401 Enterprise Performance Management 5860

Short Notes:

a) Process of Responsibility Accounting

b) Types of Responsibility Centers

c) Principles of Social Audit

a) Process of Responsibility Accounting:

Responsibility accounting is a system used in organizations to monitor the performance of
various segments or departments by assigning responsibility to specific individuals or units.
The process typically involves several steps:

1. Identification of Responsibility Centers : The organization identifies various segments or

departments that can be held responsible for specific activities or outcomes. These segments
are often referred to as responsibility centers.

2. Assignment of Responsibility : Once responsibility centers are identified, specific

individuals or managers are assigned responsibility for each center. This includes defining
their roles, objectives, and performance measures.

3. Setting Performance Standards : Clear performance standards are established for each
responsibility center. These standards serve as benchmarks against which actual
performance is evaluated.

4. Performance Measurement : Actual performance is measured against the predetermined

standards. This involves collecting relevant data and comparing it to the established targets.

5. Analysis of Variances : Any differences between actual performance and the

predetermined standards are analyzed. Variances can indicate areas of success or areas
needing improvement.

6. Taking Corrective Actions : Based on the analysis of variances, managers take appropriate
actions to address any deviations from the standards. This may involve making operational
changes, reallocating resources, or revising performance targets.
7. Reporting and Feedback : Regular reports are generated to communicate performance
results to relevant stakeholders. Feedback from the responsibility accounting process informs
decision-making and helps improve future performance.

b) Types of Responsibility Centers:

Responsibility centers are organizational units or segments for which managers are held
accountable. There are four primary types of responsibility centers:

1. Cost Centers : Cost centers are responsible for controlling costs within a specific area or
department. Managers of cost centers are evaluated based on their ability to manage
expenses while maintaining the desired level of output or service.

2. Revenue Centers : Revenue centers are accountable for generating revenue. Managers of
revenue centers are assessed based on their ability to increase sales or other income streams
without significantly increasing costs.

3. Profit Centers : Profit centers are responsible for both generating revenue and
controlling costs. Managers of profit centers are evaluated based on the profitability of their
operations, considering both revenue and expenses.

4. Investment Centers : Investment centers are responsible for generating revenue,

controlling costs, and managing assets. Managers of investment centers have the authority
to make investment decisions and are evaluated based on their ability to generate returns on
invested capital.

c) Principles of Social Audit:

Social audit is a process used by organizations to assess and demonstrate their social,
environmental, and ethical performance. The principles of social audit guide the conduct of
these evaluations and include:
1. Transparency : Social audits should be conducted in a transparent manner, with open
access to relevant information for all stakeholders. Transparency fosters trust and credibility
in the audit process and its outcomes.

2. Participation : Stakeholder participation is essential for a meaningful social audit. All

relevant stakeholders, including employees, customers, communities, and NGOs, should have
the opportunity to contribute their perspectives and insights.

3. Accountability : Social audits hold organizations accountable for their social and
environmental impacts. By evaluating performance against established standards or
benchmarks, social audits help identify areas where organizations need to improve and take
responsibility for their actions.

4. Independence : Social audits should be conducted by impartial and independent parties

to ensure credibility and objectivity. Independent auditors or review panels help ensure that
the audit process remains free from bias or conflicts of interest.

5. Continuous Improvement : Social audit is not a one-time event but an ongoing process of
assessment and improvement. Organizations should use audit findings to identify
opportunities for enhancing their social and environmental performance and implementing
corrective actions as needed.

6. Integration : Social audit should be integrated into an organization's broader

management systems and processes. By incorporating social and environmental
considerations into decision-making and planning, organizations can more effectively address
sustainability issues and meet stakeholder expectations.

a) Evaluate the Performance Evaluation Parameter for Non-Profit Organization?

b) Explain the Product Pricing for Non Profit Organizations?

a) Evaluate the Performance Evaluation Parameters for Non-Profit Organizations:

Performance evaluation in non-profit organizations is essential for assessing their

effectiveness in achieving their mission and goals. While non-profits may not have the same
profit-driven objectives as for-profit entities, they still need to measure their performance to
ensure they are fulfilling their social mission efficiently and effectively. Here are some key
parameters for evaluating performance in non-profit organizations:

1. Mission Achievement : Non-profit organizations exist to fulfill a specific social,

environmental, or humanitarian mission. Therefore, evaluating their performance should
primarily focus on how well they are advancing their mission objectives. This could include
metrics related to the number of people served, the impact on communities, or progress
toward long-term social goals.

2. Program Effectiveness : Non-profits often run various programs and initiatives to address
specific social issues. Evaluating the effectiveness of these programs is crucial for
determining their impact. Performance metrics could include program outcomes, such as
changes in behavior, improvements in quality of life, or the attainment of specific milestones.

3. Financial Management : While profit is not the primary goal of non-profits, they still need
to manage their finances responsibly to ensure sustainability and accountability.
Performance evaluation should include financial metrics such as revenue growth, fundraising
efficiency, expense management, and the ability to maintain financial stability over time.

4. Stakeholder Engagement : Non-profit organizations rely on the support and involvement

of various stakeholders, including donors, volunteers, beneficiaries, and the community.
Performance evaluation should assess the organization's ability to engage and communicate
with stakeholders effectively, build relationships, and foster trust and transparency.

5. Governance and Compliance : Non-profits are subject to legal and regulatory

requirements, as well as ethical standards and best practices for governance. Performance
evaluation should include assessments of the organization's compliance with relevant laws
and regulations, as well as the effectiveness of its governance structures and processes in
ensuring accountability and ethical conduct.

6. Organizational Capacity : Non-profit organizations need to have the capacity and

infrastructure to carry out their mission effectively. Performance evaluation should consider
factors such as staff and volunteer management, organizational leadership, operational
efficiency, and the ability to adapt to changing circumstances or external challenges.
b) Explain the Product Pricing for Non-Profit Organizations:

Non-profit organizations often provide goods or services to support their mission or generate
revenue to fund their activities. While the primary goal of non-profits is not to maximize
profits, they still need to set prices for their products or services that cover costs, support
sustainability, and align with their mission. Here are some common approaches to product
pricing for non-profit organizations:

1. Cost-Based Pricing : Non-profits can use a cost-based pricing approach, where prices are
set based on the costs incurred to produce or deliver the product or service. This includes
direct costs such as materials, labor, and overhead expenses, as well as indirect costs related
to administration or fundraising.

2. Market-Based Pricing : Non-profits may also consider market-based pricing, which

involves setting prices based on what similar products or services are being sold for in the
market. While non-profits may not aim to maximize profits, they still need to remain
competitive and ensure their prices are reasonable and attractive to customers.

3. Value-Based Pricing : Value-based pricing focuses on the perceived value of the product
or service to the customer rather than just the costs or market prices. Non-profits can
consider the social or environmental impact of their offerings and price them accordingly,
taking into account the value they provide to beneficiaries, supporters, or the community.

4. Subsidized Pricing : In some cases, non-profits may offer products or services at prices
below market value to make them more accessible to underserved or disadvantaged
populations. This subsidized pricing approach may involve covering some of the costs
through fundraising or donations to ensure affordability for those in need.

5. Tiered Pricing : Non-profits can also implement tiered pricing models, where different
price points are offered based on factors such as income level, membership status, or level of
service. This allows for greater flexibility in accommodating diverse customer needs and
financial situations while still generating revenue.
6. Donation-Based Pricing : Many non-profits rely on donations or voluntary contributions
to support their operations. Instead of setting fixed prices, they may adopt a donation-based
pricing model, where customers are encouraged to pay what they can afford or what they
believe the product or service is worth, with the option to contribute additional funds to
support the organization's mission.

