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

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.

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.

Top management attitudes towards the Activity-based costing

Top management attitudes towards the Activity-based costing

Top management is in the position of approval of the costing system used in the apportioning of the company’s overhead costs in any Sri Lankan organization. There is a constant support of top management to implementing activity-based costing system changing from the traditional volume-based costing system. Now a days accurate costing information is crucial for businesses to achieve a competitive advantage over its competitors. Currently there are experiences of the use of ABC in many different kinds of businesses. It depends on the objectives of the company and its businesses. Small businesses usually do not use ABC because of the high cost. With respect to the objectives, the ABC company works as a set of activities, calculating their costs through cause-effect relationship.

It is also implemented in types of businesslike hospitals, libraries, in large banking and telecom firms. There are improvements around activity-based costing in logistics and supply chain.Activity-based costing was mostly attentive on production companies. Manufacturing companies use activity-based costing to improve cost estimation and effective customer service. Afurtherfacet is that the result of ABC can be used for internal benchmarking of the efficiency of activities. Activity based costing is being implemented by a growing number of companies around the world. Specific ABC applications vary from organization to organization. A few organizations use ABC as their basic, ongoing cost accounting system.

In my view, companies which have high degree of complexity in their processes, which include supplementary activities prior to production (complex production), expanded product mix, combined with different types of customers and sales teams. It has also been used by departments to sort supplies vendors and standardize prices for those types of companies ABC is more suitable to effective calculation of costing.

Obligations to implement ABC in Sri Lanka

Sri Lanka has corporate target of becoming a tourist hotspot. In order to do that there are few major facts. One of them is having good restaurants. Problem with most of the Sri Lankan restaurants are; most of them does not use the correct pricing techniques. Down side of this is most of the restaurant owners set their price based on their competition. Not just for the foreign customers; even for the locals most of the quality places value their food not based on the costs on each item but dividing the total over heads for each product. One of the common example of Sri Lankan context is selling Tea at 450 a cup in most of the Five star hotels. Yet the cup of producing the tea is approximately around Rs. 50 including all the supplementary facilities.

As to the tourism reports and articles of Sri Lanka; most of the tourist does not tend to dine from the top restaurants because of the prices are ridicules. Other thing is ABC derives standards for cooking. Like world class restaurant chains ABC allows manager to get an idea about average time of production and actual cost of the product. There for they will be able to take managerial decisions to drop non performing products. Because one of the most common factors in Sri Lankan restaurants are they have little bit of everything not specialize on few things.  First and foremost is the attitude problem. Most of the Sri Lankans have very poor attitude on changing their behaviors. Knowledge is the other main issue. Even though some of the restaurant owners are literate on English they have a very little knowledge in applying and understanding statistical stuff like ABC applications.

No proper standards of cooking. So very hard to define the cost factors and the measurements.Specially not on star level restaurants measuring these factors are very hard. For example; sometimes they use the same oil to cook few times and sometimes they use it once or twice. Even the supplies also change very rapidly.

Other issue is the instability of the government. The tax rates and other various types of factors influence prices of the products. So its hard to define the cost for a particular time.

And these things has to updated once the costing changes; this pop the second problem in sri lanka where updates on rates never gets updated and once its not generating expected out comes they drop the system and use their traditional ways.