Management Control System
MS 43 Free Solved Assignment
MS 43 Free Solved Assignment July & jan 2022
Q1. Discuss the integration of Total Quality Management (TQM) and Just In Time (JIT) techniques with the management control system
Ans. Total Quality Management : Total quality management (TQM) is the continual process of detecting and reducing or eliminating errors in manufacturing, streamlining supply chain management, improving the customer experience, and ensuring that employees are up to speed with training.
Total quality management aims to hold all parties involved in the production process accountable for the overall quality of the final product or service.
TQM was developed by William Deming, a management consultant whose work had a great impact on Japanese manufacturing.
While TQM shares much in common with the Six Sigma improvement process, it is not the same as Six Sigma.
TQM focuses on ensuring that internal guidelines and process standards reduce errors, while Six Sigma looks to reduce defects.
KEY TAKEAWAYS MS 43 Free Solved Assignment
Total quality management (TQM) is an ongoing process of detecting and reducing or eliminating errors.
It is used to streamline supply chain management, improve customer service, and ensure that employees are trained.
The focus is to improve the quality of an organization’s outputs, including goods and services, through the continual improvement of internal practices.
Total quality management aims to hold all parties involved in the production process accountable for the overall quality of the final product or service.
Primary Principles of Total Quality Management TQM is considered a customer-focused process that focuses on consistently improving business operations.
It strives to ensure all associated employees work toward the common goals of improving product or service quality, as well as improving the procedures that are in place for production.
Industries Using Total Quality Management While TQM originated in the manufacturing sector, its principles can be applied to a variety of industries.
With a focus on long-term change rather than short-term goals, it provides a cohesive vision for systemic change.MS 43 Free Solved Assignment
With this in mind, TQM is used in many industries, including, but not limited to, manufacturing, banking and finance, and medicine.
These techniques can be applied to all departments within an individual organization as well.
This helps ensure all employees are working toward the goals set forth for the company, improving function in each area.
Involved departments can include administration, marketing, production, and employee training.
Just-in-Time (JIT) is a Japanese management philosophy which has been applied in practice since the early 1970s in many Japanese manufacturing organisations.
It was first developed and perfected within the Toyota manufacturing plants by Taiichi Ohno as a means of meeting consumer demands with minimum delays.
Taiichi Ohno is frequently referred to as the father of JIT.
Toyota was able to meet the increasing challenges for survival through an approach that focused on people, plants and systems.
Toyota realized that JIT would only be successful if every individual within the organisation was involved and committed to it,
if the plant and processes were arranged for maximum output and efficiency, and if quality and production programs were scheduled to meet demands exactly.
Just In Time (JIT) is an inventory strategy implemented to improve the return on investment by reducing in-process inventory and its associated costs.
The Just-in-Time inventory system is all about having “the right material, at the right time, at the right place, and in the exact amount.
In the Just-in-Time inventory philosophy there are views with respect to how inventory is looked upon.MS 43 Free Solved Assignment
Inventory is seen as incurring costs instead of adding value, contrary to traditional thinking.
Under the philosophy, businesses are encouraged to eliminate inventory that doesn’t add value to the product.
This system sees inventory as a sign of sub par management as it is simply there to hide problems within the production system.
These problems include backups at work centers, lack of flexibility for employees and equipment, and inadequate capacity among other things.
Q2. In any organization of your choice try to find out the different types of Responsibility Centres that are established and the reasons for having such centres. Give a report on your findings and suggestions if any.
Ans. Responsibility Centers
Organizations incur various types of costs using decentralization and responsibility accounting, and they need to determine how the costs relate to particular segments of the organization within the responsibility accounting framework.
One way to categorize costs is based on the level of autonomy the organization (or responsibility center manager) has over the costs. Controllable costs are costs that a company or manager can influence.
Examples of controllable costs include the wages paid to employees of the company, the cost of training provided to employees, and the cost of maintaining buildings and equipment.MS 43 Free Solved Assignment
As it relates to controllable costs, managers have a fair amount of discretion. While managers may choose to reduce controllable costs like the examples listed, the long-term implications of reducing certain controllable costs must be considered.
