This Article covers the valuation aspects of Intangible assets as below, that are not Physical but provide the owners with specific rights and privileges. · 1 Goodwill· 2. Trademarks· 3. Patents and copyrights· 4. Trade secrets· 5. Franchise and licenses· 6. Complying with Disclosure requirements for intangible assets 1 Goodwill · Goodwill represents the reputation, customer loyalty, and brand value a company has built over time. It arises from exceptional customer service, a strong market presence, favourable supplier relationships, or skilled employees.· It is reflected by the premium paid by a company for acquiring another company above its net assets ( such as property, plant & equipment, inventory, and liabilities) fair value.· By definition, goodwill has an indefinite life.· Once Goodwill is recorded in the balance sheet, it is not amortized. Instead, it is subject to an annual impairment test. Valuation of Goodwill· Valuing goodwill often involves the following methods:§ A)The excess earnings method§ B)The market approach (comparing the value of similar businesses in the market),§ C)The relief-from-royalty method (based on estimating the hypothetical royalties saved by owning the goodwill).A) Excess earning method It is often used when significant intangible assets are considered, such as in mergers and acquisitions or when valuing a company with strong brand recognition and customer relationships.The steps are as below.1. Estimating the value of the company's net tangible assets e.g. The book value of the assets adjusted for depreciation and impairment)2 Calculate earnings attributable to the company's tangible assets by Multiplying the value of the net tangible assets by a fair rate of return.3. Estimating the company's total normalized earnings on an ongoing basis (excluding unusual or non-recurring items)4. Compute Excess earning = Normalize earning less earning attributable to tangible assets5 Value of goodwill & other intangible assets = Excess earning Divided by an appropriate capitalization rate B) Market approach methodThe market approach method to valuing goodwill is based on the principle that the value of an asset is equal to the price that a willing buyer would pay to a willing seller. It is normally used to value goodwill in mergers and acquisitions transactions.The steps are as below.(Assuming Co B is the acquiring company and Co A is Target co)1. Select companies comparable to A in terms of size, operations, market2. Collect financial data like Earnings Before Interest, Taxes, Depreciation, and market multiples like price-to-earnings etc3. Determine adjustments needed to size variation growth rate, risks etc. between A and others4. Estimating fair value of the target company A after adjustments5. Value of total Intangible assets = Adjusted estimated fair value of A as above less tangible assets of Company A6. Value of Goodwill = Total value of Intangible assets less estimated value of other intangibles like patents, C) Relief from the Royalty method This method calculates the value of goodwill by estimating the cost savings or economic benefit that a business enjoys by owning its intangible assets, such as trademarks, patents, or customer relationships, without having to pay royalties or licensing fees to a third party.The steps are as follows.1. Identify intangible assets for the company2. Determine the hypothetical Royalty rate by the valuer if it did not own the intangible asset but licensed it from a third party.3 Calculate the hypothetical Royalty costs based on the assumed Royalty rate and estimated revenue/profit generated by intangible assets4 Determine the present value of hypothetical Royalty cost using the appropriate discounting rate (such as cost of Capital)5 Value of Intangible assets= Fair market value of intangible assets Less present value of the royalty costThe value of Goodwill can be computed by subtracting the value of other intangible assets like Patent, trademarks, etc . 2. TrademarkA company's brand value represents the recognition, reputation, and perception of a particular brand name or logo. It encompasses factors such as brand awareness, loyalty, and equity.Trademarks safeguard brand names through distinctive signs such as logos or symbols to identify and differentiate products or services.Purchasing of Trademarks Trademarks are important to the overall marketing and branding of products or services and must be protected. A company’s success can often be attributed to the existence and continued protection of these trademarks, patents, and licenses.Trademarks, as intangible assets, are transferable.The purchase price is capitalized if a trademark is purchased from another company.However, the cost of internally developed trademarks is expensed as incurred. For these reasons, many trademarks are not presented in the balance sheet.The useful life of a trademark, as an intangible asset, is far enough into the future, and hence it is almost impractical for the management to estimate it.Therefore, a trademark with an indefinite life should not be amortized.Valuation of trademarks Valuation of trademarks can be done by methods /approaches similar to the valuation of goodwill (mentioned earlier )and hence not being duplicated. 3. Patents and copyrightsPatents Patents are exclusive rights granted by a government to protect inventions.The purchase value of a Patent is reflected as an intangible asset in the balance sheet. Negotiating the value of Patents during M&A Negotiating Parameters are :· The market demand for patented technology and the potential to generate more revenue· Commercial potential opportunities for future revenue streams · Infringement implications on the businessTherefore, management & technical, and sales /marketing teams jointly make a well-informed decision while negotiating Patent value. Valuation of Patent· The valuation of patents can be challenging due to factors such as the uniqueness of the invention and its potential market value. CopyrightsCopyrights provide exclusive rights for original works of authorship, such as software, literature, music, and films, thus protecting their original works.Valuation of copyrightsCopyrights can be evaluated by methods /approaches similar to the valuation of goodwill mentioned earlier and, hence not being duplicated. 4. Trade secrets Trade secrets, such as formulas, processes, or customer lists, are confidential and valuable business information. Valuation of trade secrets · Valuation of trade secrets can be challenging due to their secretive nature. · Valuation methods may include the following: · The cost approach (based on the expenses to develop or safeguard the trade secret· Income approach (based on the expected economic benefits derived from the trade secret).· Market approach (comparing the value of similar trade secrets in the market). 5. Franchise and licenses · A franchise is a contractual agreement that gives a company the right to operate a particular business in an area for a particular period.· For example, a franchise may give the owner the right to operate several fast-food restaurants in a particular geographic region or sell and service End products like Vehicles (specific models) for, say, twenty years.Licenses are similar to franchise rights, except that government agencies typically grant them.· Most franchise rights are purchased, so the purchase price should be capitalized and presented as an intangible asset in the balance sheet. Valuation of Franchise and licenses The most common methods are:Income-based approaches: These approaches value the franchise or license based on the future cash flows that it is expected to generateMarket-based approaches: These approaches value the franchise or license based on the prices of similar franchises or licenses that have been sold recently..Asset-based approaches: These approaches value the franchise or license based on the underlying assets that it includes, such as trademarks, patents, and trade secrets. Additional factorsThe exclusivity of the franchise or licenseThe growth potential in the franchise or license industryThe brand strength and reputationThe support provided by the franchisor or licensorEconomic scenario 6. Complying with Disclosure requirements for intangible assets· Companies are generally required to disclose information about their significant intangible assets, including the following:· The types of intangible assets· Carrying amounts· Useful lives as applicable· Methods of amortization· .In the Indian context, the following provisions are applicable. · Gross block: General note 22.214.171.124 to schedule 6 of the company’s Act as advised by the Institute of Chartered Accountants of India describing the classification of intangible assets· Amortisation of intangibles: General note 9.5.6 · Accounting standard AS 26. Potential activities (including unethical) that can adversely impact business. Common Aspects for Goodwill, Trademarks, Patents i)Overstating the value due to improper or exaggerated assessments resulting in misleading financial statements. ii)Submitting financial reports and disclosures that are misleading Trademarks iii)Making false claims by misrepresenting the ownership rights to trademarks, Misrepresenting trademark usage to enhance the perceived value of the asset. Trade secrets iv)Stealing and selling of secrets like customer lists or proprietary software, formulas or designs to competitors or 3rd parties and obtaining kickbacks.¯Patents v)Withholding information about patent infringement risks or disputes thus impacts the value or validity of the patent. vi)Making false claims by misrepresenting the ownership rights to Patents and copyrights Franchise and licensesviii) The franchise or licensee continues the use of signage/trademarks of the licensor even after the expiry of the franchise/license period and sells unauthorized products or services to innocent customers. ix)Selling end products by sourcing end products from spurious manufacturers. x)Rendering services for the licensed end products by sourcing spares that are fake or spurious by procuring these from unapproved suppliers. xi)Overcharging end customers beyond the prices in the license agreement or methodology prescribed in the agreement.
The decision to invest surplus funds between Debt and equity must be based on a thorough analysis of various factors and after considering specific business circumstances, needs, and goals.This article includes the following aspects related to the evaluation of investments. AA) List of parameters that guide the choice of Debt vs. Equity.BB) Evaluating parameters for choosing among MF optionsCC) Debt-based options to invest, estimated returns, and risksDD) Equity-based Options to invest, estimated returns, and risksEE) Hybrid-based options to invest, estimated returns, and risks AA) List of parameters that guide the choice of Debt vs. Equity The parameters are listed below. i)Risk appetite refers to the company’s willingness to invest based on acceptable risk levels based on conducting risk analysis on several aspects, such as below. · Market volatility risks· Liquidity risks· Credit risks· Operational risks· Regulatory risks Equity is considered a higher-risk investment than debt, as no return guarantee exists.Further, If the business is already heavily leveraged with debt, taking more debt may increase financial risks. ii) Investment time horizon and liquidity: Review parameters include:· Funds for short-term business needs· Funds for long-term business needs· Lock in periods Debt is a good option for short-term investors, as the returns are relatively predictable.Debt is more liquid than equity and easily convertible into cash. Equity may take longer to sell and realise profits. iii) The financial objectives can be as follows:· Maximizing return· Diversifying investments· Generating cash flows· Funding future projects· and so on If the funds are required for long-term purposes like expansion, with a longer life span, then Debt financing may be suitable, whereas equity could be the option for working capital. iv) Cash flow analysis from investments based on · Outflows to:§ Buy treasury stocks, bonds,§ Debt payments § Dividend payouts§ Interest payments And so on· Inflows from:§ Dividend earnings§ Interest earnings§ Sale of equities/stocks§ Sale of bonds§ Sale of preference sharesAnd so on Cash flow from analysis of investments helps to determine the quality of investment.v) Regulatory compliances · Regulatory restrictions/limits specific to the industry· Corporate governance guidelines vi) Credit Quality § Credit rating of the issuer of a debt instrument§ Credit rating of the Company offering Fixed DepositsAnd so on The credit ratings provide valuable inputs on risks to make informed Decisions before investing in debt funds vii) Costs associated with investment§ Transaction fee§ Management feeAnd so on viii) Tax implications§ Long-term capital gain tax§ Short-term capital gain tax§ Tax deductibility for interest on loansAny other tax Interest payments on debt are often tax-deductible, which can provide a tax advantage compared to issuing new equity. ix) Market/economic conditions · Inflation: When inflation is high, the value of money decreases,which means that debt investments become less valuable. Equity investments can protect investors from inflation.Interest rates: When interest rates are high, the debt investments' cost increases, making them less attractive to investors.· Exchange rates· Liquidity in the market: During economic slowdown, the possibility of default on Debt interest and Principal are high and hence risky xi) Environmental and governance matters § Impact of Investment on Environments /Sustainability§ Corporate governance obligations§ Social responsibility BB) Evaluating parameters for choosing among MF options A mutual fund is an investment vehicle that mobilises funds from different investors to achieve a common investment objective. Funds are raised by selling the fund's units, representing contributions to the mutual fund corpus. Evaluating criteria for choosing MF include:· The financial goal in terms of:§ Returns expected,§ Investment time horizon· The risk level is acceptable to investors with funds being evaluated.· Expense ratio in terms of annual charge and exit load.· Funds’ past performance: Last three years and five years’ returns· Fund managers (through whom MF is invested) track performance, qualification, experience, etc. An overview of the Indian market (having more than 3000 + options) offers opportunity to invest in following options. § 1. Debt§ 2. Equity§ 3. Hybrid CC) Debt-based options to invest, estimated returns, and risks Debt-related options can be categorised under (3) categories. · 1Debt -Fixed income -for different durations· 2Debt -Others (like money market, corporate bonds, Gilts, sovereign bonds, overnight, etc)· 3Debt -Fixed maturity Debt funds invest primarily in fixed-income instruments like below:· 1. Government securities,· 2.Treasury bills,· 3.Bonds:§ Govt bonds§ Banking &PSU bonds§ Financial institution bonds§ Municipal bonds§ Corporate bonds,§ Credit risk bonds, · 4. Debentures,· 5.Certificates of deposits, etc. Debt funds are aimed at providing regular and stable returns while protecting capital. Debt instruments can be of different durations, as mentioned below: § Long duration (7 years or above),§ Medium to long-term duration (4-7 years),§ Short duration (1-3 years),§ Low duration (6-12 months),§ Ultra-short duration (3-6 months),§ Liquid funds (91 days),§ Overnight funds (1 day)§ Fixed maturity plans Returns on investment can vary considerably based on Market and economic conditions, political stability, Governance matters, and statutory environments. The indicative range of “Return” (In the Indian market) for “Debt funds” is 4-7 of % in Q2-FY 2023-24. The “Risk Ratings” of Debt funds (considered in 3-5 years) is estimated. Low. However, Debt Investments backed by Govt are risk-free. DD) Equity-based Options to invest, estimated returns, and risks Equity-based options are primarily under (5) categories. · Equity: -Size driven· Equity: -Value & Tax driven· Equity: -sectoral specific · Equity: -Thematic· Equity: -International· Equity funds invest most of their assets in stocks and related instruments. Equity funds are ideal for investors with high returns and higher risk tolerance. Equity funds can be invested in companies with different market caps.· Market capitalization can be defined as the total no of a company’s.Outstanding shares Multiplied by the Current stock price.· In the Indian context, the following types of MF-Equity funds options are available.· Lage-cap, wherein funds are usually invested in Top 100 stocks in companies that are well established, have large market shares, and financially stable, and generate consistent returns.· Mid-cap, wherein funds are usually invested in Top 101-250 stocks in companies having Higher growth potential than large-cap, offer a balance between growth & risk.· Small-cap wherein funds are usually invested in stocks lower than 250 stocks in companies having Higher growth potential than mid-cap· Multi-cap, wherein there is flexibility to invest in small large cap companies.· Flex -cap where in Fund managers can dynamically allocate funds to large-mid-small The indicative range of “Return” (In the Indian market) for Equity funds is 4-6 times the returns on Debt funds on 3-5 Years average in Q2-FY 2023-24. It can vary from period to period. The “Risk Ratings” of Equity funds (considered in 3-5 years period) is estimated “High”. Such returns are based on month-end net asset value (NAVs), assuming.Dividend reinvestment and readjusted for any bonus or rights. EE) Hybrid-based options to invest, estimated returns, and risks Hybrid Funds options can be divided in (5) categories. § 1. Aggressive hybrid where 65-80% of funds are equity-based & rest Debt.§ 2. Balanced hybrid 40-60 % of funds are equity-based & rest are Debt.§ 3. Conservative, where 10-25 % of funds are equity-based & rest Debt.§ 4. Dynamic asset allocation funds where funds are managed dynamically between equity and Debts.§ 5. Gold funds As is evident, Hybrid funds invest in stocks and debt to offer balanced returns and risks. Their asset allocation will differ based on their mix of equity and debt. The indicative range of “Return” (In the Indian market) for “Hybrid funds” is 3-5 times the returns on Debt funds on 3-5 Years average in Q2-FY 2023-24. It can vary from period to period. The “Risk Ratings” of Hybrid funds is estimated Average. Aspects related to other investment options like Direct stock investments, Fixed deposits, commercial papers, Money market instruments. Real Estate, Derivatives and investments overseas are not included in this blog. Potential activities (including unethical) that can adversely impact business. Common for all investments: Inaccurate capturing of evaluation parameters for investment options MF· Inadequate study of the following before choosing the MF to be invested.§ Funds’ past performance: Last three years and five years’ returns§ Expense ratio in terms of annual charge and exit load. · A non-comprehensive risk assessment by the Fund manager and not spreading the investments in various MF buckets options available.· Investing patterns not aligned with financial objectives. Debt Funds · Inadequate evaluation of Debt options and their documentation before investing· A non-comprehensive risk assessment by inexperienced team members · Investing in instruments in debt instruments of companies who offer kickbacks, i.e., investment not at arm’s length.· Investing in debt instruments while compromising on statutory requirements Equity funds · Inadequate evaluation of the following before choosing stocks to invest:· Investment Goals: Long-term growth, Regular income, Capital preservation, Or a combination· Risk Assessment: Current financial situation, Market volatility, Economic conditions· Financial performances of the Target company: Revenue growth, Cash flows, Profitability, Return on equity, Debt ratios, Dividend policy.· Valuation of the target company: Share price in the market, Price-to-earnings ratio, Price-to-sales ratio, Dividend yield.· Management team of the target company: Experience of the leadership team, Reputation in the Industry, Ethical values, Value to shareholders.· Analyst’s report and rating: Reports giving various matrices, Rating of the company vis a vis Industry, Outlook.· Tax implications.
