Archive for August, 2010

Research in ones own Language needed to give impetus in Management Accounting:

Monday, August 30th, 2010
This is a guest post by CMA.R.Veeraraghavan Iyengar FICWA,MIMA.

Management Accounting is all about managing the business through numbers. Often the community of Management Accountants speak in different languages and come from different cultures. The Business of managing is to put numbers into the right language that often rules in business.
Today we find most of the literature is addressed in English and that does not help the local business often and also do not allow primary research and dynamics of management accounting to be explored to the bottom.
Many of these literature are either copied down version(eastern economy edition) or written in a alien language while the thought process is in some other languages.
Primary research on any subject is through a thought process that is scripted down in the same language form as is thought and that is the reason India could produce such huge volumes of literature ranging from metaphysics,religion,science,economics etc in her 5000 year history.
Today unfortunately we are all tied to alien language and culture, which has restricted an otherwise genius brain from inking down what is comprehensively thought of. This has restricted a lot of original literature and guidances and their continuity.
Often our education system being a Mug-up and vomit kind of a thing the outcomes in terms of carrying forward the profession in original research is abysmal.
Management Accounting unlike financial accounting has a lot to speak of , that is numbers and its purpose and the given business situation to take a call often.Management Accounting is about the process,quality,efficiency and financial management. It needs lot of resources specially historical analysis of a current condition and analysis of a future norm and how business will analyse process in future through empirical and paradigm analysis.
All this calls for real situation sharing and evolving techniques to address these situation through the thinkers and executors. These people are often experts in their field but not in the language of global business (English)and that is a great deterrent in this country name the field be it science or technology or Management Accountancy.
The Institute such as the ICWAI should encourage Mother tongue material(not just hindi) from the members and use the web resources for sharing the experience and also allow translation by experts. This will slowly drive original research from India in the field of management accountancy.
Like the CIMA Dissertation on original topics should be made a must before granting membership, which will include a survey an analysis of a process and interpretative conclusion and spelling out of future course.

NPV, IRR and Reinvestment assumptions

Sunday, August 29th, 2010

 

This is a guest post by Mr.Sachidanand Singh. Sacha consults on change management, process evaluation and valuation of firms . He  also enjoys ghazals and thumris and at times bhajans.

 

This question regularly comes up every six month or so:

“Is there an implied reinvestment assumption in the mathematics of NPV and the discounting process? In other words, when we discount future cash flows, do we implicitly assume those cash flows will be reinvested at that same discount rate for the life of the asset/project in question?
“I have seen conflicting arguments in different financial textbooks.
“I know this is often brought up when comparing IRR and NPV (and when looking at the YTM of bonds), but some financial textbooks argue that while this reinvestment assumption does exist in IRR and YTM, it does not apply to NPV. This seems odd since the methods are mathematically equivalent.
“If we do assume reinvestment of all cash flows, what does that say about dividends and free cash flows? Are we assuming that those cash flows will never be used for anything else but reinvestment? If this is true, it sounds very strange.”

Is their an implied reinvestment assumption in mathematics of NPV? NO, There is no reinvestment assumed when we discount future cash flows. In working out PV of a series of future cash flows we do not assume that the cash flow is being reinvested. We work out PV because we want to compare the future benefits with the cash outflow that is taking place today. The cash inflows are expected to take place at different points of time in future and as such cannot be compared with the initial investment being made now. We work out the present value by discounting those future cash inflows.

Similarly in case of IRR, which is but one particular discount rate. There is no reinvestment implied either discounting and hence no reinvestment assumed either in working out NPV or in estimating IRR, which is just a rate that makes NPV nil.

Problem arises when we feel that (and God forbid act as if) this discount rate is the return we are earning on our initial investment through the entire period of investment.

If our cost of capital is fairly low compared to a project’s IRR and if we have worked out the NPV at our cost of capital, assuming that the interim inflows will get reinvested at the discount rate is not a bad assumption at all since we will invest only in such projects as would earn at least this much for us or return the funds when received (interim inflows)to the capital providers.

This assumption (that interim inflows would get reinvested at the same rate) is bad in case of IRR. We are not committed to make investments only at this rate (unless it also happens to be our cost of capital). Unfortunately many people just assume IRR to be their return on investment (ROI). This is a faulty assumption. As can be demonstrated, it is the return we earn on the unrecovered portion of our investment in a project.

It is perhaps the most flogged dead horse of financial world. Over a year back I had blogged about it here and promised myself that I would never flog it again, but here I am.

Changes in Service Tax in June 2010

Thursday, August 26th, 2010

This is a guest post by CMA.V.S.Datey. CMA.Datey BTech(Hons.), FCS, FICWA, is author of books on Corporate Laws and Indirect Taxation published by Taxmann India. You may visit his website at http://dateyvs.com/index.htm


 

Budget 2010 provisions relating to service tax made effective on 1-7-2010

Finance Act, 2010 was passed on 8-5-2010 itself. As per past experience, it was expected that the provisions of service tax would be made effective from 1st June. However, after a long wait, all the provisions relating to service tax contained in Finance Act, 2010 have been made finally made effective from 1-7-2010.

1.1 No service tax on advance received prior to 1-7-2010 in respect of new services and services as per amended definition, if service provided after 1-7-2010

About 8 services have been made taxable w.e.f. 1-7-2010. In addition, scope of certain services like construction service, air transport service, port and airport service etc. have been expanded. In respect of the new services and also in respect of services as per amended definition, if any advance payment was received prior to 1-7-2010, for service to be provided after 1-7-2010, service tax will be fully exempted [Notification No. 36/2010-ST dated 28-6-2010].

This is a transitory provision. This provision applies only in respect of services covered under amended definition and not to those services which were already covered under earlier definition.

1.2 New services effective from 1-7-2010 ands their accounting codes

The new services effective from 1-7-2010 and their codes are given below. If any advance payment was received prior to 1-7-2010 for service to be provided after 1-7-2010 , service tax will not be payable [Notification No. 36/2010-ST dated 28-6-2010].

 

Copyright of cinematographic film and sound recording [Section 65(105)(zzzzt)]

Accounting Code - Service Tax : 00440613. Payment of interest, penalty, etc. : 004406014.

Electricity exchange [Section 65(105)(zzzzs)]

Accounting Code - Service Tax : 00440610. Payment of interest, penalty, etc. : 004406011.

Granting right or Permitting commercial use of an event [Section 65(105)(zzzzr)]

Accounting Code - Service Tax : 00440607. Payment of interest, penalty, etc. : 00440608.

