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MANAGEMENT CONTROL SYSTEM PRACTICES AND
THEIR IMPACT ON PRODUCTIVITY IN LARGE SCALE ORGANIZATIONS - A STUDY OF MAHARASHTRA STATE ELECTRICITY
DISTRIBUTION COMPANY
Thesis Submitted to the Padmashree Dr. D. Y. Patil University,
Department of Business Management
in partial fulfillment of the requirements
for the award of the Degree of
DOCTOR OF PHILOSOPHY
in
BUSINESS MANAGEMENT
Submitted by
PAWAN KUMAR SHARMA (Enrollment No. DYP-Ph D- 09015)
Research Guide: Prof. Dr. PRADIP MANJREKAR
DEAN Padmashree Dr. D.Y. Patil University, Department of Business Management,
Sector 4, Plot No. 10, CBD Belapur, Navi Mumbai – 400 614 January , 2013
ii
MANAGEMENT CONTROL SYSTEM
PRACTICES AND THEIR IMPACT ON
PRODUCTIVITY IN LARGE SCALE
ORGANIZATIONS - A STUDY OF
MAHARASHTRA STATE ELECTRICITY
DISTRIBUTION COMPANY
iii
DECLARATION
I hereby declare that the thesis entitled “ Management Control System Practices and
their impact on large organizations , A study of Maharashtra State Electricity
Distribution Company Ltd (MSEDCL)” submitted for the award of the Doctor of
Philosophy in Business Management at the Padmashree Dr. D.Y. Patil University
Department of Business Management is my original work and the thesis has not
formed the basis for the award of any degree, associate ship, fellowship or any other
similar titles.
Place: Navi Mumbai. Date: January , 2013 Dr. R. Gopal Dr. Pradip Manjrekar Mr. Pawan Kumar Sharma
Director &
( Head of the Department ) ( Research Guide ) ( Research Scholar )
iv
CERTIFICATE
This is to certify that the thesis entitled “ Management Control System Practices and
their impact on productivity in large scale organizations a study of Maharashtra State
Electricity Distribution Company Ltd (MSEDCL)” and submitted by Mr. Pawan
Kumar Sharma is a bonafide research work for the award of the Doctor of Philosophy
in Business Management at the Padmashree Dr. D. Y. Patil University Department of
Business Management in partial fulfillment of the requirements for the award of the
Degree of Doctor of Philosophy in Business Management and that the thesis has not
formed the basis for the award previously of any degree, diploma, associate ship,
fellowship or any other similar title of any University or Institution. Also certified that
the thesis represents an independent work on the part of the candidate.
Place: Navi Mumbai
Date: January, 2013
Signature of the
Head of the Department Signature of the Guide
v
ACKNOWLEDGEMENT I am greatly indebted to the Padmashree Dr. D.Y. Patil University, Department of
Business Management which has accepted me for the Doctoral Program and provided
me with an excellent opportunity to carry out the present research work. I am grateful
to my guide, mentor Professor Dr. Pradip Manjrekar Dean , Department of Business
Management for having guided me throughout the research span of time and for
providing his constructive criticism which made me bring my best. I would also like
to thank sir for being there at any point of time without considering his own precious
personal time.
My special thanks to Dr. R Gopal Director , Department of Business Management ,
having supported me throughout the study. I would also like to thank Mr. Ajoy Mehta
M.D of MSEDCL, & Director HR MSEDCL and also all the Chief Engineers of
MSEDCL . Special thanks to Dr. T .B Singh, Research Head (Central Power Research
Institute Bangalore) for having discussed and guided me with the topic. I would be
failing in my duty if I did not thank the grass root level Engineers of MSEDCL for
helping me throughout the field work.
I sincerely thank my father for providing me the necessary motivation for completing
this dream project. I also wish to place on record my sincere thanks to my wife who
have provided me with the strength and ability to carry this research out of the best of
my ability.
Lastly I also wish to thank my son & daughter & all my near and dear ones who have
been directly and indirectly instrumental in the completion of my dissertation.
Place: Navi Mumbai Date: January, 2013 Pawan Kumar Sharma Research Scholar
vi
TABLE OF CONTENTS
Chapter No.
TITLE Page No
Declaration iii
Certificate iv
Acknowledgement v
Table of Contents vi
List of Tables x
List of Figures
xii
List of Abbreviations
xiii
Executive Summary
xxii
1 Introduction
1
1.1 Concept of Management Control System: Theoretical aspect 2
1.2 Concept of Management Control System: Historical aspect 3
1.3 Management Control System 5
1.4 The meaning of MCS 6
1.5 Definition of Management Control 6
1.6 Purpose of Management Control System (MCS) 8
1.6.1 Importance of management control system (MCS) 10
1.6.2 Elements of Management Control Systems
12
1.7 Role of Management Control Systems Practices in large scale
organizations
13
1.7.1 Characteristics of Control System in Large Scale Organizations
14
1.7.2 Management Control System in Large Organizations 15
vii
1.7.3 Diffusion and penetration of MCS practices and information
in large Scale Organizations .
15
1.7.4 Adoption of MCS practices in Large Scale Organizations 16
1.7.5 Use of Management Control System practices and information
17
1.7.6 Effects of managers on the use of MCS practices and Information in large scale Organizations
17
1.7.7 Five models for evolution of MCS pattern in large Scale Organizations
18
1.7.8 Management Accounting and control in large scale
organizations
20
1.7.9 A closer look at strategy and Management Control Systems 21
1.8 Nature of Management Control Systems 21
1.8.1 Characteristics of a Good Management Control System 23
1.9 Design of Management Control Practices 24
1.10 Approaches to Management Control System 26
1.10.1 The External Environments affecting MCS 27
1.10.2 Concerns of advanced technologies and MCS 28
1.10.3 Strategy and MCS 29
1.10.4 Forecasting, budgeting, and strategic planning 31
1.10.5 Behavioral Dimensions of Budgeting 32
1.11 Features of Management control systems 33
1.11.2 Contingency approach to Management Control System (MCS)
37
1.11.3 Effective Organizational Control Systems
41
1.11.4 Total Quality Management (TQM) 48
1.11.5 Management Control in large government organizations 49
1.11.6 Just in time technique (JIT) 50
viii
1.12 Management Control in large government organizations 53
1.13 Recent developments and internal change drivers of MCS 53
1.13.1 Control as a Function of Management 53
1.13.2 Reporting for Management Control Practices 53
1.13.3 The ethical Principle of fairness in the design of Control Systems
54
1.14 MCS to increase productivity in Large scale Organizations 55
1.14.1 Recent developments and internal change drivers of MCS 58
1.14.2 Internal factors that influence MCS change 59
1.15 Management Controls to Increase Productivity in
organizations
60
1.15.1 Internal factors that influence MCS change & innovations in
MCS
61
1.16 Management Control system & productivity concerns 62
1.17 Large Scale Organizations 63
2 Review of Literature
2.1 Study of literature and its analysis 65
2.2 Models of Management Control System 66
2.3 Design of Management Control System 66
2.4 Developments in Accounting approaches to control 67
2.5 Role of Management in the context of MCS 74
2..5.1 New Role for Directors in the Strategic Management Process 75
2.5.2 Related research in the area of Management Control System
practices in large scale organizations
77
2.6 The role of MCS to bring intended strategies to realization 104
2.7 The significance of resource sharing between SBUs for the
design of Management Control under different strategies
105
2.8 The nature and extent to which the role and composition of MCS change
105
2.9 Aspects of the MCS - Strategy relationship which focus on operational as well as senior management
105
ix
2.9.1 Classification of empirical and case - based MCS-strategy research
106
2.9.2 Improved MCS practices in relation to Organizations productivity performance
110
2.9.3 MCS in large scale organizations 111
2.9.4 Gaps in Literature 111
3 Objectives / Research Methodology
3.1 Problem Statement 113
3.2 Objective of Study 113
3.3 Objectives & hypothesis of the study 114
3.4 Research Methodology 115
3.4.1 Quantitative Research Design 116
3.4.2 Understanding the issue 117
3.4.3 Pre - Study 117
3.4.4 Instrument for Survey 118
3.5 Selection of Samples 118
3.5.1 Locale of Research and sample size 119
3.5.2 Zone Locations of MSEDCL 119
3.5.3 Validation of the Questionnaire 120
3.6.1 Details of sample size throughout Maharashtra State
Electricity Distribution Company
120
3.6.2 Tabulation and Statistical Analysis of Data 121
3.6.3 Interpretation and Report Writing 122
3.6.4 Content Validity 123
3.6.5 Limitation of the Study 123
4 Power sector in India
4.1 History of Power in India 125
4.2 The Indian Power Sector: An Overview 127
4.2.1 Growth Scenario Indian Power Sector 128
4.3 Structural Development of Power Sector in India 131
4.3.1 Electricity Generation Resource Share 134
x
4.3.2 Regional Power Systems Emergence 134
4.3.3 Installed Generating Capacity Utilization 135
4.3.4 Private sector participation 135
4.3.5 Speedy environmental clearance for Power plants 136
4.3.6 Viability of State Electricity Board’s 136
4.3.7 Regulatory bodies 137
4.4 Grid Interactive Renewable Power 139
4.5 Current problem of Power sector 139
4.5.1 Problems with India's Power sector 141
4.6 Power sector reforms in India 142
4.7 Installed generating capacity of electricity 143
4.7.1 Present Power Transmission System of India 144
4.7.2 Capacity addition during 9th plan 145
4.7.3 Ninth plan capacity addition programme 146
4.7.4 Demand 147
4.7.5 Future Requirement 148
4.7.6 Environmental impact of thermal power stations
150
4.7.7 Technology up gradation 151
4.8 Some aspects of human capital challenges in the Indian
Power Sector
151
4.8.1 Challenges for growth of the power sector 151
4.8.2 Improving Power productivity 152
4.8.3 Other Emerging Areas 153
4.8.4 Resource potential in Electricity sector 154
4.8.5 Human resource development 155
4.8.6 Rural Electrification 155
xi
4.8.7 Trading 155
4.8.8 Regulation and administration 156
4.9 Funding of Power sector infrastructure 157
4.9.1 Investments in Power sector 157
4.10 Emerging opportunities and challenges 158
4.10.1 Power Low per-capita consumption 159
4.10.2 Encouraging policy measures 159
4.10.3 Power and Alternative Sources of Energy 160
4.11 Aggregate Technical and Commercial losses 160
4.12 Sector Specific Opportunities 168
4.12.1 Existing Scenario) -Transmission , Investment , Policy and regulatory
170
4.12.2 Policy Initiatives to encourage private participation 172
4.12.3 Super Critical Technology in Power Generation 172
4.12.4 Mega Power Policy 173
4.12.5 Salient Features of existing Mega Power Policy 173
4.12.6 Power intensive industries to set up own captive units 173
4.12.7 Captive power the way ahead for power intensive 174
5 Maharashtra State Electricity Distribution Company
5.1 History of MSEDCL 179
5.2 Financials of the MSEDCL 182
5.3 Key Drivers of the Distribution Sector 184
5.4 Important projects of MSEDCL 185
5.4.1 Infra- Plan 186
5.4.2 Load Management in MSEDCL 186
xii
5.4.3 Rajiv Gandhi Gramin Vidhutikarn Yojana (RGGVY) 187
5.4.4 Restructured – Accelerated Power Development & Reforms Programme
187
5.4.5 Mahavitaran - Infrastructure Plan Projects 188
5.4.6 Gaothan Feeder Separation Scheme Phase II 189
5.4.7 Single Phasing Project 189
5.5 Major Achievements Post Restructuring 190
5.6 Improvement in Consumer Services by MSEDCL 192
5.7 Locations of MSEDCL 193
5.7.1 Functions of the Board 194
5.7.2 Management of the Board 195
5.7.3 Organisational Setup of the MSEDCL 195
5.7.4 Departmentation of MSEDCL 197
5.8 Constitution of MSEDCL Board
197
5.9 Management team of MSEDCL and their functions
197
5.9.1 Duties of Field Chief Engineers
200
5.9.2 Functions & duties of Field Superintending. Engineers (Circle)
200
5.9.3 Field Executive Engineers (Divisions) duties
201
5.9.4 Physical & financial norms set by the organisation
202
5.9.5 State Load Dispatch Centre (SLDC) 203
5.9.6 T& D Losses 204
5.10 Operation and maintenance expenses 205
6 Management Control System (Status, Structure , Usage)
6.1 Status of MCS 211
xiii
6.2 Priority to MCS with respect to other department 212
6.3 Responsibility Centers 216
6.4 Design of Control System 218
7 Development Process of Control Systems & Diagnostic
Procedure in MSEDCL
7.1 Development Process of Control System and Diagnostic
Procedure
220
7.2 Method mostly adopted for data collection on actual
performance Strategic Level
222
7.3 Methods most commonly adopted for actual production
performance
224
7.4 Major Factors responsible for success of MSC 225
7.5 Computer based control practices in MSEDCL 226
8 Data Analysis
8.1 Statistical Tool 238
8.1.2 Designing the control system 239
8.1.3 Design of control system 239
8.1.4 Test used for data analysis 240
8.2 Financial Control of MCS 240
8.3 Administrative Control in MCS 244
8.4 Personal Control 245
8.5 Evaluation of designed control system 246
8.6 Models used for the evaluation of actual performance 244
8.7 Relationship of productivity and MCS 248
8.8 Test used in research 261
9 Major finding 289
xiv
9.1 Findings 290
9.2 Revisiting Research Objectives and findings 295
10 Recommendations 297
10.1 Area for further research 299
11 Bibliography 303
Appendices Appendices 336
Annex. I – Questionnaire (Strategic Level & Managerial
Level ) 337
Annex. II – Rules of Power sector and MSEDCL 341
Annex. III – Parametric test and Non parametric tests 349
xv
LIST OF TABLES
Sr. No.
Table No
List of Tables Page No.
1 4.1 Sector-wise / type-wise capacity addition programme during ninth plan (Figures in MW)
147
3 4.2 Table-1.2: Capacity Addition in 11th Plan 148
3 4.3 Total Installed Capacity (a) and (b) 151
5 6.2 Priority to MCS with respect to other department 183
6 6.3 Responsibility Centre 184
7 6.4 MCS key variable at the managerial and strategic level 186
8 6.5 Design of MCS at Management level 188
9 6.6 Design of MCS at Strategic level 189
10 7.1 Methods adopted for data collection on actual performance
Strategic Level
194
11 7.2 Method adopted for data collection on actual performance
Managerial Level
195
12 7.3 Rotated Component Matrix at Strategic level 196
13 7.4 Descriptive statistics at strategic level 197
14 7.5 Responses for Review meetings 198
15 7.6 Responses for Follow ups of review meetings 199
16 7.7 Responses for the Time taken for corrective action 201
17 7.8 Steps in the Development process of Control System 202
18 7.9 Relationship of productivity and Management control 203
19 7.10 Methods most commonly adopted for actual productivity
performance
204
20 7.11 Major factors responsible for Success of MCS 205
21 7.12 Factors responsible for Success of MCS at Managerial level 206
22 7.13 Factors responsible for Success of MCS at Strategic level 207
23 7.14 Major failure factors as per Managerial level 207
24 7.15 Comparative distribution of the important factors 208
25 7.16 Activities with overall highest rating 209
26 8.1 Reliability Statistics 210
xvi
27 8.2 Mean rank of Financial control 210
28 8.3 Mean and standard deviation 213
29 8.4 Mann-Whitney U test results 215
30 8.5 Mean Rank table for Administrator control factor 217
31 8.6 Mean and standard deviation 217
32 8.7 Mann-Whitney U test results 218
33 8.8 Mean Rank for Personal Control 219
34 8.9 Mann-Whitney U test results 220
35 8.10 Evaluation of Control system 221
36 8.11 MCS development at strategic and Managerial level 223
37 8.12 Opinion at Managerial & Strategic levels 223
38 8.13 Opinion of MCS review at Managerial and Strategic Level 224
39 8.14 Relationship of productivity and MCS 225
40 8.15 Difference between proportions 225
41 8.16 Effective use of manpower 226
42 8.17 Effective use of resources 226
43 8.18 Revenue collection system 227
44 8.19 Consumer complaints handling 227
45 8.20 Kruskal-Wallis test 228
46 8.21 Methods adopted for data collection Strategic Level 228
47 8.22 Method adopted for data collection Managerial Level 230
48 8.23 Distribution of the respondent for different methods at
strategic level
232
49 8.24 Total Variance at Strategic Level 233
50 8.25 Rotated Component Matrix 233
51 8.26 Total Variance at Managerial Level 258
52 8.27 Rotated Component Matrix 258
53 8.28 Models used for actual performance 259
54 8.29 Rotated component matrix used to identify the important
variables
261
55 8.30 Identified components used very frequently for actual
performance evaluation
263
xvii
56 8.31 Descriptive statistics 263
57 8.32 ANOVA test results 264
58 8.33 Duncan test 265
59 8.34 Total Variance Explained 267
60 8.35 Rotated Component Matrix 268
61 8.36 Components used very frequently for actual performance
evaluation
268
62 8.37 Descriptive statistics 269
63 8.38 ANOVA results 269
64 8.39 Duncan test results for Managerial Level 270
65 8.40 Review of meetings at strategic Level 271
66 8.41 Review of meetings for Managerial Level 271
67 8.42 Responses for meetings follow up 272
68 8.43 Responses for meetings follow up 273
69 8.44 Time taken for Correction actions at both levels 275
70 8.45 Limit of time period for corrective action 276
71 8.46 Priority for taking actions 276
72 8.47 Table for distribution of responses 277
73 8.48 Major factors for success 278
74 8.49 Responses of distribution at Managerial level 279
75 8.50 Failure factors of MCS at Strategic Level 280 76 8.52 Comparative distribution of the important factors 281
77 8.53 Computer in decision making responses 282 78 8.54 Computerization of activities in decision making 283
79 8.55 Reasons for limited use of Computer 285
80 8.56 Computer based practices on the basis of performance 286
81 8.57 Computer based practices ratings 287
82 8.58 Computer based practices on the basis of productivity 288
83 8.59 Training of Computers for Staff 288
xviii
LIST OF FIGURES
Sr. No
Fig. No.
Figure Name Page No.
1 1.1 Hierarchies of Management Control System 11
2 1.2 Elements of the Control Process 14
3 1.3 Budget control system (BCS) 18
4 1.4 Vancil’s Theory of Decentralized Management 22
5 1.5 Frame work of Management Control system 24
6 1.6 Fit and misfit between PEU and Characteristics of MCS information
30
7 1.7 Conceptual Diagram: FIT between the Strategy and & Initial MCS
50
8 1.8 Public Enterprises units & Char of MCS information , Cybernetic approaches to MCS practices
55
9 1.9 Relationship among change drives MCS practices and organization operations performance
60
10 2.1 Principal elements of Control System towards the design 67
11 2.2 Elements of Management Control System 69
12 2.3 Organizational Control structure for the Implementation of the Various production control policies.
82
13 4.1 Growth of Installed Capacity in India , 2011 131
14 4.2 Five Electrical Grids in India 138
15 4.3 Feasible Capacity Addition during XI Plan and XII Plan 144
16 4.4 Capacity addition target of 1,00,000 MW by 2017 145
17 4.5 Projected Installed Capacity Requirement 146
18 4.6 AC Substation capacity of Power sector 147
19 4.7 Transmission programme in India 148
20 4.8 11th and 12th plan of Power sector in India 148
21 4.9 MW ratio in different periods 153
22 4.10 Investments in Power sector 158
23 5.1 Organizational structure of MSEDCL at the Distribution level
197
24 5.2 Organization chart of MSEDCL 200
25 5.3 Circle Organization chart of MSEDCL divisional office 202
26 5.4 T&D losses-wise distribution of States 208
27 8.1 Percentage distribution of responses of Strategic and Managerial level respondents
245
xix
28 8.2 Percentage distribution of responses for Distribution System of MSEDCL
247
29 8.3 Distribution of respondents for Effective manpower utilization
248
30 8.4 Percentage distribution of respondents for Effective resource utilization
249
31 8.5 Percentage distribution of respondents for Effective revenue collection system
250
32 8.6 Percentage distribution of respondents for Effective handling of Consumer complaints
251
33 8.7 Mean ranks for productivity components 252
34 8.8 Distribution of Respondents for the Method adopted for data collection Strategic Level
253
35 8.9 Distribution of responses for Methods adopted for data collection Managerial Level
254
36 8.10 Distribution of the respondent for different methods at strategic level
256
37 8.11 Distribution of responses for Identified components used frequently for actual performance evaluation
261
38 8.12 Mean for the different components of the model 262
39 8.13 Components used very frequently for actual performance evaluation
267
40 8.14 Distribution of means for the components of model 268
41 8.15 Review of meetings at strategic level and managerial level 272
42 8.16 Responses for meetings follow up I 272
43 8.17 Responses for meetings follow up II 273
44 8.18 Table for distribution of responses 276
45 8.19 Responses of distribution at managerial level 278
46 8.20 Distribution of responses for the Failure factors at Strategic Level
279
47 8.21 Failure factors Strategic Level 280
48 8.22 Computerization of activities in decision 283
49 8.23 Reasons for limited use of computer 284
50 8.24 Computer based practices on the basis of performance 285
xx
LIST OF ABBREVIATIONS
AEE Assistant Executive Engineer
AICPA American Institute of Certified Public Accounts
ABC ABC analysis
BPL Below Poverty Line
BG Biomass Gasifier
CPM Critical Path Method
CEO Chief Executive Officer
CFC Consumer Facilitation Centers
CERC Central Electricity Regularity Commission
CPL Consumer Personal Ledger
CE Chief Engineer
CGRFs Consumer Grievances Redressal Forums
CEA Central Electricity Authority
CTU Central Transmission Utility
DRUM Distribution Reform, Upgrades and Management
DTC Distribution Transformer Centers
EA Electricity Act
ERA Electricity Regulation Commissions Act
EU European Union
EE Executive Engineers
FDI Foreign Direct Investment
FM Flexible Manufacturing
IPTC Independent Private Transmission Company
IEA International Energy Agency
ICGRCs Internal Consumer Grievances Redressal Cells
HT High Tension
HV High voltage
HR Human Resources
GOI Government of India
xxi
KV Kilo Volt
KWh Kilo Watt hour
LT Low Tension
LC Level of Control
LOC levers of control
MERC Maharashtra Electricity Regulatory Commission
MTOE Million Tons oil equivalent
MCS Management Control Systems
MSET Maharashtra State Electricity Transmission
M Va Mega Volt Ampere
MW Mega Watt
MAS Management Accounting Systems
NCAER National Council of Applied Economic Research
NSIC National Small Industries Corporation
NELP New Exploration Licensing Policy
NELP New Exploration Licensing Policy
NHPC National Hydro-electric Power Corporation
NTPC National thermal Power Corporation
NEEPCO North-Eastern Electric Power Corporation
NJPC Nathpa Jhakri Power Corporation
NPTC National Power Transmission Corporation
OC Operations Control
O&M Operation and Maintenance
OTSP Other Tribal Sub Plan
PERT Project evaluation Review Technique
PF Power Factor
PPA Power Purchase Agreement
PFC Power Finance Corporation of India
PEU Perceived Environmental Uncertainty
PGCIL Power Grid Corporation of India Ltd.
RGGVY Rajiv Gandhi Gramin Vidhutikarn Yojana
xxii
R-APDRP Restructured – Accelerated Power Development & Reforms Programme
RQ Research Questions
RES Renewable Energy Sources
REC Rural Electrification Corporation
RGPPL Ratnagiri Gas Pvt. Ltd
SCP Special Component Plan
SLDC State Load Dispatch Centre
SRT State Road Transport
SPMC Strategic Planning and Management Control
SBU Sub Business Unit
SPSS Statistical Package of Social Sciences.
SOP Standard of performance
SEB State Electricity Boards
SERC State Electricity Regulatory Commission
STU State Transmission Utility
SHP Small Hydro Project
SWOT Strengths, Weaknesses, Opportunities and Threats
SE Superintending Engineers
THDC Tehri Hydro Development Corporation
TQM Total Quality Management
TCF Trillion Cubic Feet
T&D Transmission and Distribution
TSP Tribal Sub Plan
USAID U.S. Agency for International Development
xxiii
EXECUTIVE SUMMARY
Management Control systems (MCSs) are of great importance in every type of
organization, as management control activity is fundamental and vital to it in its
achievement of goals and objectives. Management control system aids the
management in standards setting, measurement of actual performance, collection of
relevant information, analysis of deviation, and taking remedial actions. Besides it
helps in decision making, decentralization to ensure that performance of its managers
is as per standards and thus help to put checks and balances on their activities.
In today’s words of ever increasing complexities of business as well as that of
management, any organization to survive and grow, must have an effective and
efficient MCS. Today, in order to meet the challenges of competition, organizations
are forced to change their organizational structures and modes of working. As an
organization’s structure and function change, its controlling systems also require a
corresponding updating. The ability of an organization to update its controlling
system can tell the winners from the looser. In order to achieve the goals and
implement the changing strategies, the organizations must be structured appropriately
and develop MCSs that promote correct decision behavior .
In other words, the success in achieving the goals and objectives of an organization
depends on the quality of its MCS. A poorly developed, implemented and / or
managed control system may lead to poor standards and reporting systems, in
efficient comparisons and wrong actions. Effective management controls are clearly
essential to the success and well-being of government
organizations, both as a safeguard against waste, abuse, and fraud and as a means of
ensuring that the policies laid down by top management are properly implemented by
the organization. However, even the most carefully designed control systems have
their limitations, partly because, while they allow top managers to control the
organization, they do not control the top managers themselves. Continuing vigilance
is required to ensure that the systems are not undermined by instances of fraud or by
failure to respond to changes in circumstances and operating procedures.
xxiv
Power Sector
While the power sector in India has witnessed a few success stories in the last 4-5
years, the road that lies ahead of us is dotted with innumerable challenges that result
from the gaps that exist between what’s planned versus what the power sector has
been able to deliver. The highlights and quantifies some of these gaps and attempts to
analyze the problem.
The risks prevalent in the industry, some prominent hurdles that the power sector has
already crossed, and more importantly - others that various players have to overcome.
Understanding these core issues & risks of the power sector help in identifying the
opportunities that lie ahead; for example why is private sector participation an
important requirement. A short peek of past performances indicates that during the
last three five year plans (8th, 9th and 10th), have barely managed to achieve half of
the capacity addition that was planned. As we enter the third year of the 11th five year
plan, we have already seen slippages on the planned approx. 79 GW capacity
addition. Once we break the problem down and identify the bottlenecks, may be able
to better understand the integration challenges that such large projects pose. While
there may be heavy dependencies on equipment suppliers and challenges around
logistics and work-front availability – with the right and timely application of project
management principles along the lifecycle of the project, one can strive to achieve
increased project completion against baselines.
Certain best practices around stakeholder management, integrated project and asset
development and interdependency mapping across various entities can help improve
overall project planning. Once we understand the practical implementation
challenges, various teams and people get aligned to the overall strategy, and then the
delivery on our estimated plans becomes more of a reality.
Power generation capacity along with the associated power infrastructure in India has
increased substantially over the years. Though the current annual per capita power
consumption in India has increased to over 717 kilo watt hours (kWh), it is still very
low when compared to the estimated per capita annual consumption of over 1,200
kWh in China and nearly 13,300 kWh in the United States of America. Without
adequate energy of desired quality, the 8% economic growth achieved in the recent
past cannot be sustained and the economic growth targets envisaged by the
Government over the next decade may not be achievable.
xxv
The government has been setting ambitious targets for the power sector during the
five year plans to manage the demand-supply mismatch. However, the planned
capacity additions vis-à-vis actual capacity addition achieved during the last four plan
periods has varied in the range of 50-60%. Fund availability is one of the key factors
that play a crucial role in determining the quantum of capacity addition.
Distribution
While some progress has been made at reducing the Transmission and Distribution
(T&D) losses, these still remain substantially higher than the global benchmarks, at
approximately 33 percent. In order to address some of the issues in this segment,
reforms have been undertaken through unbundling the State Electricity Boards into
separate Generation, Transmission and Distribution units and privatization of power
distribution has been initiated either through the outright privatization or the
franchisee route; results of these initiatives have been somewhat mixed.
Transmission The current installed transmission capacity is only 13 percent of the total installed
generation capacity. With focus on increasing generation capacity over the next 8-10
years, the corresponding investments in the transmission sector is also expected to
augment. The Ministry of Power plans to establish an integrated National Power Grid
in the country by 2013 with close to 200,000 MW generation capacities and 37,700
MW of inter-regional power transfer capacity. Considering that the current inter-
regional power transfer capacity of 20,750 MW, this is indeed an ambitious objective
for the country. The entire value chain of the power sector is dominated by the central
and state sector utilities.
Large Scale Organizations
Large scale organization refers to those industries which require huge infrastructure,
man power and a have influx of capital assets. The term ‘large scale industries’ is a
generic one including various types of industries in its purview. All the heavy
industries of India like the Iron and steel industry, textile industry, automobile
manufacturing industry fall under the large scale industrial arena. However in recent
years due to the IT boom and the huge amount of revenue generated by it the IT
industry can also be included within the jurisdiction of the large scale industrial
xxvi
sector. Last but not the least the telecoms industry also forms and indispensable
component of the large scale industrial sector of India. Indian economy is heavily
dependent on these large industries for its economic growth, generation of foreign
currency and for providing job opportunities to millions of Indians.
MSEDCL
Maharashtra State Electricity Board was looking after Generation, Transmission &
Distribution of Electricity in the State of Maharashtra barring Mumbai. It has
consumer base of 1.86 crore consumers across the categories all over Maharashtra
excluding the island city of Mumbai. There are about 1.31 crore residential, 30 lakh
agricultural, 13.46 lakh commercial and 2.5 lakh industrial consumers in MSEDCL
area which fetch an annual revenue of about Rs. 33,000 crore .
MSEDCL’s sources of power include thermal, hydro, gas and non conventional
sources like solar, wind, bagasse etc. apart from hydro power of Koyna. Thermal
power constitutes the major share which it gets from Mahagenco projects, Central
Sector projects and RGPPL. In terms of infrastructure, MSEDCL operates a vast far
flung network comprising of 33 KV, 22 KV & 11 KV lines, sub-stations and
distribution transformers spread over 3.08 sq.kms geographical area of Maharashtra
covering 41015 villages and 457 towns. It has 1947 sub-stations (33 KV) with 49000
MVA of transformation capacity, 10334 HV feeders, and several thousand circuit kms
of HT and LT lines.
MSEDCL has a workforce of about 70,000 employees. This force is the real asset of
the company . The welfare and well being of this asset has been given top priority by
the company. Every year about 20000 employees are put through
refresher/professional/HR trainings. Safety is given special importance and safety
training is imparted to line staff on regular basis. Engineers are also deputed to
various other well reputed training centers outside Maharashtra for training under
MDP module on regular basis.
Focus of the study
This study is conducted in area of Management Control System and concentrates on
the distribution system of the Company mainly in the field of finance, administration,
productivity and personnel control. These Management Control System based
xxvii
practices have been studied and evaluated from the point of view of their usefulness to
the higher management for exercising complete control over the working of the
MSEDCL .The higher management of the Mahavitaran includes Chief Engineers
and Superintending Engineers at the strategic level , Executive Engineers at the
strategic level, and Assistant Executive Engineers at managerial, and Assistant
Engineers / Junior Engineers at the operational level.
Need of the study :
From the review of literature, it is observed that only a few scattered efforts have
made in the field of MCS in large Govt. organizations, and whatever little was done
remained confined to the macro level only. The organizational levels have not been in
depth. Thus it is felt that there is need for case studies on the practices of MCS in
specific organizations, so as to understand the practices being adopted there. This will
help to point out the short comings and to suggest improvements to make the systems
in various sub systems as well as in the whole organizations. The present study is a
step in this direction.
Electricity is a leading public Utility and it is a socially desirable institution like
justice, defense and transport for which there is no direct demand but on which the
entire structure of an organized society depends. Second, electricity being a public
utility , the efficiency of the MSEDCL has a great bearing on the working of various
organization and thus has a multiplier effect on the economy of the state as a whole .
The company has introduced computerization in some of its sub-systems, the impact
of which on productivity is to be studied. From the discussions, it emerges that the
study of Management Control System in MSEDCL is quite relevant.
Objectives of the study :
Broadly, the study aims at determining Management Control Practices being adopted
in various functional areas of the MSEDCL. Specifically, the objectives of the study
were:
• To study Management Control System structure, status and usage in the
Maharashtra State Electricity Distribution Company .
xxviii
• To study the Management Control System in the distribution arm of
Maharashtra State Electricity Distribution Company .
• To study the impact of Management Control system on productivity in
Maharashtra State Electricity Distribution Company.
• To study success /failure factors of Management Control System practices.
• To study diagnostic procedures adopted in Management Control System for
maintaining these systems up to date.
• To study the computer based control system practices in the Maharashtra
State Electricity Distribution Company.
Scope of the study :
The present study has been confined to Maharashtra State Electricity Distribution
company only distribution system of the company is selected because of its
complexity and direct contact with consumers . Geographically the distribution
system of the MSEDCL throughout the entire state has been covered which is divided
into the fourteen zones .
Each Zone is divided in to circles and each circle in to divisions and further each
division is divided in to sub-divisions. Second, all the managers working at the three
levels viz. strategic Planning level , Managerial .Control level and operational
Control level, have been made to constitute the population for the study.
Methodology Adopted : The study concentrated both on primary and secondary data. The primary survey was
critical component of the study as it would yield crucial data on the impact of
Management Control system practices of MSEDCL and their impact on large scale
organizations.
Collection of Data
The process of collection of data is based on the under mentioned pattern:
I Collection of Secondary Data
II Collection of Primary Data
(i) Framing and pre-testing of questionnaires
(ii) Interview and observation technique
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Collection of primary data:
In the process of collection of primary data, the following pattern has been adopted:
Farming and pre-testing of Questionnaires:- One set of questionnaires was designed
after taking into consideration, Management control system based approaches adopted
in the MSEDCL. On the basis of several discussions with the experts and
academicians, the first draft of the questionnaire was revised four times. At the same
time various respondents were confronted with the prepared draft enhancing the
reliability of the questionnaires.
Collection of Secondary Data:
The background or secondary material based data, required for this research study,
was gathered from the following sources:
• The research articles and papers on various aspects of Management control
system are collected from Magazines, Books, Theses, Internet , Journals, and
Newspapers.
• MSEDCL Publications, such as
(a) Annual Administration Reports
(b) Performance Budgets
(c) Management Information Reports
(d) Internal audit Manuals
(e) Annual financial statement
(f) Annual productivity reports
(g) Publications regarding Delegation of Powers
Two questionnaires sets were prepared .
Questionnaire-I
It is concerned with the strategic level
(For CEs and SEs)
Questionnaire-II
It is concerned with the managers at operational level
(For XENs, AEs and JEs)
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Content Validity
The questionnaires have high content validity for the following reasons:
• Identification of items was based on the logical analysis and the respondents
selected for the study .
• Framing of questions was done by involving professional Judgment of
knowledgeable persons with vast experience of research and teaching of
MCS.
Reliability
Test-re-test reliability was found by administering the questionnaires again to the
same respondents .
Interview and observation Technique: An Attempt was made to collect first-hand
information through questionnaires as well as through personal visits to the various
departments of MSEDCL.
Tabulation and Statistical Analysis of Data:
The responses observed from each of the items in the questionnaire were scored and
tabulated into a master sheet. The statistical tool used included Simple Arithmetic
mean , Standard deviation , Mann-Whitney U test , Z-test , ANOVA , Duncan’s Test ,
Factor Analysis applied to draw logical conclusions . The analysis was done using
Statistical Package of Social Sciences ( SPSS) .
Major Findings :
• Besides emphasizing the implementation of the old control system, the
MSEDCL, should go in vigorously for its updating by observing the utilization
and performance of the existing control system and the requirements for the
new control system on a continuing basis as this would help the Company to
keep the MCS in a healthy state.
• The attitude of the managers of the Company needs a change, for which
various training programmers are required to be organized. They must be
made to understand that profit centres and expense centres are also important
responsibility centres of the Company.
xxxi
• In order to restructure the effective control system, the management of the
Company has to monitor the key variables which are significant but have been
ignored at the strategic level. These factors include strength and quality of
manpower and external environment related factors. Which are affecting
productivity of sub systems.
• As efficiency of the present control system tends to decline at the step of
taking corrective actions, the Company should monitor the existing control
system mainly at this step from both the angles (design and implementation).
• Testing being one of the most critical steps in the development of the MCS,
cannot be ignored at any cost. Similarly, implementation and maintenance are
equally important steps for the successful running of the system.
Conclusion
• The existing control system does not match with the present controlling
requirement, thus, modification is recommended. Managers, on the whole, at
both levels accord priority to modify the system but the users (managers
working at the managerial and operational levels) of the control system are not
clear about the problem.
• An analysis of the responses highlights that revenue and investment centers
have been identified by the majority of the respondents. It may be due to the
fact that the attitude of the managers is such that they consider the Company
as an organization where investments are made and revenues are collected.
• While structuring Management Control System in the MSEDCL, the strategic
management considers Budgets; rules regulations and government
instructions; objectives of the job/project; time limit for the job at the first.
• At the managerial and strategic levels, factors like reporting to the
government; collection of defaulting amount; cost reduction; and regular
supply of finance are ranked as first to fourth key variables respectively.
xxxii
• Management Control System in the MSEDCL is frequently designed at the
strategic level and then implemented at the managerial and operational levels.
• To collect information in the Company , reporting, observations, feedback,
complaints and informal system are mainly used but out of these reporting
techniques is very popular and gives effective results. Consumer complaints
are handled more effectively at zonal offices levels.
• At the strategic level the responsibility accounting technique is mainly in use
for measuring productivity performance, and the other techniques such as
product-wise measurement (number of jobs completed) are not popular.
• The information system of the Company is based on the traditional methods
and techniques.
Thus , universe of the study includes all the managers and top management of the
company working in the distribution area of the MSEDCL. To study this system in
one of the service organizations, this research work is conducted in the area of
distribution system of the Company and concentrates mainly on the field of finance,
administration, Computer usage and personnel control practices. Thus at the
distribution level, Management Control System based practices have been studied and
evaluated from the point of view of their usefulness and adequacy to higher
management, for exercising complete control over the working of the Company. This
helps to point out the shortcomings and to suggest improvements to make the system
more effective and enhance the quality of control system in the various sub-systems
as well as in the overall organization of the Company across the Maharashtra .
Limitation of the Study
Present study is limited to the area of Maharashtra which is due to the time limit of
the academic programme . Similar studies are required to be undertaken in the
generation and transmission systems of Maharashtra State Electricity Transmission
and generation companies. Also in future few more parameters related to
Management Control System Practices may be identified and subsequently, the study
may be carried out on those identified parameters.