For example, suppose a manager chooses to reduce the costs of maintaining buildings and equipment.
While the manager would achieve the short-term goal of reducing expenses, it is important to also consider the long-term implications of those decisions.
Often, deferring routine maintenance costs leads to a greater expense in the long-term because once the building or equipment ultimately needs repairs,
the repairs will likely be more extensive, expensive, and time-consuming compared to investments in routine maintenance.
The Frequency of Maintenance
If you own your own vehicle, you may have been advised (maybe all too often) to have your vehicle maintained through routine oil changes, inspections, and other safety-related checks.
With advancements in technology in both car manufacturing and motor oil technology, the recommended mileage intervals between oil changes has increased significantly.
If you ask some of your family members how often to change the oil in your vehicle, you might get a wide range of answers— including both time-based and mileage-based recommendations.MS 43 Free Solved Assignment
It is not uncommon to hear that oil should be changed every three months or 3,000 miles.
An article from the Edmunds.com website devoted to automobiles suggests automobile manufacturers are extending the recommended intervals between oil changes to up to 15,000 miles.
Do you know what the recommendation is for changing the oil in the vehicle you drive? Why do you think the recommendations have increased from the traditional 3,000 miles to longer intervals?
How might a business apply these concepts to the concept of maintaining and upgrading equipment? If you were the accountant for a business,
what factors would you recommend management consider when making the decisions on how frequently to maintain equipment and how big of a priority should equipment maintenance be?
The goal of responsibility center accounting is to evaluate managers only on the decisions over which they have control.
While many of the costs that managers will encounter are controllable, other costs are uncontrollable and originate from within the organization.
Uncontrollable costs are those costs that the organization or manager has little or no ability to influence (in the short-term, at least) and therefore should not be incorporated into the analysis of either the manager or the segment’s performance.
Examples of uncontrollable costs include the cost of electricity the company uses,
the cost per gallon of fuel for a company’s delivery trucks, and the amount of real estate taxes charged by the municipalities in which the company operates.
While there are some long-term ways that companies can influence these costs, the examples listed are generally considered uncontrollable.
One category of uncontrollable costs is allocated costs. These are costs that are often allocated (or charged) to the segments within the organization based on some allocation formula or process, such as the costs of receiving support from corporate headquarters.MS 43 Free Solved Assignment
These costs cannot be controlled by the responsibility center manager and thus should not be considered when that manager is being evaluated.
Costs relevant to decision-making and financial performance evaluation will be further explored in Short-Term Decision-Making.
Effects of Decisions on Performance Evaluation of Responsibility Centers
Suppose, as the manager of the maintenance department of a major airline, you become aware of a training session that is available to your mechanics.
The disadvantages are that the training will require the mechanics to miss an entire week of work and the associated costs (travel, lodging, training session) are high.
The advantage is that, as a result of the training, the time during which the planes are grounded for repairs will significantly decrease.
What factors would influence your decision regarding whether or not to send mechanics to school?
Considering the fact that each mechanic would miss an entire week of work, what factors would you consider in determining how many mechanics to send?
Do these factors align with or conflict with what is best for the company or you as the department manager?
Is there a way to quantify the investment in the training compared to the benefit of quicker repairs for the airplanes?
Scenarios such as this are common for managers of the various responsibility centers—cost, discretionary cost, revenue, profit, and investment centers.
Managers must be well-versed at using both financial and nonfinancial information to make decisions such as these in order to do what is best for the organization.
Pro-Stakeholder Culture Opens Business Opportunities
The use of pro-stakeholder decision-making by managers in their responsibility centers allows managers to determine alternatives that are both profitable and follow stakeholders’ ethics-related demands.MS 43 Free Solved Assignment
In an essay in Business Horizons, Michael Hitt and Jamie Collins explain that companies with a pro-stakeholder culture should better understand the multiple ethical demands of those stakeholders.
