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TERM-V
PROF. V.K. GUPTA
INDIVIDUAL ASSIGNMENT
SUBMITTED BY:
SREEMOYEE SAHA
2016EPGP036
Encourage Profit Sharing with the Customers. Recover Fixed Cost from the Monopoly
Sector and keep free fixed cost(FC) for the sector with perfect competition.
Kingfisher: Monopoly from the beverages & free FC for the aviation industry
This is a business excellence model
In a P&L statement, the following needs to be managed:
Revenue/Sales Management
Cost Management
Profit Management
Tax Management
THESE 9 MODULES DRIVE THE PERFORMANCE AND EVA. But there are more
EVA drivers too.
Fixed Asset Management is optimal capital restructuring. Keeping Fixed Assets less,
is considered effective & efficient. Have maximum utilization of the asset. Increase
the capacity of the asset to 100%. Need to aim at increasing the holistic ROI of the
company. Make use of the assets. Transfer idle capital to Business Units that would
use it.
If you have funds lying idle, it indicates lack of proper financial planning, which in
turn reduces the ROI. If one makes Balance Sheet, Cash flow, P&L statement
analysis for 5 years, you know when money would be required annually. U know at
which time cash would be needed, hence can make a well informed decision.
It is necessary to make a visionary document. Have the strategic & long term
planning in place. If you invest wisely at once, you can earn more without putting in
any extra efforts. Realize your money ASAP & retain others money as long as you
can.
In receivable management, ageing=0, inventory=0, make receivable=0.The Current
Assets =0 (approx), Current Liabilities are High. So, Working Capital is less than
Zero. This is a good thing. Estimated Working Capital gives us the adequate Working
Capital for the business. So, you get the financing requirements of the business. U
can easily come up with the Sales Budget or the Master Budget or the Operation
Plan.
BIS IS COMING UP WITH ISO55001. PROF. VK GUPTA IS THE INDIAN
CONVENER.
In a 1 year cycle, estimate the sales (y=a + bx; where a= average, b=growth, x=
deviation)
Sales, COGS, Estimated Sales Value, Receivable Value, Estimated Minimum Level of
Inventory, estimated on the basis of the product of lead time to order and demand
per day.
WC management makes long term requirement of the money managed by short
term. Debt is not always a cheaper source of financing than equity. If your ROI is
2%, no one will provide you with debt. Cost of equity can be cheaper than debt
when return is 4% only. So, dividend will be given out of 4% return but the cost of
debt maybe a constant at 8%. Consider the intangible values along with the
tangible ones.
Key points to remember always:
I.
II.
Revenue depends on the Price of the commodity and the quantity of Sales. If
you cant reach the price level of your competitor, differentiate & charge a
premium.
Investment Management
I.
II.
Portfolio Management
Bank has Rs. 100 Cr. Prof. Gupta did consultancy for the bank. Earlier it took
much time to en cash the check. The bank was losing on interest. Professor
Gupta suggested that the money be transferred online as soon as the check
is received. The documentation procedures can be done afterwards.
Working Capital Management
Realize your money as early as possible and hold others money as long as
possible.
Estimated Working Capital- No excess No short. We have to come out with the
sales budget( Master Budget). Budget is part of business plan. Budget is short
term plan, It is called operational Plan.
Y=A+BX is used to calculate the sales estimate. This is statistical plan.
You have to consider socio, eco, and legal changes to add to the sales
estimate.
Expense budget gives you operating cost.
Equity and Debt Management
Debt is not always cheaper than equity. When you start the company the equity
might be cheaper. Lowest cost should be considered out of equity or debt cost.
Revenue Management
Sales Volume increase or Sales price Increase.
Option 1: Adjust price according to the competitor: Target pricing.
Option 2: Differentiate the product. Develop Sustainable Competitive advantage:
Charge Premium.
20th Oct, 2016
Delight means Impact and effect. People talk about customer retention. Delight is
one of the ways.
Income Statement Management:
Once you have made the strategy and communicated the strategy you
cannot change it at the end of the day.
Performance should be aligned to the strategy.
If there was an issue with the target then James should have communicated it
to the top management.
This is a new performance system which has been implemented in the year.
So there might be problems.
