Archive for the ‘Management Accounting’ Category

Wage Mechanism for Sustainable Business

Thursday, March 8th, 2012

This is a post by Grad.CMA Vinayak Sahni.

There are many things that have already been discussed in this forum as to what should be included in performance Appraisal report…my aim is to explore new unconventional areas which are overlooked by many stakeholders but still are very vital for sustainable business modal.

I was thinking about unconventional reporting from past few days…I have come out with three areas ….tday My theme is ” wage mechanism for sustainable business”.

wage mechanism for sustainable business


Today there are many companies who on their social responsibility front score higher grades by highlighting what they have contributed towards community in which they are operating but there is also a flipside to these overly highlighted gestures by the corporates.

Now , There could be case that organisations are following certain unethical practices that help them to get compensation for the cost incurred on csr.One of such practice could be in form of curtailed labor wages .., As lower labor contributes to largest chunk of working population in India , this practice could be very fruitful. Even by curtailing Rs 10 per labor the Corporate house can be greatly compensated for the cost incurred on social responsibility practices initiated by it .

Objective :

To find out discrepancies in Social responsibility reporting by highlighting hidden unethical practices initiated by corporate to make themselves compensated for the cost incurred on CSR practices , so as to make their financial position even as before.


1) Evaluation of Social responsibilty Practices through effective quantitative terms would show the real stand & cost incurred by organisations on CSR.

2) To show weather the organization is worthy of earning credits on CSR.

3) To change Mindset of Corporate with respect to treatment of lower labor. It attempts to device Industry best practices in managing labor force.

4) Shift of Ideology in setting up Labor wage unrestricted by Minimum wage as set by Govt. & laying down greater emphasis on “Inflation Adjusted Real wages “.

5) To reduce labor unrest & dealing with other labor issues .

Discussion is restricted to following class : Lower Labor & Wage earners , weather permanent or temporary.

During discussion Middle /Lower Management shows permanent staff just above Superviser etc

Evidence & checklist:

To gather knowledge on the following…

1) The comparison of wage with minimum wages as per labor law .

What is the percentage of Actual wage with respect to Minimum wage as per Indian Labor Law.

Eg. In India : Labour A earns Rs1000/Month, Min Wage set by Govt. Of India is Rs800/month…

Percentage = Actual wages / Min wage =(1000/800)*100 = 125% , which means in India labor earns 1.25 times more than the min wage set by govt…Now this ratio has to be compared with labor practices across the globe.

2) To check weather the Wage is Inflation Adjusted , Computation of wages In real Value.

Inflation Increased by 10% , but salary remains the same = 1000/Month , so real wage would be Rs909/Month Approx..

3) To check Promotion Benefits given to lower labor & making effective comparison of promotion policies devised for Middle/Lower Management personnels .


Middle/lower Management Promotion policy.. Level A to Level B , Duration 3 years , Salary Increased 50%.

Lower Labor Promotion Policy …Level A to Level B, Duration 5 Years & salary Increased 20%.

Promotion policy should be checked in respect to Time , increament & credits earned to get promotion.

4) To check real cost of Social Responsibility .

eg. Organization spends 10cr annually on education for community, Tax benefits it received = 2cr . Labor employed = 5000 workers, Standard Industry salary for similar work 2000/Month , Actually paid by Company Policy = 1000/Month.

Saving per month = (2000-1000)*5000 = 50L . so real cost of CSR would be 10-2-.5=8.5 cr.

5) To check whose the real benefitter of Social practices by Organisation & to check weather the workers who are not receiving benefit are also compensated to make there stand equal to beneficiaries.

eg , suppose the organization has the policy to fund child education of labor employed , & it costs abt 200/child/month for education …Labour A who earns 1000/ month has 2 children so in this case his deemed monthly pay would be 200+200+1000 =1400. Labor B who also earns 1000/month is childless, so consequently his deemed pay would be less , so what is role played by company to satify such labour force who are not at receiving end.

6) What is the daily work policy towards lower labor in comparison to middle level.

Middle/lower Management is entitled to 1 hr lunch break, labor force entitled to 20 mins break.

7) Evaluation of Other facilities like transportation , meals etc. provided to labor force.

8) Comparison of Wages & other policies of daily labor & permanent labor. Whats the policy for those daily wagers who have served the organization for very long & what is the backup provided to them in case there services are terminated by the company ??…

Many Might doubt My intentions to Include this aspect to Performance Appraisal report by saying that it wont be good if we tell the company about its own unethical practices , To answer that Lemme clarify that by study on this aspect in its entirety , we can help the company in devising such policies which would be beneficial for both labor & company in maintaining its Image .Guidance could be given to organisations as to how they can keep their social Responsibility cost at minimum & still achieve greater social goals . Spending more does not always mean greater benefit . There could be a case where the company spends greater than other organisations but still do not achieve desired social goals. It’s aim is to bring about uniformity & evenness in Labor -Organization practices , so as to avoid situations like labor unrest etc , which would further ensure smooth greater productivity.

Suggestions- GACAP-CAS-Cost Information Presentation

Friday, November 11th, 2011

This is a post by CMA Devarajan Swaminathan. He is a practising members based in Thane, Mumbai

Suggestions on GACAP, CAS and essentially on Cost Information Presentation:

Please note that “costs”, “expenses” , “losses” , “expenditure” have NOT been used interchangeably. They all have distinct conotations.

1. The Term “Cost” needs to be redefined to include post production costs. The present cost definition is limited to production. A suggested definition of “cost”

A cost is a measurement, in monetary terms, of the amount of resources used for the purpose of making goods available for sale and includes resources used post sales for honouring pre sales contract (e.g warranty) or resources consumed for the purpose of rendering of services.

2. GACAP and CAS which provides guidance for inclusion of cost elements would therefore adhere to the above definition. In this regard it would make little sense to include the following expenses/losses under “costs”.

i) Bad Debts (bad debt is a loss and not an expense/cost) - can substantiate if asked. Bad Debt must only reflect in the Cost-Financial Reconciliation Statement.
ii) legal expenses incurred for recovering bad debts cannot come as a selling costs but to be shown under business sustenance expenses.

3. Period Costs are expenses incurred for Business Sustenance Purposes. Therefore every product vertical has to make some contribution for absorbing period costs. This could be on the basis of sales value or anyother.

4. Similarly every product vertical has to make some contribution towards CSR Expenses incurred by the Company for the Company as a whole.

5. Interest and finance charges, as suggested by the GACAP to be shown as a part of total cost of sales, should in my opinion, not be shown under the Total Cost of Sales but the same need to be shown as a spearate line item in the cost information presentation.

6. It would make a lot of sense to include imputed risk cost as a separate line item in the cost information presentation. For this we would need a GACAP to provide guidance for recognition, measurement and discloure of imputed risk costs.

7. It is therefore imperative that cost information presentation relfect the above different nature of costs, expenses incurred/imputed. A format is suggested below. It goes without saying that this is not a perfect version and changes and other indeas may be included in this, or this suggested format may be dumped.

Cost Information Presentation



Less:Costs directly attributable to the Product

Direct Costs:

Direct Material

Direct Labour

Direct Expenses

Total Direct Costs


Indirect Costs:

Production Overheads

Administration Overheads

Selling Overheads

Distribution Overheads

Total Indirect Costs


Total Operations Costs

(Direct + Indirect)


Contribution before Interest and finance Charges

(Sales - Total Operations Cost)


Less: Interest and finance charges


Contribution before Business Sustenance Expenses:

Less: Apportioned Business Sustenance Expenses

(Period Costs not directly attributable to the Products)


Adminstration Expenses

Selling Expenses

Distribution Expenses

Interest and Finance Charges


Contribution before apportioning CSR Expenses


Less CSR Expenses:

CSR Expenses 1

CSR Expenses 2


Total CSR Expenses


Net Contribution


Less: Imputed Risk Costs



 Do share your thoughts on the above please.

