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Tuesday, June 5, 2018

Application of BSC to Local Not for Profit Organisations


Financial Perspective
Not only profit oriented oragnisations but also non-profit organisations must have a solid understanding of their financial situation. However this perspective is kept below the other perspectives by NPO due to the priority of non-financial objectives and it will raise the question how will the organisationbe affordedfor what they came together to do.Funds for the operations will be generated both by trading income and non-trading income. For an example in a religious organisation trading income would be money collected from selling Dammabooks and non-trading income would be the donations. Distribution of gains to targeted community and promoting sustainability of the organisation are two aspects to be balanced by NPO out of surpluses. Distributions (which indicate the quality of programmes) are required to attract donors e.g.:distribution of stationery goods to school students in a rural area. Funding sources, cost of services and overheads etc. could beincorporatedinto NPO’s strategic plans and operating income, return on capital and economic value addition could be measured. Through these measures it focuses on improving value to stakeholders while controlling the cost since lack of funds. Finally financial reports could improve the confidence of donors and other fund grantors ensuring the financial sustainability.
2.2.2.      Member Perspective
There is a question of naming people who are involved with the NPO, as ‘customers’ due to the variation and nature of dealings in compared to PO. Ali B. Somers (2016) has widened the customer perspective as stakeholder perspective recognizing them as employees, volunteers, suppliers, beneficiaries, donors and consumers.This perspective focuseson improving stakeholder value and questions that how will the organisation ensure that they are delivering what they had decided to deliver from the start. The attitudes, satisfaction and retention of stakeholders could be measured by setting objectives.

 Internal Business Perspective
This perspective will question on how the organisation will ensure that they are doing it in the most efficient way. It concerns about the efficiency of programmes or services offered and the ability to fulfil needs of the community.  It measures the cost and quality of services provided.

2.2.4    Learning and Growth Perspective
This view raises the question how will the organisation move forward to ensure that they continue in the future or achieve succession. This aspect looks at the human capital of the organisation and measures the necessary skills, community connection and retention etc. In this scenario skills, knowledge and attitudes of leaders and employees are essential for the success of marketing, branding and donor development.

Mission Perspective
This perspective supersedes all the other perspectives and highlights the importance of prioritising and achieving the social objective. For an example religious organisations have focused on spreadingDamma as much possible. All the other spiritual activities have been arranged around this perspective. The effectiveness could be measured by setting objectives for milestones and feedback programmes.
 In addition an environmental perspective could be seen in Health-Care organisations in order to understand the behavior pattern of stakeholders. They would use aging indexes and dependency indexes to understand the population.
 Process of Adoption of BSC
In order to apply BSC in to the strategic planof the organisation, vision and mission of the organisationshould be clearly stated andvision should be converted in to operational goals.Next it is required to identify objectives and measures which is called a strategy map and adjust strategy based on feedback. The responsibilities of volunteers/ members can be assigned as per the map andwork can be reconciled after the completion.Outcome can be used as an external communication methodologyto promote next and on-going activitieswhich will enhance the credibility towards investors. Few examples for objectives and measures related to a religious organisationhave been presented under appendix 01.
  Issues in Implementation of BSC
Since original BSC was developed to cater PO (as per the literature reviews) amendments might be required (adding mission perspective) to reflect the achievement of mission of NPO. Occasionally implementation is difficult in NPO than PO due to unavailability of properorganisational structure,absence of indicators which has linked to goals,lack of management commitment, political issues, lack of resources and misrepresentation of information. Most of these disputes have been arisen due to barriers in implementing strategy i.e. BSC is applied to the organisational strategy and failure in strategy execution leads to the failure in BSC.  Mainly members do not understand the strategy and superiors do not consume enough time to discuss on strategy. Further budgets have not been linked to strategy and performance of superiors has not been connected to strategy.Thus well-articulated mission and strategy, staff involvement and training, identification of correct key performance indicators and measures and communication are the critical success factors in BSC implementation.
 Conclusion
Successful implementation of BSCmay enhance cross-functional collaboration, co-operation, communication and the visibility across the organisations. Application of BSC to Sri Lankan organisations would bring similar benefits Amendments may be required to the original BSC especially in applying it to non-profit organisations.Implementation should be well planned avoiding main barriers.