1
CHAPTER 1
INTRODUCTION
Contents: 1.1 Concept of Management Control System: Theoretical aspect
1.2 Concept of Management Control System: Historical aspect
1.3 Management Control System & Meaning
1.4 Definitions of Management Control System
1.5 Purpose of Management Control System (MCS)
1.6 Role of Management Control Systems Practices in large scale
organizations
1.7 Nature of Management Control Systems
1.8 Design of Management Control Practices
1.9 Approaches to Management Control System
1.10 Features of Management Control Systems
1.11 Management Control in large scale Government organizations
1.12 Management Control systems Practices in Large Government
organizations
1.13 Management Controls to Increase Productivity in Large
Organizations
1.14 Recent developments and internal change drivers of MCS
1.15 Internal factors that influence MCS change & Innovations in
MCS
1.16 Concept of Productivity in MCS
1.17 Concept of Large scale Organizations in Power Sector
2
CHAPTER 1
INTRODUCTION
One of the basic instruments of enterprise control, whose implementation in modern
economic conditions provide conditions for achieving a competitive advantage over
other enterprises is the creation of an effective internal control system. In the industry
sector, the market is constantly changing, and this requires changing the attitude to
internal control from treating it only in the financial aspect to the management of the
control process. Internal control as such becomes an instrument and means of risk
control, which helps the enterprise to achieve its goals and to perform its tasks. Only
an effective internal control in the enterprise is able to help objectively assessing the
potential development and tendencies of enterprise performance and thus to detect
and eliminate the threats and risks in due time as well as to maintain a particular fixed
level of risk and to provide for its reasonable security .
1.1 Concept of Management Control System: Theoretical aspect One of the basic instruments of enterprise control, whose implementation in modern
economic conditions provide conditions for achieving a competitive advantage over
other enterprises is the creation of an effective internal control system. In the industry
sector, the market is constantly changing, and this requires changing the attitude to
internal control from treating it only in the financial aspect to the management of the
control process. Internal control as such becomes an instrument and means of risk
control, which helps the enterprise to achieve its goals and to perform its tasks. Only
an effective internal control in the enterprise is able to help objectively assessing the
potential development and tendencies of enterprise performance and thus to detect
and eliminate the threats and risks in due time as well as to maintain a particular fixed
level of risk and to provide for its reasonable security .
The increasing variety of concepts of internal control systems requires their
detailed analysis. A detailed analysis of the conceptions might help find the main
reasons for their increasing number. It may also help to elaborate a structural scheme
of the generalized concept of internal control. Consequently, it may help decrease the
number of mistakes and frauds in enterprises and to offer the precautionary means
that might help to avoid mistakes and build an effective internal control system.
3
The purpose of the study: to compile the definition of the concept of internal control
system and to elaborate the structural scheme of the generalized conception for
industrial enterprises.
At first, one views management functionally, such as measuring quantity, adjusting
plans, meeting goals. This applies even in situations planning does not take place.
From this perspective, Henri Fayol (1841–1925) considers management to consist of
six functions: forecasting, planning, organizing, commanding, coordinating and
controlling. He was one of the most influential contributors to modern concepts of
management.
Another way of thinking, Mary Parker Follett (1868–1933), defined management as
"the art of getting things done through people". She described management as
philosophy. According to K.A. Merchant, 2011 Control is a comparison of planned
(required) and actual states .
1.2 Concept of Management Control System: Historical aspect
Historical development of Management control as individual enterprise system is not
as broad as other management spheres in science directions. The definition of internal
control was presented for the first time in 1949 by the American Institute of
Certificated Accountants (AICPA). It defined internal control as a plan and other
coordinated means and ways by the enterprise to keep safe its assets, check the
covertness and reliability of data, to increase its effectiveness and to ensure the settled
management politics. However, the presented definition of control concept has been
constantly improved, and nowadays there is quite an extensive set of conceptions that
indicates the system of internal control as one of the means of leadership to ensure
safety of enterprise assets and its regular development. In 1992, the COSO model
appeared; its analysis distinguished the concepts of risk and internal control. Now, the
concept of internal control involved not only accounting mistakes and implementing
means of their prevention, but also a modern attitude that might identify the spheres
of control management and processes, and also a motivated development of their
detailed analysis. The Worldwide known collapses of such companies as Enron,
Worldcom, Ahold, Parmalat and others determined to issue in 2002 the Law of
Sarbanes–Oxley in the USA, in which attention is focused on the effectiveness of the
enterprise internal control system and its assessment.
4
The word control has numerous meanings and different connotations, many of which
are not applicable to the field of management. Within this scope, the term
management control was introduced by Anthony (1965) who defined it as the process
of assuring that resources are obtained and used effectively and efficiently in the
accomplishment of the organization’s objectives. More recently, Kloot (1997) also
points out that in process terms, management control exists in order to ensure that
organizations achieve their objectives, and for Fisher (1995) control is used for
creating the conditions that motivate an organization to obtain predetermined results.
Hence, the concept of control in organizations appears to be related to the existence of
certain objectives or ends in all organizations. Here, it is useful to recall a classic
definition by Barnard (1938) according to which an organization is a system of
consciously coordinated activities or forces of two or more persons. The coordination
of these forces or activities is conducted at all times with certain explicit purposes,
which can thus be regarded as the body of generic objectives of the organization
(Rosanas, 1994). So then, except in trivial cases in which it is possible to verify the
degree to which said objectives have been achieved without effort or resource
investment, it will be essential to set up some kind of evaluation system in order to
check whether or not this explicit aim, which constitutes an organization’s rationale,
is being achieved.
Management Control Systems (MCS) theory is a useful integrative tool for
organizing, explaining, and understanding the jargon and concepts of performance
measurement. MCS theory can help make sense of the criteria by providing a way of
organizing and remembering the criteria and the related jargon and concepts. A good
place to start in understanding the relationship between the criteria and MCS theory is
with the stated objective of the criteria:
To provide an adequate basis for responsible decision-making
Components, contractors’ internal management control systems must provide data
which
(a) Indicate work progress,
(b) Properly relate cost, schedule and technical accomplishment,
(c) Are valid, timely and auditable
A system is an aggregate of machines and people that work toward a common
objective. A system can be described as a series of steps or phases consisting of an
5
input phase, a processing phase, and an output phase. A control system adds
measurement, analysis and reporting phases to the system. Output is measured,
compared against a plan, analyzed if judged significant, and then reported back to the
appropriate earlier phases of the system in the form of positive or negative
reinforcement. In a management control system, data/information is typically fed back
to managers of the various system phases. Responsible managers will then take
appropriate action based on the data/information provided.
Scope of Management Controls Management controls may be briefly defined as the organization, policies and
procedures used to help ensure that government programmes achieve their intended
results; that the resources used to deliver these programmes are consistent with the
stated aims and objectives of the responsible organizations; that programmes and
resources are protected from waste, fraud, and mismanagement; and that reliable and
timely information is obtained, maintained, reported, and used for decision making.
It is important that management controls should be viewed, not as separate systems in
their own right, but as control mechanisms to be integrated into the systems serving
the entire cycle of planning, budgeting, management, accounting, and auditing. The
systems should support the effectiveness and integrity of every stage of this cycle and
provide continued feedback to managers. As Mc Crindell points out in his
contribution to this volume, one of the main objectives and strengths of an effective
management control system should be to enhance the ability of managers to manage,
to release their management potential, and to act as a positive force for achieving the
aims and objectives of the organization. Such controls help to make individual
managers accountable but should not be regarded as a constraint on their freedom to
take decisions in areas for which they have delegated authority.
1.3 Management Control System
There are multiple terms that have been used in describing ‘management control
systems.’ The author chooses to use MCS to refer to the broad application of a system
that provides both financial and non-financial information on both internal and
external factors, to managers for the purposes of control and decision-making.
6
When studying MCS, one of two approaches can be taken. First, one can build on
existing areas, trying to extend overall theories. Second, researchers may choose to
evaluate new and novel ideas as they come into practice. Both types of research make
important contributions. Primarily, because MCS change over time, it is important to
study the implementation and success of new managerial accounting tools.
Furthermore, as old MCS lose relevance, research on them does not have significant
practical applications. The author also warns of the dangers of studying accounting
MCS in isolation. Consideration of other organization control systems is imperative
given the interactive nature of MCS with those other systems. One suggestion is to
classify organizational controls as organic or mechanistic.
Another potential issue in MCS research is the assignment of dependent and
independent variables. Some studies classify performance as the dependent variable,
and MCS as the independent variable. The criticism of this approach is that, given
rational economic theory, organizations will always choose the MCS that leads to the
highest performance; thus nullifying meaningful results. Others look at the contextual
variables as independent and the MCS as dependent. Finally, some studies examine
implementation of MCS and link it to performance. The author cautions that prima
fascia adoption does not necessarily lead to actual use, thereby clouding the link
between performance and implementation of MCS.
1.4 Meaning of MCS The terms management accounting (MA), management accounting systems (MAS),
management control systems (MCS), and organizational controls (OC) are sometimes
used interchangeably. MA refers to a collection of practices such as budgeting or
product costing, while MAS refers to the systematic use of MA to achieve some goal.
MCS is a broader term that encompasses MAS and also includes other controls such
as personal or clan controls. OC is sometimes used to refer to controls built into
activities and processes such as statistical quality control, just-in-time management.
The term MCS is used, The definition of MCS has evolved over the years from one
focusing on the provision of more formal, financially quantifiable information to
assist managerial decision making to one that embraces a much broader scope of
information. This includes external information related to markets, customers,
7
competitors, non-financial information related to production processes, predictive
information and a broad array of decision support mechanisms, and informal personal
and social controls. Conventionally, MCS are perceived as passive tools providing
information to assist managers. However, approaches following a sociological
orientation see MCS as more active, furnishing individuals with power to achieve
their own ends. Contingency-based research follows the more conventional view that
perceives MCS as a passive tool designed to assist manager’s decision making.
Contingency-based research has focused on a variety of aspects of MCS. These
include dimensions of budgeting such as participation, importance of meeting
budgets, formality of communications and systems sophistication,
If the MCS are found to be useful then they are likely to be used and provide
satisfaction to individuals, who then presumably can approach their tasks with
enhanced information. As a consequence, these individuals take improved decisions
and better achieve organizational goals.
1.5 Definition of Management Control A management control system (MCS) is a system which gathers and uses information
to evaluate the performance of different organizational resources like human,
physical, financial and also the organization as a whole considering the organizational
strategies. Finally, MCS influences the behavior of organizational resources to
implement organizational strategies. MCS might be formal or informal. The term
‘management control’ was given of its current connotations by Robert N. Anthony .
Management Control Systems is to “broaden the scope of information being
considered beyond just accounting information” and to bring “issues of managerial
motivation and behaviour into view”.
“The management control process is the process by which managers of all levels
ensure that the people they supervise implement their intended strategies” .
This definition, according to Berry et al. (2005), reflects Anthony’s current views on
management control systems, which have some continuity with his original approach,
but abandon some elements like:
8
“Management control is primarily a process for motivating and inspiring people to
perform organization activities that will further the organization’s goal. It is also a
process for detecting and correcting unintentional performance errors and intentional
irregularities, such as theft or misuse of resources” .
Strategy formulation, management control and task control have a distinct and
hierarchical relationship.
“Management control fits between strategy formulation and task control in several
Respect , Strategy formulation focuses on the long run, task control focuses on short
run operating activities, and management control is in between”.
Management control, hence, “rests very firmly in the domain of accounting” (Berry et
al., 2005). The dynamic interplay between planning and control processes is ignored
(Lowe & Puxty, 1989). Until 1985, the research on management control systems had
been widely developed in financial accounting, particularly conventional cost
accounting and in behavioural and organizational accounting ( Otley, 2001).
1.6 Purpose of Management Control System (MCS) The main purpose of a management control system is to assist management in
coordinating of the firm and in steering the activities of the firm and in steering those
activities towards achievement of the firms overall purposes, goals and objectives.
The following functions are involved in the management control system:
Planning the activities of the organisation.
Coordinating the activities of the organisation.
Communicating information to various levels of organisation structure .
Evaluating information to various levels of organisation structure .
Influencing people to change their style of functioning.
The purpose of MCS is to compare the actual results with the set standards in order to
ensure that the work of each section of the firm is harmoniously accomplished with
the works of the other sections. Therefore, MCS bring about unity of purpose in an
organization. A firm implements MCS to ensure that appropriate strategies are
9
implemented to attain its goals. They also ensure that prompt actions are taken in case
of emergency and uncertainty as well. They also help the management in decision
process.
• Minimize Cost: These initial MCS are implemented to control costs, improve the
efficiency of operations, and achieve internal learning by constantly setting targets
and comparing actual performance against these targets. According to the
interviewees, this type of initial MCS help entrepreneurs:
• Manage and understand costs (how are employees spending resources?),
• Distinguish controllable from fixed costs,
• Control costs once competition steps in and squeezes gross margins,
• Provide information to help employees do their work efficiently and
productively,
• Define goals (but without imposing constraints on how to achieve those
goals),
• Learn how to react to contingencies,
• Learn how to forecast and plan under different scenarios, and
• Learn how to manage inventory and eliminate the costs of obsolescence.
• Enhance Revenue: The second category consists of MCS used to analyze
external information, to learn and respond to customers, and to foster and support
fast growth. Examples classified in this category suggest these initial MCS are
used to:
• Learn about the market and competitors,
• Learn about prospective new store locations and their inventory needs,
• Implement a strategy and culture that leads to growth,
• Attract financial investors that would help the company grow,
• Direct the attention to the maximization of sales-per-square-foot,
• Build customers’ confidence,
• Understand customer preferences, and
10
• Learn the drivers of sales (which products are selling, how effective are the
ads).
• Minimize Risk: The last initial MCS are meant to protect asset integrity, and
avoid internal risks and out of control situations. Interviewees explained that these
initial MCS are used to:
• Avoid inconsistencies in information,
• Secure and audit the systems,
• Define consistent rules and routines throughout the company,
• Avoid out of control situations that would harm the firm’s growth and financial
health,
• Control theft, by checking cash and inventory levels, and
• (in subsidiaries) Limit exposure to risks that would harm the parent company’s
brand.
1.6.1 Importance of Management Control System (MCS) The management control systems include the following are of planning and control:
Strategic planning
Management control
Task control
Operational control
The strategic planning control deals with the issues pertaining to an organization’s
basic objectives and implementation followed by monitoring of its progress. The
management followed of its progress. The management deals with proper allocation
and effective utilization of resources, substance in competition and transformation of
the organization objectives into reality. The task operation controls deal with the
factors of efficiency in operations of the firm. Therefore, we can say that management
control systems are the formal and informal systems which help the management in
driving the organization toward its goals. They provide effective guidance to the
employees of the organization for accomplishment of its objectives. Formal control
11
are laid down in writing by the management, whereas informal arise out of employees
behavior.
A Management control system is a system. A system is an aggregate of machines and
people that work toward a common objective or goal of the organization. A system
can be described as a series of steps or phases consisting of an input phase, a
processing phase, and an output phase. A control system adds measurement, analysis
and reporting phases to the system. Output is measured, compared against a plan,
analyzed if judged significant, and then reported back to the appropriate earlier phases
of the control system in the form of positive or negative reinforcement. In a
management control system, data or information’s are typically fed back to
management of the organization in various system phases.
Source : MCS models used in China , Zhang Xian –Zhi , November 2010.
Fig.1.2 : Hierarchies of Management Control System
A control system is a set of formal and informal systems to assist the management in
steering the organization towards its goals. Controls help in guiding employees
effectively towards the accomplishment of the organization’s goals. Establishing a
control system in an environment of distributed accountability, reengineered
processes, and local autonomy and empowerment is a challenging task. The control
process in any organization can be undertaken at three levels. These are: the strategic
12
level, the management level, and the operational level. Each type of control occurs
primarily at one of the three distinct levels of the organizational hierarchy.
Strategic control deals primarily with the broad questions of domain definition,
direction setting, expression of the organization’s purpose, and other issues that
impact the organization's long-term survival. Strategic control overlaps to some extent
with the process of strategy formulation. Strategic control also deals with issues
relating to general company objectives and the implementation and monitoring of
progress.
Management control deals with effective resource utilization, the state of
competitiveness of the unit, and the translation of corporate goals into business unit
objectives.
Operational control is primarily concerned with efficiency issues. Occurring at very
specific functional or sub-departmental levels of the organizational hierarchy, this
mode of control generally conforms to
traditional control models. The time horizon of control is very short, the benchmarks
are known and well defined, and the outcomes are tangible and easily measurable.
1.6.2 Elements of Management Control Systems Any control system has four important elements. They are a detector or sensor, an
assessor, an effecter and a communications network. The detector analyzes the
situation that is being controlled. An assessor helps in comparing the actual results
with the standard or expected results. An effecter is used to reduce the gap between
the actual and the standard result. The communication network transmits information
between the detector, the assessor and the effecter.
The process of control usually involves four important steps. They are:
• Identifying the goals or objectives,
• Implementing the programs or policies,
• Measuring and comparing outcomes against targets, and
• Analyzing whether the achieved targets are in accordance with the goals or
objectives.
13
Strategy, competitive advantage and Management Control Systems Practices Before attempting to discuss the relationship between management control and
strategy, we must first differentiate among a number of interrelated concepts in the
strategy literature: strategy as process, strategy as competitive position, strategy at the
business level and corporate strategy. Strategic process describes the managerial
activity inherent in shaping expectations and goals and facilitating the work of the
organization in achieving these goals. Many influential writers from Barnard (1938)
through Andrews (1980) have considered how business leaders should manage
organizational processes to gain competitive advantage.
A firm’s strategic position, by contrast, refers to how the firm competes in its markets,
i.e. the product and market characteristics chosen by the firm to differentiate itself
from its competitors and gain competitive advantage. Unlike the process analysis, the
positional approach examines the strategic choices made by firms independent of the
management process by which those choices were made; patterns in business unit
strategic action are the unit of analysis.
Patterns in strategic actions have been identified at both the business level and the
corporate level of the firm. Business strategy refers to how a company competes in a
given business and positions itself among its competitors (Andrews, 1980, p. IS).
Defining strategy as patterns of action (Mintzberg, 1978; Mintzberg & Waters, 1985),
this vein of research has de-emphasized the link between observed strategies and
prior, explicit managerial intentions. Research has concentrated instead on uncovering
recurring patterns in the way that firms deliver value to customers.
Segregated MCS into four important elements as follows: A detector or sensor
An assessor
An effectors
A communication network
14
Communication network (To transmit information to detector , assessor , and the effectors )
Source : MCS Principles Eastern Economy Editions Learning , New Delhi . 2001
Fig. 1.3 Elements of the Control Process
The role of the ‘detector’ is to observe information as to what is happening, and
accordingly analyze the situation to be controlled. The role of the assessor is to
compare the actual results with the standards set. An effecter is supposed to minimize
the gap between the standard results and actual results. The responsibility of
communication network is to transmit information among the ‘detector; the assessor
and the effecter .
1.7 Role of Management Control Systems Practices in large scale organizations Organizations are divided into sub-units. Which are further based on principals of
specializations and division of labour. The control system plays a major role in
coordinating the efforts of these sub-units. Control system designers try to design
systems to minimize the transaction costs. Each sub-unit has objective that is derived
from the overall purpose of the firm.
The control systems assist the executives in meeting overall purpose of the
organization and the requirements of its constituents. There are three essential
managerial functions of an executive. These are as follows:
MCS Device
Effector (To minimize the gap)
Assessor (To compare actual results)
Detector (To observe information)
15
• Securing essential efforts from the employees as well as the stakeholders of the firm
• Providing a good communication system to coordinate various activities of the firm
• Setting up the purpose, goals and objectives form an organization and delegating responsibility to various sub-units to accomplish the goals.
1.7.1 Characteristics of Control System in Large Scale Organizations
Involvement of people
Information about the actual state of the organization is compiled by people.
It is compared by people.
With the desired state decided by people.
For significant difference, a course of action is recommended by people .
Action taken by people
1.7.2 Management Control System in Large Organizations This chapter focusing on the empirical results of the study has four main sections. The
first section describes the adoption rates and usage of MCS practices and information
in small firms. The second section reports descriptive statistics for the empirical
variables and the construction of separate measurement models for latent variables.
The third section provides information on manifest variables of the models. The
fourth section describes the testing of the hypothesized, causal relationships of the
structural models developed . Finally, additional analysis of the theoretical models
and strategies are provided.
1.7.3 Diffusion and penetration of MCS practices and information in large Scale
Organizations .
The diffusion and penetration of MCS practices and information in the use of 183
small Finnish firms, operating in three main industries of manufacturing, services and
trade, are discussed and analyzed based on managing directors’ responses to the 52
items of the survey. First, the ranks and rates of adoption are presented and second,
the more precise picture of the usage is shown. Also some light is shed on the industry
effects and differences between firms owner managed and managed by hired
executives. Thereafter, respondents’ needs for changes in their MCS as well as
16
barriers to utilize more MCS practices and information are discussed. Finally, a
summary over the diffusion and penetration of MCS practices and information into
the use of small Finnish firms is provided. In addition to the use of MCS practices and
information the survey respondents were also requested to give some background
information relating to their planning of economic issues, reporting and MCS. In total,
70 firms (38.3%) announce that they make their bookkeeping and also prepare
statutory annual reports by themselves in the firm while the majority or 113 firms
(61.7%) have outsourced their accounts and statements. However, only 47 firms
(25.7%) report that they do not have any accounting expertise in their management.
Furthermore, only 35% of managing directors keep the planning of economic and
financial issues in their own hands. A total of 36.1% of the managers draw up plans
together with their accountant.
Thus, these two percentages together indicate quite strong planning centralization to
managing directors as also Reid & Smith (2002) have found in the UK. Furthermore,
in 6% of the firms the responsibility for planning is delegated to a person who reports
to the managing director and in 8.2% of the firms the service is bought in from an
outside partner. In 14.8% of the cases financial and other similar types of issues are
planned in managerial teams. According to Reid & Smith (2002, 24) in their sample
of UK small firms 30% have delegated the preparation in a firm and 10% outsourced
it to an accountant. So the figures of this study, even not exactly the same as the UK
ones, indicate a similar overall emphasis on planning of managing directors.
However, the samples may not be fully comparable, because Reid & Smith (2002, 25)
seem to have examined only young micro firms.
1.7.4 Use of Management Control System practices and information The use of various MCS practices and information is described using descriptive
statistics for each items calculated based on the given scores on the scale from not
used at all (scored 0) to used systematically as a part of normal routines (scored 4).
Moreover, like in the context of adoption ranks, the items are divided into three
groups to help discussions: relatively high use, relatively moderate use and relatively
low use. The first 10 items with a mean above 2.50 are classified as relatively high
use. The mean approaches then the points of quite often used or systematically used
as a part of normal routines on the interval scale. The next group of moderate use (18
items) contains respectively items with a mean equal or above 2. This group indicates
17
practices which are used at least sometimes, on average. The rest of the practices (24
items) are used respectively only very seldom or not at all indicating thus a low usage
level and a mean below .
1.7.5 Effects of managers on the use of MCS practices and Information in large scale Organizations . Large businesses and their possible differences have also often been examined from
the view of owner-managers and their personal features creating typologies such as
entrepreneur and craftsman (Smith 1967) or entrepreneur and large business owner
(Carland et al. 1984). Additionally, more recently, for example, Stewart et al. (1998)
have compared entrepreneurs and small business owners with corporate managers and
they have found some differences. To summarize, corporate managers seem to be
much like small business owners and entrepreneurs, but they tend to be more risk-
averse than the owners. Therefore, it is assumed that there might also be some
differences between the owner managers and hired managing directors of small firms.
Furthermore, from the view of agency-theory (e.g. Baiman 1990), it can be assumed
that small firms with hired manager may have an agency-problem with information
asymmetry.
Therefore the owners (principals) may like to control and monitor besides the
business also the manager (agent) and his or her management (e.g. Baiman, 1990).
Consequently, that all together with the personal interests of a hired manager might
have some influences on the use and designs of MCS in these firms, even though such
evidence could not be found in the prior small business literature (see also e.g.
Baiman 1990). To examine if the use of MCS practices and information differ
between small firms which are owner-managed (in total, 128 firms) or managed by
hired executives (in total, 55 firms), the Mann-Whitney U test with a null hypothesis
of no differences was applied. The non-significant results at the 0.05 level (two tailed)
applied in the study indicate that there are no significant differences between the two
groups.
18
Source : BCS , & MCS practices , Baiman 1990
Fig. 1.4 : Budget control system (BCS) 1.7.6 Five models for evolution of MCS pattern in large Scale Organisations Wilson (1998) summarizes the evolution of control models as followed. 1) Typical bureaucratic control. Subordinates are required to obey the orders of
superiors.
2) Well-defined regulation. Controls of decision-making and operation take form of
plan which includes discipline.
3) Incentive system provides an advanced control mechanism, such as piece wage.
4) Technique provides control mechanisms in two ways: (i) the coerciveness of
production technique makes managers control tasks well; (ii) the development of
management technique makes managers who have the technique achieve complex
tasks and retain controlling state.
5) Professional managers can achieve effective control under authorization within
certain restrictions. Wilson’s summary for the development of control pattern fully
considers the change of environment which includes Social and political environment,
management regulation environment, technology environment and organizational
function environment. Wilson contributes to the theory of the evolvement of the
19
control model by summarizing the characteristic of five models evolved from
traditional bureaucratic control to modern empowerment control.
The purpose of control is to ensure that an organization meets desired objectives and
that individual members behave in a manner consistent with organizational objectives.
In recent times, several companies have lost billions of dollars because the necessary
controls were absent. Management control systems are considered essential for the
successful attainment of corporate objectives. It is the means by which senior
managers effectively and efficiently strive to attain company's objectives. Any control
system in an organization has four important elements that help in synchronizing the
organization’s various activities. They are the detector (which provides information
about the situation), the assessor (for comparison with benchmarked standards), the
effectors (which tries to bridge the gap between the actual situation and the standard
required), and finally, the communication systems (that help in passing the
information between the other three elements). Control systems can be divided into
formal and informal controls.
Formal control systems can be classified as input controls, process controls and output
controls. Informal control systems can be classified into self control, social control
and cultural control. A clear corporate strategy, corporate structure, well-defined
centers of responsibility, and reliable information centers are essential for
management control systems to be successful. A good management control system is
oriented towards the future, has clear objectives, and minimizes control losses. It is
important to analyze the distinction between strategy formulation, task control and
management control. Strategy formulation takes place at the higher level of the
management, and task control involves the control of individual tasks. Management
control lies at the intermediate level between the levels of strategy formulation and
task control. It helps in the implementation of the desired strategies. The subsystems
and components of control systems can also be divided on the basis of their use in
formal and informal systems. Managerial style and organizational culture play an
important role in determining which components are used, and whether the formal or
informal processes are dominant.
20
1.7.8 Management Accounting and control in large scale organizations
Accountants and managers in a Large Scale Organizations and international context
face a host of complexities, because of the environmental uncertainties, international
capital flows and complex organisational structures (e.g. Choi 1989). According to
Emmanuel et al. (1998), important issues for Large Scale Organizations management
accounting are, for example, performance evaluation and control, currency changes,
inflation accounting and corporate governance. Performance evaluation and control
may be problematic because of the distance between headquarters and local units.
Currency changes and inflation are often faced, especially in non- Western settings
where differences in organisational structures and traditions may also make corporate
governance issues more difficult. According to Baliga and Jaeger (1984) the issue of
control is parallel with delegation. One of the major questions for MNCs is thus
balancing between centralization and decentralization.
MNCs have been divided into taxonomies according to the differences in the intensity
and form of centralization . Perlmutter (1969) defined a taxonomy based on
management style: geocentric (world-oriented), polycentric (host country-oriented)
and ethnocentric (home country-oriented). Large Scale Organizations it is thus
defined according to the intensity of the geocentric thinking of the managers. For
Porter (1986), international competition is rather similar to domestic competition and
the same strategy patterns are thus needed. Where downstream activities of the value
chain are vital to competitive advantage, decentralization and multi domestic
organization structure are recommended and when support activities are of the highest
importance, global competition with a centralized structure might be the most
advantageous choice Accounting enables decentralized control where results are
monitored and controlled, but the actual operations are autonomous (cf. Merchant
1985) and accordingly, the intensity of centralization/decentralization affects the role
of accounting in the MCS. On the other hand, accounting can also help in managing
the balance between centralization and decentralization as it can reinforce not only
hierarchical but also lateral relations .
The role of accounting and control systems is also highlighted in the case of mergers
and acquisitions, which are a typical way of extending operations to foreign countries.
Jones (1985) concludes that accounting type controls might become highly significant
21
during the first few after an acquisition. In his study inappropriate changes in
management accounting systems caused considerable undesirable effects. Granlund
(2003) also suggests that in a merger, an accounting system plays an important role as
an integrator of the firms. Roberts (1990), on the other hand, shows how accounting
controls may also impede the development of a profitable longer-term strategy.
The case firms in this thesis represent different levels of intensity as Large Scale
Organizations corporations. The firms have also used different strategies entering
Russia and the Baltic countries: Greenfield projects, joint ventures and acquisitions.
The Bakery in the first and second essay has evolved from home country-centered to a
stage where the operations abroad in neighboring areas truly constitute a significant
proportion of the business.
1.7.9 A closer look at strategy and Management Control Systems The studies cited in the preceding section suggest that there is a link between the way
that firms achieve competitive advantage and the design and use of their management
control systems. Little is known, however, about how this association should be
conceptualized to increase our knowledge and improve our predictive ability. The
research which provides the basis for the present analysis, conducted over a 2 year
period, focuses on the use of management control systems by top management - those
responsible for ensuring that strategies are formulated and implemented. (In some
organizations, top management refers to one individual; in large complex
organizations, top management commonly refers to an operating committee,
comprising heads of businesses or sectors, chaired by a Chief executive officer. The subsequent analysis focuses on how two competing firms in this industry
organize their management control systems at top management levels. The strategy of
each firm is described followed by a brief overview of selected aspects of their
management control systems. The control system aspects described are those
identified by top managers of these firms as important to the way they manage their
business.
22
1.8 Nature of Management Control Systems The role of the management is to organize, plan, integrate and interrelate
organizational activities to achieve organizational objectives. The achievement of
these activities is facilitated by management control systems. A management control
system is designed to assist managers in planning and controlling the activities of the
organization. A management control system is the means by which senior managers
ensure that subordinate managers, efficiently and effectively, strive to attain the
company's objectives. According to Anthony, Dearden and Govindarajan1 (1992),
management control is “the process by which managers ensure that resources are used
effectively and efficiently in the accomplishment of the organization's objectives”.
Management control systems involve a number of activities in an organization,
including:
• Planning the future course of action
• Coordinating and communicating the various activities of the organization to
different departments
• Evaluating information and deciding the various activities; and finally,
• Influencing people to work in accordance with the goals of the organization.
Source :- MCS Practices Subhash Chandra Das PHI Learning 2001 . Fig. 1.5 : Vancil’s Theory of Decentralized Management
Autonomy
Management Philosophy , style, process policy & procedure
Management of cost & asset assigne
Diversification strategy
Business Strategy
Responsibility structure
Reward system
23
1.8.1 Characteristics of a Good Management Control System
A good management control system ensures success for an organization. Good
management control here implies that the goals of the organization are clearly
communicated to the employees, and that the employee is confident about performing
his tasks well. For example, good inventory control means that employees have
information about the quantity of inventory present and its availability at different
locations. An organization does not usually have perfect control. For perfect control
all the employees should be working in the best possible way. But this is not always
possible as employee behavior is not stable. Good control can be achieved in the
following ways:
Future-oriented Planning is always oriented to the future. The organization should be focused on the
future. Employees should be encouraged to be flexible so as to respond effectively to
change.
Clear Objective Good control cannot be established unless the multiple objectives of a particular task
are considered separately. For example, to assess the control system relating to
production, all major performance parameters like efficiency, quality and asset
management, has to be measured.
Minimum control losses Control devices are costly and not always economically feasible. So, control devices
should be put in place only when the economic benefits exceed the costs. The
difference between the performance that is theoretically possible and one that can be
reasonably expected is called “control loss.” An organization achieves optimal
performance when control losses are minimized. Organization can control the losses
if the control process of the organization is well defined in the beginning so that the
control of each activity can be measured by the line with organizations objective.
24
1.9 Design of Management Control System Practices There are many issues to keep in mind while designing controls for an activity: • The process of establishing controls should be seen as a constructive exercise
that will help in enhancing the performance of the employees. The standards set
should be challenging, but at the same time, attainable.
• The objectives should be measurable to enable evaluation of performance. • Controls should focus on the objectives and key results of an activity. There
should be a restricted number of objectives.
• There should not be too much focus on easily measurable factors and short-run
variables. Attention should be paid to all the important variables in a balanced
fashion.
• Responsibility for results should rest with a single individual to avoid
duplication of work.
Source : Accounting Organizations and Society , Anthony & Govindarajan 2001 Fig. 1.6 : Frame work of Management Control System (MCS)
25
These control systems are diagnostic systems, beliefs systems, boundary systems, and
interactive systems.
Diagnostic Systems: are the formal information systems that managers use to
monitor organizational outcomes and to detect deviations from the objectives set.
Examples of diagnostic systems are business plans and budgets. They function as
tools for the manager in monitoring and evaluating the business results. It is argued
that the evaluation of business processes and results improves the allocation of
resources and stimulates managerial motivation. The data produced by diagnostic
systems are expected to be accurate. The systems are also used to measure the output
variables, or performance levels, of business strategies adopted by organizations.
They are based on performance variables, such as effectiveness and efficiency.
However, these performance variables may change when organizations alter their
business strategy.
Beliefs Systems: are formal systems used by top managers to define, communicate,
and reinforce the basic values, purposes, and direction of the organization. Belief
systems state the organization’s core values, the performance level desired, and the
way in which the individual workers and staff members are expected to handle
relationships both internally and externally. Beliefs systems are conveyed through
formal documents, such as credos, mission statements, and business objective
statements. They are used to set the direction of strategic change, and to energies and
inspire the workforce in the process of entrepreneurial growth. Beliefs systems are
generally used to empower and commit the individual workers to the organization’s
objectives and to its direct search for new opportunities.
Boundary Systems: are formal systems based on predefined business risks, which are
used to set limits on opportunity-seeking behaviour. They set the boundaries of both
strategic choice and business conduct. For example, when environmental uncertainty
is high or internal trust is low, senior managers may take measures that define
business conduct on the basis of these systems. Boundary systems may constrain the
degree of freedom of managers, and as a result make creativity more focused.
Boundary systems are stated in negative terms, for example sanctions. However, they
serve as an instrument to curtail high costs resulting from commercial experiments
and they allow managers to delegate decision-making. If improperly set though,
26
boundaries may hinder the adaptation to changing product, market, technological, and
environmental conditions.
Interactive Systems: are formal information systems managers use to engage directly
into the decision-making of subordinates. The data are provided by underlying
systems and available for managers throughout the organization on a recurring basis.
These control systems help in focusing attention on particular issues, creating
dialogue, and stimulating learning, thereby allowing new ideas and strategies to
emerge in response to opportunities or threats in the competitive environment.
However, this requires a climate that values openness and accepts constructive
criticism and debate. Interactive systems are highly useful in case of strategic
uncertainty, when inventive change and opportunity seeking is required. Examples of
strategic uncertainty are changes in technology and customers’ tastes, government
regulations and industrial competition. The design of interactive systems is based on
the analysis of these uncertainties, and their aim is to facilitate pro-active decision-
making. 1.10 Approaches to Management Control System
• To get the desired results, it is important to compare the actual performance
with the desired results. Comparing actual performance with the desired results
could be useful for setting controls for the next year.
• When establishing controls, the factors that could be hampering the work
process, such as stress, tiredness at work and absenteeism, should be identified.
Good feedback is an indication of the quality of the control process. Early
predictors, can help organizations to improve their performance.
• It is advisable to take a sample of the variables to be controlled. This can be
done statistically or through observation.
• An acceptable range of variation for the value of each variable should be
established.
• While preparing reports there should be exceptions to desired results and these
should be promptly reported to the person responsible for the reports.
27
• The severity of the problem should be determined by analyzing the cause of the
problem and then corrective action should be taken. The results of these actions
have to be monitored and compared to the expected values.
1.10.1 External Environments affecting MCS
The first contingent variable examined is that of the effect of the external environment
on MCS. Many studies narrow this down to uncertainty and risk assessments.
However, there are many other characteristics of the external environment which may
be relevant.
Concerns of external environment
Uncertainty leads to open/ externally focused MCS.
Hostility and turbulence are associated with reliance on formal controls.
Even when MCS are tightly controlled in an uncertain environment,
flexibility and interpersonal interactions also exist.
Generic Concepts of Technology
The author defines technology as hardware, materials, people, software, and
knowledge. The majority of studies examine complexity, task uncertainty, and
interdependence as contingent factors related to MCS. When using complexity as a
factor, the technology relates to the complexity of the production function. There is
also a focus on the complexities of the value chain and their implications for MCS
design. Overall, the more complex a process is, the more likely the MCS will be
organic and less traditional. Task uncertainty is considered as a factor associated with
functional departments. For example, marketing departments have more task
uncertainty than production departments, and thus need a system that includes a broad
scope of information. Interdependence, as noted earlier, can affect the study of MCS.
In this case, interdependence refers to interdependence between functional areas.
Technology Concerns
The more technologies are standardized and automated, the more formal
and traditional the MCS.
The more uncertain the task, the less formal and traditional the MCS.
28
The more interdependent the technologies, the less formal and traditional
the MCS.
Contemporary Technology
The most recent managerial accounting technological advances. These include JIT,
TQM, and FM (flexible manufacturing). Overall, these new tools seem to work best
when in the presence of less formal, more externally focused MCS. However, there is
some indication that a hybrid MCS best serves these implementations.
1.10.2 Concerns of advanced technologies and MCS
TQM is associated with broadly based, externally focused MCS.
Reward and compensation schemes impact the effectiveness of the
combination of advanced technologies and non-financial performance
measures on performance.
JIT and FMS are associated with informal controls and non-financial
performance measures.
FM is associated with informal, integrative mechanisms.
Supplier partnership practices are associated with non-financial measures and
informal meetings.
Organizational Structure
Basically, in this context, organizational structure refers to the “…formal specification
of different roles for organizational members, or tasks for groups, to ensure that the
activities of the organization are carried out”.
Organizational structure and MCS
Large, more decentralized organizations tend to be associated with more
formal, traditional MCS.
Characteristics of functional departments, specifically task uncertainty,
influence the MCS. Higher task uncertainty and higher external
environment uncertainty are associated with open, informal MCS.
Leadership style can impact MCS.
29
Team-based structures are associated with participation and
comprehensive performance measures.
Organic structures are related to future-looking MCS.
Organizational Size
Size has been studied as a contextual, influential variable, however, many studies are
limited because they only examine large firms. As firms grow larger, MCS tend to
become more formal and controlling. These are primarily administrative controls and
rules. In small firms, MCS focuses on interpersonal controls.
