1.

What is nonprofit organization? How is the performance of this organization evaluated?

Introduction A nonprofit organization, as defined by law, is an organization that cannot distribute assets or income to, or for the benefit of, its members, officers, or directors. The organization can, of course, compensate its employees, including officers and members, for services rendered and for goods supplied. This definition does not prohibit an organization from earning a profit; it prohibits only the distribution of profits. A nonprofit organization needs to earn a modest profit, on average, to provide funds for working capital and for possible rainy days. Performance evaluation of nonprofit organization For any organization, the most important reasons to measure performance are to improve effectiveness and to acquire information that will allow the organization to drive its agenda forward. If the motivation for doing evaluation remains outside an organization, the evaluation will have limited impact. To do performance assessment effectively, an organization must commit to adopting a culture of measurement, because acceptance must come from senior management, staff, funders, and board members alike.

Board self-evaluation Members of the Board of Directors should regularly evaluate the quality of their activities on a regular basis. Activities might include staffing the Board with new members, developing the members into well-trained and resourced members, discussing and debating topics to make wise decisions, and supervising the CEO. Probably the biggest problem with Board self-evaluation is that it does not occur frequently enough. As a result, Board members have no clear impression of how they are performing as members of a governing Board. Poor Board operations, when undetected, can adversely affect the entire organization.

Staff and volunteer (individual) performance evaluation Most of us are familiar with employee performance appraisals, which evaluate the quality of an individuals performance in their position in the organization. Ideally, those appraisals reference the individuals written job description and performance goals to assess the quality of the individuals progress toward achieving the desired results described in those documents. Continued problems in individual performance often are the results of poor strategic planning, program planning and staff development. If overall planning is not done effectively, individuals can experience continued frustration, stress and low morale, resulting in their poor overall performance. Experienced leaders have learned that continued problems in performance are not always the result of a poor work ethic the recurring problems may be the result of larger, more systemic problems in the organizations.

Program evaluation Program evaluations have become much more common, particularly because donors demand them to ensure that their investments are making a difference in their communities. Program evaluations are typically focused on the quality of the programs process, goals or outcomes. An ineffective program evaluation process often is the result of poor program planning programs should be designed so they can be evaluated. It can also be the result of improper training about evaluation.

Sometimes, leaders do not realize that they have the responsibility to verify to the public that the nonprofit is indeed making a positive impact in the community. If program evaluation is not performed well, or at all, there is little feedback to the strategic and program planning activities. When strategic and program planning are done poorly, the entire organization is adversely effected.

Evaluation of cross-functional processes Cross-functional processes are those that span several systems, such as programs, functions and projects. Common examples of major processes include information technology systems and quality management of services. Because these cross-functional processes span so many areas of the organization, problems in these processes can be the result of any type of ineffective planning, development and operating activities.

Organizational evaluation Ongoing evaluation of the entire organization is a major responsibility of all leaders in the organization. Leaders sometimes do not recognize the ongoing activities of management to actually include organizational evaluations but they do. The activities of organizational evaluation occur every day. However, those evaluations usually are not done systematically. As a result, useful evaluation information is not provided to the strategic and program planning processes. Consequently, both processes can be ineffective because they do not focus on improving the quality of operations in the workplace.

2.

Organization with business divisions (profit centre) format have observed that divisional controllers experience divided loyalty in carrying out their functions in causing a possible dissatisfaction. How could such situation be resolved?

To the extent the decision are decentralized top management may lose some control. Relying on control reports is not as effective as personal knowledge of an operation. With profit center, top management must change its approach to control. Instead of personal direction senior management must rely to a considerable extent on management control reports. Competent units that were once cooperating as functional units may now compete with one another disadvantageously. An increase in one managers profit may decrease those of another. This decrease in cooperation may manifest itself in a manager unwillingness to refer sales lead to another business unit, even though that unit is better qualified to follow up on the lead in production decision that have undesirable cost consequence on other units or in the hoarding of personnel or equipment that from the overall company standpoint would be better off used in another units. There may be too much emphasis on short run profitability at the expense of long run profitability. In the desire to report high current profits, the profit center manager may skip on R&D, training, maintenance. This tendency is especially prevalent when the turnover of profit center managers is

relatively high. In these circumstances, manager may have good reason to believe that their action may not affect profitability until after they have moved to other job. There is no complete satisfactory system for ensuring that each profit center by optimizing its own profit , will optimize company profits. If headquarter management is more capable or has better information then the average profit center manager the quality of some of the decision may be reduced. Divisionalization may cause additional cost because it may require additional management staff personnel and recordkeeping and may lead to redundant at each profit center.