Pricing of the end product or services plays the most vital role in revenue generation and driving profitability.The pricing decisions, which are usually taken by the sales team, are driven by many factors, such as below in any Industry :· Competition pricing· Profitability target· Costs· Type of customers· Established market or new market· Break-even point · Target sales volume & % market share· Demand elasticity equation· Current model or obsolete model in case of product· The stage in which the product is there vis a vis product life cycle This article highlights the Finance & accounts team's significant role in helping the sales team make the right pricing decisions to avoid loss situations and includes the following concepts. · Financial Contribution -working methodology at the company level· Financial Contribution -working methodology at the individual Product level· Manufacturing variable costs -Elements· Marketing variable costs -Elements· Financial contribution applicability -types of Industries What is the Financial contribution working methodology at the company level? At the company level, the contribution is to be computed by F&A based on the following formula as the aggregate of all products sold. · 1. Sale Revenue based on the Price net of taxes· 2. Less Direct marketing variable costs borne by the company· 3. Less Direct manufacturing variable costs of the company· Contribution, which is =1-(2+3) i.e. Revenue less (marketing variable costs+, manufacturing variable costs) OrContribution· % contribution= ……………………... X 100Sales revenue · The contribution must be positive and align with the overall % contribution in which Industry operates and the company’s own internal policy and profitability plans. · Further computation of contribution must be accurate based on the latest (at least previous quarter ending costs) and hence reviewed periodically. The Sales value computation must conform with AS 9.1 and Guidance note (GN)numbers, as summarised below. · (GN) 9.1( revenue from operations).· (GN) 10.8.1 &(manufactured goods).· (GN)10.8.2(Traded goods).· GN)10.8.3(services Further Costs determination (for the cost elements)must conform with the applicable Guidance note on the revised schedule VI to The Companies Act 1956 issued by the ICAI-Institute of chartered accountants of India, such as below. § Guidance note(GN) 9.5.1(cost of material consumed)§ (GN) 9.5.2( purchase of stock in trade)§ (GN) 9.5.3 (changes in inventories)§ GN) 9.5.4( employee benefit expenses), GN) 9.5.7 (other expenses) Financial Contribution -working methodology at the individual Product level · The formula is the same as for the company level.· 1. Sale Revenue based on the Price net of taxes for a specific product model.· 2. Less direct marketing variable costs the company bears for a specific product model.· 3. Less Direct manufacturing variable costs of the company the company bears for a specific product model. · Contribution for the product-model , which is =1-(2+3) i.e. Revenue less (marketing variable costs+, manufacturing variable costs) OrContribution· % contribution= ……………………... X 100Sales revenue What are the elements of direct manufacturing variable costs? Manufacturing variable costs elements comprise of following costs per unit of specific product-model produced based on the:· Current landed costs of the direct bill of materials -BOM consumed· Cost of direct consumables, oils, lubricants.· Cost of direct labour· Cost of direct power· Cost of direct tools etc.· Cost of direct inspection & testing · Cost of Quality Standard marking (like Indian Standard number ) on the packing /label · Cost of rejections of BOM· Cost of job working paid to out-sourced manufacturer /service provided Sub-total = sum of above What are the elements of direct marketing variable costs? Similarly, marketing variable costs elements comprise of following costs per unit of a specific product model & sold based on the current costs of the direct sale & marketing expenses related to the product, as summarised below. · The direct cost of packing· The direct cost of logo/brand on the packing· The direct costs of the owner’s manual and service manual in hard or soft copy· The cost of pre-dispatch inspection· The cost of warehousing before dispatch· The direct cost of out-ward freight & forwarding· The direct cost of outgoing marine insurance· The discount on the price· The incentives payable to the customer or channel partner for the product model· The commission payable to the channel partner/agency· The cost of free services rendered, including spares and labour· The warranty costs Subtotal = sum of above Financial contribution applicability in other industriesSimilar models can be developed & applied in other industries to arrive at logical pricing decisions such as below:· Assets manufacturing & selling industry, e.g., Plant & machinery· Components/spares manufacturing and selling Industry· Real estate Industry selling apartments, buildings of any type· Service Industry, including consultancy of any type Way Forward · The F&A team must provide inputs to promoters /MDs to arrive at Policy directions for the Minimum % financial contribution, below which products sale may not be permitted without documented approval by CFO+CEO/MD vis a vis sale of specific models to : § Channel partners in the domestic market§ Retail customers in the domestic market§ Direct OE customers in the domestic market§ Channel partners in the International market -country wise§ Retail customers in the International market -country wise§ Direct OE customers in the International market -country wise · So the minimum % contribution can differ for different customer categories/countries.· The F&A team must do periodic computations of the Manufacturing variable and marketing variable costs -Model wise for each end product and share with the sales team to review the existing prices of each product model. Computation could be at least quarterly or six monthly, depending on the Industry in which the company operates and cost fluctuations. · No product model or spares should be sold at a Negative contribution, particularly fast-selling models. · Similarly, the F&A team must provide similar inputs to the sales team in other industries, enabling sales price review to avoid selling at a loss due to negative contributions or lower % margins. Potential activities (including unethical) that can adversely impact business.· Missing out a few direct cost elements in determining manufacturing variable costs.· Missing out a few direct cost elements in determining marketing variable costs.· Inaccurate computation of the manufacturing variable costs due to non-timely updating of applicable costs· Inaccurate computation of the marketing variable costs due to non-timely updating of applicable costs· Not following the authority norms for announcing the pricing of end products, services, apartments, or buildings as relevant in the Industry.· Not following higher authority norms for invoicing the identified end products or services etc., which have lower % contribution or Negative contribution models.
This blog covers the following aspects related to M&A. 1. Conducting due diligence for evaluating Target comp2. Performing risk assessments for M&A3. Valuation of Target company and submitting the bid4. Negotiations between acquiring company and the target company5. Obtaining Statutory approvals for M&A6. Managing Post-merger Integration1. Conducting due diligence for evaluating Target comp The top 5 key aspects of each function are listed below. Key Areas to EvaluateTop 5 aspectsSales and Marketing1. Demand potential of products of the target company2. Market share (Global & local) of different products3. Channel partners & strength4. Relationships with high-value customers, channel partners5. After-sale service infrastructure Technology 1. Know how capabilities & Intellectual property2. Manufacturing Infrastructure & Capacity and Process Capabilities3. Supply chain strengths4. The quality infrastructure in the plants/factories/Vendors5. IT Infrastructure/ERPFinancial1. Past five years & next five years projections for Sales, market share, cash flows & profitability2. Fixed costs3. Long-term Liabilities4. Audit reports (Statutory, Internal, cost etc)5. Physical Inventories & Receivable statusManagement1. Risk assessment (Financial, market, operations & legal)2. Leadership team profile,3. Qualification of senior management,4. Industry Standing /reputation5. Corporate governanceHuman resource1. Key positions manning & Organisation hierarchy/levels,2. Versatility & competency assessment4. Retirement age, Pension-at different levels3. Payroll, emoluments5. Industrial relations & long-term agreements with unions Legal1. Statutory non-compliances2. Legal cases in courts, including consumer cases3. Litigations status in India4. Statutory demands5. International level-disputes, arbitration, court cases 2. Performing risk assessments for M&A The top 5 assessment areas are as under:· Market risks· Financial risks· Operational risks· Legal risks· Human resource-related risks 3. Valuation of Target company and submitting the bidChoosing the valuation option method out of the few available as below and determining the most appropriate one:· Comparable company analysis· Comparable transaction analysis· Discounted. Cash flow analysis· Assets-based valuation.· Industry-specific valuationOther -Qualitative factors include Market share, Brand value, Intellectual property,Management expertise, Revenue growth, Strategic Synergy advantages 4. Negotiations between acquiring company and the target company A team of competent persons from the acquiring company needs to evaluate the following for determining the financial proposal depending on the size and type of target company:§ Stock purchase option§ Assets purchase option§ Both§ Any alternativeFurther below aspects need to be factored in developing a purchase bid.· Purchase price and taxes· Payment terms -down payment and progressive based on milestones· Exclusions· Key manpower to be acquired from the target company· Labour contracts/union agreements · Covenants· Employee emoluments, transfers, retirement age, and pension matters· Regulatory approvals timelines and responsibilities· Integration plans between acquiring company and the target company and change management· Communication links /contact persons for resolving conflicts/issues till complete M&A occurs· Timelines for completion of M&A5. Obtaining Statutory approvals for M&ADepending on the type of the bidding company & nature of transactions, a few of the below applicable approvals may be necessary. · Approval from SEBI, for listed companies, in matters related to the substantial acquisition of shares. · RBI approvals in case M&A involves foreign investment or cross-border foreign exchange,· Sector-specific approvals (from bodies like NCLT, TRAI, IRDA etc as applicable· Tax authorities vis a vis Capital Gain tax, transfer pricing, indirect taxes· Competition Commission approval to prevent anti-competition activities under The Competition Act 2002· Court approvals, as necessary, related to convening of meetings of shareholders, creditors, etc6. Managing Post-merger Integration Once the M&A negotiations are complete and both acquiring and target companies decide to merge, the following activities must be performed for a smooth transition. · Executing M&A agreements· Getting statutory approvals speedily· Communicating key highlights of M&A to all stakeholders ( Vendors, channel partners, key OE customers, business associates, and employees, at the appropriate time· Meeting identified stakeholders by key people· Integrating staff deployment with new organization structure· Reviewing the compensation structure of the acquired company· Retaining talented employees of the acquired company· Assigning new roles in the merged entity· Improving methods in all functions, as required for enhancing productivity, quality business, reducing costs and market share increase :· Meeting key vendors along with key professionals from the acquired company· Meeting key Channel partners and key customers along with key professionals from the acquired company Activities(including unethical) that can affect the business adversely· Due to diligent (DD) checklists not being exhaustive and DD performed by individuals rather than cross-functional team· The risk assessment process is not comprehensive and not performed by specialists.· Incomplete or & Inaccurate information gathering by the DD team on for arriving at valuation on past financial performance and future projections for five years· Incorrect Assumptions on qualitative management aspects, long-term liabilities, technical strengths, Sales growth potential/market share projections, synergy advantages, etc.· inadequate market intelligence on competition bids/strategy· Collusion amongst key members acquiring & target company· Compromising on statutory requirements leading to delays· Not preparing the organization for change management· Pursuing a biased approach while dealing with the erstwhile employees of the target company acquired·
This article includes the following aspects of a JV · Need for a JV· Negotiation Aspects-44 nos· Need for separate financial monitoring of JV in financial books· Activities(including unethical) that can affect the business adversely Need for a JVCompanies opt to go for a JV for considerations such as below.· Gaining a competitive edge by the speedy introduction of newer/innovative products, mainly when the product development time cycles (in-house) are very large and technology not available in the country.· Obtaining faster access to export markets and becoming a Global player· Strategic sharing of synergies amongst the JV partners and leveraging each other’s strengths.· To have a quantum jump in the quality of products and services.· To reduce costs through newly acquired technology, shared infrastructure, economies of scale, and joint procurement.· Risk sharing amongst JV partners in case of market uncertainties, economic conditions, and regulatory changes imposing new demands on the company.· Resource sharing, including financial burden and sharing market infrastructure, assets, and capabilities. Negotiation AspectsThis article highlights key aspects that must be negotiated, in the context of a Product manufacturing and selling company, with the potential - shortlisted JV partner. AA. Technical= 8 aspectsBB Financial & commercials=13 aspectsCC Management & Control=8 aspectsDD Legal =15 aspects Aspect to negotiateDetailed Negotiation points w. r. tAA-Technical Aspects 1.Technology for -Designs, Drawings & specifications for End Products -(specific models) 1.1 End products1.2 Bill of materials for each assembly/sub-assembly1.3 Assembly operations sequence1.4 Assembling equipment & tools, jigs, fixtures1.5 Inspection & testing equipment & gauges1.6 Quality assurance plans,1.7 Quality Standards 1.8 inspection checklists for end products1.9 Software package/solution for layouts/assembling2. Technology for -Designs, Drawings & specifications for: Manufacturing & Engineering Processes (for specific models) 2.1 Inhouse manufactured assemblies, and items2.2 Bill of materials for each assembly/sub-assembly including consumables2.3 Aggregates & Parts manufacturing process sheets Including bought out parts2.4 Manufacturing equipment, & tools, jigs, fixtures2.5 Inspection & testing equipment & gauges for aggregates and BOM/Parts2.6 Quality assurance plans,2.7 Quality Standards and2.8 Inspection Checklists or aggregates and parts2.9 Software package/solution for manufacturing 3. Technology for -Designs, Drawings & specifications for : After-sale service support (specific models) 3.1 After-sale service parts as per supply conditions3.2 After-sale service manuals with videos, and images for dismantling and reassembly3.3 Spares manuals3.4 Service tools3.5 Software package/solution3.6 Standard hours or minutes for rendering service3.7 Software package/solution for rendering after sale service4.Language in Design, drawings and specificationsEnglish or any other 5. Scope of JV-Access to Market: · Overseas market /country restrictions · Use of sales & distribution network of JV partner6.Scope of JV -Access to Supply chain: · Overseas suppliers, Contractors, and service providers.· Covenants on brand names· Covenants on sourcing of BOM parts etc.7.Scope- of Supply of SKD, CKD, BOM parts and spares by JV to Indian partner · Lists ,Year wise overall Plans for supplying Quantities of sets and values ,duration.