Ultimately, the choice of pricing strategy for non-profit organizations depends on factors
such as their mission, target audience, cost structure, and revenue goals, as well as
considerations of fairness, accessibility, and social impact.

a) Explain the various Techniques of Capital Budgeting?

b) Describe the Performance Evaluation Parameters for Projects?

a) Explain the various Techniques of Capital Budgeting:

Capital budgeting involves evaluating and selecting long-term investment projects that will
yield returns over an extended period. Various techniques are used to assess the viability of
investment opportunities. Here are some common techniques of capital budgeting:

1. Net Present Value (NPV) :

- NPV compares the present value of cash inflows with the present value of cash outflows
associated with a project.
- If the NPV is positive, it indicates that the project is expected to generate more cash
inflows than outflows and is considered financially viable.
- NPV accounts for the time value of money by discounting future cash flows at a
predetermined discount rate.

2. Internal Rate of Return (IRR) :

- IRR is the discount rate at which the NPV of a project equals zero, representing the rate of
return the project is expected to generate.
- If the IRR is greater than the cost of capital or hurdle rate, the project is considered
acceptable.
 - IRR provides a measure of the project's profitability and helps in comparing investment
alternatives.

3. Payback Period :
- Payback period measures the time required for a project to recoup its initial investment
through cash inflows.
- Projects with shorter payback periods are generally preferred as they offer a quicker
return on investment.
- Payback period does not consider cash flows beyond the payback period and does not
account for the time value of money.

4. Profitability Index (PI) :

- PI is the ratio of the present value of cash inflows to the initial investment.
- A PI greater than 1 indicates that the project's present value of inflows is higher than the
initial investment, making it financially attractive.
- PI helps in ranking investment projects based on their efficiency in generating value
relative to their costs.

5. Accounting Rate of Return (ARR) :

- ARR calculates the average annual accounting profit generated by a project as a
percentage of the initial investment.
- While ARR is easy to calculate and understand, it does not consider the time value of
money and relies solely on accounting profit rather than cash flows.

6. Modified Internal Rate of Return (MIRR) :

- MIRR addresses some limitations of IRR by assuming reinvestment of cash flows at the
cost of capital and financing of cash outflows at the cost of debt.
- MIRR provides a more accurate measure of project profitability compared to IRR,
especially for projects with unconventional cash flow patterns.
These techniques serve as decision-making tools for evaluating investment projects and
determining their financial feasibility and potential return on investment.

b) Describe the Performance Evaluation Parameters for Projects:

Performance evaluation of projects involves assessing how well they have achieved their
objectives and delivered expected outcomes. Various parameters are used to evaluate
project performance, which may vary depending on the nature of the project and its specific
goals. Here are some common performance evaluation parameters for projects:

1. Goal Achievement : Evaluate the extent to which the project has met its predefined goals
and objectives. This may include targets related to deliverables, timelines, quality standards,
and budget constraints.

2. Cost Performance : Assess the project's cost performance by comparing actual

expenditures with the budgeted costs. Determine whether the project was completed within
the allocated budget and identify any cost overruns or savings.

3. Schedule Adherence : Measure the project's schedule adherence by comparing actual

progress against the planned timeline. Evaluate delays or accelerations and their impact on
project completion.

4. Quality of Deliverables : Evaluate the quality of project deliverables against predefined

standards and requirements. Assess whether the deliverables meet stakeholder expectations
and fulfill their intended purpose.

5. Risk Management : Assess the effectiveness of risk management strategies in identifying,

mitigating, and managing project risks. Evaluate how well the project team has responded to
unforeseen challenges and uncertainties.

6. Stakeholder Satisfaction : Solicit feedback from project stakeholders, including clients,

sponsors, team members, and end users, to assess their satisfaction with the project
outcomes and the project management process.
7. Resource Utilization : Evaluate the efficient utilization of resources, including human
resources, equipment, materials, and budgetary allocations. Identify any inefficiencies or
bottlenecks in resource allocation and utilization.

8. Innovation and Learning : Assess the project's contribution to innovation, learning, and
knowledge transfer within the organization. Identify lessons learned and best practices that
can be applied to future projects.

9. Sustainability : Evaluate the project's impact on environmental, social, and economic

sustainability. Assess whether the project has considered and addressed sustainability
concerns throughout its lifecycle.

10. Long-Term Impact : Assess the long-term impact and sustainability of project outcomes
beyond the project's completion. Evaluate whether the project has achieved lasting benefits
and contributed to organizational goals and strategic objectives.

By evaluating projects against these performance parameters, organizations can identify

strengths and weaknesses, learn from their experiences, and improve their project
management practices for future endeavors.
a) KPI used by E Commerce industry is many a times are created. Justify this statement as to Performance
Evaluation Parameters for E-Commerce?

b) Audit Function as a Performance Measurement Tool is Managing People and Money both simultaneously
explains it?

a) KPIs used by the E-commerce industry are often created:

The E-commerce industry operates in a dynamic and highly competitive environment, where
success depends on various factors such as customer satisfaction, operational efficiency,
marketing effectiveness, and financial performance. Due to the unique nature of E-
commerce businesses and the rapid evolution of online markets, traditional performance
evaluation parameters may not always suffice. Therefore, E-commerce companies often
create their own Key Performance Indicators (KPIs) tailored to their specific needs and
objectives. Here's a justification for this statement:
1. Specificity : E-commerce businesses often have unique characteristics and objectives that
may not be adequately captured by generic performance metrics. By creating custom KPIs,
companies can align their performance evaluation with their specific goals, strategies, and
operational models.

2. Real-Time Monitoring : E-commerce operations generate vast amounts of data in real-

time, including website traffic, conversion rates, customer behavior, and inventory levels.
Customized KPIs allow companies to track and analyze this data continuously, enabling
proactive decision-making and performance optimization.

3. Customer-Centric Metrics : E-commerce success heavily relies on customer satisfaction,

engagement, and loyalty. Custom KPIs can focus on measuring customer-centric metrics such
as customer lifetime value, Net Promoter Score (NPS), repeat purchase rate, and customer
acquisition cost, which are crucial for understanding and improving the customer experience.

4. Operational Efficiency : E-commerce companies face unique operational challenges

related to logistics, supply chain management, order fulfillment, and inventory management.
Customized KPIs can assess operational efficiency by tracking metrics such as order
processing time, inventory turnover, shipping accuracy, and fulfillment costs.

5. Marketing Effectiveness : Effective marketing is essential for driving traffic, acquiring

customers, and increasing sales in the E-commerce industry. Custom KPIs can evaluate the
performance of marketing campaigns, channels, and strategies by measuring metrics such as
conversion rates, customer acquisition cost (CAC), return on advertising spend (ROAS), and
social media engagement.

6. Financial Performance : While traditional financial metrics like revenue, profit, and
margins are important, E-commerce businesses may need additional financial KPIs to reflect
their unique business models and revenue streams. Customized financial KPIs could include
metrics such as average order value (AOV), gross merchandise value (GMV), customer
lifetime revenue, and contribution margin.

7. Adaptability and Innovation : The E-commerce landscape is constantly evolving, with new
technologies, market trends, and consumer behaviors emerging regularly. Custom KPIs allow
companies to adapt their performance evaluation to changing market dynamics and
innovations, ensuring relevance and effectiveness over time.

In summary, the creation of custom KPIs by the E-commerce industry is justified by the need
to capture the unique aspects of online retailing, align performance evaluation with business
objectives, and drive continuous improvement and innovation in a rapidly evolving digital
marketplace.

b) Audit Function as a Performance Measurement Tool is Managing People and Money both
simultaneously explains it:

The audit function plays a crucial role in evaluating and monitoring the performance of an
organization's financial and operational activities. By conducting audits, organizations can
ensure compliance with regulatory requirements, identify areas of improvement, mitigate
risks, and enhance overall performance. Here's how the audit function serves as a
performance measurement tool, managing both people and money simultaneously:

1. Financial Accountability : Audits help ensure financial accountability by verifying the

accuracy and integrity of financial records, statements, and transactions. By examining
financial data, auditors can detect errors, irregularities, or fraudulent activities that may
undermine financial performance and integrity.

2. Resource Utilization : Audits assess the efficiency and effectiveness of resource utilization
within an organization, including human resources and financial assets. Auditors evaluate the
allocation of resources, budgetary controls, cost management practices, and return on
investment to identify opportunities for improvement and cost savings.

