Evaluation Systems

We ensure evaluation is based on business needs and program objectives. We design an evaluation process, then develop and conduct surveys, focus groups and interviews to gather both quantitative and qualitative information. We analyze results, separating the impact of training from other influences in the work environment. And we produce clear, concise reports with realistic recommendations.

i. Benchmark System

Benchmarking also ‘best practice benchmarking’ or ‘process benchmarking’ is a process used in strategic management, in which organizations evaluate various aspects of their processes in relation to industry best practice/best quality, usually within their own sector. Best Practice is that technique, method, process, activity, incentive or reward considered more effective at delivering a particular outcome than any other technique, method, process, etc. This then allows organizations to develop plans on how to adopt such best practice, usually with the aim of increasing some aspect of performance.

Benchmarking is often a continuous process in which organizations continually seek to challenge their practices. Groups of companies and MNEs establish group bench marks called as Collaborative benchmarking.

Benchmarking process:

There is no single benchmarking process that has been universally adopted. The most prominent methodology is the 12 stage methodology by Robert Camp, the author of the first book on benchmarking in 1989.

The twelve stage methodology consisted of:

i. Select subject ahead ii. the process

iii. Identify potential partners iv. Identify data sources

v. Collect data and select partners vi. Determine the gap

vii. Establish process differences viii. Target future performance ix. Communicate

x. Adjust goal xi. Implement

xii. Review/recalibrate.

Take the leading edge practices and develop implementation plans which include identification of specific opportunities, funding the project and selling the ideas to the organization for the purpose of gaining demonstrated value from the process.

Technical benchmarking or Product Benchmarking:

Technical benchmarking process is particularly well developed within the automotive industry, ‘Automotive Benchmarking’ where by applying the best technologies available worldwide class product offerings continually hit the markets.

Process benchmarking:

Process benchmarking is the initiating firm focuses its observation and investigation of business processes with a goal of identifying and observing the best practices from one or more benchmark firms. Activity analysis will be required where the objective is to benchmark cost and efficiency.

Financial benchmarking:

Financial benchmarking performs a financial analysis and comparing the results in an effort to assess one’s overall competitiveness.

Performance benchmarking:

Performance benchmarking allows the initiator firm to assess their competitive position by comparing products and services with those of target firms.

Strategic benchmarking:

Strategic benchmarking involves observing how others, including those in other sectors/industries compete.

Functional benchmarking:

Functional benchmarking a company will focus its benchmarking on a single function in order to improve the operation of that particular function. Sales benchmarking is a functional benchmarking, which involves comparing a company’s sales force against other companies or against industry performance. The purpose is to identify opportunities to improve performance and to focus the efforts of a sales organization.

Advantages of benchmarking: Benchmarking is a powerful management tool because it overcomes ‘paradigm blindness’. ‘Paradigm Blindness’ is the thinking that, ’the way we do it is the best because this is the way we’ve always done it’. Benchmarking opens organizations to new methods, ideas and tools to improve their effectiveness. It helps crack through resistance to change by demonstrating other methods of solving problems than the one currently employed, and demonstrating that they work, because they are being used by others.

ii. Budgetary System

Budgetary System is a planning and controlling tool. As such it helps in evaluation as well, because, the targets are available in the budget. The actual then shall be weighed against the budget and performance can be rated.

Budgets and budgetary control constitute budgetary system

Budget:

A budget is a detailed plan of operations for some specific future period. It is an estimate of costs and benefits of programs to be undertaken and policies thereto prepared in advance of the period to which it is applied.

Budget acts as a business barometer as it is a complete program of activities of the business for the period covered. According to Gordon and Shilling law, ‘budget is a predetermined detailed plan of action developed and distributed as a guide to current operations and as a partial basis for the subsequent evaluation of performance’. The Institute of Cost and Management Accountants, England, defines a budget as ‘a financial and/or quantitative statement, prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective’. Thus, the following are the essentials of a budget:

• It is prepared in advance and it is a plan of actions for the feature.

• It is related to a future period and is based on objectives to be attained.

• It is a statement expressed in monetary and/or physical units prepared for the implementation of policy formulated by the management.

Different types of budgets are prepared by concerns for different purposes. A sales budget is prepared for the purpose of forecasting sales for a future period and on its basis other budgets are prepared. An operating cost budget is prepared for forecasting the operating costs.

The Master Budget embodies plans - for the revenues and gains and other incomes, for operating, marketing and other expenses, for cash and capital requirements besides forecasting the profit or loss.