· Covenants /Period up to which SKD/CKD must be procured from JV8.Scope of JV -Supply of Equipment For manufacturing & Quality control, Jigs, fixtures, gauges etc by JV· Lists ,Year wise overall Plans for Quantities/values & duration BB Financial & commercials 1.Lump sum knowhow Fee as per scope on Design, drawings & specifications for: · End Products· Manufacturing & Engineering· After-sale service parts· Complete package2.Pricing -Supply of -Inhouse produced or assembled by JV -% mark up above costs or Methodology/logic/Algorithm · SKD/CKD/BOM Parts, Spares· Equipment, Jigs/fixtures, Gauges· Software solutions3.Pricing -supply by JV of -Bought out material-% mark up above costs incurred by overseas JV partner · SKD/CKD/BOM Parts, Spares· Equipment, Jigs/fixtures, Gauge· After sale spares· Sales promotion materials 4.Free Trainings overseas /India · Scope/Types · No of persons· Duration/man-days5. Taxes & Imports duty · Imports duty including IGST· Withholding taxes· Any taxes overseas 6. Royalty · % Of Net sales (Net of localised items)· Duration· When due or Frequency of payment7. Expatriate emoluments · Function wise-positions or levels and durations, reimbursements8.Payment remittance methods( for each type of remittance): · LC · Document through bank or· On line· And so on 9. Payment terms for different remittances: · Lumpsum fee· Royalty· Imports of SKD/CKD/BOM Parts, Spares· Imports of Equipment, Jigs/fixtures, Gauges· Imports of After sale spares· Imports of Sales promotion materials10.Currency· USD or as applicable 11. Trainings· Free and chargeable rates ,duration, location, India vs overseas 12. Man day rate beyond-free training days: · Level wise rates /emoluments & stay charges 13. Funding: Participation Plans · Capital· Working capital,· ExpensesCC Management & Control 1. Equity participation · % of total equity or· Capital to be inducted into the country by potential JV2. Organisation structure of JV post signing · No of Board members· Key positions to be manned by whom: MD, CEO, CFO, COO, Chief of sales/marketing, Chief of Purchase, HR Chief and so on3. Pricing formula for export to JV from Indian partner:-% mark up above costs or Methodology/logic/Algorithm · End Products· Aggregates, sub -assemblies of bill of materials/parts manufactured by Indian partner & exported to JV· After-sale service spares as above· Tools, jigs, fixtures, service tools etc4.Exports -to JV from Indian partner-Covenants/restrictions: · End products or· Aggregates or BOM Parts· Countries 5. Schedule of activities: · Pert chart/Timelines starting from MOU/JV signing till 1st product roll out and sale. 6. Warranty terms: · Duration,· Excluded items,· Payment credit or FOC (free of cost) replacement,· Replacement time-free or against fresh purchase order in case of credit 7 IT & system support: Hardware & software solutions to be acquired vis a vis.· Network design and security ,cloud· Technical aspects· Financial & commercial aspects· Management & control aspects· Legal aspects 8. Processes for Settlement of claims: related to defective or short supplied or debit notes · Bought out material· SKD/CKD/BOM Parts, Spares· Equipment, Jigs/fixtures, Gauge· After-sale spares· Sales promotion materialsDD-Legal aspects 1a) Statutory approvals & regulations in India· The Companies Act 2013 · 0r LLP Act 2008)· FEMA,1999· RBI Regulations· Foreign trade policy· The foreign corrupt practices Act’1977· SEZ related(if applicable)· Labour laws (several of these) 1b) Overseas related regulations· JV Formation & JV Operations- Liabilities of the shareholders, Approval from the board, shareholders, or both, appointing directors, auditors etc· Types of permitted capital, Debt-equity etc· Profits/dividend repatriation- Limits, documentation, taxation· Copyrights, trademarks, IPRS· Acquisition& transfer of assets, Repatriation of funds· Minimum capital requirements from JV foreign investors, Time frame for Paid-up Capital for foreign investor· Pricing of shares- Guidelines for equity, compulsory convertible preferential shares, other instruments· Reporting requirements· Imports & Exports related2. Agreements to be signed:Drafts & finer points· JV agreement· IP transfer agreement· Share purchase agreement· Employment agreement 3.Warranties Details to be worked out in consultation with legal team/consultants4. Notice period As above5.Jurisdiction As above6. Laws of the country As above7 Exit clause As above8. Conflict resolution mechanism As above9. Covenants As above10. Remedies for breach As above11. Confidentiality As above12 Dissolution As above13. Changes to Agreements to be signed by As above14. Duration of JV: Years from the date of MOU or Agreement signing As above15 and so on Any other pointsAs above Need for Separate accounting entries for a JV in ERP environments· In large organizations, with many verticals, JV may be signed and operational in specific Business units for specific end products/models.· In order to monitor the operations and financial performance of JV ,it is essential that unique F&A systems are put in place.· ERP Software like SAP- has specific provisions for such financial transactions related to JV operations vis a vis:§ Executing Transactions in JV books§ Developing configuration tables§ Developing master data tables§ Authorisation objects for accessing JV data ERP related F&A related monitoring & controls that must be built in Software solution JV aspectFew descriptions applicable for JV financial controlTransactions· Creating, editing, editing, Viewing JV· Posting Account documents of JV e.g. Journal entries, Revenue distribution, costs allocation· Displaying JV Accounting documents· Reports related to JV Configuration tables· JV Company codes· JV Account categories· JV Account types Master data tables· Profit center for JV· Company code assignment for JVAuthorisation Objects for controlled Access· Joint operations -account assignment· Joint operation Budgets· Joint operation actuals Important Fields· Equity group for JV· GL accounts used for JV Activities(including unethical) that can affect the business adversely § The alignment of mutual goals, interests, and expectations of potential JV partners is not done comprehensively before starting negotiations as an “MOU,” causing delays in finalising terms and conditions. § Evaluation of technology, its absorption methodology, and scope of JV is not done comprehensively ( through visits to the manufacturing sites of potential JV partners or & resource network places & discussions)by technical specialists as also a review of alternate emerging new technologies. § Financial & commercial evaluation is also inadequate due to insufficient due diligence leading to weaker negotiation.§ Inadequate market intelligence about the experience of other existing JV partners regarding JV support§ An inadequate internet search about JV partner about its financial health, products, market, market share, profitability, management profiles, etc§ Prior Board members’ /MD’s inputs are neither taken/nor incorporated by the negotiating team.§ Lack of mutual trust amongst JV partners§ Legal/Statutory complexities are not discussed threadbare during negotiations leading to delays and disputes.
A KPI for a function is a measurable value that demonstrates how effectively a function is meeting organizational objectives. KPI needs to be specific, measurable, realistic, and communicated to concerned key functional team members to accomplish.Please refer to my article on KPIs at the below link on my website.https://www.ethicalprocesses.com/blog_detail/developing-kpis-for-finance-accounts-functionsThis article highlights the following aspects:· List of 30 KPI identified for F&A function.· KRA defined vis a vis KPI· Eight activities for a KRA’s driven appraisal system-1st Illustration for GM-F&A· Eight activities for a KRA’s driven appraisal system-2nd Illustration for AM-F&A· Activities that can adversely impact the business KPI identified for Direct responsibility areas-15 no’s· IPO/Equity Long-term borrowings· Investments· M&A or JV· Board matters· Cash flows from business operations· Cash flows from investing activities· Cash flows from financing activities· Free cash flows· Cash burn ratio· Operating cash flow to current liabilities · Solvency-Debt equity ratio· Liquidity-working capital· Liquidity—current ration· Operating cash flow to capital expenditure KPI identified for Indirect responsibility areas -15 no’s· Liquidity-Quick ratio· Profit margins· Gross profit margins· Profit before tax· Earnings before interest, depreciation, and tax· The expense-to-sales ratio· Return on equity· Earnings/share· Dividend yield· Return on assets· Financial leverage· Accounts receivable turnover· Days sales outstanding· Average vendor credit· Inventory turnoverKRA (Key result areas) · While KPIs are targeted at the overall functional level, KRAs are key result areas at individual levels.· Based on KPIs, KRAs can be identified and articulated appropriately· Based on KPI, budgeting can be done at the Business unit and at divisional -function levels for the planning of monthly/quarterly performance targets such as the following for F&A team members: § Key milestones to be accomplished§ Key timelines for milestones§ Revenue & earnings &Proftabilty§ Expenses & costs§ Essential resources, including assets, software, manpower, etc.§ Organisation structure to accomplish the above targets · KRA’s can be evolved directly from KPIs, but these ought to be different for different levels depending on competence, experience, and role envisaged for the level · The template for KRA can be like that of KPI for ease of implementation (Template in the previous article)· KRAs need to be fixed for each position such that:§ The number of KRA will be different & much lower than the 30 KPI mentioned above vis a vis each position/level. These can be, say, 6 or 8 or 10 or 12, or 16 vis a vis each hierarchical level /position, depending on the role to be performed by F&A professionals holding such levels.§ Each KRA can have a unique % weightage (like for KPI), but the total of weightages for all KRAs must add up to 100 · Depending on the organization's size and complexity, the organization structure can have many layers, as below.§ Higher level: Directors-, CEO, COO, CFO/Vice president, General managers, and so on as applicable§ Middle level: Senior manager, Manager, and so on as applicable§ Lower level: Assistant Manager, staff as applicable, or even blue-collar employees if engaged§ The designation & number of levels can be different in different companies.· There can be many Sub-functions within the umbrella F&A, such as those listed below, and specialized skills are needed to manage these efficiently. An independent person in large organisations may head each.§ Sales & marketing accounting§ International operations/accounting§ Purchase accounting§ Material accounting§ Costing & expense accounting§ Corporate borrowing§ Corporate investments§ Treasury and cash management§ Banking§ General ledger accounting(P&L,BS)§ Budget, MIS/Dashboard§ Taxation (GST, Income tax, import duties, Incentives for SEZ/Export oriented units, state taxes, etc.)§ Statutory compliances related (specifically for F&A )§ The secretarial team deals with Board matters -quarterly & annual reports, Dividends, Corporate governance, auditing (Such a team could be a part of the Legal team as well), And so onKRA’s Driven appraisal system-8(Eight) steps/activitiesIn large professional organizations, annual increments/payouts usually comprise two components and need to be objective, as below.· Annual Increments over existing pay – Linked to Individual performance based on KRA accomplishment.· Annual incentive payout/bonus – linked to overall business unit /Company performance based on KPI accomplishment.KRA performance can be assessed on two aspects per the illustrations below.§ Quantitative performance assessment based.§ Qualitative performance assessment based.1st Illustration for appraisal of a GM Position based on the above two aspectsDifferent competencies will apply to different levels/positions. The performance assessment/reward is based on a combined assessment/score on both quantitative and qualitative aspects, with varying weightages at different levels/positions, as illustrated below.i)Quantitative performance assessment is a KRA target -vs. Score-based method. The actual is as belowKRA chose parameter(out of 30 KPI)Weightage out of 100SayUOM Target*aActual *bDerived /earned ScoreOverall finance costs for the division25Rs x LA1A2A2/A1x25Return on investments20%B1B2B2/B1x20Cash flow from financing activities15Rs x LC1C2C2/C1x15To choose out of 30 KPI12Rs x LD1D2D2/D1x15To choose out of 30 KPI10Rs x LE1E2E2/E1x15To choose out of 30 KPI10Rs x LF1F2F2/F1x15To choose out of 30 KPI 8Rs x LG1G2G2/G1x15Total score100 85 (Assumed) *a Indicates targets to be fixed by the CFO or an immediate senior person of the appraisee (General manager in this case) at the beginning of each financial year for the review period with inputs from the CEO/MD if necessary.*b indicates to be populated based on YTD-year-to-date actual data based on ERP/IT/internal software compiled by the system and recorded, where inputs from the appraisee could also be obtained to counter any partial recording of actuals.ii)Qualitative performance assessment score based on competence attributes vs. actual Say for a General manager in FKRAParameterKRA Attributes /Skills(To capture as relevant for this role) TargetScore *c SayActualscore *d Say Basic functionalSales accounting, fixed assets accounting, Material accounting, cash flow management, Accounting standards, & so on attributes ….3530Corporate mattersLong-term borrowings, JV/M&A, Equity, Board matters, Forex & so on2015IT/ERP Software:Knowledge of ERP to generate reports, Specialized software for F&A modules for costing, controlling, audit trails & so on157Legal:The Company’s Act 1956,Income tax Act 1961, The Central Goods and Services tax Act 2017,SEBI Act 1992 , RBI regulations & so on108LeadershipTeam building, Change management, Ethics, Analytical skills and so on2020 Total score10080 *c Indicates the target to be fixed by an immediate senior person of the appraisee at the beginning of each financial year for the review period with inputs from appropriate level HR professionals.*d Indicates to be populated based on YTD assessment of the superior with inputs from the peers of the appraisee +peers of the appraiser and HR professional to avoid any biased for recording the actuals.iii) Once quantitative and qualitative assessments have been done as per the above two tables, an annual appraisal is to be coordinated by the appropriate level HR person (for each appraisee level) by providing advance key inputs to the proposed team members as belowiv) For a robust appraisal system for career planning & development of appraisees, a team comprising the following is suggested for carrying out an annual performance review (in this example of appraisee at GM level in -F&A )FunctionAppraising Team memberF&AThe immediate superior of GM -F&A (appraisee)Customer function1 level higher than GM in any one interfacing function like Purchase or sales, or manufacturingHR1 level higher than GMOther function1 level higher than GM(as invitee) proposed byManagementCFO +COO/CEO or MD in case of Promotion of GM v)Usually, the corporate HR team lays down policies of rating individuals as Promotable to the next higher level and for rating as excellent, very good, good, below average, and poor, etc., and accordingly determine annual increments or for employees exit as per the illustration /assumption below§ Excellent =80-100§ Very good=60-80§ Average =40-60§ Below average=20-40§ Poor= below 20vi) In the illustration of GM-F&A, the performance rating based on KRA assessments is shown along with assumptions in the table below.Assessment onAssumed Score earnedAssumed Weightage at General Manager levelDerived Weighted scoreQuantitative parameters 8560%51Qualitative parameters 8040%32Total Weighted average score 83 The score for GM falls within range of 80-100, and hence rating can be assessed as Excellent.vii)The appraising team also discusses aspects such as below vis a vis appraisee· Promotion based on opportunity based on consistent performance over the last few appraisals,· Transferability to other functions/business units,· Training & development needs,· Changes in roles & associated organisation structure etc.· Effective datesviii) Implementation of the decisions taken in the appraisal meeting as above2nd Illustration for junior management in F&A- Assistant manager (AM) level with “Accounts payable” roleSteps/activities I to iii)These will be similar for AM but with different /applicable skills/competencies, and two tables like for GM need to be prepared.Step iv)The suggested appraising team is indicated below.FunctionAppraising Team memberF&AManager -F&A (immediate superior of appraisee)Customer functionManager in Purchase functionHRManager or senior managerOther functionNot necessary ManagementGM-F&A +GM-HR in case of Promotion of AM-Appraisee Step v) similar to earlier for GM-F&AStep vi) Users can populate tables in earlier paragraphs as per the hypothetical example belowAssessment onAssumed Score earnedAssumed Weightage at Assistant Manager levelDerived Weighted scoreQuantitative parameters 7080%56Qualitative parameters 6020%12Total Weighted average score 68 The score for AM-F&A falls within the range of 60-80, and hence rating can be assessed as very good.Step vii & viii) -similar to earlier for GM-F&ACFO/F&A teams can use these concepts to develop performance appraisal methods in consultation with corporate HR and CEO/MD for each level besides these two levels of GM and AM illustrated.Activities that can adversely impact the business § Providing incorrect inputs to senior management -CFO/CEO/MD with malice intent of assigning easy targets/goals for KRA parameters§ The target setting of the following is not objective at different levels.§ Quantitative: No of KRA parameters and their appropriateness§ Qualitative: Biased selection of applicable competencies and their target score§ KRA parameters are neither -comprehensive nor aligned with KPI and may contain transaction-related daily routine activities:§ Percent weightages assigned to each KRA or competencies are biased with ulterior objectives of influencing outcome vis-à-vis performance review perspective.§ Targets set are biased (too stretched or loose) to reprimand or favour specific team levels /employees, leading to demotivation/dissatisfaction. § The actual measurement is captured inaccurately or manipulated by the immediate appraiser with malicious intent. § Through the back end of the software, the appraiser makes circular changes in the KRA Targets or actuals during the performance review period with ulterior motives and turns off the audit trail to prevent detection. § Not ensuring restricted access rights to KRA values (both targets & actuals)in the appraisal workflow software in HR, thus enabling persons to make unauthorised changes in targets vis a vis approved KRA.