This gives a useful analysis of possible ways to measure size. These include: number
of employees, net assets, sales, and profits. Choice of a measurement depends on the
dimension of MCS studied.
Large organizations are more diversified and characterized by formalization of
MCS.
Large organizations are associated with more divisionalized organizational
structures.
Large organizations are associated with an emphasis on participative
budgeting and sophisticated controls.
1.10.3 Strategy and MCS
Strategy, at the business unit level, has been associated with MCS. As expected, for
conservative strategies, formal controls ruled. However, as seen before, a hybrid MCS
was evident in entrepreneurial strategies. Specifically, in these cases, tight controls
operated together with organic communications and decision processes. There is also
a discussion on possible strategy measures.
Strategy
Conservative strategies (defender and cost leadership) are associated with
formal MCS.
Competitor-focused strategies are associated with broad scope MCS.
Entrepreneurial strategies combine formal and informal MCS.
30
Defender and harvest are associated with formal performance measures.
Prospector strategies are associated with informal, open MCS.
Management Control systems (MCSs) are of great importance in every type of
organization, as management control activity is fundamental and vital to it in its
achievement of goals and objectives. Management control system aids the
management in standards setting, measurement of actual performance, collection of
relevant information, analysis of deviation, and taking remedial actions. Besides it
helps in decision making, decentralization to ensure that performance of its managers
is as per standards and thus help to put checks and balances on their activities.
Source : Management Control Accounting , PHI Learning Publications , 2001 , New Delhi Fig. 1.7 Conceptual Diagram: FIT between the Strategy and (non-basic) Initial MCS In today’s words of ever increasing complexities of business as well as that of
management, any organization to survive and grow, must have an effective and
31
efficient MCS. Today, in order to meet the challenges of competition, organizations
are forced to change their organizational structures and modes of working. As an
organization’s structure and function change, its controlling systems also require a
corresponding updating. The ability of an organization to update its controlling
system can tell the winners from the looser. In order to achieve the goals and
implement the changing strategies, the organizations must be structured appropriately
and develop MCSs that promote correct decision behavior .
In other words, the success in achieving the goals and objectives of an organization
depends on the quality of its MCS. A poorly developed, implemented and / or
managed control system may lead to poor standards and reporting systems, in
efficient comparisons an wrong actions, which in turn may prove too costly or even
fatal for the organization, whereas quality MCS may enable even small companies to
more than make up for the handicap suffered by them vis-à-vis their bigger
competitors, due to the advantages of economies of scale , enjoyed by the latter .
A system can be described as a series of steps or phases consisting of an input phase,
a processing phase, and an output phase. A control system adds measurement,
analysis and reporting phases to the system. Output is measured, compared against a
plan, analyzed if judged significant, and then reported back to the appropriate earlier
phases of the system in the form of positive or negative reinforcement. In a
management control system, data/information is typically fed back to managers of the
various system phases. Responsible managers will then take appropriate action based
on the data/information provided.
1.10.4 Forecasting, budgeting, and strategic planning Budgeting is different from strategic planning and forecasting. A Forecast is an
estimate of what is likely to happen under anticipated conditions during a specified
period of time, whereas a budget shows the policy and programme to be followed
under planned conditions during a specified period. Forecasts are statements of future
events. A budget, however is a tool of control. Forecasting is a preliminary step in the
process of budgeting. Where forecasting ends, budgeting begins. Forecasts have a
wider scope than budgets. Forecasts can be prepared for any period of time and
updated whenever new information is made available. Finally, variances from
32
forecasts are not analyzed formally or periodically. From the point of view of
management, a financial forecast, which includes estimates of revenue, expenses and
other items that affect the cash-flow is exclusively a planning tool, whereas budget is
both a planning and control tool.
Budgeting process and control
Three important aspects of budget process and control.
• Budget preparation process
• Budgetary Control
• Behavioral dimensions of budgeting
Budget Preparation Process Information is essential for preparing a sound budget. Budgets are prepared by
managers; the information or the input data needed for budget preparation is
developed by people lower in the hierarchy according to their responsibilities and
functions. Managerial forecasts and accounting reports are a major source of data for
budget preparation. Managerial forecasts provide data on the anticipated level of
activity, while accounting reports provide data on the financial magnitude of past and
current operations.
Budgetary Control The purpose of budgetary control is to find out how the activities of an organization
are progressing. To achieve budgetary control, actual results are compared and
measured with anticipated results as provided in the budget. If any differences are
noticed, the budget estimates can be re-examined and necessary corrective actions can
be taken. While a budget is a ‘means,' budgetary control is the ‘end result.' According
to The Institute of Cost and Management Accountants, London, "budgetary control is
the establishment of budgets, relating the responsibilities of executives to the
requirements of a policy, and the continuous comparison of actual with budgeted
results, either to secure by individual action the objective of that policy or to provide a
basis for its revision."
33
1.10.5 Behavioral Dimensions of Budgeting The process of budget preparation requires the involvement of managers and other
people. Since individuals are involved in the process of budgeting, the behavioral
dimensions of budgeting cannot be ignored.
1.11 Features of Management Control Systems We have seen so far that MCS is designed to assist manages in planning and
controlling the activities of a firm. It is the tool by which the managers at senior level
ensure that the subordinate mangers attain the objectives of the organisation
effectively and efficiently. In fact it is the process which ensures that resources are
used in optimum manner in the accomplishment of the organization’s objectives.
Management control decisions are based on framework set up for strategy
implementation by the organization. The recourses in the organization set up for
scare. Therefore, within the scarcity of the available recourses, a company executive
should be able to perform activities best-suited for this own development.
An effective MCS in an important tool for execution of management strategy. But the
effective executive execution is possible only when there is an efficient HR
management, excellent work culture as well as an efficient organization structure. All
these tools can be provided by an effective MCS.
A good MCS deals effectively with various problems of the employees in an
organization such as lack of motivation, personal limitation, mismatch of individual
goals with organizational goals, etc. An effective control system provides employees
with the requisite support, motivation and direction to accomplish desired results as
per their full potential and caliber. It balances nicely between the individual goals of
the employees and organizational goals and strives to match them adequately.
1.11.1 A good Management control system:
A good MCS must ensure the following: All round success for an organization
• The goals and objectives of the organisation are clearly defined and
adequately communicated to all employees of the organization.
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• Providing adequate and appropriate aid and opportunities to the
employees for accomplishment of their tasks well.
• Putting in place adequate control devices for effective managerial
control so as to minimize the control losses.
Strategy formulation VS. Management Control Practices It is important at this stage to spell out the differences between management control
and strategy formulation, and task control and management control.
1. Strategy formulation involves only the highest level of management, whereas
management control involves managers and employees at all levels in the
organization.
2. Strategy formulation involves formulation of various strategies by the highest
level of management, whereas management control involves implementation
of these strategies in a systematic manners.
Management Control vs. Task Control Task control is concerned with the control of tasks of individual employees which are
carried out as per rules and regulation laid down by the MCS, whereas management
control is concerned with the behavioural aspects of the employees.
MCS in organization generally fall under two categories: (1) Formal
(2) Informal
The formal control are laid down in writing by the management, but the informal
controls arise out of employees’ behaviour. For example, works plans, rules and
regulation, etc., which are laid down in writing are called . Having discussed broadly
the various aspects of MCS, researcher shall now discuss in this chapter the various
approaches to the implementation of MCS. It is no denial of the fact that there is a
need for designing control system for an organization having complex structure, to
function smoothly and efficiently. In this process, the various approaches, viz,
cybernetic approach. Contingency approach and business unit strategy help managers
to understand the elements, design and variety of MCS in practice.
35
Source : Gul F.A “Effect of MAS & MCS practices in Public Enterprises units ”,
1991 Fig. 1.8 : Fit and misfit between Public Enterprises units and Characteristics of MCS information , Cybernetic approaches to MCS practices. Cybernetics as ‘the study of entire filed on control and communication theory,
whether in the machine system. It has wider applications in the areas of radar control,
automatic machine tool control, language translation, artificial intelligences, robotics,
etc. Which make it popular as a unique self-regulation theory. Due to its wide
applicability, cybernetics has many characteristics which are mentioned as follows:
(i) Cybernetic system is complex as it has numerous interacting components
which create multiple interactions within the sub-systems.
(ii) In this system, multiple interactions take place due to the multiple structure
and processes.
(iii)This system generally does not apply in a planned and pre-designed manner,
but grows and applies as and when required.
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(iv) Cybernetic system increases in size and complexity according to its existing
characteristics.
Cybernetic-Paradigm The idea of cybernetic paradigm. The cybernetic paradigm helps in capturing the
essential elements of the repetitive control process economically. The essential
elements of the repetitive control process can be enumerated as follows:
1) Establishing goals and performance standards
2) Measuring and assessing actual achievements
3) Comparing actual achievements with the goals
4) Computing Variances
5) Informing the variances by way of reporting
6) Identifying the reasons for variances
7) Taking appropriate action to stop adverse variances in future
8) Constant follow-up actions to ensure compliance for the goals or objectives.
From the analysis of the essential elements we can say that the cybernetic paradigm
starts with the assumption that decisions are made after the interaction between the
managers (decision makers) and the external environment. The managers scan and
observe the external environment from the data collected by the ‘sensors’ through
reports and informal discussions with the members of the organization. The managers
build up their perception based on the ‘factual premises’ drawn from the data
collected.
In the next process, The factual premises are compared with the goals and objectives
set by the organization. Every possible step is taken by the management to
eliminate/minimize the gap between value premises of the managers and the factual
premises drawn from the external environment, but analyzing the variances between
the actual performance and the desired result. In case of adverse variance or shortfall
in performance, the managers take appropriate course of action as the implementation
process, to eliminate the variance.
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In the implementation stage, the managers put in practice the desired control
mechanisms. In the next stage which is called ‘feedback stage’ the required feedbacks
are gathered to find out the reaction of the implementation action. If there is positive
feedback, same action in repeated again in similar situation in future.
1.11.2 Contingency approach to Management Control System (MCS) Organizations are complex structures. Hence, there is a need to design controls for
them to function effectively. The Contingency approach to management control
systems provides a potential explanation for the variety of management control
systems actually practiced.
This approach is based on the premise that the design and use of control system are
contingent upon the particular context of the organizational setting in which the
controls operate. It is an extension of theory of scientific management . It states that
the appropriateness of different control systems depends on the setting of the
business. The contingency theory focuses on the interaction between the organization
and its environment, converts them into good, services and by-products, and then
gives back to the environment, converts them in goods, services and by-products and
then gives back to the environment, thus , changing the environmental circumstances
in which the organization operates. There are certain factors, viz, environment,
organization structure, and technology, which have great influence on the contingency
approach to MCS. The need for these factors and their influence in designing MCS in
an organization are explained hereunder.
Environment In order to service and sustain in business, the organizations have to adapt to the
demands of their environment. The contingency approach helps to develop a highly
sophisticated control system in line with the intensity and extent of competition the
organization faces, It analyses the components of the organization, its structure,
cultural setting, and its ability to adapt to technological and structural changes.
Five contingent control variables as:
1) Uncertainty
2) Technology and interdependence
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3) Industry, firm, and unit variables
4) Competitive strategy
5) Mission and observability factors
All these factors can be either external or internal to the organization, and can affect
organizational outcome, performance, resource allocation, and distribution of rewards.
Organizational Structure An ‘organic’ organizational structure adapts to unstable conditions in rapidly
changing environments. As the business grows, the work of the management
increases and the organization structure becomes more complicated because new tasks
or lines of production are added. The contingency approach helps in designing a
control system that meets the demands of complex organization structures.
Technology Technology influences the design of control systems. It helps manages to user
resources more effectively, and to collect data for strategic and operational decision-
making. The increased use of technology has brought in new control systems that can
help management to identify specific problem in administration or factory operations.
Business strategy and Management Control System Management control systems are the tool which helps in the effective implementation
of strategy. Strategies can be considered two levels in the organization as follows.
1) Corporate strategy- strategies for the company as a whole.
2) Business unit strategy- Strategies for each business.
Corporate Strategy Corporate strategy relates to an organization as a whole. It involves making plans
regarding where and how the organization can compete in and industry. Corporate
strategy and control should be integrated in order to keep employee behaviour in
congruence with managerial goals. Since planning and control requirements are
different corporate strategies, they need to be designed so that they are compatible
with corporate strategies. In companies, the corporate level managers need to have
wide range of control across three categories:
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1) Single business firm operating in one line of business
2) Firm having diversification into business that are related to one another (i.e.
related diversification)
3) Firm having diversification into business that are not related to one another (i.e
unrelated diversification)
This type of organization engages itself into different areas of business which are not
related to the other. The only common link between them is that they are managed
and financed by a common concern. For example, large scale organizations. Has
various businesses not related to each other.
The Characteristics of the control system vis-a vis corporate strategy are given as follows:
1) Control System will differ based on corporate strategy with diversification. 2) More diversification requires that the managers at the corporate level should
have a wide range of expertise and knowledge relating to various activities of
the organization.
3) Single business organization and the organizations having related diversification
are based on companywide core competencies.
4) In the case of unrelated diversified firms, there is comparatively less
interdependence among various units. As a company becomes more diversified
control systems should be changed to foster better cooperation among the
diverse units, and to encourage their entrepreneurial spirit.
Activities in designing a control system for corporate strategy There are various activities in designing a control system for corporate strategy a) Strategic planning: Strategic planning systems for diversified business units are
generally horizontal and vertical both. The horizontal process involves the
preparation of a plan on behalf of each unit or group by an executive, with
synergetic inputs form the different business units of the organization.
The strategic plans of the individual business units are circulated among the
various business units as it helps in getting the feedback. In a single business
firm, the CEO can control the budgeting operations through informal methods
and personal innervations. In a conglomerate, it is difficult to rely on informal
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interpersonal relationship. Hence, the business unit managers have greater
influence in developing their product/market environment.
b) Compensation and incentives: The plan for employee compensation and
incentives in companies varies as per the level of diversification of the
companies. In the case of conglomerates, bonus is formula based.
In a single business firm, bonus is determined based on the subjective factors, viz the
performance of the business. In the case of single business firms and those with
related densification, the compensation is usually related to the performance of the
unit and also the performance of the firm as a whole. Linking incentives to the overall
performance of the organization helps to increase teamwork and interdependencies.
Business Unit Strategy Diversified organizations segment themselves into business unit and assign difference
strategies to the different units. The business unit strategy deals with creating and
maintaining competitive advantage in all the business operations. Business unit
strategy for an organization has two interrelated aspects-mission and competitive
advantage.
Mission A mission statement is a broad organizational goal, based on planning premises,
which justifies the existence of an organization. There should be congruence between
the mission statement and the use of controls. Management control systems help the
managers to make decision on the trade-off between the short term and the long term
There are Various planning models that help managers at the corporate level to
allocate resources among different business and also help in identifying the missions
of individual business units.
Mechanistic and Formal Control Systems This category includes the early contributions on the subject of management control
and is characterized by the control system as a technical and formal system that
coordinates human performances with the sole purpose of producing goods and
services (Soldevila, 2000). According to this conception, management control systems
are formally explicit tools and they themselves make it possible to bring about the
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organization’s effectiveness and the efficiency. For Amat , the different contributions
to this trend of thought are sustained by mechanistic theories and have the following
common points:
• The organization’s objectives are perfectly defined, clear and tend to be in
relation to the maximization of profit;
• The management plans and controls the efforts by the organization’s
members;
• Behaviour is managed through the design of formal organisational
mechanisms (hierarchy of authority, rules, behavioural norms and defined
procedures, centralization of the decision process);
• Control of the efforts by the organization’s members can be achieved through
the use of logic and qualitative techniques;
• Control can be exerted through the design of formal systems and based on the
principle of control by exception;
• Motivation is largely extrinsic and incentive systems have to be fundamentally
based on monetary payment.
Management Control System is the process of evaluating, monitoring and controlling
the various sub-units of the organization so that there is effective and efficient
allocation and utilization of resources in achieving the predetermined goals.
1.11.3 Effective Organizational Control Systems in Large Scale organizations
The management of any organization must develop a control system tailored to its
organization's goals and resources. Effective control systems share several common
characteristics. These characteristics are as follows
• A focus on critical points. For example, controls are applied where failure
cannot be tolerated or where costs cannot exceed a certain amount. The critical
points include all the areas of an organization's operations that directly affect
the success of its key operations.
• Integration into established processes. Controls must function harmoniously
within these processes and should not bottleneck operations.
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• Acceptance by employees. Employee involvement in the design of controls can
increase acceptance.
• Availability of information when needed. Deadlines, time needed to complete
the project, costs associated with the project, and priority needs are apparent in
these criteria. Costs are frequently attributed to time shortcomings or failures.
• Economic feasibility. Effective control systems answer questions such as,
“How much does it cost?” “What will it save?” or “What are the returns on the
investment?” In short, comparison of the costs to the benefits ensures that the
benefits of controls outweigh the costs.
• Accuracy Effective control systems provide factual information that's useful, reliable, valid, and consistent.
• Comprehensibility Controls must be simple and easy to understand.
1.11.4 Types of Organizational Controls in Large scale organizations
Control can focus on events before, during, or after a process. For example, a local
automobile dealer can focus on activities before, during, or after sales of new cars.
Careful inspection of new cars and cautious selection of sales employees are ways to
ensure high quality or profitable sales even before those sales take place. Monitoring
how salespeople act with customers is a control during the sales task. Counting the
number of new cars sold during the month and telephoning buyers about their
satisfaction with sales transactions are controls after sales have occurred. These types
of controls are formally called feed forward, concurrent, and feedback, respectively.
• Feed forward controls, sometimes called preliminary or preventive controls,
attempt to identify and prevent deviations in the standards before they occur.
Feed forward controls focus on human, material, and financial resources within
the organization. These controls are evident in the selection and hiring of new
employees. For example, organizations attempt to improve the likelihood that
employees will perform up to standards by identifying the necessary job skills
and by using tests and other screening devices to hire people with those skills.
• Concurrent controls monitor ongoing employee activity to ensure consistency
with quality standards. These controls rely on performance standards, rules, and
regulations for guiding employee tasks and behaviors. Their purpose is to
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ensure that work activities produce the desired results. As an example, many
manufacturing operations include devices that measure whether the items being
produced meet quality standards. Employees monitor the measurements; if they
see that standards are not being met in some area, they make a correction
themselves or let a manager know that a problem is occurring.
• Feedback controls involve reviewing information to determine whether
performance meets established standards. For example, suppose that an
organization establishes a goal of increasing its profit by 12 percent next year.
To ensure that this goal is reached, the organization must monitor its profit on a
monthly basis. After three months, if profit has increased by 3 percent,
management might assume that plans are going according to schedule.
Financial Control Practices
To ensure complete and consistent information, organizations often use standardized
documents such as financial, status, and project reports. Each area within an
organization, however, uses its own specific control techniques, described in the
following sections.
Financial controls
After the organization has strategies in place to reach its goals, funds are set aside for
the necessary resources and labor. As money is spent, statements are updated to
reflect how much was spent, how it was spent, and what it obtained. Managers use
these financial statements, such as an income statement or balance sheet, to monitor
the progress of programs and plans. Financial statements provide management with
information to monitor financial resources and activities. The income statement shows
the results of the organization's operations over a period of time, such as revenues,
expenses, and profit or loss. The balance sheet shows what the organization is worth
(assets) at a single point in time, and the extent to which those assets were financed
through debt (liabilities) or owner's investment (equity).
Financial audits, or formal investigations, are regularly conducted to ensure that
financial management practices follow generally accepted procedures, policies, laws,
and ethical guidelines. Audits may be conducted internally or externally. Financial
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ratio analysis examines the relationship between specific figures on the financial
statements and helps explain the significance of those figures:
• Liquidity ratios measure an organization's ability to generate cash.
• Profitability ratios measure an organization's ability to generate profits.
• Debt ratios measure an organization's ability to pay its debts.
• Activity ratios measure an organization's efficiency in operations and use of assets.
In addition, financial responsibility centers require managers to account for a unit's
progress toward financial goals within the scope of their influences. A manager's
goals and responsibilities may focus on unit profits, costs, revenues, or investments.
Budget Controls
A budget depicts how much an organization expects to spend (expenses) and earn
(revenues) over a time period. Amounts are categorized according to the type of
business activity or account, such as telephone costs or sales of catalogs. Budgets not
only help managers plan their finances, but also help them keep track of their overall
spending. A budget, in reality, is both a planning tool and a control mechanism.
Budget development processes vary among organizations according to who does the
budgeting and how the financial resources are allocated. Some budget development
methods are as follows:
• Top-down budgeting. Managers prepare the budget and send it to
subordinates.
• Bottom-up budgeting. Figures come from the lower levels and are adjusted
and coordinated as they move up the hierarchy.
• Zero-based budgeting. Managers develop each new budget by justifying the
projected allocation against its contribution to departmental or organizational
goals.
• Flexible budgeting. Any budget exercise can incorporate flexible budgets,
which set “meet or beat” standards that can be compared to expenditures.
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Marketing Controls
Marketing controls help monitor progress toward goals for customer satisfaction with
products and services, prices, and delivery. The following are examples of controls
used to evaluate an organization's marketing functions:
• Market research gathers data to assess customer needs information critical to
an organization's success. Ongoing market research reflects how well an
organization is meeting customers' expectations and helps anticipate
customer needs. It also helps identify competitors.
• Test marketing is small-scale product marketing to assess customer
acceptance. Using surveys and focus groups, test marketing goes beyond
identifying general requirements and looks at what (or who) actually
influences buying decisions.
• Marketing statistics measure performance by compiling data and analyzing
results. In most cases, competency with a computer spreadsheet program is
all a manager needs. Managers look at marketing ratios, which measure
profitability, activity, and market shares, as well as sales quotas, which
measure progress toward sales goals and assist with inventory controls.
Unfortunately, scheduling a regular evaluation of an organization's marketing
program is easier to recommend than to execute. Usually, only a crisis, such as
increased competition or a sales drop, forces a company to take a closer look at its
marketing program. However, more regular evaluations help minimize the number of
marketing problems.
Human Resource Controls
Human resource controls help managers regulate the quality of newly hired personnel,
as well as monitor current employees' developments and daily performances.
On a daily basis, managers can go a long way in helping to control workers' behaviors
in organizations. They can help direct workers' performances toward goals by making
sure that goals are clearly set and understood. Managers can also institute policies and
46
procedures to help guide workers' actions. Finally, they can consider past experiences
when developing future strategies, objectives, policies, and procedures.
Common control types include performance appraisals, disciplinary programs,
observations, and training and development assessments. Because the quality of a
firm's personnel, to a large degree, determines the firm's overall effectiveness,
controlling this area is very crucial.
Computers and Information Controls
Almost all organizations have confidential and sensitive information that they don't
want to become general knowledge. Controlling access to computer databases is the
key to this area. Increasingly, computers are being used to collect and store
information for control purposes. Many organizations privately monitor each
employee's computer usage to measure employee performance, among other things.
Some people question the appropriateness of computer monitoring. Managers must
carefully weigh the benefits against the costs both human and financial before
investing in and implementing computerized control techniques.
Although computers and information systems provide enormous benefits, such as
improved productivity and information management, organizations should remember
the following limitations of the use of information technology:
• Performance limitations. Although management information systems have the
potential to increase overall performance, replacing long-time organizational
employees with information systems technology may result in the loss of
expert knowledge that these individuals hold. Additionally, computerized
information systems are expensive and difficult to develop. After the system
has been purchased, coordinating it possibly with existing equipment may be
more difficult than expected. Consequently, a company may cut corners or
install the system carelessly to the detriment of the system's performance and
utility. And like other sophisticated electronic equipment, information
systems do not work all the time, resulting in costly downtime.
• Behavioral limitations. Information technology allows managers to access
more information than ever before. But too much information can overwhelm
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employees, cause stress, and even slow decision making. Thus, managing the
quality and amount of information available to avoid information overload is
important.
• Health risks. Potentially serious health-related issues associated with the use
of computers and other information technology has been raised in recent years.
An example is carpal tunnel syndrome, a painful disorder in the hands and
wrists caused by repetitive movements.
Regardless of the control processes used, an effective system determines whether
employees and various parts of an organization are on target in achieving
organizational objectives.
• Productivity and Quality After companies determine customer needs, they
must concentrate on meeting those needs by yielding high quality products
at an efficient rate. Companies can improve quality and productivity by
securing the commitments of all three levels of management and employees
as follows .
• Top-level management: Implement sound management practices, use
research and development effectively, adopt modern manufacturing
techniques, and improve time management.
• Middle management: Plan and coordinate quality and productivity efforts.
• Low-level management: Work with employees to improve productivity
through acceptance of change, commitment to quality, and continually
improving all facets of their work.
Productivity is the relationship between a given amount of output and the amount of
input needed to produce it. Profitability results when money is left over from sales
after costs are paid. The expenditures made to ensure that the product or service meets
quality specifications affect the final or overall cost of the products and/or services
involved. Efficiency of costs will be an important consideration in all stages of the
market system from manufacturing to consumption. Quality affects productivity. Both
affect profitability. The drive for any one of the three must not interfere with the drive
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for the others. Efforts at improvement need to be coordinated and integrated. The real
cost of quality is the cost of avoiding nonconformance and failure. Another cost is the
cost of not having quality of losing customers and wasting resources. As long as
companies continually interact with their customers and various partners, and develop
learning relationships between all levels of management and employees, the levels of
productivity and quality should remain high.
1.11.5 Total Quality Management (TQM)
Total Quality Management (TQM) is a philosophy that says that uniform commitment
to quality in all areas of an organization promotes an organizational culture that meets
consumers' perceptions of quality .The concept of TQM rests largely on five
principles:
Produce quality work the first time.
Focus on the customer.
Have a strategic approach to improvement.
Improve continuously.
Encourage mutual respect and teamwork.
To be effective in improving quality, TQM must be supported at all levels of a firm,
from the highest executive to the lowest-level hourly employee. TQM extends the
definition of quality to all functional areas of the organization, including production,
marketing, finance, and information systems. The process begins by listening to
customers' wants and needs and then delivering goods and services that fulfill these
desires. TQM even expands the definition of customer to include any person inside or
outside the company to whom an employee passes his or her work. In a restaurant, for
example, the cooks' customers are the waiters and waitresses. This notion encourages
each member of the organization to stay focused on quality and remain fully aware of
his or her contribution to it and responsibility for it.
The TQM philosophy focuses on teamwork, increasing customer satisfaction, and
lowering costs. Organizations implement TQM by encouraging managers and
employees to collaborate across functions and departments, as well as with customers
and suppliers, to identify areas for improvement, no matter how small. Teams of
49
workers are trained and empowered to make decisions that help their organization
achieve high standards of quality. Organizations shift responsibility for quality control
from specialized departments to all employees. Thus, total quality management means
a shift from a bureaucratic to a decentralized approach to control.
An effective TQM program has numerous benefits. Financial benefits include lower
costs, higher returns on sales and investment, and the ability to charge higher rather
than competitive prices. Other benefits include improved access to global markets,
higher customer retention levels, less time required to develop new innovations, and a
reputation as a quality firm. Only a small number of companies use TQM because
implementing an effective program involves much time, effort, money, and patience.
However, firms with the necessary resources may gain major competitive advantages
in their industries by implementing TQM.
1.11.7 Just in time technique (JIT)
JIT is a Japanese philosophy developed by Taichi Okno. It is used for managing all
types of inventory , purchase , and production functions in an organization. The main
function of this philosophy is to reduce inefficiency and unproductive time and cost in
the production process.
1) It reduces buffer inventory
2) It decreases set up cost
3) It provides good relationship with customers
1.12 Management Control Systems Practices in Large Government organizations The two most important elements of the control system in government organizations
are:
• Strategic planning
• Performance measurement
Strategic Planning Strategic planning is of great importance in government organizations. The objective
of strategic planning is to allocate resources judiciously. Governments employ the
benefit/cost analysis method to make strategic decisions. Political pressure often
influences managers’ decisions.
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Performance Measurement Income is the difference between revenues and expenses. Expenses can be measured
accurately in government organizations as well as private organizations. However, the
revenue of government organizations is not just a measure of its monetary output.
Therefore, governments have developed nonmonetary indicators for performance
measurement. These measures can be classified in various ways. On the basis of the
purpose of measurement, they are classified as
(1) results measures,
(2) process measures, and
(3) social indicators.
Source : MCS internal factors, firm performance and conceptual framework , (Simons 1995)
Fig. 1.9: Relationship among change drives MCS practices and organization
operations performance.
A results measure, also known as ‘outcome measure,’ measures the output that is
supposedly related to the organization’s objectives. Some examples are, the number
of students graduating from high school, the number of miles of road completed, the
number of timely arrivals of planes at airports, etc. However, these do not represent
an exact measure of output. For example, the number of graduates does not provide
any information about the quality of education the students have received. A process
measure relates to an activity carried on by the organization, for example, the number
of livestock that are inspected in a week, the number of purchase orders issued in a
day, the amount of data fed into a computer in an hour, etc. Process measures are used
to measure current, short-run performance. As there is a close causal relationship
between inputs (i.e., costs) and the process measure, the latter are easier to interpret
than results measures. Process measures what was done, and not whether what was
Change Drives
MCS Practices
Organizations operation performance
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done helped the organization achieve its objectives. Thus, process measures relate to
efficiency, not to effectiveness. In contrast to results measures, which are ‘ends-
oriented,’ process measures are ‘means-oriented.’
A social indicator is a broad measure of output, which reflects the overall
achievement of the organization. As social indicators are affected by external forces,
they are at best only a rough indication of the organization's accomplishments of the
organization. For example, although life expectancy indicates the effectiveness of a
country’s healthcare system, it is also affected by the standard of living and the
dietary and smoking habits of people, and other external causes. Social indicators are
useful in long-range analyses of strategic problems. The use of social indicators is
limited in day-to-day management, since they are very nebulous, difficult to obtain on
a current basis, little affected by current efforts, and greatly affected by external
factors .
1.12.1 Management Control in large Government organizations Government bodies too, are service organizations and except for those performing
business- like activities, they are nonprofit organizations. In addition to the
characteristics of service organizations discussed above, government organizations
also have some special characteristics. These are:
• Political influences
• Public information
• Attitude towards clients
• Management compensation
Political Influences Government organizations work under high political pressure. Politically elected
officials often exert pressure on managers which, in turn, inhibits managers from
taking sound decisions. For example, managers may have to favor certain suppliers.
Public Information Government organizations are under the constant vigil of the press and the public. In a
democratic society, the public assumes that it has the right to know everything about
government organizations. Due to exaggeration by the media, at times, even minor
issues appear to be major ones. Therefore, to discourage unfavorable media coverage,
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managers in government organizations exercise greater control on their tasks and try
to limit the outflow of sensitive information about the company that flows through the
formal management control systems.
Attitude towards Clients The main source of revenues for many profit-oriented and non-profit companies is
their clients. The principal source of revenues for government organizations is the
general public. In case of profit-seeking organizations, more clients mean more
revenues.
Control in Service Organizations The company brings in additional profits. But for government organizations, an
increase in the client base is a burden. For example, one may draw a comparison
between government hospitals and private hospitals. An increase in the number of
patients visiting private hospitals result in additional revenues, whereas in case of
government hospitals, it may result in deterioration of the quality of service.
Management Compensation Managers working in profit-seeking organizations are better paid when compared to
their counterparts in government organizations. This is because legislators are
influenced by the populist perception that “one person is as good as another.” Due to
this the best managers do not prefer to work in government organizations. There is,
however, an exception to this. University faculty and scientists in certain government
organizations are paid as highly as managers in profit- seeking organizations.
1.13.1 Control as a Function of Management Projects are always controlled through people. Project managers exert control over the
project team and other people who are associated with different functions of the
project. The purpose of control is to ensure that the project is executed within the
planned schedule, budget and specifications. So, control is a necessary function of any
project. Project managers have to often motivate employees who have been
discouraged by managerial control. They have to set controls that encourage
behavior/results that are desirable. The purpose of control is to motivate individuals to
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behave in the required manner. Though control systems do not always elicit the
desired behavior from employees, individual reactions to the various types of control
affect the levels of motivation. The possible responses of employees towards different
control systems are:
(i) Active and positive participation and goal seeking.
(ii) Passive participation in order to avoid loss.
(iii) Active but negative participation and resistance.
An individual’s reaction to different controls depends on several factors such as the
control mechanism used, the nature of the goal being sought, the individual’s self
image, the value of the goal, the individual's ability to achieve the goal, and tolerance
for being controlled. Generalizing the human response to various controls is difficult.
However, some controls and the resultant behavior from the use of those controls can
be described. These are discussed below.
1.13.2 Reporting for Management Control Practices During the project execution phase, the project manager has to keep the management
of the organization informed about the progress of the project. This is done by
preparing project progress reports. Project reports are essential for controlling
projects. Project reports are prepared on a continuous basis till the end of the project.
An effective reporting system ensures that management is kept informed about the
status of the project.
Management Conservatism: Another argument is that, where there is no regulatory
provision to disclose segmental reports, voluntary disclosures are likely to be
perceived by management to be beneficial only in certain instances; for example,
where management believes that the company’s attractiveness to investors will be
enhanced and the costs of finance reduced. Few companies are likely to take
voluntary action that may benefit their competitors or reveal weaknesses.
Effective Reporting System Information provided by a reporting system should be complete, timely and accurate.
It should clearly differentiate between the planned figures and the actual figures in
terms of cost and time. Reports should be easy to understand and should enable senior
management to take critical decisions. Cost and time variances should be reported
54
clearly along with the reasons for those variances. The reports should be such that
they help the reporter foresee problems that could arise in future. As every project is
unique, the reporting system for different projects will vary.
Types of Project Reports • Current period reports
• Exception reports
• Cumulative reports
• Variance reports
• Stoplight reports
1.13.3 The ethical Principle of fairness in the design of Control Systems The objective of control systems is to assist managers to achieve the goals and
objectives of the organization. A control system in which all subsystems are designed
to achieve these goals and objectives, is a goal-congruent subsystem. For a control
system to be ethical, it requires an environment conducive to ethical conduct. This
requires aligning with each stakeholder an environment that is congruent with ethical
behavior, business objectives and stakeholder objectives. Thus, the concept of fairness
is stressed to achieve the environment which is conducive to ethical behavior.
Managerial controls that do go by the concept of fairness tend to create stress for and
resentment among, the employees. Unfair controls result in loss of employees’
goodwill for the organization. One dangerous effect of unfair managerial controls is
the distortion of control information. This leads to faulty decisions and misallocation
of resources. The ethics administrator should maintain disciplinary records to ensure
that the ethics program is perceived as ‘fair’ by the organizational participants. Unfair
control systems undermine trust in organizations. Without trust, it becomes difficult to
achieve the expected levels of performance. Loss of trust also results in defensive,
bureaucratic and dysfunctional behavior.
The concept of fairness should not be confined to the employees of the organization;
it should be extended to the company’s stakeholders too. For example, a customer is a
stakeholder of the company and ‘fairness’ to the customer can be maintained by
truthful advertising, to help the customer to make wise decisions. Employees should
be informed about the financial condition of the organization and its plans for future.
Fair wages and salaries should be paid to the employees to motivate them.
55
Compensation and reward systems should be based on the principle of fairness.
Employees should be given appropriate recognition and rewards for their
performance.
1.14 Management Controls to Increase Productivity in organizations
Production planning involves calculating how much product to build and when to
build it so that it is ready when it is to be sold. Production planning seeks to build
only as much as needed and no sooner than necessary to minimize the amount of time
the finished product sits in storage. Production plans created by the production
planners are given to production control to plan shop-floor requirements.
By planning for production, the risks of building too much product and not having
enough completed product are both reduced. By implementing production control
with tight supervision and tracking of product as it is built, manufacturing problems
are caught early and changes to the design are implemented immediately, reducing
rework and defects. Using production planning and production control results in
reduced cost for a business.
Production control involves managing work in progress, manufacturing equipment,
manufacturing employees, and the materials used in manufacturing. The production
controller sets employee schedules, hires contract labor to meet peak labor needs, and
authorizes overtime when needed to meet the production plan. Production control
orders parts, materials, and everything needed to build and test the final product.
Production control supervises all product as it is built to ensure it meets the most
recent design.
When production plans are on target and production is done per the production plan
schedule, raw material stock and inventory of completed goods are kept to a
minimum. This reduces the cost of material storage and inventory management. By
delaying the delivery of raw material until just before it is needed, cash flow is
improved. Just-in-time delivery per a production plan also saves money when
materials and parts are ordered but end up unneeded. Production planning is critical
for just-in-time systems.
While management controls may have a negative impact on productivity when
implemented incorrectly, they may also be used to increase productivity. When
management controls are in place to measure and analyze day-to-day productivity,
managers may use the resulting data to investigate more efficient ways to do business.
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These controls may also help managers determine more effective ways to delegate
authority within the organization.
Human Factors
Always remember that your workers are human. Do not underestimate the affect of
management controls on employee engagement and productivity. The human aspect
of management controls should be considered when designing and implementing
these controls. Human behavior should be considered to ensure workers are properly
motivated to complete the desired tasks. For example, employees should not be made
to feel as though controls have been put in place because managers believe workers
cannot be trusted. In such a case, workers will likely be de motivated, which will then
decrease productivity.
Detective Controls
Detective controls are designed to 'detect' errors and/or fraudulent activity after they
have already occurred. Exception reports are one example of a detective control.
These are reports which list items such as incomplete transactions or transactions that
equal an amount which is greater or less than what is expected in day-to-day business.
Detective controls are very effective at discovering costly accounting errors.
However, they can impact productivity when carried to the extreme. For example,
when an entire department is forced to spend hours searching for a five cent error, not
only is productivity lost, but the time spent looking for those few pennies will cost the
organization more money than if it were to simply write off the difference.
Productivity improvement has become a key objective for Indian industry.
Productivity measurement, however, has gone largely unnoticed by accounting
professionals, particularly those teaching and doing research in accounting
departments and business schools. Accounting textbooks virtually ignore issues of
productivity measurement, and accounting journals contain few articles on the
subject. Most articles on productivity measurement are written by economists usually
interested in productivity measurement at the national economy level or by industrial
engineers and production professionals.
The implicit, and occasionally explicit, rationalization for the accounting profession's
lack of interest in productivity measurement apparently arises from the belief that
variances computed by the firm's standard cost system, particularly usage variances,
are sufficient to measure the efficiency of the enterprise. Presumably, a desire for
increased productivity could be signaled by across-the-board tightening of standards
57
by the desired percentage. If a firm were inefficient or failed to meet its productivity
improvement target, then the accounting system would report many unfavorable
usage variances.
The relationship between productivity measurements and the usage variances
produced by standard cost systems has not been explored, nor is the relationship
obvious. Further, because accounting researchers have not investigated productivity
measurement in any depth, much of the considerable experience accounting scholars
have gained during this century on the operation and analysis of standard cost systems
has not been applied to productivity measurement techniques.
By itself, a productivity measure has no meaning. It only gains meaning when
compared to productivity measures for prior periods or to measures from comparable
facilities producing similar outputs.