Cost of Compliance, Confidentiality they say? Really??

Tuesday, October 4th, 2011

Cost of Compliance, Confidentiality they say? Really??

This is a post by CMA Devarajan Swaminathan. He is a practicing member based in Thane - Mumbai.

It is interesting to observe when some people raise the pitch on cost of compliance and confidentiality when it comes to cost accounting, its audit and reporting.

Let me try allay some fears

Cost of Compliance:

One Example of the benefits of maintenance of cost accounting and its reporting:

Most of the information that this report contains are also there in the cost audit report. It seems to have plucked it up and consolidated from the cost audit report of various companies.

What does the DSIR actually do by publishing such reports?
Who is to benefit from such a report?
This kind of industry analysis and analysis of India vis-a-vis the world benefits whom?

The cost of compliance they ask? really??


How to make Paracetamol and its key ingredients?

Name a product that you say requires to be kept confidential irrespective of industry or kind of product and I will try to provide you the link of its DNA, its ingredients, its history and geography.

Confidentiality they say? Really??

The point is quite simple. Its about national resources, its pattern of consumption, its productivity, its efficient and effective use. These are national resources belonging to the nation to which each and every one belongs and has equal right. Just by paying a “price” it does not change anything if those resources are not put to use to achieve an end that is in the interest of nation.

This is from a societal and national perspective.
Lets look at it from an analyst perspective. Financial transaction talk about acquisition and use of resources. Resource consumption talks about what has been done with the resources that has been acquired and how best it has been put to use. This is seen in the context of the capital raised, deployed and the product and service that is generated and  provided to the customer and finally the revenue it generates.

Governance is not just about fill in the blanks of various compliance forms, the mad analysis of the financial report and the bottom line. It is essentially about managing business better by making uses of resources acquired and also ensuring that the resources are made available to be sustainable in the long run.

The mad obsession of analysing aggregates to find out what it comprises of without knowing what it actually comprises of makes no sense. Besides this may lead to misleading analysis. Even if it is cash to cash, its of little use if you do not know what the input cash has been put to use for, its most productive use, to generate the maximum output cash. (productivity).

More than anyone, it is the analyst community, financial institutions, banks and mutual funds who must demand cost audit report as an important document for making investment analysis before deploying funds. If the Income Tax Department, Central Excise Department, the Sales Tax Department make use of cost audit report to analyse the leakages in revenue then why not the investment community? Don’t they want to know what is being done with their money? why has a product vertical that was most profitable, in the name of unlocking value been hived off? What is the great secrecy that some want to maintain that they do not want their shareholders to know? This seems to be most prevalent in a family run business rather than a professional run or a public enterprise. What is it that family owned business house don’t want their minority shareholders to know?
I look forward to the analyst community/ providers of risk capital, demanding cost audit report sooner than later as the information that it contains has not been used to its potential by them.

In its Comprehensive Business Reporting Model the CFA Institute has recommended the following which is nothing but cost information reporting as envisaged in the cost audit report.

Principle 10. Changes affecting each of the financial statements should be reported and explained on a disaggregated basis.For investors to be able to understand the changes that have occurred in financial statements and, consequently, to their wealth, it is essential that they be able to analyze the individual forces at work that affect the company’s performance. Accounting standards currently permit assets and related liabilities, revenues, and expenses, as well as investing and financing cash inflows and outflows, to be reported on a highly aggregated or netted basis, causing much important information to be obscured or lost altogether. The information loss can result inmisleading analyses, distorted conclusions, and suboptimal investment decisions. Such aggregation and netting should not be permitted. Similarly, we do not believe that netting should be permitted for individual line items. For example, changes in the property, plant, and equipment account can arise as a result of (1) purchases and exchanges, (2) sales and abandonment, (3) self-construction, (4) mergers and divestitures, (5) leases, (6) foreign currency changes, (7) depreciation, and (8) impairment write-downs. Clearly, information as to the precise source of the change is essential if investors and other users are to evaluate managers’ investments in productive capital, the effectiveness of managers’ decisions to invest scarce capital, and the value of the company’s capital. It is important to note that IAS 16 requires a full reconciliation of the change in gross fixed assets and accumulated depreciation.

Principle 11. Individual line items should be reported based upon the nature of the items rather than by the function for which they are used. By “nature,” we mean that items should be reported by the type of resource consumed, such as labor or raw materials, rather than by the function or purpose for which it is used, such as cost of goods sold or selling, general, and administrative expense. Categorization according to nature can greatly enhance comparability across companies and consistency within the statements of a single company. Currently, users of the statements cannot determine from the statements or related disclosures where individual items, such as pension expense and depreciation, are recorded in the income statement. The statistical distribution properties of the various resources consumed in operations behave very differently over time. Consequently, aggregation by function, the current practice, merges items with different properties, reducing the information content of the items and significantly reducing their value as decision-making factors. We believe that functional disclosure is best reserved for segment reporting where the categories are most likely to be more nearly homogeneous and, therefore, more meaningful for assessing the profitability of individual units.

More later.

Costing drives sustainability measurement in organizations

Sunday, July 10th, 2011

This is a post by CMA R.Veeraraghavan. He is a Fellow of the ICWAI,  Dy. CAO at the Mumbai Port Turst and also a moderator in this portal.

Lack of transparent performance measurement and reporting in the business world is the main reason for the global financial crisis that we are witnessing in the recent past.

Performance measurement has two aspect one is measurement of resources and the other is enumerating its cost for a business activity.

Except in the Indian law, given below none of the legislation has a pervasive clause of performance measurement, performance measurement is tool for measuring cost and consumption of resources, where as triple bottom line are dimension or areas of such measurement pervasiveness.


Integrated Reporting.


Integrated Reporting-Triple Bottom line_CSR and Environment reports,green reporting as they are often referred to, would be an inadequate exercise,if devoid of or not supplemented by a good costing system in place , and a good cost management Reporting.
Simply capturing expenditure and reporting the proportion to revenue spent from transaction accounts would not serve the real purpose of sustainability under a holistic model.

Business survives on value created out of the environment -whether it impacts the environment or the other way round-sometimes businesses build environment.

Environment are of three kinds :

1.The Green.-Physical.The Colour that represents fertile feature.

2.The Yellow.-Social.The colour that represents prosperity.

3.The White.-Economic. The colour that represents transperancy.

All these types of environment enriches on the cost sunk and the resources that gets exploited through business activity.

Business principle is to minimise cost - optimise resource consumption and maximise Value creation.

Transaction Accounting(financial Accounting)with its inherent deficiency cannot address the above concerns, it is when the cost Accounting gets rolled out in a systematic and continuous exercise format would the business truthfully and transparently run value to the stakeholder.

It is thus of prime concern that all our efforts across the globe is to develop a system of universally accepted cost accounting principles and make entities observe these principles and give credence the integration of reporting mechanism.



Sustainability Report:

Sustainability reporting is the practice of measuring,
disclosing, and being accountable to internal and
external stakeholders for organizational performance
towards the goal of sustainable development.


‘Sustainability reporting’ is a broad term considered
synonymous with others used to describe reporting on
economic, environmental, and social impacts (e.g., triple
bottom line, corporate responsibility reporting, etc.).


Where it builds on:

Economic- material and labour and other items of cost. this other items of cost is expansive to include social and environmental cost and concumption and ideally they are overheads to the product and processes and impact their sustainability at strategic and operational levels.


Integrated Reporting demonstrates the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. By reinforcing these connections, Integrated Reporting can help business to take more sustainable decisions and enable investors and other stakeholders to understand how an organization is really performing.


