.00

0.87 0.84

0.00

0.81

0.00

0.60 0.72

Revenue to cost ratio and Earnings per manday in Chandigargh for different grades


36.71 25.49

20.05 17.76 36.71

62.20

82.24

100.00


Non utilized mandays


Projected profit improvements

Chart 25: Projected profit improvement on increasing utilization

The above graphs show the projected profit improvement on increasing utilization to 80% at all

employees. The total projected profit improvement Rs 50 Lakhs. M2 and M4 engineers can be utilized

better. (Refer chart 25)

Chart 26: Projected profit improvement on increasing earning per man-day

This graph shows the projected profit improvement on increasing the earning per man-day of engineers

with low earning per man-day to 2600. The total projected profit improvement Rs. 23 Lakh. (Refer chart

26). M2, M3 and M4 engineers can be deputed for high value services.

6

0

16

4

11 8

1 3 3

5

Projected profit improvement in Rs Lakhs

Projected profit improvrment in Rs Lakhs

M2 M3 M4 M5 M6

18

9

19

1

5

Projected Profit improvement in lakhs

Projected Profit improvement in lakhs

Ove

rall …

AH

D

CB

E

DEL

HYD

IND

NA

G

MU

M

KO

H

CH

D

2 3

6

2

4

1 1 0

2 0

Projected profit difference in Rs Lakhs

Projected profit difference in Rs Lakhs

M2 M3 M4 M5 M6

7.3 6.6 5.4

3.9

0.7

Projected Profit improvement in Rs

lakhs

Projected Profit improvement in Rs lakhs


Level wise analysis

M2

Chart 27: Revenue to cost ratios for M2 at different branches during the financial year 2010-11

Utilization and revenue per man-day for M2 is low especially in Delhi. (0.36 and 1597)

Earning per man-day for M2 engineers is highest in Mumbai. Earning per man-day for M2 engineers is

highest in Mumbai. (Chart 27)

Lower utilization of M2 engineers is mainly due to leave days and holidays. (Refer Chart 28)

1.00

0.00

1.29

0.36 0.00 0.00 0.00

1.06

0.00 0.00 0.00 0.00

2.632

0.000

2.567

1.597

0.000 0.000 0.000

3.800

0.000 0.000 0.000 0.000

0.70

0.00

0.80 0.55

0.00 0.00 0.00

0.64

0.00 0.00 0.00 0.00

Revenue to cost ratio and Earnings per manday for M2 in different branches



Chart 28: Pareto analysis of non utilized man-days for M2

M3


Earning per man-day for M3 engineers in Hyderabad and Nagpur is very low. (Around 2600).They can be

used more for value added services. (Refer chart 29)

34.41 28.35

22.86 14.39

34.41

62.75

85.61

100.00


Non utilized days for M2 Engineers

1.63 1.61 1.26

0.00

1.78 1.64 1.72 1.49

0.00

2.12

0.00 0.00

2.724

2.144

2.695

0.000

2.531 2.820

2.555

3.137

0.000

2.820

0.000 0.000

0.80 0.88 0.74

0.00

0.88 0.75 0.86 0.74

0.00

0.87

0.00 0.00




Utilization of M3 engineers at Ahmadabad, Hyderabad, Chandigarh and Nagpur is very high.

M4


Earning per man-day for M4 engineers Kolhapur is low (Rs. 2369). Utilization of M4 engineers at Indore

and Coimbatore is low. (72%)

Revenue per man-day for M4 engineers at Chandigarh and Coimbatore is nearly 3000. Ahmadabad

(90%), Chandigarh (84%) and Hyderabad (84%) utilize M4 engineers well. (Refer Chart 30)

1.80

2.54

1.60 1.57 1.65 1.81 1.75

0.00

1.61 1.92

0.00 0.00

2.728 2.638

2.856 2.762 2.773 2.617 2.586

0.000

2.369

2.962

0.000 0.000

0.78 0.90 0.72 0.76 0.84 0.72 0.75

0.00

0.75 0.84

0.00 0.00




M5


Earning per man-day for M5 is low especially at Ahmadabad. (2208) average 2612. Utilization of M5

engineers is high in all branches. (84%) (Refer chart 31)

2.27 2.62

1.92

0.00

1.90

0.00

3.24

0.00

2.87

0.00 0.00 0.00

2.612 2.208

2.657

0.000

2.558

0.000

2.689

0.000

2.666

0.000 0.000 0.000

0.84 0.88 0.82

0.00

0.91

0.00

0.87

0.00

0.81

0.00 0.00 0.00




M6


M6 revenue per man-day and utilization in Delhi are low. (2605 and 65%) Low utilization Delhi is mainly

due to leave days and holidays. Earning per man-day of M6 engineers is high especially at Indore and

Coimbatore. (Around 3000) (Refer chart 32).