They also argue that this understanding should “provide these firms with an advantage in recognizing economic opportunities associated with such concerns.
”1 The identification of these opportunities can make a manager’s decisions more profitable in the long run.
Hitt and Collins go on to argue that “as products and services may be developed in response to consumers’ desires, stakeholders’ ethical expectations can, in fact, represent latent signals on emerging economic opportunities.
”2 Providing managers the ability to identify alternatives based upon stakeholders’ desires and demands gives them a broader decision-making platform that allows for decisions that are in the best interest of the organization.
Often one of the most challenging decisions a manager must make relates to transfer pricing, which is the pricing process put into place when one segment of a business “sells” goods to another segment of the same business.
In order to understand the significance of transfer pricing, recall that the primary goal of a responsibility center manager is to manage costs and make decisions that contribute to the success of the company.
In addition, often the financial performance of the segment impacts the manager’s compensation, through bonuses and raises, which are likely tied to the financial performance of the segment.MS 43 Free Solved Assignment
Therefore, the decisions made by the manager will affect both the manager and the company.
Application of Transfer Pricing :
Transfer pricing can affect goal congruence—alignment between the goals of the segment or responsibility center, or even an individual manager, with the strategic goals of the organization.
Recall what you’ve learned regarding segments of the business. Often, segments will be arranged by the type of product produced or service offered. Segments often sell products to external customers.
For example, assume a soft drink company has a segment—called the blending department—dedicated to producing various types of soft drinks.
The company may have an external customer to which it sells unique soft drink flavors that the customer will bottle under a different brand name (perhaps a store brand like Kroger or Meijer).
The segment may also produce soft drinks for another segment within its own company—the bottling department, for example— for further processing and ultimate sale to external customers.MS 43 Free Solved Assignment
When the internal transfer occurs between the blending segment and the bottling segment, the transaction will be structured as a sale for the blending segment and as a purchase for the bottling department.
To facilitate the transaction, the company will establish a transfer price, even though the transaction is internal because each segment is responsible for its own profits and costs.
(Figure) shows a graphical representation of the transfer pricing structure for the soft drink company used in the example.
Transfer Pricing. The sale for the Blending Department is the purchase for the Bottling Department. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)
Notice that the blending department has two categories of customers—external and internal. External customers purchase the soft drink mixtures and bottle the drinks under a different label, such as a store brand.
Internally, the blending department “sells” the soft drink mixtures to the bottling department.
Notice the “sale” by the blending department (a positive amount) and the “purchase” by the bottling department (a negative amount) net out to zero.
This transaction does not impact the overall financial performance of the organization and allows the responsibility center managers to analyze the financial performance of the segment just as if these were transactions involving outside entities.
What issues might this scenario cause as it relates to goal congruence—that is, meeting the goals of the corporation as a whole as well as meeting the goals of the individual managers?MS 43 Free Solved Assignment
In situations where the selling division, in this case the blending division, has excess capacity— meaning they can produce more than they currently sell—and ignoring goal congruence issues, the selling division would sell its products internally for variable cost.
If there is no excess capacity, though, the opportunity cost of the contribution margin given up by taking internal sales instead of external sales would need to be considered. Let’s look at each of these general situations individually.
In the case of excess capacity, the selling division has the ability to produce the goods to sell internally with only variable costs increasing.
Thus, it seems logical to make transfer price the same as the variable costs—but is it? Reflecting back on the concept of responsibility centers,
the idea is to allow management to have decision-making authority and to evaluate and reward management based on how well they make decisions that lead to increased profitability for their segment.
These managers are often rewarded with bonuses or other forms of compensation based on how well they reach certain profitability measures.
Does selling goods at variable cost increase the profitability for the selling division? The answer, of course, is no.
Thus, why would a manager, who is rewarded based on profitability, sell goods at variable cost? Obviously,
the manager would prefer not to sell at variable cost and would rather sell the goods at some amount above variable cost and thus contribute to the segment’s profitability.