Costing improves performance in organizations-IFAC-PAIB.

1. IGPG Document.


The creation, operation, alteration, and cessation of every action and function in an

organization – whether within the private, public, or voluntary sector – all consume

economic resources. Measuring, accumulating, and assigning those resources to the

organization’s various processes and outputs allows the structure and operation of the

organization to be explained, understood, and improved. Costing, the accounting term

that embraces these processes and expresses them using money as a common language,

lies at the heart of managerial accountancy and, exercised intelligently, is among the most

powerful disciplines available to professional accountants in business (PAIB).


1.2. Costing contributes to an understanding of how profits and value are created, and how

efficiently and effectively operational processes transform input into output. It can be

applied to resource, process, product/service, customer, and channel-related information

covering the organization and its value chain. Costing information can be used to provide

feedback on past performance, and to motivate and change future performance. Costing is

thus an essential tool in creating shareholder and stakeholder value. Given its importance

and breadth of scope, it is unsurprising that many different costing methods exist, both in

the literature and in practice. This can create confusion and uncertainty for managers, and

PAIBs need a sufficient understanding of sound costing principles to be able to select and

apply useful approaches.

1.3 The basic building blocks of costing are operational measurements of consumed resources

(resources include people, space, equipment, and consumables, these being the drivers of cost

and levers of change). Such measurements enable managers to draw conclusions and make

judgments about why (a) the organization’s results turned out as they did (performance

evaluation), (b) what this means for the future (planning), and (c) the probable results of

available courses of action (analysis of alternatives) all of which comprise essential

information for effective decision making. The principles in this International Good Practice

Guidance (IGPG) support the application of judgment in providing good decision support. In

turn, this calls for the professional accountant in business to clearly understand why cost

information is to be used. costing continuum.


Deficiency in laws under various geographies:


UK company Law 2006

Accounting Records:


386 Duty to keep accounting records

(1) Every company must keep adequate accounting records.

(2) Adequate accounting records means records that are sufficient—

(a) to show and explain the company’s transactions,

(b) to disclose with reasonable accuracy, at any time, the financial position

of the company at that time, and

(c) to enable the directors to ensure that any accounts required to be

prepared comply with the requirements of this Act (and, where

applicable, of Article 4 of the IAS Regulation).

(3) Accounting records must, in particular, contain—

(a) entries from day to day of all sums of money received and expended by

the company and the matters in respect of which the receipt and

expenditure takes place, and

(b) a record of the assets and liabilities of the company.

(4) If the company’s business involves dealing in goods, the accounting records

must contain—

(a) statements of stock held by the company at the end of each financial

year of the company,

(b) all statements of stocktakings from which any statement of stock as is

mentioned in paragraph (a) has been or is to be prepared, and

(c) except in the case of goods sold by way of ordinary retail trade,

statements of all goods sold and purchased, showing the goods and the

buyers and sellers in sufficient detail to enable all these to be identified.


Australia Corporations act 2001

Part 2M.2Financial records

286 Obligation to keep financial records

(1)  A company, registered scheme or disclosing entity must keep written financial records that:

(a)  correctly record and explain its transactions and financial position and performance; and

(b)  would enable true and fair financial statements to be prepared and audited.

The obligation to keep financial records of transactions extends to transactions undertaken as trustee.

Note:          Section 9 defines financial records.

Period for which records must be retained

(2)  The financial records must be retained for 7 years after the transactions covered by the records are completed.

Strict liability offences

(3)  An offence based on subsection (1) or (2) is an offence of strict liability.

Note:          For strict liability, see section 6.1 of the Criminal Code.


United states

California Code for corporations:


SECTION 1500-1512

1500.  Each corporation shall keep adequate and correct books and
records of account


This report shall contain a balance

sheet as of the end of that fiscal year and an income statement and a

statement of cashflows for that fiscal year, accompanied by any

report thereon of independent accountants or, if there is no report,

the certificate of an authorized officer of the corporation that the

statements were prepared without audit from the books and records of

the corporation.



209. Books of account to be kept by company.—

1[(1) Every company shall keep at its registered office proper books of account with respect to—

(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place;

(b) all sales and purchases of goods by the company; 2[***]

(c) the assets and liabilities of the company; 3[and]

3[(d) in the case of a company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or labour or to other items of cost as may be prescribed if such class of companies is required by the Central Government to include such particulars in the books of account:]

Provided that all or any of the books of account aforesaid may be kept at such other place in India as the Board of directors may decide and when the Board of directors so decides, the company shall, within seven days of the decision, file with the Registrar a notice in writing giving the full address of that other place.]


Thus there is an urgent need to address the concerns of governance through- ethics transperancy and a good measurement tool that lay in implementation of a cost accounting system mandated across the globe by different geography to supplement the reporting mechanism of business processes.


Monday, June 27th, 2011

This is a post by CMA Ananda Mohapatra


A note on Accountancy, a watch dog of States/Nations’ sustainable economic development is presented herewith below with background references in due consideration to our previous communications, specifically due to call of time and situation for building the State/Nation strong, prosperous and developed.


1. Consequent upon the Press release of Union Ministry of Corporate Affairs(MCA), GOI (Govt. of India) of date 25th Feb-11 notifying thirty-five (35) Indian Accounting Standards converged with IFRS ( referred to as Ind-AS), Invitation along with the attachment of circular for IFRS Summit-2011 issued & mailed by Mr. Sethuraman Mahalingam, Chartered Accountant, Hon’ble Chairman, CII (Confederation of Indian Industry) IFRS (International Financial Reporting Standard) Summit-2011 & ED (Executive Director) Cum CFO (Chief Finance Officer) of Tata Consultancy Services Ltd, with the theme “Final steps towards IFRS Convergence” scheduled to be held on dated 18th May-11 at The Taj Mahal Palace, Mumbai.

2. Notification published in Gazette of India of Union of India on dated 3rd Mar-2011 issued by MCA, GOI concerning to Election to the 18th Council and FOUR Regional Councils of ICWAI (A statutory Body set up under an Act of Parliament), an apex body of Accountancy of the Nation for the term 2011-15 and the responses of esteemed Members then and there in the period commencing from the date of issue of final nominations to till date including Notification dated 7th Mar-11 concerning issue of election manifesto in the part of the contesting candidates.

3. Issue of an Anti-Competitive Retail Supply of Electricity Tariff Order dated 18th Mar-11 by OERC (Odisha Electricity Regulatory Commission), a quasi-judicial independent body set up by an Act of Parliament ( Referred to as Electricity Act-2003) applicable to 4.5 crores people of Odisha, then the reactions of majority learned Members of State Legislative Assembly of Odisha including put up of an adjournment motion, review petition filed by GOO (Govt of Odisha) and the stay order issued by Hon’ble High Court, Odisha on dated 31st Mar-11 consequent upon filing of a PIL before the Court praying to declare the aforesaid tariff order as illegal, arbitrary, biased & anti-competitive.

4. Competition Act-2002, Companies Act-1956 & Companies Bill-2009 along with the amendments and the Notifications issued by Union Ministry of Corporate Affairs, GOI in the subject matter of competition laws then and there including it’s planning to put up Companies Bill-2009 in the august house of Parliament in the ensuing Monsoon Session.

5. Current year weather report and climatic condition of Sambalpur so also of Odisha during this month of April-11 in comparison to corresponding month of previous years.

6. Different Theories of Economic Development and its Formulae of Sustainable Development I.E., “Professionalism-Competition-Financial Viability-Customer Service” vrs “Energy-Environment-Employment-Economics” communicated previously.

7. Development of ODISHA so also Nation and the role of Media, the Fourth Pillar of Indian Democracy after showing due regards to Indian Culture and religion, the culture of his Lord ShreeJagannatha and his Mausi and Mausi’s sister Maa Samaleswari (Goddess of Resources) and the teachings of Shree Shree Thakur Anukulchandra on Accountancy/Economics, Politics etc.