Productivity measures attempt to highlight improvements in the physical use of
resources, that is, to motivate and evaluate attempts to produce more outputs with
fewer inputs while maintaining quality. By focusing on physical measures, outcomes
are not influenced by changes in relative costs and prices. In the short run, profits can
increase if output prices are raised faster than input costs are rising. In the long run,
however, competitive market forces will prevent a firm from passing firm-specific, or
even country specific, cost increases on to customers. Sustainable competitive
advantage arises only by having higher productivity than competitors or by offering
specialized products and services that competitors cannot match Productivity
measures will permit managers to separate profit changes due to productivity factors
and sales activity from those due to changes in output prices relative to input costs.
Further, by linking productivity measures year to year, we obtain a dynamic, multi
period evaluation of the organization's performance. The annual change in
productivity and the organization's long-term productivity trend provide a convenient
summary of operating performance.
Productivity measurement systems analyze performance based on actual outputs and
inputs in different time periods. The productivity measurement system can be viewed
as a variance analysis of the actual costs incurred in successive periods. In contrast,
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traditional management accounting systems analyze performance within a given
period by comparing actual quantities and prices to predetermined standards for
quantities and prices.
When production planning and production control are done in tandem, the effect is a
dramatic labor and material cost savings. The cost savings exceed the extra time to
plan for production and tight management of the shop floor.
1.14.1 Recent developments and internal change drivers of MCS
Little is known about the change processes of MCS in firms in LDCs. In the case of
LDCs the privatization process may cause organizational change in terms of
ownership form, additional investments, the composition and powers of the
accounting staff, managerial attitude, etc. These changes may affect the way in which
management control systems are being used. For example, firms may decide to
automate their production process, involving the development of machine and
equipment performance measures. Or cost structures may change, requiring a revision
of the overhead cost application rates. Furthermore, competition may increase the
focus on quality standards and their related cost information. However, MCS change
may be hindered by problems applying particularly to companies in LDCs, such as
shortages in accounting staff, a lack of authority, difficulties in recruiting new staff
members, a lack of effective means of communication within firms, a strong emphasis
on external reporting and a lack of interest and support on the part of managers and
owners.
1.15 Internal factors that influence MCS change Innes and Mitchell (1990) state that MCS change involves the interaction of several
variables, for example the availability of an adequate accounting staff, computing
resources, and the degree of authority that a firm ascribes to the accounting function.
These variables relate to conditions favorable to MCS change. Other variables are
associated with factors that in fact influence MCS change. These are competitiveness
of the market, production technology, and the product cost structure. Finally, there are
conditions that are directly connected with MCS change. The variables associated
59
with these conditions are, for example, the loss of market share, a new accounting
staff member or a decrease in the firm’s profitability.
According to the contingency theory, organizational design and MCS practices are
affected by contingency factors (Sharma & Nandan, 2000; Fisher, 1995; Otley, 1980).
An effective design, which matches internal organizational elements with contingency
factors (Burrell & Morgan, 1979), is believed to lead to an effective business
performance (Langfield-Smith, 1997; Otley, 1980). In this study we will use the
following contingency factors as relevant predictors of MCS change: competition,
size, the capacity to change (Libby & Waterhouse, 1996), the introduction of new
technology, and change of strategy (Haldma & Lääts, 2002). In addition, we include
the institutional factor ‘capacity to undertake action’. We selected the internal factors
on the basis of their relevance as confirmed by the results obtained in our pilot study
and fieldwork. We believe that the above-mentioned factors play an important role in
MCS change and that they may enable us to analyse and explain the phenomenon
more thoroughly.
1.15.2 Innovations in MCS Development accounting researchers and aid agencies claim that large scale firms are
likely to implement improved MCS techniques to help them deal with the continuous
environmental changes. This section will describe the developments in MCS
practices, which will enable us to obtain a view of the type of MCS changes that can
be expected to take place in large scale firms.
Why MCS change : As already explained, the problems associated with the traditional
management control systems are mainly the result of its underlying old conceptions.
For a long time, the definition of MCS was narrow, leaving no room for adjustments
required as a result of internal and external changes as well as environmental
developments. It has been suggested that economic, social and political forces drive
organizational change in ways not yet entirely understood. For example, Shields
(1997) and Scapens (1999) argue that changes in the environment cause changes
within organizations, which in turn cause changes in MCS practices (Atkinson et. al.,
1997). Generally, accounting is expected to respond to environmental changes, since
these changes have an impact on the stability of organizations.
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If no attention is paid to external influences and management is not capable of dealing
with them, an organization may be seriously undermined, and even be in danger of
bankruptcy (Sunder, 2004). Therefore, managers should continually be aware of
existing and potential threats and be capable of anticipating them by adjusting their
policies in a timely, vigilant and creative manner (Sunder, 2002). So management
control systems should be designed to provide information that supports management
in decision-making, and they should be modified each time environmental changes
occur (Lee, 1987).
MCS detailed Standards
Documentation: The internal control structure and all transactions and significant
events are to be clearly documented, and the documentation is to be readily available
for examination.
Prompt and Proper Recording of Transactions and Events: Transactions and
significant events are to be promptly recorded and properly classified.
Authorization and Execution of Transactions and Events: Transactions and
significant events
are to be authorized and executed only by persons acting within the scope of their
authority.
Separation of Duties: Key duties and responsibilities in authorizing, processing,
recording, and reviewing transactions and events should be separated among
individuals.
Supervision: Competent supervision is to be provided to ensure that internal control
objectives are achieved.
Access to and Accountability for Resources and Records: Access to resources and
records is to be limited to authorized individuals who are accountable for their
custody or use. To ensure accountability, the resources are to be periodically
compared with the recorded amounts to determine whether the two agree. The asset’s
vulnerability should determine the frequency of the comparison.
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1.16 Management control systems and Productivity concerns
Productivity is defined as the ratio of what is required to produce it. Productivity
measures the relationship between outputs such as goods and services produced , and
inputs that include lobour , capital , material and other resources. In addition , two
more specific types of productivity are measured , the labour productivity measuring
outputs in terms of hours worked or paid for and the “total factor ‘ productivity
including the cost of the labour.
Productivity is a critical concern of both the public and private sectors of the
economy. The current knowledge about financial concerns of employees and their
effect on workforce productivity is examined in this paper. Selected employee
programs to address financial concerns are reported as examples of current efforts to
reduce financial stress. Worker stress is known to result in lower productivity
behavior identified as absences, tardiness, leaving early, mistakes, lack of job
concentration, accidents, and lower output. The frequency of worker stress is reported
in general but not in specifics by different types of employees. As financial stress or
problems are increasing in general, the need for financial counseling and education in
the workplace. A common goal for both large and small businesses alike is growth a common
concern of Productivity. The need to grow without increasing personnel makes each
and every employee's role that much more valuable to an organization. Do more with
less is the mantra in today's businesses.
Time management, skilled labor and well-managed communication are the
cornerstones of workforce productivity, but people and processes are what drive the
workforce efficiencies. An organization has to operate like a finely-tuned instrument,
with every job and process aligned in order to achieve optimal results. Even the
smallest amount of lost time searching for documents, reinventing a process, or
seeking out the right person for a task can cause an organization to miss deadlines or
opportunities that can become very costly in the long run. Whether it is a job order,
marketing event or engineering project, a great number of people, departments,
documents and processes may be involved. Technology might be considered a silver
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bullet to increasing productivity, but companies cannot afford a lengthy
implementation, negligible advantages, or a prolonged learning curve. Any solution
that addresses productivity must handle data from across the enterprise, align with all
business processes, and be flexible enough to respond to strategic, operational and
financial goals.
Specific considerations and demands need to be taken into account when addressing
productivity through technology:
• Interoperability / Integration: Being able to tie together data from multiple
applications -- from job control systems to HR applications to ERP software --
ensures streamlined processes and control of data.
• Accountability: Every project, process and order must have a traceable history
with a means of measuring goals and results, including personnel, customer
and vendor actions.
• Compliance: In order to stay compliant, technologies must document and
manage activities as well as assist with audits and handle non-compliances
accordingly.
Exact Software understands that every employee and process must be empowered
with the right business tools in order to realize their total worth and potential. But
those tools must be available and have enough flexibility in order to provide timely
and accurate information, as well as produce the right metrics and measurements that
answer business questions.
To afford the people needed to conduct operations at their most efficient, employees
need to more accountable, informed and compliant. With technology that focuses on
processes and people, a productivity deficit can be turned into a productivity
empowerment. Productivity Measurement
Definitions of and ways to measure productivity vary. A basic way to express
productivity is productivity equals output divided by input i.e., productivity is the
ratio of output to input, or simply output over input. The quantity of output is
measured in units produced, dollars of sales, or any term that suits your need. The
quality of output is measured by workmanship, adherence to standard, and absence of
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complaints. Input is measured by labor costs, hours worked, and number of
employees. To be useful, measures must be as simple and as consistent as possible.
A simple and understandable method of productivity measurement is to divide total
sales (output in dollars) by total compensation costs (input). Increases and prices are
accounted for automatically; however, you must adjust for inflation. To compare
productivity measures in different years, pick a base year and give it an index of 100.
Then figure your ratio of compensation to sales and with that number calculate the
index and compare the fluctuation of the indexes.
Using output over input, you can measure any activity and employee. A typist's
productivity can be measured in terms of numbers of pages typed, a salesperson by
number of customer calls or amount of sales. When deciding how and what to
measure, consider what a person does, how well, how much, and how often.
The indexes measure the productivity increases and decreases that indicate changes in
your company's performance. You need these measures so that you can set goals and
priorities, know where you stand, are motivated by objective reasons - by numbers,
not subjective feelings, and have a common basis of communication with employees,
bankers and consultants.
1.17 Large Scale Organizations
Large scale organization are the industries which require huge infrastructure, man,
material , power and a have influx of capital assets. The term ‘large scale industries’
is a generic one including various types of industries in its purview. All the heavy
industries of India like the Iron and steel industry, textile industry, automobile
manufacturing industry fall under the large scale industrial arena. However in recent
years due to the IT boom and the huge amount of revenue generated by it the IT
industry can also be included within the jurisdiction of the large scale industrial
sector. Last but not the least the telecoms industry also forms and indispensable
component of the large scale industrial sector of India. Indian economy is heavily
dependent on these large industries for its economic growth, generation of foreign
currency and for providing job opportunities to millions of Indians.
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There are certain key characteristics of a Large Scale Organization that can be useful
in deciding if a business is indeed large they are:
• Number of Employees
• Total Assets
• Annual Sales Revenue
• Presence across Country
• More machinery
This refers to the total value of what an organization owns. An organization is
considered large if they own more that million in total assets.
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CHAPTER 2
LITERATURE REVIEW
Contents: 2.1 Background – Study of Literature and its review
2.2 Review of Models in Management Control Systems
2.3 Review on Design of Management Control System
2.4 Developments in Accounting approaches to MCS
2. 5 Role of MCS in the context of Power Sector
2.6 The role of MCS to bring intended strategies to
realization
2.7 The significance of resource sharing between SBUs
for the design of MCS under different strategies
2.8 MCS in Large Scale Organizations
2.9 Aspects of the MCS - Strategy relationship which
focus on operational as well as senior management in
Large Organizations
2.10 Improved MCS practices in relation to Organizations
productivity performances
2.11 Gaps in Literature
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CHAPTER 2
LITERATURE REVIEW 2.1 Study of literature and its analysis
This chapter highlights major development’s relating to Management Control systems
relevant for the study of the development process of control system in various
organizations. In order to simplify, the literature has been classified under three
sections are:
(iii) Models of MCS
(iv) Role of management in the context of MCS
(v) Related research in the areas of MCS
While the first and second sections give a broad picture on the conceptual foundations
and role of management in the area of MCS, the third section elaborates the related
research carried out in this field.
2.2 Models of Management Control System
Lowe E.A.(1971) in the paper “ on Idea of a Management control system: Integrating
Accounting and Management Control” emphasis on the Ideas of an integrated systems
approach to Management Control which require a great deal of development before
they are operationally useful.
To express these ideas the researcher highlights the need for a planning and
control system within a business organization which flows from certain general
characteristics, such as:
(i) The organizational objectives of the enterprise, as distance from the
separable and individual ones of the members;
(ii) the compulsive ambivalence of managers of the sub- units of the enterprise
in view of their personal goals;
(iii) The uncertainty in business situations;
(iv) The necessity to economies.
(v) The use of financial accounting criteria to judge the quality of
management accounting systems .
(vi) The dominance of financial accounting in the market for education.
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2.2.1 Integrating Accounting and Management Control System
Planning and control System, At the first step to develop this model researcher has
distinguished between two distinct concepts of control.
• Control-in-the-large
• Control-in-the- small
Control-in-the-large scale organizations implies a specified decision- making system
to achieve organizational objectives and involves at the design of a total system of
policies, procedures, decision riles, internal pricing for resource allocation, etc. For
all functions, which take into account the interactions of all parts of the system?
Control-in-the-small, on the other hand, lays emphasis upon the separate parts of the
enterprise. Each sub-unit manager is viewed as being concerned primarily with his
own unit and not so much with the effects of his decisions upon the whole enterprise.
2.2.3 Design of Management control system
And at the second step principal elements of the system towards the design of a
management control system.
Source : Design of MCS Battacharya S.K. ICAIR, 2009, Delhi
Fig. 2.1 : Principle elements of Control System towards the design of MCS
Principal Elements of Control System
Decision Centers Information Centers
Management Decision System
Information Links
Decision rules
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2.2.4 Developments in Accounting approaches to Management Control
At the third step following main lines of current thought have been developed out of
the accounting models:
(i) The construction of quasi- decentralized control by the use of accounting
system values to construct internal quasi- markets through the use of
transfer prices.
(ii) The use of the accounting system as a centralized planning device by
means of the application of mathematical programming to accounting
budgets.
Thus, findings of the study provide a proposed model, which reveals the relation of
the management decisions to the control systems as well as to the accounting systems.
Hence, this paper gives to the accountants a suggested framework in the form of
integrated accounting and Management control system, both for the improvement of
accounting thought about the structure of accounting controls and their relationship to
organizational control, of which they can only be a part, because Management control
system have an importance now in serving as a way of thinking about the control
problems at the organizational level.
For use inside an organization must reflect the reality of the operations and resources
used by the organization in monetary terms. Unlike financial reporting, where the
objective focuses on external investors and creditors seek to compare investment
options across the capital markets, management accounting focuses on the economic
choices and constraints within an organization. There are two interrelated parts in
understanding why management accounting principles are so important and how these
principles help managers achieve their primary objective – enterprise optimization.
• Provide managers and employees with an accurate, objective cost model of the
organization and cost information that reflects the use of the organization's
resources.
• Present decision support information in a flexible mold that caters to the timeline
and insights needed for internal decision makers.
• Provide decision makers insight into the marginal/incremental aspects of the
alternatives they are considering .
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Source: MCS Design Wekipedia (www.maaw.org)
Fig. 2.2 : Elements of Management Control System
Greenberger. B. David and et al. (1986) in their paper “Development and
application of a Model of personal control in Organization” define personal control as
the individual beliefs, at a given point in time, in his or her ability to effect a change,
in a desired direction, on the environment. This paper has attempted to redefine the
use and perception of the term “control” in the organizational literature by proposing
a dynamic model of personal control.
The model attempts to explain and predict employees reactions to situations in which
their perceptions of control are either consistent or less than, or greater than their
desired levels of personal control, following are the various elements of the proposed
model:
• Antecedents of Activation
• Salience
• Cognitive Appraisal
• Reaction and Learned Helplessness
• Individual and situational Differences
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Leader L. Albert and Mend low L, Aubrey (1998) in their paper “Information
systems planning: Top Management takes control” evaluate the systems which a
company uses to process information. According to their study, in the past, top
management has often failed to oversee the systems-planning process. That failure is
now being remedied, and the authors spotlight following ten issues that management
must address:
1) Systems managers must know corporate objectives: Information system
managers must know their organization’s objectives as this knowledge
enables them to align systems goals with corporate objectives and allocate
their resources to the projects with greater value.
2) Reacting to a volatile environment: The government regulations have an
effect not only on highly-regulated industries like ranking but also on salary
administration hiring and taxes in all industries. Competitors continuously
change methods, products, and services to grab on advantages. Customers
needs and preferences change and require new products prices, and forms of
packaging. In contrast to government regulations, competitors, and customers,
the impact of new technology represents as direct effect on information
systems planning. Hence all the forces create intense pressure for new systems
or modifications of old systems.
3) Inability to implement a system-planning methodology: A well defined
methodology focuses attention on important systems issues and enables
companies to develop better plans more efficiently. But the piecemeal
development approach of the past has resulted in inefficiency and caused
inconsistent information, with potential effects on all areas of an organization.
4) Elusive needs: Information systems needs must be identified before plans
scab be made to meet them. If needs are not well-defined, then specifications
target dates, and costs will be inaccurate, and systems may turn out to be
unusable.
5) Underestimated hardware requirement: Underestimated hardware
requirements eventually result in slow response time. This scan have
organization wide consequences if the computer makes both customers and
employees wait. Reductions of both efficiency and competitive ability ensue.
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6) Underestimated labor requirements: Underestimated labor requirements result
in missed target dates and budgets. Project scopes are cut and quality is
reduced in an attempt to meet the elusive dates and budgets.
7) Lack of project justification: Project justification ensures that benefits exceed
cost for each proposal and that each proposal will accomplish its purpose.
However, during the easy stages of conceptual development, the costs and
benefits of information systems projects are often not accurately identifiable
because users can not spell out their needs at a sufficiently detailed level.
8) Shifting priorities: The problem of shifting priorities results from changing
business conditions ( regulations, competition and market). It also arises when
top management lacks confidence about how advantageously it is using
computers and opens priorities to negotiation.
9) Anticipating Disaster: Many organizations have become so dependent upon
their computer based information system that they will suffer catastrophically
if it is damaged or lost. It is often no longer feasible to recreate the data
manually. So, companies respond to the need for disaster planning in several
ways even if it is very expensive.
10) Ignoring strategic Impact: Computer-based information systems traditionally
serve only to cut costs and boost efficiency. However, these systems can
change the way companies operate and compete. But it is not easy to
recognize the strategic impact of computer-based information systems. The
keen competition in business and industry compels them to use these systems.
Hence, the expanding role of computer based systems along with the growing
complexity and increasing costs of these systems, makes the time ripe for
management to get involved with their systems managers to identify the actions
needed to respond to the critical issues in systems planning.
Middaugh J . Kendall (1998) in his research paper “ Management Control in the
financial – services industry “ asks :-
1) Why is the financial services industry undergoing widespread restructuring?
2) What factors are contributing to organisational dysfunction in the industry.
3) How can these affect organisational structure?
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4) How will the control systems have to adapt?
To fully understand the industry’s structural changes the author examines the
following significant environmental changes:
• Change in the regulatory environment
• Changes in the competitive environment
And at the next step, the organisational problems are seen because differences may
exists in external environment , organisational structure and management style and
culture . A Model of Management Control System for financial services industries
This model is based on the several important aspects and issues of Management
control system , which are :
• Control and budgets
• Profit Centres
• Transfer Pricing
• Revenue Sharing
• Compensation
According to the author , the management will have to consider all of the issues of
MCS model , and more , to ensure that attitudes, values , business procedures and
decision making behavior are consistent with organizational goals and strategies
because alignment of decision – making behavior with the organization’s goals and
strategies is the main responsibility of Management control system .
Moynihan , John (1998) in this study “ Propositions for building an effective process
“ highlights significantly issues regarding strategic planning and information
technology. He recommended that the all information technology planning models
should :-
1) Be an on – going exercise , regardless of the current level of technology used.
2) Be develop, have the support of to management, and the use of up-to- date
planning staff.
3) Involve senior administration , major users , and information systems staff.
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4) Be decentralized or centralized depending upon the organisational structure
within the organization .
5) Be elective , employing a variety of methods and resources , both internal and
external to the organisational .
6) Involve the identification of potentially important technology developments.
7) Access the computing and communications, organization’s technical and
managerial competence.
8) Be driven by business problems and opportunities vis-à-vis technical
developments.
9) Be broad but bounded in scope.
10) Formulate an organization –wide application system architecture.
11) Develop an organizational-wide tool architecture.
12) Result in an organization-wide technical architecture and vendor policy.
13) Include a review of the mission and the organization of the computing and
communications function.
By recommending these issues in the information technology planning models. The
author outlines an approach to strategic technology planning that emphasis the
importance of aligning and integrating institutional missions, goals and objectives.
Camillus C. John (2000) in his paper “Integrating strategic planning and
Management Control” recognizes SPMC model (Strategic Planning and Management
Control) The model suggests that the linkages that exist between strategic planning
and Management control are vital to organizational success. Basically, there are three
elements in SPMC model
(I) Consistency
(II) Participation
(III) SWOT
i) Consistency of strategic objectives and performance Measures: As per this
element “what you measure is what you get”. Thus, two considerations are
of importance here. First whether the performance measures should focus
on short-term profitability, or growth or technological ascendancy or
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logistic efficiency or some other primary objective. Second, the measure
should relate to the managerial domain of each executive.
ii) Participation in the strategy development process: In situations where
lower- level managers face complex situations and have considerable
discretion in their decision making, it becomes necessary to involve them
in the strategy development process, as their involvement in this phase
would provide them both in-depth understanding and commitment of
perform better.
iii) SWOT Analysis: The classic SWOT analysis that underlines traditional
strategy development gives rise to specific programs of action that
constitute the business/operational plan and are the core of the
management control process.
Hence, this paper suggests that whatever approach and techniques are chosen, it is
imperative that the executives pay attention to the linkages between strategic planning
and management if organizational success is to be ensured.
2.5 Role of MCS in context of Power Sector
Camman and Nadler, (1977) In a nutshell, the majority of control systems (budgets,
information management systems and accounting and financial systems) are
management systems that compile information on specific aspects of the
organization’s performance and release them to the organization members, although,
in order to do this, attention has to be paid to which systems each organization has to
use and how it has to do so .
Bexley B. James et al. (1999) in their study “Adapting financial institution Director’s
roles in the management process to achieve a competitive advantage : Specify the
synergistic relationship between directors and the financial institutions executives
engaged in strategic management. This paper first outlines the traditional relationship
of the Company of directors to the strategic management process , and then suggests a
value-added role that directors can assume vis-a-vis the strategic management
process. Traditional role of the company in the Strategic Management Process,
Traditionally the role of the company’s directors has been to evaluate / monitor the
strategic plan implemented by top management . To complete this role , the Company
of Directors maintains a balance of insiders and outsiders .
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2.5.1 New Role for Directors in the Strategic Management Process
The components of the strategic Management process include formulation,
implementation and control. Thus the proposed role for Directors in the strategic
management process includes.
I) Participation in a dialog with management to establish the definition of
target markets, as well as long-range goals and objectives.
II) Participation in the strategic decision –making process.
III) The directors shift from being outsider evaluators to a cooperative ,
supportive role in which information input is provided.
Maciariello et al. (1994) management control is concerned with coordination,
resource allocation, motivation, and performance measurement. The practice of
management control and the design of management control systems draws upon a
number of academic disciplines. Management control involves extensive
measurement and it is therefore related to and requires contributions from accounting
especially management accounting. Second, it involves resource allocation decisions
and is therefore related to and requires contribution from economics especially
managerial economics. Third, it involves communication, and motivation which
means it is related to and must draw contributions from social psychology especially
organizational behavior.
Kaka M.B (2001) in his article “ Role of Electricity regularity Commission “ explains
the need for regulation of electricity utilities and describes the role of electricity
regularity commission in that context , at the central and state levels. The central and
state electricity regularity commissions are the government agencies created by statute
to make decisions that would otherwise be made by the executive branch of
government . Government creates administrative tribunals for the following reasons :
• Independence and neutrality
• Expertise
• Public access
76
Role of Central Regularity Electricity Commission: The CERC was constituted in
July 1998 as per the ordinances issued by the Government of India in April, 1998 for
the establishment of CERC and SERC. the functions of CERC are :
1. To regulate the tariff of generating companies owned or controlled
between the Central Government .
2. To regulate the tariff of generating companies other than those owned
or controlled by the Central Government.
3. To regulate the inter –state transmission of energy including tariff of
the transmission utilities.
4. To regulate inter – state bulk sale of power and to aid and advise the
Central Government in formulation of tariff policy.
Chenhall, & Hartmann (2003). The current business environment is characterized
by fast changes in customers, technologies and competition. Thus, organizations need
to continuously renew themselves to survive and prosper (Danneels, 2002). In the
light of the financial/economic crisis 2008/09, however, uncertainty and risk rose
enormously for many companies and hence forced many firms to adapt their
management control systems (MCS) to the changing environment. Therefore,
knowledge about the reactions of firms to changing environments is of great
importance to the management as overreactions could severely affect key
performance indicators of impacted firms. Furthermore, Berry et al (2009) call for
further research with regards to risk and Management Control System.
Chenhall (2003) is followed for the distinction between uncertainty and risk: risk is
defined as situations for which probabilities can be attached to particular events
occurring, whereas uncertainty defines situations in which probabilities cannot be
attached and even the elements of the environment may not be predictable. Normally,
crisis and other detrimental events change the environment only for single companies
and/or certain sectors. In this special situation of the current economic crisis,
however, it can be expected that there are effects on a broader range of companies.
77
Chenhall (2004) mentioned that the terms management accounting (MA),
management accounting systems (MAS), management control systems (MCS), and
organizational controls (OC) are sometimes used interchangeably. In this case, MA
refers to a collection of practices such as budgeting or product costing. But MAS
refers to the systematic use of MA to achieve some goal and MCS is a broader term
that encompasses MAS and also includes other controls such as personal or clan
controls. Finally OC is sometimes used to refer to controls built into activities and
processes such as statistical quality control, just-in-time management.
Horngren et al. (2005), management control system is an integrated technique for
collecting and using information to motivate employee behavior and to evaluate
performance. According to Simons (1995), Management Control Systems are the
formal, information-based routines and procedures managers use to maintain or alter
patterns in organizational activities .
Merchant and Otley (2007), “ MCS is designed to help an organization adapt to the
environment in which it is set and to deliver the key results desired by stakeholder
groups”. The purpose of this paper is to use Simons’ (1994) levers of control
framework to investigate the antecedents of control systems (i.e. uncertainty and risk)
and the associations among the control systems. Simons’ LOC framework is chosen
as it is widely used in literature and has strong practical implications. The LOC
framework asserts that strategic uncertainty and risk drive the choice and use of
control systems (Widener, 2007). Hence, this study will try to contribute to the small
but growing body of work with regards to relations among control systems (Widener,
2007; Anderson & Dekker, 2005; Kennedy & Widener, 2006). The author aims to
observe a change in the variable “perceived environmental uncertainty” (PEU) and
“risk” and its influence on MCS on a large scale sample of organizations.
2.5.2 Related research in the area of Management Control System practices in
large organizations.
There have been many studies in MCS, carried out by many a researcher. The
following are some of the important related studies:
78
Salancik, R. Grerold and Meindl , R. James (1984) in the study “Corporate
Attributions as Strategies Illusions of Management Control” examine the reasons
given by CEOs to explain their Firms’ performance in annual stockholder reports over
an 18-Year period, comparing firms with stable and those with unstable performance.
They argue that the management of unstable firms, lacks real control over
organisational outcomes. To check this argument, the firm for this study were selected
from a list of firms studied by Mckeachern (1975), drawn randomly from a population
of large management controlled corporations. Three measures of each firm’s
performance were collected from the annual value Line Investment Survey and
Moddy’s Industrial Manual:
• Profit margins • Sales • Earnings per share
Over 43% of the casual attributions made by firms refer to one of these three
outcomes. For further analysis, the standard deviation of each performance measure
was computed for each firm. The nine firms with tendencies for higher variations
were classified unstable the rest, stable . Finally a very consistent picture of corporate
attributions that emerges from their analysis is that managements display strong
tendencies to credit themselves for positive outcomes and blame negative effects on
the environment.
Brown Mark (1984) in his study “How to Create Success” evaluates the attitudes
which can make or break a company. At an individual level, managers who like to
quote the peter’s Principle may be doing themselves and their staff a disservice. This
well- known principle simply says that people will, in time, be promoted to their level
of incompetence. The researcher highlights the danger with this principle that
(i) Manager performs less than adequately and (ii) This principle offers no hope for improvement
The author further studies the problem that affair number of companies are committed
to staff and management development, but a very few have worked out how to
structure jobs so that there is time for learning and development. One common
procedure of development is that an individual is taken from one function and simply
dropped in new one . He highlights dangers of this formula that
79
(i) In a company where there is no safety in numbers, mistakes matter: there
is the risk of organisational damage.
(ii) The problem is psychological, for the individual engaged in mastering the
new skills may not understand the role that mistakes play in learning.
The author also recommends the solutions for these problems For the first problem
one solution could be the development of job descriptions, which again is divided into
two parts – “expected performance and expected learning.” The second problem can
be studying the ‘Success-failure” profile which forms a major part of a person’s self
concept.
Bhadada, B.M (1985) in the study entitled ‘Management Control System : A Case of
the Cotton Textile Mills in Rajasthan” has analyzed the role of Management Control
Process in the cotton textile Industry. The study implements and evaluates the
Management Control Process in the industry, concentrating on marketing, financial
and production management decisions. To achieve this objective, the researcher has
indentified the areas where the scope for Management Control exists. Further, he
traces the factors which provide obstacles in the efficient working of the control
system. The general picture that emerges from the study is that the evaluation was
made by using scientific controlling techniques, to highlight measures for
strengthening the weal points of the departments in the textile industry.
Rekha Rani, (1990) in the study “Management Control Systems and Practices in
State road passengers transport undertakings of Punjab” makes an attempt to analyze
the present management control system and practices in Public Roadways and PRTC
with respect to financial, material and human resources. In the first section, the
country in general and the state of Punjab in particular. And Section II reviews
various Management Control Practices followed by State Transport Undertakings in
India.
Barney (1991) defines resources as “all assets, capabilities, organizational processes,
firm attributes, information, knowledge, etc. controlled by a firm that enable the firm
to conceive of and implement strategies that improve its efficiency and effectiveness”.
If individual resources work together they can create organizational capabilities;
80
capabilities are what the firm can do and are the sources of competitive advantage and
superior performance.
Fortado, Brouce (1994) in the study “Informal Supervisory Control Strategies” has
analyzed the eight cases of united States and has focused on the informal strategies ,
employed by supervisors outside the formal control disciplines. The traditional and
modern approaches of formal and informal controls are studied to make comparison
with literature of informal strategies which violate all the conventional perspective
wisdom . In his findings he provides the following format to be used, while ordering
material in any process of inductive discovery seems highly problematic:
(i) Creative efforts to fashion a prod will be scrutinized.
(ii) Strategies involving the grapevine will be studied.
(iii) Harsh, Personalized and arbitrary discipline will then be examined.
(iv) Methods of quelling dissent will be reviewed.
Arora, D.D 1994 in his study “ management Control” made and attempt to define the
critical aspects, complex characteristics and functions of management Control by
giving the review of existing literature on the subjects. The study empirically
examines the status of management control in twenty six manufacturing units in terms
of
(i) Personal strength
(ii) Age
(iii) Functions and
(iv) Performance
Control indicators, questions of responsibility accounting and their relevance in MCS,
have been discussed. Efforts have been made to explain the measures of
organizational climate and its methodology as a guiding force to the organizations to
implement effective control systems.
Sridhar, S et al. (1997) in their paper “Incomplete Information, Task Assignment and
MCS” Demonstrates the need to integrate a task assignment decision with the design
of MCS as each affects the other. This paper examines a setting in which a firm
requires completion of two tasks, an upstream and a downstream, to generate
revenues. But the firm has production capacity sufficient to perform only of them.
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Thus the firm is exogenously constrained to contract the performance of at least one
task to an outside supplier. To check this problem the paper identifies four ways of
distinguishing an outside supplier from an internal employee.
(i) An outside supplier is assumed to be informed of the task environment less
often than an internal employee.
(ii) The principal observes the information set of the internal employee more
frequently than that of the outside supplier.
(iii) The principal is able to control the flow of certain production related
information to an internal employee better than to an outside supplier.
(iv) The internal employee is assumed to be able to observe the firms contract
with the outside supplier but not vice-versa.
Findings of the study clarify that researchers demonstrate that an appropriate design
of the two important elements of the managerial control system ( the principals’
control of pre decision flow and incentive contracts) can help in eliminating the
inefficiencies in resource allocation arising from the agents’ incomplete information
at the time of contracting.
Gutierrez, Genaro J. And Kouvelis Panagiots (1997) in their study “The
Newsvendor Problem in a Global Market: Optimal Centralized and Decentralized
Control Policies for two- Market Stochastic Inventory System” have introduced the
production and inventory problem of “style goods.” A product is said to be a “style
good” if it has a short selling season, with a well defined beginning and end, and its
demand is stochastic. In this paper they examine the above issue with an insightful
model of producer of “style goods” selling the goods to two markets ( a primary and a
secondary market) with non overlapping selling seasons. They refer to this problem as
the “global newsvendor” problem and develop under mentioned two types of control
policies.
• Optimal Centralised control policies. • Decentralised production control policies, with the production centres at each
treated as independent profit centres.
Further, they develop Organizational Control Structure for the implementation of the
various Production Control Policies as given In Figure 2.3 (a)
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Fig. 2.3 : (a) Centralized Production
Global Manufacturing Manager
Production Manager of Market 1
Production Manager of Market 2
Fig. 2.3 :(b) Decentralized Production
Global Manufacturing Manager
Production Manger of Market 1
Production Manger of Market 2
Fig. 2.3 :(c) Decentralized Production Control with Transfer pricing
Global Manufacturing Manager
Production manger of market 1
Middle Manager Production Manger of Market 2
Source : MCS Principles and Practices , Sanghvi M.N : New Delhi ,2011
Fig. 2.3: Organisational Control structure for the Implementation of Various
production control policies.
83
Thus they recommend that exploiting the difference in timing of the selling season of
the “style good” in different markets is a unique opportunity to improve the
profitability of a “style goods” producer. For the single location producer, exploiting
this opportunity simply means that the remaining inventory at the end of the selling,
season in the primary market can be sold, if profitable, in the secondary market.
For the multiple location producer, the timing difference of selling seasons gives to its
production mangers in the secondary markets the option to purchase from the
remaining stock in the primary market rather than produce.
Weaver R. Gary and et al. (1999) in their study “Corporate Ethics Programs as
Control Systems: Influences of Executive Commitment And Environmental Factors”
ask why corporations introduce formal programs to manage ethics and why those
programs display varying characteristics. They use control theory to define an ethics
program’s scope and its orientation toward compliance and value-based control.
Managerial choice theory suggests that environmental factors and management’s
ethical commitment will influence these dimensions. This study lays down the
followings elements of formal corporate ethics programs:
• Formal ethics codes
• Ethics committees charged with developing ethics policies
• Ethics communication systems
• Ethics officers
• Ethics training programs
• Disciplinary processes to address unethical behaviour.
Final results indicate the orientation of ethics programs is most strongly linked to a
high-level management commitment to ethics rather that to external influences. Policy
efforts, then, might be more successful if they focus less on increasing the scope of
ethics programs and more on fostering top managers’ commitment to ethics. The
Project Managers (1996) in their “Environmental Restoration Program” describe the
Management Control System as a series of steps and methodologies to effectively
84
manage E.R. projects and tasks. The MCS description documents the phases and
processes that comprise the MCS. These phases include the following.
(i) Program development,
(ii) Budget formulation,
(iii) Task development,
(iv) Performance,
(v) Reporting, and
(vi) Task revision.
Each phase contains a series of integrated processes and tools that help the project
manager and project team successfully to complete the phase. In a manual
“management control system” treats MCS under three heads, namely -
• Policy manual
• Evaluation Toolkit
• Internal Control Checklist
Policy Manual: Entity of Idaho, designed Internal Control as a management process
that keep an entity on course in achieving the following organizational objectives:
(i) Effective and efficient operations
(ii) Responsible user of Public Funds
(iii) Compliance with applicable laws, rules and regulations
Further the five components of good internal controls within a Management Control
System have been described:
(i) Control Environment
(ii) Risk Assessment
(iii) Control Activities
(iv) Information and Communication
(v) Monitoring
Evaluation Toolkit and Internal Control Checklist
In the second part of the study the above mentioned components have been studied
in-depth by developing MCS Evaluation Toolkit. This toolkit suggests various
valuable areas in each component to consider, while designing and implementing
MCS. Thirdly, Inventory Control Checklist has been designed for study and
85
evaluation of financial accounting internal controls. The internal controls contained in
this inventory were compiled from various sources, including the 1986 revision of
“Audits of State and Local Governmental units” by the state and Local Government
Committee of the American Institute of Certified Public Accounts (AICPA).
Dogulas J. Thomas and Judege Q. William (2001) in their research paper “ Total
Quality management (TQM) implementation and competitive advantage ; The role of
structural control and exploration “ examine the degree to which a comprehensive set
of TQM practices was implemented in a set of organizations, and the corresponding
competitive advantages achieved there from. Findings of the study clarify the
relationship between the degree of implementation of TQM and organizational
performance and tentatively indentify the complementary variables whose synergistic
effect enhances this relationship. Specifically, two measures of organisational
structure, labeled “control” and “exploration.” Were found to offer independent and
interdependent influences on the financial performance of firms implementing TQM
programs.
Further, this study has important implications for managers as given below. First, it
encourages them to invest in the time and resources necessary to implement
comprehensive TQM programs, not just selected aspects of TQM . It also suggests the
following seven specific practices:
(i) Top management team involvement
(ii) Quality philosophy
(iii) TQM- oriented training
(iv) Customer-driven changes
(v) Continuous improvement
(vi) Management by fact and
(vii) TQM techniques
Second, this study suggests the importance of ensuring that a support organisational is
in place. Hence, this study suggests that the total quality management, properly
implemented and combined with the appropriate organisational variables, may be a
vehicle that allows organizations dynamically to maintain a fit with their
environments in a competitive and sustainable fashion.
86
It emanates from the above studies that only few scattered efforts have been made in
the field of MCS, and whatever little was done, remained confined to the macro level
only. The Organisational levels have not been studied in-depth. There exists a
research gap in the field of MCS in general and in the development and application of
MCS in Specific. Further, there have not been serious attempts to study MCS in the
service Organizations in India. Thus, the survey of literature clearly establishes a need
of research to be undertaken on the development and application of models of MCS in
the service organization in general and Maharashtra State Electricity Distribution
Company in particular.
Nooteboom (2002) proposed three core characteristics of the Large organisations -
independence, personality, and the small scale. The contingency perspective explains
the decisions and actions under a given opportunity depending on the circumstance.