What should the transfer price be? There are various options for choosing a transfer price.
Transfer Pricing with Overseas Segments
An inherent assumption in transfer pricing is that the divisions of a company are located in the same country.
While implementing a transfer pricing framework can be complex for a business located entirely in the United States, transfer pricing becomes even more complex when any of the divisions are located outside of the United States.
Companies with overseas transactions involving transfer pricing must pay particular attention to ensure compliance with the tax, foreign currency exchange rate fluctuations, and other regulations in the countries in which they operate.
This can be expensive and difficult for companies to manage. While many firms use their own employees to manage the process,
the Big Four accounting firms, for example, offer expertise in transfer pricing setup and regulatory compliance.MS 43 Free Solved Assignment
This short video from Deloitte on transfer pricing provides more information about this valuable service that accountants provide.
Available Transfer Pricing Approaches
There are three primary transfer pricing approaches: market-based prices, cost-based prices, or negotiated prices.
Market Price Approach
With the market price approach, the transfer price paid by the purchaser is the price the seller would use for an outside customer.
Market-based prices are consistent with the responsibility accounting concepts of profit and investment centers, as managers of these units are evaluated based on purchasing and selling goods and services at market prices.
Market-based transfer pricing is very common in a situation in which the seller is operating at full capacity.
The benefit of using a market price approach is that the company will need to stay familiar with market prices. This will likely occur naturally because the company will also have outside sales.
A potential disadvantage of this approach is that conflicts might arise when there are discrepancies between the current market price and the market price the company sets for transfer prices.
Firms should decide at what point and how frequently to update the transfer prices used in a market approach.MS 43 Free Solved Assignment 2022
For example, assume a company adopts a market approach for transfer prices. As time goes by, the market price will likely change—it will either increase or decrease. When this occurs, the firm must decide if and when to update transfer prices.
If current market prices are higher than the market price the company uses, the selling division will be happy because the price earned for intersegment (transfer) sales will increase while inputs (costs) to provide the goods or services remain the same.
An increase in the transfer price will, in turn, increase the profit margins of the selling division. The opposite is true for the purchasing division.
If the market transfer price increases to match the current market price, the costs (cost of goods sold, in particular) will increase.
Without a corresponding increase in the prices charged to its customers or an offset through cost reductions, the profit margins of the purchasing division will decrease.
This situation could cause conflict between divisions within same company, an unenviable situation for management as one manager is pleased with the transfer price situation and the other is not.MS 43 Free Solved Assignment
Both managers desire to improve the profits of their respective divisions, but in this situation,
the purchasing division may feel they are giving up profits that are then being realized by the selling division due the increase in the market price of the goods and the use of a market-based transfer price.
When the transfer price uses a cost approach, the price may be based on either total variable cost, full cost, or a cost-plus scenario.
In the variable cost scenario, as mentioned previously, the transfer of the goods would take place at the total of all variable costs incurred to produce the product.
In a full-cost scenario, the goods would be transferred at the variable cost plus the fixed cost per unit associated with making that product.
With a cost-plus transfer price, the goods would be transferred at either the variable cost or the full-cost plus a predetermined markup percentage. For example, assume the variable cost to produce a product is $10 and the full cost is $12.
If the company uses a cost-plus methodology to calculate the transfer price with a 30% mark-up, the transfer price would be $13 ($10 × 130%) based on just the variable cost or $15.60 ($12 × 130%) based on the full cost.
When using the full cost as a basis for applying markup, it is important to understand that the cost structure may include costs that are irrelevant to establishing a transfer price (for example, costs unrelated to producing the actual product to be transferred,
such as the fixed cost of the plant supervisor’s salary, which will exist whether the product is transferred internally or externally), which may unnecessarily influence decisions.MS 43 Free Solved Assignment
The benefit of using a cost approach is that the company will invest effort into determining the actual costs involved in making a product or providing another service.
The selling division should be able to justify to the purchasing division the cost that will be charged, which likely includes a profit margin, based on what the division would earn on a sale to an outside customer.