Accountancy is a branch of mathematical science that is useful in discovering the position of business, the causes of both success and failure. Accountancy is defined by the Oxford English Dictionary as “the Profession or duties of an Accountant”. In the ancient Vedic period, people were using accountancy. In Atharvaveda and Rig Veda we find the term like “Vikraya” denotes Sale , “Sulka” means price. Similarly in every ancient Sastras/Books like Quran, Bible, etc we find Accountancy in different mode but with a common objective. It is thousands of years old; the earliest accounting records, which date back more than 7,000 years, were found in Mesopotamia (Assyrians). The people of that time relied on primitive accounting methods to record the growth of crops and herds.

In our words, Accountancy is a game of “Plus” and “Minus” or Income and Expenditure and what is the status of the Enterprise at a particular date. It is also an Add-Less game. How much we are adding or how much we are spending for attaining a common goal? These processes are called Accountancy. Over the period of time, Accountancy did not able to establish itself as a machine to process the data suitably for sustainable development of the economy. Corruption in the society has touched to every one due to failure of Accountancy. We have come across several events of failure of Accountancy as seen in case of Satyam Scam, Enron Scam, Securities fraud etc but proper remedial measures could not be taken due to its’ intricacy. Though the subject is very simple but we made it difficult due to our unlimited wants. As the subject is read/implemented in English only where very little scope opened for other languages. We inserted difficult terms for a simple function in Indian Accountancy and dissuaded commons far away for which it lost its’ popularity and started to run in the direction of elimination and alienation. Due to lack of proper reading and implementation of accountancy in governance of Govt and Non-Govt Sector, Nation have lost huge resources in the name of 2G Spectrum Scam, Land Scam, CWG Scam, Power Sector Loss Scam etc resulting low growth rate, raising of poverty and un-employment and lastly damaging to good environment. So in an era of liberalisation of economic activities of the Nation, time has come now to think over the subject for sustainable development of the economy. Real economic progress with true inclusive growth can only be possible and attained with its’ friendly implication which is not at all a difficult job in the part of Senior Members of the Apex Body of accountancy.

The title of this Article is Accountancy: Watch Dog of Sustainable growth/Development of economy. If we critically view Accountancy then we to find that Auditing, Finance, Economics, Management, Reporting, Analysis and the similar topics are the branches of the main subject of Accountancy but we did not read it properly for which we lost many things including harming to God gifted good environment. We the people became poor, the gap between poor and rich increased. Developed Nations including USA , UK , Franch, Switcherland , Germany found scope to comment on our Poverty. “Transparency International” was created to study and report our problems of backwardness. But we the people did not try to know the international politics of his Lord, Lord ShreeJagannath or Lord Radhaswami or Lord Ram and even forgot our Guru. We started to quarrel with each other by competing with each other without knowing the rules of the game of Competition. We forgot his Lords’ World Theory “Vashudeva Kutumbankam” (Globe Brotherhood) also but propagated without showing any confidence and without any implication, paved way for the third men to interfere who were least concern with Indian Culture, Religion and Tradition. In the process our resources get started to occupy by few corrupted hands. We invited the worse situation of un-employment/poverty due to non-professional in our approach, forgetting social responsibility and wrongly implementing Accountancy in governance.

Accountancy is a common practice of every household of the Nation. The subject was very easy in the past and is required to be presented suitably for common access to reach the target of up-keeping the pace of sustainable development of the economy. Even today we are not able to present the Consolidated Balance Sheet of the Nation. Balance Sheet of a system/concern speaks the performance of its’ Accountancy. Though it is not presented but we know very well what is the position of Balance Sheet of the households of the Nation. We have also provided with the Balance Sheets of Govt and Non-Govt Organisations and what its’ position we know it very well. The true and fair picture of the organisations which suppose to be reflected in the Balance Sheet have lost in the process of accountancy due to adoption of inaccurate presumptions. Some of the inaccurate presumptions are appended herewith as follows:

i) We tried to manage our resources with the mindset of unlimited wants which gave birth to inaccuracy in decision making.

ii) We rated our self inaccurately. We over estimated our self as Professionals. Later on we failed to discharge the fixed duties of a Professional.

iii) We inaccurately planned to eliminate corruption which is not at all true. Corruption can not be eliminated. It was there in mythological periods of history, even Lord Krishna and Lord Ram have not escaped from corruption. Society will lost it’s pleasure in the absence of corruption because the definition of corruption is infinite. If once we think our daily functioning throughout the day including personal work to official work from leaving bed from morning to going to bed at night, then can we finalise to divide the total functioning into just and un-just? We can not rated ourself. So corruption is a relative term which can be assessed by applying Accountancy.

iv) We deliberately avoided some principles for personal gain while taking decision. We observed Ram-Laxman theory but forgot Krushna-Balaram theory. In both the cases almighty lord is present but in different exposure. In the first case he was playing the role of big brother but the second case he played the role of younger brother. So we forgot to implement one side of his lords’ theory of development.

Due to failure Accountancy implication, Corruption started to spread over the society vibrantly. We the people feel today how corruption in the society have snatched away the bread and butter of millions. We saw multi billion rupees scams, irregularities and misappropriations in functioning of governance of Govt and Non-Govt sectors which relate with national importance. Anna Hazzare represented we the people and continued hunger strike to protest against corruption by demanding Peoples’ representation in JAN LOKPAL Bill Committee. Govt of India felt the implication and cooperated we the people for finding out solution. It is the start of the work against corruption in a specific area needs to be expanded to other area.

Ornament is made of gold but it is not pure gold. Ornaments can not be made of with pure 24 Carat Gold. A meagre quantity of non-gold metal is mixed up with gold to make ornaments. The meagre % (Let us Say 4%) of mixing of non-gold metal with gold is allowable and pass on by we the people. But if the share of non-gold metal mixing with gold exceeds the allowable limit of 4% for making ornament, then it is not passed on. While the % of mixing non-gold metal in gold ornaments exceeds 50%, then the ornament can not be passed on with name gold-ornament. In the society today corruption has exceeded highly than allowable limits. It is now running above 50%. Ornament is lovely used by women and it can not be separated from them so far as Indian Culture and Tradition are concerned. We the people enforced to Mother India so also to her sister Mother Odisha to wear duplicate gold ornament but they did not wear and politics started then of fear and favour. Corruption in the society has spread in such a level that Mother India and Mother Odisha are fearing to move by wearing gold ornaments due to stealing away of ornaments by anti-socials.

So while setting the plans and policy and approving the subject, we are to be very cautious to pass on resources in the head of corruption. Let us we fix up the target of lessening 50% of corruption, so that it will be easy in our part to achieve the target.

The concept of Profit/Loss of a system is being born from corruption. So while calculating profit/loss of a system, we are to be very cautious to load a reasonable % on cost to Pass on. In our view this Profit/Loss of any systems can be restricted with maximum limit of 20% inclusive of cost of Capital.

In order to accomplish all above mandate figures and targets, let us assess the performances of the service holders of the nation and find out the ways of improving performance. In democracy every one has right to live. Nobody can be excluded from governance. So we are to rate the performance of all paid persons of the nation. We have made up FOUR simple Benches for offering seats to paid persons of Nation. The FOUR Benches are as follows:

Bench-1- In this Bench, Seats are available here for those who talks less and work more. Generally these people are honest and believe the theory “Work is Worship”. They use to commit for performing the job and do best of them. They perform better than their commitment. They believe in fair competition for the sustainable development of the nation.