Level Average AHD CBE DEL HYD IND NAG MUM KOH CHD

2.82

3.49 3.25

2.32

1.19

3.38

0.00 0.00

3.07 3.20

0.00 0.00

2.854

2.826 3.064

2.605

2.876 2.937

0.000 0.000

2.681 2.732

0.000 0.000

0.83 0.92 0.83 0.65

0.88 0.87

0.00 0.00

0.82 0.81

0.00 0.00




Analysis of outstanding

Absolute value of outstanding amount is not the right indicator of the financial performance of a branch.

So the following ratios can be used.

Debtors’ turnover ratio

Debtors’ turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a

firm. In simple words it indicates the number of times average debtors (receivable) are turned over during

a year.

The higher the value of debtors’ turnover the more efficient is the management of debtors or more liquid

the debtors are. Similarly, low debtors’ turnover ratio implies inefficient management of debtors or less

liquid debtors. It is the reliable measure of the time of cash flow from credit sales.

Hyderabad, Mumbai and Nagpur have very low debtors’ turnover ratio. These branches have to improve

the management of debtors.

Average collection period

Average collection period indicates the rapidity or slowness with which debts are collected. The

approximate amount of time taken for a business to receive payments owed, in terms of receivables, from

its customers and clients.

This ratio measures the quality of debtors. A short collection period implies prompt payment by debtors.

It reduces the chances of bad debts. Similarly, a longer collection period implies too liberal and inefficient

credit collection performance.


Chart 33: Debtors’ turnover ratio for different branches during the financial year 2010-11

Hyderabad and Mumbai turn debts 5 times a year. Indore and Nagpur turn debts about 10 times a year.

Ahmadabad and Coimbatore branches turn debts more than 30 times a year. (Refer chart 33). Ahmadabad

and Coimbatore branches have an efficient credit management.

Chart 34: Average collection period for different branches during the financial year 2010-11

Overall average

CBE HYD KOH MUM

15

31 35

16

5

9

18 16

5

10

Debtors' turnover ratio

Debtors' turnover ratio

Overall average

CBE HYD KOH MUM

25

12 11

23

71

39

21 23

75

37

Average collection period in days

Average collection period in days


These ratios are only conservative estimates, since the exact amount of sales provided without advance is

difficult to track. Hyderabad, Indore, Nagpur and Mumbai have longer average collection period.

Coimbatore and Ahmadabad have an efficient credit management. (Refer Chart 34)

Outstanding ratio and interest loss ratio

Outstanding ratio is a measure of the proportion of services provided on credit.

Chart 35: Outstanding ratio at different branches during the financial year 2010-11

This ratio is calculated only as a conservative estimate because the net credit sales cannot exactly be

figured out. The graph shows outstanding as a percentage of total revenue. Hyderabad and Chandigarh

have high percentage of services provided on credit. Delhi, Nagpur and Indore also provide more services

on credit. (Refer chart: 35)

AHD CHD CBE DEL HYD IND KOH MDU MUM NAG

3.19

6.27

2.88

9.81

19.33

10.56

5.71 6.23

20.58

10.07

Outstanding Ratio for different branches


Interest losses as a percentage of profit would provide further insights.

Chart 36: Interest losses as a percentage of profit during the financial year 2010-11

When the payments are delayed the money locked with debtors can have alternative uses. This amount

might be used by TMD or other divisions. Based on this opportunity costs interest losses are calculated.

As the absolute value of this might not provide the right picture, interest losses as a percentage of profit is

calculated. Hyderabad, Nagpur and Mumbai lose considerable amount of profit on interest costs.

