Analysis of Cost Benchmarking at JCB

THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
NEW DELHI
THESIS ON
ANALYSIS OF COST BENCHMARKING AT JCB
SUBMITTED TO:
PROF. SUMANTA SHARMA
DEAN (PROJECTS)
UNDER THE GUIDANCE OF:

PROF. VIJAY KR. BODDU
MR. YASHVIR CHAUDHARY
(INTERNAL)
(EXTERNAL)
SUBMITTED BY:
INDU
ALUMNI ID NUMBER: DS/9/11-F-289
BATCH: PGP/SS/2009-11
The Indian Institute of Planning & Management, New Delhi
ABSTRACT
Cost benchmarking is a widely used technique with a range of different applications.
Traditionally, it has often been carried out for the general information of company
managers or analysts. In such cases, data may be collected for a wide range of individual
indicators, and the conclusions drawn from such analysis are usually relatively
subjective. This type of analysis can be useful as a general management tool, and also to
draw attention to specific areas of performance where a firm might appear to be lagging
behind its competitors. These studies provide meaningful inputs to
regulators decisions, and therefore can have a potentially significant
impact on the prices that regulated firms are allowed to charge. In the
worst examples of regulatory practice, the results from benchmarking
studies have entered the regulators price cap calculations in quite
formulaic ways, while in other cases regulators have used the results of
benchmarking analysis alongside other efficiency indicators to reach a
partly subjective (but more balanced) view of future operating costs.
The core economic theory underlying the formulation of an industry
cost frontier supposes that the minimum costs a producer in that
industry can achieve, when using the most efficient technology
available, are a function of its output and the prices of its factor inputs.
The cost function is based on the behavior of a representative costminimizing producer who is able to control the amount of each input
used subject to producing a given output.
ii
ALUMNI ID NO.: DS/9/11-F-289
COMPLETION LETTER FROM EXTERNAL GUIDE
SIGNATORY LETTER
This is to certify that the thesis titled Analysis of Cost Benchmarking at JCB
prepared by Ms. Indu for the award of degree in Master of Business Administration
(MBA - PGP/SS/2009-11 batch) from Indian Institute of Planning & Management
under my guidance. It is an original piece of work based on primary as well as secondary
data.
This work is satisfactory and complete in every respect. I wish her all the success in her
future endeavor.
Yashvir Chaudhary
iii
THESIS TOPIC APPROVAL LETTER SENT OVER MAIL

From: Thesis
To: indu edu
Sent: Thu, 24 Nov 2011 11:56:21 +0530 (IST)
Subject: Thesis Topic Approval (F) SS 09-11
Dear Indu,
This is to inform that your thesis proposal on Analysis of Cost Benchmarking at JCB,
to be conducted under the guidance of Mr. Yashvir Chaudhary is hereby approved and the
topic registration id number is DS/09/11-F-289
Make it a comprehensive thesis by ensuring that all the objectives as stated by you in
your synopsis are met using appropriate research design; a thesis should aim at adding
value to the existing knowledge base.
You are required to correspond with us by sending the thesis final draft to Prof. Vijay Kr.
Boddu at [email protected] Ph.-0124-3350714 before the thesis submission.
NB:
1) A thesis would be rejected if there is any variation in the topic/title from the one
approved and registered with us.
2) The candidate needs to handwrite at least 1200 to 1500 words on the summary
of thesis at the time of viva.
Regards,
Prof .Sumanta Sharma
Dean (Projects)
IIPM
[email protected]
Phone:
+91 0124 3350701 (D)
iv
+91 0124 3350715 (Board)
APPROVED THESIS SYNOPSIS

Name:
Section:
Batch:
Phone Number:
Email Address:
Specialization:
INDU
SF-3
SS 2009-11
9991110339, 9999960737
[email protected]
FINANCE (SCM)
Desire Area of Student to do research: Finance

Title of the thesis: Analysis of Cost Benchmarking-JCB
Problem definition/Hypothesis:
Bench marking is one such innovative cost control tool which basically involves
measuring an organizations operation, products, and services against those of its
competitors.
Research Objective:
To identify the factors affecting cost management practices at JCB
To identify the different levels of cost benchmarking at JCB
To examine the process of cost benchmarking at JCB
To identify the key cost variables in cost benchmarking at JCB
To examine the effectiveness of cost benchmarking system at JCB
Introduction to the area of research:

Cost benchmarking is a method used to compare total cost of a process, product, or
manufactured good from receipt of materials to completion, test, and shipping; against
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costs incurred by other businesses who manufacture similar products. Cost benchmarking
is not limited to manufacturing either, it can be used to determine cost-competitiveness in
services sectors as well, or even software development. Basically JCB that uses a base
material or idea and produces goods from that base material or idea can compare total
cost of production. The benchmarking compares this against other companies' similar
offerings and serves to show market competitiveness and expose areas where cost
controls may be implemented in order to improve competitiveness.
Research Methodology:
1. Secondary Data:
The relevant data that would be collected through secondary research will be collected
from:
Websites through internet
Published articles in the newspapers, magazines, journals, and
Books.
2. Primary Data:
The primary data to be collected for the purpose of doing the research will be through
Personal interview and discussion with Analysts
3. Tools Used:
Websites
Published newspaper and magazine articles
Journals
Books
Company Reports
Excel Modeling
Scope of the work:

Numerous innovative cost control practices have been evolved during the last two
decades. The entire gamut of the cost accounting system has been broadened to equip and
assist managers to better serve the needs of the customers and manage the firms business
vii
processes that are used to create customer value. The vital aspect here is providing
customer value for less cost than its competitors, thus enhancing the competitiveness and
profitability of the firm. These innovative cost management tools help a firm to establish
a competitive advantage by providing more customer value for less cost than its
competitors. The three strategic areas that give the firm the extra competitive advantage
over its rivals are the Time Based Performance, Quality and Cost Control. So this
research work will present the cost management process of JCB and assist them about
how to become more competitive in the current market place by implementing more
effective cost benchmarking process.
Justification of Choosing the topic:

Cost and productivity, such as overheads and labour efficiency, total cost per unit, or per
ton, cost related to inventories and supply chain, marketing cost are some of the key
variables which can be bench marked with the market leaders and effective results can be
produced. It forces an organization to set goals and objective based on external reality. It
is neither a panacea nor a strategy but it is an important tool which will bring
organizational efficiency and effectiveness if prudently used.
Summer training details

I did my internship in Unitech Ltd. is in the field of infrastructure and real estate
development. It comprises of group of 352 corporate and 22 joint ventures. Its estimates
capitalization rates in the relevant micro market for the subject properties are in the range
of 9.5% - 11%. Its wacc rate assumed 17%. I joined this company as a fresher because
before this I have no idea how to do work an organization. I worked in finance
department under Miss NEHA MITTAL (financial manager of finance department) I
worked over on bank reconciliation statement, prepared sales deeds statement and
prepare a project report on several projects. Its recently launched projects are
Bhubaneshwar (kolkatta), Anthea floors (gurgaon), Birch court(Chennai), Gardens
viii
(Mohali)etc. I submitted my report on COMPARATIVE ANALYSIS STUDY OF HDIL

(MUMBAI), DLF AND UNITECH LTD.
Details of external Guide:

Name:
YASHVIR CHAUDHARY
Contact no.- 9540099700
Qualification: Mechanical Eng., B.TECH, MBA

Company:
JCB
ix
ACKNOWLEDGEMENT
It is well-established fact that behind every achievement lays an unfathomable sea of

gratitude to those who have extended their support and without whom the project would
never have come into existence.
I express my gratitude to Indian Institute of Planning & Management, New Delhi for
providing me an opportunity to work on this thesis as a part of the curriculum.
Also, I express my gratitude to Prof. Sumanta Sharma and Prof. Vijay Kr. Boddu on
the completion of my project and I am very thankful to Mr. Yashvir Chaudhary from
my external mentor for his excellent guidance and kind cooperation throughout the thesis
work.
CONTENT
ABSTRACT.................................................................................................ii
COMPLETION LETTER FROM EXTERNAL GUIDE...........................iii
THESIS TOPIC APPROVAL LETTER SENT OVER MAIL....................iv
APPROVED THESIS SYNOPSIS.............................................................v
ACKNOWLEDGMENT.............................................................................ix
1.
INTRODUCTION ................................................................................................1
2.
COMPANY PROFILE........................................................................................17
3.
RESEARCH OBJECTIVE & METHODOLOGY..............................................33
4.
LITERATURE REVIEW....................................................................................35
5.
FINDING AND ANALYSIS...............................................................................52
6.
RECOMMENDATION.......................................................................................59
7.
CONCLUSION...................................................................................................60
8.
BIBLIOGRAPHY...............................................................................................61
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INTRODUCTION
Indian Construction Equipment Sector:
The Indian Construction Equipment sector has an estimated market size of US$ 2.4 2.6
billion for the year 2007. The industry has been growing due to the large investments
made by the Government and the private sector infrastructure developments. The
prospects of the construction equipment industry look attractive with a projected
investment of US$ 320 billion in the infrastructure sector over the next few years. The
Indian market is catered by about 200 domestic manufacturers (small, medium & large).
Though the Indian construction equipment industry is a fraction of the global market,
whose size is over US$ 75 billion, it has been growing at an average of 30 per cent
annually compared to the global growth of 5 per cent. India is one among the top 10
markets for construction equipment and is one of the key international market. The
growth in this industry is expected to be primarily due to investments in infrastructure,
investments by the government in the form of external borrowings and internal accruals
by Public-Private-Partnerships (PPP) model. Indian firms are strengthening their existing
operations for catering to the growing domestic demand and are also planning to expand
to tap overseas markets. At the same time international majors have ambitious plans for
India.
Sector Composition and Size:
The following is the sector breakup of the construction equipment industry in India as of
2009. Product consumption constitutes the bulk of the segment with around 56 per cent
while the unorganized sector contributes to around 15 per cent. Unorganized players are
more prevalent in the relatively less technology intensive material handling, material
preparation and concrete equipment segments.
The imports market is estimated around US$ 375 million. Of these, the earthmoving,
excavation and hauling equipment categories command around 25 per cent. Imported
used equipments, which include high end hydraulic mobile cranes, excavators, motor
graders, vibratory compactors comprise a negligible 0.4 per cent of the total construction
equipment market.
The exports of Indian construction equipment industry were estimated at US$ 35 million
in 2009-10. The growth in exports in the period 2005-06 to 2009-10 was around 30 per
cent. The potential exports market for construction equipment from India is projected to
be around US$ 100-120 million by 2013. Spare parts revenues range anywhere from 20
29 per cent of the total sales for representative companies and are predominant in
tunneling and drilling equipments. Services revenues have been higher for global players
at around 1120 per cent in comparison to 28 per cent of Indian players. The
construction equipment industry in India has more than 200 players; however, the top 6
players occupy about 60 per cent of the market. The following are players and their
contribution to the Indian construction equipment industry.
Industry Structure:
India produces the entire range of construction equipment for different applications. The
industry can be broadly classified under the following categories:
Earthmoving equipment
Road construction equipment
Material handling equipment
Tunneling and Drilling equipment
Construction vehicles
The following is the industry structure and the categories involved in the construction
equipment industry: In terms of size, earthmoving equipment constitutes the biggest
segment, accounting for nearly 57 per cent of the overall equipment market. Material
Handling equipment and tunneling and drilling equipment follow with 13 per cent and 12
per cent respectively. The performance of each segment is discussed separately under
various heads.
Earthmoving Equipments:
The earthmoving equipment market in India is estimated at about US$ 1.4 billion. The
predominant sub-segment in this is excavators, which account for just over half the
market. Backhoes account for 26 per cent and loaders for another 5 per cent share. The
prime driver for earthmoving equipment is mining activities and construction industry.
Within these industries, the key demand drivers going forward are likely to be road
construction, urban infrastructure, irrigation, real estate. construction and mining.
Earthmoving Equipment Segment