BSC framework for an orphanage of children


BSC framework for an orphanage of children (within the age group of 0 to 18).
·       Financial Perspective – focuses on the financial data of the institute. The orphanage’s main source of income is donations and government incentives and support. Whereas, the expenses include all outflows in order to provide the needs of the children. The orphanage will budget for each kid – provisioning for the basic needs as a priority.
·        Internal processes perspective – focuses on how well the institute is doing and the facilities provided to satisfy the children. For e.g. educational opportunities (e.g. hiring tuition teachers for additional teachings), leisure opportunities (e.g. playground), support for basic religious activities (e.g. Sunday school, Sil sessions on poya days, Sunday Mass programs, etc.)
  Learning and Growth perspective –focuses on learning and implementing new and better strategies for improvement purposes. Orphanage could have an in-house schooling system for kids who is not mentally stable to mingle with society yet. Also, for kids below 5 years, a day care facility could be operated. Where, normal kids are also admitted for the daycare therefore there will be a mix of children – this might boost the orphan kids’ mentality as well.
·      Customer perspective – focuses on satisfying customers. The customers of the orphanage are orphans. The customer perspective is therefore to satisfy the orphans. The children should not be felt like orphans but normal kids. Adequate facilities should be provided while basic need satisfaction is a must. The children should be treated well – if not; the parents and the government will get intervened in the operations, thereby restricting the freedom of operations.

Balanced Scorecard Implementation: Case Study of Government Organization

Balanced Scorecard Implementation: Case Study of Government Organization


To the question to what extend are the minimum requirements of the balanced scorecard met by the non-profit organisations interviewed and how far advanced is their experience?it was revealed that the government organization has to go through a long way to successfully implement the balance scorecard for get the harvest. As per the available facts only a measurement system with an unbalanced distribution of financial and non-financial performance measures and lack cause-and-effect linkages as well as compensation links at all levels.
The question what are the main benefits of the balanced scorecard?Concerning the following can be stated: especially, benefits in the area of strategy implementations scored high which is in line with the original idea of the balanced scorecard. Also the chance to build up a performance measurement system and supporting organisational change is processes ranked high in the government organisations. Obstacles to introduce a pay-for performance systems, measuring problems and obstacles originating from challenges in the area of clear organisational success measures indicates as major implementation obstacles. A strategic planning in the heavily influence political environment, is difficult due to short-term. The dominance of financial indicators is highly unsatisfactory. With respect to long-term measures and non-financial measures the interviewed did not perform well. Most of the enabling factors for a successful implementation are so common and they are valid for performance or project management initiatives.
In conclusion government origination is far away for introducing balance scorecard. Once the findings are aligned with the education background the knowledge had been obtained but the restriction for implementation is existing. The respondents are highly depending on the imaginary thinking rather than the practical experience.
In broader contest government organisations are mostly in the early phase of balanced scorecard implementation. A follow up would therefore be interesting to see if the balanced scorecard proved to be a sustainable management instrument or whether other management tools replaced it. Since Kaplan and Norton claim that the balanced scorecard is not only a strategic management system, but also a promoter for propelling organisations forward to becoming front runners in their field, it would be interesting to find out how this works , considering the stage where government organization are stay and the efforts government putting to raise those organization.

Importance of Balanced Score Card to Sri Lanka

Importance of Balanced Score Card to Sri Lanka

The Balanced Score Card approach is often used by organisations in order to support their business activities and the current standing of the organisation. This method can be highly effective in Sri Lankan companies due to the fact that this approach has the ability to transfer the organisational objectives and mission into practical situations by being able to carry on the business in a more effective manner.
The Balanced Score Card approach will ensure that the different departments in Sri Lankan companies will be more efficient in order to be able to coordinate with each other better and also be highly efficient in their daily activities. Initially these companies should be able to differentiate and identify the organisational mission statement as well as the strategic plan of the company.

Sunday, June 3, 2018

Traditional Costing System and Activity-Based Costing (ABC)


Traditional  Costing System  and Activity-Based Costing (ABC)

According to the traditional costing system, overheads were allocated using a single predetermined rate. For an instant, direct labor cost is assumed to be the relevant activity base for Job order costing. However, this assumption is not always applicable unless direct labor was a major portion of total manufacturing costs. Since there was a tremendous change in manufacturing and service industries and decrease in amount of direct labour usage, need was arisen for more precise and reliable overhead absorption methods. This need was further geared as there is a significant increase in total overhead costs in present time than past. Thus, Activity-Based Costing (ABC) approach had received substantial interest to allocate overhead on the basis of multiple allocation basis of complex manufacturing processes. Basically, in ABC approach, overheads are allocated to activity cost pools, and assign the activity cost pools to products or services by means of cost drivers. As a developing country, implementation of ABC to Sri Lanka could enable to get its advantages. In line with that, the main objective of this article is to identify the importance of applying ABC to Sri Lanka and challenges and barriers of implementation. Further, study has focused on the civil engineering construction industry of Sri Lanka. 
Generally, traditional costing method is considered as a simple method compared to complex ABC method. Also, it is considered as inexpensive, compared with the costly system such as ABC.  Further, there is a belief that ABC system is too complex to understand. As a result, it has become difficult to implement ABC system in the construction industry in Sri Lanka. As this attitude comes up from the top management, getting support from lower level has become difficult. Further, as there is not satisfactory training on ABC system for top and middle management of the firms of construction industry, they tend to continue with the existing traditional costing system. Hence, as a result of lack of persuasion from the government, industrial regulations and top management of the construction companies, ABC has not become more popular in Sri Lankan engineering industry yet.      