Budgetary Control:

When budget is used for control, it is budgetary control. The Institute of Cost and Management Accountants, England defines budgetary control as “the establishment of budgets relating to the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure

by individual action the objective of that policy or to provide a basis for its revision”. According to J.A.Scott,

“it is the system of management control and accounting in which all operations are forecast and so far as possible planned ahead and the actual results compared with the forecast and planned ones”. Thus, budgetary control involves the following:

• Establishment of budgets.

• Continuous comparison of actual with budgets for achievement of targets and placing the responsibility for failure to achieve the budget figures.

• Revision of budgets in the light of changed circumstances

The difference between budgets, budgeting and budgetary control can be sited.

Budgets are the individual objectives of a department, etc. Budgeting may be said to be the act of building budgets. Budgetary control embraces all and in addition includes the science of planning the budgets themselves and the utilization of such budgets to effect an overall management tool for the business planning and control.

Budgetary control has become an essential tool of management for controlling costs and maximizing profits. It may be conceived as one of the supreme examples of rationality in management.

Advantages of Budgetary Control:

The following are some of the most significant advantages of budgeting:

• Budgeting compels management to plan for the future. The budgeting process forces

• management to look ahead and become more effective and efficient in administering

Operations. It instills into managers the habit of evaluating carefully their problems and related variables before making any decisions.

• Budgeting helps to coordinate, integrate, and balance the efforts of various departments in the light of the overall objectives of the enterprise. This results in goal congruency and harmony among the departments.

• Budgeting facilities control by providing definite expectations in the planning phase which can be used as a frame of reference for judging the subsequent performance. Undoubtedly, budgeted performance is more relevant standard for comparison than past performance since past performance is bases on historical factors which are constantly changing.

• Budgeting improves the quality of communication. The enterprise’s objectives, budget goals, plans, authority and responsibility and procedures to implement plans are clearly written and communicated through budgets to all individuals in the enterprise. This results in better understanding and harmonious relations among managers and subordinates.

• Budgeting helps to optimize the use of the firm’s resources, both capital and human. It aids in directing the total efforts of the firm into the most

• Budgeting measures efficiency and thereby enables self-evaluation by the management, it also indicates the progress made in attaining the enterprise’s objectives.

Zero Base Budgeting (ZBB): Zero Base Budgeting is a new technique designed to revitalize budgeting. This technique was first used by the U.S. Department of Agriculture as long back as in 1961. Texas Instruments, a multinational company, pioneered its use in the private sectors. It was Peter A.Pyhrr who designed its logical basic framework in 1970 and successfully developed, implemented and popularized its wider use in the private sectors. He is, therefore, rightly termed as the “Father of Zero Base Budgeting”. The technique gained further momentum in U.S.A. when the President of U.S.A. Mr. Carter, in 1979, issued a mandate asking for use of ZBB technique throughout the federal government agencies. Thus, ZBB replaced to conventional budgeting technique at the federal government level. The technique is now also gaining tremendous foothold in many commonwealth countries, particularly in Canada. Institute of Chartered Accountants of India and the Institute of Costs and Works Accountants of India have advocated ZBB technique..

Zero base budgeting (or review), as the term suggests, examines a program of function or responsibility from

“scratch”. The reviewer proceeds on the assumption that nothing is to be allowed. The manager proposing the activity has, therefore, to prove that the activity is essential and the various amounts asked for are reasonable taking into account the volume of activity. Thus ZBB means writing on a clean slate. Zero-base budgeting provides the organization with a systematic way to evaluate different operations and programs undertaken by the management. It enables management to allocate resources according to priority of the programs. It links budgets with the corporate objectives. Nothing will simply be allowed only because it was being done in the past, if it does not help in achieving the goals of the enterprise. It can be used for introduction and implementation of the system of “management by objectives”. Thus, it can not only be used for fulfillment of the objectives of traditional budgeting but it can also be used for a variety of other purposes.

iii. Standard Costing System

Standard costing is technique of cost planning and control, based on scientific analysis of elements of cost in terms of standard input / output norms and standard rates / price per unit of input. The following process is involved in setting and practicing std. cost.

• Establish standard cost, component-wise, for each output

• Measure the actual cost, component-wise, for each output

• Their comparison with the actual costs and the measurement of variances.

• The location of responsibility for the variances and the corrective action to be taken.

• The analysis of variances for ascertaining the reasons for the same.

Establishment of a Standard Costing System: The installation of Standard Costing

System in a manufacturing concern involves the following steps:

• Standardization of functions i.e., all activities should be standardized and the technical processes of operations should also be susceptible to planning.

• Establishment of Cost Centre

• Classification of Accounts i.e., the different accounts can be codified and different symbol may be used to facilitate speedy collection, analysis and reporting.

• Setting up of Standards: Standards may be basic (long period) and current (short period).

From the point of view of efficiency level, they will fall into three broad categories:

(a) Strict ideal;

(b) Attainable or expected/actual and (c) Loose.