At the same time, a deeper understanding of what drives the costs within a division provides an opportunity to identify activities that add unnecessary costs.
Companies can, in turn, work to increase efficiency and eliminate unnecessary activity and bring down the cost.
In essence, the selling division has to justify the costs it is charging the purchasing division.
Q3. Explain the following organization-wide incentive systems:
(a) The Scanlon Plan
(b) The Kaiser Plan
Ans. (A) Scanlon plan : The Scanlon plan is a gainsharing program which combines leadership, total workforce education, and widespread employee participation with a reward system linked to organization performance.
It has been used by a variety of public and private companies with varying amounts of success.MS 43 Free Solved Assignment
Origin :The first Scanlon plan was instituted by Joseph N. Scanlon (1897–1956) a steelworker, cost accountant, professional boxer, local union president, Acting Director of the Steelworkers Research Department, and Lecturer at the Massachusetts Institute of Technology (MIT).
As the local union president of the steel mill in which he was employed, he witnessed the depressed economy of the 1930s.
His co-workers wanted increased wages, his company had barely survived the depression.
He was advised by the Steelworkers International to see if he could harness the energy and talents of the workers to save the company.
Scanlon set up joint union/management committees to solve organizational problems.
The committees became successful and Scanlon was soon asked to help other organizations in trouble. His success led him to become Acting Director of the Steelworker’s Research Department.
Scanlon became active in setting up many labor/management committees in support of War production for WWII.MS 43 Free Solved Assignment
Scanlon’s work with joint union/management committees convinced him of the power of cooperation and he was an advocate of working with management in the Steelworkers.
At the end of WWII the faction advocating a cooperative approach in labor/management was displaced by those advocating a return to traditional adversarial relations in the Steelworkers.
Scanlon accepted an invitation by Douglas McGregor to become a Lecturer at MIT where he remained until his death.
Participation and High Involvement Today : Today there are many different ways that Scanlon Systems involve employees in Organizational problem solving.
At Donnelly the Donnelly Committee approved all changes in Personnel Policies and adjudicated issues of fairness and equity.
They even recommended pay increases. Six Sigma and Lean Practices are often used in Scanlon Organizations as part of their improvement plans
Calculation of Scanlon Plan Bonus :MS 43 Free Solved Assignment
Historically, the Scanlon plan bonus was calculated on the historical ratio of labor cost to sales value of production.
Scanlon believed that it was very important that employees understand how the bonus is calculated and this method was easy for employees to understand.
He felt that profit sharing as a way to create a bonus was fine as long as everyone understood “profits.” He concluded that most don’t understand how profits are calculated.
Ans.(b) The Kaiser Plan Kaiser Permanente (/ˈkaɪzər pɜːrməˈnɛnteɪ/; KP), commonly known simply as Kaiser, is an American integrated managed care consortium, based in Oakland, California, United States, founded in 1945 by industrialist Henry J. Kaiser and physician Sidney Garfield.
Kaiser Permanente is made up of three distinct but interdependent groups of entities: the Kaiser Foundation Health Plan, Inc. (KFHP) and its regional operating subsidiaries; Kaiser Foundation Hospitals; and the regional Permanente Medical Groups.
As of 2017, Kaiser Permanente operates in eight states (Hawaii, Washington, Oregon, California, Colorado, Maryland, Virginia, Georgia) and the District of Columbia, and is the largest managed care organization in the United States.
Kaiser Permanente is one of the largest nonprofit healthcare plans in the United States, with over 12 million members. It operates 39 hospitals and more than 700 medical offices, with over 300,000 personnel, including more than 80,000 physicians and nurses.MS 43 Free Solved Assignment
Each Permanente Medical Group operates as a separate for-profit partnership or professional corporation in its individual territory, and while none publicly reports its financial results,
each is primarily funded by reimbursements from its respective regional Kaiser Foundation Health Plan entity.