Health check-up or preventive care services [Section 65(105)(zzzzo)]

Accounting Code - Service Tax : 00440598. Payment of interest, penalty, etc. : 00440599.

Medical records storing, keeping or maintaining service [Section 65(105)(zzzzp)]

Accounting Code - Service Tax : 00440601. Payment of interest, penalty, etc. : 00440602.

Preferential location or development in residential complex [Section 65(105)(zzzzu)]

Accounting Code - Service Tax : 00440616. Payment of interest, penalty, etc. : 004406017.

Promotion, marketing organising games of chance service [Section 65(105)(zzzzn)] 

Accounting Code - Service Tax : 00440595. Payment of interest, penalty, etc. : 00440596.

Promotion or marketing of brand [Section 65(105)(zzzzq)]

Accounting Code - Service Tax : 00440604. Payment of interest, penalty, etc. : 00440605.

 

 

1.3 Eligibility of Dumpers or tippers as capital goods

Dumpers or tippers falling under chapter 87 are eligible as capital goods for Cenvat credit to providers of service of Site formation and clearance, excavation and earthmoving and demolition [section 65(105)(zzza)] and Mining of mineral, oil or gas services [section 65(105)(zzzy)], if these are registered in name of service provider and are used for providing taxable service (amendment w.e.f. 22-6-2010). Other service providers and manufacturers are not eligible.

1.4 Clean Energy Cess

A Clean Energy Cess has been imposed w.e.f. 1-7-2010, vide Finance Act, 2010, on gross quantity of raw coal, lignite and peat raised and despatched from a coal mine in India. This cess would be levied and collected as a duty of excise from coal mines. This cess would apply to imported coal as CVD. Tariff rate is Rs 100 but effective rate of duty is Rs 50 per ton. Education cess and SAHE cess is not payable on this cess. Any Cenvat credit cannot be utilised for paying this cess – Notification Nos 1 to 5 (Clean Energy Cess) dated 22-6-2010 and MF(DR) circular No. 354/72/2010-TRU dated 24-6-2010.

2. Expansion in scope of construction service to cover all services before obtaining completion certificate

In the Finance Act, 2010, an explanation has been added w.e.f. 1-7-2010 to definition of commercial or industrial construction and construction of residential complex, as follows -

Explanation.— For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorised by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer.

In case of commercial or industrial construction service, the words used are ‘construction of a new building’ in place of ‘complex’. Otherwise the wording is identical.

Thus, by a ‘deeming provision’, an activity which is not ‘service’ as per Court decisions and CBE&C’s own earlier circulars will be a ‘deemed service’ for purpose of levy of service tax.

The explanation added is not a valuation provision.

Note that similar explanation has not been added to definition of works contract service.

Meaning of ‘authority competent to issue certificate’ - Government has issued MF(DR) order No. 1/2010 dated 22-6-2010 for ‘Removal of Difficulty’. The order is effective from 1-7-2010 and it clarifies as follows –

For the purposes of sub-clauses (zzq) and (zzzh) of clause (105) of section 65 of the Finance Act, the expression ‘authority competent’ includes, besides any Government authority,—

    (i)   architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or

   (ii)   chartered engineer registered with the Institution of Engineers (India); or

  (iii)   licensed surveyor of the respective local body of the city or town or village or development or planning authority;

who is authorised under any law for the time being in force, to issue a completion certificate in respect of residential or commercial or industrial complex, as a precondition for its occupation.

Comment – In most of the places, the completion certificate is issued by Municipal authorities. I am not aware where an Architect or a Chartered Engineer or Licensed valuer is authorised by law to issue a completion certificate as precondition of occupation. Hence, it is not clear where this order will be applicable.

This amendment does not apply to works contract service - The explanation added to sections 65(105)(zzq) and 65(105)(zzzh) w.e.f. 1-7-2010 are in respect of construction service. There is no parallel amendment in definition of works contract service under section 65(105)(zzzza). Hence, legally, the amended definition will not apply to works contract service (However, if you fight and win, the victory may be short lived as there will be retrospective amendment in next budget).

2.1 Effect of the amendment  to definition of construction service

The effect of the amendment made w.e.f. 1-7-2010 is that the service tax will not apply only when a builder sales a ready flat or shop or industrial unit (gala) after Building completion certificate is obtained from competent authority (like Municipal Corporation, Municipality or other competent authority) and entire consideration is obtained only after building completion certificate is obtained.

In all other cases, the builder will be liable to pay the service tax. It is well known that in most of the cases, builder constructs buildings only on raising funds from prospective buyers. Further, even after building is completed and ready for occupation, there is delay in obtaining building completion certificate from the authorities (Now the delay will be more and ‘cost’ of obtaining the certificate will rise further).

Thus, practically in all cases, the builder/developer will be liable to pay service tax, except in case of few flats or shops or commercial galas, which he usually keeps for sale at a later date at higher prices. Even in this case, the builder will not be liable only if entire transaction (including receipt of money) takes place after obtaining ‘completion certificate’ from municipal or other competent authority.

2.2 Valuation for service tax on construction service

Principally, service tax is payable on value of taxable services. This is also clear from the fact that ‘preferential location and development of complex’ has been specified as a different taxable service.

Thus, if a service provider has proper costing records, it is permissible to calculate value of service and pay service tax on value of service @ 10.30%

If this is not feasible, then tax is payable @ 10.30% on 25%/33% of entire value including material (used by builder plus supplied free of cost by customer), but then Cenvat credit is not available, as explained below.

Any person providing taxable service of commercial or industrial construction or construction of residential complex (except completion and finishing services like glazing, plastering, painting, tiling, wood and metal joinery and carpentry, swimming pools, acoustic applications etc.) can opt to pay service tax as follows (w.e.f. 1-7-2010) – (a) on 33% of gross amount charged if the gross amount does not include value of land (b) on 25% of gross amount charged if the gross amount includes value of land (Till 1-7-2010, the 25% scheme was not available. Only 33% scheme was available).

This is at the option of service provider.

The ‘gross amount’ should include value of goods and materials supplied or provided or used. However, he can avail this concession only if - (a) He does not avail Cenvat of duty/service tax paid on inputs, input services and capital goods and (b) He does not avail benefit of Notification No. 12/2003-ST dated 20-6-2003. - Notification No. 1/2006-ST dated 1-3-2006 as amended w.e.f. 1-7-2010.