Business units as profit centers: Business units are usually set up at profit centers. Business unit managers tend to control product development, manufacturing, and marketing resources. They are in a position to influence revenue and cost and as such can be held accountable for the bottom line. However as pointed out in the next section a business unit manager authority may be constrained such constrained should be incorporated in designing and operating profit center.

Constraint on business unit authority To realize fully the advantage of the profit center concept the business unit manger would have to be as autonomous as the president of the independent company. As a practical matter however such autonomy is not feasible. If a company were divided into completely independent units the organization would be giving up the advantage of size and synergism. Also senior management authority that a board of director gives to the chief executive. Consequently business unit structure represents trade off between business unit autonomy and corporate constraint. The effectiveness of a business units organization is largely dependent on how well these trade off are made. The performance of a profit center is appraised by comparing actual results for one or more orf these measures with budgeting amounts. In addition, data on competitors and the industry provide a good cross check on the appropriate of the budget. Data for individual companies are available from the securities and exchange commission for about key business ratios; standard & poor computer services, Inc; Robert Morris associates annual statement studies; and annual survey published in fortune, business week, and Forbes. Trade associations publish data for the companies in their industries.

Revenues choosing the appropriate revenue recognition method is important. Should revenue be recognized at the time as order is received, at the time an order is shipped, or at the time cash is received? In addition to that decision, issues related to common revenues may need to be considered. There are some situations in which two or more profit centers participate in the sales effort that results in a sale; ideally, each should be given appropriate credit for its part in this transaction. Many

companies have not given much attention to the solution of these common revenue problems. They take the position that the identification of price responsibility for revenue generation is too complicated to be practical and that sale personnel must recognize they are working not only for their own profit center but also for the overall good of the company. They for example, may credit the business unit that takes an order for a product handled by the another unit with the equivalent of a brokerage commission or a finder fee. In the case of a bank the branch performing a service may be given explicit credit for that service even though the customer account is maintained in another branch.

Role of controller
It should publish procedure and forms for the preparation of the budget. It should provide assistance to budgetees in the preparation of their budget. It should administer the process of making budget revision during the year. It should coordinate the work of budget departments in lower echelons It should analyze reported performance against budget, interprets the result, and

prepares summary report for senior management.

3.

What are the element of management control? Explain each in detail?

Following are the elements of management control system

1. A detector or sensor- a device that measures what is actually happening in the process

being controlled.
2. An assessor- a device that determines the significance of what is actually happening by

comparing it with some standard or expectation of what should happen.

3. An effector- a device ( often called feedback) that alters behavior if the assessor

indicates the need to do so.

4. A communications network- devices that transmit information between the detector and

the assessor and between the assessor and the effector. The function of these elements of management control can be described as follows. For this we use the examples of the thermostat, which regulates room temperature; the biological process that regulates body temperatures; and the driver of an automobile, who regulates the direction and speed of the vehicle.

1. Thermostat

The components of thermostat are :

(a) Thermometer (the detector), which measures the current temperature of a room; (b) An assessor, which compares the current temperature with the accepted standard for what

the temperature should be;

(c) An effector, which prompts a furnace to emit heat (if the actual temperature is lower than

the standard) or activates an air conditioner (if the actual temperature is higher than the standard) and which also shuts off these appliances when the temperature reaches the standard level; and
(d) A communications network, which transmits information from the thermometer to the

assessor and from the assessor to the heating or cooling element.

2. Body temperature

Most mammals are born with a built-in standard of desirable body temperature; in humans that standard is 98.6 F. The elements of control mechanism by which the body strives to maintain that standard are
(a) The sensory nerves (detectors) scattered throughout the body; (b) The hypothalamus center in the brain (assessor), which compares information received

from detectors with the 98.6 F standard;

(c) The muscles and organs (effectors) that reduce the temperature when it exceeds the

standard (via panting and sweating, and opening the skin pores) and raise the temperature when it falls below the standard (via shivering and closing the skin pores); and
(d) The overall communications system of nerves.