Total Market Size ~ US$ 1.4 billion
Excavators:
Excavators are extensively used in many roles such as digging of trenches and
foundations, demolition, general grading/landscaping, heavy lifting (e.g. lifting and
placing of large concrete pipes), river dredging, mining and brush cutting with hydraulic
attachments. Excavators come in a range of capacities and are usually classified on the
basis of tonnage. The lower end excavators, referred to as mini excavators, find greater
usage in urban infrastructure development and road development. The heavier duty
excavators are used in mining and heavy construction. In India, the level of technology of
the equipment manufactured is at par with international standards with some exceptions
being the limited usage of electronic controls and hydraulic systems and engines adhering
to the latest emission norms. The excavator market in India was around US$ 733 million
in FY09 with a total of about 4455 units being sold. There is a sizeable market for used
equipment as well. Excavators have registered a 30 per cent CAGR (Compounded
Annual Growth Rate) for the past four years. Given the long term nature of Indias
infrastructure development plans, similar growth rate is expected in future as well. High
end excavators incorporating modern technology are witnessing faster growth compared
to the traditional low end excavators. In terms of tonnage, 618 tonne excavators have
grown at a CAGR of 9 per cent while 1822 tonne excavators have registered a growth of
23 per cent CAGR during the period of FY04-10. The 22-50 tonnes excavators have
seen a CAGR of 35 per cent and over 50 tonnes have registered 19 per cent CAGR in the
same period. Increase in the sales of smaller sized excavators is largely driven by
irrigation projects. Increased privatization of mining and capacity augmentation in
cement industry has propelled the growth for larger excavators. The key players in this
sector are Telcon, L&T - Komatsu, Volvo, CAT and JCB. Telcon is the market leader with
about 50 per cent of the market.
New Entrants Gaining Share:
A product range catering to the entire basket of equipment requirement of the customer is
one of the differentiators in the market place. Indian players have the advantage of long
experience in the market, leading to deep relationships with buyers, well spread out
service networks and a deep understanding of the customers current and emerging needs.
Multinationals that are relatively new entrants have strengths in the areas of technology,
presence across the spectrum of equipment and providing end-to-end solutions. New
technology enables better quality of service, low cost of ownership (low fuel
consumption, less downtime, ease of maintenance, etc.), better resale value and reliability
even in case of overuse or abuse of the equipment. Presence across the spectrum enables
the firm to present a one-stop shop to customers. End-to-end solutions to customers help
in retaining customers over the entire equipment usage cycle, right from financing
through service and maintenance, till resale / disposal. Based on these strengths, over the
last few years, relatively new entrants into the Indian market have been gaining share at
the expense of the traditional market leaders.
Backhoe:
The backhoe loader, consisting of a tractor, front shovel/bucket and small backhoe in the
rear is a versatile piece of equipment and is therefore often the only piece of heavy
equipment brought onto small to medium landscaping projects. A backhoe can duplicate
the work of a bulldozer, front end loader and excavator. The backhoe loader also has the
advantage of being driven directly to the different job areas as opposed to other
specialized machines which need to be towed into the site and require external power
sources. India is the second largest market for backhoe loaders in the world with a market
size of approximately US$ 358 million. The market has been growing at a rate of close to
37 per cent CAGR over last four years. Going ahead growth is likely to be at least 11 per
cent CAGR over the next few years. Most industry players however expect much faster
growth (around 30-40 per cent) in the near term. JCB India is the leader in this segment
with a share of over 70 per cent. Other players include Telcon, L&T, Caterpillar and
Terex. While technology plays a key role especially for lowering operating costs by
making the machine more fuel efficient, it is not perceived to be as important for
backhoes as it is for excavators. With more players and increased competition, price
competition may increase. The drivers for this market have been the housing and urban
construction. Backhoes are used for all construction applications and hence have a very
high utilization for renters. Backhoes are perhaps the only market in India amongst
construction equipment that have reached a stage of maturity and scale where exports
could be considered.
Loaders:
Loaders are used mainly for uploading materials into trucks, laying pipes, clearing
rubble, and digging. The flexibility of usage is low as compared to a backhoe and loaders
are largely used as complimentary products for material re-handling in construction and
mining applications. The total market for wheeled loaders was approximately US$ 64
million in FY06 with a total of about 1321 units being sold and has been growing at a
CAGR of about 41 per cent over the last 4 years. The growth is expected to continue at
10 per cent CAGR over the next few years. As in the case of backhoes, faster growth of
about 20-30 per cent is expected in the near term. Unlike excavators, the growth in
loaders is greater in the lower capacity categories (<10T). Key players in the Loaders
market are Caterpillar (~50 per cent share), JCB and Telcon with L&T Komatsu and
Volvo being players with a relatively smaller presence. In the high capacity loaders
market (>15T), Volvo is a significant player. Most of the customers for loaders are first
time buyers and this is the reason for huge sales of lower end loaders. Just as it is for
excavators, a complete range of products and comprehensive maintenance and service
support are becoming the critical success factors for players in the industry. The demand
of loaders is from increased global demand for iron ore mining activities in the country.
Construction equipment & Vehicles:
Equipment in this category typically find multi purpose application for various
construction activities. Some of the construction equipment used are road rollers,
concrete equipment, mixers, hot plant mixers, stone crushers, compactors, pavers,
pneumatic tyre rollers (PTR), dumpers, tippers, trailers, and others. Compactors account
for majority of the market share of road construction equipment. There are two main
types of compactors - Tandem Vibratory Rollers (TVR) and soil compactors. These are
used for compaction of asphalt and soil respectively primarily in road construction. The
road construction equipment market share was around US$ 175 million in FY 06. Of
this, the compactor market (TVR and Soil Compactors) was about US$ 48 million, with a
total of about 1076 units being sold (516 TVR and 560 soil compactors). Reconditioned
equipment account for about 5 10 per cent of this segment The segment has seen erratic
growth over the last 3 years owing largely to delays in the road infrastructure
development plans of the Government. However, the CAGR over the last 3 years has
been healthy at 20 per cent. Going ahead, growth is likely to be at least 11 per cent
CAGR over the long term. Demand for road construction equipment will be driven not
only by road construction activities but also by irrigation, power projects and other
construction activities. Some of the major players in this sector are Ingersoll Rand (IR),
Escorts Construction Equipment Limited (ECEL), L&T and Greaves. These companies
largely compete on price though there are differentiators around service support. The
market is now led by Ingersoll Rand with around 37 per cent market share in the TVR
and soil compactors market. Both ECEL and L&T account for about 22 per cent each in
the TVR and soil compactor market. Greaves occupies fourth position with a share of 17
per cent a large part of which it has gained in the last year (increase in share from 9-17
per cent between FY09 and FY10) mainly at the expense of IR. Tunneling & Drilling
equipment are primarily used for mining, irrigation, construction (road, ports, airports,
railways, power, etc.), urban infrastructure, and pipeline infrastructure. The product range
in this category includes Rotary / DTH drilling, hammer track drill, boring equipment,
and demolition equipment. Bharat Earthmovers Limited (BEML) & Caterpillar lead the
market of construction vehicles, consisting primarily of dumpers & dozers. The
competitive advantage of construction equipment lies on technological superiority and a
wide product portfolio. Its also important to maintain strong relationships with the large,
organized buyers.
Material Handling Equipment:
The chart below explains the different material handling equipment and their market
share. Pick and carry cranes is the largest segment with 27 per cent share of the US$ 325
million material handling equipment market. Slew cranes, crawler cranes and tower
cranes together account for another 24 per cent. Forklifts have 12 per cent share.
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Pick & Carry Cranes:

