Some more Scenerios to be tested in ERP Systems

Please arrange to check the following:

(i) Payable creation at Head Office level but payment and adjustment (if receiver is absent in case of separation/transfer) at depot level

(ii) In case of Cheque/DD dishonor how the specific A/R will be returned back to previous position in the system basically at depot level

(iii) AR amount recovered from final settlement bill at HO to be adjusted in depot AR

(iv) Accounting for advance against sales and adjustment after delivery at depot level

(v) Data captured for determination of gap between material required as per recipe and actual use

(vi) Process of capturing LP-3 data

(vii) Data capturing and adjustment for MDR

(viii) Creation of new depot by splitting and AR balance transfer

(ix) Collection of one depot received by another depot/HO and adjustment

Stages involved in the process of Benchmarking

Process of Benchmarking: The process of benchmarking requires a Company to identify the areas i.e. processes, activity etc. which are central to its business and then selects the top-performing companies in those areas.
The benchmarking process is comprised of following stages. These stages are:
1. Planning:
(i) Determination of benchmarking goal statement: This requires identification of areas to be benchmarked. In practice, one should start with the identification of those areas which have to be really good to be really
successful.
(ii) Identification of best performance: Once the benchmarked goal statement are defined, the step is seeking the best of the breed of best of the best.
(iii) Establishment of the benchmarking or process improvement team: Ideally this should include the persons who are most knowledgeable about the internal operations and will be directly affected by changes due to
benchmarking.
(iv) Defining the relevant benchmarking measurement: Relevant measures will not include the measures used by the organisation today but they will be refined measures that comprehend the true performance differences.
2. Collection of data and information:
The data gathering for benchmarking could be done through national/international clearing houses, mail surveys, suppliers, company visits, telephone, interviews etc.In recent years national and international clearing houses have been set up.
3. Analysing the findings: The analysing of finding of step (2) requires following:
(i) Review the findings and produce tables, charts and graphs to support the analysts.
(ii) Identify gaps in performance between our organisation and better performers.
(iii) Seek explanations for the gaps in performance. The performance gaps can be positive, negative or zero.
(iv) Ensure that comparisons are meaningful and credible.

(v) Communicate the findings to those who are affected.
(vi) Identify realistic opportunities for improvements.
4. Recommendations: This involves:
Making recommendation: This requires: (i) Deciding the feasibility of making the improvements in the light of the conditions that apply within own organisation.
(ii) Agreement of the improvements that are likely to be feasible.
(iii) Producing a report on the Benchmarking in which the recommendations are included.
(iv) Obtaining the support of key stakeholder groups for making the changes needed.
(v) Developing action plan(s) for implementation.
5. Monitoring and reviewing: This involves:
(i) Evaluating the benchmarking process undertaken and the results of the improvements against objectives and success criteria plus overall efficiency and effectiveness.
(ii) Documenting the lessons learnt and make them available to others.
(iii) Periodically re-considering the benchmarks

Benchmarking code of conduct

Bench marking is the process of identifying and learning from the best practices anywhere in the world. It is a powerful tool for continuous improvement. To contribute to efficient, effective and ethical bench marking, individuals agree for themselves and their organisation to be abided by the following principles for the
benchmarking with other organisations. 

Suggested benchmarking code of conduct:

(i) Principle of legality
(ii) Principle of exchange
(iii) Principle of confidentiality
(iv) Principle of use
(v) Principle of first party contact
(vi) Principle of third party contact
(vii) Principle of preparation

4 types of benchmarking of critical success factors.

The Benchmarking is of following types:
(i) Competitive benchmarking: It involves the comparison of competitors products, processes and business results with own.
(ii) Strategic benchmarking: It is similar to the process benchmarking in nature but differs in its scope and depth.
(iii) Global benchmarking: It is a benchmarking through which distinction in international culture, business processes and trade practices across companies are bridged and their ramification for business process improvement are understood and utilized.
(iv) Process benchmarking: It involves the comparison of an organisation critical business processes and operations against best practice organization that performs similar work or deliver similar services.
(v) Functional Benchmarking or Generic Benchmarking: This type of benchmarking is used when organisations look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes.
(vi) Internal Benchmarking: It involves seeking partners from within the same organization, for example, from business units located in different areas.
(vii) External Benchmarking: It involves seeking help of outside organisations that are known to be best in class. External benchmarking provides opportunities of learning from those who are at the leading edge, although it must be remembered that not every best practice solution can be transferred to others.

What are Budget Ratios ?

These ratios provide information about the performance level, i.e., the extent of deviation of actual performance from the budgeted performance and whether the actual performance is favourable or unfavorable. If the ratio is 100% or more, the performance is considered as favourable and if ratios is less than 100% the performance is considered as unfavourable.

The following ratios are usually used by the management to measure development from budget.

Capacity usage ratio: This relationship between the budgeted number of working hours and the maximum possible number of working hours in a budget period.

Standard capacity employed ratio: this ratio indicates the extent to which facilities were actually utilized during the budget period.
Level of activity ratio: This may be defined as the number of standard hours equivalent to work produced expressed as a percentage of the budget of standard hours.
Efficiency ratio: this ratio may be defined as standard hours equivalent of work produced expressed as a percentage of the actual hours spent in producing the work.
Calendar ratio: This ratio may be defined as the relationship between the number of working days in a period and the number of working das in the relative budget period.

Budget Ratios :

1. Efficiency Ratio = (Standard hours ÷ Actual hours) × 100
2. Activity Ratio = (Standard hours ÷ Budgeted hours) × 100

3. Calendar Ratio = (Available working days ÷ budgeted working days) × 100
4. Standard Capacity Usage Ratio = (Budgeted hours ÷ Max. possible hours in the budgeted period) × 100
5. Actual Capacity Usage Ratio = (Actual hours worked ÷ Maximum possible working hours in a period) × 100
6. Actual Usage of Budgeted Capacity Ratio = (Actual working hours ÷ Budgeted hours) × 100

Advantages and disadvantages of Zero-base budgeting

The advantages of zero-base budgeting are as follows:

1. It provides a systematic approach for the evaluation of different activities and rank them in order of preference for the allocation of scarce resources.
2. It ensures that the various functions undertaken by the organization are critical for the achievement of its objectives and are being performed in the best possible way.
3. It provides an opportunity to the management to allocate resources for various activities only after having a thorough cost-benefit-analysis. The chances of arbitrary cuts and enhancement are thus avoided.
4. The areas of wasteful expenditure can be easily identified and eliminated.
5. Departmental budgets are closely linked with corporation objectives.
6. The technique can also be used for the introduction and implementation of the system of ‘management by objective.’ Thus, it cannot only be used for fulfillment of the objectives of traditional budgeting but it can also be used for a variety of other purposes.

Disadvantage of ZBB:

1. The work involves in the creation of decision-making and their subsequent ranking has to be made on the basis of new data. This process is very tedious to management.
2. The activity selected for the purpose of ZBB are on the basis of the traditional functional departments. So the consideration scheme may not be implemented properly.

Difference between traditional budgeting and zero based budgeting:

Traditional Budgeting vs Zero- based budgeting. Following are the points of difference between traditional budgeting and zero based budgeting:

1. Traditional budgeting is accounting oriented. Main stress happens to be on previous level of expenditure. Zero-based budgeting makes a decision oriented approach. It is very rational in nature and requires all programmes, old and new, to compete for scarce resources.

2. In traditional budgeting, first reference is made to past level of spending and then demand for inflation and new programmes. In zero based budgeting a decision unit is broken into understandable decision packages, which are ranked according to importance to enable to top management to focus attention to only on decision packages, which enjoy priority to others.

3. In tradition budgeting, some managers deliberately inflate their budget request so that after the cuts they still get what they want. In zero-base budgeting, a rationale analysis of budget proposals is attempted. The managers, who unnecessarily try to inflate the budget request, are likely to be caught and exposed. Management accords its approval only to a carefully devised result-oriented package.

4. Traditional budgeting is not as clear and as responsive as zero base budgeting is.

5. In traditional budgeting. Its for top management to decide why a particular amount should be spent on a particular decision unit. In Zero-base budgeting, this responsibility is shifted from top management to the manager of decision unit.

6. Traditional budgeting makes a routine approach. Zero-base budgeting makes a very straightforward approach and immediately spotlights the decision packages enjoying priority over others.

Characteristics of Zero-base budgeting

ZBB is defined as ‘a method of budgeting which requires each cost element to be specifically justified, as though the activities to which the budget relates were being undertaken for the first time. Without approval, the budget allowance is zero’.

Characteristics of Zero-base budgeting:

1. Manager of a decision unit has to completely justify why there should be at all any budget allotment for his decision unit. This justification is to be made a fresh without making reference to previous level of spending in his department.

2 Activities are identified in decision packages.

3 Decision packages are ranked in order of priority.

4 Packages are evaluated by systematic analysis.

5 under this approach there exist a frank relationship between superior and subordinates. Management agrees to fund for a specified service and manager decision of the decision unit clearly accepts to deliver the service.

6 Decision packages are linked with corporate objectives, which are clearly laid down.

7 Available resources are directed towards alternatives in order of priority to ensure optimum results.

What is Zero Based Budgeting?

Zero Based Budgeting: ZBB is defined as ‘a method of budgeting which requires each cost element to be specifically justified, as though the activities to which the budget relates were being undertaken for the first time. Without approval, the budget allowance is zero’.

Zero – base budgeting is so called because it requires each budget to be prepared and justified from zero, instead of simple using last year’s budget as a base. Incremental level of expenditure on each activity are evaluated according to the resulting incremental benefits. Available resources are then allocated where they can be used most effectively. Zero based budgeting is a decision oriented approach .

In Zero Based budgeting no reference is made to previous level expenditure. Zero based budgeting is completely indifferent to whether total budget is increasing or decreasing. 

CIMA has defined it “as a method of budgeting whereby all activities are revaluated each time a budget is set."