The core characteristic of small scale is the characteristic of the firm and does not
only deal with economy of scale in production or operation but also involve
marketing. The core characteristic of personality is about the entrepreneur and
includes the intertwining of private and business affairs. Informality of authority,
communication and procedure are the other aspects of this characteristic. The
characteristic of freedom is also about the entrepreneur. As discussed this indicates
the relative freedom from discipline of the capital markets, allowing some
idiosyncratic goals and conducts. A given characteristic may have different effect in
different circumstance. As the large organisation grows the entrepreneur need to
delegate more, build additional layers of hierarchy, establish formal systems and
procedures for planning, coordination and control, create a structure communication
system and make knowledge more explicit and less tacit. Innovation exploits the
strength of motivated management and labour to survive in harsh times. Small
organisations are relatively strong in inventions aimed at application of basic
technologies to serve the small niche or residual markets. This exploits the potential
flexibility and closeness to the customers. They possess skills to translate technology
in a variety of new technology-product-market combination. (Nooteboom, 2002)
Industry structure and environmental dimensions significantly affect performance of
Large organisation performance (Liao et al, 2003; Peterson, 1985). The essence of
entrepreneurship is the willingness to pursue opportunity to ‘find a way’ (Stevenson
87
and Jarillo, 2002). The entrepreneurs try to realise their vision by a continuous search.
Their central vision is supported by many secondary visions with both internal and
external components which involves specific management plans and actions (Filion,
2002).
The entrepreneurs need to be long term thinkers. At the same time they are
necessarily required to be short term players. But as the frame of reference changes
the entrepreneurs need to redefine their functions and roles. Growth of the
organisation demands building up teams and developing network outside the
organisation. (Bird and Jelinek, 2002)
Clark et al (2001) suggested context based study on entrepreneurial growth strategy.
The contexts suggested were country and sector. The study conducted by
Wijewardana and Cooray (1995) on small manufacturing organisations in Kobe
(Japan) included four sectors namely food and beverage, wood and paper products,
chemical products and fabricated metal products. The authors concluded that sales
growth which was taken as one of the growth determinants is industry specific.
Specific industry sector poses unique opportunities or constraints which in turn may
influence the growth performance as well as entrepreneur’s behaviour. Further
research in this area may be conducted in specific industry segment using the
conceptual framework suggested in this paper. It is advisable to carry out empirical
work in those sectors or industry segments which are facing high competitive pressure
and are under transition due to industry restructuring. It is important to first study the
industry history in the specific segments. Later entrepreneurial legacy, emerging
industry structure, technological changes and the overall challenges for small
organisations should be considered. This may be possible by studying industry trend
analysis of consulting and research agencies, and interviewing industry experts. An
industry profile would help the researcher to formulate appropriate research design.
In India some castes and regions are specifically known to be entrepreneurial as
compared to others. The family values and social settings play a major role in this
regard. The longitudinal studies should also take a note about this factor. This may not
be a valid proposition in case of technology based entrepreneurship.
88
Woods and Joyce (2003) in their article ‘Owner-Managers and the Practice of
Strategic Management’ described Mintzberg’s explanation on strategic planning small
organisations as anti-planner. They wrote, “As far as we can see he (Mintzberg) tend
to subscribe to the following theses about Large Scale Organisations: (1) A written
strategic plan has no explanatory power in respect of their behaviour because personal
strategic vision rather than written strategic plans determine actual strategy; (2) The
large organisations develops a strategy that is deliberate and often an extrapolation of
the chief executive’s personality; (3) The decision making of a small entrepreneurial
firm is often intuitive and thus its success rests on reality confirming its intuitions
about the opportunities that exist (and that it seeks to exploit by virtue of its
flexibility); (4) There is a persisting need for strategy based on personal vision and
control and thus a persisting need for small entrepreneurial firms.” Successful large
businesses take the benefit of narrow scope of market, product and customer
specialisation.
Merchant and Otley (2007), “ A MCS is designed to help an organization adapt to
the environment in which it is set and to deliver the key results desired by stakeholder
groups”. The purpose of this paper is to use Simons’ (1994) levers of control
framework to investigate the antecedents of control systems (i.e. uncertainty and risk)
and the associations among the control systems. Simons’ LOC framework is chosen
as it is widely used in literature and has strong practical implications. The LOC
framework asserts that strategic uncertainty and risk drive the choice and use of
control systems (Widener, 2007). Hence, this study will try to contribute to the small
but growing body of work with regards to relations among control systems (Widener,
2007; Anderson & Dekker, 2005; Kennedy & Widener, 2006). The author aims to
observe a change in the variable “perceived environmental uncertainty” (PEU) and
“risk” and its influence on MCS on a large scale sample of companies. Chenhall
(2003) is followed for the distinction between uncertainty and risk: risk is defined as
situations for which probabilities can be attached to particular events occurring,
whereas uncertainty defines situations in which probabilities cannot be attached and
even the elements of the environment may not be predictable. Normally, crisis and
other detrimental events change the environment only for single companies and/or
certain sectors. In this special situation of the current economic crisis, however, it can
be expected that there are effects on a broader range of companies.
89
Schreyogg and Kliesch-Eberl (2007) put it “There seems to be a consensus that a
capability does not represent a single resource in the concert of other resources such
as financial assets, technology, or manpower, but rather a distinctive and superior way
of allocating resources. It addresses complex processes across the organization such
as product development, customer relationship, or supply chain management”.
2.5.3 Systems Based on Psychosocial Aspects Amat (1991) As a formula for surpassing the limitations of mechanistic approaches
points out that the management control concept was enriched by the incorporation of
more complete approaches, in which people’s passive and rational behaviour was
substituted by a greater consideration of the motivational factors that influence
behaviour and it began to be accepted that the crucial aspects for the design and
implementation of a control system were not limited solely to formal ones. Perez
Lopez (1993) stresses that the research works conducted using this approach regard
the organization as a social body in which people take part not only to obtain the
incentives offered by the company but to satisfy other needs as well. According to
Caplan (1971) the increased complexity of organizations requires the incorporation of
new control techniques oriented towards motivational factors, in order to persuade
organization members to cease passive attitudes or behaviours, rendering it necessary
to accept that, for control systems to be implemented, it is not enough to consider the
formal aspects but rather one must include the individuals’ behavioural aspects.
Three trends of thought: can be distinguished: the human relations school, the trend
based on human information processing, and open systems theory. These three trends
of thought share several common traits, which, according to Amat (1991), can be
expressed in the following points:
• Formal systems both influence and are influenced by the people that form part
of the organization; individual behaviour not only depends on the system’s
formal design, but also is influenced by the individual and organisational
context in which it acts;
• Man is limitedly rational and does not attempt to completely maximize, but
rather is satisfied with a lower level;
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• The organization’s objectives are not always clear and furthermore can create
conflicts with the individual objectives;
• Control of individual behaviour may not only be achieved through the use of
quantitative techniques but also responds to psychosocial conditions, so that
control can be taken not only through both results and behaviour;
• Motivation is conditioned not only by extrinsic factors but also by intrinsic
factors. The most relevant aspects of each of these three trends are as follows:
The trend based on human relationships focuses its analysis on the effects on the
behaviour of the individuals in the control systems, since this behaviour is
thought to be conditioned, among other factors, by individual objectives, by the
relationship which each individual has with the job he performs in the
organization, by the motivation and participation of each individual, and, in
short, by all human relationships which occur within the organization. Within
this trend, it is deemed that the employee no longer has merely financial needs
but also pursues his own personal satisfaction in the organization, which,
according to Ansari (1977), involves the appearance of the manager-leader who
will provide the impetus necessary for the employees to improve their
performances and their satisfaction .
Khandwalla (1972) Categorized competition into product, price and distribution and
their influence on control system. He concluded that product competition makes use
of control system than price competition. The study by Jermias and Gani (2004)
summarizing previous studies mention that while product differentiation companies
tend to be more decentralized using more behavioural control and intensive MAS, low
cost companies are more centralized and use MAS more towards efficiency .
Miles and Snow (1978) writing on Configuration of system, mention that the
defender aligns itself with a particular portion of the overall environment and
manages the internal interdependencies created by its form of alignment. This
adjustment process produces a unique configuration of domain, technology, structure,
and process .
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Porter (1980) describes differentiation and cost leadership as the two predominant
sources of competitive advantage. “Differentiation” consists in differentiating the
product or service, and thus offering to the market something that is perceived as
unique. “Cost Leadership” consists in achieving overall cost leadership by excelling
in operations. Cost leaders offer highly competitive prices combined with consistent
quality, ease and speed of purchase, and excellent, though not comprehensive, product
selection.
Gupta and Govindarajan (1984) The level of study in research has been primarily at
organizational level, and the focus got extended when strategic considerations like
prospector vs. defender and product differentiator vs. low cost were considered The
control characteristics have remained same but the determinants got extended when
studies tried to incorporate strategic considerations.
Govindarajan and Gupta (1985), was probably the earliest study on control system
at SBU level. They point that “the near absence of empirical studies on strategy
implementation at the SBU level presents a significant research opportunity and
subsequently also this has attracted less attention may be due to lack of availability of
information at SBU level. They mention that the style of a general manager of a
business unit should be matched with its strategic mission or its stage in the product
life cycle. The important aspect of some studies on strategy is that the unit of analysis
moved to strategic business unit level from organizational level.
Gupta & Govindarajan (1985) have been the focus of principal attention. Each
classification can be reasonable applied while carrying out empirical research as for
the relationship between strategy and management accounting/control systems, as it is
possible to combine companies with homogeneous features defined by the research.
Despite a consistent number, the listed researches can produce findings, which are not
comparable, for the reason of the different path adopted in operationalizing business
strategy. The principal reason, according to Langfield-Smith is in fact in scope and
focus, which differ from those the typologies are based upon.
Merchant and Ferreira (1985), Notwithstanding that MCS are critical to the
success, and even the survival, of early-stage firms academic work in this area has
92
been sparse and offers little guidance to practitioners. Thus, conditional on the firms’
decision to start investing in MCS, this study examines managers’ choices regarding
the first MCS they introduce in early-stage firms (hereinafter referred to as “initial
MCS”). The study is conducted in two phases using data from 40 field interviews and
97 responses to a survey directed to early-stage store-based retailers. In the first
phase, based on the field study, I sought to understand what initial MCS were
introduced in early-stage firms and why. I found that the initial MCS introduced in
early-stage firms could be categorized usefully based on their purpose. In the second
phase I use the survey data to test:
(i) Whether the strategy pursued by an early-stage firm significantly determines
the firm’s choice of particular categories of initial MCS, and
(ii) Whether early-stage firms with a better fit between the initial MCS and their
strategy experience superior performance.
The first phase interviews reveal that entrepreneurs characterize initial MCS in terms
of the purposes MCS should fulfill, rather than in terms of individual control systems
such as budgets, inventory controls, etc., mostly because individual control systems
can be used to achieve different purposes (e.g. inventory control systems could be
used by some firms to learn about customers’ preferences and by other firms to
prevent merchandise theft) and it is the purpose that entrepreneurs really care about.
Four categories of initial MCS, defined in terms of the MCS purposes, emerge from
the data: Basic MCS, which constitute a “common-platform” across all firms, are used
to collect information for planning and establishing the basic operations; Cost MCS,
are introduced to achieve operation efficiencies and cost minimization; Revenue
MCS, are used to achieve growth and to learn and respond to the market; and Risk
MCS, are used to reduce risks and protect asset integrity. It is important to highlight
that individual control systems are classified into these categories based on the
purpose they fulfill. For example, a marketing database used to understand and
respond to customer preferences (purpose) would be classified as a Revenue MCS,
while a system of internal auditing and transaction tracking used to prevent theft
(purpose) would be classified as a Risk MCS.
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Amat (1991) Prior to presenting the MCS definition, we will briefly describe the
developments on the basis of which it has been formulated. These developments are
related to the need for changes in the MCS practices of enterprises. Both internal and
external contextual factors play a role here. In the accounting literature there are
various interpretations of the concept of control. See, for example, Anthony &
Herzlinger, 1986; Marciariello, 1984; Hopper & Berry, 1983; Jensen & Meckling,
1976; Hofstede, 1968; Arrow, 1964; and Cyert & March, 1963. This diversity of
interpretations of control implies that the control literature does not claim a single
dominant paradigm representing coherent and consistent laws, theories, applications
and methodologies (Macintosh, 1995). Anthony’s definition is no longer up-to-date
and that it is obstructive to the development of the field of management accounting.
The more recent MCS literature particularly aims at worker-oriented control systems
(e.g. Macintosh, 1995). Here the focus is on a clear participation of the workers in the
decision-making process. The notion is that if workers are being trained in this
direction, they will become more motivated in their work, and as a result the labour
productivity will increase. In such circumstances, the firm will be inclined to pay its
workforce more, encouraging investors to make additional investments
(Wickramasinghe, 1996).
Palmer, Shank and Govindarajan (1992) Attribute costing, Using this technique,
products are handles as a compilation of various features; in this respect, Bromwich
(1990) supports the possibility of considering product attributes as cost objects. The
attributes are a means of differentiating the products, and the market share is
determined from the contact between product attributes and consumers’ taste. In this
sense we can interpret it as the external (market) orientation of the technique.
Benchmarking. The technique lies in identifying the best practices and comparing the
organization's performance to those practices with the aim of improvement.
Benchmarking can be carried out in different ways .
Leibfried, (1992) but generally they underline the external strategic orientation
toward competitors. Competitive Position Monitorin, The principal feature of the
technique is the provision of competitor information. Sales, market share, volume and
unit costs are taken into account (Simmonds, 1981). Basing on the information
provided, the firm can estimate its own position in relation to principal competitors
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and, consequently, control or formulate its strategy. Competitor Cost Assessment.
Contrary to the previously described technique, Competitor cost assessment focuses
only on competitors cost structures (Simmonds, 1981). The main critique concerns
information sources. Ward (1992) suggests some indirect sources, e.g. physical
observation, common suppliers or customers and ex-employees of competitors. Public
financial statements constitute a relevant source of competitor’s evaluation. Moon &
Bates (1993) emphasize the strategic insights that it is possible to receive from this
type of analysis. The technique representing an elaboration of common and traditional
methods, finds a strengthens in today’s evolution of IASB that could allow a
comparison between companies of various countries, which is much simpler.
Customer Accounting. The technique considers customers or group of customers as
unit of accounting analysis (Bellis-Jones, 1989; Guilding & McManus, 2002).
Customer accounting encompasses all the practices directed to appraise profit, sales or
costs deriving from customers or customer segments. Because of its relation to
“relational marketing”, this accounting approach is classified as SMA technique.
Integrated Performance Measurement. Its principle is consideration of both financial
and non-financial measures (Cross & Lynch, 1989; Nanni et al., 2002). This technique
also includes balanced scorecard and it has been widely demonstrated its role in
strategic management cycle with the help of the four perspectives (Kaplan & Norton,
1996a, 1996b, 2000; Malina & Selto, 2001).
Life Cycle Costing. This technique calculates the total cost of a product along its life
cycle (from the design to the decline, passing the stages of introduction, growth and
maturity) (Berliner & Brimson, 1988; Shields & Young, 1991;Wilson, 1991).
Similarly, Total Cost of Ownership has been emphasized as a long term and strategic
orientation SMA tool (Ellram & Siferd, 1998).
Quality Costing. For competition in the market product quality has become a
preliminary condition. This technique classifies and monitors costs as those, which
derive from quality prevention, appraisal, internal and external failures (Heagy, 1991).
Modern competition also requires safety and environmental costs control. In a
strategic perspective, the technique must support the pursuit of quality (Simpson &
Muthler, 1987; Carr & Tyson, 1992).
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Shank & Govindarajan (1993) Strategic Costing. According to costing systems are
getting into strategic management process step by step. It means that costing systems
must expressly consider strategy and the pursuit of long-term competitive advantage.
The authors stress the marketing and competitive concepts to which the technique
refers (namely product positioning and market penetration). Simmonds (1982)
Strategic Pricing comprises into SMA a pricing technique as well. It includes the use
of competitors information, like competitors’ reactions to price changes, price
elasticity, economies of scale and experience, in the pricing process. It is present both
competitors and market orientation.
Target Costing. According to the technique, the target cost arises from the differences
between the product price, derived from how much the market can sustain, and a set
target profit. Through an accurate product design, the costs must be contained to
attain this target cost (Monden & Hamada, 1991; Morgan, 1993). External market
factors frequently intervene in this SMA technique. Value Chain Costing. While
developing the value chain model (Porter, 1985), Shank & Govindarajan (1992b)
propose an approach to accounting considering all the activities performed from the
design to the distribution of the product. The strategic implications regard the
exploiting of the economies and efficiencies, which derive from the external linkages
between the company and both suppliers and customers.
Simons (1995) Posits in his levers of control (LOC) framework that MCS consists of
four interrelated control systems: beliefs (e.g. mission statement), boundary (e.g. code
of conduct), diagnostic (e.g. budgets) and interactive (e.g. management involvement)
systems. Moreover, he argues that strategic uncertainty and strategic risk play a
central role in his (LOC) framework. Contingency theory assumes that the design and
the application of MCS are influenced by the context in which they are applied .
Chong and Chong (1997) studied the influence of environmental uncertainty and
performance which is one the aspects of the proposed study. They observed that
where there is perceived environmental uncertainty, they use more external, financial
and future oriented information or in general broader scope of MAS.
Langfield-Smith (1997) Review took place at an early stage in the ‘life cycle’ of
MCS – strategy research. Subsequent to 1997 there has been an appreciable growth in
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published studies that investigate the interrelationship between MCS and strategy.
Interestingly, much of this published research has either by design or discovery,
directly addressed the opportunities for further research identified .These areas were:
the role MCS can play to bring intended strategies to realization; the extent to which
MCS can minimize the disruption caused by strategic change over time; the nature
and extent to which the role and composition of MCS change as a company matures;
aspects of the MCS - Strategy relationship which focus on operational as well as
senior management.; the significance of resource sharing between SBUs for the
design of MCS under different strategies, particularly concerning the reliance on
either behaviour or outcome controls; how performance measures and reward systems
may be used under particular operational strategies, and to support new manufacturing
philosophies. In retrospect, it is quite clear that the work of Langfield-Smith (1997)
has, in effect, defined the MCS-strategy research agenda over the past decade, and it
is perhaps timely therefore, to revisit these research priorities in order to examine how
our knowledge has progressed in this time.
Kurtzman (1997), found that 64 percent of the companies questioned were
measuring performance from a number of perspectives in a similar way to the
Balanced Scorecard. Balanced Scorecards have been implemented by government
agencies, military units, business units and corporations as a whole, non-profit
organizations, and schools. Many examples of Balanced Scorecards can be found via
Web searches. However, adapting one organization’s Balanced Scorecard to another
is generally not advised by theorists, who believe that much of the benefit of the
Balanced Scorecard comes from the design process itself. Indeed, it could be argued
that many failures in the early days of Balanced Scorecard could be attributed to this
problem, in that early Balanced Scorecards were often designed remotely by
consultants. Managers did not trust, and so failed to engage with and use, these
measure suites created by people lacking knowledge of the organisation and
management responsibility.
Black et al. (1998). Although VBM frameworks vary somewhat from firm to firm,
they generally include six basic steps . These steps include:
1. Choosing specific internal objectives that lead to shareholder value
enhancement.
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2. Selecting strategies and organizational designs consistent with the achievement
of the chosen objectives.
3. Identifying the specific performance variables, or ‘‘value drivers’’, that actually
create value in the business given the organization’s strategies and
organizational design.
4. Developing action plans, selecting performance measures, and setting targets
based on the priorities identified in the value driver analysis.
5. Evaluating the success of action plans and conducting organizational and
managerial performance evaluations.
6. Assessing the ongoing validity of the organization’s internal objectives,
strategies, plans, and control system.
Spekle (2001) makes an interesting observation that, one of the quintessential
problems of management control (MC) as a field of scholarly inquiry is to explain
control structure variety within and between organizations” which is the main concern
of this paper . It comes out with a framework of control system based on three
different nature of activities, “
(1) Uncertainty, or the extent to which the desired contributions are amenable to ex
ante programming;
(2) The degree of asset specificity; and
(3) The intensity of post hoc information impact .
The combination of these is expected to influence the application of market control,
arm’s length control, machine control, exploratory control, and boundary control. This
is a conceptual paper and does mention that one has to look beyond the organization
and at ‘all kinds of collaborative structured between firms’ for explaining control
variety . This study stresses control variety within organizations and among the
networked collaborative structures.
Caglio (2003) reported the findings of a case study which investigated the impact of
Enterprise resource planning systems on the role of the management accountant.
Drawing on in-depth interviews with practitioners who were intimately involved in
the implementation of the Enterprise resource planning system at Pharmacom, an
Italian medium-sized pharmaceutical firm, and documentary evidence, Caglio (2003)
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find that the chief financial officer (CFO), played an influential role in decisions
around the implementation of the Enterprise resource planning system. The
Enterprise resource planning system enabled widespread changes to take place to the
management accountant’s role with the Enterprise resource planning system playing
a major role in information gathering and generating information. As a consequence,
management accountants have lost some control over their traditional tasks and are
now more focused on analyzing the information coming out of the Enterprise resource
planning system in terms of supporting the decision-making process.
Spathis and Constantinides (2003) also explore how Enterprise resource planning
systems have influenced the management of accounting information. Using telephone
contacts from a random sample of 98 large and medium-sized Greek companies, the
researchers report on the practices of 45 organizations (response rate of 45.9%). The
most highly rated ERP perceived accounting benefits found by the researchers were
increased flexibility in information generation, improved quality of reports and
increased integration of applications. No significant improvements were experienced
by the surveyed firms with regard to the time required for issuing reports and the
decision making process. The findings of Spathis and Constant indies (2003) are
therefore much in line with those of Booth et al. (2000) which suggested that ERP
systems are effective in supporting information processing, but not as effective in
terms of reporting and decision-making support.
Kober, Ng & Paul (2003) Four and a half year (retrospective) longitudinal study
Investigating the fit between MCS and strategy over time to appraise the nature and
extent of change in use of MCS with a given change in strategy. Public sector
pathology services provider operating in Western Australia. The manner in which
MCS are used rather than the type of MCS designed which is important in the
implementation of strategy. As the strategy of the organization changes, so too does
the manner in which MCS are used .
Langfield- Smith (2003) Investigation of whether changes in the organizational
environment have led to changes in the organizations ’ strategy, organizational
design, advanced manufacturing technology and management accounting practices, &
how these changes in turn, influence organizational performance . General managers
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of 700 business units of larger firms, or companies in their own right in the
manufacturing sector. Randomly selected from the Kompass Australia (1999)
database . An increasingly competitive environment has resulted in an increased focus
on differentiation strategies. This, in turn, has influenced changes in organizational
design, advanced manufacturing technology and advanced management accounting
practices. These three changes have led to a greater reliance on non-financial
accounting information which has led to improved organizational performance.
Gerdin and Greve (2004) observe that “organizations need internal consistency
between multiple contingencies and multiple structural characteristics if they are to
perform well . So, there is strong reason to homogenize similar subsystems facing
similar tasks and environment. It should be mentioned here that the strategic
determinants of control and their influence on control at SBU level and below were
not picked up by subsequent studies.
Spraakman (2005) examined how Enterprise Resource planning systems in large
organizations changed management accounting practice and in particular capital
budgeting activities. The survey was administered to 71 large Canadian companies
with 35 responses received (response rate of 43.7%). With respect to capital
budgeting, the changes occurred were noted as follows: more rigorous use of detailed
and accurate data (e.g. organization of data by type and start date), more realistic
process, on-line submissions, reviews and approvals of data used in capital budgeting,
increased linkages to strategy, greater ability to track projects such as construction
plan, monetary expenditures and fixed asset ledgers and decentralization of smaller
projects. Furthermore, Spraakman (2005) indicates that ERP systems have a moderate
impact on other management accounting practices, such as budgeting, operating
statements, forecasting, performance measurement and costing. Some of the most
frequent changes regarding these practices, which were observed after the
implementation of Enterprise resource planning systems, :
• Budgeting: more automated, more detailed, more accurate, easier to use, easier
for consolidations, and improved overview capacity.
• Operating statements: more automated, more detailed and quicker generation.
• Forecasting: longer term, more frequent, rolling and not merely fixed period, more
accurate, more integrated, and more detailed.
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• Performance measurement: expanded, more detailed, more focused on
operations, more flexible reports, greater use of benchmarking.
• Costing: more detailed, more focused, more accurate, more flexible reports.
Dechow and Mouritsen (2005) analyzed how two large Danish multinational
manufacturing firms attempted to improve management control by adopting an
enterprise resource planning system. In both firms, the researchers observed that post
enterprise resource planning implementation, the financial statements were generated
more frequently, were more complete and reliable due to the automated and
continuous data reconciliation afforded by the enterprise resource planning system.
One of the two firms tried to utilize benchmarking techniques in the enterprise
resource planning environment. However, the enterprise resource planning system
could not effectively support the measurement of divisional performance.
Additionally, management accounting data could not be properly collected and
aggregated due to the complexity of the enterprise resource planning system. This
finding is in line with that of Granlund and Malmi (2002) that enterprise resource
planning systems do not effectively support the utilization of sophisticated accounting
techniques because of the complexity of their architecture. This led Dechow and
Mouritsen (2005) to conclude that the accounting benefits achieved via the
deployment of the enterprise resource planning system were limited to the
consolidation of data.
Quattrone and Hopper (2005) also investigated how two large multinational
manufacturing organizations attempted to improve management control by adopting
an Enterprise resource planning system. Managers who were closely involved in the
Enterprise resource planning implementation were interviewed and relevant
documentation was analyzed. The findings of the case studies show that Enterprise
resource planning systems increase information visibility. Prior to Enterprise resource
planning implementation, management accountants were responsible for gathering
and providing information to managers. Post implementation, the Enterprise resource
planning system carries out these tasks. The researchers also indicate that post
Enterprise resource planning implementation, tasks, which were formerly performed
by management accountants (e.g. books of subsidiaries), are now performed by non-
accountants through the Enterprise resource planning system.
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Quattrone and Hopper (2005a ) also report that post Enterprise resource planning
implementation in large Government organizations, management accountants wanted
to utilize benchmarking techniques. However, this was impossible due to the
complexity of the Enterprise resource planning system. With respect to management
accounting practice, the Enterprise resource planning system merely automated
information processing confirming the findings of earlier studies.
Davila (2005) Exploratory study focusing on those MCS associated with human
resource management in high-technology firms 95 small, young, technology oriented
firms in California’s Silicon Valley. Gathered from: Rich’s Everyday Sales
Prospecting Guide, Technology Resource Guide to Greater Silicon Valley, and
Silicon Valley Business Press. MCS (a latent Variable measured by Personnel control,
Action control, and Result control). Several variables as drivers of the emergence of
MCS including the size of the organization, its age, the replacement of the founder as
CEO, and the existence of outside investors identified. Also provides initial results on
how the emergence of various types of MCS depends on which systems the
organization has already adopted.
Sayed (2006) investigated the impact of Enterprise resource planning systems on the
role of management accountants in a large Egyptian manufacturing company.
Drawing on interviews with key practitioners, Sayed (2006) report that the lack of
qualified IT specialists during the implementation phase of the Enterprise resource
planning system affected its functionality which in turn affected the way the system
was used. For example, a senior accountant within the company commented that
accounting personnel relied on the help menu in order to understand how to perform
their tasks in the new environment. Additionally, during the Enterprise resource
planning implementation, there was a high level of antagonism between the
accounting and production personnel regarding control of the system. The factory
manager wanted to have control over the Enterprise resource planning system in order
to improve production control while the accountant function argued that the
Enterprise resource planning system should be under the control of the accounting
department as financial statements are the final output of the system. To overcome
this disagreement, the firm’s management accountants attempted, and, eventually,
succeeded in adapting the Enterprise resource planning system to meet the needs of
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both the production and accounting staff. The findings demonstrate that due to the
lack of personnel equipped with appropriate IT skills, management accountants were
required to enhance their technological expertise, and, in the long run.
Henri (2006) studied the influence of strategic choices and focused on, “to what
extent do the diagnostic and interactive uses of MCS contribute specifically to the
creation and maintenance of capabilities leading to strategic choices?” . This study is
of relevance to us and it points out that, “an interactive use of PMS fosters capabilities
of market orientation, entrepreneurship, innovativeness, and organizational learning’,
and that “a diagnostic use of PMS exerts negative pressure . The direction of
relationship in this study is that internal control system design can help market
orientation, entrepreneurship etc whereas we propose that control system is influenced
by its environmental variables.
Rikhardsson and Kraemmergaard (2006) explored the organisational effects of
enterprise resource planning implementations in five large Danish manufacturing
companies and the municipality of Copenhagen. Drawing on interviews and case
descriptions which were written by those interviewed, the findings of the study
suggest that enterprise resource planning systems promote better coordination of
processes. Specifically, they automated information processing, and, in the long run,
reduced the need for manual inputs by management accountants. Prior to enterprise
resource planning implementation, management accountants were the ‘gate keepers’
of accounting information and were responsible for gathering and providing this
information to decision makers. Post enterprise resource planning implementation,
accounting information is more freely available to managers. In order to support
decision-making, management accountants now perform value-adding tasks, such as
information analysis, scenario building and information assurance and presentation.
Kober (2007) hold that while the traditional view on management control sees it as
flowing from strategy, they proposed it can also influence strategy. The authors
concluded based on a retrospective study of a public sector entity, that there is an
‘existence of two-way relationship between MCS and strategy’ . This is also echoed
by Ghoshal and Nohria (2005) when they said, “organizations facing heterogeneous
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task environments seek to identify homogeneous segments and establish structural
units to deal with each” .
Kholeif et al. (2007) investigated the failure of an enterprise resource planning
project in an Egyptian company, called AML. Interviews, site visits, and documentary
evidence were used to collect data. Since AML is a state-owned Enterprise resource
planning rise, they had applied the Uniform Accounting System introduced in 1966
by the Egyptian control authorities for preparation of the National Plan. In terms of
this system, “accounts are classified in homogeneous classes in a manner that assists
in preparing national accounts, as well as satisfying the needs of the traditional
financial and cost accounting” (Kholeif et al., 2007, p.9). In order to modernize its
information systems, AML decided to invest in an enterprise resource planning
system. The enterprise resource planning system was customized to be compliant with
the Uniform Accounting System. However, it was not possible achieve complete
conformity with the existing organisational system.
Jack and Kholeif (2008) examined the effects of a failed enterprise resource planning
implementation on the role of management accountants in an Egyptian company,
IMC. The company was in charge of a programme sponsored by the European Union
(EU) which aimed to promote the economic transition of Egypt from a central
planning to a market oriented economy. To overcome the constraints of their existing
system, IMC decided to implement an enterprise resource planning system with the
finance and distribution modules initially installed. Under the EU order, a controller
and an IT manager at IMC undertook to build a web-based custom system for
managing the budget. The system was designed to trace requisitions and contracts and
automatically adjust budget lines using the intranet. Both practitioners left IMC before
completing the development of the new system. As a consequence, the interaction
between the web-based custom system and the enterprise resource planning system
was poor because of the low level of integration between the two systems. This issue
was addressed by customizing the enterprise resource planning system so it was in
alignment with the needs of the organization. However, this resulted in the
development of a conventional accounting information system. As a result, Jack and
Kholeif found the neither management accounting practices or the role of
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management accountants changed as a result of the enterprise resource planning
systems .
2.6 The role of MCS to bring intended strategies to realization Chung (1996) and Shih & Yong (2001) provide support for the argument advanced
by Simons (1987), that MCS are instrumental in strategy implementation. Shih &
Yong (2001) however, extend this argument by the inclusion of informal MCS
attributes in their operationalisation of the MCS construct. In finding that that
customization, as a strategic priority, does not have a direct relation with MAS but
rather operates via the interdependencies created when such a strategic priority is
pursued, Bouwens and Abernethy (2000) suggest that it does not suffice to simply
investigate the strategy-MAS link. Rather, it is also necessary to take into account
what are the other consequences of strategic choice.
The findings of this study provide some understanding as to ``why'' we might observe
a relation between strategy and MAS in that it proposes interdependencies are
instrumental in the emergence of this relationship. In considering the design and use
of MCS and the implications of fit in the context of a takeover, Nilsson (2002)
illustrates the importance of the corporate strategy of the acquirer and the business
strategy of the acquired company. In so doing, the role of MCS in both strategy
formulation as well as strategy implementation is underlined. Baines & Langfield-
Smith (2003), also provide evidence to indicate that not only does a change in strategy
influence a change in aspects of MCS design, but also, that this results in enhanced
performance. Explicitly considering MCS use as distinct from MCS design, Bisbe &
Otley (2004) find that the effect of a particular type of strategy (innovation) on
performance is moderated by an interactive use of MCS, lending support to the claim
that MCS has a role, albeit indirect in this instance, in the implementation of strategy.
Malina & Selto (2004) however, find that neither the use nor the design of one aspect
of MCS.
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2.7 The significance of resource sharing between SBUs for the design of
Management Control under different strategies
Auzair & Langfield-Smith and Henri (2005) has resulted in an appreciable advance
in the way in which we have traditionally viewed the MCS - strategy relationship. The
former through their operationalisation of informal MCS, as well as a consideration of
the MCS strategy relationship in a service industry; the latter through the introduction
of the RBV frame of reference in a consideration of this relationship. The importance
of strategic control, socialization controls, behaviour controls, financial controls and
output controls was identified by Chung, Gibbons & Schoch (2000), as well as
Nilsson (2000) in multi-national subsidiaries and Swedish corporate groups
respectively.
2.8 The nature and extent to which the role and composition of MCS change Moores & Yuen (2001) Insights are provided by Yuen who underline the potentially
dynamic role of MCS over stages in the organizational life-cycle. Davila (2005) too
makes an important contribution to this particular research avenue by providing
evidence for the influence of (four) particular variables on the emergence of a narrow
type of MCS.
2.9 Aspects of the MCS - Strategy relationship which focus on operational as well as senior management of Large organizations Marginson and Nilsson & Rapp (2002) provide support for the claim that the
borderline between management and operational levels are beginning to dissolve.
Moreover these three studies also provide evidence for the central role that MCS may
play in both strategy formulation as well as strategy implementation. In distinguishing
between the use as opposed to the design of MCS, Marginson (1999) give credence to
the findings of Simons (1994,1995), in the role of MCS in the implementation and
formulation of strategy. The importance of informal MCS as compared with formal
MCS in the relationship with strategy (Marginson, 2002) is another critical
contribution in this avenue of research .
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2.9.1 Classification of empirical and case - based MCS-strategy research The increasing variety of theoretical perspectives, designs, and methods in empirical
management accounting research requires a determination of how, if at all, these
different perspectives and methods relate to each other and how complete and valid an
explanation of the causes and effects of management accounting the literature as a
whole provides (Luft & Shields, 2003). Similarly, some pre specified agreed upon
analytical framework is required in order to evaluate the theoretical contribution of
case study research to the literature (Keating, 1995). Mindful of these observations
and of the fundamentally different focus of each type of research, separate
frameworks for analyzing empirical and case studies will be proposed in the following
two sub-sections.
Nobes (1984) extended Mueller’s analysis and based his classification on an
evolutionary approach. He adapted some of Mueller’s useful terminology and
proposed a hypothesis in which microeconomic and macroeconomic systems were
distinguished. Under the micro-based classification, he made a distinction between
business economics and business practice orientations. Under the macro-uniform
based classification, he made distinction between a government/tax/legal orientation
and a government/economics orientation.
Some factors were identified for differentiating accounting systems, which included:
1. Type of users of the listed companies’ published accounts;
2. Degree to which law or standards prescribe in detail and exclude judgment;
3. Importance of tax rules in measurement;
4. Conservatism/prudence;
5. Strictness of application of historic cost;
6. Susceptibility of replacement for cost adjustments in main of supplementary
accounts;
7. Consolidation practices.
From the late 1960s, researchers in international accounting have tried to categorize
countries according to a series of criteria, which have been developed on a deductive
or conductive basis. These criteria tried to explain the reasons for accounting
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differences between countries; they aimed to describe and compare different systems
with each other in an efficient way. There are several advantages to categorize and
analyze the differences among countries: First, it promotes improved understanding of
the complex realities of accounting practices, as well as the factors that shape a
country’s accounting regulations; Second, it provides useful information for solving
some of the important accounting problems that exist in the world. For example, it can
help policymakers assess the prospects and problems of international harmonization;
Third, it can assist in the training of accountants and auditors who operate
internationally; And finally, it can enable a developing country to better understand
the available and appropriate types of financial reporting by seeing other countries’
use of particular systems. By looking at other countries in its group it is possible to
predict the problems that it is about to face, and the solutions that might work .
When classifying international accounting systems, two main forms have been
employed: one is the deductive approach, in which the approaches to accounting
development are identified. By linking these to economic or business factors, the
influential environmental factors are recognized. International accounting
classification research is still at an early stage. Concerning environmental factors in
international accounting, there seems to be a consensus, on the whole, about which
factors are involved in shaping financial report. But there are still some different
understandings of which is the dominant environmental factor that shapes one
country’s accounting development .
Gerdin & Greve (2004) reinforces the contention of Langfield- Smith that care must
be taken in comparing results of empirically-based contingency studies without a
means by which the findings of these studies can be related. However this
reinforcement is predicated on the assumption that fit is the predominant factor in the
research design upon which inconsistencies between findings might be explained. The
operationalisation and measurement of variables themselves is not directly addressed
by this framework. Consequently, it is contented that a broader framework that
incorporates the research design issue of interrelationship between variables.
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2.9.2 Management Control Systems in Large Scale Organizations
Management Control Systems are the processes in place to assist in attaining
organizational objectives (Anthony, 1965; Ouchi, 1979; Otley and Berry, 1980;
Fisher, 1995), by aligning the behaviour of those within an organization (Abernethy
and Chua, 1996). Although there is general agreement on the definition of MCS, there
are no definitive boundaries as to what constitutes a control system (Fisher, 1995).
However, some recent research has been taking a package approach to MCS with a
broad range of control elements considered (Simons, 1995; Abernethy and Chua,
1996; Alvesson and Karreman, 2004). This paper uses the typology developed by
Brown (2005) due to its roots in previous MCS literature and it’s broad approach.
It consists of five groups of controls; cybernetic, socio-ideological, administrative,
planning, and reward and compensation systems. A broad typology is necessary, as it
assists researchers in understanding how complex professional service firms carry out
all of their control functions to manage highly skilled knowledge workers (Kloot,
1997; Alvesson and Karreman, 2004).
Cybernetic control
Cybernetic control is based upon communication-system theories with the core
underlying idea that control is achieved through a feedback process in a goal-seeking
relationship, which has a mutual effect on behaviour and action (Saxberg and Slocum,
1968). Green and Welsh, (1988) argue that there are five characteristics of cybernetic
systems; first is that measures quantify an activity, second, standards targets are to be
met, third, there is a feedback process, fourth variance analysis from the feedback is
undertaken, and finally is the ability to change the activities to reflect this feedback.