Bench-2- In this Bench, Seats are here for those persons who work as per their talks. In this bench we find persons of accuracy in relation with their speech. These persons are average in nature. They believe in honesty in performance. Generally gentle men in approach. They believe in fair competition.

Bench-3- In this Bench, Seats are available for those who talks more and work less. These people are earning money by taking the advantage of situation. They are concerned with all work, but immediately they will be not concerned. These people foolishly think themselves that they are very clever which is not. They try to satisfy everybody but the result is Zero. They believe in “Work is Worship” in less confidence. They put questions on Competition after knowing what is competition. They fond up to play games but very least knowledge on games.

Bench-4- In this Bench, Persons to seat here are that they neither talk nor work. These are “Useless” paid persons. In the office, they use to sit but least concerned with official work. If somebody asks them any question in the official matter, they generally use the method to avoid. Sometime they remain absence from office for days together and then arrive at office at the end of month to receive salary. These persons are very irregular in nature. They do not know what they are doing. These category of people are addicted in narcotics.

So the above criteria of rating paid persons or say performance rating is very simple and can be accommodated but how to improve performance of the above category of persons is a question to answer. Let us find out the solution to question by taking suitable measures so that promotion from one bench to other will be very easy. The following are the procedure for promotion from one bench to other.

From Bench-4 to Bench-3

This 4th Bench Category of persons are to be administered closely, so that they will use to attend office. After few days of sitting in office, they will start to talk and will participate in the official matter, they will interfere in the discussion of their colleagues. They will be issued warning for not taking narcotics. Proper administration is required in the part of management to bring them to office so that they will be promoted to the third Bench. The fourth bench persons of no work-no talk with be promoted to more talk and less work Bench i.e., Bench No.3

From Bench-3 to Bench-2

The persons sitting in the third bench are to be administered closely and they are to be advised to maintain equality in their talking and working. After few days this third bench people will try to perform their duty as per their talk or commitment so that they will be promoted to the Second Bench where persons of equality in talk and work are sitting. This administration is not at all difficult in the part of management.

From Bench-2 to Bench-1

The second bench persons are of good integrity, they generally do not like to talk more. They perform duties as per their commitment. So this second bench persons are to be administered closely so that they will be inspired to work more, because they understand the time value of money. This is not at all difficult in the part of administrator to motivate them to work more by showing them the first bench where persons of high integrity are sitting. In the process they will be promoted to the first bench.

Good Bench-1 (performer is rewarded)

The first bench of persons who are talking less and doing more are of high integrity persons and believe in honesty in discharging official duties. These persons of first bench are really asset to the Nation.

We have no such standards in accountancy to measure and improve performance of the paid persons of a system. So time has come now to design standards to measure the quality of labour /manpower/person simply and comprehensively so that productivity of Nation will raise undoubtly. We have constraints to attend the 3rd CII Summit on IFRS Convergence with the theme “Final steps towards IFRS Convergence” scheduled to be held at The Taj Mahal Palace Mumbai on 18th May’2011 and would like to submit this notes before the esteemed expert Members of the Committee for kind consideration. This would be very much appreciated if our theme of accountancy helped to the esteemed Members for taking a conclusive decision on the subject matter of this article. We may wish all success of the ensuing Summit . We would also like to request before the esteemed Members of the Committee to have a look and reference on our last article i.e., “Fair Competition & Economic Development” which is now published in portal before arriving at any decision on the subject matter.

We express our thankful to Srj. Sethuraman Ramalingam, Chairperson of CII 3rd Summit on IFRS Convergence & CFO Cum ED of Tata Consultancy Services Ltd for sending the invitation to attend the Summit .

In the meantime election processes have been started for the 18th Councils of the apex body of accountancy (ICWAI) after release of notification in Gazette of India on dated 3rd Mar-2011. Experienced and eminent Members of the Professions have filed their nominations for Election to the 18th Council which is scheduled to be held on 3rd Jun-11. We have received letters and emails from different contesting candidates with request to cast the vote in their favour. Some experienced members have issued their “election manifesto” which is very much needful in the part of a voter. The issue election manifesto as per the regulation of ICWAI in the part of contesting candidates have not yet been regularised. However, on reply to the election manifesto of some new candidates, we wanted to know a simple answer “Why ICWAI”. The contesting candidates have not yet replied.

ICWAI, an apex statutory body of Accountancy set up & came into operation in the year 1959 after passing of CWA (Costs and Works Accountants) Act-1959 after a gap of 10 years of setting up ICAI (Institute of Chartered Accountants of India) which is another statutory body of Accountancy set up by an Act of parliament, just before the adoption of the Constitution of India in 26th Jan-1950. Then a common question arises if there was a body of Accountancy, then why the Law Makers thought for constitution of another accountancy body i.e. ICWAI even after passing of Companies Act-1956. What were the problems in the part of Law Makers in framing Companies Bill-1956? Whether there were any problems during the time of framing Companies Bill-1956? In our view the second statutory body of Accountancy ICWAI was constituted for the reasons as discussed herewith in the tile Subject “Accountancy: Watch Dog of Sustainable Development of Economy” and secondly to promote “fair Competition”, the concept of which is already communicated in the last month as published in web portal. We may hope Hon’ble Minister, Union Ministry of Corporate Affairs, Govt of India Srj. Murali Deora along with his good Secretary Srj. Mittal Saheb will redress the issue suitably by issuing required notification and with making necessary addition, deletion or alteration in the Companies Bill-2009 without any favour or fear but with maintaining mutual help and cooperation, so that the subject matter of this article will prove beneficial for the people of the Nation.

On 18th Mar-11, while august house of Odisha Legislative Assembly (OLA) is in live Session, OERC (Odisha Electricity Regulatory Commission), a quasi judicial and independent Body set up by an Act of Parliament issued anti-competitive tariff order for retail supply of electricity to the 4.5 crores people of Odisha after allowing huge losses over and above their own projections and approval. Inefficiencies, malpractices, abetment, conspiracy, mismanagement, indiscipline and anti-competitive functions which are avoidable in nature are all being passed on to the honest and esteemed consumers without showing any mercy. Just before one year, the people of Odisha had tolerated to carry the burden of hike in electricity tariff to the extent of 40% for only reason of constant tariff of last nine years where as the reason is not sufficient and People showed their simplicity and ignorancy. Is it natural justice? Is exploitation to illiterate, ignorant and simple people is allowed under democracy? The answer will be “No”, but require proper administration, analysis and communication.

In the last retail tariff order dated 18th Mar-11 of OERC, again retail tariff of electricity applicable to whole of Odisha has been raised more by 30% without any reason in an environment of anti-competitive functions. People of Odisha under the guidance of esteemed consumers association started to laugh by listening the news of hike of electricity tariff once again, because the consumers’ association representatives advised them in mobile messages that you are now free to thieve power. The Learned Members of OLA demanded withdrawal of tariff order and major Opposition INC put forth an adjournment motion in the house for discussion. The GOO (Govt of Odisha) replied in house that they will appeal before OERC for review of its order. GOO appealed then.

But in another event, Srj. Dilip Kumar Mohapatra Advocate and Consumer Activist of Odisha filed a PIL before High Court Odisha and prayed for withholding the above anti-competitive, illegal, unjustified and arbitrary tariff order. Hon’ble High Court of Odisha have been pleased to allow Stay order on the current tariff of OERC and hearing to the case is now going on. Being an Analyst of Power Sector, I know how injustice is being delivered to the innocent and illiterate People of Odisha, I also know how the mechanism of Odisha Power Sector is adding liability to the sustainable development of the State so also nation. The event enforced me to note the happenings and to communicate to the Union Government, being a citizen of a federal State.