Pick and Carry cranes provide wide range of applications and high cost economies in
material handling requirements. Some of the typical uses include loading, unloading,
moving, shifting and erecting material. The pick-n-carry crane segment in India has an
estimated market size of US$ 87 million (3698 units), and these cranes comprise 27 per
cent of the overall material handling market and over 50 per cent of the cranes market.
The market has grown at a CAGR of 72 per cent in volume terms in the last 3 years.
Going forward, the growth rate is expected to be in the range of 15-20 per cent over the
next few years. The key drivers are the construction and industrial sectors. Within the
construction sector the key demand driver is urban infrastructure (expected investment
growth of 13 per cent annually). Within industrial applications, the key demand drivers
are steel and power industries (growing at around 9 per cent annually). The major players
in this segment are ECEL and Actions Construction Equipment (ACE). While ECEL has
been the traditional leader in this segment, ACE has been gaining share. A third player
Omega has been able to capture 2.5 per cent of the market within one year of
commencing production. The barriers of entry in this segment are low. The first movers
have the added advantage of established sales, service and distribution network along
with an existing component supplier. Other cranes prevalent in India primarily consist of
slew cranes, crawler cranes and tower cranes. These are higher value, more sophisticated
cranes than pick-n-carry cranes and are typically used for heavier duty work. The market
for slew cranes is about US$ 35 million (300 numbers) with about US$ 13 million (180
11
numbers) of this being accounted for by imported used equipment. Within slew cranes,
yard cranes are the most prominent, comprising 65 per cent of all new slew cranes. The
crawler cranes market is about US$ 25 million (210 numbers) with imported used cranes
comprising about US$ 9.5 million (110 numbers). Tower cranes are about US$ 15.6
million (175 numbers). In volume terms other cranes comprise about 16 per cent of the
overall cranes market in India, but in value terms these cranes account for almost 47 per
cent of the market. While slew cranes have witnessed a CAGR of 34 per cent over the
last 2 years, tower cranes have grown at 71 per cent CAGR in the same period. Industry
sources indicate a growth rate of between 15-20 per cent over the next few years.
Demand for other cranes is driven primarily by the construction and industrial sectors.
Within industrial applications, the key demand drivers going forward are likely to be the
power, refinery and mining sectors. With increasing average scale of infrastructure and
construction projects, the growth rate of slew (specifically yard/rough terrain) and tower
cranes is likely to surpass the average growth rate of the overall cranes segment. With
improved road networks by 2008-09, demand for truck mounted cranes may also witness
a spike. In the slew cranes segment, used imports dominate the market, with Tractors
India Limited (TIL) being the market largest domestic player. TIL and ECEL have a
market share of around 32 per cent and 6 per cent in terms of volumes. Telcon is the sole
player in the crawler cranes segment with a share of approximately 50 per cent by
volume (balance is accounted for by used imports). Shirke Potain is the market leader in
the Tower crane category with 50 per cent market share followed by ACE at 25 per cent
market share. ACE plans to widen its product portfolio in the cranes segment through
manufacture of Truck Mounted and Tower cranes. This segment has healthy growth
prospects.
Forklifts:
Fork lifts are low tonnage vehicles used to transport materials stored in pallets, within
limited spaces. Most forklifts are in the 1 tonne5 tonnes range, though equipment up to
20 tonne are available. The flexibility and speed these equipment offer make them ideal
for repetitive material handling tasks especially in restricted areas like warehouses and
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yards. There are 3 types of forklifts based on fuel input - Diesel, Liquefied Petroleum Gas
(LPG) and Battery. Each variant finds application in different industries based on the load
factor determined by the power inputs, pollution etc. The current market is approximately
of 2150 units per annum for forklifts with a market size of approximately US$ 38 million.
The segment has been on a 20 per cent growth trajectory year-on-year and is estimated to
grow at a CAGR between 10-20 per cent. Diesel powered forklifts comprise a bulk of the
market size at 83 per cent and are likely to drive growth going forward. Demand for
forklifts will be driven primarily by new capacity creation and increased automation in
the manufacturing and logistics (warehousing) sectors. Forklifts contribute to making the
end user industry organized and less labour intensive (in material handling).It has also
increased the levels of palletization and containerisation. Godrej and Voltas are the two
major players having around 80 per cent market share, with Godrej having 48 per cent
share. The forklifts market is highly price sensitive. Technology is presently not seen as a
differentiator, but with the end user industries becoming more organised and competitive,
it would become increasingly important.
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14
Key Growth Drivers & User Industries:

The construction equipment industry is primarily driven by three key sectors:
Construction
Mining
Manufacturing
Construction Investment:
The Indian construction industry is worth US$ 145 billion. The sector represents the
second largest economic activity after agriculture and employs around 18 million people.
Construction investments account for 11 per cent of GDP and around 50 per cent of the
gross fixed capital formation, and are expected to grow to the tune of US$ 182 billion at a
CAGR of 8 per cent over the years of FY 2008-2010. Construction equipment accounts
for around 524 per cent of the total cost incurred in any construction project. The
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construction industry is a primary demand driver for earthmoving and road construction
equipment. Increasing mechanization of industry and construction facilitates greater
penetration of construction equipment. Recent Government policies around tax benefits
for infrastructure ventures have boosted equipment usage. Construction investment is
composed of three components - infrastructure investment, real estate construction
investment and industrial construction investment. Each of these components is discussed
separately in the following sections.
Infrastructure Investment:
Investments in infrastructure can be classified under investments for roads, ports,
airports, railways, pipelines, irrigation and waterways and urban infrastructure
Roads:
Significant investments are expected to be made in this sector over the next 5 years. The
National Highway Authority of India (NHAI) has drawn up detailed plans for highway
development as part of the National Highway Development Program (NHDP). The total
potential orders are around US$ 55 billion over the next five years. While the initial
impetus has been given by the investment in the Golden Quadrilateral (GQ) and NorthEast-West-South (NEWS) corridor, once these arterial roads are completed, further
growth will be fuelled by the second level of roads
16
viz. state highways and rural roads. Further, the maintenance of these newly developed
roads in addition to the increased maintenance expenditure on existing roads will fuel
further growth. Construction equipment constitutes around 22 per cent of the total
investment in road construction.
Ports:
The projected investment for improving major and minor ports in India is around US$ 18
billion over the next four to six years. A major portion of the investment for improving
the major ports is expected to come from private players. Privatization has been regarded
as one of the key avenues for increasing investments in this segment. Another pertinent
factor is the expected growth in the cargo handled at all Indian ports, which is expected to
grow at a CAGR of 8 per cent. These developments would drive demand for material
handling equipment such as cranes for handling cargo and construction equipment for
infrastructure development in the ports.
Airports:
Domestic passenger and international inbound and outbound traffic is expected to
increase with increasing investments and trade activity necessitating improvement in
infrastructure at airports. The estimated investment for developing airports is around US$
9 billion over the next 3 to 4 years of which the estimated cost for upgrading the major
airports in the four metros is around US$ 2.2 billion. Privatization of a few of these
airports is expected to attract bulk of the investments.
Railways:
The investment in this segment is expected to be focused on relaying of tracks and
improving the existing network. The Government has awarded US$ 820 billion of
projects to private firms.
Pipelines:
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Gas discoveries are the key drivers for laying pipelines. An estimated 18,671 Km. of
domestic oil & gas pipeline network is expected to be laid between 2004 and2008.
Irrigation and water supply:
After road, irrigation is one of the key sectors expected to contribute significantly to the
total infrastructure investment over the next 3 years. Estimated US$ 10.1 billion of
investment is expected in irrigation and water supply projects over the period 2006-10.
Over 300 new irrigation projects have been taken up or are in the process of being taken
up by the Government of India as part of the 10th plan to increase the irrigation potential.
A total of US$ 208 million has been released under the program during the current year,
in addition to US$ 1 billion allotted for repair, renovation and restoration of 20,000 water
bodies with a command area of 1.47 million hectares.
Increased emphasis by some state governments such as Gujarat and Andhra Pradesh on
irrigation and water supply projects is expected to drive growth. Over the next 5 years the
Andhra Pradesh government alone has envisaged an investment of US$ 8.8 billion. 60
per cent of the total investment on irrigation is on construction and around 21 per cent of
this construction investment is on construction equipment. The total investment planned
in irrigation are as follows:
Urban Infrastructure:
Development of urban infrastructure has been a priority area for the Government of India,
and the Government has been encouraging private participation in this segment.
Investment in urban infrastructure is expected to double from US$ 5.4 billion in 2005 to
nearly US$ 10.9 billion in 2010. The Central Public Health and Environmental
Engineering Organisation (CPHEEO) has estimated the requirement of funds for 100 per
cent coverage of the urban population under safe water supply and sanitation services by
the year 2021 at US$ 41.2 billon. Estimates by Rail India Technical and Economic
18
Services (RITES) indicate that the amount required for urban transport infrastructure
investment in cities with population 100,000 or more during the next 20 years would be
of the order of US$ 49.3 billion. To catalyse development of urban infrastructure, 100 per
cent FDI under the automatic route has been permitted in housing and urban
infrastructure projects. An estimated US$ 13.8 billion of investments is expected in the
next 5 years in mass road transport systems, drinking water supply, sewage treatments,
etc. There would be a need for removing huge infrastructure bottlenecks that impact the
growth of large Indian cities. The investments are expected through Government and
private participation. The estimated CAGR over the next 3 years is 12.9 per cent. These
investments would lead to demand for backhoe loaders, excavators and cranes.
Real Estate Construction Investment:
The segments which come under real estate construction include residential construction;
commercial construction and retail construction. The real estate segment is expected to
contribute around 61 per cent of total investments in construction over the next 3 years.
Over 90 per cent of the real estate developed is residential and the rest comprises of
commercial and retail. It is estimated that India needs another 16 billon square feet of
construction by 2010. These include 15.9 billion square feet of residential real estate for a
projected 17 million new houses, 160 million square feet of commercial real estate and
212 million square feet of retail real estate.
19
COMPANY PROFILE
J.C. Bamford:
"Our mission is to grow our company by providing innovative, strong and high
performance products and solutions to meet our global customers' needs."
JCB Bam ford Excavators Limited is global construction, demolition and agricultural
equipment company headquartered in Rochester, United Kingdom. It is the world's thirdlargest construction equipment manufacturer. It produces over 300 types of machines,
including diggers ("Backhoes"), excavators, tractors and diesel engines. It has 18
factories across Asia, Europe, North America and South America and its products are
sold in over 150 countries. It is a family-owned company and was founded in 1945 by J.
C. Bam ford, after whom it is named. In the UK "JCB" is often used colloquially as
a generic description for mechanical diggers and excavators and now appears in
the Oxford English Dictionary, although it is still held as a trademark. Over the years, the
companys pioneering spirit and reputation has led to huge success: JCB now leads the
world in backhoe loaders and telescopic handlers and manufactures a range of over 300
machines with some of the finest engineering facilities in the world. With a range that
covers compact products, including mini excavators and skid steer loaders, and midrange machines such as the iconic backhoe loader and the Load all telescopic handler.
JCB also produces tracked and wheeled excavators articulated dump trucks and wheeled
loading shovels. As well as the innovative Fastback tractor, the record breaking Diesel ax
engine, light compaction equipment and a range of consumer and power products. All of
these products are designed with the needs of a diverse range of industries in mind
waste and recycling, ports and airports, forestry, quarrying, aggregates, road building,
demolition, rail and muck shifting, to name but a few. JCB has also made significant
inroads into defense, providing high-speed excavators and other specialist products.
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History:
20th Century:
The company was founded by Joseph Cyril Bam ford in October 194 in Uttoxeter,
Staffordshire, England. He rented a lock-up garage 12 feet by 15 feet. In it, using a
welding set which he bought second-hand for 1 from English Electric, he made his first
vehicle, a tipping trailer from war-surplus materials. The trailer's sides and floor were
made from steel sheet that had been part of air-raid shelters. On the same day as his son
Anthony was born he sold the trailer at a nearby market for 45 (plus a part-exchanged
farm cart) and at once made another trailer. At one time he made vehicles in Eckersleys
coal yard in Udometer. The first trailer and the welding set have been preserved: see
image gallery.
In 1948 there were six people working for Bam fords company, and it made the
first hydraulic tipping trailer in Europe. In 1950, he moved to an old cheese factory
in Rochester, still employing six. Then, a year later, he began painting his products
yellow. In 1953, the first backhoe loader was launched, and the JCB logo appeared for the
first time. It was designed by Derby media and advertising designer Leslie Smith. In
1957, the firm launched the "hydra-digger", incorporating the excavator and the major
loader as a single all-purpose tool which was useful for both the agricultural as well as
construction industry, which JCB grew with. In 1960, JCBs hydraulic tractors entered
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the North American market, proving a long lasting success. JCB became, and still is, the
brand leader in the world. By 1964 JCB had sold over 3,000 3C backhoe loaders. The
next year, the first 360 degree excavator was introduced, the JCB.
In 1969, Joseph Bam ford was awarded the CBE for Services to Export. In 1975 he
retired. In 1978, the Load all machine was introduced. The next year, JCB started its
operation in India. In 1991, the firm entered a joint venture with Sumitomo of Japan to
produce excavators, which ended in 1998. Two years later, a JCB factory was completed
in Pooler near Savannah, Georgia in the USA, and the next year a factory was opened
in Brazil.
21st century:
In 2001, Joseph Cyril Bam ford died aged 84. In his later life he was a tax exile.
Production of the first engine designed and manufactured by JCB, the JCB444 diesel
engine, started in 2004. In 2005, for the first time in nearly forty years, JCB bought a
company, purchasing the German equipment firm Miramax. In the same year, JCB
opened a new factory inching at Pudding close to Shanghai, and by the next year, the firm
had 4000 employees, twice what it had in 1975. Planning of a new 40 million pound
JCB Heavy Products site began in 2007, and by the next year, the firm began to move
from its old site in Pinfold Street in Uttoxeter to the new site beside the A50. The Pinfold
Street site was demolished in 2009. During that year, JCB announced it was to make
India its largest manufacturing hub. Its factory at Aligarh in Haryana was to be become
22
the worlds largest backhoe loader manufacturing facility. The firm shed 2,000 jobs
during the recession, but in 2010 it announced it was recruiting up to 200 new workers.
Operations:
JCB has 18 factories in the UK, Germany North and South America, India and
China. The company employs some 7,000 people on four continents and sells its products
in 150 countries through 1500 dealer depot locations. The company has a range of more
than 300 products. The firm is headquartered in Rochester, United Kingdom, which is
also the production site for Backhoe Loaders and Telescopic 'Load all' handlers. It has
other factories in nearby Chile, Staffordshire, Rangeley, Uttoxeter, and Fosston in
Derbyshire
and Wareham in
North
Wales.
Its
Indian
factories
are
based
in Aligarh (Haryana) and Pane, its US factory is in Pooler, Georgia, its Brazilian factory
in Sorocaba, and its Chinese factory was completed in 2005 in Pudding near Shanghai.
JCB al Gaterslebenso owns Miramax, a German compaction equipment company based
in. The company has also licensed its name and image to a line of consumer power tools,
manufactured by Alba PLC.
Products:
Many of the vehicles produced by JCB are variants of the backhoe loader,
including tracked or wheeled variants, mini and large versions and other variations for
carrying and moving items, for example fork lift vehicles and telescopic handlers for
moving materials to the upper floors of a building site. Wheeled loading shovels and
articulated dump trucks are also produced.
Excavator:
Tracked 360 excavators ranging from the JZ70 (7 tone zero tail swing excavator) to the
JS460 (46 tone tracked excavator). In 2008 at Con expo JCB revealed a new top range
JS520 which included the new style paintjob with rams painted black (nadimwilson c).
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Wheeled 360 excavators ranging from the JS130W to the JS200W. Machines can be
produced with either moonbeam or a triple articulated boom.
Tractors:
JCB has also made its name in the tractor world by producing one of the first such
machines that features proper suspension and is capable of traveling at speed on roads.
The JCB Fastback entered production in 1990. Prior to this design, the suspension was
difficult because of the fixed-height connections required to farm machinery, and tractors
were notoriously slow on the roads. Dependent on the model the Fastback can travel at
50 km/h, 65 km/h or 75 km/h (40 mph). The machine was featured on the BBC television
programmed Tomorrow's World when it first appeared due to its innovative design.
From 2006 the company also produces a range of compact tractors designed for groundscare, horticultural, and light agricultural duties.
Military vehicles:
JCB also makes a range of military vehicles, which also concentrate on load-handling and
excavation. These include the JCB HMEE.
JCB Diesel ax:
24
In April 2006, JCB announced that they were developing a Diesel-powered Land Speed
Record vehicle known as the 'JCB Diesel ax'. The car is powered by two specially
modified JCB 444 diesel power plants that use a two-stage turbocharger to generate
750 bop, one engine driving the front wheels and the other the rear wheels. On August
22, 2006 the Diesel ax, driven by Andy Green broke the diesel engine land speed record,
attaining a speed of 328.767 mph (529 km/h). The following day, the record was again
broken, this time with a speed of 350.092 mph (563.418 km/h).
Marketing:
In Russian-language text on JCBs Russian website, their name and trade names of their
products are in the Roman alphabet.
Logo:
The JCB logo dates from 1953; from 1960 the company typewriters were given an extra
key to render it accurately. The company has mainly advertised in the trade publications
and their advertisements have won many awards, particularly for photography. The logo
was designed by Leslie Smith, and is off-set at 18 degrees from the horizontal and 22
degrees from the vertical because that is the angle which Sir Anthony Bam ford liked it.
Display team:
To demonstrate his faith in the hydraulic failsafe on JCB machines (which lock the arms
in the event of a loss of hydraulic pressure, preventing them from crashing to the ground),
Joe Cyril Bam ford arranged to have several backhoes raise themselves up on their arms,
and drove his car beneath them. This has since developed into a world famous
demonstration of the versatility of the backhoe configuration. The JCB display team (JCB
Dancing Diggers) tour agricultural shows and produce videos, showing some of the
unusual ways in which such vehicles can support themselves or maneuver. For example,
it is quite common for drivers to support the vehicle on both buckets, either for turning on
the spot without damaging ground, or for spinning the tracks in a puddle to clean them.
25
The display team expanded this concept into a sort of vehicle gymnastics. The drivers are
members of Jobs demonstration team, who visit prospective customers and demonstrate
machines on the customer's property in order to prove the machine's suitability for the
task at hand.
In Popular Culture:
In 1958 the singer Lenny Green had a song called JCB and Me.
In UK version of the Teletubbies one of the live-action visual 5-minute segments