The partial exemption is available only if the gross amount charged includes value of goods and materials supplied or provided or used for providing such service (Explanation to Notification No. 1/2006-ST]. Thus, if the customer provides some material, its value will have to be added for purpose of payment of service tax.

This method is not available in case the service provider provides only completion and finishing services (as in such cases, material content will be much less).

This method is also not applicable if service is covered under ‘works contract service’.

Service tax on value of services instead of paying on 33%/25% of gross value - Payment of service tax on basis of 25%/33% of gross amount is optional to assessee. Thus, service provider can give break up of material cost and service charges. In such case, he will be liable to pay service tax only on the charges relating to ‘gross value of service’, plus profit attributable to that activity at full rate i.e. without abatement.

This is possible under rule 3(b) of Service Tax Valuation Rules.

In that case, the service provider can avail Cenvat credit of his input service tax and capital goods.

2.3 No service tax on advance received prior to 1-7-2010 in respect of services as per amended definition, if service provided after 1-7-2010

The definition of construction service has been amended w.e.f. 1-7-2010 as explained . In respect of service as per amended definition, if any advance payment was received prior to 1-7-2010, for service to be provided after 1-7-2010, service tax will be fully exempted [Notification No. 36/2010-ST dated 28-6-2010]. This provision applies only in respect of services covered under amended definition and not to those services which were already covered under earlier definition.

3. Exemptions

The major exemptions are summarised below.

 

 

No. 25/2010-ST dated 22-6-2010

Full Exemption to transit passengers and employees of aircraft operators from service tax on air transport of passengers

No. 26/2010-ST dated 22-6-2010

Service on air transport of passengers is Rs 100 in case of domestic travel and Rs 500 in case of international journey in economy class if Cenvat credit not availed

No. 27/2010-ST dated 22-6-2010

Exemption to air transport of passenger service to remote parts of India in north-east

No. 28/2010-ST dated 22-6-2010

Construction of complex service provided to Jawarharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana

No. 30/2010-ST dated 22-6-2010

Exemption to sponsorship service in respect of specified tournaments or championships

No. 31/2010-ST dated 22-6-2010

Exemption to specified services provided within port or airport

No. 32/2010-ST dated 22-6-2010

Exemption to services provided for distribution of electricity

No. 36/2010-ST dated 28-6-2010

Exemption to service tax on advance received prior to 1-7-2010 in respect of new services and extension of existing services, even if the service is provided after 1-7-2010 (transitory relief)

No. 41/2010-ST dated 28-6-2010

Exemption to specified services provided wholly within port, other port or airport

 

 

3.1 Air transport of passengers for domestic or international journey [Section 65(105)(zzzo)]

No service tax on advance received prior to 1-7-2010 in respect of services as per amended definition, if service provided after 1-7-2010 – The definition of air transport of passenger service has been amended w.e.f. 1-7-2010. In respect of service as per amended definition, if any advance payment was received prior to 1-7-2010, for service to be provided after 1-7-2010, service tax will be fully exempted [Notification No. 36/2010-ST dated 28-6-2010]. This provision applies only in respect of services covered under amended definition and not to those services which were already covered under earlier definition.

Relaxation in preparation of invoiceAs per rule 4A(1), the invoice/challan/Bill should be signed by authorised person of provider of input services, should be serially numbered and should contain following details -

    (1)  Name, address and registration number of person providing taxable service

    (2)  Name and address of person receiving taxable service

    (3)  Description, classification and value of taxable service provided or to be provided and

    (4)  Service tax payable on the taxable service

The service provider shall issue an invoice within 14 days containing aforesaid prescribed details.

This provision is not practicable in case of service of air transport of passengers since usually only e-tickets are issued. Hence, it is provided that an invoice, a bill or as the case may be, challan [as required under rule 4A(1)] shall include ticket in any form by whatever name called and whether or not containing registration number of the service provider, classification of the service received and address of the service receiver but containing other information in such documents as required under rule 4A(1) [Fifth proviso to rule 4A(1) inserted w.e.f. 1-7-2010].

In other words, the document should contain serial number, name and address of service provider (airline), name of person receiving the service (passenger) and service tax payable on taxable service. Other details are not required [There is no relaxation in respect of ‘serial number’. It is not clear how airlines will be able to comply with this requirement].

Partial exemption in respect of all passengers Service on air transport of passengers is as follows – (a) Rs 100 or 10% of gross value of ticket whichever is lower, in case of domestic travel and (b) Rs 500 or 10% of gross value of ticket whichever is lower in case of international journey in economy class. ‘Economy class in an aircraft’ means (i) where there is more than one class of travel, the class attracting the lowest standard fare; or (ii) where there is only one class of travel, that class. The condition is that the aircraft operator (service provider) should not avail any Cenvat credit for payment of this service tax [Notification No. 26/2010-ST dated 22-6-2010].

Full Exemption to transit passengers and employees of aircraft operator – There is full exemption from service tax on air transport of passengers in following cases – (a) transit passengers if the passenger does not pass through immigration and does not leave customs area and continues his journey to a place outside India and (b) Person employed or engaged by aircraft operator in any capacity on board the aircraft [Notification No. 25/2010-ST dated 22-6-2010].

Full exemption to passengers to and from North East – In case of passengers embarking on a journey originating or terminating in an airport located in the State of Arunachal Pradesh or Assam or Manipur or Meghalaya or Mizoram or Nagaland or Sikkim or Tripura or at Baghdogra located in West Bengal, there is full exemption from service tax on air transport of passengers [Notification No. 27/2010-ST dated 22-6-2010].

 

3.2 Cargo handling service [section 65(105)(zr)

Exemption to specified services provided within port, other port and airport - Taxable service provided by a cargo handling agency in port, other port or airport, in relation to, agricultural produce or goods intended to be stored in a cold storage is fully exempt, even if the service is classified as port, other port or airport service w.e.f. 1-7-2010 [Notification No. 41/2010-ST dated 28-6-2010].

3.3 Commercial or industrial construction service [section 65(105)(zzq)]

No service tax on advance received prior to 1-7-2010 in respect of services as per amended definition, if service provided after 1-7-2010 – The definition of commercial or industrial construction service has been amended w.e.f. 1-7-2010. In respect of service as per amended definition, if any advance payment was received prior to 1-7-2010, for service to be provided after 1-7-2010, service tax will be fully exempted [Notification No. 36/2010-ST dated 28-6-2010]. This is a transitory relief. This provision applies only in respect of services covered under amended definition and not to those services which were already covered under earlier definition.