Developing KPIs for Finance & Accounts FunctionsA KPI for a function is a measurable value that demonstrates how effectively a function is meeting organizational objectives. KPI needs to be specific, measurable, realistic, and communicated to concerned key functional team members to accomplish.How to develop KPIFor developing a robust KPI system,11 business activities are considered essential for any type of organisation, as below.· 1. Sharing of corporate targets like Sales nos, Revenue, and costs & Completion targets with CFO · 2. Design of format/contents of KPI with inputs from CEO/MD· 3. Identify important KPIs based on corporate objectives and external influences like customer demand or & competitors’ offerings, or & economy or &statutory considerations· 4. Proposing initial KPI Targets and Measures by each HOD of F&A function and review with CFO· 5. Reviewing, modifying, and approving the F&A ‘s KPI by CEO/MD· 6. Putting up measurement systems in place like reports /dashboards · 7. Converting each functional KPI into KRA-Key result areas of functional team members at different levels i.e.§ Higher level: directors-, CFO, HOD, General managers-GM, and so on as applicable§ Middle level: senior manager-sr. mgr, manager, and so on as applicable§ Lower level: assist. manager/junior mgr., staff, workers so on as applicable· 8. Monthly capturing of actual accomplishment of KRA by respective teams in templates· 9. Periodic review of Actual achievement of KPI vs. Target· 10. In exceptional cases, reviewing, updating, and resubmitting KPI to CEO/MD· 11. Compile Level-wise Actual vs. Target of KRA and forward updated reports to the HR team for each level's subsequent annual performance appraisal system.Suggested Template for 30 identified KPIs -An Illustration KPI for F&A functions has been broadly categorized under two categories, ie. Direct responsibility area and Indirect responsibility area · Direct responsibility area. = 15 KPI -with 63% weightage3 KPI rows have been assigned with weightage score@5 for each KPI with cumulative impact =15 score points as per illustrations below.12 KPI rows have been assigned with weightage score@4 for each KPI with cumulative impact =48 score points as per illustrations below.· Indirect responsibility area = 15 KPI with 37% weightage (F&A teams play facilitative roles)7 KPI rows have been assigned with weightage score@3 for each KPI with cumulative impact =21 score points as per illustrations below.8 KPI rows have been assigned with weightage score@2 for each KPI with cumulative impact =16 score points as per illustrations below.Scoring methodologyThe KPI measurement can be either quantitative or qualitative, and a few examples of quantitative KPI are as underQuantitative KPI· Profitability- In Rs or USD or %· Cash flows - in Rs or USD· Receivables - in Days or Rs· Return on Investments- In %· Solvency related KPI- In Ratios or %and so onIn such cases, it is easy to compare performance based on Target vs. Actuals and compute % achievement based on scores earned and illustrations given.Quantitative KPIHowever, there can be many KPIs that may be both qualitative & quantitative in nature, such as below:· IPO/Equity· Long term borrowings· Investments· M&A/JV· Board mattersIn such cases, the scoring methodology is proposed below, wherein *1 mark has been indicated, highlighting the following.*1=Indicates, the target value to be set up by the CFO in consultation with the CEO/MD at the beginning of each financial year as per the unit of measurement indicated. There can be KPI where it is difficult to quantify performance in Rs terms or % value or any other unit. In such a few cases, a score is given and assessed qualitatively on a 5-point scale, as highlighted below. · 5 score indicates the highest performance · 4 score shows very good performance · 3 score indicates good performance· 2 scores indicate below-average performance· 1 score indicates poor performance Scoring methodology-Column 7In both Qualitative and Quantitative KPIs, the actual performance and score earned will be computed & captured inActual performance is to be captured by the appraising person supported by factual data from MIS, Financial books & with ERP/Other software support & measured in terms of UOM indicated earlier, with inputs from the appraisee.The score earned (in Column 8) will be computed based on the actual value in column 7 divided by the target value in column 6.S.no Suggested KPI Measure of accomplishment UOM % Weight-age Target Actual Scoreearnedbased on col 7/6x5Col1 Col 2 Col 3Col 4 Col 5 Col 6Col 7Col 8 Direct responsibility area3 KPI rows each with weightage score@5 =15 score12 KPI rows each with weightage score@4 =48 score 1IPO/EquityPricing, roadshows,, %subscription, costs, equity & preference shares issuance & inflows & so onScaleof 5 55note*1 2Long term borrowingsBorrowing rates/cost from banks/FI, covenants, Credit ratings received for Bonds & debenture, % interest rates Inflows-disbursals, EMI repayments, utilisationScaleof 5 55note*1 3Investments Risk analysis , % return on investments choices in Shares, Bonds, debentures, Mutual funds & so onScaleof 5 55note*1 4M&A or JVDue diligence, Price negotiations, Terms & conditions, statutory approvals, Forex hedging, ownership control% Royalty etcScaleof 5 44note*1 5Board mattersQuarterly/annual results, Dividends, Corporate governance , /Audits & so onScaleof 5 44note*1 6Cash flows from business operationsduring a perioudComputations based on:Inflow from =customers, interest received, dividends, rentals etc ,Outflows to = vendors, employees, taxes etcNotes: More heads can be added as relevantRs 4? 7 Cash flows from investing activitiesduring a perioudComputations based on;Inflow from sales of =Assets, intangibles, co securities, & divestures, loans repayment by borrowers etcOutflows for purchase of =Assets, securities of other cos, acquisitions, investments made etcNotes: More heads can be added as relevantRs 4? 8Cash flows from Financing activitiesduring a perioudComputations based on:Inflow from sale of =Equities/stocks, preferred shares, bonds, etcOutflows for =Dividends, buy of treasury stocks, bonds, short term debts payments etcNotes: More heads can be added as relevantRs 4? 9Free Cash flow Cash flow from business operations- Net capital expenditureRs4? 10Cash burn ratio Free cash flow during a specific period Divided byNo of days during the periodNotes: It indicates daily cash during the period.(-) Negative indicates company can go into financial distress Rs (+ or -)4? 11Operating cash flow to current liabilities Cash flow from operations OCFCL= Divided by Average current liabilitiesNotes:It represents the net amount of cash derived from operating activities during the year and ability of the company to generate cash from operations to pay its debts% or ratio4? 12Solvency Total liabilitiesDebt/equity ratio =. Divided by Total stockholders' equity % or ratio4? 13LiquidityWorking capital =Current Assets-Current liabilitiesRs4? 14Liquidity Current asset Current Ratio. = Divided by Current liabilities Notes: Current ration expresses working capital as a ratio .Value exceeding 1( one) indicate a positive net working capital . However ,excessively high current ratio indicates inefficient asset useratio 4? 15Operating cash flow to capital expenditure Operating cash flow … Divided by Annual capital expenditure % or Ratio 4? Indirect responsibility area(F&A teams play facilitative roles)7 KPI rows each with weightage score@3 =21 score8 KPI rows each with weightage score@2 =16 score 16Liquidity -Quick ratio Cash + Short-term securities + Accounts receivable Divided by Current liabilitiesNote: The quick ratio reflects on a company's ability to meet its current liabilities without liquidating inventories that could require markdowns. Quick assets are those which are likely to be converted into cash within a short period of time. Value >1 indicates companies ability to meet its current liabilities without any difficultyTimes3? 17Profits MarginEarnings without interest expense Divided by Net sales revenueNotes: The higher %, indicates profitable operations%3? 18Gross Profit marginNet Sales revenue - Cost of goods sold Divided by Net sales revenue Notes: % indicates how much every sale Rupee is gross profit. Higher the better %3? 19PBTProfit before taxDivided by Net salesNotes: The higher %, indicates profitable operations%3? 20EBIDTEarnings before interest, depreciation and taxDivided by Net Sales valueNotes: The higher %, indicates profitable operations%3? 21Expense to sales ratio Direct ExpensesETS=. Divided by . Net sales revenueNotes: It measures the percentage of each sales Rupee that goes to cover specific expenses..Lower the better%3? 22Return on Equity Net income ROE= Divided by Average stock holder’s equity Notes: ROE measures the return on the investment made by the firm's stockholders. Itis one of the primary measures of company performance for a specific period, usually a fiscal year.%3? 23Earnings/share The net profit or loss for the period Divided by weighted average number of equity shares outstanding during the periodNotes: Computation as per accounting standard 20Rs2? 24Dividend yield Dividend per share Dividend yield = Divided by Market value per shareNotes: Dividend per share is calculated based on the annual dividend declared during the year divided by the number of outstanding common stock %2? 25Return on Assets Net income+ Interest expense net of tax savingROA =. Divided by (Beginning total assets +Ending assets)/2Notes: It measures utilization of assets to earn a profit. ROA measures the return earned on each Rupee that the firm invests in assets. Interest costs is excluded from the ROA calculation so that return is measured without the effect of debt financing.%2? 26Return on Financial leveler ageROFL= ROE-ROANotes: Financial leverage refers to the effect that liabilities (including debt financing) have on ROE.A firm's management can increase the return to shareholders (ROE) by effectively using financial leverage.On the other hand, too much financial leverage can be risky as too much debt increases chances of failure to make timely debt payments %2? 27Accounts receivable Turnover Net Sales revenue ART= Divided by Average accounts receivable Notes: More turns indicate that accounts receivable are being collected more quickly Turns2? 28Days sales outstanding 365 Divided by Accounts receivable TurnoverDays2? 29Average vendor credit daysValue of Accounts payable Divided by x 365 Cost of goods soldNotes: No of days payable to vendorsDays2? 30Inventory turnover Cost of goods sold INVT= Divided by Average inventoryNotes: It measures the number of times during a period that total inventory is turned (sold). Higher no of times indicates that inventory is managed efficiently No of times2? How to populate the KPI template· As is evident from the above table, a template (with 8 columns and 30 rows) has been proposed for the F&A function, which can be populated by the HOD of each function within the F&A team and reviewed by the CFO. Each row represents a KPI parameter (along with the unit of measurement) with different weightages for each KPI.For an easy-to-understand model, in column 5, the total of all the weightages of KPIs' must add up to 100, · Essential inputs for computing actual accomplishment vis a vis each KPI are given in column 3. · The values for the “Target” KPI and “Actual” vis a vis each KRA are populated in columns 6 & 7, respectively. · After that score earned is to be determined as follows: The actual value in column 7 Divided by X weightage score in column 5 Target value in column 6 The computation of the score earned is illustrated below for four random KPIs, each with different weightage of 5,4,3,2, respectively, in column 5. The values or numbers in cols 6 & 7 ,indicated in the illustration, are hypothetical. · KPI parameters will undoubtedly vary from organisation to organisation, and weightages can be decided by CFO in consultation with CEO/MD.· Therefore, at the absolute discretion, CFO can do the following:§ Change the character/narration of each KPI and its measurement unit.§ Add or delete or edit the KPI in consultation with CEO/MD§ Change the proposed weightage @ 5 or 4 or 3, or 2 for KPI to any other number,· However, for simplicity and to develop a Robust quantifiable model, the amended KPI's, overall weightage must add up to 100.· In large organisations with multi-plants/offices in different countries/states/locations or companies with multiple end products or services, separate KPIs must be identified for each sub-functions of F&A.· CFO can evolve KPIs for the above functions based on a similar approach with a focus only on relevant KPIs for each function· For the service industry, KPI related to inventory will not be relevant, and end products will get replaced by “Services“ and cost of goods sold will get replaced by the cost of rendering services. Illustration table for 4 KPIs # mark in col 6 & indicates values considered in these cells are hypothetical and only for enhancing readers' understanding. The score earned for 4 KPI’s=11 out of the target weightage of 14 (reflected in Col 5 and Col 8, respectively) and a similar methodology is to be applied for all 30 KPIs with a target weightage of 100 .KPIS.no Suggested KPI Measure of accomplishment of KPI UOM % Weight-age Target Actual Scoreearned ComputationFor arriving at score based on values incol 7/col 6 x col 5Col1 Col 2 Col 3Col 4 Col 5 Col 6Col 7Col 8Col 9 1IPO/EquityPricing, roadshows,, %subscription, costs, equity & preference shares issuance & inflows & so onScaleof 5 5544KPI’s measure is overall qualitative 6Cash flows from business operationsduring a perioudComputations based on:Inflow from =customers, interest received, dividends, rentals etc ,Outflows to = vendors, employees, taxes etcRs 480Lacs#60Lacs#3(60/80) x4=316Liquidity -Quick ratioFor a perioud Cash + Short-term securities + Accounts receivable Divided by Current liabilitiesNote: Value >1 indicates companies’ ability to meet its current liabilities without any difficultyTimes 31.10#6.2L+4.1L+8.6LDivided by 20.2L. #=0.932.54(0.93/1.10).x 3=2.5427Accounts receivable TurnoverFor a perioud Net Sales revenue ART= Divided by Average accounts receivable Note: More turns indicate that accounts receivable are being collected more quickly Turns 29 #6820L-salesDivided by (915L+1125L)/2Avg Receivables =6.61.466.6/9 x 2=1.46Score earned for above 4 KPI’s=11 out of 14 (in col 5 and Col 8 respectively) 14 11 Activities that can adversely impact the business Providing incorrect inputs to senior management -CFO/CEO/MD with malice intent of assigning easy targets/goals for KPI parameters.In the workflow/embedded software (that enables accessing of KPI), incorporating incorrect parameters vis-à-vis management-approved parameters by not exercising prudence leads to inaccurate capturing of KPIsMaking changes in the KPI Targets or actuals before the performance review period with ulterior motivesMeasures of accomplishment are deliberately kept vague and not merit-based, leading to the scope of manipulation.Percent weightages assigned to each KPI are biased with ulterior objectives of influencing outcome vis-à-vis performance perspective.Targets Set are biased (too stretched or loose) to reprimand or favour specific team levels /employees, leading to demotivation/dissatisfaction.The actual measurement carried out is captured inaccurately or manipulated.§ Through the back end of software, making circular changes in the KPI Targets or actuals during the performance review period, with ulterior motives and turning off the audit trail to prevent detection.§ Not ensuring restricted access rights to KPI values in the appraisal software in HR, thus enabling unauthorised persons to make unauthorised changes in targets vis a vis approved KPI.