(seen from a Teletubby belly) featured number counting involving vehicles in
lines. A row of Jobs are seen in line, their hydraulics operated as if they are
'dancing'.
JCB is gaining international notoriety of sorts after being prominently featured in

the song "JCB" by the music group Miscopy, which has achieved UK Number
One status. The song is about a boy who goes to work with his father for the day.
A JCB (not talking) named Jacob appears in volume of The Bromeliad (alias
Names) series by Terry Pritchett.
The Lego Technical range featured a scale-model of the JCB backhoe complete
with working hydraulics systems and many other features of the original.
In series 9 of Top Gear Jeremy Clarkson bought a JCB Fastback 8250 for a
challenge involving "growing your own petrol". Jeremy Clarkson, James May,
and Richard Hammond all had to reverse their vehicles around the Top Gear car
park.
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The song 'Cavity' by the UK group The Mac Lads contains the line "He's filled
more holes than a JCB" to (rather crudely) demonstrate the sexual prowess of the
band-member being sung about.
One digger stars in the music video Sunday Morning - 1985 hit song by The
Bolshevik. Three band members are standing on this 360-degree excavator
while Trevor Tanner (the singer) is lying on the sofa.
Success through responsibility:

As a responsible company, JCB has the greatest respect for the environment and its
employees, as these were the foundations of our success over the past 65 years.
The world is changing and we have to realign our responsibilities accordingly we need
to respond to the threat of climate change, we must improve workplace health and safety
to an even higher level and we must rise to the challenge of rebuilding global prosperity
in the wake of the financial crisis. As we emerge from recession, we must increase our
focus on improving carbon performance, health and safety and on how we help to
generate wealth from the products we provide to customers Recent successes include a
reduction of 23% in our direct carbon emissions since 2007, a 50% drop in our accident
potential rate and a 16% improvement in fuel consumption from our new Backhoe
Loader model. Under the banner of JCB Sustainable Innovation, we are committed to
sharing our progress with our stakeholders. We will collaborate with the worlds leading
companies, governments and individuals to help achieve our goals, as it is only through
co-operation that we will help to deliver collective prosperity and a sustainable society
for future generations.
Sustainability Vision:
At JCB we design and manufacture construction, agricultural and material handling
equipment, for use in both established and emerging markets. As such we embrace the
27
challenge of helping to deliver a future based upon environmental, social and economic
sustainability. Our aim is to develop products and services that delight the customer and
exceed their expectations. In doing this, we recognize the potential impact we have on:
The welfare of the communities in which we operate
The health and safety of our employees
The environmental footprint we generate
We do everything that is reasonable and practicable to optimize the benefits and minimize
the negative effects of these. Our future prosperity depends not only in providing quality
products and services, but understanding that quality means:
Ensuring that our employees and the communities in which we operate are better
off because of us
Tackling workplace and product safety responsibly
Taking the need to operate within environmental limits seriously
We are therefore, committed to continuous improvement in how we design and

manufacture our products and services to ensure that our contribution to a sustainable
future is realized.
Our Standards:
To demonstrate our commitment to the environment, to our workers and to the wider
community we work hard to achieve international standards and awards. Our factories in
the UK, India and the USA are accredited to ISO 14001 Environmental Management
System with the UK and India also being accredited to OHSAS 18001 Health and Safety
management System. All products are built to ISO 9001 Quality Standard. In 2009, JCB
India received the Golden Peacock Award and JCB World Parts Centre was honoured
with a Rosa Gold Award, both for achievements in Health and Safety. We have also been
28
awarded The Carbon Trust Standard for our commitment to and achievements in reducing
direct carbon emissions from our factories in the UK.
Employee Relations:
People have made JCB the company it is today. A positive attitude and commitment to
our employees is essential in maintaining our success and attracting world class talent.
As an equal opportunities employer, the welfare and rights of all current and potential
employees is paramount. This is shown through our relationship with the Trade Unions
and Employee Representatives which has developed over many years. We also provide a
wide range of attractive Employee Benefits incorporating profit sharing, pensions, private
medical insurance and long-term disability schemes. Staff development is central in
ensuring world class products and services, as well as helping attract and retain
29
employees. We encourage our workforce to improve their performance through training