KFHP is one of the largest not-for-profit organizations in the United States. KP’s quality of care has been highly rated and attributed to an emphasis on preventive care,
its doctors being salaried rather than paid on a fee-for-service basis, and an attempt to minimize the time patients spend in high-cost hospitals by carefully planning their stay.
However, Kaiser has had disputes with its employees’ unions; repeatedly faced civil and criminal charges for falsification of records and patient dumping; faced action by regulators over the quality of care it provided,
especially to patients with mental health issues; and faced criticism from activists and action from regulators over the size of its cash reserves
Quality of care
In the California Healthcare Quality Report Card 2013 Edition, Kaiser Permanente’s Northern California and Southern California regions, KP received four out of four possible stars in Meeting National Standards of Care.
KP North and South also received three out of four stars in Members Rate Their HMO. KP’s performance has been attributed to three practices:
First, KP places a strong emphasis on preventive care, reducing costs later on.
Second, its doctors are salaried rather than paid per service, which removes the main incentive for doctors to perform unnecessary procedures.
Thirdly, KP attempts to minimize the time patients spend in high-cost hospitals by carefully planning their stay and by shifting care to outpatient clinics.
This practice results in lower costs per member, cost savings for KP and greater doctor attention to patients.MS 43 Free Solved Assignment
A comparison to the UK’s National Health Service found that patients spend 2–5 times as much time in NHS hospitals as compared to KP hospitals. In June 2013,
the California Department of Managed Health Care (DMHC) levied a $4 million fine, the second largest in the agency’s history, against Kaiser for not providing adequate mental health care to its patients.
Alleged violations of California’s timely access laws included failures to accurately track wait times and track doctor availability amid evidence of inconsistent electronic and paper records.
It was also found by the DMHC that patients received written materials circulated by Kaiser dissuading them from seeking care,
a violation of state and federal laws.
DMHC also issued a cease and desist order for Kaiser to end the practices. DMHC conducted a follow up investigation which published in April 2015.
The report found Kaiser had put systems in place to better track how patients were being cared for but still had not addressed problems with actually providing mental health care that complied with state and federal laws.
 Kaiser’s challenges on this front were exacerbated by a long, unresolved labor dispute with the union representing therapists.
 Kaiser appealed the findings, the order, and the fine, and sought to keep the proceedings closed, but in September 2014,
in the face of the administrative judge’s order to keep the proceedings open, and facing the beginning of public testimony, Kaiser withdrew the appeal and paid the $4 million.MS 43 Free Solved Assignment
It also issued a statement which denied much of the wrongdoing. Kaiser faces ongoing inspections by DMHC and three class-action lawsuits related to the issues identified by the DMHC.
Q4. Describe the unique characteristics of financial service organizations. Explain in detail the various variables of banking system which affect the management control system of a bank
Ans. What Is a Banking System
When you sit back and think about it, banks are often a huge part of our lives. We deposit our paychecks, take out loans, and set up savings accounts, all at a bank.
But what do banks do? What are the different types of banks? Let’s start finding some answers to these questions by looking at the different types of banks that make up a banking system.
A banking system is a group or network of institutions that provide financial services for us.
These institutions are responsible for operating a payment system, providing loans, taking deposits, and helping with investments.
Banking systems perform several different functions, depending on the network of institutions. MS 43 Free Solved Assignment
For example, payment and loan functions at commercial banks allow us to deposit funds and use our checking accounts and debit cards to pay our bills or make purchases.
They can also help us finance our cars and homes. By comparison, central banks or systems distribute currency and establish money-related policies.
Investment banks or systems conduct trades or deal with capital markets. Many banks are profit-seeking entities with stockholders.
They obtain profits by charging more interest for loans and paying less interest on deposits.
For example, a bank may charge a 3.91% interest rate on a 30-year, fixed rate mortgage, but offer an interest rate of only 0.15% on a savings account of $100,000.
Commercial banks, such as community banks, accept deposits and offer business and consumer loans. IGNOU MS 43 Free Solved Assignment
At a commercial bank, you can open a checking or savings account, apply for a car or homeowner loan, transfer money, or pay your bills.