Current year weather position as on end of April-11 is comparatively very good in comparison to corresponding month of previous last 10 years in at Sambalpur. His Lord has recognised our expressed Statement in the theory of development “Performer is rewarded”. CO2 (Carbon Di-Oxide) Gas is a gas can be eliminated within one year, if necessary steps are being taken today. We have a file on the subject of “Loss of Power distribution Sector is directly related with warming and pollution of Environment”. In this file we had expressed earlier after release of weather report by GOO that Odisha power sector is emissioning 68% of CO2 Gas to environment in compare to 58% of national level. In the three important seasons of last year summer, Rainy and winter we forwarded that file with our observations and notes for a consciousness of all concerned. Odisha media both electronic and print in the last year so also in the current year have presented the subject of environment regularly by different programs and they deserve for thankful. People of Odisha so also nation including Leaders, Administrators and Professionals have worked for lessening emissioning of CO2 Gas. The game has started now and is required to be moved properly for the sustainable development of the State so also Nation.

Forex Technical View

Thursday, June 23rd, 2011

 This is a post by CMA D.S.Kapoor.  he is at present in employment as GM-Finance with a Kanpur based listed company. he has been tracking the stock market for the last 20 years and the forex market for the last 3 years.



Weekly Chart



Last week, it was indicated that currency is getting support and is above 50 DMA (44.64) and 50MMA (44.80), as against the week’s closing at 44.82 and once, these supports get breached decisively, the targets may be around 44 – 43.85. It was also indicated that technical indicators are suggesting happening of such possibility within next fortnight. Resistances for next week were expected at 45.05 / 45.35 and Supports at 44.64 / 44.35 / 44.00.


Last week, it opened at 44.74, high / low at 44.8250 / 44.52, and closed at 44.72 as against earlier week’s closing at 44.82. Thus, during the week, though, 50MMA has been breached downside, but 50 DMA has still not been breached on closing basis on any day, though intraday, it has gone below 50 DMA. Further 5MMA is also slightly above 50MMA.   


Now, during the current week, we expect 5MMA to breach 50MMA on the lower side, which is a bearish signal. Once it happens, we expect lower targets – 44.40 or below. This view shall get negated, only if the Currency goes above 45.20 – 45.25.


Major Resistances : 44.87 / 45.06 / 45.20

Major Supports       : 44.45 / 44.10 / 43.85





Weekly Chart



Last week, our preferred view was that the Cross should consolidate around current levels and then only, up move to start again. It was also indicated that positioning of different weekly moving averages indicate towards continuation of bullish trend, however, clear bullishness will be visible, only once 50WMA(1.3580) crosses 200WMA(1.40), which may take another 2 – 3 months time. Resistances for next week were expected at 1.4725 / 1.4890 and Supports at 1.4450 / 1.4375.


Last week, it opened at 1.4627, high / low at 1.4696 / 1.4320, and closed at 1.4345 as against earlier week’s closing at 1.4634. Thus, there has been consolidation during first three days followed by weakness in next two days.   


Now, next week, it is expected that, if 1.4320 is not breached on lower side, further consolidation in between 1.4350 – 1.4600 is expected before any fresh move starts. However, if it gets breached, next support level to be watched shall be around 1.4110.


Major Resistances : 1.4417 / 1.4476 / 1.4539   

Major Supports       : 1.4320 / 1.4260 / 1.4145






Weekly Chart


Last week, it was indicated that the Cross shall not go below 50 DMA and bullish momentum should continue. In between, there is resistance around 1.6635 (200MMA). Once that is crossed decisively, further targets may be 1.6685 / 1.6840. Resistances for next week were expected at 1.6535 / 1.6685 / 1.6840 and Supports at 1.6335 / 1.6285.


Last week, it opened at 1.6425, high / low at 1.6470 / 1.6217, and closed at 1.6233 as against last week’s closing at 1.6427. Thus, on first four days, the bullish momentum was witnessed. However, there was profit booking on the 5th day of the week. Once again, the Cross has closed on Friday below 50 DMA (1.6365).


Now, next week, since 50 DMA is above 200 DMA and 5MMA, 13MMA & 21MMA are in phase, there are fair chances of bounce back or consolidation in the current range of 1.62 – 1.65.


Major Resistances : 1.6313 / 1.6360 / 1.6420

Major Supports       : 1.6195 / 1.6110 / 1.6060








CMP(10th June)





























Friday, June 17th, 2011


A.N.Raman   Cost Accountant   Chennai

        India is already on the forefront of cutting edge competitiveness in manufacturing sector and is an emerging giant in so many manufactured products. Glancing at the growing list of the companies entering the platinum and gold list of manufacturing excellence in Frost and Sullivan awards year after year the country is certainly poised for a great leap not only in services sector but in manufacturing field as well.  One reason which has been well documented in this journey is the success stories of many companies introducing lean and flexible manufacturing practices with the Zero defect approach. The next frontier of excellence to sustain the edge will be a world class cost management which travels beyond operational excellence. It may be worthwhile to draw a list of characteristics which can be the cornerstones of a world class cost management framework.

     The attempt to enlist the characteristics of a World Class Cost Management (WCM) draws  on the Cost Management maturity Model framework propagated by the Confederation of the Indian industry  juxtaposed with some of the finest principles of excellence framework in manufacturing practices centred around the Deming’s  PDCA Cycle . The following key characteristics may be considered as the hall mark though it can be a growing list gradually as we evolve with experience :

·         Top Driven Tone

·         Policy Deployment Integration

·         Strategic and operational differentiation

·         PDCA Cycle Centric

·         HRA processes integration

·         Sustainability based

·         Amenable for assurance processes(governance)

·         Systems driven

The above features need elucidation for a better understanding of the emphasis underlying.

A WCM will be always top driven.  The tone at the top should be strongly conveying the criticality of cost management as a core process for achieving the entity strategies. This would be significantly important for a business strategy  strongly flavoured by cost leadership ideas.  The top management communication should be constantly emphasizing on the process of cost management rather than emphasizing on cost out comes alone. Quite often one may find that desired outcomes of cost advantage required are articulated and the processes are left to the strategy executing teams. But in a WCM environment the tone at the top will also articulate on structured cost management processes.  This will give enough drive even to the HRA processes to constantly examine the skill gaps on cost management and take counter measures to fill the gap.

A WCM will be always integrated with the Policy deployment architecture. Typically a company which is process driven with a high level of empowerment at all levels one can always notice an extensive practice of policy deployment .Whether it is financial or non financial , the policy deployment framework brings in lot of role clarity and alignment with the business strategy or the annual business targets. WCM will be inextricably linked up with such an environment and thus the Cost Planning as a functionality  will be cascaded down into targets and sub targets with a high degree of alignment across the business along with a review mechanism. For example if a new product for a customer at a target price is a part of the business strategy, a WCM company will deploy this strategy even to let us a say a vendor sourcing group with a deployed target of locating the source of a particular raw material of a given quality at a given price aligned with the new product  strategy.

A WCM will clearly differentiate between strategic and operational cost focus. Traditionally, the subject of cost had always been operations  focused due to the overwhelming influence of the cost accounting  framework. The primary objective of the cost accounting systems  is to generally  unitize all expenses to a unit of output . The bias of operations is discernible. However , a WCM dominant enterprise will articulate the operational cost issues differently from strategic  issues. As a result you will find in such companies even costs lying outside the system in an extended value chain being considered integral  as a part of the holistic cost focus. Further , considerations of business strategy such as target product segments and customer segments, segment specific strategic initiatives, long term strategic processes will get a different emphasis instead of  examining costs purely from operational perspectives. As a result of this perspective comparison of costs between periods may have operational significance  whereas cost comparison between two strategic scenarios will be more overarching in terms of decision making. This differentiation will play a large role in the WCM architecture.