Abatement for service provided within port, other port and airport – Commercial or industrial construction service provided wholly within port, other port or airport will be classified as port, other port or airport service respectively w.e.f. 1-7-2010. Even then abatement will be available and service tax will be payable on 25%/33%% of the gross amount charged if amount includes value of material, vide Notification No. 1/2006-ST dated 1-3-2006, as amended w.e.f. 1-7-2010 (25% if amount includes value of land and 33% if amount charged does not include value of land). The condition is that no Cenvat credit should be availed and benefit of Notification No. 12/2003-ST should not be claimed.

Exemption to all specified commercial or industrial construction service provided within port or other port? – Services of construction, repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers and railways, falling with section 659105)(zzq)  will be fully exempt from service tax, if provided wholly within the port or other port [Notification No. 38/2010-ST dated 28-6-2010] [This exemption seems to be redundant, since if commercial or industrial construction service is provided wholly within port or other port, the service will be classified as port or other port service and hence cannot fall in clause 65(105)(zzq) at all].

Exemption to all commercial or industrial construction service provided within airport? – Services of commercial or industrial construction, falling with section 659105)(zzq)  will be fully exempt from service tax, if provided wholly within the airport [Notification No. 42/2010-ST dated 28-6-2010] [This exemption seems to be redundant, since if commercial or industrial construction service is provided wholly within airport, the service will be classified as airport service and hence cannot fall in clause 65(105)(zzq) at all].

3.4 Construction of (Residential) Complex [section 65(105)(zzzh)]

No service tax on advance received prior to 1-7-2010 in respect of services as per amended definition, if service provided after 1-7-2010 – The definition of service has been amended w.e.f. 1-7-2010. In respect of service as per amended definition, if any advance payment was received prior to 1-7-2010, for service to be provided after 1-7-2010, service tax will be fully exempted [Notification No. 36/2010-ST dated 28-6-2010]. This provision applies only in respect of services covered under amended definition and not to those services which were already covered under earlier definition.

Exemption to construction service provided to JNNURM and Rajeev Awass Yojana – Construction of residential complex service provided to Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana is fully exempt from service tax [Notification No. 28/2010-ST dated 22-6-2010].

Abatement for service provided within port, other port and airport – Construction of complex service provided wholly within port, other port or airport will be classified as port, other port or airport service respectively w.e.f. 1-7-2010. Even then, abatement will be available and service tax will be payable on 25%/33%% of the gross amount charged if amount includes value of material, vide Notification No. 1/2006-ST dated 1-3-2006, as amended w.e.f. 1-7-2010 (25% if amount includes value of land and 33% if amount charged does not include value of land). The condition is that no Cenvat credit should be availed and benefit of Notification No. 12/2003-ST should not be claimed.

3.5 Erection, commissioning or installation services [Section 65(105)(zzd)]

Abatement for service provided within port, other port and airport – Erection, commissioning or installation service provided wholly within port, other port or airport will be classified as port, other port or airport service respectively w.e.f. 1-7-2010. Even then abatement will be available and service tax will be payable on 33% of the gross amount charged if amount includes value of material, vide Notification No. 1/2006-ST dated 1-3-2006, as amended w.e.f. 1-7-2010. The condition is that no Cenvat credit should be availed and benefit of Notification No. 12/2003-ST should not be claimed.

3.6 Port, other port  or airport services

Exemption to specified services provided within port/airport  - Following services provided within port or airport are fully exempt from service tax [Notification No. 31/2010-ST dated 22-6-2010].

    (i)   repair of ships or boats or vessels belonging to the Government of India including Navy or Coast Guard or Customs but does not include Government owned Public Sector Undertakings.

   (ii)   repair of ships or boats or vessels where such process of repair amounts to ‘manufacture’ and has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944.

  (iii)   supply of water.

  (iv)   supply of electricity.

   (v)   treatment of persons by a dispensary, hospital, nursing home or multi-specialty clinic (except cosmetic or plastic surgery service).

  (vi)   services provided by a school or centre to provide formal education other than those services provided by commercial coaching or training centre.

(vii)   services provided by fire service agencies.

                (viii)        pollution control services.

Certain services provided within port, other port and airport are completely exempt - Following services provided within port, other port and airport are fully exempt from service tax, vide Notification No. 41/2010-ST dated 28-6-2010, w.e.f. 1-7-2010  –

(i)   taxable service provided by a cargo handling agency in relation to, agricultural produce or goods intended to be stored in a cold storage.

(ii) taxable service provided by storage or warehouse keeper in relation to storage and warehousing of agricultural produce or any service provided for storage of or any service provided by a cold storage.

(iii) taxable service in relation to transport of export goods in an aircraft by an aircraft operator.

(iv) taxable service of site formation and clearance, excavation and earthmoving and demolition and such other similar activities.

Exemption to all specified commercial or industrial construction service provided within port, other port and airport? – Services of construction, repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers and railways, falling with section 659105)(zzq)  will be fully exempt from service tax, if provided wholly within the port or other port [Notification No. 38/2010-ST dated 28-6-2010] [This exemption seems to be redundant, since if commercial or industrial construction service is provided wholly within other port, the service will be classified as port or other port service and hence cannot fall in clause 65(105)(zzq) at all].

Abatement in respect of services provided within port, other port or airport - Abatement has been provided in respect of following services provided within the port, other port or airport, vide Notification No. 1/2006-ST dated 1-3-2006, as amended w.e.f. 1-7-2010. The abatement is subject to condition that no Cenvat credit should be availed and benefit of Notification No. 12/2003-ST should not be availed. Needless to mention, the abatement scheme is at the option of service provider –

bullet Rent a cab service – Service tax will be payable on 40% of gross amount charged.
bullet Erection, commissioning service –Service  tax will be payable on 33% of gross amount charged.
bullet Commercial or industrial construction service – Tax will be payable on 25% of gross amount charged if the amount includes value of land and on 33% of gross amount if the amount charged does not include value of land.
bullet Construction of (residential) complex service – Tax will be payable on 25% of gross amount charged if the amount includes value of land and on 33% of gross amount if the amount charged does not include value of land.
bullet Transport of goods by rail in container – Tax is payable on 30% of gross amount charged.
bullet Transport of goods by road (GTA) – tax is payable on 25% of amount on GTA (Goods Transport Agency) service (in fact, this item i.e. Sr No. 6 was omitted from Notification No. 1/2006-ST w.e.f. 1-3-2008. Thus, amendment has been made to an item which was omitted long ago.