3. Risk Management : Audits identify and evaluate risks associated with people
management, financial operations, compliance, and strategic objectives. By assessing risk
exposure and control mechanisms, auditors help organizations identify potential threats,
vulnerabilities, and opportunities for enhancing risk management practices.

4. Compliance Assurance : Audits ensure compliance with regulatory requirements,

industry standards, internal policies, and contractual obligations. By verifying adherence to
legal and regulatory frameworks, auditors help mitigate compliance risks and safeguard the
organization's reputation and credibility.

5. Performance Measurement : Audits provide insights into organizational performance by

comparing actual results against predefined objectives, benchmarks, and key performance
indicators (KPIs). Auditors assess the achievement of strategic goals, operational efficiency,
and financial sustainability, helping stakeholders make informed decisions and drive
performance improvement.

6. Internal Controls : Audits evaluate the effectiveness of internal controls and governance
structures in managing financial and operational risks. By reviewing control procedures,
segregation of duties, authorization processes, and information systems, auditors help
identify weaknesses and vulnerabilities that may impact performance and reliability.

7. Continuous Improvement : Audits contribute to continuous improvement by identifying

opportunities for enhancing processes, procedures, and performance metrics. Auditors
provide recommendations and best practices based on audit findings, helping organizations
implement corrective actions and optimize performance over time.

In summary, the audit function serves as a comprehensive performance measurement tool

that manages both people and money simultaneously by ensuring financial accountability,
resource utilization, risk management, compliance assurance, performance measurement,
internal controls, and continuous improvement. By effectively managing people and money,
audits contribute to organizational success, sustainability, and value creation.
 401 Enterprise Performance Management 5946

a) Define enterprise performance management. b) Define responsibility centre. c) Give the types of responsibility
centres. d) Define transfer price. e) Give the different methods of transfer pricing. f) State performance
evaluation parameters for projects. g) What is Management Audit? h) State performance evaluation parameters
for non-profit organizations.

a) Define enterprise performance management:

Enterprise Performance Management (EPM) is a comprehensive approach to managing and
improving organizational performance. It involves the processes, methodologies, and
systems used by businesses to set strategic goals, measure progress, analyze performance
data, and make informed decisions to achieve desired outcomes. EPM encompasses various
aspects of performance management, including financial performance, operational
efficiency, strategic alignment, risk management, and stakeholder engagement. By
integrating performance measurement, planning, budgeting, forecasting, reporting, and
analysis, EPM enables organizations to optimize resources, drive accountability, and enhance
overall performance.

b) Define responsibility centre:

A responsibility center is a distinct organizational unit or segment within a company for
which a manager is held accountable. Responsibility centers are typically defined based on
the types of responsibilities delegated to managers and the level of control they have over
resources and decision-making. Managers of responsibility centers are responsible for
achieving specific objectives and performance targets assigned to their respective areas.
Responsibility centers help organizations allocate resources, assess performance, and
promote accountability by providing a framework for evaluating the contributions of
individual managers and departments to overall organizational goals.

c) Give the types of responsibility centers:

The types of responsibility centers include:

1. Cost Centers: Cost centers are responsible for controlling costs within a specific
department or unit of an organization. Managers of cost centers are evaluated based on their
ability to manage expenses efficiently while maintaining the desired level of output or
service.
2. Revenue Centers: Revenue centers are accountable for generating revenue or income for
the organization. Managers of revenue centers focus on sales, marketing, and other activities
aimed at increasing revenue streams without significantly increasing costs.

3. Profit Centers: Profit centers are responsible for both generating revenue and controlling
costs. Managers of profit centers are evaluated based on the profitability of their operations,
considering both revenue and expenses.

4. Investment Centers: Investment centers are responsible for generating revenue,

controlling costs, and managing assets. Managers of investment centers have the authority
to make investment decisions and are evaluated based on their ability to generate returns on
invested capital.

d) Define transfer price:

A transfer price is the price charged for goods or services transferred between different
departments, divisions, or subsidiaries within the same organization. Transfer pricing is used
to determine the value of transactions between related entities and allocate costs and
revenues appropriately. Transfer prices are important for measuring the performance of
individual units, assessing the profitability of business segments, and ensuring fair and
accurate financial reporting.

e) Give the different methods of transfer pricing:

The different methods of transfer pricing include:

1. Cost-Based Transfer Pricing: Transfer prices are based on the cost of producing or
acquiring the goods or services, including direct costs and a markup for overhead expenses.
This method ensures that the selling division recovers its costs and earns a profit margin.

2. Market-Based Transfer Pricing: Transfer prices are based on prevailing market prices for
similar goods or services sold to external customers. This method ensures that transfer prices
reflect market conditions and encourage efficient resource allocation.
3. Negotiated Transfer Pricing: Transfer prices are determined through negotiations between
the buying and selling divisions based on mutual agreement. This method allows for flexibility
and considers the unique circumstances of each transaction but may lead to conflicts of
interest.

4. Cost-Plus Transfer Pricing: Transfer prices are calculated by adding a predetermined

markup to the cost of producing or acquiring the goods or services. This method ensures that
the selling division earns a specified profit margin above its costs.

5. Dual Pricing: Transfer prices are set at different levels for internal and external
transactions to reflect differences in market conditions, tax considerations, or other factors.
This method allows organizations to optimize tax planning and profit maximization strategies.

f) State performance evaluation parameters for projects:

Performance evaluation parameters for projects may include:

1. Goal Achievement: Assess the extent to which the project has met its objectives and
deliverables within the defined scope, timeline, and budget.

2. Cost Performance: Evaluate the project's cost performance by comparing actual

expenditures with budgeted costs and identifying cost overruns or savings.

3. Schedule Adherence: Measure the project's adherence to the planned schedule by

assessing actual progress against milestones and deadlines.

4. Quality of Deliverables: Evaluate the quality and completeness of project deliverables

against predefined standards and requirements.

5. Risk Management: Assess the effectiveness of risk identification, mitigation, and

management strategies in addressing project risks and uncertainties.
6. Stakeholder Satisfaction: Solicit feedback from project stakeholders to assess their
satisfaction with project outcomes, communication, and stakeholder engagement.

7. Resource Utilization: Evaluate the efficient allocation and utilization of resources, including
human resources, materials, equipment, and budgetary allocations.

8. Innovation and Learning: Assess the project's contribution to innovation, knowledge

transfer, and organizational learning through lessons learned and best practices.

g) What is Management Audit?

A management audit is a comprehensive evaluation of an organization's management
practices, policies, processes, and procedures to assess their effectiveness, efficiency, and
alignment with strategic objectives. Management audits examine various aspects of
management performance, including leadership, governance, organizational structure,
decision-making, communication, and resource management. The primary objectives of a
management audit are to identify strengths, weaknesses, opportunities, and threats within
the organization's management practices and to recommend improvements to enhance
organizational performance, sustainability, and competitiveness.

h) State performance evaluation parameters for non-profit organizations:

Performance evaluation parameters for non-profit organizations may include:

1. Mission Achievement: Assess the extent to which the organization has achieved its social,
environmental, or humanitarian mission and goals.

2. Program Effectiveness: Evaluate the effectiveness and impact of the organization's

programs and initiatives in addressing social needs and improving quality of life.

3. Financial Management: Assess the organization's financial sustainability, transparency, and

accountability in managing resources and funds.
4. Stakeholder Engagement: Evaluate the organization's ability to engage and communicate
with stakeholders, including donors, volunteers, beneficiaries, and the community.

5. Governance and Compliance: Assess the effectiveness of the organization's governance

structures, policies, and procedures in ensuring ethical conduct, legal compliance, and sound
stewardship of resources.

6. Organizational Capacity: Evaluate the organization's capacity and infrastructure to deliver

programs and services effectively, including leadership, staff, volunteers, and operational
systems.

7. Social Impact: Measure the organization's social, environmental, and economic impact on
its beneficiaries, communities, and society at large.