and development programs.
Key Performance Indicators:
Supply Chain:
Governance:
With 75% of our suppliers having ISO 9001 accreditation and over 30% with TS16949, it
is our aim is to achieve a similar level of supplier compliance with ISO 14001 and
OHSAS 18001 (or equivalent). With over 40% having an Environmental and H&S
Management System, our target is to increase this by 10% year on year.
Carbon Management:
30
Looking at the greenhouse gas impact of our value chain, it soon becomes clear that the
embedded carbon from our supply chain compared with transport and manufacturing, is
one of our biggest challenges. As a responsible company we have started to work with
the Carbon Trust with the aim of understanding the impact of the supply chain and
develop a strategy to realize carbon reductions across it. Transport and logistics also
have a significant part to play. This is currently being looked at through the JCB logistics
strategy which will bring transport under our direct control which will result in increased
usage of green transport corridors, ensuring carriers have a recognized environmental and
H&S management system and that the most efficient engines and driver techniques are
being used.
Waste and Packaging Reduction:
With an aim to be zero landfill by 2012, waste reduction and returnable packaging has
huge part to play in reaching this. At JCB Power Systems, which has been Zero Landfill
since 2008, returnable packaging has been part of its culture from when its doors opened
in 2004. Managing its supply chain to drive a zero landfill way of life, JCB Power
Systems returns nearly 90% of all packaging to the supplier for re-use. The rest is
recycled or incinerated for energy.
CB Sustainable Innovation is a holistic approach to managing every aspect of our
business, from our supply chain, to our manufacturing footprint to the impact of our
machines in use and how we interact with our employees and communities around the
world.
31
Carbon Impact of our Supply Chain
Power Systems Waste
A Global Manufacturer:
The JCB name is synonymous worldwide with world-class quality: all our products are
designed and built for hard work and reliability. Each of our factories - whether in the
UK, Brazil, North America, India or Germany - uses only the most advanced technology,
components and manufacturing processes, whilst our meticulous design, rigorous testing,
and best-practice lean manufacturing techniques ensure that wherever they are in the
world, our customers will receive the same world-class JCB product quality.
Also expanding in India, where manufacturing started at its Delhi plant in 1979, JCB has
32
constructed a second factory in Pane. 1,000 miles from JCB India's Delhi factory it is
positioned strategically close to the port of Mumbai.
Lean manufacturing processes in all factories.
World leader in innovation, research & development.
Worldwide common standards & procedures.
18 factories - UK, Brazil, North America, India, China & Germany.
World-class manufacturing facilities.
World Class Products:

JCB is committed to constant innovation: we challenge accepted knowledge and use our
understanding to develop more productive, more powerful and more profitable machines.
It's due to our investment into research and development that we can offer a continually
updated range of over 300 machines. We now boast the largest range of compact
equipment in the world and have developed solutions for industries as diverse as
construction, agriculture, waste handling, landscaping, military, timber and many other
specialist areas.
And there's much more in the pipeline.
Largest range of compact products in the world
Over 300 machines in the range
World leader in telescopic handlers
Number 1 worldwide in backhoe loaders
Major player in heavy line products
33
Global Support Network:

To deliver our promise of world class customer support, JCB has continued to invest in a
comprehensive global network of dealers who really deliver the support you need. JCB
boasts over 1,000 dealer depots worldwide, and 92 dealer depots in the UK. Operating
out of those UK depots are 357 service technicians, all JCB-trained, and 265 service
vans. JCB dealers understand that this is a business about relationships, as well as
machines. We aim for customer satisfaction every time, and understand that this means
supporting the machine throughout its life.
1500 JCB dealer depots worldwide
92 JCB dealer depots in the UK
821 service technicians
660 service vans in the UK
Part Support:
At the heart of our support network is the purpose-built JCB World Parts Centre: a stateof-the-art facility employing more than 200 people and dispatching around 4,000 orders
every day. JCB has the widest range of parts of any manufacturer - genuine JCB parts can
help your machine remain truly JCB. The Centre uses some of the most advanced
technology around, improving productivity to such an extent that we now achieve 2 hour
dispatch in 96% of cases. All JCB parts are fitted by JCB-trained technicians and carry a
12-month warranty for real peace of mind.
35m World Parts Centre
89 parts delivery vans in the UK
Parts availability: JCB dealers have over 80% in stock
Genuine JCB parts
34
Business Solutions:
JCB total business solutions are designed to give you, your machine and your business
the support you need to achieve your true earning potential. JCB Finance helps you to
preserve your working capital whilst spreading the cost in the most effective and taxefficient manner. Finance provided by JCB Finance Ltd is only available within the
United Kingdom (UK). JCB Insurance, regulated by the FSA, specializes in construction
and industrial insurance, as well as offering Insurance Premium Finance facilities.
Finance options are available for new and used machinery, cars, commercial
vehicles, static plant and access equipment.
JCB Insurance offers the full insurance package, including liability, motor and
property cover
Technical Assistance:
Whether you need machine servicing or emergency breakdown solutions, with JCB
technical assistance you're guaranteed the highest possible service levels. In an
emergency, it's all about speed of response. Our dealers operate their own customer
support vehicles so that emergency parts can be delivered straight to your door and
expertly fitted on the spot. In addition, dealers can tap into the expertise of our
experienced Product Technical Specialists and Field Service Managers. They all know
their machines inside out and can quickly offer the best solutions to ensure minimum
downtime for maximum earning potential.
821 service technicians
All service technicians JCB-trained
The World Parts Centre operates 24/7
660 service vans in the UK
35
36
RESEARCH OBJECTIVE & METHODOLOGY
RESEARCH OBJECTIVE:
To identify the factors affecting cost management practices at JCB
To identify the different levels of cost benchmarking at JCB
To examine the process of cost benchmarking at JCB
To identify the key cost variables in cost benchmarking at JCB
To examine the effectiveness of cost benchmarking system at JCB
RESEARCH METHODOLOGY:
1. Secondary Data:
The relevant data that would be collected through secondary research will be collected
from:
Websites through internet
Published articles in the newspapers, magazines, journals, and
Books.
2. Primary Data:
The primary data to be collected for the purpose of doing the research will be through
37
Personal interview and discussion with Analysts
3. Tools Used:
Websites
Published newspaper and magazine articles
Journals
Books
Company Reports
Excel Modeling
38
LITERATURE REVIEW
Cost benchmarking is a method used to compare total cost of a process, product, or

manufactured good from receipt of materials to completion, test, and shipping; against
costs incurred by other businesses who manufacture similar products. Cost benchmarking
is not limited to manufacturing either, it can be used to determine cost-competitiveness in
services sectors as well, or even software development. Basically any organization that
uses a base material or idea and produces goods from that base material or idea can
compare total cost of production. The benchmarking compares this against other
companies' similar offerings and serves to show market competitiveness and expose areas
where cost controls may be implemented in order to improve competitiveness Cost
savings and providing for cost reduction opportunities, or cost avoidance, are not new
concepts. Private industry has developed these terms into an accounting science that
impacts the bottom line and profit and loss statements. Whole theories of management
have been fostered from them and opinions and definitions are as varied as industry itself.
For some time, the private sector has bee conducting cost analysis and cost savings/cost
avoidance benchmarking activities and using the results to establish best practices. While
there are many similarities between public and private procurement best practices and
sourcing techniques, attempts to find commonality and benchmarks for cost savings and
cost avoidance have been somewhat alien to the public sector.
Cost Saving:
Reduced Baseline Appropriation A reduction in available resources3 based o
legislative actions or targeted cuts in certain areas.
Reduction from Budgeted Spend A reduction in the projected/budgeted resources staff
time, materials, and equipment) used for an activity or business process, as a result of a
Savings Project.
39
Volume Reductions Reducing the amount of a good or service used. Savings captured
in this category include projects that intentionally seek volume reductions through direct
action (e.g., demand management).
Refunds/Credits/Rebates Payments made to the state by vendors as a result of a
Savings Project.
New Revenue New streams of revenue instituted by the state.
Enhanced Reimbursement Improvements in the accuracy or completeness of a
business process that generates a higher rate of recovery of funds from external
organizations. This activity may be generally associated with business process reengineering and is an element of the most complex cost savings model, Tier Three.
Cost Avoidance:
Cost Avoidance A cost reduction opportunity that results from an intentional action,
negotiation, or intervention. Procurement Cost Avoidance A cost reduction opportunity
that is generated from the competitive bidding process. o Negotiated Cost Avoidance An
avoided cost as a result of the issuance of Best and Final Offers, Sole-Source
negotiations, or post-procurement/post-award negotiations. 3 GASB o In-Contract Cost
Avoidance A cost reduction opportunity produced as a result of the intervention of a
purchasing official in responding to contractor requests for increases in prices, market
fluctuations, indices upward alterations, etc. o Rate Reductions Obtaining lower rates
or prices for goods, services, and construction purchased by a State. The adoption of cost
reduction and cost avoidance definitions and categories to be used for the cost
benchmarking initiative are of paramount importance when members submit survey
results. In order to develop commonality and advance best practices, uniformity in these
areas is essential to ensure the benchmarking initiative can grow and mature and thereby
provide members with useful, accurate, and meaningful data.
40
Definition of Capital Costs:

The scope of work covered by the Capital cost of a project generally includes:
1. Building works (New and/or alterations)
2. Building services including central plant and related infrastructure
3. Built in equipment
4. Site works and site preparation
5. Loose furniture, furnishings and equipment
6. Project Management, Design and other consultancies
7. Associated authority charges
8. Contingencies and other risk provisions. In some cases, the capital cost may also
include:
9. Decanting of staff and facilities from an existing building and later removal o
temporary facilities
10. Client associated administration costs (such as additional management time,
insurances and the like).
Project Specific Allowances:
Project Specifics enable adjustments to be made to the building cost for any non-standard
items or specification not common to all projects. These items include, but are not limited
to, central energy, lifts, kitchen and cafeteria equipment, sterilizing equipment, theatre
lights and support, PABX including handsets, specific footing requirements, earthquake
requirements, mine subsidence requirements, increased standards (client request),
heritage constraints, feature faade, abnormal planning constraints, temporary works and
41
any other similar items. Adjustments for such items are treated as allowances over and
above the base building cost and include an allowance for a proportion of builders
preliminaries.
Site works Allowances:
Site works consist of all work beyond the perimeter of the building including site
preparation, bulk excavation, special foundation requirements, roads, footpaths, covered
ways, drop-off points, soft landscaping, fencing, parking, line marking, road signs and
any other similar items. Allowances are added over and above the base building cost and
include an allowance for a proportion of builders preliminaries.
External Services Allowances:
External Services consist of all services work beyond the perimeter of the building
including sewer, storm water, water, fire, gas, electrical supply, external lighting,
telephone, security, amplification of main supplies and any other similar items.
Allowances are added over and above the base building cost and include an allowance for
a proportion of builders preliminaries.
Loose Furniture, Equipment & IT
Rates for costing of loose furniture, furnishings & IT equipment in the calculation of cost
for projects are provided for each Functional Unit. The rates include allowances for
telephones, pagers, cleaning equipment, EDP workstations and some relevant specialist
EDP software. The rates exclude super-specialties (egg cardiothoracic surgery) or unusual
specialties (egg aphaeresis, hyperbaric and reproductive biology).
Constraints in respect of specific Functional Units include:
Library rates assume a manual card index system. Add costs are applicable for
computerized indexing and book security systems.
42
Information Technology rates are based on general furniture and equipment.