 

3.7 Rent-a-cab service [Section 65(105)(o)]

Abatement for service provided within port, other port and airport - Rent-a-cab service provided wholly within port, other port or airport will be classified as port, other port or airport service respectively w.e.f. 1-7-2010. Even then abatement will be available and service tax will be payable on 40% of the gross amount charged vide Notification No. 1/2006-ST dated 1-3-2006, as amended w.e.f. 1-7-2010. The condition is that no Cenvat credit should be availed and benefit of Notification No. 12/2003-ST should not be claimed.

3.8 Site formation, clearance, excavation service [section 65(105)(zzza)

Exemption to service provided within port, other port or airport - Taxable service of site formation and clearance, excavation and earthmoving and demolition and such other similar activities provided wholly within port, other port and airport are fully exempt, even if the service is classified as port, other port or airport service w.e.f. 1-7-2010 [Notification No. 41/2010-ST dated 28-6-2010].

 

3.9 Sponsorship Service [section 65(105)(zzzn)]

Exemption to sponsorship of certain tournaments or championships - Sponsorship of following tournaments or championships has been fully exempted from service tax [Notification No. 30/2010-ST dated 22-6-2010].

    (i)   tournaments or championships organized by any of the National Sports Federations or Federations affiliated to such National Sports Federations, where the participating teams or individuals represent any District, State or Zone.

   (ii)   tournaments or championships organized by Association of Indian Universities - Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India (for the physically challenged), Special Olympics Bharat (for the mentally challenged).

  (iii)   tournaments or championships organized by the Central Civil Services Cultural and Sports Board.

  (iv)   tournaments or championships organized as part of National Games, by the Indian Olympic Association.

   (v)   tournaments or championships organized under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme.

3.10 Storage and warehousing service [section 65(105)(zza)]

Exemption to service provided within port, other port or airport - Taxable service provided by storage or warehouse keeper, within port, other port or airport, in relation to storage and warehousing of agricultural produce or any service provided for storage of or any service provided by a cold storage is fully exempt, even if the service is classified as port, other port or airport service w.e.f. 1-7-2010 [Notification No. 41/2010-ST dated 28-6-2010]

3.11 Transmission and distribution of electricity

Service of transmission of electricity has been exempted w.e.f. 27-2-2010 – Notification No. 11/2010-ST dated 27-2-2010.

Service of distribution of electricity has been exempted vide Notification No. 32/2010-ST dated 22-6-2010.

3.12 Transport of goods by air service [section 65(105)(zzn)]

Exemption to service of transport of export goods - Taxable service in relation to transport of export goods in an aircraft by an aircraft operator, provided in port, other port or airport is fully exempt from service tax, even if the service is classified as airport service w.e.f. 1-7-2010  [Notification No. 41/2010-ST dated 28-6-2010].

3.13 Transport of goods by rail in container [Section 65(105)(zzzp)]

Service tax on transport of all goods by rail is now expected to be made effective only on 1-1-2011. Till then, existing provision i.e. service tax is payable only in case of rail transport in containers by other than Indian railways will continue.

Abatement for service provided within port, other port and airport – Rail transport in container service provided wholly within port, other port or airport will be classified as port, other port or airport service respectively w.e.f. 1-7-2010. Even then abatement will be available and service tax will be payable on 30% of the gross amount charged vide Notification No. 1/2006-ST dated 1-3-2006, as amended w.e.f. 1-7-2010. The condition is that no Cenvat credit should be availed and benefit of Notification No. 12/2003-ST should not be claimed.

3.14 Transport of goods by road service [Section 65(105)(zzn)

Abatement to GTA service provided within port, other port or airport – Goods Transport Agency (GTA) service provided within port, other port or airport will be classified as port, other port or airport service w.e.f. 1-7-2010. Even then, abatement will be available and tax is payable on 25% of amount [Notification No. 1/2006-ST dated 1-3-2006 as amended w.e.f. 1-7-2010] (In fact, this item i.e. Sr No. 6 was omitted from Notification No. 1/2006-ST w.e.f. 1-3-2008. Thus, amendment has been made to an item which was omitted long ago!).

What will be the next new management breakthrough?

Tuesday, August 24th, 2010
This is a guest post by Mr.Gary Cokins. Gary Cokins, CPIM is Global Product  Marketing Manager for Performance Management at SAS, the world’s leader in business  intelligence, and analytical software. He is an internationally  recognized expert, speaker, and author. 

Since the 1890s, there have arguably been only a few major management breakthroughs, with several minor ones. What will be the next big tsunami in management that can differentiate leading organizations from also-rans lagging behind them? I suggest one possibility at the conclusion of this article.

The History of Management Breakthroughs

 

Where do you draw the line between the major and minor management breakthroughs of innovative methodologies that can provide an organization with a competitive edge? I’m not sure, so my list likely describes a blend:

Frederick Winslow Taylor’s Scientific Management: Taylor, the luminary of industrial engineers, pioneered methods in the 1890s to systematically organize work. His techniques helped make Henry Ford wealthy when Ford’s automobile company applied these methods to divide labor into specialized skill sets in a sequential production line and to set stopwatch-measured time standards as target goals to monitor employee production rates. Production at rates faster than the standard was good, while slower was bad. During the same period, Alexander Hamilton Church, an English accountant, designed a method of measuring cost accounting variances to measure the favorable and unfavorable cost impact of faster or slower production speeds compared to the expected standard cost.

Alfred P. Sloan’s Customer Segmentation ; Henry Ford’s pursuit of a low unit cost per single type of automobile (i.e., the Model T) was countered with an idea championed by Alfred P. Sloan, who became president of General Motors in 1923. Sloan advocated expansion of product diversity in style, quality, and performance with increasingly more expensive features in car models as a staircase for higher-income consumers to climb – starting with the Chevrolet and ultimately peaking with the Cadillac. It revealed the power of branding to retain customer loyalty.

Harvard Business School’s Alfred D. Chandler Jr.’s Organizational Structure: In 1962, Professor Chandler’s path-breaking book, Strategy and Structure, concluded that a factor explaining why some large companies fail or succeed involved how they learn about customers and how they understand the boundaries of their competencies to focus their strengths.