Soft Documents -Designing and implementing a document management system (DMS) –.Like Hard documents, many important soft documents (including manuals) within each design function are required for day-to-day operations in business. In addition, many of these documents must be submitted to management for decisions or auditors or statutory agencies.These must be stored systematically and indexed properly for easy retrieval as and when required by operating teams, auditors, or statutory agencies. These documents can be stored in-house or with an outsourced agency like cloud storage.This article includes the following aspects.· 1Types of core & statutory documents identified as used in building design functions.· 2 Examples of a few core & statutory documents in 3 design functions· 3 Types of Digital files are used in the development of building designs and drawings.· 4 Types of digital documents used -other than drawings and designs · 5. Twelve activities for developing DMS (soft documents)· 6, Parameters for evaluating DMS solutions1,Types of documentsThe concepts shared in this article apply to any business/any function. However, as per the title of the author’s handbook, documents for three building design functions, Design Architectural, Interior Design, and Design of MEP, have been summarised below.· Core documents=38 types and expandable to 300 types· Statutory documents=31 types and expandable to 300 types· Unique Functional manuals=15 types and expandable to 30 types· Statutory manuals =1 type and expandable to 2 types· Similar type manuals=2 types and expandable to 5 types· Drawings and Designs =Different types as relevant and requiredThe actual number of documents within each core and statutory document may run into several hundred /thousand/lacs per financial year as per the number range planned For designers to understand, design function-wise examples (2 types each) of a few cores and statutory documents (hard or soft) that need to be stored, accessed, and retrieved are below.2. Examples of a few core & statutory documents. Design of ArchitectureCore documents1. Submission drawings for statutory approvals2. Tender documents etcAnd so onStatutory documents1. Copies of Applications and fee payment challans” applicable to this function for each type of Licenses, Sanctions, Approvals, renewals w. r. t. central Government statutory documents such as2. National building codeAnd so onInterior designingCore documents1. The design and drawings w.r.t Finishing, Furnishing and fixtures, Equipment for Interior design, Artwork, etc.2. Specifications for BOQAnd so onStatutory documents1 “Checklists for compliances” w. r. t. each statutory act /State regulation applicable to this function2. Copies of all statutory records applicable to this functionDesign of MEPCore documents1. The design and drawings w.r.t HVAC2. Specifications for BOQ -HVAC design packageAnd so onStatutory documents1. Specific acts related to documents, e.g. The Air (Prevention and Control of Pollution) Act, 1987.2. Specific acts related to documents, e.g. The Water (Prevention and Control of Pollution) Act,1987.And so on The list /names of such documents are included in chapter 17 of my handbook, per the few examples below.3. Types of Digital files used in the development of building designs and drawings§ AutoCAD drawings = DWG. (supports 2D &3D geometry)§ Building information modeling =BIM (3D models using Autodesk Revit, ArchiCAD, or Bentley MicroStation)§ Portable document format =PDF§ Joint photographic experts group =JPEG. (Image format)§ § Tagged image file format =TIFF. (Image format)§ Industry foundation classes. =IFC (for exchanging BIM data)§ Portable network graphics =PNG. (Image format)§ Graphics interchange format =GIF (Animation format)§ Scalable vector Graphics =SVG (web-based drawings format)§ Computer graphics Metafile =. CGM(For 2D vector graphics)4. Types of digital documents used -other than drawings and designs · Text file: Doc, Docx, Xls, Pdf, etc· Image file: JPG, TIF, PNG, GIF, etc· Audio file: WAV, MP3, etc.· Video file: (e.g., AVI-Audio- Video interleave, WMV-window media Video, MOV-Quick time format, MP4, AVCHD-advanced Video coding- high definition 5. Twelve activities for developing DMS (soft documents The following 12 activities have been identified. These activities are identical in each of the functions in the construction industry.1. Identify documents and manual types –(Soft documents) that need to be stored digitally2. Identify the form of documents -a core, statutory, drawings and designs, or manual types that need to be stored, such as summarized below:· Design & Drawings & Graphics:· Other than Designs & drawings 3 Classify each soft document into three categories as (A)Statutory type, (B) Confidential, (C)Operational.This is to be based on guidelines from top management4. Perform the following activitiesSelecting Software for indexing document files/manuals, tracking documents retrieval pursuing an option as per the need of the organisation· a) In-house central repository in servers or storage device· b) In-house on the functional PC/Computer or storage device· c) External outsourced location like cloud storage5. Evolve Document retention policy with inputs from HOD of design functions, legal, and CFO independent of storage location6. In case Soft Documents are planned to be stored in-house: Develop in-house software with at least the following software features based on inputs from functional HOD vis-à-vis soft documents to be kept in-house at a central repository7. In case Soft Documents are planned to be stored outside: Evaluate features offered by external /Service Providers’ software solutionThe solutions could be the following.· Cloud storage based· Non-Cloud-Conventional based Critical evaluations steps include the following:i) Preparation and floating of RFQ with required parameters such as listed in the activity ii) For large-size customer organisations, Identifying various service providers for cloud storage, such as below:· Google Drive, Microsoft One Drive, Apple I Cloud, Amazon Drive, Dropbox· Next cloud, Adobe, Box, Mega Obtaining their technical features, commercial offers and arranging a Demo of the solution.Once the negotiation is done, the purchase order is placed on the chosen service provider. Finally, the signup is done, and users can use these services easily as the installation is simple.iii) identify local service providers offering Non-Cloud-conventional software solutions for small-size companies.iv) Obtaining quotes and evaluating technology features vis-à-vis parameters listed in RFQ and compiled below beside the financial strength of the service provider and experience in business, market share, etc.v) Negotiating prices Placing an order on the finalized service provider, and informing all concerned HODvi) Arranging training for using DMS8. Develop SOP/guidelines vis-à-vis IT Security policy for uploading/storage, retrieval, backup, and deletion of soft documents 9. Evolve access rights for uploading, viewing, retrieval, and deletion of soft documents irrespective of storage location options as captured above10. Collaborate daily for availing services from the cloud-based vendor or external service provider for DMS services for soft documents.11. As and when hierarchical changes or movements (departures, retirements, transfers, or additions) happen vis employees and other authorised business associates to who access rights were previously granted, revisiting these access rights on a dynamic basis to ensure confidentiality integrity and availability of information12 Avail of Day-to-day document services, as per SOP, from the service provider vis-à-vis soft documents to be stored outside the design function.6, Parameters for evaluating DMS solutions · Indexing· Uploading· Viewing· Downloading· Permissions and access- rights· File management/File sharing· Collaboration support· Data Security· Administration Control· User Activity Monitoring Capabilities· Access from multiple locations· Access from multiple devices· Interface with ERP for retrieval and storage of soft documents · Storage space in GB/TB etc· Automatic back up· Downtime protection through multiple servers· Service level agreement to minimize downtime· Storage capacity in GB/TB· Scalability· Upgradations/enhancements· Audit trails · The initial cost of software acquisition· Training person-days· Recurring Cost Per Month Handbook of the author The list of activities for developing DMS-Soft documents is included in chapter 12 (annex 34C) in the author's handbook. It is titled” ETHICS in the real estate and hospitality industry, Volume 1- Architectural, Interior Design, and MEP Services.