The biological control system is homeostatic-that is, self-regulating. If the system is functioning properly, it automatically corrects for deviations from the standard without requiring conscious effort. The body temperature control system is more complex than the thermostat, with body sensors scattered throughout the body and hypothalamus directing actions that involve a variety of muscles and organs. It is also more mysterious; scientists know what the hypothalamus doed but not how it does it.
3. Automobile driver

Assume you are driving on a highway where the legal (i.e., standard) speed is 65 mph. your control system acts as follows:
(a) Your eyes (sensors) measure actual speed by observing the speedometer; (b) Your brain (assessor) compares actual speed with desired speed, and, upon detecting a

deviation from the standard,

(c) Directs your foot (effector) to ease up or press down on the accelerator; and (d) As in body temperature regulation, your nerves form the communication system that

transmits information from eyes to brain and brain to foot. But just as body temperature regulation is more complicated than the thermostat, so the regulation of a car is more complicated than the regulation of body temperature. This is because there can be no certainty as to what action the brain will direct after receiving and evaluating information from the detector. For example, once they determine that the cars actual speed exceeds 65 mph, some drivers, wanting to stay within the legal limit, will ease up on the accelerator, while others, for any number of reasons, will not. In this system, control is not automatic; one would have to know something about the personality and circumstances of the driver to predict what the actual speed of the automobile would be at the end point of the process.

4.

What are different types of strategic mission at SBU level? How does this mission affect strategic planning process and budgeting at SBU level?

Different Types of Strategic Missions: Business Unit Mission: In a diversified firm one of the important tasks of senior management is resource deployment, that is, make decisions regarding the use of the cash generated from some business units to finance growth in other business units. Several planning models have been developed to help corporate level managers of diversified firms to effectively allocate resources. These models suggest that a firm has business units in several categories, identified by their mission; the appropriate strategies for each category differ. Together, the several units make up a portfolio, the components of which differ as to their risk/reward characteristics just as the components of an investment portfolio differ. Both the corporate 'office and the business unit general manager are involved in identifying the missions of individual business units. Of the many planning models, two of the most widely used are Boston Consulting Group's two-by-two growth-share matrix and General Electric

Company/McKinsey & Company's three-by-three industry attractiveness-business strength matrix. While these models differ in the methodologies they use to develop the most appropriate missions for the various business units, they have the same set of missions from which to choose: build, hold, harvest, and divest.

Build: This mission implies an objective of increased market share, even at the expense of short-term earnings and cash flow (e.g., Merck's bio-technology, Black and Decker's handheld electric tools).

Hold: This strategic mission is geared to the protection of the business unit's market share

and competitive position (e.g.: IBM's mainframe computers).

Harvest: This mission has the objective of maximizing short-term earnings and cash flow,

even at the expense of market share (e.g., American Brands' tobacco products, General Electric's and Sylvania's light bulbs)

Divest: This mission indicates a decision to withdraw from the business either through a

process of slow liquidation or outright sale. While the planning models can aid in the formulation of missions, they are not cook books. A business unit's position on a planning grid should not be the sole basis for deciding its mission.

Business Unit Competitive Advantage: Every business unit should develop a competitive

advantage in order to accomplish its mission. Three interrelated questions have to be considered in developing the business unit's competitive= advantage. First, what is the structure of the industry in which the business unit operates? Second, how should the business unit exploit the industry's structure? Third, what will be the basis of the business unit's competitive advantage?

Industry Analysis: Research has highlighted the important role industry conditions play in

the performance of individual firms. Studies have shown that average industry profitability is, by far, the most significant predictor of firm performance. According to Porter, the structure of an industry should be analyzed in terms of the collective strength of five competitive forces.

1. The intensity of rivalry among existing competitors. Factors affecting direct rivalry are industry growth, product differentiability, number and diversity of competitors, level of fixed costs, intermittent overcapacity, and exit barriers. 2. The bargaining power of customers. Factors affecting buyer power are number of buyers, buyer's switching costs, buyer's ability to integrate backward, impact of the business unit's product on buyer's total costs, impact of the business unit's product on buyer's product quality/ performance, and significance of the business unit's volume to buyers. 3. The bargaining power of suppliers. Factors affecting supplier power are number of suppliers, supplier's ability to integrate forward, presence of substitute inputs, and importance of the business unit's volume to suppliers. 4. Threat from substitutes. Factors affecting substitute threat are relative price/performance of substitutes, buyer's switching costs, and buyer's propensity to substitute. 5. The threat of new entry. Factors affecting entry barriers are capital requirements, access to distribution channels, economies of scale, product differentiation, technological complexity of product or process, expected retaliation from existing firms, and government policy.

We make three observations with regard to the industry analysis:

1. The more powerful the five forces are, the less profitable an industry is likely to be. In industries where average profitability is high (such as soft drinks and pharmaceuticals), the five forces are weak (e.g., in the soft drink industry, entry barriers are high). In industries where the average profitability is low (such as steel and coal), the five forces are strong (e.g., in the steel industry, threat from substitutes is high). 2. Depending on the relative strength of the five forces, the key strategic issues facing the business unit will differ from one industry to another. 3. Understanding the nature of each force helps the firm to formulate effective strategies. Supplier selection (a strategic issue) is aided by the analysis of the relative power of several supplier groups; the business unit should link with the supplier group for which it has the best competitive advantage. Similarly, analyzing the relative bargaining power of several buyer groups will facilitate selection of target customer segments.

Generic Competitive Advantage:

The five-force analysis is the starting point for developing a competitive advantage since it helps to identify the opportunities and threats in the external environment. With this understanding, Porter claims that the business unit has two generic ways of responding to the opportunities in the external environment and developing a sustainable competitive advantage: low cost and differentiation.

Low Cost: Cost leadership can be achieved through such approaches as economies of scale

in production; experience curve effects, tight cost control, and cost minimization (in such areas as research and development, service, sales force, or advertising). Some firms following this strategy include Charles Schwab in discount brokerage, Wal-Mart in discount retailing, Texas Instruments in consumer electronics, Emerson Electric in electric motors, Hyundai in automobiles, Dell in computers, Black and Decker in machine tools, Nucor in steel, Lincoln Electric in arc welding equipment, and BIC in pens.

Differentiation:

The primary focus of this strategy is to differentiate the product offering of the business unit, creating something that is perceived by customers as being unique. Approaches to product differentiation include brand loyalty (Coca-Cola and Pepsi Cola in soft drinks), superior customer service (Nordstrom in retailing), dealer network (Caterpillar Tractors in construction equipment), product design and product features (Hewlett-Packard in electronics), and technology (Cisco in communications infrastructure). Other examples of firms following a differentiation strategy include BMW in automobiles; Stouffer's in frozen foods, Neiman-Marcus in retailing, Mont Blanc in pens, and Rolex in wristwatches.
Value Chain Analysis:

Business units can develop competitive advantage based on low cost, differentiation, or both. The most attractive competitive position is to achieve cost-cum-differentiation.

5.

What are the characteristics and process of management control?

Characteristic of management control: Effective control systems have certain characteristics. For a control system to be effective, it must be:
1. Accurate. Information on performance must be accurate. Evaluating the accuracy of the

information they receive is one of the most important control tasks that managers face.
2. Timely. Information must be collected, routed, and evaluated quickly if action is to be

taken in time to produce improvements.

3. Objective and Comprehensible. The information in a control system should be

understandable and be seen as objective by the individuals who use it. A difficult-to understand control system will cause unnecessary mistakes and confusion or frustration among employees.
4. Focused on Strategic Control Points. The control system should be focused on those

areas where deviations from the standards are most likely to take place or where deviations would lead to the greatest harm.
5. Economically Realistic. The cost of implementing a control system should be less than, or

at most equal to, the benefits derived from the control system.
6. Organizational Realistic. The control system has to be compatible with organizational

realities and all standards for performance must be realistic.

7. Coordinated with the Organization's Work Flow. Control information needs to be

coordinated with the flow of work through the organization for two reasons: (1) each step in the work process may affect the success or failure of the entire operation, (2) the control information must get to all the people who need to receive it.
8. Flexible. Controls must have flexibility built into them so that the organizations can react

quickly to overcome adverse changes or to take advantage of new opportunities.

9. Prescriptive and Operational. Control systems ought to indicate, upon the detection of

the deviation from standards, what corrective action should be taken.

10. Accepted by Organization Members. For a control system to be accepted by organization

members, the controls must be related to meaningful and accepted goals. Process of management control: Much of the management control process involves informal interactions between one manager and another or between a manager and his or her subordinates. Informal communications occur by means of memoranda, meetings, conversations, and even by facial expressions. Recently the term management by walking around has come to signify the importance of this information. The informal interactions take place within a formal planning and control system. Such a system includes the following activities:
1. Strategic planning

2. Budget preparation 3. Execution and, 4. Evaluation of performance.

Each activity leads to the next, in a regular cycle. Collectively, they constitute a closed loop.