Some commercial banks also offer insurance, investment, and retirement services. While community and commercial banks are usually chartered by the state in which they do business,
some may be insured and overseen by the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Bank.
Central and National Banks :
The FDIC also insures national banks, which are investing members of the Federal Reserve System and are chartered by the United States of America.
In contrast to a local commercial bank, they may have branches in major cities and the majority of states.
National banks offer the same services found at a commercial bank, as well as global banking services.MS 43 Free Solved Assignment
At a national bank, you could also open a money market account or trade bonds and stocks. Management control system in banks
STRATEGIC AND OPERATIVE BANK CONTROLLING :
The two-level or two-step management method of the controlling activity can be achieved through strategic and operative bank controlling. This closely linked “two-step planning” gives the integrated bank concept.
On the first step basically is the outline of the bank’s overall comprehensive strategic objectives – as the market risk and opportunity – and also the risk policy targets and structural profit requirements.
As a second step – particularly balance sheet structure optimization – the operational management of profitability and liquidity are defined through plan-fact budget control system.
So the strategic controlling activity regarding the bank as a whole deals with only developmental, structural and security issues; mostly with the balance sheet structure risks, market risks, structural yield options, growth potentials.
CONTROLLING PLANNING AND CONTROL
Planning and control have to have a strong correlation because the only possibility for management to act in time are the well developed appropriations and actual data during planning.MS 43 Free Solved Assignment
The functions of planning –in banking termsare the following:
• Information and documentation function: have written records of the goals to be achieved set by the organization
• Coordination-integration function: coordinating the activities of the different bank areas in order to make the operation of the organization more efficient.
• Incentive-motivating function: the organization sets living goals and rewards their compliance and sanctions failures.
In case these individuals, groups are also taking part in the planning process then their commitment to the developed plan would greatly increase.
The more complex the organization is, the higher the formalization of the planning system gets.
The necessity of the formalization of planning is indisputable both in theory and practice but the appropriate degree of formalization is controversial.
Formalization must not increase time investment and expenditure and limit flexibility significantly. Time dimensions, content and forms of bank planning accounting
Q5. Study the Case of ‘Sun Cellular Limited’ given in Block 5 of this course and answer the questions given at the end of the case.
Ans. SUN CELLULAR LIMITED Sun Cellular Limited is a Cellular Mobile Telephony Services provider in one of the metro cities of India.
It is a joint venture between a leading industrial house and an international telecom major.MS 43 Free Solved Assignment
Management team headed by CEO manages all day to day operations, who represents to the Board of Directors.
Sun is operational since 1995 and enjoys a market share of 48% in a duopoly environment under the telecom policy of Government of India.
Presently there are two operators in the licensed area, MTNL; a major fixed line service provider is slated to enter the market as third operator.
The entry of MTNL is likely to trigger price was in the industry, as the market is highly price sensitive.
The major department and the company’s organisation structure is given below: In a cellular industry Marketing, Sales, Collection, Customer care, credit monitoring, IT Billing and Technical departments plays a very significant and specific role.
Marketing department is responsible for developing innovative schemes and products, brand promotion, advertising etc.MS 43 Free Solved Assignment
Sales department, implements these schemes and products in the market, take care of dealers and distribution channels.
The complete responsibility of successful implementation of schemes and products and acquiring new subscribers lies with sales department.
IT/Billing takes care of subscribers billing records, maintenance of billing system and monthly bill generation.
Technical department looks after mobile network planning, network erection and maintenance.
Collection department takes care of dispatch of customer’s monthly bills and payment collection from subscribers.
Credit monitoring is a part of collection department only. This department evaluates the credit worthiness of individual customers, setting up a credit limit and then closely monitoring customer’s airtime usage against those limits and then taking a corrective/necessary actions,
Any small mistake on the part of this group cost company a revenue loss of several thousand rupees.