In order to avoid interest losses TMD can charge interests on late payments. This can be based on the

number of days in which most losses occur. (Refer chart 36)

Overall average

AHD CBE MDU HYD IND KOH CHD MUM NAG

4 2 3 2

17

2 3 3

36

11

Interest losses as a percentage of profit for FY 2010-11

Interest losses as a percentage of profit


Chart 37: Interest losses at TMD in Rs versus days during the financial year 2010-11

Interest losses are not only indicators of opportunity cost but also the amount of credit sales and the time

taken in collecting the amount back. (Refer chart 37)

Chart 38: Interest losses in Rs versus days at Hyderabad during the financial year 2010-11

Most interest losses in Hyderabad are due to credits in the period of 60 to 90 days. So Hyderabad branch

can charge an interest on credits older than 60 days. This will not only compensate the losses but also

reduce the average collection period. (Refer chart 38)

0 to 15 15 to 30 30 to 60 60 to 90 90 to 180 180 to 365

365 to 999

38,004 58,364

133,384

367,453

206,288

263,368

208,538

Interest losses in Rs vs Days

Interest losses in Rs

0 to 15 15 to 30 30 to 60 60 to 90 90 to 180 180 to 365 365 to 999

3,931 2,418 26,203

225,596

58,496 44,370

4,144


Hyderabad


Chart 39: Interest losses in Rs versus days at Mumbai during the financial year 2010-11

Most of the interest losses in Mumbai are due to credits older than 180 days. Mumbai branch can charge

interests on credits older than 180 days. (Refer chart 39)

Chart 40: Interest losses in Rs versus days at Nagpur during the financial year 2010-11

Nagpur branch can charge interests on outstanding payments older than 90 days, since they contribute

more to interest losses. (Refer chart 40)

0 to 15 15 to 30 30 to 60 60 to 90 90 to 180 180 to 365 365 to 999

3,679 906 0

10,633 5,430

79,327 71,710


Mumbai

0 to 15 15 to 30 30 to 60 60 to 90 90 to 180 180 to 365 365 to 999

1,403 2,153

9,625 2,957

33,799 34,366

53,836


Nagpur


Receivables older than 90 days as a percentage of sales

Chart 41: Receivables older than 90 days as a percentage of sales

Receivables older than 90 days are less likely to be paid back. Mumbai, Nagpur and Hyderabad have

higher amount of outstanding older than 90 days. Madurai and Kolhapur have 2 % outstanding older than

90 days. (Refer chart 41)

Overall average

AHD CBE MDU HYD IND KOH CHD MUM NAG

2.97

0.43 0.59

2.53

4.07

0.00

1.98 1.26

10.40

5.47

Payments older than 90 days as a percentage of sales

Payments pending for more than 90 days as a percentage of revenue


Suggestions

1. Higher level engineers can be used more for value added services. (Value added services are

charged more.)

2. Lower level engineers like M4, M5 and M6 can be used more for installation. (Installation is

charged less.)

3. 32 % of the variation in revenue to cost ratio of employees is due to utilization. Hence by

improving the utilization revenue to cost ratio can be improved. In other words financial impact

of allotment of engineers should be considered during the deputation

4. A portion of incentives of managers can be based on the financial utilization of employees.

5. Engineers can be rewarded for early completion of trainings.

6. Ability to track information from MPMS especially manual debit notes can be improved.

7. Training could be planned during office days.

8. In order to avoid interest losses TMD can charge interests on late payments. This can be based on

the number of days in which most losses occur.

9. A portion of incentives of employees can be based on average collection period.

10. Ability to track credit information can be improved. For example total value of services provided

on credit cannot easily be tracked.

11. A worksheet for the analysis of financial utilization of employees was developed. In this

worksheet information regarding financial utilization of employees could be obtained by feeding

the corresponding data. Data for every month could be fed to this book, results can be analyzed

and necessary corrective action can be taken. The worksheets are shown in the forthcoming

pages.


Worksheets

Worksheet 1: Worksheet for the analysis of financial utilization of employees

Worksheet 2: Worksheet showing graphs automatically generated


Worksheet 3: Worksheet showing graphs automatically generated

Raj Mohan XIME_Voltas Project Report

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Transcript of Raj Mohan XIME_Voltas Project Report