Harvard Business School’s Michael E. Porter’s Theories of Competitive Advantage: It is hard to believe that prior to Porter’s 1970 book, Competitive Strategy: Techniques for Analyzing Industries and Competitors, very few organizations had a formal strategic planning department. Today, they are commonplace. Conglomerates composed of many diverse businesses were becoming numerous in the 1960s when Porter introduced his “four forces” approach for individual businesses to assess their strengths and opportunities. His message was that strategy is about making tough choices.

Total Quality Management from Edward Deming, Joseph Juran, and Phil Crosby: The total quality management (TQM) and continuous quality improvement (CQI) programs of the 1970s were a response to Japanese manufacturers grabbing market share as they progressed from being viewed as making cheap products to making high-quality ones. During the same time period, Shigeo Shingo and Taiichi Ohno of Toyota Motors introduced “pull”-based just-in-time (JIT) production systems that were counter to traditional large batch-and-queue production management economic-lot-size thinking. JIT provides faster throughput with less inventory. In the 1990s, at Motorola, Mikel Harry introduced a TQM refinement called Six Sigma, which recently has merged with lean management techniques.

Michael Hammer’s Business Process Reengineering: In the early 1990s, Michael Hammer recognized the importance on focusing and satisfying customers. He observed that stovepiped and self-serving organizational departments were inefficient at serving customers and that the best way to improve service, particularly given the rapid adoption of computers, was not to just modestly improve business processes, but rather to radically reengineer processes with redesign as if you had a clean sheet of paper.

Pepper and Rogers’s Customer Relationship Management: In 1994, Martha Rogers and Don Peppers authored the book Customer Relationship Management – One-to-One Marketing, which announced the eventual death of mass selling and faith-based spray-and-pray marketing. It described that computers could track characteristics and preferences of individual customers.

Peter Senghe and Organizational Learning: In about 1980, Professor Peter Senghe of MIT, recognizing that many industries were increasingly dependent on educated knowledge workers, published research that concluded that a differentiator going forward between successful and unsuccessful organizations is the rate of organizational learning – not the amount, but the rate.

Kaplan & Norton’s Strategy Maps and Balanced Scorecard: In 1996, Professors Robert S. Kaplan and David Norton published the first of four related books, The Balanced Scorecard. They recognized that executives were failing not due to poor strategy formulation but rather failure to successfully implement it. They advocated that executives communicate their strategy to employees using visual maps and shifting performance measures from month-end financial results to nonfinancial operational measures that align work and priorities with the strategy.

Will Business Analytics Be the Next Breakthrough?

 

Performance Management, by applying its broad definition as the integration of multiple managerial customer, operational, and financial methodologies, embraces all of the above advances. Performance Management integrates methodologies and their supporting systems to produce synergy not present when they are implemented in the absence of each other.

Professor Tom Davenport of Babson College and Accenture’s Jeanne Harris have authored two books, Competing on Analytics and Analytics at Work. Their books propose that the next differentiator for competitive advantage will be business analytics. Their premises are that organizations need much deeper insights and that change at all levels has accelerated so much that reacting after-the-fact is too late and risky. They assert that organizations must anticipate change to be proactive, and that the primary way for this is through robust quantitative analysis. This is now feasible due to the combination of massive amounts of economically stored business intelligence and powerful statistical software that can provide previously undetected patterns and reliable forecasts.
For example, customers can be finely microsegmented in multiple combinations – such as age, income level, residence location, and purchase history – and patterns can be recognized that can predict which customers may defect to a competitor, providing time to attend to such customers with a deal, offer, or higher service level to increase retention levels. As an additional example, minute shifts in customer demands for products or services can be real-time-monitored and projected to speed or slow actions and spending to induce customer behavior.

Performance management is not just better management of performance but improving performance. Integrating systems and information is a prerequisite step, but applying business analytics, especially predictive analytics, may be the critical element to achieve the full vision of enterprise performance management.

Also read

 

http://cmaindia.informe.com/blog/2010/08/14/beware-misguided-accountants/

 

CMA’s as Financial Planners - Some perspectives

Monday, August 23rd, 2010

CMA’s as Financial Planners - some perspectives

This is a guest post by CMA.Veeraraghavan Iyengar, FICWA,MIMA. The thrust of this post is to provide a starting point for student CMA's who can chalk out a career either in industry or practice as a financial planner. 

 

Investment Planning Advice CMAs as financial Planner in Personal Finance

 

Personal Finance: Simply put surplus finance available with an Individual who seeks deployment avenues. Also it could mean Individual in need of finance to meet his domestic needs including needs to address some enterprising attempts.

 

Investment Planning: It is an exercise that needs to be attempted before finally venturing to place surplus funds of the individual in appropriate investment avenues to meet the short and long term needs, taking carefully into consideration the appropriate risk and related return involved.

Investment advice: Normally an individual plans to put some funds for anticipated forward consumption in to investment avenues himself. Often situation arises where he seeks advice from the investment planner, who normally could be a seller of a particular product or a group of products, he could often be a free lance investment analyst or a full time consultant.

 

Scope of the advice: This could be determined by the investor seeking the advice or mutually between the advice giver and the advice seeker. It is essential that the contour is drawn clear often these are verbal but a quantum advice need to be written down.

 

Essentials of an investment advice: The seeker should be clear of what he needs specially:

 

1.What he has as funds?

2.How idle they are and can be?

3.What is the anticipated requirement towards expenditure over and above his

normal flow?

4.How much flow does he expect in the future ?

5.What is his future expenditure plan?

6.How this plan is to be sourced for funds?

7.How vital are the current available funds for those anticipated expenditure?

8.What amount of return on the funds would satisfy him?

 

The financial advice giver should seek to ascertain/explain the following:

1.Nature of funds available(Legal flow under jurisdiction).

2.Compliance(specially Tax aspects)

3.Return anticipated by the investor?

4. Explain to the investor the risk associated with the avenues available and the return anticipated.

5.May also help in drawing a personal cash flow based on the details furnished by the investor.

 

Knowledge of the financial advisor into personal finance advice:

1.Psychology of the investor.

2.Needs of the investor.

3.Market for financial products.

4.Measurement of risk and return criteria.

5.Risk appetite of the investor.(including aversion).

6.Ability to execute a good personal finance plan based on furnished information.

5.Drawing a tailor made questionnaire soliciting information.

6.Enagaging investor into a dialogue to ascertain information for his “need based planning”.

7.Valuation of current and future investment.

8.Cost-Benefit analysis and presentation.

 

CMAs have the right role in this domain.

 

CMA is a cost-benefit analyst and basically a resource person who can present perspective of risk associated with return in a better manner and also align investment strategies with requirements and opportunities.