Further, as most construction companies give higher priorities to move for other projects rather than practicing new system, implementation of ABC has become difficult in Sri Lanka. As ABC system is bit complicated than traditional costing system and more incorporated with technical aspects, there is a reluctant to apply ABC system by the construction companies. Further, inadequacy of internal resources (e.g. competent human resources who can deal with ABC and other office facilities) has caused to not implement ABC system in construction industry. 

ACTTIVITY BASED COSTING IN COMMERCIAL BANKS IN SRI LANKA


This report, prepared for the purpose of to examine how Activity Based Costing (ABC) is important to Sri Lankan Commercial banking sector and what barriers having for implementing it. To achieve the purpose, five articles has reviewed related to the study area. In considering articles, and banking practices have discussed the contained of cost/interest of a commercial bank and current cost application. However, implementation of ABC system is difficult and articles indicate some failures of it. As well as discussed the process of cost application in a bank.
In considering the articles, report has pointed the benefits of application of the ABC system in a bank of Sri Lanka. Then discussed the barriers of implementing an ABC system to commercial bank of Sri Lanka.
According the study, ABC system is not only appropriate for use in a manufacturing organization in Sri Lanka, it is also most appropriate for commercial bank of Sri Lanka to have benefits as well as to achieve competitive advantages.
In commercial banking sector lending interest rate is recognized as a product's selling price and before decide the lending interest rate, bank has to calculate the cost of fund rate as a product cost. The direct cost of commercial banks includes what the activity consumed, such as financial cost and other cost comes under administration cost. For At the time, bank calculating cost of fund rate they have to use costing techniques.
In Sri Lanka, interest rate decisions are taken by The Central Bank of Sri Lanka. The official interest rates are the Standing Deposit Facility (SDF) Rate and the Standing Lending Facility (SDFR) Rate are decided by them. However, the administration costs decision has to take my each commercial bank management. At that time, they had to use the techniques to absorb the indirect cost of commercial banks such as the management and maintain activities, and the activities mainly involved ground, information system, human resource, administration management and marketing.

Farm, Management System


Costs are major element in managerial decisions mainly in many production based organizations. Allocation of general costs to products is very important decisions in which products’ economic performance can be interpreted and reported. Therefore, this model of Farm Management Information System (FMIS) introduces approaches to manage costs in business firms, namely Direct Costing (DC) and Activity Based Costing (ABC) approaches. And this paper helps to identify the information requirement for the development of a DC and ABC in a FMIS.

Farm Management Information Systems has enhanced a growing interest in recent years, for agricultural activities have become more and more complex and decision-making activities need to be supported by a larger amount of information. A strong pressure on farm managers to adopt IT solutions solutions has been very important process because  analytical activities by using pen and pencil, the information processing workload is very complicated now a days. Moreover, the management of information and decision making are now core issues in developing successful PA applications (Precision Agriculture). Research about FMIS has developed rich framework to address the data management issues of modern agriculture and PA applications. This will focus on the specific applications of DC and ABC in agriculture, depicting the open questions in research and the subject of this study.

This paper focuses on the data processing systems oriented at decision making support with specific cost analysis approaches. Many information flows can become the input sources for specific cost analyses and support a more conscious decision making process. The development of an FMIS model focused on managerial decisions is a particularly relevant area of investigation, because there is a growing interest in increasing the level of cost control on farm activities. However, currently, the managerial approaches oriented towards this goal developed in other industries have not really gained ground in the agricultural context.

In many cases general costs (e.g.: depreciation of machinery) are not correctly allocated to crops. They are usually allocated considering only the extension of the plots. Although this approach may be useful to evaluate costs where land is the main cost driver and production constraint, nevertheless this approach may lead to significant evaluation errors in managerial choice, for instance favoring complex products realized in small quantities, and disfavoring simpler products realized in large quantities. The solution for this matter is the DC and ABC. DC is an accounting practice that is oriented at charging variable costs directly to products. ABC is a methodology developed to face the increasing level of fixed costs in the modern companies. ABC “measures costs and performances ofactivities, resources and cost objects, assigns resources to activities and activities to cost objects based on their use, and recognizes causal relationships of cost drivers to activities”. This way is possible to assign overheads to products in a more accurate and precise way. Managers can have access to a deeper level of information that enables corrective actions directed to the enhancement of revenues, profitability and cost reduction.

ABC prevents some distortions related to product cost information that arise from traditional accounting systems where the overheads (indirect costs) are arbitrarily attributed, usually in proportion to an activity’s direct cost. Traditional systems create higher distortions when there are sophisticated production structures, with a wide range of products or services that require the assignment of large amount of general costs. The combination of DC and ABC enables to analyze cost supporting detailed managerial analysis based on a precise view of the cost of the single crop, considering its relative use of machinery and human resources. In agricultural and food literature there is only sparse evidence on cases of application of DC and ABC to farm management.

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