There are three main cybernetic systems which have been identified in MCS research;
traditional financial accounting controls, nonfinancial controls and hybrids that
include both financial and non-financial measures such as the Balanced Scorecard
(Kaplan and Norton, 1996; Fisher, 1998). Alvesson and Karreman (2004) group
cybernetic controls as output controls within technocratic forms of control; they
explain that these controls focus on key performance indicators, and refer to profit,
sales and quality measures as prime examples.
Socio-ideological controls
Socio-ideological controls are defined by Alvesson and Karreman (2004, p426), as
“efforts to persuade people to adapt to certain values, norms and ideas about what is
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good, important, praiseworthy, etc in terms of work and organisational life”. When an
organization is involved in this sort of control, managers consciously and
systematically, attempt to make employees adhere to ideals that they believe in or
those they feel the organization would best benefit from (Alvesson and Karreman,
2004). Simons (1995) developed this concept through the idea belief systems; with
formal belief systems communicated to employees by way of a credo or mission
statement.
Administrative controls
Administrative controls refer to mechanisms in place which oversee and manage the
policies, procedures and processes of an organisation, specifically in respect of the
integration of different business units (Govindaraja and Gupta, 1985). This paper
considers three groups of administrative control; the first is organisational design
(Alvesson and Karreman, 2004), the second is authority structure (Hopwood, 1976;
Abernethy and Chua, 1996), and the third are rules and operating procedures
including personnel controls (Abernethy and Brownell, 1997).
Planning
Planning as a control mechanism promotes goal congruence between the individual
and the organization through the setting of particular goals, and the creation of
challenging standards (Flamholtz et al, 1985). Its activities generate a list of work
objectives and the associated standards for the operational subsystem (Flamholtz et al,
1985). The outcomes of this operation are then measured, which allow information to
be used in comparing pre-established goals and standards (Flamholtz et al, 1985).
Reward and compensation systems
The idea of reward and compensation systems is firmly rooted in agency theory which
argues that control of agents is exercised through incentive payoffs tied to certain
levels and measures of performance (Fama and Jensen, 1983). Reward and
compensation systems are diverse and encompass cash, equity in the firm, perquisites
and intangible awards (Kaplan and Norton 1996). To be an effective device of
control, rewards must be viewed as being dependent upon performance, and further
they must be valued (Flamholtz et al, 1985).
Oliver (1991) reconciles institutional and resource dependency theories by presenting
a typology of responses organisations adopt to deal with the pressures exerted on
them. Five types of responses are identified; acquiescence, compromise, avoidance,
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defiance and manipulation4. Further, she develops a set of propositions predicting the
occurrence of the different responses. Support for these responses and propositions
have been provided by a number of studies adopting Oliver’s (1991) framework (see
e.g. Abernathy and Chua, 1996; Modell, 2002).
2.9.3 Improved MCS practices in relation to Organizations’ productivity performance Miles & Snow (1978) believe that management has to face three kinds of problems:
entrepreneurial (products and markets strategic management), technological (products
production and distribution), administrative (organization supporting entrepreneurial
and technical decisions). When these problems are solved in a successful manner, a
stable strategic pattern is identified. In the boundaries of this path three typologies
pursuant to their rate of change in product or market are shown. Mostly prospectors
compete through product innovation, offer a wide product range and are considered
the first in product and market area. Marketing and Research & Development are the
main functions in these organizations.
Walsh and Whelan (2000) assessed the performance of 220 firms in a number of
Central and Eastern European countries during a transition period of seven years.
Performance was determined in terms of employment growth. The results indicate
that firms owned and managed by outsiders outperform both the companies managed
by the owner and the state-owned enterprises. The study shows that in various
countries the effect of privatization on employment tends to be ambiguous.
From the evidence presented above, it can be concluded that the impact of
privatization is mixed, that is both positive and negative. In addition, most past studies
focus on the post privatization stage and fail to give a thorough analysis of MCS
change and the factors that influence firm performance.
Baines and Langfield - Smith (2003) shows that the increasing competitiveness of
the business environment has led to an increased focus on differentiation strategies,
having an impact on the nature of the organizational design, the manufacturing
technologies and improved MCS practices. This impact requires a greater reliance on
non-financial accounting information in order to improve firm performance.
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Furthermore, for companies to be successful they should not only aim at improving
their financial performance and operational efficiency, but also pay attention to issues
such as customer satisfaction and human resources. In addition, there has to be clarity
on the organizational level with respect to the strategies chosen (Lingle & Schiemann,
1996). These strategies should be based on the proper success criteria. For instance,
financial performance will not improve on the basis of quality criteria if these are not
of value to the customers. A strategy of innovation may fail unless it is initiated in an
environment that values renewal and realised by a company that is fit to do so.
Similarly, adjusting the organizational design to the environment will be ineffective if
the strategy selected is inappropriate (Pelham, 1999; Miller, 1982). It can be
concluded that information is now being recognized as one of the most powerful
tools for improving the wealth of firms (Mangaliso, 1995). And in view of the
dynamic nature of the business environment it is the function of MCS to provide up-
to-date information that helps managers in making the proper decisions and to
motivate these managers to establish organizational change beneficial to the firm .
2.10 Gaps in Literature :
• In Maharashtra large scale Government organization context no formal studies
were performed towards Management control system practices.
• No research has been conducted towards Management control system
practices in MSEDCL .
• For Management control system practices no formal research could be found
in Maharashtra Large scale Government organizations.
• Very few studies have been done in the context of Management control
practices in small scale industries , however MCS in large scale organizations
has not been performed specific to Maharashtra state.
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CHAPTER 3 OBJECTIVES AND RESEARCH
METHODOLOGY
Contents: 3.1 Problem Statement
3.2 Research Objectives
3.3 Hypothesis formulation
3.4 Research Methodology
3.5 Sampling Design
3.6 Sample Size
3.7 Data Collection
3.8 Research Questionnaire
3.9 Validation of Questionnaire
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CHAPTER -3
OBJECTIVES AND RESEARCH METHODOLOGY
3.1 Problem Statement
From a review of literature, it is observed that only a few scattered efforts have made
in the field of Management Control Systems Practices, and whatever little was done
remained confined to the macro level only. The organizational levels have not been in
depth. Thus it is felt that there is need for case studies on the practices of Management
Control Systems in specific large organizations, so as to understand the practices
being adopted there. This will help to point out the short comings and to suggest
improvements to make the systems in various sub systems as well as in the whole
organization. The present study is a step in this direction on MSEDCL.
Electricity is a leading public Utility and it is a socially desirable institution like
justice, defense and transport for which there is no direct demand but on which the
entire structure of an organized society depends. Second, electricity being a public
utility, the efficiency of the MSEDCL has a great bearing on the working of various
organization and thus has a multiplier effect on the economy of the state as a whole .
3.2 Objectives of Study
Based on the secondary data, literature review and the gaps identified the objectives
of the study was framed. The objectives of the study are as follows:-
1 To study Management Control System structure, status and usage in the
Maharashtra State Electricity Distribution company.
2 To study the Management Control System in the distribution arm of Maharashtra
State Electricity Distribution Company .
3 To study the impact of Management Control System on productivity in Maharashtra
State Electricity Distribution Company.
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4 To study success /failure factors of Management Control System practices.
5 To study diagnostic procedures adopted in Management Control System for
maintaining these systems up to date.
6 To study the computer based Management Control System practices in the
Maharashtra State Electricity Distribution Company.
3.3 Based on the objectives, the following hypothesis were initiated.
H01: There is no Management Control System , Structure , status and usage in the
Maharashtra State Electricity Distribution Company .
H11: There is Management Control System structure, status and usage in
Maharashtra State Electricity Distribution Company .
H02: There is no effect of the Management Control System in the distribution arm of
the Maharashtra State Electricity Distribution Company.
H12: There is effect of Management Control System in the distribution arm of
the Maharashtra State Electricity Distribution Company.
H03: There is no impact of productivity on MCS in Maharashtra State Electricity
Distribution Company.
H13: There is impact of MCS on productivity in Maharashtra State Electricity
Distribution Company .
H04: There are no success /failure factors of Management Control System
practices.
H14: There are success / failure factors of Management Control System practices.
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H05: There are no diagnostic procedures adopted in company for Management
Control System in maintaining these systems up to date .
H15: There are diagnostic procedures adopted in company for Management Control
System in maintaining control systems up to date.
H06: There are no computer based Management Control System practices in
the Maharashtra State Electricity Distribution Company .
H16: There are computer based Management Control System practices in the
Maharashtra State Electricity Distribution Company .
3.4 Research Methodology
Research Methodology is a blue print of the Study conducted, which includes steps of
data collection, sample selection, type of questionnaire, process of data and finally
interpretation of the data. Research design provides the glue that holds the research
project together. A design is used to structure the research, to show how all of the
major parts of the research project , the samples of groups , measures , treatments or
programs , and methods of assignment .
A research design is not just a work plan. A work plan details what needs to be done
to complete the project, however the work plan will flow from the project’s research
design . The function of a research design is to ensure that the evidence obtained
enables us to answer the initial question as unambiguously as possible.
Research designs deal with tuning the research questions into a testing project. The
best design depends on the research questions chosen. Every design has its positive
and negative sides. Research design is different from the method by which data are
collected. It is not uncommon to see research design treated as a mode of data
collection rather than as a logical structure of the enquiry. But there is nothing
intrinsic about any research design that requires a particular method of data collection.
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3.4.1 Quantitative Research Design Experiential Design : In an experimental design, the researcher actively tries to
change the situation, circumstances or experience of participants , which leads to a
change in behavior of the participants of the study . The participants are assigned to
different conditions , and variables of interest are measured . All other variables are
controlled. Experiments are normally highly fixed before the data collection.
Non experimental Design : Non – experimental research is almost the same as
experimental research , the only difference is that non-experimental research does not
involve a manipulation of the situation, circumstance or experience of the participants
. Non experimental research design in which a range of variables is measured. These
designs are also called correlation studies, since correlation is most often used in the
analysis . the second type is comparative design . These designs compare two natural
groups. The third type of non – experimental research is longitudinal design .
Quasi Experiment: Quasi research designs follow the experimental procedure, but do
not randomly assign people to (treatment and comparisons) groups.
Qualitative Research Design
A qualitative research design essentially deals with a case study. In a case study , one
single unit is extensively studied . This case can be a person organization , group or
situation.
3.4.2 Understanding the issue:
The research had to be started by understanding the concepts of Management control
system practices and their impact on MSEDCL . Hence secondary data analysis was
very essential.
Research design deals with turning the research questions into a testing project. The
best design depends on the research questions chosen. Every design has its positive
and negative sides. Research design is different from the method by which data are
collected. It is not uncommon to see research design treated as a mode of data
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collection rather than a logical structure of the enquiry . But there is nothing intrinsic
about any research design that requires a particular method of data collection.
According to Robson, Research design can be divided into fixed and flexible research
design . Others have referred to his distinction with quantitative research design and
qualitative research designs. However fixed designs, the design of the study is fixed
before the main stage of data collection takes place. Fixed designs are normally theory
– driven , otherwise it’s impossible to know in advance which variable need to be
controlled and measured . Often these variables are qualitative . Flexible designs
allow for more freedom during the data collection . One reason for using a flexible
research design can be that the variable of interest is not quantitatively measurable,
such as culture . In other cases the theory might not be available before one starts the
research .
3.4.3 Pre - Study :
This was done by having an open conversation with the MSEDCL Chief Engineers
and Managerial staff of the organization. This organization was chosen as it has its
presence felt in all districts of Maharashtra and is a body from the governments side
which is supplying Electricity to all over Maharashtra and working exclusively for
fulfilling the electricity demands across whole state. Several organizational books and
manual were referred to understand the details.
The study concentrated both on primary and secondary data
a) The Secondary data provided details of the State of Maharashtra and districts of
Maharashtra and the Regional offices .
b) The primary survey was critical component of the study as it would yield crucial
data on the impact of Management Control system practices of MSEDCL and grass
root workers and Chief Engineers, Superintendent Engineers Executive engineers.
The survey would give an idea on :
1. The MSEDCL activities in control area.
2. Impact of Productivity on MCS
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3. Details of Power Sector
4. Factors affecting MCS
3.4.4 Instrument for Survey :
The instrument used was a questionnaire. The questionnaire was prepared taking into
consideration certain parameters such as :
Questionnaire 1
Questionnaire 2
Questionnaire 1 is concerned with the strategic level .
Questionnaire 2 is concerned with the managerial level .
3.5 Selection of Samples:
1. General Information
2. Information related to Organization
3. Information related to MCS.
4. Information as reasons for failure/ success of MCS.
5. Information about departments division of work .
6. Information about Financial Control of the Company .
7. Information related to success/ failure of MCS in sub divisions of MSEDCL.
8. Information for use of computers across all levels at distribution system .
3.5.1 Locale of Research and sample size: The state of Maharashtra was selected as
locale for the present study as it is the second most popular and third largest state by
area in India. The state covers an area of 307,731 km (118,816 sq. ft) or 9.84% of the
total geographic area of India. It is also the richest state in India contributing to 15%
of the country industrial output and 13.2% of GDP. The ratio of the urban to rural
population is 42% and 58%. The study was conducted across all 35 districts of
Maharashtra . Mumbai is the capital city of the state & India’s largest city and the
financial capital of the nation. Marathi is the language of Maharashtra. Maharashtra
has 35 districts geographically, historically and according to political sentiments.
Maharashtra has five main regions.
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• Konkan (Konkan Division)
• Vidarbha or Berar (Nagpur and Amravati Division)
• Marathwada (Aurangabad Division)
• Northern Maharashtra and Kandesh (Nashik Division)
• Western Maharashtra (Pune Division)
3.5.2 Zone Locations of MSEDCL
1. Amravati Zone
2. Aurangabad Zone
3. Latur Zone
4. Nanded Zone
5. Bhandup Urban Zone
6. Kalyan Zone
7. Kolhapur Zone
8. Konkan Zone
9. Nagpur Zone
10. Nagpur Urban Zone
11. Nasik Zone
12. Jalgaon Zone
13. Pune Urban Zone
14. Kalyan Zone
Each Zone is divided in to circles and each circle in to divisions and further each
division is divided in to sub-divisions. Second, all the managers working at the three
levels viz. strategic Planning level , Managerial .Control level and operational Control
level, have been, made to constitute the population for the study. Thus, universe of the
study includes all the managers working in the distribution area of the company.
Various types of controls like financial, productivity, personnel, administrative ,
computer based management practices in the distribution area etc are included in the
study .
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3.6 Validation of the Questionnaire
Once the draft of the questionnaire was made it was validated through discussion and
inputs from peers, seniors and research guide. Also a pilot study was conducted to
further remove any discrepancies in it.
3.6.1 Details of sample size throughout Maharashtra State Electricity
Distribution Company
Sampling Design
Sampling method used in this study is best described as Purposive sampling
technique. The study has been conducted in all fourteen Zones of Maharashtra.
Sample Size
The ever increasing demand for research has created a need for an efficient method of
determining the sample size needed to be representative of a given population. There
are various formulae for calculating the required sample size. These formulae require
knowledge of the variance or proportion in the population and a determination as to
the maximum desirable error , as well as the acceptable Type 1 error risk ( eg.
Confidence level) . It is possible to use one of them to construct a table that suggests
the optimal sample size – given a population size, a specific margin of error , and a
desired confidence interval .
Sample Size Formulae: Sample size for the studies to estimate a proportion / percentage can be determined
using following formula
n ≥
Where
N = sample size, p = sample proportion, SE(p) = required standard error of the sample proportion
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p = 0.5 SE(p) = 0.03
Sample size = n = n ≥ =278 The required sample size is 278. But researcher collected data from 325 respondents.
After scrutiny 19 samples were deleted from data set because of some missing
information and inconsistency in the responses. Therefore researcher remains with the
sample size of 306 samples of which 56 were from strategic level and 250 from
managerial level.
Total number of sample 325 .
Data Collection
Pre Testing Phase:
The first survey was done on pilot scale at Bhandup Urban Zone followed by which
the questionnaire was revised. Further again the questionnaire was administered
randomly on 15 Engineers.
Data Analysis
The responses observed from each of the items in the questionnaire were consolidated
and tabulated into a sheet . statistical analysis was performed using Statistical Package
of Social Sciences (SPSS) and Microsoft excel . The data did not follow normal
distribution , hence non –parametric tests were used.
Descriptive Survey
Review of literature and other available information from various published and
unpublished reports , journals , periodicals, books, newspapers, etc . (Including
databases like Pro- Quest, and others , MSEDCL department internal publications).
MSEDCL publications such as
1. Annual Administration reports.
2. Performance budgets reports
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3. Management information reports
4. Internal audits of MIS
5. Management audit report
6. Annual financial report
7. Annual Productivity performance report
8. Statement of accounts 08-09
9. Publication of delegation of power
10. Publication regarding functions and duties
11. MSEDCL Hitguj Magazine
3.6.2 Tabulation and Statistical Analysis of Data:
The responses observed from each of the items in the questionnaire were scored and
tabulated into a master sheet. The statistical tool used included Simple Arithmetic
mean , Standard deviation , Mann-Whitney U test , Z-test , ANOVA , Duncan’s Test ,
Factor Analysis applied to draw logical conclusions . The analysis was done using
Statistical Package of Social Sciences ( SPSS) .
3.6.3 Content Validity
For a research study to be accurate , its findings must be reliable and valid. Reliability
means that the findings would consistency be the same if the study were done over
again. There are four methods of measuring reliability.
1. Identification of items was based on the logical analysis of MCS and the
respondents selected for the research study .
2. Framing of questions was done by involving professional judgment of
knowledgeable persons with vast experience of research and teaching of
Management control system practices in Universities.
3. The respondents were individually interviewed and asked to explain why they
had answered a question in a particular manner to ensure that they understood
the question as meant by the researcher .
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Reliability
The test-retest technique is to administer your test , instrument , survey, or measure to
the some group of people at different points in time. All reliability estimates are
usually in the form of correlation coefficient, ie. Calculate the correlation coefficient
between the two scores on the same group and report it as the reliability coefficient.
The multiple forms technique has other names, such as parallel forms and disguised
test – retest , but it’s simply the scrambling or mixing up of questions on the survey
,for example and giving it to the same group twice. The idea is that it’s a more
rigorous test of reliability. Inter – rather reliability is most appropriate when assistants
are used to do interviewing or content analysis. To calculate this kind of reliability,
reporting the percentage of agreement on the same subject between the raters , or
assistants is done. Split-half reliability is estimated by taking half of the test ,
instrument or survey and analyzing that half as if it were the whole thing. Then the
results of this analysis are compared with the overall analysis.
The data is collected by using questionnaire method. The respondents were divided
into two groups. The first group of respondents were those respondents which are
working at strategic level while as second group of respondents were working at
managerial level. the reliability of the questionnaire was tested using Cronbach’s
alpha.
The value of Cronbach alpha was found to be 0.600 which shows that the data is
reliable.
3.6.4 Interpretation and Report Writing : The analyzed data were finally
interpreted to draw the conclusions reported with the objective of the study in view .
3.6.5 Limitation of the Study
Present study is limited to the area of Maharashtra which is due to the time limit of
the academic programme . Similar studies are required to be undertaken in the
generation and transmission systems of Maharashtra State Electricity Transmission
and generation company. Also in future few more parameters related to Management
Control System Practices may be identified and subsequently, the study may be
carried out on those identified parameters .
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CHAPTER 4
POWER SECTOR IN INDIA
Contents: 4 History of Indian Power sector
4.1 The Indian Power Sector: An Overview
4.2 Growth Scenario Indian Power Sector
4.3 Structural Development of Power Sector
4.4 Grid Interactive Renewable Power
4.5 Current problem of Power Sector in India
4.6 Power sector reforms in India
4.7 Installed generating capacity of electricity
Actual and Demand
4.8 Some aspects of human capital challenges in the
Indian Power Sector
4.9 Funding of Power infrastructure
4.10 Emerging opportunities and challenges
4.11 Transmission & Distribution losses (T&D)
4.12 Sector Specific Opportunities
4.12.1 Existing Scenario -
Transmission , Investment , and regulatory
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CHAPTER 4
POWER SECTOR IN INDIA
History of Power in India
The first demonstration of electric light in Calcutta was conducted on 24th July 1879
by P W Fleury & Co. On January 7, 1897, Kilburn & Co secured the Calcutta electric
lighting license as agents of the Indian Electric Co, which was registered in London
on January 15, 1897. A month later, the company was renamed the Calcutta Electric
Supply Corporation. The control of the company was transferred from London to
Calcutta only in 1970. Enthused by the success of electricity in Calcutta, power was
thereafter introduced in Bombay. Mumbai saw electric lighting demonstration for the
first time in 1882 at Crawford Market, and Bombay Electric Supply & Tramways
Company (B.E.S.T.) set up a generating station in 1905 to provide electricity for the
tramway. The first hydroelectric installation in India was installed near a tea estate at
Sidrapong for the Darjeeling Municipality in 1897.
4.1 Indian Power Sector: An Overview
Decades of economic planning in India following independence placed significant
emphasis on the development of the power sector. Electricity generation capacity with
utilities in India had grown from 1713 MW in December 1950 to over 124,287 MW
by March 2006 (CEA, 2006a). However, per capita electricity consumption remains
much lower than the world average and even lower than some of the developing
Asian economies.
Investment in the sector has not been able to improve access and keep pace with the
country’s growing demand for electricity (Singh, 2006). As on March 2005, the
official statistics state that 85% of India’s 587,000 villages have been electrified.
However, the recent population census (2001) reveals that 44.2% of the households
do not have access to electricity. Consumers, who are connected to the grid, also face
severe power shortages.
The Sixteenth Electric Power Survey projects a capacity requirement of about
100,000 MW for the period 2002–12 (CEA, 2001). Apart from generation capacity
addition and associated network strengthening, additional investment is required to
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extend the transmission and distribution network to meet the requirement of the un
served population. A new rural electrification scheme, Rajiv Gandhi Grameen
Vidyutikaran Yojana, was introduced in April 2005. It aims to electrify all villages
and provide access to all households within five years. The Indian power sector
requires an investment of Rs.9000 billion (approximately USD200 billion) at 2002–03
prices to finance generation, transmission, sub-transmission, distribution and rural
electrification projects (GOI, 2005a). IEA (2003a) estimates the total investment
requirement in the Indian power sector (for the period 2000–30), including
generation, refurbishment, transmission and distribution, to be USD665 billion. Such
requirements reflect the foreseeable economic growth in the years to come.
The poor financial status and operational efficiency of SEBs/state utilities is imposing
a heavy burden on the economic resources of the respective state governments. On the
financial side, the lack of expenditure prudence and skewed tariff structure has led to
a deterioration of the financial health of state utilities. The gap between the average
cost of supply and average tariff increased from 50 paisa/kWh in 1996–97 to 110
paisa/kWh in 2001–02. The number of subsidized categories, assisted by the growing
network and rural electrification drive, increased. However, an increasing number of
consumers, including industrial and commercial consumers have acquired captive
power generation capacities that provide better economy, quality and reliability. Poor
operational and technical efficiency, along with the above factors, has resulted in
ballooning financial losses in the sector. The commercial losses of SEBs (before
subsidy) during 2001–02 were estimated to be Rs.331.77 billion as compared to
Rs.113.05 billion during 1996–97. After including the subsidy payable by state
governments, the above figures are Rs.248.37 billion and Rs.46.74 billion,
respectively.
The transmission and distribution losses remain abysmally high, being over 40% in
some states. A significant proportion of this loss is of a non-technical nature,
primarily due to theft of electricity. This is further worsened by the poor payment
record of customers, a situation which keeps collection efficiency low in many states.
This leads to cash flow problems for utilities resulting in delayed payments for
purchased power, coal, and rail transportation. The SEB dues reached Rs.25,727 Cr.
in Feb. 2001 (GOI, 2001). The Ahluwalia committee recommendations led to a one-
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time settlement of SEB dues through their securitization as state bonds in favour of
the debtors. A tripartite agreement was signed to ensure that such a precarious
situation would not develop in the future. In the case of the failure of a state’s utilities
to pay dues, the creditors can have recourse to the state’s plan allocations and its share
of central taxes.
A natural-monopoly-public-utility argument was used to justify government
ownership of the sector, barring some exceptions. The sector retained a legal
monopoly status leading to the development of vertically integrated state electricity
boards (SEBs). Historically, however, there were islands of private licensees in a few
urban regions. The lack of competition, accompanied by political influence and
operational inefficiency, has steered the sector towards the abyss of financial distress.
Persistent political interference, even in the era of ‘independent’ regulation, has
reduced hopes for a speedy recovery. A lack of project management expertise and
accountability has led to inordinate delays in planned investments and has exasperated
misgivings regarding the sector. The task of bridging the capacity shortages through
large-scale investments cannot be completely entrusted to public planning, which has
often slipped over its targets. Policymakers recognized this in the early 1990s and
opened up the sector for greater private participation. Encouraged by favourable
policy developments and the advent of independent regulation, greater private
participation is becoming visible in the sector, though not to the extent desirable.
India is the fifth largest producer of electricity in the world and according to the
Planning Commission, while the State Governments account for 51.5% of the total
generation capacity, the central sector and the private sector account for 33.1% and
15.4% of the generation capacity respectively. In line with the respective power
generation share, while the government sector (both central and state) have
contributed 85.5% of the total capacity addition of 45,295 MW during 1999-00 and
2008-09, the private sector has contributed the balance 14.5%, almost at par with its
share in the total installed capacity in the country. Transmission of power is entirely
looked after by government utility companies and distribution too barring a few states
are in the hands of the government entities.
However, during the 11th Plan the structure is sought to be changed with respect to
capacity additions. The Central sector is expected to lead the charge in capacity
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additions with accounting for as much as 49% of the new capacity additions, while
the private sector is expected to add 22% to the overall kitty, leaving the balance 29%
to the state sector under the reduced target of 68 MW as against the original target of
over 78,000 MW. physical progress on the ground till the end of the financial 2008
and the state sectors have achieved its targeted capacity addition figures, there is
considerable slippage with respect to Central sector figures current plan period,
additional capacity of 13,017 MW has already been realized with an additional 2,733
MW of captive capacity .
The power sector in India has undergone significant progress after Independence.
When India became independent in 1947, the country had a power generating
capacity of 1,362 MW. Hydro power and coal based thermal power have been the
main sources of generating electricity. Generation and distribution of electrical power
was carried out primarily by private utility companies. Notable amongst them and still
in existence is Calcutta Electric. Power was available only in a few urban centers;
rural areas and villages did not have electricity. After 1947, all new power generation,
transmission and distribution in the rural sector and the urban centers (which was not
served by private utilities) came under the purview of State and Central government
agencies. State Electricity Boards (SEBs) were formed in all the states. Nuclear power
development is at slower pace, which was introduced, in late sixties. The concept of
operating power systems on a regional basis crossing the political boundaries of states
was introduced in the early sixties. In spite of the overall development that has taken
place, the power supply industry has been under constant pressure to bridge the gap
between supply and demand.
4.2 Growth Scenario in Indian Power Sector
Development of Power Sector is the key to the economic development. The power
Sector has been receiving adequate priority ever since the process of planned
development began in 1950. The Power Sector has been getting 18-20% of the total
Public Sector outlay in initial plan periods. Remarkable growth and progress have led
to extensive use of electricity in all the sectors of economy in the successive five
years plans. Over the years (since 1950) the installed capacity of Power Plants
(Utilities) has increased to 89090 MW (31.3.98) from meager 1713 MW in 1950,
registering a 52d fold increase in 48 years. Similarly, the electricity generation
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increased from about 5.1 billion units to 420 Billion units – 82 fold increase. The per
capita consumption of electricity in the country also increased from 15 kWh in 1950
to about 338 kWh in 1997-98, which is about 23 times. In the field of Rural
Electrification and pump set energisation, country has made a tremendous progress.
About 85% of the villages have been electrified except far-flung areas in North
Eastern states, where it is difficult to extend the grid supply.
The Sixteenth Electric Power Survey projects a capacity requirement of about
100,000 MW for the period 2002–12 (CEA, 2001). Apart from generation capacity
addition and associated network strengthening, additional investment is required to
extend the transmission and distribution network to meet the requirement of the un
served population. A new rural electrification scheme, Rajiv Gandhi Grameen
Vidyutikaran Yojana, was introduced in April 2005. It aims to electrify all villages
and provide access to all households within five years. The Indian power sector
requires an investment of Rs.9000 billion (approximately USD200 billion) at 2002–03
prices to finance generation, transmission, sub-transmission, distribution and rural
electrification projects (GOI, 2005a). IEA (2003a) estimates the total investment
requirement in the Indian power sector (for the period 2000–30), including
generation, refurbishment, transmission and distribution, to be USD665 billion. Such
requirements reflect the foreseeable economic growth in the years to come.
The poor financial status and operational efficiency of SEBs/state utilities is imposing
a heavy burden on the economic resources of the respective state governments. On the
financial side, the lack of expenditure prudence and skewed tariff structure has led to
a deterioration of the financial health of state utilities. The gap between the average
cost of supply and average tariff increased from 50 paise/kWh in 1996–97 to 110
paise/kWh in 2001–02. The number of subsidized categories, assisted by the growing
network and rural electrification drive, increased.
However, an increasing number of consumers, including industrial and commercial
consumers have acquired captive power generation capacities that provide better
economy, quality and reliability. Poor operational and technical efficiency, along with
the above factors, has resulted in ballooning financial losses in the sector. The
commercial losses of SEBs (before subsidy) during 2001–02 were estimated to be
Rs.331.77 billion as compared to Rs.113.05 billion during 1996–97. After including
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the subsidy payable by state governments, the above figures are Rs.248.37 billion and
Rs.46.74 billion, respectively.
The average consumer tariff for state utilities during 2004–05 (2003–04) is estimated
to be 359.39 paise (361.00 paise). After including electricity departments in the Union
Territories, this is estimated to be 276.54 paise (274.29 paise). The gap between
average cost of supply and average tariff declined from 114.83 paise/kWh in 2000–
01 to 82.85 paise/kWh in 2004–05 (RE) 86.71 (provisional). The loss on the sale of
power is expected to remain over Rs. 277.29 billion (lower than the Rs. 304.27 billion
registered in 2001–02).
The existing ownership structure of the generating capacity is dominated by CPSUs
and state utilities . Only 13.4% of the generating capacity in the country is owned by
the private sector. Nearly all of the inter-state transmission capacity is owned by the
Central Transmission Utility (CTU), Power Grid Corporation of India Ltd. (PGCIL).
All intra-state transmission capacity is owned by the respective state transmission
utilities.
Under a recent initiative, a joint venture between public (PGCIL) and private (a Tata
group company) investor is constructing a transmission line, which is nearing
completion. Other private investors such as Reliance Energy Ltd, have recently
applied to the CERC for transmission licensees. Apart from the privatization of
distribution utilities in Orissa and Delhi, private distribution licensees have been
operating for decades in the urban areas like Mumbai, Kolkata (Calcutta), Surat,
Ahmedabad and Noida. A number of policy developments, as discussed in the next
section, in the sector have emphasized the increasing role for private investors and
reforms of the sector to improve its financial performance.
The power sector as a whole has shown significant progress in physical terms and to
meet the ever-growing demand is leading way to more encouragement to private
sector participation since 90's .
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Source , Ministry of Power , New Delhi ,Growth of Installed Capacity in India ,
2011.
Fig 4.1: Growth of Installed Capacity in India , 2011.
4.3 Structural Development of Power Sector in India
Till December 1950 about 37% of the installed capacity in the Utilities was in the
public sector and about 63% was in the private sector. The Industrial Policy
Resolution of 1956 envisaged the generation, transmission and distribution of power
almost exclusively in the public sector. As a result of this Resolution and facilitated
by the Electricity (Supply) Act, 1948, the electricity industry developed rapidly in the
State Sector.
In the Constitution of India “Electricity” is a subject that falls within the concurrent
jurisdiction of the Centre and the States. The Electricity (Supply) Act, 1948, provides
an elaborate institutional frame work and financing norms of the performance of the
electricity industry in the country. The Act envisaged creation of State Electricity
Boards (SEBs) for planning and implementing the power development programmes in
their respective States. The Act also provided for creation of central generation
companies for setting up and operating generating facilities in the Central Sector. The
Central Electricity Authority constituted under the Act is responsible for power
planning at the national level. In addition the Electricity (Supply) Act also allowed
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from the beginning the private licensees to distribute and/or generate electricity in the
specified areas designated by the concerned State Government/SEB.
During the post independence period, the various States played a predominant role in
the power development. Most of the States have established State Electricity Boards.
In some of these States separate corporations have also been established to install and
operate generation facilities. In the rest of the smaller States and UTs the power
systems are managed and operated by the respective electricity departments. In a few
States private licensees are also operating in certain urban areas.
From, the Fifth Plan onwards i.e. 1974-79, the Government of India got itself
involved in a big way in the generation and bulk transmission of power to supplement
the efforts at the State level and took upon itself the responsibility of setting up large
power projects to develop the coal and hydroelectric resources in the country as a
supplementary effort in meeting the country’s power requirements. The National
thermal Power Corporation (NTPC) and National Hydro-electric Power Corporation
(NHPC) were set up for these purposes in 1975. North-Eastern Electric Power
Corporation (NEEPCO) was set up in 1976 to implement the regional power projects
in the North-East. Subsequently two more power generation corporations were set up
in 1988 viz. Tehri Hydro Development Corporation (THDC) and Nathpa Jhakri
Power Corporation (NJPC). To construct, operate and maintain the inter-State and
interregional transmission systems the National Power Transmission Corporation
(NPTC) was set up in 1989. The corporation was renamed as POWER GRID in 1992.
The policy of liberalization the Government of India announced in 1991 and
consequent amendments in Electricity (Supply) Act have opened new vistas to
involve private efforts and investments in electricity industry. Considerable emphasis
has been placed on attracting private investment and the major policy changes have
been announced by the Government in this regard which are enumerated below:
• The Electricity (Supply) Act, 1948 was amended in 1991 to provide for
creation of private generating companies for setting up power generating
facilities and selling the power in bulk to the grid or other persons.
• Financial Environment for private sector units modified to allow liberal capital
structuring and an attractive return on investment. Up to hundred percent
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(100%) foreign equity participation can be permitted for projects set up by
foreign private investors in the Indian Electricity Sector.
• Administrative & Legal environment modified to simplify the procedures for
clearances of the projects.
• Policy guidelines for private sector participation in the renovation &
modernization of power plants issued in 1995.
• In 1995, the policy for Mega power projects of capacity 1000 MW or more
and supplying power to more than one state introduced. The Mega projects to
be set up in the regions having coal and hydel potential or in the coastal
regions based on imported fuel. The Mega policy has since been refined and
Power Trading Corporation (PTC) incorporated recently to promote and
monitor the Mega Power Projects. PTC would purchase power from the Mega
Private Projects and sell it to the identified SEBs.
• In 1995 GOI came out with liquid fuel policy permitting liquid fuel based
power plants to achieve the quick capacity addition so as to avert a severe
power crisis. Liquid fuel linkages (Naphtha) were approved for about 12000
MW Power plant capacity. The non-traditional fuels like condensate and or
impulsion have also been permitted for power generation.
• GOI has promulgated Electricity Regulatory Commission Act, 1998 for setting
up of Independent Regulatory bodies both at the Central level and at the State
level viz. The Central Electricity Regulatory Commission (CERC) and the
State Electricity Regulatory Commission (SERCs) at the Central and the State
levels respectively.
• The main functions of the SERC would be to determine the tariff for
electricity wholesale bulk, grid or retail, to determine the tariff payable for use
by the transmission facilities to regulate power purchase and procurement
process of transmission utilities and distribution utilities, to promote
competition, efficiency and economy in the activities of the electricity
industries etc. Subsequently, as and when each State Government notifies,
other regulatory functions would also be assigned to SERCs.
• The Electricity Laws (Amendment) Act, 1998 passed with a view to make
transmission as a separate activity for inviting greater participation in
investment from public and private sectors. The participation by private sector
in the area of transmission is proposed to be limited to construction and
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maintenance of transmission lines for operation under the supervision and
control of Central Transmission Utility (CTU)/State Transmission Utility
(STU). On selection of the private company, the CTU/STU would recommend
to the CERC/SERC for issue of transmission license to the private company.
• The Electricity Laws (Amendment) Act, 1998 provides for creation of Central
and State Transmission utilities. The function of the Central Transmission
Utility shall be to undertake transmission of energy through inter-state
transmission system and discharge all functions of planning and coordination
relating to inter-state transmission system with State Transmission Utilities,
Central Government, State Governments, generating companies etc. Power
Grid Corporation of India Limited will be Central Transmission Utility.
• The function of the State Transmission Utility shall be to undertake
transmission of energy through intra-state transmission system and discharge
all functions of planning and coordination relating to intra-state transmission
system with Central Transmission Utility, State Governments, generating
companies etc.
4.3.1 Electricity Generation Resource Share
The share of hydel generation in the total generating capacity of the country has
declined from 34 per cent at the end of the Sixth Plan to 29 per cent at the end of the
Seventh Plan and further to 25.5 per cent at the end of Eighth Plan. The share is likely
to decline even further unless suitable corrective measures are initiated immediately.
Hydel power projects, with storage facilities, provide peak time support to the power
system. Inadequate hydel support in some of the regions is adversely affecting the
performance of the thermal power plants. In Western and Eastern regions, peaking
power is being provided by thermal plants, some of which have to back down during
off peak hours.
4.3.2 Regional Power Systems Emergence
In order to optimally utilize the dispersed sources for power generation it was decided
right at the beginning of the 1960’s that the country would be divided into 5 regions
and the planning process would aim at achieving regional self sufficiency. The
planning was so far based on a Region as a unit for planning and accordingly the
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power systems have been developed and operated on regional basis. Today, strong
integrated grids exist in all the five regions of the country and the energy resources
developed are widely utilized within the regional grids. Presently, the Eastern &
North-Eastern Regions are operating in parallel. With the proposed inter-regional
links being developed it is envisaged that it would be possible for power to flow
anywhere in the country with the concept of National Grid becoming a reality during
12th Plan Period.
4.3.3 Installed Generating Capacity Utilization
The size of the generating unit that has been used in the country in coal based power
stations has progressively increased from about 15 MW prior to the era of planned
development to 500 MW at present. With the introduction of new design of
generating units, certain difficulties arose in their efficient operation and maintenance.
The availability of coal in the country is such that the higher grades of coal, which
have higher calorific value, have been exhausted and progressively lower grades of
coal are being made available for electricity generation in the power stations. This had
resulted into operational problems with the boilers designed for higher grades of coal
and also put more pressure on coal handling plants etc. As a result of these technical
and managerial problems, the utilization level of coal based power stations in the
country declined in the late 1970s and early 1980s. The all India Thermal PLF which
was as low as 27% at the beginning of First Plan progressively increased to 47.%% by
the year 1963-64 and then declined to around 42% by early seventies.. The all India
Average PLF of the Thermal Power Plants has further increased to 64.4% by the end
of eighth plan.