Though all these departments play a very specific and crucial role having a direct impact on company’s revenue, only sales department gets incentives on each new subscriber acquisition and this is the root cause of conflict between sales and other departments.
That’s why when Mr. Anand, newly joined CEO of the company expressed his concern over the ising bad debts of the company and poor performance of collection department and asked explanation from collection chief, Mr. Sudhir, he immediately answered.
“Sir, for this situation sales department is directly responsible. At the time of new acquisitions, sales people do not verify the credit worthiness of the individual customer or properly verify the related documents like residence proof, contact numbers etc.
Many times they even do not complete the required documentation which is mandatory as per company policy, All these lead to fraud cases and have adverse impact on collection and rising bad debts.
Sir, as per company’s incentive policy, sales team gets incentives on the basis of total no. of new acquisition and not on the basis of quality of the subscribers they brings in.MS 43 Free Solved Assignment
Thus, if a person brings a new subscriber who generates high revenue for the company, he gets the same amount of incentive as that of a person who brings a subscriber with very low usage or even turned out a fraud case.
Another reason of poor collection performance is the very low morale of the collection team.
They feel dejected because in-spite of their equally important function as that of Sales and their hard work, they do not get any incentives.
So, sir, in my opinion, to improve the collection performance and to reduce bad debt in future we must change our incentive policy.,
Incentives should be based on the quality of the subscriber and not only on the quantity.
Moreover, we must put some onus of bad debt and fraud cases on sales team and should de-incentives those who brings such fraud cases.
To boost the Collection team’s moral incentives should be given to collection people also on the basis of their monthly collection.”
In his defence Mr. Basu, Chief- Sales argued “Mr. CEO, the explanation given by Mr. Sudhir is completely biased and one sided.
It is an attempt to hide one’s incompetence by blaming others.
Sir, let me explain you that as per the company policy, deciding subscriber’s credit worthiness is not at all the responsibility of Sales, we have no means to determine that. MS 43 Free Solved Assignment
In fact it’s the primary responsibility of Credit Monitoring Group.
Sir, we all know that sales incentive is very common practice across the industry and it is not something special in our case.
Now, the question raised by Mr. Sudhir is whether incentives should be dependent on quantity or quality of the subscribers.
In this regard let me clear one thing that our industry is such that we will always have customer mix of low end and high end users.
Moreover, formulation of new sales promotion schemes and new products to target a specific audience is not sales function.
Marketing does this function and as per company strategy they decide which target segment should be addressed through which product/scheme.
So we practically don’t have any role to play in deciding customer profile. We only implement these schemes.
Every month management set a target for sales to acquire new subscribers under particular schemes and I can very proudly say that despite all odds and against stiff competition, we always achieved our targets in the past 4 years.
Sir, it is very important to note that it takes a same efforts and pains to acquire a low end subscriber as that of high end subscribers.
So why there should be any difference in the incentive structure? Regarding fraud cases, it is very surprising to know that in-spite of having a detailed and comprehensive credit policy frauds are taking place.
Sir, at the time of new acquisition, we take Rs. 3000/- as a security deposit and on this basis we set credit limit of that subscriber.
As per the credit policy, as soon as airtime usage of any subscriber reaches to this level we ask for the interim payment from that subscriber.
If anybody wants more credit then he has to deposit equal amount of security with the company.MS 43 Free Solved Assignment 2022
So the question of exceeding airtime usage to that of security deposit and then the fraud taking place giving rise to bad debts should not arise at all if the credit monitoring policies are properly implemented.
Then Credit Monitoring should be held responsible for frauds and bad debts. We should not punish our sales people for the incompetence.of Credit Monitoring group.”
After hearing these arguments, CEO formed a cross-functional team to probe and to take decision on the following issues:
a) To find out reason of increasing bad debts and poor collection.
b) To review the incentive policy and possibility of linking it to the quality of the subscribers.
c) To find but possibility of judging subscriber’s credit worthiness at the time of acquisition.
d) To review credit monitoring policy.
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