Timing of the survey should be thought of well. Telephonic survey is not the
right way. It should be made in person.
Right Person should be surveyed. Satisfaction or dissatisfaction of the ATM
users is beyond the control of the branch.
The benchmark of 80% customer satisfaction is static for all branches,
irrespective of the size of the branch.
You have to quantify as far as possible
CONCLUSION
Profit
Growth
Value
Free cash is used for growth of the company. The Free cash can also be used for
reinvestment. If a company has free cash, it is a value based company ie. It is free
from all obligations.
What gets measured gets done.
People should copy from you but you should not copy to people.
Founder of IIM Indore said- Be vertical not horizontal.
Power is nothing without control
Why are we in the business??
Create Profit and turn it fast into cash to be able to survive in the long run
Limited resources
Alternative investment
Long term development
To generate resources to acquire others and not get acquired.
Selling prices
Selling volumes
Selling mix
Outsourcing Policy
Buying Volumes nad price
Efficiency- means value engineering.
Logistic costs, marketing costs, other costs
Payment conditions for customers and suppliers
Interest rate
Tax rate.
1
2
3
Care should be taken to pass on our profits to our employees so that it
facilitates ownership & commitment. Profit sharing should happen with
the customers only after the opportunity cost has been met.
For value based management, the same should be carried at the top level
of management. They will surely get filtered down and be absorbed by the
employees
Profitability
Capital
Cashflow
Value Creation
1
Growth
WACC
Cost of Capital
(2)
1: Profitable growth
2: Equity & Debt Management- Optimal Capital Structure
25th Oct, 2016
Why do we need to create value (Some Reasons?)
Limited resources to invest
Have alternatives to invest (easy & cheap to access- can invest elsewhere)
To generate resources to acquire others and not get acquired
Objectives, Measures and Initiatives
As you do the budget approval you have to do for balance scorecard.
Propose, review, improve and again propose, review and improve and continue the
cycle.
Balance score card is a tool to balance between short term and long term goals
It is a maximizing conversion of qualitative to quantitative.
It is a balancing between internal and External.
It is a balancing between financial and non financial measures.
Balanced score card will always have 4 perspectives.
Otherwise if more than 4 it will be performance scorecard.
The 4 perspective should be weighted according to company missions and goals
1)
2)
3)
4)
Profit
Growth
Value
Delight feeling for customers spread through word of mouth. It gives publicity.
Advertisement does not create such kind of effect.
Employees
Employee and employer take care of each other. I will take care of your
worries you take care of my work.
TQM
Empowerment
Learning organization
Self directed work teams
Change Management
Strategi
c
objectiv
e
Profit
Growth
Measurem
ent
Initiatives
Role
Weigh
ts
Targ
et
Actual
Remar
ks
ROI
10%
12%
36
Custom
er
Delight
Customer
Delight
Index
20%
100
90
18
Process
Product
ion
A(60
)L
B(20
)S
C(20
)S
B(20
)L
C(10
)S
D(45
)S
E(35
)S
A(60
)L
B(40
)S
30%
Customer
Revenue,
Sales
increase,
Cost
improvem
ent
Prompt
reply ,
Best
services
40%
10%
11%
44
Knowledg
e and
growth
Employ
ee
Delight
A(40
)L
B(30
)S
C(30
)S
10%
100
110
11
Financial
Employee
Delight
Index
Take care
of each
other
Total
109
Cut off will be decided by the management considering the subjective as well
objective of Balanced score card. If the scores are less than the cut off then the
difference will be carry forward to next year. In the next year the difference will be
added to the cut off score and accordingly incentives are decided.
There should not be 2 measures for a single objective.
When the ideas are generated by people only then it becomes the baby of the
people and they then ensure that the baby grows fruitfully.
Initiative: The people should be rewarded for taking the initiatives. Once the
initiatives are linked with the compensation or rewards it will keep the motivation
going for the people. The people will become more productive. People will work with
synergy.
The Action Plan/Roadmap of a Balanced Scorecard is determined at the micro level.
After individuals are assigned roles & responsibilities, reviews happen & tasks are
assigned. To determine the targets met, the implementation plan with the deadline
is set. KRAs should be very specific and not generic at all.
4th Nov, 2016
Customer
Customer
Customer
Customer