4.3.4 Private sector participation in Power sector
The initial response of the domestic and foreign investors to the policy of private
participation in power sector has been extremely encouraging. However, many
projects have encountered unforeseen delays. There have been delays relating to
finalization of power purchase agreements, guarantees and counter-guarantees,
environmental clearances, matching transmission networks and legally enforceable
contracts for fuel supplies. The shortfall in the private sector was due to the
emergence of a number of constraints, which were not anticipated at the time the
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policy was formulated. The most important is that lenders are not willing to finance
large independent power projects, selling power to a monopoly buyer such as SEB,
which is not financially sound because of the payment risk involved if SEBs do not
pay for electricity generated by the IPP. Uncertainties about fuel supply arrangements
and the difficulty in negotiating arrangements with public sector fuel suppliers, which
concern penalties for non-performance, is another area of potential difficulty. It is
important to resolve these difficulties and evolve a framework of policy which can
ensure a reasonable distribution of risks which make power sector projects financially
attractive.
The capacity addition programme for the 9th Plan envisaged around 17,588 MW to be
added by private generating companies. In order to achieve the targeted private sector
capacity addition during the Ninth Plan, the following additional facilitating measures
have recently been suggested by the promoters. Most of these have been accepted
while some of them are under the consideration of the Government.
4.3.5 Speedy environmental clearance for Power plants
The Ministry of Environment and Forests has agreed to delegate the powers to States
for environmental clearance of:
All co-generation plants and captive plants up to 250 MW;
Coal based plants up to 500 MW using fluidized technology subject to
sensitive areas restrictions;
Power stations up to 250 MW on conventional technology.
Gas/Naphtha based stations up to 500 MW.
4.3.6 Viability of State Electricity Board’s
The financial health of the SEBs will be improved through rationalization of tariff,
restructuring and reforms to make them economically viable and their projects
bankable to generate energy on economic rate, to provide quality services to the
consumers and to ensure a fair return to the investors. This can be best achieved by
unbunding single entity (SEBs) and corporatizing the same for the above activities. In
this context, some of the States have taken initiative by unbundling their respective
SEBs into separate companies for Generation & Transmission & Distribution.
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4.3.7 Regulatory bodies
The Government of India has promulgated Electricity Regulatory Commission Act,
1998 for setting up of Independent regulatory bodies both at the Central level and at
the State level viz. The Central Electricity Regulatory Commission (CERC) and the
State Electricity Regulatory Commissions (SERCs) at the Central and the State Levels
respectively. These regulatory bodies would primarily look into all aspects of tariff
fixation and matters incidental thereto.
4.4 Grid Interactive Renewable Power
The Indian Power sector, classically driven by technical considerations, is now
subject to various market forces. This has resulted in power systems being operated
closer to the edge. Under these conditions operating and maintaining the grid within
acceptable parameters is a challenge. Deficit conditions prevailing in the country are a
well known fact. Stress on quality supply is increasing day by day. Here starts the role
of Grid Management. Grid Management effectively means managing supply and
demand to maintain frequency, voltage and stability of the network. It essentially
requires taking care of the overall reliability, security, economy and efficiency of the
power system.
Smart Grid
The Indian Power sector, classically driven by technical considerations, is now
subject to various market forces. This has resulted in power systems being operated
closer to the edge. Under these conditions operating and maintaining the grid within
acceptable parameters is a challenge. Deficit conditions prevailing in the country are a
well known fact. Stress on quality supply is increasing day by day. Here starts the role
of Grid Management. Grid Management effectively means managing supply and
demand to maintain frequency, voltage and stability of the network. It essentially
requires taking care of the overall reliability, security, economy and efficiency of the
power system.
138
Main Electrical Grids region wise
Source : Ministry of Power , Five Electrical Grids in India, 2011, New Delhi.
Fig.4.2 : Five Electrical Grids in India.
In India Grid management on regional basis started in sixties. Over a period of time,
State grids were inter-connected to form regional self sufficient grid. Whole of the
India was demarcated into 5 regions namely Northern, Eastern, Western, North
Eastern and Southern region. In order to harness the diversity in terms of time,
availability of resources, seasonal crops, industrialization, the need of grid
interconnection was felt. At present out of 5 regional grids Northern, Eastern, Western
and North Eastern grids are synchronously connected forming central grid operating
at one frequency. The North Eastern and Eastern grids were connected in October
1991 followed by East and West grids in March 2003 and North and East grids in
August 2006. Southern grid operates at different frequency and is asynchronously
connected to central grid through HVDC link to facilitate the transfer of power from
central grid to southern grid and vice-versa.
The complexity of Grid is increasing continuously due to Growing number of
interconnections within and across the regions. The real time information available
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today through conventional SCADA/EMS system is limited to analog and status data
from the remote terminal units. Information, such as indications of protective control
actions, event/fault records, device settings are not available. System dynamics are not
taken in real time evaluations. Emergency controls such as load shedding do not
consider system-wide conditions. Protective relay settings are static – no intelligence
is embedded to allow adaptation to the changing system conditions . To take care of
above complexities and to ensure safe, secure and reliable operation of large
interconnected Indian Grid, system operation in future would be equipped with an
Intelligent/Smart Grid with placement of Phasor Measurement Unit, Wide Area
Monitoring, Self Healing, and adaptive islanding features etc with an intent to quickly
evaluate system vulnerability with respect to cascaded events involving faults, device
malfunctions and provide remedial action.
The total installed capacity of grid interactive renewable power, which was 16817
MW as on 31.03.2010 had gone up to 19971 MW as on 31.03.2011 indicating growth
of 18.75% during the period (Table 2.5). Out of the total installed generation
capacity of renewable power as on 31-03-2011, wind power accounted for
about 71%, followed by small hydro power (15.2%) and Biomass power (13.3%).
Tamil Nadu had the highest installed capacity of grid connected renewable power
(6500 MW) followed by Maharashtra (3005 MW) and Karnataka (2882 MW),
mainly on account of wind power. As on 31.03.2011 out of total Biogas plants
installed (41.98 lakh) (Table 2.6), maximum number of such plants installed were in
Maharashtra (8 lakh) followed by Andhra Pradesh, Uttar Pradesh, Karnataka and
Gujarat each with about 4 lakh biogas plants. Out of about 6.6 lakh Solar
Cookers installed as on 31.03.2011, 1.7 lakh were installed in Gujarat and 1.4 lakh
were installed in Madhya Pradesh. Further, as on 31.03.2011 there were 1,352 water
pumping Wind mills systems installed and 6,975 remote villages and 1,871 hamlets
were electrified .
4.5 Current problem of Power sector
The most important cause of the problems being faced in the power sector is the
irrational and un remunerative tariff structure. Although the tariff is fixed and realized
by SEBs, the State Governments have constantly interfered in tariff setting without
subsidizing SEBs for the losses arising out of State Governments desire to provide
power at concessional rates to certain sectors, especially agriculture. Power Supply to
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agriculture and domestic consumers is heavily subsidized. Only a part of this subsidy
is recovered by SEBs through cross subsidization of tariff from commercial and
industrial consumers. The SEBs, in the process, have been incurring heavy losses. If
the SEBs were to continue to operate on the same lines, their internal resources
generation during the next ten years will be negative, being of the order of Rs.(-)
77,000 crore. This raises serious doubts about the ability of the States to contribute
their share to capacity addition during the Ninth Plan and thereafter. This highlights
the importance of initiating power sector reforms at the earliest and the need for tariff
rationalization.
4.5.1 Problems with India's Power sector
India's electricity sector faces many issues.
• Government giveaways such as free electricity for farmers, partly to curry
political favor, have depleted the cash reserves of state-run electricity-
distribution system. This has financially crippled the distribution network, and
its ability to pay for power to meet the demand. This situation has been
worsened by government departments of India that do not pay their bills.
• Shortages of fuel: despite abundant reserves of coal, India is facing a severe
shortage of coal. The country isn't producing enough to feed its power plants.
Some plants do not have reserve coal supplies to last a day of operations.
India's monopoly coal producer, state-controlled Coal India, is constrained by
primitive mining techniques and is rife with theft and corruption; Coal India
has consistently missed production targets and growth targets. Poor coal
transport infrastructure has worsened these problems. To expand its coal
production capacity, Coal India needs to mine new deposits. However, most of
India's coal lies under protected forests or designated tribal lands. Any mining
activity or land acquisition for infrastructure in these coal-rich areas of India,
has been rife with political demonstrations, social activism and public interest
litigations.
• Poor pipeline connectivity and infrastructure to harness India's abundant coal
bed methane and shale gas potential.
• The giant new offshore natural gas field has delivered less fuel than projected.
India faces a shortage of natural gas.
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• Hydroelectric power projects in India's mountainous north and northeast
regions have been slowed down by ecological, environmental and
rehabilitation controversies, coupled with public interest litigations.
• India's nuclear power generation potential has been stymied by political
activism since the Fukushima disaster in Japan.
• Average transmission, distribution and consumer-level losses exceeding 30%.
• Over 300 million people in India have no access to electricity. Of those who
do, almost all find electricity supply intermittent and unreliable.
• Lack of clean and reliable energy sources such as electricity is, in part, causing
about 800 million people in India to continue using traditional biomass energy
sources – namely fuel wood, agricultural waste and livestock dung – for
cooking and other domestic needs. Traditional fuel combustion is the primary
source of indoor air pollution in India, causes between 300,000 to 400,000
deaths per year and other chronic health issues.
• India’s coal-fired, oil-fired and natural gas-fired thermal power plants are
inefficient and offer significant potential for greenhouse gas (CO2) emission
reduction through better technology. Compared to the average emissions from
coal-fired, oil-fired and natural gas-fired thermal power plants in European
Union (EU-27) countries, India’s thermal power plants emit 50 to 120 percent
more CO2 per kWh produced.
4.6 Power sector reforms in India
The Orissa Government was the first to introduce major reforms in power sector
through enactment of Orissa Reforms Act, 1995. Under this Act, Orissa Generating
Company, Orissa Grid Company and Orissa Electricity Regulatory Commission have
been formed. Similarly, the Haryana Government has also initiated reform
programme by unbundling the State Electricity Company into separate companies and
Haryana Electricity Regulatory Commission has already been constituted.
With a view to improve the functioning of State Electricity Boards, the Government
promulgated the State Electricity Regulatory Commission Act for establishment of
Central Electricity Regulatory Commission at the national level and State Electricity
Regulatory Commission in the States for rationalization of tariff and the matters
related thereto. Subsequent to the enactment of ERC Act, 1998 more and more States
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are coming up with an action plan to undertake the reform programmes. In this
respect, Governments of Uttar Pradesh, Rajasthan, Madhya Pradesh, Goa, Karnataka
and Maharashtra have referred their proposals for setting up independent regulatory
mechanism in their States.
The Electricity (Amendment) Act 1998 was passed with a view to make transmission
as a separate activity for inviting greater participation in investment from public and
private sectors. The participation by private sector in the area of transmission is
proposed to be limited to construction and maintenance of transmission lines for
operation under the supervision and control of Central Transmission Utility
(CTU)/State Transmission Utility (STU). On selection of the private company, the
CTU/STU would recommend to the CERC/SERC for issue of transmission license to
the private company. In this regard, the Government of Karnataka is the first to invite
private sector participation in transmission by setting up joint-venture company. Other
States are also in the process of introducing the reforms in the transmission sector.
In view of the urgent need to reduce transmission and distribution losses and to ensure
availability of reliable power supply to the consumers reforms in the distribution
sectors are also been considered by establishing distribution companies in different
regions of the State. The entry of private investors will be encouraged wherever
feasible and it is proposed to carry out these reforms in a phased manner. The
Governments of Orissa and Haryana have already initiated reforms in the distribution
sector by setting up distribution companies for each zone within their States. With
these efforts, it is expected that the performance of power sector will improve because
of rationalization of tariff structures of SEBs and adequate investment for
transmission and distribution sector.
4.7 Installed generating capacity of Electricity
The total installed capacity for electricity generation in the country has increased from
16,271 MW as on 31.03.1971 to 206,526 MW as on 31.03.2011, registering a
compound annual growth rate (CAGR) of 6.4% (Table 2.3). There has been an
increase in generating capacity of 18654 MW over the last one year, which is
10% more than the capacity of last year. The highest rate of annual growth (11.3%)
from 2009- 10 to 2010-11 in installed capacity was for Thermal power followed by
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Nuclear Power (4.8%). The total Installed capacity of power utilities in the country
increased from 14,709 MW in 1970-71 to 173,626 MW as on 31.3.11, with a
CAGR of 6.2 % over the period. The highest CAGR (7.1%) was in case of Thermal
utilities followed by Nuclear (6.1%) and Hydro (4.4%).
At the end of March 2011, thermal power plants accounted for an
overwhelming 64% of the total installed capacity in the country, with an installed
capacity of 131.2 thousand MW. Hydro power plants come next with an installed
capacity of 37.6 thousand MW, accounting for 18.2% of the total installed Capacity.
Besides, non-utilities accounted for 15.9% (32.9 Thousand MW) of the total installed
generation capacity. The share of Nuclear energy was only 2.31% (4.78 MW). The
geographical distribution of Installed generating capacity of electricity as on
31.03.11 (Table 2.4) indicates that Western Region (both central and state sector)
accounted for the highest share (30.98%) followed by Southern Region (27.35%),
Northern Region (26.88%), Eastern Region (13.45%) and North Eastern Region
(1.35%). Region wise growth in the installed capacity during 2010-11 reveals that
Eastern Region registered the highest growth of about 18.21%, followed by Northern
Region(10.1%) and Western Region (6.65%). Among the States in the Eastern
Region that accounted for the highest growth of 18%, Odisha registered the
highest (47.7%) followed by Jharkhand (27.1%). Among all the states Delhi
registered highest growth (105.1%) in the installed capacity followed by Odisha
(48%) and Jharkhand (27%).
4.7.1 Present Power Transmission System of India
Electricity is a concurrent subject in India i.e, both the central and state governments
are responsible for the development of the electricity sector. NTPC, NHPC, THDC,
NEEPCO, SJVNL, NLC etc. are the central generation utilities and POWERGRID is
the Central Transmission Utility. At the State level, there are Gencos and Transco in
the respective States. The country has been demarcated into five electrical Regions
viz. Northern (NR), Eastern (ER), Western (WR), Southern(SR) and North Eastern
(NER). However, NR, ER, WR and NER have been synchronously interconnected
and operating as single grid – Central Grid (capacity about 110,000MW). The
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Southern region is asynchronously connected to the Central Grid through HVDC
links.
4.7.2 Capacity addition during 9th plan
The total installed capacity at the beginning of 9th Plan i.e. 1.4.97 was 85,795 MW
comprising 21,658 MW Hydro, 61,012 MW Thermal including gas and diesel, 2,225
MW Nuclear and 900 MW Wind based power plants. The actual power supply
position at the beginning of the 9th Plan indicates peak shortage of 11,477 MW (18%)
and energy shortage of 47,590 MU (11.5%) on All India basis. To meet the growing
demand and shortages encountered, sufficient capacity would need to be added in
subsequent plan periods.
4.7.3 Ninth plan capacity addition programme
The Working Group on Power, constituted by Planning Commission, in its report of
December 1996 had formulated, a need based capacity addition programme of 57,735
MW for the Ninth Plan which would by and large meet the power requirements
projected in 15th Electric Power Survey Report. However, it was felt that this capacity
addition of 57,735 MW is not feasible and a target for capacity addition of 40245 MW
was fixed for Ninth Five-year plan. The above target was finalized after considering
the status of Sanctioned/ongoing schemes, new projects in pipeline, likely gestation
period for completion of the projects and likely availability of funds. The Sector-
wise/type-wise details are given below:
Sector Hydro Thermal Nuclear Total Central 3455.0 7574.0 880 11909 State 5814.7 4933.0 — 10747.7 Private 550.0 17038.5 — 17588.5 TOTAL 9819.7 29545.5 880.0 40245.2
Source: NTPC , Sector-wise / type-wise capacity addition programme during ninth plan (Figures in MW) New Delhi , 2011
Fig. 4.3 : Feasible Capacity Addition during XI Plan and XII Plan As against the 11th Plan(2007-2012) target of 78700 MW set by the Planning
Commission, the CEA has, on the basis of preparedness of the projects, revised the
feasible capacity addition target for the 11th Plan to 80010 MW as shown below.
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Table- 4.1: Capacity Addition in 11th Plan
Fig 1.2 (a): Capacity addition target of 78,700MW by 2012
Source: Ministry of Power, CPRI , Faridabad , 2011
Fig 4.4: Capacity addition target of 1,00,000MW by 2017
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In addition, large generation capacity addition of the order to about 198,000MW has
been proposed through private sector on long-term open access route.
4.7.5 Demand Electricity sector in India is growing at rapid pace. The present Peak Demand is about
1,15,000 MW and the Installed Capacity is 1,52,380 MW with generation mix is
thermal (63%), hydro (25%), Nuclear (9%) and renewable (9%).
The projected Peak Demand in 2012 is about 150 GW and in 2017 is more than
200GW. The corresponding Installed capacity requirement in 2012 is about 220 GW
and in 2017 is more than 300 GW. The projected Peak Demand and the Installed
Capacity Requirement in next 15 years is shown in Fig.1.5 and 1.6 respectively.
Fig. 4.5 (a): Projected peak demand in India
Source: Ministry of Power, Central Power Research Institute , Faridabad , 2011
Fig 4.5 (b) : Projected Installed Capacity Requirement
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The backbone transmission system in India is mainly through 400 kV AC network
with approximately 90,000 circuit kilometers (ckm.(=2xroute km)) of line length.
Highest transmission voltage level is 765kV with line length of approximately 3120
ckm. There are about 7,200 ckm of 400 kV system, 5500 MW, +/- 500 kV long
distance HVDC system, an HVDC Monopole of 200 MW and four HVDC Back-to-
Back links of 3000MW capacity. These are supported by about 1,23,000 ckm. of
220kV transmission network. As mentioned above, all the five regions are
interconnected through National Grid comprising hybrid AC/HVDC system. Present
inter-regional transmission capacity of the National Grid is about 20,800 MW.
Source: Ministry of Power: Transmission & Distribution ,New Delhi, 2010
Fig. 4.6 AC Substation capacity of Power sector
The present transmission system has to meet the firm transmission needs as well as
Open Access requirements. The Long term Access (LTA) gives the transmission
system strengthening required for future generation additions and the Short Term
Open Access (STOA) facilitates increased real time trading in electricity, utilizing the
inherent margins provided for required redundancies as per planning criteria. The
STOA leads to market determined generation dispatches resulting in supply at
reduced prices to the distribution utilities and ultimately to the consumers. In the year
2008-09, the volume of energy traded under Short term open access was about 31
Billion units.
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Electricity is a regulated sector in India with Central Electricity Regulatory
Commission at the central level and State Electricity Regulatory Commission in each
of the states. Power grid Corporation of India Limited (POWERGRID), the Central
Transmission utility (CTU) is responsible for wheeling power of central generating
utilities and interstate Mega IPPs, while State Transmission Utilities are responsible
for wheeling of power from State generating units and State level IPPs. The CTU,
plays an important role in the planning of new transmission systems as well as
strengthening of existing networks at the Central level.
4.7.6 Future Plan in Transmission In order to address above issues, high capacity transmission corridors comprising
765kV AC and ±800kV 6000MW HVDC system along with 400kV AC and
±500kV/600kV 2500Mw/6000MW have been planned to facilitate transfer of power
from remotely located generation complexes to bulk load centers. This shall also
facilitate strengthening of National Grid capacity to more than 37,000MW by 2012.
The details of the transmission addition programme for the country are given below.
Source: Ministry of Power ,CPRC , New Delhi , 2011
Fig.4.7 Transmission programme in India
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4.7.8 Future Requirement
The government has set an ambitious target for system augmentation in the
distribution segment. It plans to quadruple the distribution network by adding 3.2
million ct. km of distribution lines in the Eleventh Plan. Another 4.2 million ct. km is
planned to be added in the Twelfth Plan. Thus by the end of the Twelfth Plan, the
total distribution network in the country would have doubled, thus greatly facilitating
delivery of power to the expanding base of end-use customers. Further, it plans to
bring about 214,000 MVA of transformer capacity in the Eleventh Plan and another
270,000 MVA in the Twelfth Plan. Of these, the distribution transformers for the
Eleventh and Twelfth Plans will be 128,000 MVA and 162,000 MVA respectively.
Source: Ministry of Power , CPRC , New Delhi, 2011
Fig. 4.8 : 11th and 12th plan of Power sector in India
As per the CEA's 17s Electric Power Survey (EPS), the all India energy requirement
is expected to grow at an annual rate of 6.8 per cent during 2007-08 to 2011-12 to
reach 968,659 GWh in 2011- 12. The total energy requirement takes into account
transmission and distribution losses of approximately 22 per cent, and hence the
energy consumption is expected to be around 755,847 million kWh. The energy
consumption is expected to be drawn equally amongst rural and urban consumers
throughout the Eleventh Plan (2007-12), although the share of rural consumers win
decline marginally from 50.08 per cent of total consumption in 2007-08 to 49.89
percent of total consumption in 2011-12.
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4.7.9 Environmental impact of thermal power stations
Thermal Power Stations in India, where poor quality of coal is used, add to
environmental degradation problems through gaseous emissions, particulate matter,
fly ash and bottom ash. Growth of manufacturing industries, in public sector as well
as in private sector has further aggravated the situation by deteriorating the ambient
air quality. Ash content being in abundance in Indian coal, problem of fly ash and
bottom ash disposal increase day by day. The fly ash generated in thermal power
station causes many hazardous diseases like Asthma, Tuberculosis etc.
4.7.10 Technology up gradation
Clean coal technologies offer the potential for significant reduction in the
environmental emissions when used for power generation. These technologies may be
utilized in new as well as existing plants and are therefore, an effective way of
reducing emissions in the coal fired generating units. Several of these systems are not
only very effective in reducing SOx and NOx emissions but, because of their higher
efficiencies they also emit lower amount of CO2 per unit of power produced. CCT’s
can be used to reduce dependence on foreign oil and to make use of a wide variety of
coal available.
Blending of various grades of raw coal along with beneficiation shall ensure
consistency in quality of coal to the utility boilers. This approach assumes greater
relevance in case of multiple grades of coals available in different parts of the country
and also coals of different qualities being imported by IPPs. Ministry of Environment
and Forests vide their notification dated 30th June 1998 had stipulated the use of raw
or blended or beneficiated coal with an ash content not more than 34% on an annual
average basis w. e. f. 1st June 2001.
4.8 Some aspects of human capital challenges in the Indian Power Sector
India is expected to maintain a robust economic growth rate of over 8% in the coming
decade. This implies substantial increase in economic activities and raises the
challenge of adding the infrastructure necessary to enable this development. India has
ambitious plans of adding over 180,000 MW of generation capacity as well as
associated Power Systems in the 11th and 12th plans, more than the cumulative
capacity addition achieved till date. With such an ambitious target, the power sector
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requires augmentation of capacity across the value chain including manufacturing,
construction, fuel and material supplies, project planning and implementation,
financial management and operations and maintenance management .
While large-scale investments have been planned and numerous projects are
underway, the lack of competent manpower to execute these projects and
subsequently operate and maintain them is already being felt. The scarcity is
increasing by the day and unless the Government, industry and all other stakeholders
invest in attracting and training the available talent on an urgent basis, it has the
potential to become a major bottleneck and derail the rapid growth in the sector that
has just begun. This report addresses some of the key human resource challenges in
the power sector today and lays out strategies for attracting fresh talent, retaining
existing manpower and creating the necessary infrastructure for sustained training and
development.
The total manpower in the power sector at the end of 10th plan was approximately 9.5
lakhs as per the report of the Planning Commission’s Working Group on Power for
11th Plan. Even in a scenario where employee productivity is projected to increase
leading to decreasing Man/MW ratio, it is estimated that over five lakh technical
manpower and 1.5 lakh non-technical manpower need to be inducted into the sector in
the 11th and 12th plan periods.
Some of the strategies outlined in this report for creating human capital for the power
sector are :
• Attract talent by showcasing opportunities, improving brand image and changing the
work environment
• Expand training to cover beahavioral & attitudinal changes Strengthen ITIs and
other vocational skill development centers
• Standardize curriculum and develop certification standards
• Expand existing training facilities and create new infrastructure
• Ensure proper utilization of training funds through direct reimbursements
Introduce electives at graduate engineering programs and specialized programs at
post-graduate level .Create awareness on energy efficiency among all stakeholders
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and incorporate mandatory training for personnel involved in energy intensive
processes .The power sector requires augmentation of capacity across the value chain
including equipment manufacturing, fuel resources, construction, project management
and Operations and Maintenance (O&M). While investments are being made to
address the various challenges, availability of skilled manpower is becoming a major
constraint. While large scale investments have been planned and a large number of
projects are being launched, the lack of high quality human resources is becoming a
key constraint with most of the current skilled manpower being derived solely from a
few public sector utilities. It is important for the Government, Regulators and the
industry to invest in attracting and training high quality resources for long term
sustainable growth of the sector. This report addresses the key human resource
challenges in the power sector today and lays out strategies for attracting fresh talent,
retaining existing manpower and building capacity for training and development.
4.8.1 Challenges for growth of the power sector
The Indian Power Sector, while set for strong growth aided by positive policy
environment and increased private sector participation, faces significant challenges
given the quantum jump in capacity addition required in the coming decades. Some of
the key challenges which must be addressed include:
• Development of conventional fuel resources both in India and purchase of
global assets to ensure continued supply
• Induction and development of skilled manpower for handling the capacity
addition and subsequent operations and maintenance
• Building heavy equipment manufacturing capacities in order to prevent delay
in equipment supplies
• Ensuring capital availability for large scale investments
• Ensuring transparent and speedy environmental clearances
• Ensuring low carbon intensive development to address the current global
climate change concerns
• Developing alternative energy resources as cost effective and reliable
resources
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4.8.2 Improving productivity
The improvements in technology and the increasing scale of operations would help
reduce the manpower requirement per MW. However, this also increases the
criticality of each employee and hence the importance of adequate training increases.
It is projected that the overall MW ratio at the end of 12th plan would come down to
4.93 from 7 as at the end of the 10th plan.
Source: Ministry of Power ,Planning & distribution , New Delhi . 2010
Fig. 4.9: MW ratio in different periods
4.8.3 Other Emerging Areas
Driven by the imperative to mitigate climate change, there is an increasing focus on
energy efficiency and conservation. This includes implementation of energy efficient
systems, monitoring and auditing. Other key focus areas include loss reduction in
distribution utilities and improving demand side management (DSM). These would
help efficient management of the power systems and generation facilities, reduce
losses and provide better quality of service. Monitoring systems for detecting losses
as well as DSM techniques require usage of advanced IT and communication systems
which call for a large number of personnel to be trained in these specialized areas.
4.8.4 Resource potential in Electricity sector
According to Oil and Gas Journal, India had approximately 38 trillion cubic feet (Tcf)
of proven natural gas reserves as of January 2011, world’s 26th largest. United States
Energy Information Administration estimates that India produced approximately 1.8
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Tcf of natural gas in 2010, while consuming roughly 2.3 Tcf of natural gas. The
electrical power and fertilizer sectors account for nearly three-quarters of natural gas
consumption in India. Natural gas is expected to be an increasingly important
component of energy consumption as the country pursues energy resource
diversification and overall energy security.
Until 2008, the majority of India's natural gas production came from the Mumbai
High complex in the northwest part of the country. Recent discoveries in the Bay of
Bengal have shifted the center of gravity of Indian natural gas production.
The country already produces some coal bed methane and has major potential to
expand this source of cleaner fuel. According to a 2011 Oil and Gas Journal report,
India is estimated to have between 600 to 2000 Tcf of shale gas resources (one of the
world’s largest). Despite its natural resource potential, and an opportunity to create
energy industry jobs, India has yet to hold a licensing round for its shale gas blocks. It
is not even mentioned in India's central government energy infrastructure or
electricity generation plan documents through 2025. The traditional natural gas
reserves too have been very slow to develop in India because regulatory burdens and
bureaucratic red tape severely limit the country’s ability to harness its natural gas
resources.
4.8.5 Human resource development
Rapid growth of electricity sector in India demands that talent and trained personnel
become available as India's new installed capacity adds new jobs. India has initiated
the process to rapidly expand energy education in the country, to enable the existing
educational institutions to introduce courses related to energy capacity addition,
production, operations and maintenance, in their regular curriculum. This initiative
includes conventional and renewal energy.
A Ministry of Renewal and New Energy announcement claims State Renewable
Energy Agencies are being supported to organize short-term training programmes for
installation, operation and maintenance and repair of renewable energy systems in
such places where intensive RE programme are being implemented. Renewable
Energy Chairs have been established in IIT Roorkee and IIT Kharagpur. Education
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and availability of skilled workers is expected to be a key challenge in India's effort to
rapidly expand its electricity sector.
4.8.6 Rural Electrification
India's Ministry of Power launched Rajiv Gandhi Grameen Vidyutikaran Yojana as
one of its flagship programme in March 2005 with the objective of electrifying over
one lakh un-electrified villages and to provide free electricity connections to 2.34
crore rural households. This free electricity program promises energy access to India's
rural areas, but is in part creating problems for India's electricity sector.
4.8.7 Trading
India lit up at night. This media, courtesy of NASA, was taken by the crew of
Expedition 29 on October 21, 2011. It starts over Turkmenistan, moving east. India
begins past the long wavy solid orange line, marking the lights at the India-Pakistan
borderline. New Delhi, India's capital and the Kathiawar Peninsula are lit. So are
Mumbai, Hyderabad, Chennai, Bangalore and many smaller cities in central and
southern India, as this International Space Station's video shifts south-eastward
through southern India, into the Bay of Bengal. Lightning storms are also present,
represented by the flashing lights throughout the video. The pass ends over western
Indonesia.
4.8.8 Regulation and administration
The Ministry of Power is India's apex central government body regulating the
electrical energy sector in India. This ministry was created on 2 July 1992. It is
responsible for planning, policy formulation, processing of projects for investment
decisions, monitoring project implementation, training and manpower development,
and the administration and enactment of legislation in regard to thermal, hydro power
generation, transmission and distribution. It is also responsible for the administration
of India's Electricity Act (2003), the Energy Conservation Act (2001) and to
undertake such amendments to these Acts, as and when necessary, in conformity with
the Indian government's policy objectives.
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4.9 Funding of Power infrastructure
India's Ministry of Power administers Rural Electrification Corporation Limited and
Power Finance Corporation Limited. These central government owned public sector
enterprises provide loans and guarantees for public and private electricity sector
infrastructure projects in India.
Sector MW %age
State Sector 86,275.40 42.01
Central Sector 62,073.63 30.22
Private Sector 56,991.23 27.75
Total 2,05,340.26
(a)
Fuel MW %age
Total Thermal 136436.18 66.44
Coal 116,333.38 56.65
Gas 18,903.05 9.20
Oil 1,199.75 0.58
Hydro (Renewable) 39,291.40 19.13
Nuclear 4,780.00 2.32
RES** (MNRE) 24,832.68 12.09
Total 2,05,340.26 100.00
(b) Source : Wadhwan Educational Consultant , Delhi, January 12
Table 4.2 Total Installed Capacity (a) and (b)
Renewable Energy Sources (RES) include SHP, BG, BP, U&I and Wind Energy
SHP= Small Hydro Project ,BG= Biomass Gasifier ,BP= Biomass Power, U &
I=Urban & Industrial Waste Power, RES=Renewable Energy Sources .
While the power sector in India has witnessed a few success stories in the last 4-5
years, the road that lies ahead of us is dotted with innumerable challenges that result
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from the gaps that exist between what’s planned versus what the power sector has
been able to deliver. This document highlights and quantifies some of these gaps and
attempts to analyze the problem. The document builds on the risks prevalent in the
industry, some prominent hurdles that the power sector has already crossed, and more
importantly - others that various players have to overcome.
Understanding these core issues & risks of the power sector help in identifying the
opportunities that lie ahead; for example why is private sector participation an
important requirement. A short peek at our past performances indicate that during the
last three five year plans (8th, 9th and 10th), we have barely managed to achieve half
of the capacity addition that was planned. As we enter the third year of the 11th five
year plan, we have already seen slippages on the planned approx. 79 GW capacity
addition. Once we break the problem down and identify the bottlenecks, we may be
able to better understand the integration challenges that such large projects pose.
While there may be heavy dependencies on equipment suppliers and challenges
around logistics and work-front availability – with the right and timely application of
project management principles along the lifecycle of the project, one can strive to
achieve increased project completion against baselines. Certain best practices around
stakeholder management, integrated project and asset development across various
entities can help improve overall project planning.
4.9.1 Investments in Power sector With the objective of meeting the rising demand of our growing economy and to
provide electricity to all by 2012, an ambitious target of 78,700 MW has been set for
the 11th Five Year Plan. Its sector-wise and source-wise break up in MW is as
follows:
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Source : Planning Commission 2009, New Delhi
Fig. 4.10: Investments in Power sector
Though the investment targets by the Government have been kept at around billion,
the actual investment is however, expected primarily on account of slippage in the
target achievement by the central sector. A power project implementation period is
around 36 to 48 months from the date of award of the mandate and hence only those
projects which have been cleared up to March 2008 would be in a position to meet the
target date. awarded central projects out of the purview of the target achievement
figures and on that account alone, a total of over there could be slippages in the
already awarded projects and therefore a shortage of around US$ 20 to 25 billion .
4.10 Emerging opportunities and challenges Current Scenario , Demand - Supply Position The energy availability in the country has increased by 5.6% in 2010-11, while the
peak demand met has increased by 6% in the same period. Despite the increase in
availability, India faced an energy deficit of 8.5% and a peak deficit of 9.8% in 2010-
11. It is expected that the energy deficit and peak deficit will rise to 10% and 13%
respectively in 2011-12.
The electricity sector in India had an installed capacity of 207.85 Gigawatt (GW) as
of July 2012, the world's fifth largest. Captive power plants generate an additional
31.5 GW. Thermal power plants constitute 66% of the installed capacity,
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hydroelectric about 19% and rest being a combination of wind, small hydro, biomass,
waste-to-electricity, and nuclear. India generated 855 BU (855 000 MU i.e. 855 TWh)
electricity during 2011-12 fiscal.
4.10.1 Power Low per-capita consumption The average per capita consumption of electricity in India is a mere 478 kWh2
(2010), compared to the world average of 2,300 kWh. The other comparable
countries, like the other BRIC nations, have significantly higher per capita
consumption compared to India. The average per-capita consumption has grown
steadily at 1.3% CAGR annually over the last 10 years.
4.10.2 Encouraging policy measures The policy landscape in India has progressively evolved since Independence and has
led to radical changes in the power sector, especially in terms of competition, private
sector involvement and focus on green energy over the last decade, commencing with
the passing of the Electricity Act 2003. Till early 1990s’, the power sector was
shielded from any private sector involvement; however, the mounting pressure on
Government resources to support capacity additions, repeated delays encountered by
state utilities and the growing demand-supply gap urged the Government of India to
open the power generation sector to private participation along with country’s
globalization policy.
4.10.3 Power and Alternative Sources of Energy India’s annual energy consumption as per 2004–05 estimates stands at 572 million
tones oil equivalent (“MTOE”). The contribution of various energy sources towards
meeting the same are as under .
Energy Sources Contribution (%) Coal 51%
Oil 36%
Gas 9%
Nuclear 2%
Hydro 2%
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At the above levels, there is a supply deficit of over 70 GW in the market. Further, the
existence of significant transmission inefficiencies means that there is an immediate
peak energy saving potential of 9.240 GW. As a result, the country is a Net Importer
of almost all forms of energy. Based on our target economic growth rate of 8% - 9%
per annum and an estimated energy elasticity ratio of 0.8, the total energy requirement
for 2031–32 is estimated at 1,900 MTOE, representing a four-fold increase in
consumption requirements over the next 25 years.
In order to first bridge the aforementioned supply deficit and then meet the increasing
energy consumption requirements, investments aggregating US$ 143 billion
(including US$ 4.5 billion in power transmission projects) need to be mobilized
towards the energy sector over the next 5 years. With a view to stimulating private
sector investments - both domestic and foreign – in this sector, the government has
implemented the following initiatives:
Liberalization of FDI Regulations:
1) 100% FDI under the automatic route is now permitted in all segments of
power sector including trading.
2) Equal participation opportunities have been extended to both domestic and
foreign investors.
Fiscal Incentives (i) Customs duty on import of capital goods for Mega Power Projects has been
reduced to nil.
(ii) Ten year tax holiday under section 80IA of the Income Tax Act is available to
enterprises engaged in development, operation and maintenance of power generation
projects, subject to compliance with conditions prescribed therein. Subsequent to
ratifying the Kyoto protocol, an institutional mechanism to govern the setting up and
operation of a “carbon emissions exchange” is in the process of being established.
Such a move is likely to result in substantial investments in clean sources of energy as
the carbon credits that would be earned through the same would serve as a significant
revenue stream for the investor.
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The success of the above incentives can be gauged from the following facts: The
Power Sector has received US$ 2.73 billion in FDI between April 2000 and July
2008, of the total corporate investments announced between January - June 2008, the
power sector attracted the maximum amount, with announced investment aggregating
US$ 40.84 billion. 40 GW of generation capacity, at a cost of US$ 44 billion is
presently under execution .The private sector has already achieved financial closure of
4,400 MW of capacity generation.
4.11 Transmission & Distribution losses (T&D) , AT& C losses & Restructured
APDRP
Aggregate Technical and Commercial (AT& C) losses & Restructured APDRP is
aiming to bring it to 15 per cent by 2012: AT&C losses are coming down only in the
case of a few reforming. Utilities/SEBs while the national average continues to
remain high. There are-several Pockets of excellence but overall state wide reduction
in AT&C loss remains and a consistent downward trend is not yet visible. AT&C
losses which were 32.54 per cent in 2002-03 still hover around 30 per cent as of 2008-
09. Power theft is rampant in some of these states and some also have a high rate of
equipment theft, particularly in the rural areas. This has resulted in high non-technical
losses. Other causes include faulty meters and unmetered supply. Greater influx of
professional services within the limitations of state owned discoms would go a long
way in improving system wide AT&C losses.
Poor recoveries hamper
Another problem is poor billing and collection. Of the total electricity generated, less
than 50 per cent is paid for. Electricity is stolen or not billed or electricity bills are not
paid at all or not paid on time. The antitheft legislation passed by the Parliament in
June 2007 provides a more stringent framework to check electricity theft and non-
payment of bills. Further, a Y-o-Y revenue gap in tariffs further hamper the financial
state of the utilities.
Tariffs in Power sector:
Tariffs continue to suffer from lack of commercial principles in most cases Most of
the problems arise from incorrect pricing of power whereby there are large cross
subsidies built into tariff structures which provide incorrect economic signals to the
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consumers. While the Act provides for reduction in cross subsidy to +/-20%, given
the political and socioeconomic structure of the
country, not much has been done by the regulators in reducing the cross subsidies or
in laying down a framework for reduction of the same. Populist policies such as free
power have proved to be a big dampener with the state governments unwilling or
unable to compensate the discoms for the additional costs they have to bear as a result
of these measures. Not only do these populist measures put an additional financial
burden on the discoms but they also lead to wastage of power by the farmers. Water-
tables in a number of states have been pushed down, which has led to a serious water
crisis.