This article includes the following:1. Purpose of coding schemes2. Nine steps /activities for developing coding schemes3. Illustrations of coding schemes-Business entities4. Illustrations of coding schemes-Business Objects5. Way forward6. Future references The concepts proposed in this article can be used in any Industry, though examples in this article mostly pertain to real estate & hospitality industry in line with proposals in my handbook 1. Purpose of coding schemesCompanies acquire and use ERP or customized software solutions for the efficient execution of business processes and the implementation of best practices. For digitization, robust coding schemes must be designed and implemented In any business, there are many entities and objects as listed below: Entities: Vendors, Customers, Employees, Shareholders, and so on. Objects: Materials, Finished products, business documents like purchase orders, invoices, accounting documents and so on.Coding schemes enable the accomplishment of the following objectives.· Providing a standardized and structured way of identifying and categorizing different entities and objects.· Enable efficient way of accessing the entities or objects from digitization perspectives.· Help efficient storage and retrieval of data by digitization· Organise and classify business data as useful information· Efficient management of business operations· Help in maintaining records and tracking these.Developing coding schemes can be a complex process. There are different types of coding schemes, such as below· Numeric…..These are simple an easy to use but limited in capacity· Alphanumeric….These provide more flexibility.· Hierarchical …These involve a series of numbers or letters that indicate the level of detail in the code. Organizations, of course at their absolute discretion, can develop their existing coding scheme.Coding schemes are usually embedded in the ERP/software solutions used by them. Few more examples of Business entities and objects includeBusiness Entities include:· Vendors· Customers· Employees· Shareholders· Statutory bodiesand so onBusiness Objects include:· Materials which can be BOQ-Bill of quantities or BOM-Bill of materials· Assets -all types like buildings, Plant & Machinery, Furniture, Vehicles etc.· Function and sub-function· Core processes and Core activities· Number range of documents· Statutory processes and Core activities· Core Documents and Statutory documents· Manuals (functional, statutory, and similar type)· Configuration tables· Processes and activities for developing Configuration tables· Master data tables· Processes and activities for developing Master data tables· Fields to be used in core and statutory documents, configuration tables, and master data tables· Risk assessment processes· Access rights-related processes· Authorisation Profiles· Developing Supporting Processes 2. Nine steps /Activities for developing the coding scheme common for both categories)1. Form a cross-functional team comprising professionals from Finance and accounts, IT/systems, and concerned functional team for:· Determining what all needs to be coded for digitization perspective.· Deciding name of “Coding agency or Organisation level Coordinator” who would be responsible for initial allocation of codes and maintaining subsequent changes to coding schemes vis-à-vis each or all design functions· Broad design of coding schemes (numeric or alpha or alphanumeric, size/number of digits in the coding system, and so on)2. Nominate one functional coordinator for providing to “coding agency or organization level coordinator” lists of all processes, activities, tables, fields, supporting processes and activities, materials, employees, vendors, customers, business associates, etc. vis-à-vis own function (Designing of Architect, Interior designing and MEP Services)3. In consultation with ERP/IT team, decide the following vis-a-vis each aspect listed in the 2nd activity.· Number of digits· Structure as alpha-numeric or and numeric or and alpha4. Based on the 3rdactivity, develop a coding scheme and assign Codes to each of the aspects listed.5. As an alternative to the 4th activity, provide a solution for generating random code numbers through the computer for assigning codes. 6. Incorporate the codes assigned in the 5th activity in the respective ERP application package at pre-implementation of chosen ERP package/solutions.7. Decide the following:· The processes, activities, and documents for requisitioning future incremental “additions to codes.· Function wise levels, positions, and names of designers for requisitioning, approving, and communicating codes to concerned three functions and their implementation in respective ERP application package8. Review and redesign /enhance coding schemes considering future requirements/expansions.9. Implement the codes so allocated above after testing and providing training to the relevant users of such codes 3. Illustrations for Coding scheme- “Entities” from my handbook EntityCategories for classificationScheme proposed by authorno of digitsIllustration VendorsFor different categories respectivelySupplier (domestic)Consultant (domestic) Contractor (domestic) Service provider (domestic) Supplier (overseas)5 VA001VB001VC001VD001VE001Shareholders/investorsFor different categories respectivelyShareholders-localShareholders-overseasBankers/FI/investors localBanker/FI/Investors-overseas6 IA0001IB0001IC0001ID0001EmployeesFor different categories respectivelyEmployees (local/residents) Employees (foreigners)Employees (temporary)6 EA00001EB00001EC00001Customers For different categories respectivelyProject Customer - End customersProject Customer - Real estate agentProject Customer – UnderwriterProject Customer - Institute customersProject Customer - Overseas customers6 CG00001CH00001CI00001CJ00001Govt/statutory bodiesFor different categories respectivelyGovt./statutory Bodies (local) Govt./statutory Bodies (Overseas) 5 GA001GB0014. Illustrations for Coding scheme- “Objects ” from my handbook ObjectsCategories for classificationScheme proposed by authorno of digitsIllustration BOQ-MaterialsFor different types of materials used in works like Structure, Civil, others, consumables, etc respectively and range from 00001-99999 in each type and so on 7QA00001, QB00001QT00001, QU00001Assets/capitalItemsFor land, building, plant, machinery, etc respectivelyand range from 0001-9999 in each type 5AA 0001.AB0001.AC0001.FunctionsFunction, sub-function, and employee code 6PR 02 T01Core processAbbreviation for core process and continuous number 5C 1151Core activitiesAbbreviation for core activity and continuous number 5A2601Statutory processAbbreviation for core process and continuous number 5SU 301Statutory activityAbbreviation for core activity and continuous number 6AU 1201Core documentsAbbreviation for core document type and continuous number. Number range say 5 digits 00001-99999 Each fin. year number to start from 00001 5D 1201Statutory documentsAbbreviation for statutory document type and continuous number Number range say 3 digits 001-999 Each fin. year number to start from 00001 5E1201FieldsAbbreviation for “Field” and continuous number 4F 001Configuration tableAbbreviation for configuration table and continuous number 5CT 211Master data tableAbbreviation for master data table and continuous number 5MT 106Risk assessment processAbbreviation for risk assessment process - organization level, core process level, activity level, and continuous number 5RA 227, RA252, RA277Risk assessment activityAs above but for activity 4TA01Risk assessment processAs above, but for the statutory process level and continuous number 5RB152, RB177Risk assessment activityAs above but for statutory activity level 4TB01Risk assessment processAs above but for the Configuration table and continuous number 5RC152, RC177Risk assessment activityAs above but for Field choice level and continuous number 4TC01Risk assessment processAs above but for the Master data table and continuous number 5RD152, RD177Risk assessment activityAs above but for Field level and continuous number 4TD01Authorization ProfilesFor accessing core processes and associated activities 7PC02001Authorization ProfilesFor accessing statutory processes and associated activities 7PS00001Authorization ProfilesFor accessing field choices in configuration tables 7PT01001Authorization ProfilesFor accessing fields in Master data tables 7PM00501And so on 5.Way forwardThe above-proposed coding schemes are for the conceptual understanding of the Designers /other employees/users.These can be designed/altered at the absolute discretion of the organizationand can be 100% alphabetic or 100% numeric or hierarchical as felt appropriate and as per the required number of digits. In the scheme proposed by the author, the number of digits can be appropriately increased or decreased for higher or lower volumes of business activities, respectively.Usually, coding schemes are driven by the software solution and ERP solution used by the organisation.Irrespective of the design of the coding scheme chosen, the following must be ensured before the coding schemes are implemented.· Well-documented responsibility for designing, approving, requisitioning, and communicating the coding scheme· Providing training to users of the coding scheme before implementing· Compatibility of coding scheme with the software /ERP used in the organisationHandbook of the author A template illustrating the list of business activities to be performed for developing coding schemes is included in chapter 9 in my handbook and in annex 33B, uploaded to my website https://www.ethicalprocesses.com/blogThe handbook of the author titled” ETHICS in the real estate and hospitality industry, Volume 1- Architectural, Interior design, and MEP services
Developing Financial Authority Manual for building designers.This article covers the following aspects.1. The purposes for which Payments are required to be made2. Methods of making payments –to Overseas Vendors in foreign currency3. Methods of making payments –to local vendors4. Key nine Activities to make financial authorisation manual5. Template for financial authority limits6. Responsibility matrix based on S-0-D concept7. Five types of supporting financial documents 8. Activities that can adversely impact business Other functions can also use the concepts used in this presentation.1. The purposes for which Payments are required to be made 1 . Design services outsourced to designers such as Architects or interior or MEP rother specialists for complete design or proof design/or design validation2. Services received from external service providers, such as sample inspection & testing, coordination work for statutory approvals, prototype development, renderings, etc., sample room /mock-up building work3. Procuring Design related equipment/hardware or software packages, BOQ samples materials / etc4. Out-of-pocket expenses incurred or reimbursements to outsourced designers or inhouse teams during their course of work5. Any similar work related to the design function, such as statutory approvals relatedThis excludes payroll, which is assumed to be managed by the HR team, and the Purchase or contracts teams manage bulk buying of BOQ materials. 2. Methods of making payments –to Overseas Vendors in foreign currencyIrrevocable LC opening by the importer in favour of the beneficiary (exporter)Payment through Bank using SWIFTNet banking /Online banking or Internet Banking directly by the importerTT/Telegraphic transferDocumentary collection (Payment documents received through bank)Open Account (Payment documents received directly by importers)Cash in Advance in Foreign currency (FC) notesInternational Credit card /Debit cardTraveller’s cheques issued by reputed International banks2. Methods of making payments –to local vendorsNet banking /Online banking or Internet bankingBank transfer -IMPS,NEFT (IFSC codes)UPI – Unified Payment Interface(UPI)-Bank cheques or Demand draftLC -Letter of creditChequesDebit cardsCredit cardsCash 4. Key nine Activities to make financial authorisation manualIn either case, the following nine activities are proposed to be performed.1. Issuance of Policy directions for financial authorisations by Board/promoters2. Design format/contents of the proposed financial manual3. Develop (function-wise)details for the Financial authority manual4. Periodic review of payment methods and approval norms as also cycle time for payment release, post-approval as per responsibility matrix at point 7 below5. identify Documents that need board approval ( as mandatory/needing power of attorney) 6. Maintain central Serial Control of original authorization documents, usually with the CFO7. Incorporate empowerment in the authority norms as per risk appetite while considering productivity enhancement8. Ensure the controlled circulation of the approved financial authority documents9. Develop Software program /workflow in ERP or software SolutionAll activities are identical in each of the functions in any function and industry except activity at sr no three, which is unique for each function and summarised below5. Template for making a financial authority manualOutgoing payment relatedcurrencyFinancial limitInitiationEditDeleteApproveColumn (1)(2)(3)(4)(5)(6)(7)Negotiations with consultants Negotiations with Vendors-BOQ, software etc.¯ Negotiations with Vendors Agreements with consultants Purchase orders on vendors Invoices of consultants-Design Fees & reimbursements Invoices of Vendors -BOQ samples, testing etc. Payment Requisition for Statutory Fees Reimbursement claims of design team-Travel, expenses Credits from consultants, vendors Designer’s payroll-related documents And so on Note: Rows can be inserted for each line item above to meet different financial limits for different financial levels. The hierarchical level needs to be decided and entered in the column no 4,5,6,76. Responsibility matrix based on S-0-D conceptThe above template includes a responsibility matrix, where columns 4,5,6,7 are to be populated based on the S-O-D Segregation of duty concept.7. Five types of supporting documents before releasing the final paymentFinancial-related Documents type -a few examplesA1) Supporting documents· Quotations, ComparisonsA2) Financial documents· Agreements or Purchase orderso Design consultancy services like consultancy for Architectural, interior designing, MEP/engineering, etc.o BOQ/Bill of quantities used in construction, usually for samples, mock-ups or show units, etc., arranged by the project design and engineering team members.o Assets like office equipment, Design software, etc. required by the Project design and engineering team, and so on B) Outgoing Payment related documents· Invoices raised by outsourced consultants-Design or other Consultant fees or know-how fees· Invoices raised by Vendors-Purchase of any BOQ, usually for samples, mock-ups, or show units or service providers· · Acceptance report of Design work submitted by consultant or service provider various vis a vis stages-wise deliverables mentioned in the authorised purchase order or agreement· Incoming BOQ/ Material acceptance report · Internal payment computation vouchers of the company· Invoices and debit note/claims of outsourced consultants or vendors or service provider C) Incoming Payment related documents· Credit notes of consultants/vendors· payments instrument/from them funds transfer in detailsD) Expense claim documents (other than reimbursement below)· Claim forms for official expenses incurred by designers/employees on behalf of the company, along with supported documents E) Reimbursement claims documents· e.g., vouchers for out-of-pocket expenses incurred for official work such as Local conveyance ,travel expense vouchersOut of pocket expense voucher 8. Activities that can adversely impact business § Making authority manual that is non-comprehensive or does not include many payment supporting Documents (such as per A1 or A2 in point 7 above) associated with capturing activities/transactions such as the following but not limited to in this function: · Memorandum of understanding towards such negotiations - Technical aspects· Agreements or contracts with outsourced design consultants towards negotiating rates, payment terms, escalation basis, reimbursements, other commercial terms, taxes, etc.· Purchase orders on vendors — technical aspects and rates of sample BOQ materials .freight, packing, and forwarding, marine insurances, payment terms, Taxes, duties, etc· Negotiation of fees/rates, reimbursements, payment, and commercial terms with each type of design consultant or service provider· Negotiation worksheets of reimbursements like travel, free days of visits at the site (types, limits), taxes, duties, and other statutory charges· Rates-related worksheets for the extra scope of work or time overruns· Incentives computation worksheets· Statutory fees/charges worksheets· Taxes/levies and duties related rates worksheets· Refund documents, if any, from statutory bodies or business associatesAnd so on § Making authority manual that is non-comprehensive or inaccurate vis a vis outflow-related documents (as per B in point 7 above ) such as the following (but not limited to) in this function. § Each type of consultant/service provider§ Model developers for sales promotion§ Renderings§ Vendors of BOQ-samples§ Statutory fees/charges§ Taxes/levies and duty rates§ Penalties, fines (if any), computation§ Bank Guarantee, Bonds, etc., if any values and terms § Making authority manual that is non-comprehensive or inaccurate vis-à-vis incoming payment-related documents (as per C in point 7 above)in this function, e.g., credit notes, supporting.§ Making authority manual that is non-comprehensive or inaccurate vis a vis official expenses (as per D in point 7 above)in this function, e.g., travel, boarding, lodging, cash purchased samples, etc. § Making authority manual that is non-comprehensive or inaccurate vis a vis reimbursement claims as per E in point 7 above)in this function, e.g., pocket expenses incurred for official work. Other aspects common to all documents in manual§ Approving financial authority norms skewed to enable specifically nominated persons in design function to carry out financial transactions with ulterior motives/obtain and thus making of power centers.§ Using superseded /obsolete financial authority manual due to its uncontrolled circulation.§ Making circular changes in the financial authority manual to transact specific transactions and restoring original values, with ulterior motives, and simultaneously disabling audit trail to prevent detection. § The financial authority manual for design functions does not have provisions for managing emergency-like situations that may need subsequent approvals. § Making financial authority norms vague leads to dissatisfaction amongst functional teams and misinterpretation.§ In the workflow/embedded software (that enables accessing financial limits), incorporating incorrect financial limits by not exercising prudence leads to bypassing approved financial norms. § Using financial authority manual by users who have not yet been appropriately authorized by CEO/MD/board as relevant (such as below but not limited :§ The power of attorneys, which serve as authority documents for statutory bodies/external world, is not supported by the availability of board resolution in a validly convened board meeting § Power of attorney not being on a stamp paper of requisite value§ Power of attorney not carrying the proper company seal, which is valid. Handbook of the author A template illustrating the activities to be performed for developing the Financial authority manual is included in chapter 16 (annex 38C) in the author's handbook and titled” ETHICS in the real estate and hospitality industry, Volume 1- Architectural, Interior Design, and MEP services.