A WCM practice will clearly have the Deming cycle of Plan – Do- Check—Act at  its centre. The practice of PDCA cycle from shop floor to top floor has become the hall mark of world class excellence. The same is applicable even for a WCM enterprise. Generally cost has always been treated as an outcome .The tendency in many enterprises operating under a continuous improvement environment  is to perform all the improvement activities and see cost savings as an out come of waste elimination efforts. Very often these cost estimates tend to be wrongly estimated and not reflected totally in the bottom line inviting sarcasm and reprimand from finance team members. But in a WCM company this would not be the practice. In WCM companies the cost information would appear in the beginning as a part of the PDCA cycle. Reliable cost information as a planning point and a check point would authenticate the continuous improvement process. The PDCA cycle would be firmly in place both at strategic and operational decision making environment of the business thus giving a perfect financial reliability to the decision making process. 

A WCM populated enterprise will have a HR interface distinctly different. At the outset , the most fundamental aspect will be to see cost management as a management process and not as a function of a finance executive reporting to the CFO or the head of finance.  Visualising cost management as process in itself has challenges of HR processes as the enterprise will have to identify skill gaps on cost management at all levels of organization and at all functions.  The skill matrix prepared by HR function at an enterprise level will also have to map the cost management skills required for the cost management process. A continuous review of skill gap on cost management from top floor to shop floor and imparting training on the same so that a robust PDCA cost management cycle is in place will be a major objective of the HRA function in a WCM environment.  Besides the internal focus on skills of cost management, if the HRA function is also driving quality management process in an enterprise dealing with vendors they  should also perform this skill gap analysis on cost management with the tier one vendors to start with.

A WCM oriented company would have embraced sustainability philosophy. The WCM process in the current context should also reflect sustainability concepts in the form of sustainable cost structures connected to environmental and socially responsible values. The PDCA cycle should reflect the resources outlay on environmental issues in all processes. The PDCA cycle at a strategic level should reflect concerns of environment and social issues and the related resources impact. The cost structures will be so articulated which will transparently reflect the environmental footprints of the enterprise. For example a company making paper should so transparently articulate its cost structure in a strategic analysis as to what extent the environment protection or degradation  to forest wealth has happened. Such an analysis should be even visible to governing body so that strategies can be suitably modified to make them sustainable. Similarly, business strategy itself can be so formulated in India so that it takes care of the society in design of products or processes. The related cost issues will be articulated explicitly in a company with a WCM practice.

A WCM enterprise will make its cost management processes amenable to governance assurance.  The world class governance framework goes beyond compliance and balances it with performance. A governing body in such an environment goes beyond issues like audit committee, independent directors composition etc and demonstrate a high oversight on strategic performance of the entity governed. A WCM process will align itself with such a governance framework and brilliantly highlight the performance issues to an enlightened board. Towards this, the cost reporting framework will be  conforming to standards such as cost accounting standards or management accounting principles and will be capable of being subject to a process of assurance. Such a WCM process does not confine itself to only an audit trail of cost accounting but will also embrace review of cost based decision  taken records through the PDCA cycle. The decision making processes and risk management practices will have an explicit link with the cost management system thus strengthening the governance mechanism.

A WCM company will be supported for its information from established systems. A quick scan of the most of the companies which have implemented the ERP systems will reveal that most of them have largely underutilized the cost management modules. But a WCM company would have significantly exploited the cost management modules of such ERP systems. Either by using the built in functionalities or by using the Analytics tools linked to the ERP WCM companies make an extensive use of the system based information to perform the PDCA cycle. Such a full exploitation in fact can return the investments made in such systems normally claimed by the vendors.

In the above write up we have tried to capture some of the cornerstones of a world class cost management framework. This is a constantly evolving field and by having a maturity model on cost management companies can benchmark themselves and constantly improve to retain the competitive advantage besides the manufacturing excellence.  While the efforts on improving quality and delivery have become structured in the Indian business a great deal of effort is still required on cost management front.

Cut Through the Confusion to Unleash the Full Power of Performance Management

Saturday, April 16th, 2011

 This is a 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

I keep coming across evidence that there are still serious misunderstandings about the potential scope and power of performance management initiatives.

Here’s an example: blogger Ann All recently posted this article titled “BPM + CRM = Improved (not Perfect) Customer Service.” In it, she advocates integrating a company’s customer relationship management (CRM) system with business process management (BPM) tools.

The article is a solid piece. However, when it comes to integration, why stop with just those two components? Why limit what information and solutions can be combined and integrated?

One reason for this myopia is because there’s still some confusion in the marketplace about the meaning of the term “performance management.” Just Google it and you’ll see what I mean.

The confusion begins with the alphabet soup of acronyms. We often see in the press and media the acronyms BPM for business performance management, CPM for corporate performance management, and EPM for enterprise performance management. But just as, in their various languages, the words merci, gracias, and danke all mean the same thing, so do these acronyms. Fortunately, IT research firms like IDC and Gartner are accepting the short version, and simply calling it PM — performance management.

In All’s article, the P in BPM refers to “process,” not “performance,” and indeed this acronym is in common usage with two distinct meanings. The former is a subset of the latter. Performance management should not be confused with the more mechanical business process management tools that automate the tasks of creating, revising, and managing workflow processes, such as customer order entry and accounts receivable.

A much more serious confusion is that many people give performance management a meaning that’s far too narrow. It’s often regarded as a CFO initiative that provides a bunch of measurement dashboards for feedback and better financial reporting. In fact, though, the scope of a performance management initiative is, or should be, much broader than that, as I’ll explain in a moment.

A similar, but more recent, confusion arises from the term being narrowly applied to a single function or department, as in marketing performance management or IT performance management.

Then there’s the historical baggage that the term carries. In the past, performance management most commonly referred to the job performance of individual employees and the methods used by the personnel and human resources functions for processes such as employee appraisals. But today, the term is widely accepted as covering enterprisewide performance — the performance of an organization as a whole. Clearly, employees’ performance is an important element in an organization’s success, but in the broad framework of performance management, human capital management is just one component.

Let me try to clear up the confusion.

The good news is that performance management is not a new methodology that everyone now has to learn; rather, it tightly integrates business improvement and analytic methodologies that executives and employee teams are already familiar with.

Think of it as an umbrella concept: It integrates operational and financial information into a single decision-support and planning framework. Its capabilities include strategy mapping, a strategic balanced scorecard, operational dashboards, costing (including activity-based cost management), budgeting, forecasting, and resource capacity requirements planning.

These methodologies fuel other core solutions such as CRM, supply chain management (SCM), risk management, business process management, and human capital management systems, as well as Lean management and Six Sigma quality initiatives. It’s quite a stew, but they all blend together.

Performance management increases in power the better these managerial methodologies are integrated, unified, and spiced with all flavors of analytics, such as segmentation and correlation analysis. But its ultimate power comes from including predictive analytics. Predictive analytics are important because organizations are shifting away from managing by control and reacting to after-the-fact data; they’re moving toward managing with anticipatory planning. The goal is to be proactive and make adjustments before problems occur.

Unfortunately, at most organizations performance management’s methodologies are typically implemented in a silo-like sequence and operate in isolation from each other. It’s as if the project teams and managers responsible for each methodology live in parallel universes. But we all know that there are linkages and inter-dependencies, so we know that they should all somehow be integrated. It’s like a jigsaw puzzle — everyone knows that the pieces should fit together. But, too often, the picture on the puzzle’s box is missing!

Performance management provides that missing picture of integration, both technologically and socially. It makes executing the strategy everyone’s Number 1 job; it makes employees behave as if they are the business owners.

Many organizations jump from one improvement program to the next, hoping that each new effort will be the magic pill that provides that elusive competitive edge. However, most managers acknowledge that pulling just one lever for improvement rarely results in substantial change — particularly long-term, sustained change. The key is to integrate and balance multiple improvement methodologies while blending them with analytics of all kinds, particularly predictive analytics.