Investment
Investment in distribution infrastructure remains lower than what is desirable.
Investment in the distribution sector has not kept pace with investment in generation,
which has led to high transmission and distribution (T&D) losses, poor networks, and
delays in projects. Due to distribution network constraints, power cannot be fully
transported from surplus to deficit areas, and open access transactions cannot be
effectively facilitated.
Distribution open access : According to the mandate of the EA2003, open access in
transmission was operationalised with immediate effect, and that in distribution was
to be implemented in phases. All the 23 SERCs have passed final regulations for
implementation of open access in distribution in phases (1 MW and above by Dec
2008), however, the actual implementation of open access is still very nascent. Until
the issues in open access are resolved, the intent of competition in the retail segment
shall never materialize. Open Access in concept is welcome for the distribution
sector; however, the same shall only take off when there is adequate power in the
country and the cross subsidies are reduced to reasonable levels so as to provide a
level playing field to incumbent utility and open access provider.
Energy Accounting and Auditing: A robust Energy Accounting and Auditing
framework shall help the utilities in prioritization of loss reduction measures and
bringing about aggressive reduction in loss levels.
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Reliability Monitoring of Power Distribution Systems: There are a number of
reliability indices which measure the outage in terms of, consumer hours and number
of consumer interruptions etc. Reliability monitoring will become more fruitful once
‘Consumer Indexing’ is completed and will provide a direct index for customer
satisfaction.
Supervisory Control and Data Acquisition (SCADA): A well planned and
implemented SCADA system not only helps utilities deliver power reliably and safely
to their customers but it also helps to lower the costs and achieve higher customer
satisfaction and retention.
Distribution and Grid Station Automation: Distribution automation (DA)
optimizes a utility’s operations and directly improves the reliability of their
distribution power system. Adding targeted distribution automation capabilities can be
economical when they are an extension of your existing SCADA investments and the
communication infrastructure. The success or failure of an automation program
hinges on proper selection of equipment and communications to seamlessly integrate
data into the utility control room. The key is to choose equipment that leverages your
current assets wherever possible. With the latest in high speed communication
technology, there has never been a better time for utilities to extend their automation
beyond the substation. Substation automation is a rapidly increasing area of interest
and benefit to utilities. Substation automation goes beyond traditional SCADA to
provide added capability and information that can further improve operations and
maintenance, increase system and staff efficiencies, and leverage and defer major
capital investments.
Outage Management Systems: An Outage Management System (OMS) provides the
capability to efficiently identify and resolve outages and to generate and report
valuable historical information. It also helps the utility inform the customer of the
outage situation and restoration status (rather than the customer informing the utility
first). An OMS typically works in conjunction with a GIS, the utility’s CIS, and
automated call handling systems, such as an Interactive Voice Response (IVR)
system.
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Distribution Network Planning: Inadequate network planning is one of the reasons
for haphazard and scientific development of the distribution system. The utility should
move to proper distribution network planning both for demand forecasting on a
medium and long term basis, and for determining the need for system expansion and
improvement to meet load growth. This will help in reducing the short term power
purchase costs, particularly as short term prices
have been high in the near future Utilities should prepare a perspective network plan
for a 10 year period, and this should become part of the conditionality’s for sanction
of grants under various programmes.
Automated Meter Reading/ Advanced Metering Infrastructure: Another area
gaining prominence is the Automated Meter Reading of high revenue consumers
which help the utilities protect their revenues and keep a continuous track of any
anomalies at the consumer premises through a remote location. GPRS, GSM and
CDMA are being used as the communication medium for these technologies. NDPL
has undertaken Automated Meter Reading for more than 30000 consumers (highest in
India so far) and this has ensured revenue protection to the tune of 60%. Advanced
metering infrastructure (AMI) is defined as the communications hardware and
software, and associated system and data management software that creates a network
between advanced meters and utility business systems, and which allows collection
and distribution of information to customers and other parties such as competitive
retail providers, in addition to providing it to the utility itself.
Prepaid Metering
Pre-paid meters enable efficient use of power for agricultural use and also eliminate
adverse impact on the water table due to excessive exploitation of ground water.
Though it involves huge capital costs, the gains from the system can offset such costs
in the long run. It is aim; expected that large scale use will bring down the cost of the
technologies. Further, prepaid metering can act as an effective tool against defaulters
and those found involved in dishonest abstraction of energy. Further, these meters
find a prominent use in Govt. accommodations.
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HVDS Systems
The advantages of HVDS systems are well known, particularly in containing theft of
electricity. Besides, it improves the quality of power significantly and thereby
improves customer satisfaction. HVDS systems should be given a special focus to get
immediate results in loss reduction. Efforts also need to be made to bring down the
HT/LT ratio during the 11th Plan. The investment on conversions from conventional
systems to HVDS is recovered by way of loss reduction within a period of 3 to 5
years in most cases.
Enterprise Resource Planning
Employing an enterprise asset management solution will help utilities free work
management from tedious and manual data entry and streamline new service initiation
through improved dispatch, scheduling and tracking. The utilities can also improve
management and tracking of capital invested and reduce spares inventory. NDPL
implemented an ERP solution for its business, and benefits out of this implementation
can be measured in terms of improvement in quality, reduction in cycle time, speedy
decision making and decrease in expenses.
Smart Grid
A smart grid delivers electricity from suppliers to consumers using two-way digital
technology to control appliances at consumers' homes to save energy, reduce cost and
increase reliability and transparency. Such a modernized electricity network is being
promoted by many governments as a way of addressing energy independence, global
warming and emergency resilience issues. Smart meters may be part of a smart grid,
but alone do not constitute a smart grid. A smart grid includes an intelligent
monitoring system that keeps track of all electricity flowing in the system. It also
incorporates the use of superconductive transmission lines for less power loss, as well
as the capability of integrating alternative sources of electricity such as solar and
wind.
Load Dispatch Centers
Operation of each of these regional grids is handled by the regional load dispatch
centers, RLDC’s. The state grids are managed and operated by state load dispatch
centre (SLDC). National Load Dispatch Centre (NLDC) is for scheduling and
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dispatch of electricity across various regions and also coordinating cross border
energy exchanges in real time. Power System Operation (PSO) in India is being
coordinated through five regional and more than thirty state control centers. These
control centers owned by different utilities collaborate with each other for executing
their statutory responsibility of ensuring a secure, reliable, efficient and economic
power system operation. Behavior of electricity deficit such a large interconnected
power system gives rise to a dynamically varying system states. These states are
normal, alert, emergency and restorative. The operator has to quickly asses the
contingencies and maintains the system to normal state under all situations and at all
time. In order to accomplish the objectives of security and economy, Indian system
operators have at their disposal a number of tools to manage the system in real time.
These tools range from Supervisory Control and Data Acquisition (SCADA) systems,
sophisticated state estimators to safety schemes.
T&D losses in restructured SEBs Some states have embarked on programs of power sector reforms and have taken
steps to restructure their SEBs (State Electricity Boards). The reforming states that
were reporting T&D losses of around twenty percent before restructuring process
suddenly reported higher losses after carrying out detailed studies of their system. For
example, before restructuring its power sector, Orissa reported 23 percent loss, after
restructuring, T&D loss were shown to be 51 percent. In AP where these losses were
of the order of about 25 percent before restructuring, it is now estimated to be around
45 percent after restructuring. Haryana has now estimated its losses at 40 percent and
Rajasthan at 43 percent against earlier level of 32 percent and 26 percent respectively
Regulatory concerns In the absence of a realistic estimate of T&D losses, it is not possible for the
regulatory commissions to correctly estimate the revenue requirements and also avoid
the situation where the consumers pay for the inefficiencies of the utilities. In order to
determine an appropriate tariff, the first step is to determine the justified cost incurred
by the entity. This would provide an indication of the revenue requirement, which in
turn is the basis of any tariff design. The regulator has therefore to be very careful
about how losses are worked out. The aim of the regulator must be to encourage the
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utility to make every effort to reduce losses while at the same time ensuring that those
conditions applied which threaten the viability of the utility are not applied.
Measures for reducing technical losses Short term measures
• Identification of the weakest areas in the distribution system and strengthening
/improving them so as to draw the maximum benefits of the limited resources.
• Reducing the length of LT lines by relocation of distribution sub stations/
installations of additional distribution transformers (DTs).
• Installation of lower capacity distribution transformers at each consumer
premises instead of cluster formation and substitution of DTs with those
having lower no load losses such as amorphous core transformers.
• Installation of shunt capacitors for improvement of power factor.
Long term measures
• Mapping of complete primary and secondary distribution system clearly
depicting the various parameters such as conductor size line lengths etc.
• Compilation of data regarding existing loads, operating conditions, forecast of
expected loads etc.
• Carrying out detailed distribution system studies considering the expected load
development during the next 8-10 years.
• Preparation of long-term plans for phased strengthening and improvement of
the distribution systems along with associated transmission system.
• Estimation of the financial requirements for implementation of the different
phases of system improvement works.
• Formulation of comprehensive system improvement schemes with detailed
investment program so as to meet system requirement for first 5 years period.
Measures for reducing non-technical losses According to the International Utilities Revenue Protection Association. (IURPA),
research carried out on utilities worldwide indicates that service quality, customer
relationships, and overall service satisfaction can minimize revenue losses. This has
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been demonstrated in Pakistan where rampant power theft has contributed financial
crisis for WAPDA (Water & Power Development Authority). The World Bank and
Asian Development Bank which had supplied the bulk of WAPDA’s development
loans wanted the authority to recover its unpaid dues, cut power theft and reduce its
T&D Losses. Accordingly WAPDA was forced to raise power rates.
Some of these measures are given below.
• Set up vigilance squads to check and prevent pilferage of energy.
• Severe penalties may be imposed on those tampering with the meter seals etc.
• Energy audits should be introduced and personal responsibility should be fixed
on the district officers (executive engineers) for energy received and energy
sales in each area.
• Installation of tamper-proof meter boxes and use of tamper-proof numbered
seals.
• Providing adequate meter testing facilities. A time bound program should be
chalked out for checking the meters, and replacement of defective meters with
tested meters.
Initiatives required to reduce T&D losses Keeping the above in view it is very essential that immediate steps are initiated to
have an assessment of the realistic T &D losses in each of the states and that
immediate steps are taken to reduce the same in a systematic manner by all the
players in the field.
• The central or the state governments should draw plans to provide financial
support to the utilities for installations of meters on at least all the distribution
transformers in a phased manner.
• It should be made obligatory for all the big industries as well as the utilities to
carry out energy audit of their system to identify high loss areas and take
remedial measures to reduce the same.
• Schemes for incentive awards to utilities who are able to reduce T&D losses
beyond a certain pre-fixed limit.
• The financial institutions should be encouraged to provide easy loans to
utilities for taking remedial measures to reduce the T&D losses.
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• Publicity campaigns should be carried out to make the consumer aware of the
high penalties on the unauthorized use of electricity.
• Utilities should prepare realistic power Master Plans for their systems to
develop a strategy to meet the growing electricity demands of the different
sectors of the state’s economy over the next 15 years.
4.12 Sector Specific Opportunities
Coal
At 51%, Coal is the single-largest source of energy at the disposal of the power sector.
By 2011– 12, demand for coal is expected to increase to 730 MMT p.a., creating a
supply shortage of over 50 MMT. India has the fourth largest proven coal reserves in
the world, pegged at 96 billion tones, creating an investment opportunity of US$ 10 –
15 billion over the next 5 years.
Oil
The demand for Oil – which is currently the second most important source of energy -
is expected to grow from 119 MTOE in 2004 to 250 MTOE in 2025 at an annual
growth rate of 3.6%. However, domestic production for the corresponding period is
expected to increase at approximately 2.6% only. As a result, our reliance on oil
imports is likely to increase from its present level of 72% to 90% by 2025. To combat
this issue, the government has opened up the domestic oil sector for private
participation under the New Exploration Licensing Policy (NELP). Under the
competitive bidding process prescribed under the NELP, investment commitments of
US$ 8 billion towards oil exploration projects have already been received.
Hydro Power
With it intricate network of rivers, substantial opportunities for generation of hydro-
power exist in India. Only 22% of the 150 GW hydroelectric potential in the country
has been harnessed so far. Private participation will play a key role in meeting the
target requirement of an additional 45 GW over the next 10 years.
Wind Energy
India is the 4th largest country in the world in terms of installed wind energy. India’s
potential of wind power is pegged at 45,000 MW while its current capacity stands at
only 7,660MW.) Tax incentives, including availability of accelerated depreciation @
80% under WDV method on cost incurred on setting up of wind turbine generators
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have resulted in significant private investment in this area.
Solar Energy
Despite the prevalence of an inherent advantage in the form of solar insulation, the
potential for solar energy is virtually untapped in India. India’s installed solar based
capacity stands at a mere 100MW compared to its present potential of 50,000MW.
Based on the substantial investment opportunities that exist in this sector, it is
estimated that by 2031 – 32, solar power would be the single largest source of energy,
contributing 1,200 MTOE i.e. more than 30% of our total expected requirements.
Nuclear Energy By 2032, the government plans to raise the contribution of nuclear energy from the current level of less than 3% to around 10% of the country's installed capacity The signing of the Indo – US nuclear deal has created significant opportunities for several players across the entire power supply chain, with an estimated investment opportunity of US$ 10 billion over the next five years. Further, India has among the world’s largest reserves of alternative nuclear fuel – thorium. Accordingly, substantial investment opportunities are also likely to arise once commercial production based on thorium becomes feasible. 4.12.1 Existing Scenario) - Transmission , Investment , Policy and regulatory 24 Demand :
Electricity sector in India is growing at rapid pace. The present Peak Demand is about
1,15,000 MW and the Installed Capacity is 1,52,380 MW with generation mix is
thermal (63%), hydro (25%), Nuclear (9%) and renewable (9%). The projected Peak
Demand in 2012 is about 150 GW and in 2017 is more than 200 GW. The
corresponding Installed capacity requirement in 2012 is about 220 GW and in 2017 is
more than 300 GW. The projected Peak Demand and the Installed Capacity
Requirement in next 15 years is shown in Fig.1.5 and 1.6 respectively.
The backbone transmission system in India is mainly through 400 kV AC network
with approximately 90,000 circuit kilometers (ckm.(=2xroute km)) of line length.
Highest transmission voltage level is 765kV with line length of approximately 3120
ckm. There are about 7,200 ckm of 400 kV system, 5500 MW, +/- 500 kV long
distance HVDC system, an HVDC Monopole of 200 MW and four HVDC Back-to-
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Back links of 3000MW capacity. These are supported by about 1,23,000 ckm. of
220kV transmission network. As mentioned above, all the five regions are
interconnected through National Grid comprising hybrid AC/HVDC system. Present
inter-regional transmission capacity of the National Grid is about 20,800 MW.
The present transmission system has to meet the firm transmission needs as well as
Open Access requirements. The Long term Access (LTA) gives the transmission
system strengthening required for future generation additions and the Short Term
Open Access (STOA) facilitates increased real time trading in electricity, utilizing the
inherent margins provided for required redundancies as per planning criteria. The
STOA leads to market determined generation dispatches resulting in supply at
reduced prices to the distribution utilities and ultimately to the consumers. In the year
2008-09, the volume of energy traded under Short term open access was about 31
Billion units. Electricity is a regulated sector in India with Central Electricity
Regulatory Commission at the central level and State Electricity Regulatory
Commission in each of the states. Power grid Corporation of India Limited
(POWERGRID), the Central Transmission utility (CTU) is responsible for wheeling
power of central generating utilities and interstate Mega IPPs, while State
Transmission Utilities are responsible for wheeling of power from State generating
units and State level IPPs. The CTU, plays an important role in the planning of new
transmission systems as well as strengthening of existing networks at the Central
level.
Transmission The 11th plan envisages an addition of over 60,000 MW of transmission network by
2012, designed to carry 60% of the power generated. The existing inter-regional
power transfer capacity is 17,000 MW which is to be further enhanced to 37,000 MW
by 2012 through the creation of “Transmission Super Highways”. The guidelines for
private sector participation in transmission sector issued in January 2000 envisage two
routes for private sector participation:
• Through the Joint Venture route wherein the CTU/STU shall own at least 26%
equity and the balance to be contributed by the JV partner and
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• Independent Private Transmission Company (IPTC) route wherein 100% equity
shall be owned by the private entity.
Policy and regulatory frameworks Given the state of power infrastructure in the country and the overall requirement in
the next five year plans, the Government has taken some key initiatives. These are:
• 100% FDI permitted in generation, transmission and distribution
• APDRP (Accelerated Power Development and Reform Programme)
• Investment of US$ 12 b level of around 31%
Rajiv Gandhi Grameen Vidyutikaran Yojana – Investment of about US$ 6.5 billion
for rural electrification
New Electricity Act, 2003
Securitization of State Electricity Company dues
Setting up of State Regulatory Commissions
Distribution reforms – breaking SEBs into Generation, Transmission and
Distribution units
4.12.2 Policy Initiatives to encourage private participation To attract large scale private investment, the Central Government has taken a number
of steps including the private sector to set up coal, gas or liquid based thermal, hydel,
wind or solar projects with foreign equity participation up to 100% under the
automatic route. The bulwarks of the new policy framework are the Electricity Act,
2003, National Electricity Policy 2006, Tariff Policy 2006, Rural Electrification
Policy 2006, New Hydro policy 2008 and Mega Power Projects 2008. In addition, the
Central Government has notified the National Load Dispatch Centre Rules, 2004.
Further, the Central Electricity Regulatory Commission (CERC) has notified several
important regulations including the regulations on tariff, open access in transmission
and licensing of transmission service providers and traders and the Indian Electricity
Grid Code, 2006. The Appellate Tribunal for Electricity was set up in 2004 to hear
appeals from Central and State Electricity Regulatory Commissions.
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Government has taken a number of steps, beginning with the Electricity Act (2003)
and Securitization of SEB dues to reform the power sector and to attract private
investments. In addition, distribution reforms were brought under focus besides
making theft of power a punishable offence. Further APDRP was launched to
improve the T&D infrastructure in the country and electricity regulatory commissions
have been set up at the state level to delineate tariff setting from extraneous
influences. State utilities in most states have already been unbundled into generation,
transmission and distribution entities to bring in accountability in the sector. In
addition, Government has taken a number of measures to encourage new capacity
addition by the private sector. Some of the changes initiated by the government to
make power sector investment attractive to private players are:
4.12.3 Super Critical Technology in Power Generation The Ministry of Power has launched supercritical power programme on the lines of
the US, Japan, Germany, Korea and Russia. Currently in India 69% of the gross
generation of electricity is coal based and only 1.2% is based on renewable energy
sources. The Central Electricity Authority (CEA) has estimated that meeting
electricity demand over the next ten years will require more than doubling the existing
capacity, from about 132 GW in 2007 to about 280 GW by 2017, of which at least 80
GW of new capacity is expected to be based on coal. Moreover, the maximum
contribution of renewable energy would be around 5.6% of India’s total energy by
2031-32. Even though a large part of the power generation will be coal dependent, it
is important that India moves away from sub-critical pulverized coal or ‘dirty’ coal.
There are no clear technology choices but their analysis suggests that commercial
supercritical combustion technology is the best option for India in the short-to
medium term.
The supercritical coal based units have faster starting time and load changes and are
more suitable for daily start up/shut down operation and have better efficiency at part
load operation. The task of induction of supercritical technology through bulk
ordering of generating units for PSUs is under active consideration of the
Government. Discussions are on for the procurement of 7 units of 600 MW and 6
units of 800 MW through bulk tendering, through International Competitive Bidding
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(ICB). The selected bidders will have to set up manufacturing facilities in India with a
Phased Manufacturing Program.
4.12.4 Mega Power Policy The Mega Power Policy was announced with the intention of developing large size
power projects in the country in November 1995 and revised in years 1998 and 2006.
There has been a need to review the policy in view of the relevant energy shortages in
the country and requirement of increasing the per capita availability of electricity to
over 1,000 units by 2012; need for installation of fresh capacity of 78,577 MW in XI
Plan; and the requirement of encouraging brown-field expansion projects. This is
under consideration of the Government.
4.12.5 Salient Features of existing Mega Power Policy i. Conditions to be satisfied for grant of Mega Project status: Inter-State
Thermal/Hydel capacity of 1,000 MW /500 MW respectively, with relaxations for
States of North East Region (NER) and J&K.
ii. Pre-conditions for availing benefits include constitution of Regulatory
Commissions and undertaking to privatize the distribution in all large cities, by the
Power purchasing states. In order to ensure that domestic bidders are not adversely
affected, price preference of 15% to be given to projects under public sector.
iii. Fiscal conditions / benefits available in the policy are: Zero Customs Duty on
import of capital equipment, deemed export benefits to domestic bidders under
Foreign Trade Policy (FTP), and income tax regime as per Section 80-IA, of the
Indian Income Tax Act, 1961.
4.12.6 Power intensive industries to set up own captive units
• Grid power is usually unreliable and the production losses are huge due to frequent
power cuts and repeated starting and shutting down of machinery. The fluctuation in
voltage in grid power also damages the critical electronic components for which the
owners won’t like to take a risk.
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• Due to the cross subsidy of power in India the tariff for industrial consumers is very
high and the cost arbitrage of setting up of a captive power unit is huge .
4.12.7 Captive power the way ahead for power intensive / power dependant mission critical industries. Study of 2001 Census data shows that there is a high correlation between the GDP per
capita of the states and the status of rural electrification. Bihar, Jharkhand, Orissa,
Assam and Uttar Pradesh (these 5 states constitute 35% of the total population) which
have the lowest levels of GDP per capita also have a poor record in rural
electrification. Similarly states like Himachal Pradesh, Punjab, Haryana and Tamil
Nadu which have higher rates of rural electrification also have higher per capita GDP.
Five states of Bihar, Assam, Uttar Pradesh, Kerala and West Bengal, which together
constitute 38% of India’s population, have an average per capita consumption of
272kWh/annum (57% lower than the national average). The high variation in per
capita consumption of power within India is also an indicator of existing gap in power
generation in the lower consuming states. The addition in generation capacities in
these states should have a significant impact on overall per- capita consumption figure
for India.
As per the 2001 Census, only 44% of the total rural households in India are
electrified, as compared to the 88% of the urban households. With 72% of India’s
population living in villages this means that almost 40% of country’s population does
not have access to electricity. According to Central Electricity Authority (CEA), even
today more than 100,000 villages (18% of total number villages in India) have no
access to power at all. National Council of Applied Economic Research (NCAER) did
a study to find out the factors that contribute to the big difference in the penetration of
consumer durable goods in the rural and urban areas. The interesting take away from
this study was that while factors like income and lifestyle differences do contribute to
the penetration of consumer durables, the most dominant factor was lack of regular
electricity supply in the rural areas. This supports the view that there is a lot of latent
demand for power in the country which is not captured in the official figures.
However, an interesting aspect of more supply of electricity resulting in higher
demand elasticity will prompt the need for greater generation of power. In this aspect,
the example of China is an interesting case. China’s elasticity of power demand with
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GDP was 1.1 in 2001. With increase in power generation the elasticity also went up
from 1.1 to 1.6 - as the power was made available people consumed it. With 45% of
the Indian household still un-electrified there is a huge amount of latent demand for
power. India’s average GDP growth rate in last five years has been 7.6% while the
growth in power demand over the same period is only 5.8%. Lower elasticity of
power demand with the GDP growth in India has been due to higher contribution of
services to the GDP, several manufacturing units setting up their captive units and
limited growth in generation itself. However, with the capacity additions currently
going on and those planned for the 12th plan, the elasticity of power demand should
go up as is evident from the Chinese experience.
Electricity Act, 2003 the functions of the Central Transmission Utility
Undertake transmission of energy through inter-State transmission system Discharge
all functions of planning & co-ordination for inter-state transmission system with state
transmission utilities, Central Govt., State Govt., Generating companies, Authority,
Licensees etc .
1. Ensure development of an efficient, coordinated and economical system of
inter-state transmission lines for smooth flow of electricity from generating
stations to load centers
2. Exercise supervision & control over the inter-state transmission system
3. Ensure integrated operation of the regional grids through RLDCs Similarly,
the State Transmission Utilities are responsible for the development of
transmission networks at the state level.
Transmission System Development – Issues
As mentioned above, in order to meet growing requirement, development of strong
transmission system between pit-head/resource generation complex and bulk
consumption centers’ are required. However, development of transmission system
involves following issues:
• Minimization of Right of Way
• Protection of flora & fauna, wild life
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• Creation of long distance high capacity transmission corridors to enable
minimum cost per MW transfer as well as Optimal Transmission losses
• Minimal Impact on Environment
• Strengthening of National Grid
Future Plan in Transmission lines
In order to address above issues, high capacity transmission corridors comprising
765kV AC and ±800kV 6000MW HVDC system along with 400kV AC and
±500kV/600kV 2500Mw/6000MW have been planned to facilitate transfer of power
from remotely located generation complexes to bulk load centres. This shall also
facilitate strengthening of National Grid capacity to more than 37,000MW by 2012.
Investment in Transmission
The Estimated total fund requirement for transmission by 12th Plan i.e. 2016-17 has
been assessed as USD 42 Billion. Inter-State Sector USD 21 Billion , State Sector
USD 21 Billion .
Role of Information Technology and Automation
A number of utilities have now started focusing on IT based applications to bring
about efficiency in distribution. Moreover, the Restructured APDRP encourages IT
enabled applications and automation for reduction of energy losses as well as energy
accounting and auditing. Some of the automation and IT enablement in the Power
Distribution Sector and their role in improving the commercial viability and service
standards are:
Customer indexing & GIS based Database: Consumer indexing based on GIS
applications needs to be given priority in the Eleventh Plan to enable the respective
utilities to increase their customer coverage, regularize unregistered/unauthorized
connections, conduct audits at the feeder level by comparison of 'energy sent out' on a
11 kV feeder with total energy meter readings of all HT/LT customers in that
particular feeder .
Conclusion and way forward: India is the fifth largest producer of electricity in the world and according to the
Planning Commission, while the State Governments account for 51.5% of the total
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generation capacity, the central sector and the private sector account for 33.1% and
15.4% of the generation capacity respectively. In line with the respective power
generation share.
The gap between demand and supply in the Power Sector is still huge. Many of the
“B” and “C” category towns have daily power cuts of 5-6 hours even in the non-peak
months. The small and medium industries have to rely on their own generators to
continue production but that comes at higher recurring costs and more capital
investments. Thus, products of many of these industries become uncompetitive as
compared to cheaper imports from other countries. There is a need to involve private
sector more intensively in Power Sector to bridge the gap between demand and
supply. Most large manufacturing companies in India have set up their captive power
plants (implying higher project investments) to ensure regular and economic power
supply. All major non-ferrous industries have setup their captive power plants and
their reliance on grid power is limited to less than 10% only.
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CHAPTER 5
MAHARASHTRA STATE ELECTRICITY
DISTRIBUTION COMPANY
Contents: 5.1 History of MSEDCL
5.2 Financial statement of MSEDCL
5.3 Key Drivers of the Distribution
5.4 Important projects at MSEDCL
5.6 Improvement in Consumer Services by
MSEDCL
5.7 Locations of MSEDCL
5.8 Constitution of MSEDCL Board
5.9 Management team of MSEDCL and their
functions
5.10 Transmission and Distribution Losses ( T&D)
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CHAPTER – 5
Maharashtra State Electricity Distribution Company Ltd.
History of MSEDCL
The Maharashtra State Electricity Distribution Company Ltd. (MSEDCL) is a
Company formed under the Government of Maharashtra General Resolution No.
ELA- 1003/P.K.8588/Bhag-2/Urja-5 dated January 24, 2005 with effect from June 6,
2005 according to the provisions envisaged in the Electricity Act 2003. The
provisional Transfer Scheme was notified under Section 131(5)(g) of the EA 2003 on
June 6, 2005, which resulted in the creation of following four successor companies
and MSEB Residual Company, to the erstwhile Maharashtra State Electricity
Board(MSEB), namely, MSEDCL .
MSEDCL is in the business of distribution and supply of electricity in the entire State
of Maharashtra, except the Mumbai license area supplied by Brihan-Mumbai Electric
Supply & Transport Undertaking (BEST), Reliance Infrastructure Limited (R Infra),
and The Tata Power Company Limited (TPC), and the area supplied by Mula Pravara
Electric Co-operative Society (MPECS).
5.1 Introduction to MSEDCL
Erstwhile Maharashtra State Electricity Company was looking after Generation,
Transmission & Distribution of Electricity in the State of Maharashtra barring
Mumbai. But with enactment of Electricity Act 2003, MSEB was unbundled in to 3
Companies viz. Maharashtra State Electricity Distribution Co. Ltd., Maharashtra State
Power Generation Co. Ltd. and Maharashtra State Electricity Transmission Co. Ltd.
on 6th June 2005. Maharashtra State Electricity Distribution Company is supplying
electricity to all the districts of state . Company head quarter is at Mumbai capital of
Maharashtra .
Consumer Base :
MSEDCL supplies electricity to a staggering 1.92 crore consumers across the
categories all over Maharashtra excluding the island city of Mumbai. There are about
1.31 crore residential, 30 lakh agricultural, 13.46 lakh commercial and 2.5 lakh
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industrial consumers in MSEDCL area which fetch an annual revenue of about Rs.
33,000 crore .
Customer profile of MSEDCL:
Sr. No Category of consumers As on 31.03.2012 (in Lakh) 1 Domestic 146.94 2 Commercial 12.69 3 Industrial 4.24 4 Agriculture 26.95 5 Others 2.14 Total 192.96
Sources of Power :
MSEDCL’s sources of power include thermal, hydro, gas and non conventional
sources like solar, wind, bagasse etc. apart from hydro power of Koyna. Thermal
power constitutes the major share which it gets from Mahagenco projects, Central
Sector projects and RGPPL.
Infrastructure :
In terms of infrastructure, MSEDCL operates a vast far flung network comprising of
33 KV, 22 KV & 11 KV lines, sub-stations and distribution transformers spread over
3.08 sq.kms geographical area of Maharashtra covering 41015 villages and 457
towns. It has 1947 sub-stations (33 KV) with 49000 MVA of transformation capacity,
103 34 HV feeders, and several thousand circuit kms. of HT and LT lines.
Human Resource Development :
MSEDCL has a workforce of about 70,000 employees. This force is the real asset of
the company . The welfare and well being of this asset has been given top priority by
the company. As such it has enhanced the scope of training facilities to a great extent.
In addition to the existing 4 training centers, MSEDCL has recently established well
equipped 25 training centers at Circle offices which impart necessary training to line
staff. Every year about 20000 employees are put through refresher/professional/HR
trainings. Safety is given special importance and safety training is imparted to line
staff on regular basis. Engineers are also deputed to various other well reputed
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training centers outside Maharashtra for training under MDP module and also deputed
for training under DRUM Project of USAID on regular basis.
Social Responsibility
In last 2 years about 2000 wards of deceased employees have been provided with
jobs. Two ITI’s at Vaijapur (Dist. Aurangabad) and Kalyan have been adopted to
improve facilities there to help the local population.
Empowering Women Employees
Ever increasing number of female engineers in the workforce of MSEDCL
necessitated the thought of their empowerment. A novel idea of formation of all
women’s squads popularly known as Damini Pathaks is being implemented. A
Damini Pathak, headed by a local female engineer and assisted by 2-3 outsourced
female employees, equipped with digital camera, a security guard in uniform and a
vehicle has been established at each of the Circle offices under the leadership of
respective Superintending Engineers. The task assigned to these squads is to
undertake surprise checks of the photo meter readings in their area. The aim of the
exercise is to address the consumer complaints regarding photo meter reading. The
members of the squad visit the households between 10 a.m. to 4 p.m. when generally
housewives are present at homes. The squads are working satisfactorily and results
are encouraging.
Mahila Bachat Gat
Women’s self help groups like Mahila Bachat Gats helping poor and needy women
earn their livelihood through production and marketing of home products. MSEDCL
thought to exploit the vast woman power by offering them some good opportunities
on bigger scale. It offered the Mahila Bachat Gats across the state to come forward
and undertake the work of distribution of energy bills. This is indeed a great initiative
towards empowering women. Accordingly, some of the Mahila Bachat Gats have
already taken up the said works at various places in the State and an overall response
is quite encouraging. It is hoped that the women engaged in this would experience
significant rise in their daily earnings.
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5.2 Financial statement of MSEDCL
The financial statements at MSEDCL are prepared under historical cost convention on
accrual basis of accounting and in accordance with the provisions of the Companies
Act, 1956 and comply with the Accounting Standards issued by the Institute of
Chartered Accountants of India.
The preparation of the financial statements in conformity with the generally accepted
accounting principles requires the management to make estimates and assumptions
that affect the reported amounts of assets and liabilities on the date of the financial
statements, disclosure of contingent liabilities and reported amounts of revenue and
expenses for the year. Estimates are based on historical experience, where applicable
and other assumptions that the management believes are reasonable under the
circumstances. Actual results could vary from these estimates and any such
differences are dealt with in the period in which the results are known / materialize.
Revenue Recognition:
a) Sale of Power:
b) Others:
i) Interest income is accounted on accrual basis.
ii) Dividend income is accounted for when the right to receive income is
established.
Fixed Assets:
a) Fixed Assets are shown at historical cost less accumulated depreciation.
b) Intangible assets are recorded at their cost of acquisition.
c) Amount received as contribution, grant and subsidy is credited to capital reserve
and an amount equal to the depreciation on the assets .
5.2.1 Profit and Loss Account of MSEDCL
Following heads are considered for Profit and loss of accounts
Income
Revenue from Sale of Power
Other Income
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Total Income
Experience
Purchase of Power
Employee Costs
Administration and General Expenses
Other Expenses
Depreciation
Interest and Finance Charges
Profit and Loss Account of MSEDCL
(Rs in Lacs)
PARTICULARS SCH. No. Year Ended Year Ended
31st March,
2009 31st March,
2008I N C O M E Revenue from Sale of Power 14 2348306.03 2015861.50Other Income 15 131538.71 84054.69T O T A L I N C O M E 2479844.74 2099916.19E X P E N D I T U R E Purchase of Power 16 2060629.95 1700638.89Personnel Costs 17 239839.07 168981.26Administration and General Expenses 18 91627.34 77543.40Other Expenses 19 81939.92 31932.99Depreciation 64677.11 53983.17Interest and Finance Charges 20 78790.18 57341.17T O T A L E X P E N D I T U R E 2617503.57 2090420.88 Net Profit / (Loss) before prior period adjustments
-137658.83 9495.31
Net Prior Period Credits / (Charges) 21 2514.32 2627.37Profit / (Loss) before Tax -135144.51 12122.68
Source : MSEDCL- HQ , Prakshagarh, Mumbai 2011.
Table 5.1 : Profit and Loss Account of MSEDCL
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5.3 Key Drivers of the Distribution Sector
Several drivers will shape the outlook of the Indian power distribution sector in the
coming years. A few among these are
Continued demand for power: The Integrated Energy Policy predicts that in order to
eradicate poverty, the country's economic growth needs to be at least 8 per cent
annually until 2032 and in that time frame, the power capacity needs to rise to as high
as around 800 GW.
Distribution Reforms: Unbundling of the vertically integrated SEBs into functional
entities is a key requirement of the EA 2003. While most of the States as depicted
above have unbundled their utilities into Generation, Transmission and Distribution
Companies, the real benefit of unbundling can be derived only through bringing in
best practices and professional management
through Privatization or PPP models. Given the political sensitivity and issues on
valuation of assets on transfer together with employee reservations, States are looking
at the Distribution Franchisee as a middle path for securing efficiencies while
addressing the above political/social issues.
Growing consumer awareness: For both SEBs and private companies, consumer
interest is becoming a high priority. Connections are far easier to come by, bill
payments are being streamlined, and complaints are addressed more promptly and
effectively. Utilities in Andhra Pradesh and Delhi have proved to be frontrunners in
establishing high standards of customer service. For instance, North Delhi Power
Limited (NDPL) has received accolades for providing better customer service through
several measures including implementing a customized CRM package. Every
customer at NDPL is segmented based on their sanctioned load, and NDPL has
appointed dedicated client managers to cater to the specific needs and requirements of
certain key consumer groups. This is in addition to the consumer relationship cell and
consumer grievance redressal groups set up for addressing grievances of consumers.
Further, call centers have been set up to address supply and billing complaints. It has
put in place a short messaging service (SMS) based-fault management system
whereby complaints are addressed through SMS .
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5.4 Important projects at MSEDCL
To overcome the power crisis and improve consumer services MSEDCL made in-
depth study involving sub- division wise research of distribution network and planned
ambitious projects. They include :
5.4.1 Infra- Plan :
MSEDCL’s existing network handles a load of about 10,000 to 11,000 MW. By 2012,
there will be an addition of another 10,000 MW in the system. With a view to cater
future load, provide quality, reliable energy supply and reduce losses MSEDCL
formulated a Rs. 11000 crore infrastructure plan. The plan envisages erection and
commissioning of 586 sub-stations, 52351 circuit kilometers of HT lines, 58,629
distribution transformers besides augmentation of existing network. MSEB had
erected 1846 sub-stations during its life time, whereas MSEDCL aims to construct
586 sub stations in just 2 years. A leap forward in the direction of infrastructure
development. The project is being implemented on total turn-key basis and through
119 DPRs. Orders of about Rs. 9189 crore have already been placed on various
agencies.
Earlier capital investment for infrastructure development was a paltry sum of Rs. 200
to 300 crore per year. The new infrastructure with augmentation and renovation of the
distribution network will revolutionize the quality and reliability of supply.
5.4.2 Load Management:
MSEDCL has been implementing long term Load Management schemes to reduce
load shedding. Feeder separation is one such long term scheme in which agriculture
feeders are carved out. This not only helps load management but also strengthens the
infrastructure and reduces technical losses. MSEDCL has also implemented Single
Phasing Scheme in some parts of Maharashtra. Currently rural areas face 8.30 to 11
hours of load shedding a day which is decided by MERC. However, the load shedding
hours have been almost halved in about 24,461 villages that have been covered so far
under these schemes. The load shedding duration of these villages has come down to
2.00 to 5.45 hours which is on par with urban areas. The project cost of these schemes
is Rs. 3233 crore.
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5.4.3 Rajiv Gandhi Gramin Vidhutikarn Yojana (RGGVY) :
This is a flagship scheme of Govt. of India. There are 4,709 villages and 13,44,087
identified BPL households targeted to be electrified under this scheme. MSEDCL had
prepared proposals for 34 schemes costing Rs. 829 crore for 33 districts of
Maharashtra. Maharashtra has been implementing the scheme and has spent Rs. 443
crore so for. