Assignment No 03

Advance
Performance
Management
Submitted To: Sir Jalal Ahmed Khan

Muhammad Hanif
Q1: Describe responsibility and control center and prepare one for PIA?

Responsibility Center:
Responsibility centers can be classified by the scope of responsibility assigned and decision-making
authority given to individual managers.

Cost Centre:
A cost or expense center is a segment of an organization in which the managers are held re sponsible for
the cost incurred in that segment but not for revenues.

Revenue Centre:
A revenue center is a segment of the organization which is primarily responsible for generating sales
revenue.

Profit Centre:
A profit center is a segment of an organization whose manager is responsible for both revenues and costs.

Investment centers:
In an investment center the manager is responsible for investment decisions as well as costs and revenues

Control Center:
Most organizations use financial controls cost, revenue, and profits, etc. However, such measures are not
applicable to all units within an organization.

For example,
 How would you measure the contribution of a production department. It can only be done on a
cost measurement basis.
 How would you measure the contribution of a sales department only by revenue generated.

Responsibility Center for PIA

Airline operations, strategic and tactical, are conducted in two stages. The strategic operations are about
planning and scheduling. This Operations Group division produces the Aircraft Rotations Schedule and
the Crew Trips Schedule. These timetables are normally revised either monthly or seasonally.

The Operations group's tactical side is responsible for the 4th phase of schedule generation, Execution
Scheduling. Execution Scheduling is the process of day-to-day execution of airline schedules.
Q2: How would a multi-national company operate under centralized and decentralized
management? How can IT help in Performance Management?

Centralization
Centralization is the systematic and consistent reservation of authority at central points in the
organization.
 Reservation of decision making power at top level.
 Reservation of operating authority with the middle level managers.
 Reservation of operation at lower level at the directions of the top level.

Event Management Company:

Shows are created by centralized organizations that decide what we watch and when we watch it. And, if
think literally about it, one message is sent down the airwaves for us to watch at the other end.

Decentralization
Decentralization is a systematic delegation of authority at all levels of management and in all of the
organization.
 “Everything that increasing the role of subordinates is decentralization and that decreases the role
is centralization”
 Authority in retained by the top management for taking major decisions.
 Decentralization pattern is wider is scope.

Mountain Dew:
Decentralized its organizational structure by cutting half of the staff at its Atlanta headquarters and
moving the regional chieftains closer to their local markets. In Pakistan, decision making has been moved
further down to different areas of that diverse country.
Q3: How does Mc Kinsey’s 7s model suggests business integration? How would you apply to Imtiaz
Store?

The McKinsey 7S Framework is a management model developed by business consultants Robert H.

Waterman, Jr. and Tom Peters in the 1980s. This was a strategic vision for groups, to include businesses,
business units, and teams. The 7 Ss are structure, strategy, systems, skills, style, staff and shared values.
 7s Framework For Imtiaz
Strategy:
As it mentioned earlier, strategy of the firm is to provide lowest price and aim of a store that under one
roof consumer are able to shop everything they needed. Strategies of convenience shopping and low cost
have made company to be market leader.

System:
Imtiaz has a system which is the basis of achieving low price strategy every day. Information Technology
is the largest and most profitable system that Imtiaz Has. Also has employed computer, networking to
decrease inventories and waste and to speed deliveries.

Structure: Imtiaz has design an effective and efficient management structure which makes easy to
eliminate regional office, plans and operations..Imtiaz used to save millions of dollars by using this
structure ever year. Continuing to dominate three hard elements of McKinsey 7s model, Imtiaz will be
able to continue dominate the retail market in future also.

Style:

Imtiaz is a huge supermarket which strives for convenience of the customer. They should make sure that
the customer takes notice of this facet.

Shared values:

Like mentioned above of every employee is cognizant of the values of the company and is willing to take
ownership then the delivery of value becomes easy.

Skills:

Training employees instead of hiring should be promoted at all levels. This way Imtiaz can differentiate
itself from the competition and earn considerable goodwill in the process.
 ROBUST LAPTOPS

CASE HISTORY:

Robust Laptops Co (RL) makes laptops ideal for use in dangerous environments. The main customers of
the company are organizations such as oil companies and the military which require a laptop that can
survive rough handling in transportation to a site and can be made to meet their unique needs. The
company started out as a modest manufacturer of laptops but its rivals became much larger and RL
needed to find a niche market where its small size would not hamper its ability to compete. Now it is
considered one of the best-quality producers in this industry.

ISSUES AT HAND:

RL had the same finance director for several years, who favored the organic design of its programs.
Nevertheless, due to a decline in productivity a new Chef (CEO) and a new Chief Financial Officer
( CFO) were named.

The CEO needs to upgrade RL's financial management systems to obtain better clarity on the profit issue.

FACTS AND FIGURES:

The cost difference indicates that the order is considerably below the price at present. The main
components of the overhead were the amount of time spent negotiating about the deal and the number of
demands for revenue to be increased. RL 's management should check these two areas of operation to see
if they are more effective. If not, the management would follow similar reproofing instructions.