Central IT and communications hardware and software are project specific items.
Medical Records rates are based on traditional manual paper storage. Optical disk
based technology increases the m2 rate considerably but may eliminate archiving
and most storage floor areas.
Medical Imaging rates are based on traditional film and do not include digital
imaging (PACS) except where associated with specific modalities.
Security rates do not include CCTV
Stores and Supply rates assume minimal mechanical materials handling

equipment.
Where specific major or unusual equipment is proposed for a project:
The major item(s) should be identified and coasted as project specific item/s.
The relevant Functional Unit furniture and equipment rate(s) should be reduced to
an appropriate administrative or clinical rate (to allow for general items).
The furniture, fittings and equipment guideline rates assume Greenfield projects where
equipment is not transferred from existing facilities. The impact of transferred items is
can have a significant impact on project FF&E costs, varying from less than 10% of total
value where little is transferred to about 80% where most existing furniture and
equipment is transferred. The opportunity for transfer of existing equipment (including
refurbishment and re-installation costs) should be evaluated at the preliminary planning
stage.
It is recommended that the following be regarded as project specific items:
Window furnishings
43
Artwork
Information technology
Communications (PABX, paging, etc)
Furniture and equipment commissioning - tendering, receiving, storing,

distributing cleaning, testing and pre-occupancy security.
Todays economic challenges have had at least one salutary effect for the nations
healthcare system: They have helped to better focus our collective attention on the need
to reduce costs and improve efficiencies in health care. In all likelihood, the effects of this
national focus on performance improvement are being felt in your organization. Hospital
financial leaders, in particular, have been intensifying their efforts to identify the specific
steps their organizations can take that will make a difference. To this end, one of the most
important steps you can take to identify opportunities for improvement is to examine
your organizations performance around diagnostic groups. All that you require is a
practical approach to proceed with this analysis. To illustrate such an approach, and
demonstrate effective analytical techniques, the following discussion focuses on
diagnostic groups that represent important lines of business for most of the nations
hospitals and health systems. For purposes of comparison, the analysis uses publicly
available data on national average costs of routine care, special care, and ancillary
services. Using such data, you can compare your facilitys costs with peer group averages
to determine whether your costs differ in any areas to a degree that warrants
investigation. Costs for a particular procedure or treatment can be driven up by
operational problems in a single cost center, over utilization of services, excessive supply
costs, or many other potential issues. Addressing these issues can lead to more efficient
operations and measurable savings. Starting with the most frequent diagnoses make good
sense in analyzing costs because performance improvement with respect to any of these
five diagnoses could have considerable impact for many hospitals. After addressing these
groups, a hospital could extend the analysis in a number of directions, including
44
proceeding to other high volume diagnoses, selecting other high-revenue services that
may not necessarily have high volumes, or focusing on known areas of difficulty. A
benchmarking analysis should seek to identify any unexpected variations in your average
costs when compared with those of similar hospitals. For such a comparison to be
meaningful, it is important to choose peer hospitals carefully. For some hospitals in
metropolitan areas, it might make sense to compare the facility with others in town. Some
hospitals, however, may prefer a different approach. For example, if your organization is
a teaching hospital, you might want to compare it with other teaching hospitals in a
region. Similarly, if your organization is a hospital that specializes in a particular medical
service, you may want to compare it only with other hospitals having the same
specialization. Numerous innovative cost control practices have been evolved during the
last two decades. The entire gamut of the cost accounting system has been broadened to
equip and assist managers to better serve the needs of the customers and manage the
firms business processes that are used to create customer value. The vital aspect here is
providing customer value for less cost than its competitors, thus enhancing the
competitiveness and profitability of the firm. Bench marking is one such innovative cost
control tool which basically involves measuring an organizations operation, products, and
services against those of its competitors. It is a means by which targets, priorities and
operational strategies are evolved based on external realities that will lead to competitive
advantage which in turn improves the profitability and competitiveness of an
organization. The last two decades has witnessed the genesis of various innovative cost
management practices. The focus and thrust of these cost accounting systems has been
broadened to enable managers to better serve the needs of the customers and manage the
firms business processes that are used to create customer value. These innovative cost
management tools help a firm to establish a competitive advantage by providing more
customer value for less cost than its competitors. The three strategic areas that give the
firm the extra competitive advantage over its rivals are the Time Based Performance,
Quality and Cost Control. These three strategic components influence the competitive
feature of an organization in the contemporary liberal free market economy.
45
(a) Global CompetitionFree market economic policies and improvement in transportation and communication
system have led to a global market for manufacturing and service firms. This new
competitive environment has increased the demand not only for more cost information
but also for more accurate cost information.
(b) Growth of the Service Industry. The service sector had a meteoric rise in the last
decade and a half. The liberalization and deregulation of many services like Airlines,
Telecommunications and other Utility sectors has resulted in fierce competition in this
segment. The increased competition has made managers in this industry more conscious
of the need to have accurate cost information for planning, controlling and decisionmaking.
(c) Advances in Information Technology The Information Technology innovations have
revolutionized every aspect of business management. The Enterprise Resource planning
(ERP) which provides an integrated software system that can run all the operations of a
company, the availability of Personal Computer (P.C), Online Analytic Programs
(OLAP), Decision Support System (DSS) and the Electronic Data Interchange (EDI)
which involves the exchange of documents between computers using telephone lines
have empowered the cost accountant to become more flexible to respond to the
managerial need for more complex product costing.
(d) Advances in Manufacturing Environment Innovative manufacturing approaches like
the Theory of Constraints (TOC) and Just in Time Management (JIT) have allowed firms
to increase quality, reduce inventories, eliminate waste, and reduce cost. The Computer
Aided Design (CAD) Computer Aided Manufacturing (CAM), Computer Aided
Engineering (CAE) and the Flexible Manufacturing System (FMS) have all contributed
in cost reduction and increasing productivity.
(e) Total Quality Management Non stop improvement and the elimination of waste are
the two basic criteria of contemporary manufacturing. Product Quality is the key to
46
success in todays highly competitive business environment. Cost management supports

the concept of Total Quality Management by providing crucial information concerning
quality related activities and quality cost control.
(f) Time and Efficiency as a Competitive Element. Time and Efficiency are two vital
components in the phases of the value chain. The highly competitive environment forces
modern day firms to reduce time to market by redesigning products and processes, by
eliminating waste and non value- added activities. Similarly improving efficiency is also
an essential concern. Cost is a critical measure of efficiency. For the various efficiency
measures to be of values, cost must be properly defined, measured and accurately
assigned. All these factors have resulted in the need to innovate and introduce strategic
cost control techniques in order to withstand the prevailing competitive business
environment and enhancing competitiveness. Bench marking has been evolved as a
potent tool to be used for Strategic Cost Control and improving and enhancing
competitiveness.
Defining Benchmarking:
The word Bench mark is a reference or measurement standard used for comparison and
it is a continuous process of identifying, understanding and adapting best practice and
processes which result in superior performance along with cost effectiveness. Stamatis
(1997) has defined benchmarking as the process of gathering, analyzing and evaluating
the world on outside your organization and comparing it to your own. The findings and
the results of this process becomes the vital foundation and basis of your improvement
Genesis of Benchmarking:
This concept was evolved and used in as early as 1950s by W. Edward Deming when he
taught the Japanese the idea of quality control, but after this the concept of bench
marking lost its relevance. This concept again became prominent in the early 1980s
when multinational giants IBM, Motorola and Xerox used Bench marking for their
47
strategic advantage. From then onwards till today bench marking is being used as an
effective tool for various managerial functions including cost control.
Levels of Benchmarking:
Benchmarking is a systematic method by which organizations can measures themselves
against the best industry practices. The main focal point or critical aspect of
Benchmarking is the process of borrowing ideas and adapting them according to the
strategy of an organization to gain competitive advantage Richard Chang and Keith Kelly
(1998) have evolved four common approaches to benchmarking These Include:
a) Internal Bench Marking- It is done within an organization, or perhaps in conjunction
with another branch office. Internal bench marking is typically the easiest to conduct
since data and information should be readily available and confidentiality concerns are
minimized.
b) Competitive Bench marking- Generally each organization has at least one competitor
that excels at the exact processes which an organization wants to study. However in this
approach bench marking will be slightly difficult when compared to internal bench
marking because it is very difficult to collect or learn a competitors trade secret. Firms
usually hire the services of a third party consultant to gather strategic information relating
with the competitors.
c) Non-competitive Benchmarking Non competitive benchmarking helps an
organization to improve its core-competencies. The benefits of non competitive
benchmarking include: A related process in your industry with a firm you do not directly
compete with.
48
ii) A related process in a different industry.