8. Fundraising Efficiency: Assess the organization's ability to raise funds and manage
fundraising activities efficiently, including donor retention, fundraising costs, and return on
investment in fundraising efforts.

By evaluating performance against these parameters, non-profit organizations can

demonstrate accountability, transparency, and impact to their stakeholders and donors, and
continuously improve their effectiveness in achieving their mission and objectives.
a) Describe the process of Capital Budgeting. b) Explain various methods used to evaluate performance of
investment centres. c) Discuss Malcolm Baldrige Framework with reference to 7 criteria.

a) Describe the process of Capital Budgeting:

Capital budgeting is the process of planning and evaluating long-term investment projects or
expenditures that involve significant outlays of funds. The process typically involves several
steps:

1. Identification of Investment Opportunities : The first step in capital budgeting is to

identify potential investment opportunities that align with the organization's strategic
objectives. This may involve conducting market research, evaluating industry trends, and
assessing the organization's needs and priorities.

2. Project Proposal and Evaluation : Once investment opportunities are identified, project
proposals are developed outlining the scope, objectives, costs, benefits, and risks associated
with each project. These proposals are evaluated based on their alignment with strategic
goals, potential for value creation, and financial feasibility.

3. Estimation of Cash Flows : The next step is to estimate the expected cash flows
associated with each investment project. This involves forecasting the future inflows and
outflows of cash over the project's lifecycle, taking into account revenues, expenses, capital
expenditures, and any other relevant cash flows.

4. Time Value of Money : Cash flows are discounted to their present value using an
appropriate discount rate to account for the time value of money. Discounted cash flow
(DCF) techniques, such as net present value (NPV) and internal rate of return (IRR), are
commonly used to evaluate the profitability and financial viability of investment projects.

5. Risk Assessment : Investment projects are assessed for various risks, including market
risk, operational risk, technological risk, and financial risk. Sensitivity analysis, scenario
analysis, and risk-adjusted discount rates may be used to incorporate risk considerations into
the capital budgeting decision-making process.

6. Selection and Prioritization : Based on the evaluation of cash flows, profitability, and risk,
investment projects are selected and prioritized for funding. Projects that offer the highest
potential return on investment and are consistent with strategic objectives are typically given
priority.

7. Implementation and Monitoring : Once investment projects are approved, they are
implemented according to the project plan and budget. Progress is monitored regularly to
ensure that projects are on track, and any deviations from the plan are addressed promptly.

8. Post-Implementation Review : After projects are completed, a post-implementation

review is conducted to evaluate actual performance against expected outcomes. Lessons
learned are documented, and best practices are identified to improve the capital budgeting
process for future projects.

b) Explain various methods used to evaluate performance of investment centres:

Investment centers are organizational units responsible for generating revenue, controlling
costs, and managing assets. Evaluating the performance of investment centers is crucial for
assessing their contribution to overall organizational goals and profitability. Various methods
can be used to evaluate the performance of investment centers, including:

1. Return on Investment (ROI) : ROI measures the profitability of an investment center by

comparing its net income or operating income to its invested capital. The formula for ROI is:

\[ ROI = \frac{{Net Income}}{{Invested Capital}} \times 100\% \]

Higher ROI indicates better performance in generating profits relative to the amount of
capital invested.

2. Residual Income (RI) : RI measures the excess of an investment center's net income over
a specified minimum required rate of return on its invested capital. The formula for RI is:

\[ RI = Net Income - (Invested Capital \times Minimum Required Rate of Return) \]

Positive RI indicates that the investment center has generated returns above the minimum
required rate of return, while negative RI indicates underperformance.

3. Economic Value Added (EVA) : EVA measures the net operating profit of an investment
center after deducting the cost of capital. It represents the value created by the investment
center above the cost of capital. The formula for EVA is:

\[ EVA = Net Operating Profit After Taxes - (Invested Capital \times Cost of Capital) \]
 Positive EVA indicates value creation, while negative EVA indicates value destruction.

4. Profit Margin : Profit margin measures the percentage of sales revenue that translates
into net income. It is calculated by dividing net income by sales revenue. Higher profit margin
indicates better performance in generating profits from sales.

5. Asset Turnover : Asset turnover measures the efficiency of an investment center in

generating sales revenue from its assets. It is calculated by dividing sales revenue by average
total assets. Higher asset turnover indicates better utilization of assets to generate sales
revenue.

6. Operating Income : Operating income measures the profitability of an investment center

before interest and taxes. It represents the income generated from core business operations.
Higher operating income indicates better performance in generating profits from business
activities.

These methods provide insights into the financial performance and value creation of
investment centers, helping managers make informed decisions and allocate resources
effectively.

c) Discuss Malcolm Baldrige Framework with reference to 7 criteria:

The Malcolm Baldrige National Quality Award (MBNQA) framework is a widely recognized
and prestigious framework for performance excellence and organizational improvement. It
consists of seven criteria categories that provide a holistic approach to assessing
organizational performance and identifying areas for improvement. The seven criteria
categories are:

1. Leadership : This criterion focuses on how senior leaders guide and sustain the
organization, including their vision, values, ethics, and culture. It assesses leadership's role in
setting strategic direction, promoting a customer-focused mindset, and ensuring
organizational sustainability.
2. Strategic Planning : This criterion evaluates the organization's strategic planning process,
including how it establishes strategic objectives, aligns goals with stakeholder needs and
expectations, and deploys resources to execute the strategic plan. It assesses the
organization's ability to anticipate and respond to changing market conditions and emerging
opportunities.

3. Customer Focus : This criterion examines how the organization understands and engages
with its customers to meet or exceed their needs and expectations. It assesses the
organization's commitment to customer satisfaction, loyalty, and retention, as well as its
efforts to gather and act on customer feedback.

4. Measurement, Analysis, and Knowledge Management : This criterion assesses the

organization's approach to performance measurement, analysis, and learning. It evaluates
how the organization collects, analyzes, and uses data and information to make informed
decisions, drive continuous improvement, and innovate.

5. Workforce Focus : This criterion focuses on the organization's people management

practices, including recruitment, training, development, empowerment, and engagement of
its workforce. It assesses the organization's commitment to diversity, inclusion, equity, and
employee well-being.

6. Operations Focus : This criterion evaluates the organization's operational processes and
systems, including design, management, and improvement efforts. It assesses the
organization's ability to deliver products and services efficiently, reliably, and consistently
while minimizing waste and variation.

7. Results : This criterion examines the organization's performance results in key areas,
including customer satisfaction, product and service quality, financial performance, market
share, and societal impact. It assesses the organization's achievement of strategic objectives
and its ability to deliver value to stakeholders.

The Baldrige framework provides a comprehensive and systematic approach to

organizational assessment and improvement, promoting excellence in leadership, strategy,
customer focus, measurement, workforce management, operations, and results.
Organizations can use the Baldrige criteria to identify strengths and weaknesses, prioritize
improvement initiatives, and drive sustainable performance excellence.

a) Explain performance evaluation parameters for banks.

b) Write a brief outline on various KPIs used by E Commerce industry.

a) Explain performance evaluation parameters for banks:

Performance evaluation parameters for banks are crucial for assessing their financial health,
operational efficiency, risk management practices, and customer satisfaction. Given the
complexity of banking operations and the importance of maintaining public trust, banks use a
variety of performance metrics to measure their effectiveness and identify areas for
improvement. Here are some key performance evaluation parameters for banks:

1. Financial Performance Metrics :

- Return on Assets (ROA) : Measures the bank's profitability relative to its total assets. It
indicates how efficiently the bank is utilizing its assets to generate profits.
- Return on Equity (ROE) : Measures the bank's profitability relative to its shareholders'
equity. It indicates the return earned on shareholders' investment in the bank.
- Net Interest Margin (NIM) : Measures the difference between the interest income
earned on loans and investments and the interest expenses paid on deposits and borrowings.
It reflects the bank's net interest income as a percentage of its interest-earning assets.
- Efficiency Ratio : Measures the bank's operating expenses as a percentage of its
revenue. A lower efficiency ratio indicates better cost management and operational
efficiency.