Until price rises, however, RL management must determine the effect of any price rise on consumers and
RL's competitive position. It could be unlikely, as the statistics show, that customers will find a price
increase of 25 per cent.

A move to an ABC method could be assured because an ABC system would offer useful additional cost
data , especially on the cost of goods and pricing that could assist profitability. It will also take ABC
systems time to obtain the required volumes of data and the correct infrastructure to facilitate this method.
A cost-benefit analysis would then have to be made between the increased expense of implementing this
system and the added value of the produced data.

ALTERNATIVES:

A company's alternative is the corporate goals that need to be met. For example, RL may set a financial
goal in the coming year to increase operating profit by five per cent, or it may set a goal in the coming
year to ensure that its market share remains constant.

Similarly, one of RL 's alternatives may be to ensure that technical advances are preserved and integrated
into its laptops, and that its effectiveness remains credible.

RECOMMENDATIONS:

Its financial statements should normally evaluate the output of RL, and financial performance metrics
should generally evaluate progress rather than aid. On the contrary, many of the considerations that
guarantee performance (CSFs) are non-financial, such as consistency or durability. Then the company
should determine its plan because these variables are crucial elements in RL 's successful fulfillment of its
plan.

Although the Executive Committee Chair did not explicitly address the idea of introducing a multi-
dimensional performance evaluation process, such a system would demonstrate the non-financial
relationship.
 GODEL GOODIES

CASE HISTORY:

Godel Goodies offers a variety of own label sweets for Seeland's two main supermarket chains. The
company offers the same basic product in many different flavors. The firm 's plan was to be a cost leader
to capture the company of the supermarkets. Godel 's sales vary from quarter to quarter, depending on the
state of the general economy and competitive strengths.

Most sweet manufacturers have been in business for decades and therefore the business is mature with
little scope to be innovative in the development of new products. The supermarkets prefer to sign long-
term contracts with suppliers and therefore it is difficult for new entrants to gain a foothold in this market.
Godel's management style is very much command-and-control that fits business strategy and type. In fact,
most employees have spent many years at Godel and expressed their liking for the straightforward nature
of their work.

ISSUES AT HAND:

 The essence of Godel 's company in a competitive market, with little room for creativity or the
production of new goods, indicates that budgeting should not be difficult. But complaints from
the managers that it's a very time-consuming process.
 While the CEO does not believe that managers are slack in their budgets, the use of standard
costing does not, however, provide incentives for managers to try to further reduce costs. Given
Godel 's strategy as a cost leader, if the budget system encouraged a system of continuous
improvements in terms of efficiency gains and cost reductions, it would be beneficial.
FACTS AND FIGURES:

Planning variances are those that arise in the original budget setting, due to inaccurate forecasts or
standards. Operational variances are then the rest due to operational managers' decisions. The difference
between the original standard and a revised one set with the benefit of hindsight is a plan variance. The
difference between that revised standard and actual performance is an operational variance.

Operating Statement for Godel

For May 2014

Budgeted Profit $ 214,200.00

Budgeted Fixed Production Cost $ 264,180.00
Contribution $ 478,380.00

Sales Variances
Volume $ 20,100.00 Adverse
Price $ 8,960.00 Adverse
$ 29,060.00 Adverse
$ 449,320.00

Variable cost variance Favourable Adverse

Material Price $ 4,200.00
Usage $ 3,500.00
Labor Rate $ 1,100.00
Efficiency $ 24,480.00
Idle Time $ 5,600.00
Variable Overhead Expenditure $ 1,080.00
Efficiency $ 3,060.00
$ 32,140.00 $ 10,880.00
$ 21,260.00 Favourable
$ 470,580.00

Actual contribution
Budgeted Fixed OVH $ 271,728.00
Expenditure Variance $ 18,696.00 Adverse

Actual Fixed OVH $ 290,424.00

Actual Profit $ 180,156.00

Detailed Variance
ALTERNATIVES:

The FD 's proposal reacts to the complaints of managers that their current variances are not their fault, and
thus the FD 's intention seems to make managers accountable for the differences and motivate them to
achieve their budgets.

Typically, the arguments for bottom-up budgeting consist of: that managers should be encouraged to meet
their budgets if they are engaged in setting them up; and that operations managers should be more aware
of the conditions faced by their business units than senior management , which means that the resulting
budgets would be more realistic and feasible.

RECOMMENDATIONS:

 Budgeting is a key management control tool and is of particular significance in managing costs in
companies such as Gödel, which aims to be a cost leader. At Gödel, it is succeeding in this as
total cost shows a favorable variance. Budgets help to connect and organize all project
management activities against a common strategy.
 The budget helps to attribute performance responsibility, for example, the favorable variance in
the use of materials indicates that fewer raw materials are required than planned and this reflects
the production manager's work in cutting waste and possibly the purchasing manager in buying
good quality raw materials.
 The participatory nature of the budget process will help motivate managers to achieve budget
figures they have helped set themselves. It is critical that the budget is realistic for this reason, or
that it is demotivating. Budgets help performance assessment by identifying variances and then
pointing to areas for corrective action or future learning.