Developing Standard Operating Procedure (SOP) – Building Design Functions-Design of Architectural, Interior designing, and Design of MEP.Purpose of the SOPThe purpose of the SOP document is to provide step-by-step instructions to users to carry out business processes /tasks correctly, uniformly, and efficiently.Availability of SOP helps accomplishment of the following.· Reduce training time of employees, business associates like vendors, channel partners end customers.· Reduce errors in performing business activities.· Enhance productivity by eliminating role conflicts and providing clarifying responsibilities and time -frames· Maintain consistency/uniformity across the organization.· Establish a transparent chain of command· Meet statutory requirements, if anyWhat makes SOP comprehensiveTo make the SOP document comprehensive, it must include the following aspects.· Scope of designer's work/roles in great detail· Stage wise Deliverables /methodology for each design package (Architecture, Interior, and MEP)· Outline of Resources required like computers, desktops, design equipment, and software· Inclusion of responsibilities and timelines for activities· Build in Quality assurances (like segregation of duties) in activities mentioned in SOP vis a vis each type of package· Risk management framework vis a vis design activities Developing comprehensive SOP-12 business activities to be performedThe author proposes a cross-functional team comprising the following functions to develop a comprehensive SOP manual.· Building designers from respective streams like Architectural, Interior design, and MEP· The construction project team,· Finance & accounts· IT/Systems team· Need-based members from other functions like materials, Contracts, sales, etcA template lists 12 Activities that are required to develop SOP. Considering brevity and to avoid duplication, these are captured in annex 37B on the author's website. Proposed 4 (four)sections in SOPFor a typical Design function, the author proposes four sections in the SOP manual, as highlighted below, to make SOP Comprehensive.· Section 1- Processes, business activity narrations, and activity flow diagrams· Section 2-Associated Documents, manuals, configuration tables, and master data tables· Section 3-Authorisation manual or its cross-reference in case of separate manuals for each function· Section 4- Activities for managing emergencies/disaster-like situations Below are the numbers compiled from 18 chapters on the handbook -volume 1 of the author for design functions and can vary significantly based on the size of projects, number of projects, and size of the organization.Section 1 of the SOP manual -Contents (91 Processes and 818 business activities)· 16 core processes with 225 design activities· Five types of statutory processes with 56 design activities and 82 statutory Acts· One process with seven activities for each of the three design functions (sub-total 21)for developing configuration tables· One process with five activities for each of the three design functions sub-total 15) for developing Master data tables· One process with 11 activities for each of 3 design functions (sub-total 33 )for configuring designer traceability · One process with 13 activities for each of 3 design functions (sub-total 39)for configuring audit trail· Two processes applicable to 3 functions with 9 activities for each of the three design functions (sub-total 27)for designing coding schemes· Nine processes with 41 activities for each of 3 design functions (sub-total 123)for carrying out a risk assessment· Four processes with 20 activities for each of 3 design functions (sub-total 60)for assigning access rights · One common process for all functions with 12 activities for each of 3 design functions (sub-total 36)for developing a document storage system for Hard documents· One common process for all functions with 12 activities for each of 3 design functions sub-total 36)for developing a document storage system for soft documents· One process with 9 activities for each of the three design functions sub-total 27)for developing budgets· One process with 8 activities for each of the three design functions sub-total 24)developing the MIS/Performance dashboard. · One process with 12 activities for each of 3 design functions sub-total36)for developing SOP· One process with 9 activities for each of the three design functions sub-total 27)for developing financial authority norms· One process with 11 activities sub-total 33)for each of 3 design functions for developing KPI However, the number of 91 processes & 818 business activities in the SOP document can be amended as per the actual applicability in the organisation. Section 2 of SOP -Contents (Documents, data tables, fields, manuals)· Thirty-eight types of core documents for three design functions.· Thirty-one types of statutory documents for three design functions.· Three identified configuration tables, along with details of relevant fields and field choices· 6 identified master data tables along with details of relevant fields· 428 fields for the 13 construction functions (including 109 exclusive fields for 3 design functions)· 98 common fields are common for all functions, 107 for Finance & accounts part and 43 fields for HR & administrative functions.· Eight manuals comprising 5 Functional +1 statutory +2 similar types for each of 3 design functions However, the number of documents, data tables, fields, and Manuals in the SOP document can be amended as per the actual applicability to the organisation. Section 3 of SOP -Contents (1825 authorisation profiles for assigning to roles) This section includes copies (hard or soft) of the authorization matrix/manual capturing profiles for the following.· 1125 authorization profiles for accessing 225 identified core activities in 3 design functions @5 profile/activity· 325 authorization profiles for accessing 65 identified statutory activities in 3 design functions @5 profile/activity· 95 authorization profiles for accessing 19 field choices identified @5 profile/field choice in the configuration table· 280 authorization profiles for accessing 56 fields identified @5 profile/field in the master data table Total no of profiles identified above =1825.However, the number of authorisation profiles in the SOP document can be amended per the actual applicability in the organisation. Section 4 of SOP -Contents-Guidelines for managing emergencies/Disaster like situations -· This section must contain Policy inputs/directives for all HOD covering aspects such as emergency actions, emergency processes, and emergency documents relevant to this design function for managing emergency-like situations, like Natural disasters, IT/System outages, strikes, riots, terrorism, sudden regulatory changes, sudden non-availability of critical resources, etc· countermeasures to trigger emergency actions for ensuring business activities in design functions and other interfacing functions Access to 4 sections of the SOP documents must be restricted and given judiciously with clear-cut rights for creating, editing, viewing, deleting, and approving.Handbook of the author More details can be found in chapter 15 (in the author's handbook) titled" ETHICS in the real estate and hospitality industry, Volume 1- Architectural, Interior design, and MEP services.
In the real estate & hospitality Industry, critical documents like original land deeds, licenses & Statutory approvals, customer agreements, and contracts with vendors/contractors must be kept securely and safely.Within the Designing of Architect, Interior designing, and MEP Services functions, many documents like designs and drawings, specifications, etc., 69 types of documents, and 18 types of manuals have been identified.This blog covers the following aspects:· Function-wise listing of 69 (sixty-nine) types of documents & 18 (eighteen) types of manuals associated with building design functions· List of 12 (twelve) activities for ensuring a robust document management system· Selection criteria for an outside storage facility· Risks associated with hard documents All such documents must be stored systematically & securely and retrievable easily for access by building designers, management, other authorised users, and auditors.The hard documents are usually stored in-house but can also be stored with an outsourced agency outside the company premises.The types of documents (function-wise) identified for 3 Project design and engineering functions are summarised below.· Core documents=38types and expandable to 300 types· Statutory documents=31 types and expandable to 300 types· Unique Functional manuals=15 types and expandable to 30 types· Statutory manuals =1 type and expandable to 2 types· Similar type manuals=2 types and expandable to 5 types· Drawings and Designs =As relevant and requiredThe list /names of such documents are included in chapter 17 of my handbook, mentioned below.The actual number of drawings/design documents within each core and statutory document may run into several hundred /thousand/lacs per financial year as per the number range planned. Function-wise examples (2 types each) of a few cores and statutory documents (hard or soft) that need to be stored, accessed, and retrieved are below. Design of ArchitectureCore documents1. Submission drawings for statutory approvals2. Tender documents etcAnd so onStatutory documents1. Copies of Applications and fee payment challans" applicable to this function for each type of Licenses, Sanctions, Approvals, renewals w. r. t. Central Government statutory documents such as2. National building codeAnd so onInterior DesigningCore documents1. The design and drawings w.r.t Finishing, Furnishing and fixtures, Equipment for Interior design, Artwork, etc.2. Specifications for BOQAnd so onStatutory documents1 "Checklists for compliances" w. r. t. each statutory act /State regulation applicable to this function2. Copies of all statutory records applicable to this functionDesign of MEPCore documents1. The design and drawings w.r.t Electrical package2. Specifications for BOQ -Electrical design packageAnd so onStatutory documents1. Specific acts related to documents, e.g., The Air (Prevention and Control of Pollution) Act, 1987.2. Specific acts related to documents, e.g., The Water (Prevention and Control of Pollution) Act,1987.And so on Activities for developing DMSThe following 12 activities have been identified. These activities are identical in each of the three design functions in the construction industry.1. Identify documents and manual types –(hard documents) that need to be stored physically2. Identify the form of documents and manual types that need to be stored, such as summarized below: Core Documents/functional manuals in 3 functions· Hard paper form -usually in A8, A4, A2 or equivalent sizes, etc. e.g.A few examples are as below.Architect drawings or engineering layouts· Hard plastic film form -usually in A1 size or bigger and used for Engineering or Architectural drawings or engineering layouts.And so on.3 Classify each hard document into three categories as (A)Statutory type, (B) Confidential, (C)Operational4. Perform the following activitiesSelecting storage locations for hard documents· a) In-house Central location or· b) In-house storage within the respective function· c) External outsourced location5. Evolve Document retention policy with inputs from HOD of design functions, legal, and CFO independent of storage location6. Sanction by management of the following for Hard documents planned to be stored at the Central Repository in the organization for all functions· Physical storage place and infrastructure for storing documents with the required capacity· Resource for indexing, receiving, accessing, viewing, retrieving, and issuing documents, providing physical storage place and infrastructure for storing documents with the required capacity7. Identify storage location for hard documents planned to be stored within own function) and providing guidelines to designers for storage, retrieval 8. Develop a system for documents deposit, safe storage, and retrieval system based on inputs from 3 functional HOD vis-à-vis hard documents9. Evaluate facilities and processes of external outsourced /outside storage locations and then negotiate prices. A few of the evaluation parameters are as below.· Building's construction features (like RCC building, lighting, handling facilities)· Fire protection arrangements· Water logging prevention· Termites and insects protection· Accessibility of storage but at not prominent locations· Building distance from construction project sites and offices· Security arrangements· Reputation for ensuring safety and confidentiality· Layout efficiency· Handling and logistics arrangements for physical/hard copies of a document or manual for safe storage, pick up, and delivery.· Confidentiality of client's name on boxes/files for documents or manual at storage premises· Storage capacity· Features of software for indexing, storage, and retrieval of documents· Throughput times for pickup and delivery, photocopying, etc10. Develop an SOP covering the below activities vis-à-vis hard documents to be stored in the outsourced facility:· Pickup timelines of documents to be stored from time to time (for different service levels-normal, urgent/immediate, etc.) from the designer's location and transport to the service provider's outside storage warehouse and storage· Retrieval and transporting of documents- delivery timelines of the document (for different service levels-normal, urgent/immediate, etc.) from the outside storage location of the service provider to the designer's location· Retrieval of documents for weeding out as per retention policy· Access rights for conducting Periodic audits of the designer's documents at the service provider's storage location· Obtaining photocopies of prescribed documents lying in the outside storage location· Authorisation rights for requisitioning pick up or retrieval or and return and storage or and weeding out of hard documents11. Evolve rights for requisitioning pick up or and retrieval or and return:12. Avail Day-to-day document pickup and retrieval services, as per SOP, from the service provider vis-à-vis hard documents to be stored outside the function.Risks associated with hard documents· Liberal access rights for retrieval of documents leading to compromise in confidentiality and unauthorised changes of contents of documents· Inadequate protection of documents for damage caused by water, termites, rodents, fire, etc.· Limited shelf life of hard documents· Inappropriate housekeeping makes timely retrieval extremely difficultTherefore, soft copies of all such documents are preferred over hard documents, which are also covered in detail in the book.In the case of an outside storage option, a cross-functional team comprising of projects, building design, and IT team must evaluate reputed vendors to ensure safety, efficiency, and authorised retrieval.Handbook of the author A template illustrating the list of activities to be performed for developing DMS-Hard documents is included in chapter 12 of the author's handbook and titled" ETHICS in the real estate and hospitality industry, Volume 1- Architectural, Interior design, and MEP services.
¯ Purpose of developing a user (Designer’s)traceability software Different types of key business activities are to be performed by building designers, such as below. · Core designing activities for various packages =225· Statutory activities w. r. t. package designs=56· Developing configuration tables=21· Developing master data tables=15· Performing risk assessments vis a vis above=123· Assigning access rights vis a vis above=60Sub-total=500 These are listed in my handbook. Of course, many more supporting activities are related to Budgeting, MIS, KPI SOP development, coding, and so on. If any of the business activities (out of 818 identified in chapters 1-17 in my handbook)go wrong, it is essential to trace the designer who performed such activities so that countermeasures, followed by training and development actions, can be initiated.Configuring user traceability in audit software refers to tracking users' activities in the systems to maintain accountability, track changes, and support auditing and compliance requirements. In the context of building design function, it is essential to trace the following,Therefore it is essential to trace the following, specifically for any of the 500 key business activities which have gone wrong.· Who initiated the activity and when?· Who edited the activity and when?· Who approved the activity, and when?· Who deleted the activity, and when?· Who viewed the activity and when? Manually tracing these may be very difficult, cumbersome, and time-consuming. Therefore, it is desirable to develop a traceability software solution in-house or buy it, usually as a part of an ERP solution. Eleven (11) activities to develop a traceability software The following 11 activities are proposed for developing traceability software.1. Compile the list and codes It means compiling data sources that includes log files, databases and systems vis-a-vis the following processes and activities designers perform and forwarding these to the IT team/agency responsible for developing user traceability software.· Core design processes, activities, documents, fields, manuals· Statutory processes activities, documents, fields, manuals· Process for developing Configuration tables, activities for developing, and table names· Process for developing Master data tables, activities for developing and tableNames· Risk assessment processes for organization level, Core process and activity level, Statutory process and activity level, Configuration tables, and Field’s choice level, Master data table levels, and fields,· Design Documents, specifications, and drawings· Processes and activities for assigning access rights to core processes and their activities, statutory processes and their activities, configuration tables and their fields, master data tables and their fields· Authorisation Profiles for core processes, statutory processes, configuration tables, and master data tables· Other supporting processes and their codes 2. Identify the list of designers/usersIn consultation with the HR team, a compilation of the list of architects, interior designers, MEP engineers, and other supporting team members in each design function engaged along with their function, team, level and position and forwarding list to the IT team/agency responsible for developing user traceability software.3. Compile user/designer-wise a list of various software licenses that are available in each function and forwarding to the IT team/agency to capture user access and traceabilityA few examples of software used are as under:i) Function-specific software, such as below, but not limited to the following:· Design Development software.§ ETAB§ STADD§ Auto cad§ Revit Architect (BIM),§ 3D Studio max§ Photoshop§ Idea spectrum, real-time landscape pro, NCH software dream plan, smart draw, pro modeling suit max§ Autodesk 3D’s§ Revit MEP, AutoCAD Electrical, Auto Cad HVAC, Ansys§ Quick allot,And so on · Project management-related software such as:§ Primavera§ MS Project§ CompassAnd so on§ Business application software or ERP software such as below:§ SAP§ Oracle§ Microsoft DynamicsAnd so on.§ MS Office or equivalent software§ RDBM software such as:§ Oracle RDBMS§ Microsoft SQL Server§ My SQL§ Microsoft Access etcAnd so on§ Utility software such as:§ Antivirus§ Back-up software§ Clipboard§ Compression utility And so on§ E-mail-related software such as:§ Microsoft Outlook§ Mozilla§ Apple Mail§ GmailAnd so on§ Access control software§ Operating systems such as:§ Microsoft Windows§ Apple ios§ Googles Android§ Apple mac§ Linux operating system etcAlso, identifying the list of workstations, computers, terminals and printers, mobile phones, or any other device used4. Develop software solutions in-house or negotiate and procure IT/ERP solutions having inbuilt “user traceability software” and activating operating system, as per requirements consolidated for each of the respective design functionThe proposed “user traceability software” must include the following features:· User’s (Designer’s) name and code· Function’s /sub-function name and code· Identification number or serial number of computer and terminal and printer or any other device used by the Designer for accessing processes, activities, configuration tables, master data tables, and fields · ERP/Software Transaction code or Navigation accessed· Date and time· Group identity name and code (in case of multiple users) where software license used by various designers. · flexibility for expandability/enhancement· collecting the data so collected in a central location· Ability to build access controls for the traceability system,such as setting up of user’s accounts, roles and permissions 5. Install “user traceability software” in development, testing, and production server’s in each of the respective functions:6. Identify and transfer pilot data and testing in the “test server” while ensuring no conflicts in accessing profiles, Core and Statutory documents and fields, Functional, Statutory, and similar type manuals, and other processes.This would enable testing the traceability configuration to ensure it’s working as per requirements7. Obtain training (along with the internal audit team) from IT team /ERP specialists for tracking the designer’s traceability8. Transfer validated legacy data to the live Production Server and integrated live data of each of the respective functions with user traceability software9. Utilise user traceability software to track user traceability as and when needed. This would also provide an opportunity to monitor the performance of the user traceability system10. Enhance features of user traceability software and improve its scalability as and when the number of designers and IT equipment or/and software 11. Intimate to the IT/ERP team for updating user traceability software as and when any changes occur in each of the respective functions vis-à-vis following,· Designer’s transfers or promotions or recruitment or leaving the organization · Responsibility changes and associated changes in accessing licensed Software· Profile changes· IT equipment’s physical movement’s intra-function or inter-function or inter-business and new acquisition or disposal Implementing the above 11 activities would enable building of a robust traceability software solution. Handbook of the author A template illustrating the list of activities to be performed for configuring user traceability is included in chapter 7 (annex 31B) in the handbook of the author and titled” ETHICS in the real estate and hospitality industry, Volume 1- Architectural, Interior design, and MEP services. “
The auditors usually examine the documents, computer files, and other records during an audit to determine the history of transactions and how these have been performed/handled by the company.Activities:An audit trail can be effectively implemented if prior coding schemes have been implemented for digitalization purposes.Configuring an effective audit trail system This should be preferably designed by a Cross-functional team and enable the accomplishment of the following objectives: · The type of transactions, actions, and data that need to be audited is well defined, whether for native built-in ERP solutions or bought-out software,· The audit tools /software of the 3rd party is appropriate and meets requirements to track, log, and report on the audit trails and can be easily integrated with the company’s ERP system.· Audit trails must be protected and secured with appropriate access controls and data protection policies aligned to security protocol· The selected audit trail solution must enable integrity, accuracy and security of design and drawings, and other data. An approach for developing coding schemes is given in chapter 9 of my handbook, and this article would focus only on configuring audit trails, The following 13 activities must be performed to configure the audit trail for the three design functions.1. Consolidate and provide users and IT equipment-related inputs to IT/ERP teams· List of Designers (also called users here)and designer’s employee codes,· User’s level· User’s position· List of vendors, customers, and other business associates who access the functional software· User’s location, including remote location· IT equipment /computer /workstation unique serial number assigned to users and their respective locations,· Types /structure of audit reports required.· List and types of documents for design /drawings (annex 22A & 23A in the handbook2. Refer to authorization profiles vis a vis following:· Core design processes and activities (Refer to 1125 profiles given in annex 30A)· Statutory processes and activities (Refer to 325 profiles shown in annex 30A)· Configuration tables and fields (Refer to 95 profiles shown in annex 30A)· Master data tables and fields (Refer to 280 profiles shown in annex 30A)· supporting processes & associated activities such as Carrying out the risk assessment, assigning access rights, and all other supporting processes for design functions.The list of profiles, of course, can be expanded as required.3. In consultation with the Cross-functional team, the Internal Audit team, Finance, and Accounts teams propose features of “Audit Trail Software,” such as below, that need to be incorporated into the audit trail software.· The username (Designer’s name) who accessed the system along with level, position, and design function· The date and time when the system was accessed.· The duration (hours, minutes, seconds) of each such access.· The computer, terminal, machine, device name, and unique number are used for access.· Particulars of the workflows/ core design processes, statutory processes configuration tables, master data tables, data tables, and documents that were accessed along with “fields” accessed. · changes, if any, that were made to the above-listed aspects· The planned duration of keeping audit trailed data (days/months/years) per the company's IT policy.· Triggering communications to Architects or interior designers, or MEP designers as applicable owners for initiating countermeasures 4. Configure the operating system (OS) of the ERP system by the IT team to include audit trail features.5. Alternately negotiate and procure “Audit Trail Software,” as per required features meeting the needs of all functions6. IT team to install “Audit Trail Software,” procured in the development server7. Test “Audit Trail Software,” pilot data of each respective function in the test server8. Obtain training from the IT team/ERP specialists for performing audit trails.9. Transfer “Audit Trail Software” to the live Production Server for generating audit trails.10. Perform audit and submit audit trail-related findings/reports to the Designer’s HOD. The audit trail software must be configured to enable an audit trail of any of the following transactions performed (including changes made) during a specified period by any designer vis a vis the following numbers identified in the handbook and expandable as required. :§ Any of 225 Core design activities listed in chapters 1,2,3 of the handbook and annex 21A(2), 21A(3), 21A(4), at my website)§ Any of 56 statutory activities are applicable vis-a-vis 325 authorization profiles (chapter 4 of the handbook and annex 21B).§ Any field choices in 3 configuration tables vis a vis (chapter 5 of the handbook and list of t configuration tables in annex 24E).§ Any fields in 6 master data tables (chapter 6 of the handbook and list of master data tables in annex 24E).§ Any fields in 38 types of core documents in annex 22A (such as design brief documents, submission drawings, good for construction drawings, and tender documents( listed in chapter 17 of the handbook)§ Any fields in 31 types of statutory documents in annex 23A (such as statutory records/returns, statutory applications, licenses, approvals, etc.)It is pertinent to mention that design activities may be performed using any design software, such as the one below. Still, interfacing between the design software and the IT/ERP package would be needed to track design activities.· ETAB, STADD, Auto cad, Revit Architect (BIM),3D Studio Max, Photoshop, Idea spectrum, real-time landscape pro, NCH software dream plan, smart draw, pro modeling suit max, Autodesk 3D’s, Revit MEP, AutoCAD Electrical, Auto Cad HVAC, Ansys, Quick allot, or and project management software or an ERP solution for Design functions 11. Analyse audit trail reports and provide comments to the Internal audit team.This includes analysing the following etc., to identify suspicious or unethical activities.· Who inside the design function or outside the functions accessed the design software or its ERP solution and performed design activities?· Or Who made design changes (including circular changes to designs and drawings)?· How much was the time of access or duration, \· When were the design systems accessed?12. Initiate countermeasures to detect and prevent unauthorized or/and unethical transactions and enable benefits such as the below.· Quality of design and drawings· Customer’s design requirements· Meet statutory compliances· Project cost savings· Preventing funds leakages· Design Process efficiency enhancement· Accuracy in financial reporting13. Reviewing and recommending enhancement of “Audit Trail Software” features to improve design efficiency and quality and enable online auditing vis-a-vis each function. Handbook of the author A template illustrating the list of activities to be performed for configuring audit trails is included in chapter 8) in the author's handbook and titled” ETHICS in the real estate and hospitality industry, Volume 1- Architectural, Interior design, and MEP services. “
The objective of developing and implementing MIS or performance Dashboard in the Construction Industry is to enable a review of the actual performance of each function (on a pre-defined set of parameters ) vis-à-vis budget or targets and to initiate countermeasures for accomplishing the organization’s overall performance.Therefore, Dashboard or MIS must be prepared accurately, timely, and accessible to pre-identified team members responsible for functional performance and also senior management in the organisation.Preparing a Dashboard or MIS requires at least eight activities to develop & implement a robust Dashboard or MIS.Professionals can undoubtedly add more steps/activities per their needs/nature of business.The focus of this blog is primarily to provide inputs for developing and identifying some of the key parameters for dashboard/MIS of three Design functions, i.e., Design of Architecture, Interior, and Design of MEP.Dashboard /MIS should preferably be developed separately vis a vis each Project, such as:· Residential· Commercial· Hospitality· Other significant categories relevant to the organisationEight ActivitiesEight identified activities are listed below, and seven are usually common for all functions. Only one activity at Sr no 2 is unique for each function like Design, Construction, Quality control, Contracts, Purchase, sales and marketing, and so on for all functions identified in the book. .1. CFT (formed by CEO/MD) to deliberate and decide the following:· Designing structure/contents of MIS or Dashboard at Organisation level/Business unit level· Designing structure/contents of MIS or Dashboard at the Functional level· Provision for incorporating Budgeted or targeted KPI (key performance indicator) values· The frequency (like monthly or weekly) for which MIS or Dashboard must be prepared and released.· Timelines by which MIS or Dashboard must be released· Functional coordinator names for making and releasing MIS or Dashboard.· Recipients or persons who are to be given access to MIS or Dashboard· Periodicity for reviewing MIS or Dashboard2. HOD (Head of the department) of each of the functions to Identify the KPI for each functionThe choice of KPI within each function is determined by activities performed vis-à-vis core or & statutory or & other supporting processes that can impact business significantly. 3. HOD, in consultation with CFO/HR team, to configure Targets /KPI in the proposed Dashboard/MIS -for the desired period like Monthly and Year to dateThis can be done in customized software /ERP or hard copy based on the size of the construction organization.The listing of parameters must be aligned with the budget. 4. Functional coordinator in each design function to compute or measure actual values of KPI.This can be accomplished through the following steps.· Accessing key processes/activities, Documents, Configuration tables, Master data tables, and Data tables by functional teams· Analysing and consolidating the actual measurements · Including or populating the key findings in respective Dashboard or MIS· Reviewing MIS before circulating or providing access to Dashboard parameters to intended recipients· Using design package-related software and ERP to generate actual valuesSome of the KPI/Performance indices/parameters are as belowi)Sales Revenue related actuals:Saleable area in square feet in each construction project segment for new design developed.ii)Project costs related actuals:· The design package was BOQ costs in Architect, Interior, and MEP functions· Project costs in Rs (local currency) and foreign currency w. r. t. each type of saleable area in construction projects· Project costs in Rs /Square feet (local currency) and foreign currencyfor each type of saleable area in projects iii)Functional performance-timelines related indices -Actuals -New Construction projects· Actual timelines for accomplishing key activities vs. plan· Actual Performance timelines for developing new designs and commercial-design roll-out· Obtaining statutory approvals· And so on iv) Functional performance- timelines related indices -actuals -Ongoing Construction projects· Actual timelines for accomplishing key activitieso Actual timelines for accomplishing key activities vs. plano Actual Performance timelines for developing new designs and commercial-design roll-outo Obtaining statutory approvalso And so on v) Costs to be computed by Corporate finance and accounts for following· Actual Statutory fees for licenses· Other Charges paid to local government bodies· Fixed costs incurred, like permanent team member costs of function for which MIS/Dashboard is being prepared· Actual Overheads etc Architects, Interior, and MEP designers can add more parameters based on significance and importance to the organisation.5. Review of populated functional MIS or Dashboard by CEO.Review of actual values ( in the above activity vis targets) must be done during monthly/periodic meetings with the Design function’s HOD of design function and key coordinators6. Evolve and Share countermeasures by HOD of respective Design functions’. Action plans need to be shared with the CEO/MD on how to make up for the shortfalls in actual values vis-à-vis budget/targeted KPI values7. Make minutes of the review meeting and circulate them for action by persons identified in the minutes of meetings8. Periodic review by HOD of each design function with team members Activities that can adversely impact business.Incorrect capturing of actual values vis-à-vis various KPI or Dashboard parameters such as below by teams of Design functions, particularly those where accomplishment was low.· Outsourcing plan and timelines for hiring and engaging consultants for designs packages such as structure, building architecture, façade, Hardscape-external development works, landscape, Interior design, or MEP· Stage wise -actual timelines for completion of design activities vis-à-vis each package such as below but not limited to:§ Design of Architecture: Structure, Buildings, Façade, Hardscape§ Interior Designing: Furniture, fixtures, and equipment (FFE), Finishing works, Artwork§ Design of MEP function: Designing of Electrical - external and Internal works, Deigning of Airconditioning -Works, plumbing, firefighting, lifts, sewerage treatment plants, and so on for various packages · Statutory approval status vis-à-vis each of the above packages, if applicable· Readiness status of the Mock-up unit/sample room as also the Project’s 3D Model development on a specified scale· Status of approving design-related BOQ material samples before procuring and installing bulk quantities vis a vis each work in Design of Architecture, Interior Designing, Design of MEP services· Status of hiring /taking on board various design works-related contractors for initiating construction · Actual consultancy fees and reimbursements like travel/conveyance etc., vis-à-vis each package· Actual BOQ cost estimates @ Rs/square feet of FAR or saleable area vis-à-vis each package such as below but not limited to:§ Design of Architecture: Cement, RMC, Reinforcements-, Bricks-, Modular Kitchen-, Kitchen Appliances-, Internal Doors, External Doors, Door Hardware§ Interior designing- FFE, Finishing works, Artwork§ Design of MEP-Cables, Conduits, Pipes, Transformers, Air Circuit Breakers, Vacuum Circuit Breakers, Outdoor Units, Indoor Units, etc.· Actual manpower in numbers level-wise (higher, middle, lower) vis-à-vis each function· Actual cost estimates for each of the three design functions:§ New capital equipment like computers, workstations, test rigs, etc§ New software§ New skill acquisition or training§ Direct expenses incurred§ Overheads· Incorrect capturing of budgeted or targeted values in the KPI or Dashboard parameters to project a favorable comparison of target vs. actual values Handbook of the author A template illustrating the list of activities to be performed for developing MIS/Dashboard is included in chapter 14 in the handbook of the author and titled” ETHICS in the real estate and hospitality industry, Volume 1- Architectural, Interior design, and MEP services.