2. Asset Quality Metrics :

- Non-Performing Loans (NPLs) Ratio : Measures the proportion of loans that are in
default or are at risk of default. It indicates the bank's asset quality and credit risk exposure.
- Loan Loss Provision Ratio : Measures the amount of money set aside by the bank to
cover potential loan losses as a percentage of its total loans. It reflects the bank's risk
management practices and ability to withstand credit losses.
- Loan-to-Deposit Ratio : Measures the bank's loan portfolio relative to its deposit base. It
indicates the bank's liquidity position and ability to lend.
3. Capital Adequacy Metrics :
- Capital Adequacy Ratio (CAR) : Measures the bank's capital adequacy relative to its risk-
weighted assets. It indicates the bank's ability to absorb losses and maintain solvency.
- Tier 1 Capital Ratio : Measures the bank's core capital (Tier 1 capital) relative to its risk-
weighted assets. It reflects the bank's financial strength and ability to withstand adverse
economic conditions.

4. Risk Management Metrics :

- Liquidity Coverage Ratio (LCR) : Measures the bank's ability to meet its short-term
liquidity needs under stressed conditions. It indicates the bank's liquidity risk management
capabilities.
- Interest Rate Risk (IRR) : Measures the bank's exposure to changes in interest rates and
the potential impact on its net interest income and financial position.

5. Customer Satisfaction Metrics :

- Net Promoter Score (NPS) : Measures customer loyalty and satisfaction by asking
customers how likely they are to recommend the bank to others.
- Customer Retention Rate : Measures the percentage of customers retained by the bank
over a specific period. It indicates the bank's ability to attract and retain customers.

These performance evaluation parameters help banks assess their financial strength, risk
exposure, operational efficiency, and customer satisfaction, enabling them to make informed
decisions and improve overall performance.

b) Write a brief outline on various KPIs used by E-commerce industry:

Key Performance Indicators (KPIs) are essential metrics used by the E-commerce industry to
measure the effectiveness and success of their online business operations. Here's a brief
outline of various KPIs commonly used by the E-commerce industry:

1. Sales Performance KPIs :

 - Revenue Growth Rate
- Average Order Value (AOV)
- Conversion Rate
- Customer Lifetime Value (CLV)
- Cart Abandonment Rate

2. Marketing and Advertising KPIs :

- Cost Per Acquisition (CPA)
- Return on Advertising Spend (ROAS)
- Click-Through Rate (CTR)
- Customer Acquisition Cost (CAC)
- Email Open Rate and Click-through Rate

3. Customer Experience KPIs :

- Customer Satisfaction Score (CSAT)
- Net Promoter Score (NPS)
- Customer Retention Rate
- Churn Rate
- Average Response Time to Customer Inquiries

4. Website Performance KPIs :

- Website Traffic
- Bounce Rate
- Average Session Duration
- Page Load Time
- Mobile Responsiveness and Performance

5. Inventory and Supply Chain KPIs :

 - Inventory Turnover Ratio
- Stock-Out Rate
- Order Fulfillment Rate
- On-time Delivery Rate
- Supplier Lead Time

6. Financial KPIs :
- Gross Margin
- Operating Profit Margin
- Return on Investment (ROI)
- Cash Conversion Cycle
- Inventory Turnover Ratio

7. Operational Efficiency KPIs :

- Order Processing Time
- Return Rate
- Fulfillment Accuracy
- Customer Service Response Time
- Employee Productivity and Efficiency

These KPIs help E-commerce businesses track and measure various aspects of their
performance, identify areas for improvement, and make data-driven decisions to optimize
their operations and drive business growth.

a) Compare and contrast Engineered and Discretionary cost centre?

b) ABC Company fixes the inter-divisional transfer price for its products on the basis of cost plus return on
investment in the division. The budget for the division A for 2021-22 is as under: 1) Fixed assets - 2,50,000 2)
Current assets - 1,50,000 3) Debtors - 1,00,000 4) Annual fixed cost of division - 4,00,000 5) Variable cost per unit
of product - 10 6) Budgeted volume - 2,00,000 units per year 7) Desired ROI - 28% i) Determine the transfer price
for division A. ii) If the volume (units) can be increased by 10%, what will be the impact of transfer prices.

a) Compare and contrast Engineered and Discretionary cost center:

Engineered Cost Center:
- Engineered cost centers are those where costs are determined by physical relationships and
are controllable through management decisions.
- Costs in engineered cost centers are directly related to the level of output or activity. For
example, in a manufacturing plant, the cost of raw materials, labor, and utilities directly
varies with the number of units produced.
- These costs are considered to be relatively fixed in the short term but can be managed and
controlled over the long term through operational efficiencies and process improvements.
- Examples of engineered cost centers include production departments, manufacturing
facilities, and service centers where costs are directly tied to production or service delivery
activities.

Discretionary Cost Center:

- Discretionary cost centers are those where costs are incurred at the discretion of
management and are not directly related to production or activity levels.
- Costs in discretionary cost centers are typically incurred for activities such as research and
development, marketing, advertising, training, and employee welfare.
- Unlike engineered costs, which are relatively fixed and controllable, discretionary costs are
more flexible and can be adjusted based on management decisions and priorities.
- The level of spending in discretionary cost centers depends on factors such as strategic
objectives, budget allocations, and managerial discretion.
- Examples of discretionary cost centers include research and development departments,
marketing departments, and employee training programs.

Comparison:
1. Control: Both engineered and discretionary cost centers require management control, but
the nature of control differs. Engineered cost centers focus on managing costs directly
related to production or activity levels, while discretionary cost centers involve managing
costs that are more flexible and subject to managerial discretion.
2. Flexibility: Discretionary cost centers offer more flexibility in terms of cost management
and adjustment compared to engineered cost centers, which have costs that are more fixed
in the short term.
3. Relationship to Output: Engineered cost centers have costs directly related to output or
activity levels, while discretionary cost centers have costs that are not directly tied to
production or activity.

b) i) Determine the transfer price for division A:

To determine the transfer price for division A, we need to calculate the total cost per unit
including the desired return on investment (ROI). The transfer price can be calculated as
follows:

Total cost per unit = Variable cost per unit + (Annual fixed cost / Budgeted volume) + Desired
ROI per unit

Given:
- Variable cost per unit = Rs10
- Annual fixed cost of division = Rs400,000
- Budgeted volume = 200,000 units per year
- Desired ROI = 28% of total assets

First, we calculate the desired ROI amount:

Desired ROI = 28% of (Fixed assets + Current assets + Debtors)
= 0.28 * (2,50,000 + 1,50,000 + 1,00,000)
= Rs1,12,000

Next, we calculate the total fixed cost per unit:

Total fixed cost per unit = Annual fixed cost / Budgeted volume
= Rs400,000 / 200,000
= Rs2 per unit

Now, we calculate the transfer price per unit:

Transfer price per unit = Variable cost per unit + Total fixed cost per unit + Desired ROI per
unit
= Rs10 + Rs2 + ( Rs1,12,000 / 200,000)
= Rs10 + Rs2 + Rs0.56
= Rs12.56

ii) If the volume (units) can be increased by 10%, the impact on transfer prices will depend on
whether the desired ROI remains the same or changes. If the desired ROI remains the same,
the transfer price per unit will decrease due to the decrease in total fixed cost per unit
resulting from the increase in volume. If the desired ROI changes, the transfer price per unit
will be recalculated based on the new ROI and volume.

a) Create a balanced scorecard for an engineering/construction company. Make assumptions for strategic
objectives of the company.

b) Develop a dashboard for measuring and evaluating performance of a retail store. Make necessary
assumptions if required.

a) Balanced Scorecard for an Engineering/Construction Company:

Assumptions for Strategic Objectives:

1. Financial Perspective :
- Increase profitability by 15% annually.
- Achieve a return on investment (ROI) of 20%.
- Maintain a healthy cash flow to fund ongoing projects and investments.

2. Customer Perspective :
- Enhance customer satisfaction by delivering projects on time and within budget.
- Improve customer retention rate by 10%.
- Increase market share by 5% through customer referrals and repeat business.

3. Internal Business Process Perspective :

 - Streamline project management processes to reduce project cycle time by 10%.
- Improve quality control measures to reduce rework and defects by 20%.
- Enhance supply chain management to ensure timely delivery of materials and equipment.

4. Learning and Growth Perspective :

- Invest in employee training and development programs to improve technical skills and
competencies.
- Foster a culture of innovation and continuous improvement to drive efficiency and
creativity.
- Strengthen employee engagement and retention through effective communication and
recognition programs.

Based on these assumptions, here's a balanced scorecard for the engineering/construction

company:

Strategic Key Targets

Objectives Performance
Indicators (KPIs)
Financial - Profitability 15% annually
Perspective growth rate
- Return on 20%
Investment
(ROI)
- Cash flow Positive cash
performance flow
Customer - On-time 95%
Perspective project delivery
- Customer 90%
satisfaction
score
- Customer 10% increase
retention rate annually
Internal - Project cycle 10% decrease
Business Process time reduction annually
Perspective
 - Quality control 20% reduction
effectiveness in defects
- Supplier 95% on-time
delivery delivery
performance
Learning and - Employee 100 hours
Growth training hours annually
Perspective
- Innovation 2 new
initiatives initiatives
annually
- Employee 85%
engagement satisfaction
score

This balanced scorecard provides a comprehensive framework for measuring and evaluating
the company's performance across financial, customer, internal business process, and
learning and growth perspectives, aligned with its strategic objectives.

b) Dashboard for Measuring and Evaluating Performance of a Retail Store:

Assumptions:
1. The retail store's strategic objectives include increasing sales, improving customer
satisfaction, optimizing inventory management, and enhancing employee productivity.
2. The retail store operates in the fashion apparel industry and targets customers aged 18-35.

Key Performance Indicators (KPIs):

1. Sales Performance :
- Total Sales Revenue
- Sales Growth Rate
- Average Transaction Value
- Sales by Product Category
2. Customer Satisfaction :
- Net Promoter Score (NPS)
- Customer Feedback Ratings
- Customer Complaint Resolution Time

3. Inventory Management :
- Inventory Turnover Ratio
- Stock-Out Rate
- Days Sales of Inventory (DSI)
- Sell-Through Rate

4. Employee Productivity :
- Sales per Employee
- Average Transaction Time
- Employee Satisfaction Score
- Training Hours per Employee

Dashboard Components:
1. Sales Dashboard :
- Real-time display of total sales revenue, sales growth rate, and average transaction value.
- Graphical representation of sales by product category.
- Comparison of current sales performance with historical data.

2. Customer Satisfaction Dashboard :

- NPS score tracker with trend analysis.
- Customer feedback ratings and sentiment analysis.
- Summary of customer complaints and resolution status.
3. Inventory Management Dashboard :
- Inventory turnover ratio and stock-out rate indicators.
- DSI calculation and trend analysis.
- Visual representation of sell-through rate and aging inventory.

4. Employee Productivity Dashboard :

- Sales per employee metrics with trend analysis.
- Average transaction time and checkout efficiency.
- Employee satisfaction survey results and training hours tracking.

Overall, this dashboard provides a comprehensive view of the retail store's performance in
key areas such as sales, customer satisfaction, inventory management, and employee
productivity, enabling management to make informed decisions and drive continuous
improvement initiatives.
 401 Enterprise Performance Management 6025

Short Notes

a) Principles of Management Audit

b) Process of Capital Budgeting

c) Features of E-Commerce

a) Principles of Management Audit:

Management audit is a systematic examination of management policies, procedures, and

practices to evaluate their effectiveness and efficiency in achieving organizational objectives.
The principles of management audit include:

1. Objective Orientation : Management audit should be conducted with clear and specific
objectives in mind, such as improving organizational performance, enhancing efficiency, or
ensuring compliance with legal and regulatory requirements.

2. Comprehensive Scope : Management audit should cover all aspects of management

functions, including planning, organizing, directing, and controlling, as well as strategic,
operational, financial, and administrative areas.

3. Independence and Impartiality : Management audit should be conducted by

independent and impartial auditors who are free from bias and conflicts of interest. Auditors
should maintain objectivity and integrity throughout the audit process.

4. Systematic Approach : Management audit should follow a systematic and structured

approach, including planning, data collection, analysis, and reporting. Auditors should use
standardized audit procedures and methodologies to ensure consistency and reliability of
audit findings.

5. Professional Competence : Management auditors should possess the necessary

knowledge, skills, and expertise to conduct audits effectively. They should stay updated on
industry trends, best practices, and regulatory requirements relevant to the organization
being audited.
6. Confidentiality and Confidentiality : Management auditors should maintain
confidentiality and discretion in handling sensitive information obtained during the audit
process. They should ensure that audit findings are communicated only to authorized
individuals and are not disclosed to unauthorized parties.

7. Timeliness and Efficiency : Management audit should be conducted in a timely and

efficient manner to minimize disruption to normal business operations. Auditors should
prioritize audit activities based on risk assessment and allocate resources effectively to
achieve audit objectives within specified timelines.

b) Process of Capital Budgeting:

Capital budgeting is the process of planning and evaluating long-term investment projects or
expenditures that involve significant outlays of funds. The process typically involves several
steps:

1. Identification of Investment Opportunities : The first step in capital budgeting is to

identify potential investment opportunities that align with the organization's strategic
objectives. This may involve conducting market research, evaluating industry trends, and
assessing the organization's needs and priorities.

2. Project Proposal and Evaluation : Once investment opportunities are identified, project
proposals are developed outlining the scope, objectives, costs, benefits, and risks associated
with each project. These proposals are evaluated based on their alignment with strategic
goals, potential for value creation, and financial feasibility.

3. Estimation of Cash Flows : The next step is to estimate the expected cash flows
associated with each investment project. This involves forecasting the future inflows and
outflows of cash over the project's lifecycle, taking into account revenues, expenses, capital
expenditures, and any other relevant cash flows.
4. Time Value of Money : Cash flows are discounted to their present value using an
appropriate discount rate to account for the time value of money. Discounted cash flow
(DCF) techniques, such as net present value (NPV) and internal rate of return (IRR), are
commonly used to evaluate the profitability and financial viability of investment projects.

5. Risk Assessment : Investment projects are assessed for various risks, including market
risk, operational risk, technological risk, and financial risk. Sensitivity analysis, scenario
analysis, and risk-adjusted discount rates may be used to incorporate risk considerations into
the capital budgeting decision-making process.

6. Selection and Prioritization : Based on the evaluation of cash flows, profitability, and risk,
investment projects are selected and prioritized for funding. Projects that offer the highest
potential return on investment and are consistent with strategic objectives are typically given
priority.

7. Implementation and Monitoring : Once investment projects are approved, they are
implemented according to the project plan and budget. Progress is monitored regularly to
ensure that projects are on track, and any deviations from the plan are addressed promptly.

8. Post-Implementation Review : After projects are completed, a post-implementation

review is conducted to evaluate actual performance against expected outcomes. Lessons
learned are documented, and best practices are identified to improve the capital budgeting
process for future projects.

c) Features of E-Commerce:

E-commerce, or electronic commerce, refers to the buying and selling of goods and services
over the internet or other electronic networks. Some key features of e-commerce include:

1. Global Reach : E-commerce allows businesses to reach a global audience and expand
their customer base beyond geographical boundaries. Customers can access online stores
from anywhere in the world, at any time.
2. 24/7 Availability : Unlike traditional brick-and-mortar stores, e-commerce websites are
accessible 24 hours a day, seven days a week, allowing customers to shop at their
convenience without any time constraints.

3. Convenience : E-commerce offers convenience to both buyers and sellers by eliminating

the need for physical stores and reducing overhead costs associated with traditional retailing.
Customers can browse products, compare prices, and make purchases from the comfort of
their homes or on the go using mobile devices.