iii) An unrelated process in a different industry. The most striking phenomenon of
noncompetitive benchmarking is that new and innovative processes can be find out and
adapted in an organization.
(d) World class benchmarking This approach is the most ambitious and broad form of
bench marking. It involves the process of making comparison with the strategies of the
worlds best establishments and analyzing and learning from their strategic approaches.
Benchmarking Process:
John S Oakland (2003) has classified the bench marking process into five main stages.
Figure highlights the various stages of bench marking in the following manner.
The bench marking process commence with the plan phase. The managers of the
organization share their views and objectives for the study and establish roles and
responsibilities. They will analyze their own organization to study and investigate the
strengths and areas of improvement. The next phase belongs to the data collection aspect.
It is during this phase that the bench marking partners are identified. The main objective
is to identify organizations that are superior so that the firms own operation can be
targeted. The quickest way to identify excellent performance is through site visits with
appropriate training. Five to seven site visits might take place in one visit. Databases are
an expanding source of comparison information. The two most important difficulties that
49
organizations face are identifying top performing companies in specific functions and
finding companies that have already conducted studies in specific areas. The American
Productivity and Quality Center (AP&QC) is a premier organization in The United States
which maintains sizable database information and serves as a central networking source
and has the support of top benchmarkers.Cooperative sharing agreements between
companies is another source of best-in-class identification. Members of the agreement
may or may not be competitors and may or may not be in the same industry. The Data
collected from the site visits and from other sources will be analyzed in the next phase to
identity best practices and the enablers which deliver outstanding performance. At this
step an organizations own performance should have been pre-measured; other wise there
is nothing to compare against the bench marking data. In the Adapt phase, the managers
will attend a feed back session where all relevant conclusions from the site visit analysis
and its comparison with their own performance level will be discussed upon. The best
practices from the bench mark studies will be adapted in the organization. The last phase
of the bench marking process is the post Completion Review Stage. The managers will
assess the performance of the bench marked area of operation and decide on what actions
are required to sustain improved performance. Best practice data bases many be created
in the organization which must be shared among all the members of the organization.
Benchmarking and Key Cost Variables;
Benchmarking can be used as an important strategy for cost and quality improvements.
The functions, activities, and processes can be measured in terms of specific output
measures of operations and performance. Swift (1998) evolved two broad categories of
cost variables which can be effectively benchmarked in order to attain improved cost
efficiency and cost effectiveness.
These two categories are as follows:
(a) Cost and Productivity - Overhead costs and labour efficiency, total cost per unit,
direct labour per unit are some of the vital cost drivers which result in a very high
50
proportion of expenditure in any production process. These variables provide an excellent

platform for benchmarking and enable an organization to become cost efficient.
Comparing one companys financial statements and cost breakdowns against those of
others is an effective strategy to improve especially when you are comparing with a
detailed financial statement of your competitors or the best- in class.
(b) Business Processes It includes all those processes which are not directly related to
product design, production, sales and service. Human resources, data processing,
accounts receivables, marketing services, security warehousing, public relation are some
of the key variables in this segment. A number of companies develop severe cash flow
and profit problems due to uncontrolled cost of these business or support processes. All
these costs can be grouped under general and administration expenses and these
expenditures have tremendous scope of improvement through benchmarking.
Myths and Realities about Benchmarking:
Bench marking is a new concept in the management scenario and as a result people are
having varying notions about the concept of bench marking. The common myths and the
actual realities that surround the bench marking concept are as follows:
51
Cost Comparison Basis:

The focus of the analysis was on hard costs only because it was determined that the soft
costs contain subtle aspects that are difficult to quantify on a normalized basis. In order to
the prevent having to compare apples to oranges, the authors eliminated soft costs from
the analysis. If soft costs are of interest, a more dedicated study can be conducted. Below
figure shows the building cost relationships. Because Building B and C have similar
square footage, construction, and material cost, B was used to test the cost of C.
Similarly, because B and A both use commercial construction approaches, the cost of B
was tested against A, which was then extrapolated for the required A-to-C cost
comparison.
The figure shows the typical breakdown of project costs into hard and soft costs. In this
particular project, our focus was on the hard costs only. The figure shows the specific
breakdown of the cost of Building C into its components. Figure 4 shows the breakdown
for the cost of Building A.
52
Building C Cost Breakdown Structure

50,000 sq ft
Building A Cost Breakdown Structure

378000 sq ft
53
The objective is to identify and analyze the factors responsible for the cost differences.
The soft costs are equivalent. So, they were excluded from the analysis. The hard cost
difference to be distributed over the five factors is $63, which is the per square foot
difference between Building C and Building A.
Analysis of the Cost drivers:
The research team narrowed the cost drivers into five primary factors that could account
for the cost differences. The factors are summarized as follows:
Factor Impact of Davis Bacon wages.
Factor Impact of Project Labor Agreement (PLA).
Factor Additional ESH&Q, Oversight, Safety Meetings, Site Training.
Factor A Excessive requirements of contract terms and conditions.
Factor Impact of procurement process.
These factors represent a consolidation of major and subtle cost drivers in the
construction projects.
Selecting a Peer Group for Comparison:
A benchmarking analysis should seek to identify any unexpected variations in your
average costs when compared with those of similar hospitals. For such a comparison to
be meaningful, it is important to choose peer hospitals carefully. For some hospitals in
metropolitan areas, it might make sense to compare the facility with others in town. Some
hospitals, however, may prefer a different approach. For example, if your organization is
a teaching hospital, you might want to compare it with other teaching hospitals in a
region. Similarly, if your organization is a hospital that specializes in a particular medical
service, you may want to compare it only with other hospitals having the same
specialization. Depending on your operational interests, other general selection criteria
54
can also be used, such as bed size, type of facility (e.g., for-profit versus not-for-profit),
services provided, system affiliation, and competitive market. Selecting the appropriate
peer group is important and should reflect your intentions. There is one important
limitation to keep in mind. Comparing your facility with a single hospital or a small
number of hospitals offers little benefit as there would not be adequate volumes to
establish normative benchmarks; any variations between your hospital and the peer
group would simply indicate differencesnot variations with a significant number of
peer hospitals. Although there is a place for small group comparisons, it is generally
preferable to use larger, carefully selected peer groups.
Other Reporting Formats:
Comparative information can also be expressed as average costs per case for ancillary
areas and average costs per day for routine care and special care. One disadvantage to
using this approach is that gross charges for a service or supply item vary among
hospitals and the use of cost-to-charge ratios is an imperfect way to allocate costs.
Nevertheless, the approach is usually adequate to identify significant variations between a
hospital and a peer group that may warrant investigation. Also, the use of allocated costs
can be adjusted for factors such as differences in CMI and local area wages.
Variability and What It Means:
A large group analysis helps to illustrate the variability in costs among hospitals. This
variability results in part from differences in areas such as the utilization of services,
medical practice patterns, formularies, and purchasing power. Such an analysis is not to
be interpreted as a standard of care or as an identification of best practices. It is a tool
for determining whether your hospital is an outlier relative to other, similar facilities. It
identifies diagnoses and/or departments that may need closer examination to determine
whether there are opportunities to reduce costs.
55
FINDINGS AND ANALYSIS
In todays mature JBC environment, revenue growth is difficult to achieve. Until the last
few years, new entrants into the JBC market experienced significant growth and a
favorable level of competition for physicians and cases. Now, growth is decelerating,
with the growth in the number of JBCs and cases per JBC slowing. This dynamic has
caused an increased focus on the expense side of the profit equation in the JBC industry.
Measuring JBC performance against internal and external comparable benchmarks has
become a critical tool for achieving efficiency as JBC operators focus on making their
current caseloads more profitable. In a mature industry one in a state of equilibrium
with an absence of significant growth businesses tend to behave in a fairly standard
manner. JBCs are no different. JBCs are reacting predictably to the normal marketmaturation process, in which earnings may remain stable, but growth prospects and
expectations decrease significantly. In this changing business environment, we have
witnessed JBC managers change their focus from growth to operations, innovation, and
maintenance. This significant systematic effort within the JBC industry has required a
shift in resources and managerial skill, with emphasis to innovation and efficiency.
Benchmarking is but one component of organizational improvement. Benchmarking is
not a one-time, quick fix. It is a process, a continual process of monitoring and adjusting.
The process is commonly described in three steps identify, track and change. If you can
identify or measure a metric, you can track it. If you can track it, you can change it.
Developing and implementing a benchmarking plan for your JBC has the benefits of
improving operational efficiency and maximizing performance, both clinically and
financially, which will lead to a more profitable and valuable JBC.
Identify:
The first step in benchmarking is fairly obvious identifying where in the organization
improvement may be made. Fortunately for JBCs, many areas of focus can be easily
56
identified. For example, on the revenue side, comparing net revenue per case by specialty
to national and regional benchmarks is critical to understanding an JBCs performance,
even though an JBC may not have the ability or market leverage to improve contracts. On
the expense side, the major cost components are readily identifiable and are typically
variable in nature (versus fixed such as facility rent). Staffing expenses and medical
supplies usually take center stage. While improving revenue can be a difficult
proposition, making expenses more efficient can have a meaningful and dramatic affect
on bottom-line performance. One benchmarking method is to develop internal
benchmarks which can be analyzed as a series over time. For example, staffing costs per
case can be measured from quarter to quarter, or year to year. If the cost remains flat or
decreases, this can be seen as improvement, while an increase in costs may be seen as
inefficiency or a warning sign. The benefits of internally benchmarking include
consistency of data collection and comparison, as well as ease of measurement of
quantifiable goals. Lacking understanding of how the indicator or statistic compares to an
industry average presents challenges, however. For example, if staffing costs increase
dramatically for the industry due to macro or regional issues, judging an internal
benchmark will not tell the whole story. A second benchmarking methodology which can
be used in conjunction with internal benchmarking is to benchmark against comparable
peers. The benefits include a more objective measurement of performance, as well as the
ability to determine if increases or decreases in performance are industry-wide factors.
The challenges include finding quality data to benchmark against, and consistently
calculating the same statistics internally to create an "apples to apples" comparison.
Track
There are useful publications in the JBC space to assist independent JBC operators in
comparing key statistics. These include the VMG Intellimarker and Salary Benchmark
Survey data published by the JBC Association. Great care should be applied to the proper
calculation and application of these statistics to ensure a meaningful comparison. Overall,
this study suggests that outsourcing on a library by library basis could achieve a Benefit
Cos t Ratio (BCR) of around 2.0 to 2.3. This range of benefit is considered relatively
57
significant compared to other potential government projects. Typically projects with

BCRs less than 2.0 are not considered significant. The key finding of this study was that
outsourcing provides opportunities to redistribute staff more efficiently and effectively
across more value adding activities as opposed to back of office processes. That is, the
major benefit of outsourcing
to result from the reallocation of cost savings via reduced
back of house tasks, to functions such as events and programs, new space, collection
quality and customer focus. This redistribution of resources was found to generate a
range of benefit multipliers, namely productivity/cost effectiveness gains, social/user
benefits and floor space productivity benefits Productivity / cost effectiveness gains
increased output for the same or reduced inputs. Change in turnover was used as a proxy
to estimate this benefit (i.e. increase book turnover for the same or reduced expenditure
on resources). The study found that ther was a $3.28 productivity multiplier for every
dollar in cost savings.
Social / user benefits increased user benefits as a result of reallocating resources to
value add roles. Attendance at programs and events has been used as a proxy for this
benefit. The study found that there was a $2.05 user benefit multiplier for every dollar in
cost savings.
Floor space productivity benefits release space that can be used to house events, new
books or nonbook stock, as less space is required on site to provide for cataloguing and
back of house resources. The study found that there was a $2.46 floor space productivity
multiplier for every dollar in cost savings. Triple Bottom Line Key Findings A Triple
Bottom Line (TBL) assessment was conducted to understand how benefits and costs ma
change depending on a range of variables such as Library size and Library Operation
model (i.e. Local / Regional / Collaborative). The outcome of the TBL assessment is
outlined in the figures below.
58
Small: Rank 3
(Average score: 0.9): Of the three typologies, Small libraries were ranked last in terms of
the Social bottom line, but first for the Economic bottom line. The key reason for this is
that the impact of potential staff losses from outsourcing are more pronounced relative to
Medium and Large libraries, particularly for very small libraries in rural locations.
Medium: Rank 1
(Average score: 2.2): Performed well against all bottom lines particularly Social and
Operational. The key reason for this is that outsourcing provides medium sized libraries
with the increased ability to shift resources into more valueadd roles relative to Large
and Small libraries.
Large: Rank 2
(Average score: 1.4): Performed well against all bottom lines, but did not achieve the
benefits of medium sized libraries. Large libraries are already achieving economic
efficiencies in labour and may be able to undertake processing and cataloguing tasks in a
relatively more cost effective manner, and therefore do not achieve the same benefit
multipliers from outsourcing as medium size libraries.
59
Implication of assessment findings:

The implication of these findings is that the benefits of outsourcing will only be realized
if cost savings are redistributed. Cost saving alone is unlikely to be sufficient in
establishing a business case to outsource. Further, this means that the relative benefit
achieved will vary from library to library and depend on a wide range of variables
including:
Type of redistribution: The type of activity / service provided as a result of the cost
saving achieved from outsourcing will also impact on the scale of the benefits generated.
Essentially, the benefits refer to an increase in outputs (e.g. productivity benefits, user
benefits and floor space productivity) so it is critical that the redistribution meets the
needs of the communities in order to maximize this benefit.
Existing cost efficiencies: If a library is already undertaking functions in a cost effective
manner, then the cost saving, (and therefore benefit multipliers), from a shift to
outsourcing are likely to be relatively lower. The TBL analysis by library siz
demonstrated that smaller to medium sized libraries are likely to achieve larger cost
savings as they may not yet be achieving substantial economies of scale for labour costs.
Model type: The TBL analysis demonstrated that outsourcing under a Cooperative
model could achieve more significant benefits and greater cost savings including
economies of scale and purchasing power.
Other factors such as technology improvements, more shelf ready services, and other
measures are also likely to impact on the marginal benefits from outsourcing.
Production Cost Calculations;
Reclamation has historically analyzed financial data at the aggregate level, e.g., total
revenues and costs, for all Reclamation power facilities. As part of the Laboratory, a
Financial Work Group identified and recommended financial reporting improvements for
Reclamation=s power plants. To allow for project and plant-specific financial analysis,
60
the group compiled fiscal year 1994 revenue data at a project level and cost data at the
power plant level. This initial compilation will establish a baseline from which future
financial performance can be measured. Power related costs were divided into costs for
producing power and for transmission. The costs for producing power were further
divided into direct and indirect costs. Direct costs included operation, maintenance, and
replacement costs, which were further subdivided into payroll; benefits; travel and
transportation; utilities; other services; contracts; and materials, supplies, and equipment.
Indirect costs included overhead and administrative and general expenses (A&GE).
Transmission costs discussed above are mainly associated with transmitting project use
power from power plants to project users and do not include the Power Marketing
Administration=s (PMA) costs for marketing and delivering power. In addition, the PN
Region allocates all costs associated with power plant switchyards and the majority of
transmission costs to commercial power sales. Due to the unique nature of each
Reclamation project, only 22 of the 56 power plants have associated transmission costs.
These costs vary widely, depending on the amount and size of transmission requirements
and represent only about 5 percent of total costs for producing and transmitting power.
For this reason, no attempt was made to analyze transmission costs. The cost of
producing power at Reclamation facilities is fully reimbursable. The costs for producing
power are repaid through power revenues associated with power rates paid by customers.
Power users pay a power rate that not only includes Reclamation=s power production
costs but also includes "other" costs. Included within "other" costs are: Repayment of
capitalized costs of power related facilities Interest on the unpaid capital investment
The portion of project irrigation costs, above the irrigator=s ability to pay, which have
been allocated to power for repayment The Pumas costs of marketing and transmitting
the power Other costs the Congress requires Pumas cost of purchasing firm power
The costs and net generation were used to calculate performance parameters which are
measured in mills (one thousandth of a dollar) per kilowatt-hour. Net generation is
defined as the generation remaining after subtracting out generation used at the site to
61
operate the facility. The net generation is the power supplied to project use power
customers and to the Pumas.
The three instruments have examined present a number of advantages which it
recommends as one of the most effective tools for monitoring and measuring
performance of the Activity-Based Costing method (ABC) and beyond, they are the real
foundation on which decisions are taken by the management of the enterprise. Thus
among the advantages of the dashboard and balanced scorecard, we can mention:
- Taking into account the four different perspectives of the balanced scorecard and
viewing them as a whole, the management company is ensuring for a balanced
perspective on its performances;
- Short, medium and long term visions are continuously managed, cohesive both on the
dashboard and the balanced scorecard;
- The strategies made by senior management and actions taken at the departments level
are focused and clearly linked;
- The company performance reporting is focusing on the needed aspects to remain
competitive in the long term and reflecting the achievement of value for stakeholders.
Among the benchmarking advantages we can mention: identifying areas for improved
performance, identify risks, contributing to continuous improvement, meeting audit
requirements, compliance and regulatory authority, monitoring and reviewing progress,
improving quality. In the hope that our perspective on the importance and effectiveness of
performance analysis tools to specific ABC method was correctly received both in
business and in academia, we express our desire to improve and broaden the scope of
analysis these tools by extending collaboration in training, the dissemination of results of
scientific research in this area is particularly important as management accounting.
62
RECOMMENDATION
The results in this study are validated based on a combination of anecdotal information,
quantitative computations, review of construction data, and reference to published
literature on government construction projects. The conclusion is that government
construction projects, by virtue of their bureaucratic nature create incidents of cost
escalations and productivity loss. It is recommended that government projects be
benchmarked against commercial projects. In this respect, government projects can
borrow the best practices of commercially executed projects in lowering construction
cost and improving work productivity.
Most contractors will carry out their projects successfully if given the operating
parameters and left with the latitude to develop the means and methods to reduce cost and
improve quality and productivity. In spite of the prevailing tight controls of government,
[actually, management and oversight implementation of government requirements] many
projects still end up with quality problems and cost overruns. We should review the
marginal benefit of government procedures versus the incremental cost brought on by
those procedures. The government process itself has fueled the stereotype that
government projects have infinite loopholes and unlimited funding potentials. This has
the consequence that contractors, who would have normally executed projects under their
own efficient methods, resort to unproductive practices in order to take advantage of the
government project stereotype.
Overall Project Recommendation: For regular construction, not involving safety-critical
process plants, it is best to use best commercial construction practices. The practice of
using the same rigid review process for all projects is wasteful and ineffective. Nonprocess-plant projects do not need tight review and control of every project step.
63
CONCLUSION
Application of comparative analysis involves four main steps:

1. Understanding in detail the internal processes;
2. Analyzing the internal processes of other entities;
3. Comparing their performance with the consideration of other entities;
4. Application of necessary measures to eliminate the performance gap.
Benchmarking should not be considered as an exercise to be carried out once. To be
effective, it must become an integral part of continuous improvement process in order to
keep abreast of industry best practices.
The costs of comparative analysis;
In the comparative analysis are included three major categories of costs:
1. Visit costs include costs related to: accommodation, travel, meals, symbolic gifts and
lost labor time.
2. Costs of extra time (additional time). Conducting benchmarking team will invest
additional time in research problems, finding exceptional companies to study, visit and
apply.
3. Database costs associated to comparative analysis. Organizations that use
benchmarking in their daily procedures find it useful to create and maintain a database of
best practices and their associated companies. Comparative analysis of costs can be
reduced considerably by using multiple Internet resources that have emerged over recent
years. These benchmarks follow and capture best practices from countries, entities,
business sectors to make the benchmarking process much faster and cheaper.
64
BIBLIOGRAPHY
Brice S., Cpuneanu S., Roof L.M., Toper D., 2010, Accounting and management
control. Entity performance assessment tools, Alternates Publishing House, AlbaIulia, 2010.
Henderson-Smart, C., Winning, T., Germinal, T., King, S. and Hyde, S. (2006).
Benchmarking learning and teaching: developing a method. Quality Assurance in
Education, Vol. 14 No. 2, pp. 143-55.
Lee, Y.P., Malian, S., and So, K.L. (2006). Understanding Factors for Benchmarking
Adoption New Evidence from Malaysia. Benchmarking: An International Journal.
Vol. 13. No. 5. pp 548-565
Maier, J.L., Brunet, V. And Pallet, M. (2008). Benchmarking: methods and tools for
SME. Benchmarking: An International Journal. Vol. 15 No. 6. pp. 765-781
www.jcb.com
www.jcb.com/products/machinerange.aspx
www.jcbindia.com
www.jcbindia.com/company_message_md_ceo.aspx
Outlook Money
Outlook Profit
Business Today
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THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT

ANALYSIS OF COST BENCHMARKING AT JCB

UNDER THE GUIDANCE OF:

MR. YASHVIR CHAUDHARY

The Indian Institute of Planning & Management, New Delhi

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

COMPLETION LETTER FROM EXTERNAL GUIDE

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

THESIS TOPIC APPROVAL LETTER SENT OVER MAIL

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

+91 0124 3350715 (Board)

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

APPROVED THESIS SYNOPSIS

Desire Area of Student to do research: Finance

To identify the factors affecting cost management practices at JCB

To identify the different levels of cost benchmarking at JCB

To examine the process of cost benchmarking at JCB

To identify the key cost variables in cost benchmarking at JCB

To examine the effectiveness of cost benchmarking system at JCB

Introduction to the area of research:

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

Websites through internet

Published articles in the newspapers, magazines, journals, and

Personal interview and discussion with Analysts

Scope of the work:

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

Justification of Choosing the topic:

Summer training details

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The Indian Institute of Planning & Management, New Delhi

(Mohali)etc. I submitted my report on COMPARATIVE ANALYSIS STUDY OF HDIL

Details of external Guide:

Contact no.- 9540099700

Qualification: Mechanical Eng., B.TECH, MBA

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The Indian Institute of Planning & Management, New Delhi

It is well-established fact that behind every achievement lays an unfathomable sea of

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The Indian Institute of Planning & Management, New Delhi

RESEARCH OBJECTIVE & METHODOLOGY..............................................33

FINDING AND ANALYSIS...............................................................................52

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

ALUMNI ID NO.: DS/9/11-F-289

The Indian Institute of Planning & Management, New Delhi

Road construction equipment

Material handling equipment

Tunneling and Drilling equipment

ALUMNI ID NO.: DS/9/11-F-289