In the end, organizations need top-down guidance with bottom-up execution. The way to get there is through integrating methodologies and applying analytics to complete the full vision of the analytics-based performance management framework.


Saturday, April 2nd, 2011

 This is a post by CMA Rajendra Patil. He also blogs at

Now a day one can hear about the term Enterprise Performance Management (EPM) a lot of times in different ways. It also termed in different ways like CPM, EPM, PM etc. Sometimes it is also used interchangeably with the individual performance and organizational performance. There are various definitions also for EPM. I personally like the definition by Gary Cokins, which mentions that Performance Management is the process of managing the execution of an organization’s strategy. It integrates the business improvement methodologies with technology. So it is neither the methodologies only nor the technology in isolation.

As I have mentioned in my earlier posts, Activity Based Management (ABM) is the way to manage your business by managing the activities to provide improved value to the customer or organizational performance. After these definitions, we will try to see how these two things go together in different ways as concepts, execution and technology.

I personally believe that the EPM starts with the definition of the strategy. This is because if you do not know where you want to go, any way is a good way. Let us have a look at the following figure:

Defining the strategy for your organization, preparing business plan according to the strategy and then measuring the performance and analyzing the variances with reasons to modify the internal processes or strategy is a cyclic process. ABM fits into the ‘Measure and Analyze’ part of the cycle. Here the ABM model based on the business plan can provide the information on the resource requirement in the future as well measure the actual performance. Once you analyze the actual performance against the planned one, the same can be analyzed using various techniques like root cause analysis, continuous improvement etc. The analysis will tell whether one has to manage the processes to improve the customer value or organizational performance.

The performance management is also seen as the operational performance management or strategic performance management, as it is mentioned in the earlier part.

Operational performance management is looking at the processes to improve organizational performance and strategic performance management is looking at the processes to improve the value to the customer. The ABM model can be designed to manage the performance at both the levels. It can also be used for some tactical purposes as managing a customer segment or a product group etc.

Looking at all those things the tool vendors have combined their software solutions into one group as Enterprise Performance Management (EPM) suite. This suite generally includes the solutions for Strategy Management, Business Planning and Profitability & Cost Management. They project and try to sell these solutions as a suite. I have got the following figure from some document that I am not able remember, so please acknowledge the efforts of the person who has created it.

In a very simple way, we will try to understand this diagram. It shows three differnet parts. Analytical toos as in the technological part that help us to alanyze the results. One may argue as to reporting is not exactly same as analytics. The second part is the analytical appliactions which are actually the software solutions based on the various business improvement methodologies. The third part is supporting tools ahich ehlp us to integrate the data and perform the administrative part for those solutions. All these solutions work on the same data mart or warehouse so as to provide one view of the data and these solutions use and provide data to the othersolutions through this data mart or warehouse.

If we see the Strategy Management methodology creates a strategy map, the Key Performance Indicators (KPIs) and corresponding action plans. Based on the strategic plan the budgeting and planning solution can create the business plan. It can also use the Profitability management solution (ABM) to create a driver based planning. ABM can also provide the actual values for various KPIs defined. The Activity analysis using the cost drivers and performance measures can provide information the performance of the organization vis-à-vis the planned one.

As we saw ABM fits into Enterprise Performance Management (EPM), conceptually as well as technologically and helps the organization to manage the performance at the strategic level as well as operational level (including the tactical one).

Should an organization use Activity Based Costing (ABC) when it is already making profits?

Tuesday, March 1st, 2011

 This is a post by CMA. Rajendra Patil

Should an organization use Activity Based Costing (ABC) when it is already making profits?


It is a common notion that an organization should seriously look at the costs when it is in a serious trouble. This trouble could be that they are making losses or a competitor has come with a similar product with lower price or a possibility of losing an order because of pricing. Cost is also seen as something that has to be reduced in any case. Generally because of this an organization is serious about understanding costs only when it seems to be making losses.

I have also mentioned in my earlier postings that when somebody talks about costing it is about the Product Costing. The management accountants have been trained professionally to take each and every unit of expense to the product. This is not true with any kind of business. There are some costs that caused by the products/services, some are caused by customers, some are caused by running the business and not related to any product or customer are some caused by the installed capacity. One should be able to segregate costs in the according these causes and relate them to the profit/loss the organization is making.

Activity Based Costing (ABC) has a word ‘Costing’ in it, so the same question arises for its use in the organization. ABC is based on the concept of ‘cause-and-effect’; hence it separates the costs that related product, customer, business and unutilized capacity. Even within the product and customer related costs, they are apportioned based on the consumption. With this calculation the organization can understand the costs related to the products, customers, channels etc. and take proper decisions based on the information.

To explain this, let us see the following diagram. This diagram shows the relationship between cost of products with traditional costing and ABC.

The horizontal dotted line in the diagram represents the cost of products according to the traditional way of costing and the ‘S’ curves represents the cost of products using ABC. It is generally seen that few products are grossly ‘overcosted’ and more than that products are grossly ‘undercosted’. The products that are overcosted have more cost up to 50% and the products that are undercosted have costs less up to 500%. The primary reason for this incorrect cost calculation is that generally the overheads are taken based on the volume produced. The complexity of product is not considered. It is seen that the change in the overheads of the organization is related to the additional complexity of the business. This complexity could be added due to more products, more customers, more channels etc. It can also be introduced due to the complexity of the product features. This is complexity is generalized in the traditional costing and the same is converted into a logic for apportioning the overheads in ABC. It is generally seen after the ABC modeling that the organization is almost shocked after looking at the results. This is due to the fact that the products those were ‘dear ones’ earlier start looking loss making and vice-a-versa.

We will see another diagram, which is called with different names like profit cliff, whale diagram, profit umbrella etc. This diagram depicts the products or customers on the horizontal axis and the cumulative profit percentage on the vertical axis. This diagram can be plotted for products as well as customers. The following diagram is taken from one of the book written by Gary Cokins, who is an internationally known expert on Performance Management.

In this diagram the horizontal axis represents the products and the vertical axis represents the cumulative profit in USD millions. The current profit shown in the financial records is $ 2 mn. If we start analyzing the diagram, we can see that the same $ 2 mn is achieved by first 13% of the products. So from the products that are making most of the profits top 13% give you the current profit of $ 2mn. The story does not end there. The top 65% of the product by profitability provide the organization a profit of $ 8 mn (400% of current 4 2mn). Then there are some products are neither profit making nor loss making. And almost 15% of the products which are actually making loss, bring the profits from $ 8 mn back $ 2 mn.

So on the face of it the organization is making a profit of $ 2 mn. It may be also happy with that profit, but then it is not realizing that the potential of the organization is $ 8 mn and not mere $ 2 mn. With the use of ABC and then plotting this graph the organization can realize its potential. It can also understand the loss in profit it is making. More important that this, it will also understand which products are bringing the profit and which are taking away. A similar diagram for customer profitability shows which customers are profitable and which are taking away the profits.

This is where the ABC that is the costing part ends and Activity Based Management (ABM) starts. In ABM the organization looks at the costs analyzes them and takes proper action on the same. For the organization uses various techniques like root cause analysis, benchmarking, cost driver analysis etc. to understand the reason behind the profits or losses. So we not only understand ‘who/which’ are making profit and loss but also ‘why’ they are. Based on this information the organization can take series of actions so that it can optimize the profits by selling its best products to the best customers. It can also take actions to promote the loss making products/customers to profit making.

With these actions the organization can reach as near to its potential profit as it can. But the first and foremost understanding the organization must have is its profit potential. This potential is brought forward by using the ABC methodology. So even if know you are making profits and you are happy with the number, think again is that the real profit potential of your organization?