The standard should be realistic and attainable. Unrealistic standards provoke resentment and depress performance. Loose standard leads the management to indulge in self-congratulation. Normally, a period of one year is more realistic, as it coincides with the budget period and the normal accounting period.

Setting of Standard Costs: Standard Costs should be determined for each element of cost separately and accurately. Like a budget committee in big institutions, there should be a standards committee or Standards Division which will be vested with the work of setting standard costs. The Standards Committee generally consists of all functional heads like program manager, personal manager, etc. Standard Costs: For any given program or unit the following standards must be determined:

• Standard material costs

• Standard labour costs

• Standard direct costs

• Standard variable overhead costs

• Standard fixed overhead costs

• Standard selling prices and profit

The standard direct material cost is found by multiplying the quantity of materials to be purchased with the rate of a price at which they are available.

Determination of Standard Labour cost involves fixation of

• standard labour grades

• standard labour times i.e., standard hours through “Time, Motion and Fatigue Study” with the help of work study engineers and (c) standard wage rates based on time rate, piece rate and premium plans.

Standard Direct (expenses) cost is any expenditure (other than direct material and direct labour) which is directly to be incurred on a specific cost unit. It is charged directly to the particular cost standard (account) concerned.

Standard Overhead costs are classified as manufacturing, administration. selling and distribution overheads.

They are also classified as fixed, variable and semi-variable so that correct estimate for each class may be prepared for the budget period. Standard overhead rate is determined on the basis of past records and future trend of prices.

Determination of Standard Hour: Time factor is common to all the operations. So if standard costing ‘Standard hour’ is applied to the quantity of work or output which should be performed in one hour. A standard hour may be defined as an hour which measures the amount of work that should be performed in one hour under standard conditions. It has a practical advantage in the measurement of ‘Efficiency Ratio’ and ‘Activity Ratio’.

Efficiency ratio: Efficiency ratio is the number of standard hours equivalent to the work produced, expressed as a percentage of the actual hours spent in producing that work.

Standard hours for actual production

Efficiency Ratio = ——————————————————————— x 100 Actual hours for action production

Activity Ratio:

Activity Ratio is the number of standard hours equivalent to the work produced, expressed as a percentage of budgeted standard hours.

Standard hours for actual production

Activity Ratio = —————————————————————————x 100 Standard hours for budgeted production

4.4.3.4 Balanced Score Card (BSC): A New Evaluation System

The balanced score card (BSC) has become a widely accepted performance measurement tool. It was developed and first used at Analog Devices in 1987. By focusing not only on financial outcomes but also on the customers, processes and competitive capabilities the balanced scorecard helps to provide a more comprehensive view of a business which in turn helps organizations to act in their best long-term interests leading to better overall performance. The strategic management system helps managers focus on performance metrics while balancing financial objectives with customer, process and employee perspectives. BSC measures are often indicators of future performance. Robert S. Kaplan and David P. Norton worked on propagating the application of BSC since 1990s. Kaplan & Norton themselves revisited the scorecard with the benefit of a decade’s experience since the original article.

The BSC is a performance measurement framework, with similar principles as Management by Objectives. It is placed alongside approaches such as Activity Based Costing and Total Quality Management. The Balanced Scorecard provides managers with the instrumentation they need to navigate to future competitive success.

The earliest Balanced Scorecards comprised simple tables broken into four sections:

-typically these ‘perspectives’ were labeled “Financial”, “Customer”, “Internal Business Processes”, and

“Learning & Growth”. Designing the Balanced Scorecard required selecting five or six good measures for each perspective. In the mid 1990s an improved design method emerged. In the new method, selection of measures was based on a set of ‘strategic objectives’ plotted on a ‘strategic linkage model’ or ‘strategy map’. With this modified approach, the strategic objectives are typically distributed across a similar set of ‘perspectives’ as is found in the earlier designs, but the design question becomes slightly more abstract. Managers have to identify the five or six goals they have within each of the perspectives, and then demonstrate some inter-linking between them by plotting causal links on the diagram. Having reached some consensus about the objectives and how they inter-relate, the Balanced Scorecard’s measures are chosen by picking suitable measures for each objective.

This type of approach provides greater contextual justification for the measures chosen, and is generally easier for managers to work through. This style of Balanced Scorecard has been the most common type for the last ten years or so. Since the late 1990s, various alternatives to the Balanced Scorecard have emerged examples being The Performance Prism, Results Based Management and Third Generation Balanced Scorecard for example.

Balanced Scorecard is a performance management tool, although it helps focus managers’ attention on strategic issues and the management of the implementation of strategy.

In document INTERNATIONAL BUSINESS MANAGEMENT (Page 195-200)