4. Wide Variety of Products : E-commerce platforms offer a wide variety of products and
services, ranging from consumer electronics and apparel to digital downloads and online
subscriptions. Customers have access to a diverse range of products from multiple vendors in
one place.

5. Personalization and Targeting : E-commerce websites leverage data analytics and

customer insights to personalize the shopping experience and target promotions and offers
based on individual preferences, browsing history, and demographic information.

6. Secure Transactions : E-commerce transactions are conducted electronically, typically

using secure payment gateways and encryption technologies to ensure the security and
privacy of customer information and financial data.

7. Customer Reviews and Feedback : E-commerce platforms allow customers to leave

reviews and feedback about products and sellers, enabling other shoppers to make informed
purchasing decisions based on the experiences of previous buyers.

8. Scalability and Flexibility : E-commerce businesses can easily scale their operations to
accommodate growth and adapt to changing market conditions. They can quickly add new
products, update pricing, and expand into new markets with minimal overhead and
infrastructure costs.
a) Explain in details Governance of Non Profit Organizations?

b) Define Capital Budgeting. Discuss the purpose and importance of capital budgeting.
a) Governance of Nonprofit Organizations:

Governance in nonprofit organizations refers to the structures, processes, and mechanisms

through which the organization's mission, goals, and activities are directed, managed, and
overseen. Effective governance is essential for ensuring accountability, transparency, and
ethical conduct, as well as for achieving the organization's objectives and maximizing its
impact. Here are the key aspects of governance in nonprofit organizations:

1. Board of Directors/Trustees : The governing body of a nonprofit organization is typically

its board of directors or trustees. The board is responsible for providing strategic direction,
setting policies and priorities, and overseeing the organization's activities. Board members
are fiduciaries who act in the best interests of the organization and its stakeholders.

2. Mission and Values : Governance begins with a clear and well-defined mission statement
that articulates the organization's purpose and values. The board ensures that the
organization's activities are aligned with its mission and that decisions are made in
accordance with its core values.

3. Legal and Regulatory Compliance : Nonprofit organizations are subject to various legal
and regulatory requirements, including tax laws, reporting obligations, and governance
standards. The board ensures compliance with relevant laws and regulations and adopts
appropriate governance policies and procedures to mitigate risks and ensure accountability.

4. Financial Oversight : The board has a fiduciary responsibility to ensure the financial
health and sustainability of the organization. This includes approving annual budgets,
financial statements, and audit reports, as well as overseeing fundraising activities,
investment strategies, and financial controls.

5. Strategic Planning and Risk Management : Governance involves setting strategic goals
and objectives for the organization and developing plans to achieve them. The board
assesses risks and opportunities, monitors performance against strategic objectives, and
adjusts strategies as needed to adapt to changing circumstances.
6. Transparency and Accountability : Nonprofit organizations are accountable to their
stakeholders, including donors, members, beneficiaries, and the public. Governance
mechanisms such as annual reports, financial disclosures, and stakeholder engagement
processes ensure transparency and accountability in decision-making and operations.

7. Ethical Standards and Conduct : Governance promotes ethical behavior and integrity
throughout the organization. The board sets ethical standards and codes of conduct for staff,
volunteers, and other stakeholders and establishes mechanisms for reporting and addressing
ethical concerns or conflicts of interest.

8. Evaluation and Continuous Improvement : Governance involves monitoring and

evaluating the organization's performance and impact, both internally and externally. The
board conducts periodic reviews of governance practices, board effectiveness, and
organizational performance, and implements measures for continuous improvement.

Overall, effective governance is essential for nonprofit organizations to fulfill their missions,
maintain public trust, and achieve long-term sustainability and impact.

b) Define Capital Budgeting. Discuss the purpose and importance of capital budgeting:

Capital budgeting is the process of planning, evaluating, and selecting long-term investment
projects or expenditures that involve significant outlays of funds. These investments typically
have a life span of more than one year and are expected to generate returns over a period of
time. Capital budgeting involves analyzing the potential costs and benefits of investment
opportunities to determine their financial viability and alignment with the organization's
strategic objectives.

The purpose of capital budgeting is to ensure that limited financial resources are allocated
efficiently and effectively to investment projects that offer the highest potential return on
investment and contribute to the long-term growth and success of the organization. Some
key objectives and importance of capital budgeting include:
1. Maximizing Shareholder Value : Capital budgeting helps organizations maximize
shareholder value by identifying and investing in projects that generate positive returns and
create long-term value for shareholders.

2. Strategic Alignment : Capital budgeting ensures that investment decisions are aligned
with the organization's strategic goals and objectives. It helps prioritize projects that support
the organization's mission, vision, and growth strategies.

3. Resource Allocation : Capital budgeting helps allocate limited financial resources among
competing investment opportunities. By evaluating the costs, benefits, and risks of different
projects, organizations can allocate resources to projects with the highest potential for value
creation and risk-adjusted returns.

4. Risk Management : Capital budgeting involves assessing and managing the risks
associated with investment projects. By considering factors such as market conditions,
industry trends, technological advancements, and competitive pressures, organizations can
identify and mitigate risks to improve the likelihood of project success.

5. Long-Term Planning : Capital budgeting facilitates long-term planning and decision-

making by evaluating investment opportunities over multiple years or investment cycles. It
helps organizations make informed decisions about resource allocation, capacity expansion,
and infrastructure development to support future growth and competitiveness.

6. Financial Performance Evaluation : Capital budgeting provides a framework for

evaluating the financial performance and profitability of investment projects. By comparing
actual results with projected returns, organizations can assess the effectiveness of their
investment decisions and identify areas for improvement.

7. Stakeholder Communication : Capital budgeting enhances communication and

transparency with stakeholders, including shareholders, lenders, regulators, and other key
stakeholders. By providing clear rationale and justification for investment decisions,
organizations can build trust and confidence among stakeholders and enhance their
credibility in the marketplace.
Overall, capital budgeting is a critical process for organizations to allocate resources
strategically, manage risks effectively, and maximize long-term value creation. It helps
organizations make informed investment decisions that drive sustainable growth, innovation,
and competitive advantage in an increasingly dynamic and uncertain business environment.
a) What do you mean by auditing? Explain the Principles of Social Audit in detail.

b) How ABC Analysis is Performance Evaluation Parameter for Retail? Explain the Classification of items into A,B
and C Categories and performance measure of ABC analysis.

a) Auditing is a systematic examination of financial records, statements, transactions,

operations, or processes of an organization to verify their accuracy, completeness, and
compliance with relevant laws, regulations, and standards. Auditing helps ensure
transparency, accountability, and integrity in financial reporting and operations, and provides
assurance to stakeholders, such as shareholders, investors, creditors, and regulators, about
the reliability of the information presented by the organization.

Principles of Social Audit:

Social audit is a process of evaluating and assessing an organization's social, environmental,

and ethical performance and impact on society, stakeholders, and the environment. Unlike
financial auditing, which focuses primarily on financial performance and compliance, social
audit examines broader social and environmental dimensions of organizational activities. The
principles of social audit include:

1. Transparency : Social audit emphasizes transparency in organizational operations,

decision-making processes, and performance reporting. Organizations should disclose
relevant information about their social, environmental, and ethical practices and engage
stakeholders in dialogue and feedback mechanisms to ensure transparency and
accountability.

2. Participation : Social audit promotes stakeholder participation and engagement in the

audit process. It involves involving stakeholders, such as employees, customers, suppliers,
communities, and civil society organizations, in identifying social and environmental issues,
setting audit objectives, collecting data, and interpreting findings. Stakeholder participation
enhances the credibility, legitimacy, and relevance of social audit outcomes.
3. Accountability : Social audit holds organizations accountable for their social,
environmental, and ethical performance and impacts. It helps identify areas of improvement,
address stakeholder concerns, and fulfill organizational responsibilities towards society,
stakeholders, and the environment. Accountability mechanisms, such as reporting standards,
codes of conduct, and grievance redress mechanisms, are essential for ensuring
organizational accountability and responsiveness.

4. Ethics and Integrity : Social audit promotes ethical behavior, integrity, and responsible
business practices. Organizations should adhere to ethical principles, values, and norms in
their interactions with stakeholders and the environment, and demonstrate integrity and
honesty in their social and environmental reporting and disclosure practices. Ethical conduct
builds trust, credibility, and reputation and contributes to sustainable business success.

5. Independence and Impartiality : Social audit should be conducted by independent and

impartial auditors or audit teams who are free from conflicts of interest and bias. Auditors
should maintain objectivity, integrity, and professionalism throughout the audit process and
avoid undue influence or pressure from vested interests. Independence and impartiality are
essential for ensuring the credibility, reliability, and integrity of social audit findings and
recommendations.

6. Continuous Improvement : Social audit is a continuous and iterative process that involves
ongoing monitoring, evaluation, and improvement of organizational social, environmental,
and ethical performance. Organizations should regularly review and update their social audit
practices, methodologies, and indicators based on changing stakeholder expectations,
emerging issues, and best practices. Continuous improvement enhances organizational
learning, innovation, and responsiveness to societal and environmental challenges.

Overall, social audit is a powerful tool for promoting corporate social responsibility,
sustainability, and ethical business practices. By applying the principles of social audit,
organizations can enhance their social license to operate, build trust and credibility with
stakeholders, and create long-term value for society, the environment, and the economy.

b) ABC Analysis as a Performance Evaluation Parameter for Retail:

ABC Analysis, also known as Pareto Analysis or the 80/20 rule, is a method used in retail and
inventory management to categorize items based on their importance and prioritize
resources accordingly. The classification of items into A, B, and C categories is based on the
principle that a small percentage of items (A items) typically account for a large percentage
of sales, revenue, or inventory value, while a larger percentage of items (B and C items)
contribute relatively less.

Classification of items into A, B, and C categories:

1. A Items : These are high-value items that contribute significantly to sales revenue,
profitability, or inventory value. A items typically represent a small percentage of the total
number of items but contribute a large percentage of total sales or revenue. Examples
include popular products, high-margin items, or items with high demand.

2. B Items : These are medium-value items that have moderate sales volume or inventory
value. B items represent a moderate percentage of the total number of items and contribute
a moderate percentage of total sales or revenue. Examples include products with moderate
demand, seasonal items, or items with average profitability.

3. C Items : These are low-value items that have low sales volume or inventory value. C
items represent a large percentage of the total number of items but contribute a small
percentage of total sales or revenue. Examples include slow-moving products, low-margin
items, or items with low demand.

Performance measure of ABC analysis:

ABC Analysis helps retailers evaluate and prioritize items based on their importance and
allocate resources more effectively. The performance measure of ABC analysis is based on
the following key metrics:

1. Sales Contribution : A items typically contribute the highest percentage of sales revenue
or profitability, followed by B and C items. Retailers can assess the sales contribution of each
item category and focus resources on maximizing sales and profitability from high-value
items.
2. Inventory Management : A items usually have higher inventory turnover rates and
require closer monitoring and replenishment to avoid stockouts and minimize holding costs.
Retailers can optimize inventory levels for A items to ensure availability while minimizing
excess inventory and carrying costs for B and C items.

3. Profitability : A items tend to have higher profit margins and contribute more to overall
profitability compared to B and C items. Retailers can analyze the profitability of each item
category and prioritize efforts to promote and sell high-margin products while managing
costs and markdowns for low-margin items.

4. Customer Demand : A items typically have higher customer demand and represent core
products or bestsellers that attract customers to the store. Retailers can analyze customer
demand patterns and adjust pricing, promotions, and marketing strategies to capitalize on
the popularity of A items and stimulate demand for B and C items.

Overall, ABC Analysis is a valuable performance evaluation parameter for retailers as it helps
identify and prioritize items based on their importance, sales contribution, profitability, and
customer demand. By focusing resources on high-value items and managing inventory
effectively, retailers can improve sales, profitability, and customer satisfaction while
minimizing costs and risks associated with slow-moving or low-value items.

a) PQR Company heavily decentralized. Division A has always acquired some components from Division B.
However division B has intimated increase in its price to Es. 150/unit. Manager of Division A has opposed the
same since similar product is available in outside market at Rs.120/unit. Division B has supported its price rise
as it is bearing heavy depreciation charge on specialized Equipment they have bought specially for the
component. Additional information is as follows:- Total capacity of Division A-10,000 units p.a. B’s Variable
costs - Rs. 100/unit B’s Fixed costs - Rs. 30/unit You are required to advice - i) Suppose there is no alternate
use of division B’s capacity, Will the company as a whole benefit if A buys the component from outside at Rs
120/unit.? ii) Suppose outside market price of the component drops by Rs.30/unit, what would you suggest
to the manager of division A?

b) An Enterpise wanted to give up the transfer price on cost plus 15% Return on Investment Basis. Using
following information related to its ‘P’ division for the year 2022-23. i) Determine the transfer price for
division P ii) If the volume and current assets are reduced by 10%. What will be the impact on transfer price?
1) Fixed Assets Rs.15,00,000 2) Current Assets Rs.10,00,000 3) Debtors Rs.5,00,000 4) Annual fixed cost of the
division Rs.15,00,000 5) Variable cost Rs.40/unit 6) Budgeted volume (units) 2,50,000

a)
i) If there is no alternate use of Division B's capacity and Division A buys the component from
the outside market at Rs. 120/unit, we need to analyze the cost implications for the company
as a whole.

Cost of buying from Division B:

Variable cost per unit = Rs. 100
Fixed cost per unit = Rs. 30
Total cost per unit = Variable cost + Fixed cost = Rs. 100 + Rs. 30 = Rs. 130

Cost of buying from the outside market:

Price per unit = Rs. 120

Since the outside market price is lower than the cost of buying from Division B, it would be
more beneficial for Division A to buy the component from the outside market. However, this
decision would result in Division B losing revenue from internal sales, and the company as a
whole needs to consider the impact of this decision.

If Division B has no alternative use for its capacity and cannot generate revenue from other
sources, then the company as a whole may not benefit from Division A buying the
component from the outside market. In such a case, the company needs to evaluate the
overall impact on profitability and operational efficiency before making a decision.

ii) If the outside market price of the component drops by Rs. 30/unit, the new price would be
Rs. 90/unit. In this scenario, it would be more advantageous for Division A to buy the
component from the outside market rather than from Division B, considering that the
outside market price is lower than the cost of buying from Division B. Therefore, I would
suggest to the manager of Division A to continue purchasing the component from the outside
market at the reduced price of Rs. 90/unit.

b)
i) To determine the transfer price for division P based on cost plus 15% return on investment
(ROI) basis, we need to calculate the total cost per unit and then add the desired ROI.

Total cost per unit:

Variable cost per unit = Rs. 40
Annual fixed cost of the division = Rs. 15,00,000
Budgeted volume (units) = 2,50,000

Total fixed cost per unit = Annual fixed cost / Budgeted volume = Rs. 15,00,000 / 2,50,000 =
Rs. 6 per unit

Total cost per unit = Variable cost per unit + Total fixed cost per unit = Rs. 40 + Rs. 6 = Rs. 46
per unit

Desired ROI = 15% of (Fixed Assets + Current Assets + Debtors)

= 15% of (Rs. 15,00,000 + Rs. 10,00,000 + Rs. 5,00,000)
= Rs. 4,50,000

Transfer price per unit = Total cost per unit + Desired ROI per unit
= Rs. 46 + (Rs. 4,50,000 / 2,50,000 units)
= Rs. 46 + Rs. 1.80
= Rs. 47.80 per unit

ii) If the volume and current assets are reduced by 10%, the new values would be:
- Volume (units) = 2,50,000 - (10% of 2,50,000) = 2,25,000 units
- Current Assets = Rs. 10,00,000 - (10% of Rs. 10,00,000) = Rs. 9,00,000
We can recalculate the transfer price using these new values and the same desired ROI
calculation method as before. However, it's important to note that a reduction in volume and
current assets may affect the ROI calculation and consequently impact the transfer price.