 

For this a CMA should indulge in studying the market , products and the movements of risk and return portfolio in the investment avenues. If he happens to be a seller of products he should indulge in having a good portfolio for selling not limited to one banner. If he happens to be a product designer for some companies then his vision is to have a long-term sustainability of the product designed(should not have a short lifecycle). Should be acceptable to the market and the investors simultaneously.

 

CMAs have a broader canvas to paint in the financial services arena and should meticulously indulge in study of the markets and products as well as where the funds lay idle.

A “Dear CEO” Advice Column

Friday, August 20th, 2010
This is a guest post by Mr.Gary Cokins. Gary Gary Cokins, CPIM is Global Product Marketing Manager for Performance Management at SAS, the world’s leader in business intelligence, and analytical software. He is an internationally recognized expert, speaker, and author.

Self-help books and newspaper advice columns, such as the famous Ann Landers column, are prevalent for issues involving relationships, money or etiquette. What if there were an advice column for CEOs?

Dear CEO:

I am a relatively capable mid-level manager in my mid-40s. I have worked for my employer for 10 years. During the last few years our company has been losing market share and declining in profits. Our executive team tries to talk a good game with quarterly town hall meetings with employees, but they appear to show no interest in implementing any of the core methodologies of an enterprise performance management framework, like strategy maps, customer profitability analysis or driver-based budgeting. Some of our executives openly ridicule these managerial techniques and say that real managers just need good old common sense and instinct, not fact-based information. What can I or my co-workers do to encourage our executives to be more innovative?

– Confused and Dismayed

Dear Confused and Dismayed:

Executive teams are one of the more interesting social groups to research and study their behavior. Even the most talented executive teams fail to reach their full potential due to their lack of trust and confidence in one another and the inevitable conflicts, reduced commitment and avoidance of accountability that result from mistrust.

Sometimes you just have to figure out how to manage your bosses. Resistance to change is often the root of their problem. This is understandable because resistance to change is human nature – people like the status quo. I have relied on a simple formula to overcome resistance to change. It is (D x V x F) > R, where R stands for resistance. Do not underestimate how large the R is; it can be enormous. Therefore, in the equation if D, V or F is zero or small, then their combination will not exceed R. You will need all three factors in great abundance. OK. You are now asking what D, V and F stand for.

• D is dissatisfaction with the current state. Unless people have discomfort, they will not be interested in changing anything.
• V is a vision of what “better” looks like. When people see a different view of their circumstances that can lead to an improved condition, they will consider changing.
• F is often neglected – it stands for “first practical steps.” Some may think that a lot of dissatisfaction (D) with a solid vision (V) is sufficient to overcome that large resistance (R) variable. Large amounts of D and V are not enough. If people think the vision is overly theoretical, complicated, costly or impractical, they will not pursue changes to realize that vision. You need F to make the vision attainable.

So how do D, V and F apply to influencing your executive team? Most enthusiastic and well-meaning managers try to promote their vision. They get excited about implementing enterprise performance management techniques, such as strategy maps for critical projects and initiatives and with identified core business processes that need to be improved. My advice from experience is to first focus on the D. Here is why.

Change will only result when people feel compelled to change. Having high levels of dissatisfaction and discomfort, the D, is your best lever to influencing your executives. But dissatisfaction is often latent, not overt. You will need to create the discomfort in them. My suggestion is to use the Socratic method of questions, named after the Classical Greek philosopher Socrates who stimulated rational thinking and illuminated ideas by posing questions to his students, like Plato.

Do you have the nerve to start asking your executive team questions like these? Are our largest customers presumably our most profitable ones? Are any of them so demanding of us that the extra costs erode our profits? How do we know? Do all our managers and employee teams understand your strategic objectives? How do they know how what they do each week and each month contributes to achieving your strategy? Are the performance measures you monitor more weighted toward lagging after-the-fact reporting that you react to? Or do you monitor leading key performance indicators (KPIs) that enable you to make proactive decisions? If it is the latter, how well do the leading KPIs correlate with the lagging ones? How do we know which types of customers to retain, to grow, to acquire as new or to win back? How much is optimal to spend on each customer type with deals, offers and promotions to retain, grow, acquire and win back those customers? Won’t any spending amount above or below the optimal for each customer type lead to destroying shareholder wealth?

In many cases the executives may not have good answers. That is when you can hit them with the knockout-punch questions. Ask them that if you do not know the answers, “Is that is a good thing? How long can we keep making decisions without knowing these answers?” If you ask these thought-provoking and deliberately disturbing questions in the right way, you will not need to spend much time on promoting your vision (V) of the equation, the variable that many managers prefer to begin with. By converting and exposing latent problems into ones evident to your executives, the solutions become more obvious and understandable.

And what about the F in the equation – the first practical steps? Many organizations embarking on the journey of adopting enterprise performance management struggle with how to get started. Consider pilots and rapid prototyping with iterative re-modeling techniques to demonstrate value and prove concepts. These accelerate learning and will get more buy-in.

Always remember that in the absence of facts, anybody’s opinion is a good one. And usually the biggest opinion wins – which is likely to be that of your boss or your boss’ boss. So to the degree your executives are making decisions on intuition, gut feel, flawed and misleading information or politics, your organization is at risk. Write me again in few months and update me on how you are progressing. You can make a difference.

Beware Misguided Accountants

Saturday, August 14th, 2010

Gary CokinsThis is a guest post by Mr.Gary Cokins. Gary Cokins, CPIM is Global Product Marketing Manager for Performance Management at SAS, the world’s leader in business intelligence, and analytical software. He is an internationally recognized expert, speaker, and author. 

Over the past few years I have discussed a paradox with Doug Hicks, President of D.T. Hicks & Co. ( www.dthicksco.com ), a performance improvement consulting firm in Farmington Hills, MI. The paradox, which continues to puzzle me, is how chief financial officers (CFOs) and controllers can be aware that their managerial accounting data is flawed and misleading, yet not take action to do anything about it.

Now, I’m not referring to the financial accounting data used for external reporting; that information passes strict audits by CPA firms. I’m referring to the managerial accounting used internally for analysis and decisions. For this data, there is no governmental regulatory agency enforcing rules, so the CFO can apply any accounting practice or cost allocation method that he or she likes.

Perils of poor navigation equipment
I speculated to Doug that I think some CFOs and controllers are simply lazy. They do not want to do any extra work or have two sets of books with potentially confusing product and service-line cost numbers. Doug explained this counterintuitive phenomenon using a fable:

Imagine that several centuries ago there was a navigator who served on a wooden sailing ship that regularly sailed through dangerous waters. It was the navigator’s job to make sure the captain safely and efficiently sailed the ship from one point to another. In the performance of his duties, the navigator relied on a set of sophisticated instruments. Without the effective functioning of these instruments, it would be impossible for him to chart the ship’s safest and most efficient course.

One day the navigator realized that one of his most important instruments was calibrated incorrectly. As a result, he provided the captain inaccurate navigational information. No one but the navigator knew of this calibration problem, and the navigator decided not to inform the captain. He was afraid that the captain would blame him for not detecting the problem sooner and then require him to find a way to report the measurements more accurately. That would require a lot of work.

As a result, the navigator always made sure he slept near a lifeboat so that if the erroneous navigational information led to a disaster, he wouldn’t go down with the ship. Eventually, the ship hit a reef that the captain believed to be miles away. The ship was lost, the cargo was lost, and many sailors lost their lives. The navigator, always in close proximity to the lifeboats, survived the sinking and later became the navigator on another ship.

Perils of poor managerial accounting
Can a similar story be told in today’s times? Centuries later, there was a management accountant who worked for a company in which a great deal of money was invested. It was this management accountant’s job to provide information on how the company had performed, its current financial position, and the likely consequences of decisions being considered by the company’s president and managers. In the performance of his duties, the management accountant relied on a managerial cost accounting system that was believed to represent the economics of the company. Without the effective functioning of the costing practices reported from this system, it would be impossible for the accountant to provide the president with the accurate and relevant cost and profit margin information he needed to make economically sound decisions.

One day the management accountant realized that the calculations and practices on which the cost system was based were incorrect. It did not reflect the economic realities of the company. The input data was correct, but the reported information was flawed. A broadly averaged cost allocation factor was used with no causal relationship to the outputs being costed. As a result, the current and forward-looking information he provided to support the president’s decision making was incorrect. No one but the management accountant knew this problem existed. He decided not to inform the president. He was afraid that the president would blame him for not detecting the problem sooner and then require him to go through the agonizing effort of developing and implementing a new, more accurate and relevant cost system using activity based costing (ABC) principles. That would require a lot of work. Wouldn’t it?

Meanwhile, the management accountant always made sure he kept his network with other professionals intact in case he had to find another position. Not surprisingly, the president’s poorly informed pricing, investment, and other decisions led the company into bankruptcy. The company went out of business, the owners lost their investment, creditors incurred financial losses, and many hard-working employees lost their jobs. However, the management accountant easily found a job at another company.

The accountant as a bad navigator
Why do so many accountants behave so irresponsibly? The list of answers is long. Some believe the costing error is not that big. Some think that the extra administrative effort required to collect and calculate the new information will not offset the benefits of better decision making. Some think costs don’t matter because the focus should be on sales growth. Whatever reasons are cited, accountants’ resistance to change is based less on ignorance and more on misconceptions about what determines and influences accurate costing.

Today commercial ABC software and their associated analytics have dramatically reduced the effort to report good managerial accounting information, and the benefits are widely heralded. Furthermore, the preferred ABC implementation method is rapid prototyping with iteratively scaled modeling, which has destroyed myths about implementing ABC as being too complicated and lengthy. An ABC system can be implemented in a few weeks, not months.

Reasonably accurate cost and profit information is one of the pillars of performance management’s portfolio of integrated methodologies. Accountants unwilling to adopt logical costing methods, and managers who tolerate the perpetuation of flawed reporting, should change their ways. Stay on the ship or get off the ship before real damage is done.

Mandatory offer in takeovers

Tuesday, August 10th, 2010

This is a guest post by Mr.Sacha Singh. Sacha consults on change management, process evaluation and valuation of firms. He also enjoys ghazals and thumris and at times bhajans. You can read Sacha’s posts at http://sachasingh.blogspot.com/

Mandatory offer in takeovers: comparison across ten countries

 

I am again teaching M&A. Some very important changes in SEBI (Substantial Acquisition of Shares and Takeover) Regulations have been proposed and I thought it appropriate to compare some of the issues about mandatory offers in different jurisdictions. The findings are summarised in this table:


*The provisions relating to India are as per the present SEBI (Substantial Acquisition of Shares and Takeover) Regulations

By squeezing out of minority shareholders I mean, if the acquirer can force the minority shareholders to sell their shares.

I will be grateful to receive these details for some other countries such as Australia, New Zea Land, Canada, Brazil…

Lessons from historical figures about Performance Management

Friday, August 6th, 2010

This is a guest post by Mr.Gary Cokins. Gary Cokins is a Product Marketing Manager with SAS, the leader in business analytics software and services. He is an internationally recognized expert, speaker, and author in advanced cost management and performance improvement systems. Gary also blogs regularly at http://blogs.sas.com/cokins

 Mr.Cokins has been kind enough to grant permission to post his articles on CMAIndia Blog Post.

Achieving the full vision of the enterprise performance management framework involves more than selecting one of its many methodologies and then purchasing software to install and implement the solution. It requires individuals with talent and skills. Here is a list of famous people who have inspired me and exemplify the traits valuable in achieving that full vision:

Socrates: An effective way to help people learn is by asking them questions that lead to meaning. Socrates taught Plato and other Greek philosophers by making them think about answers to his questions rather than just lecturing. For example, asking “Does our organization measure the correct performance indicators that reveal progress toward achieving our strategic objectives?” is more stimulating than simply providing a list of commonly accepted industry metrics.

(more…)

Profitability solution for Bank

Tuesday, August 3rd, 2010

Profitability solution for Bank

This is guest post by CMA.Rajendra Patil. Rajendra is a specialist in Activity Based Management and Corporate Performance Management consulting, implementation and training. You could connect with him on http://www.linkedin.com/in/rajenpatil. You can also read his blogs on Activity based management

Profitability solution for Bank

When we talk about the profitability solutions for the banks it is calculated by using information from various sources. Typical profitability calculation starts with the Net Interest Income. This is the difference between the Net Interest income and the charge for the funds. Also Interest expenses and the credit for the funds for the deposit products are used for calculations. This information is available from the Fund Transfer Pricing (FTP) solution. The difference between these gives the Net Interest Margin (NIM). This is one part of the revenue. The other part could be from the various fee based products or commission from the third party products. This makes the total revenue from the customer. (more…)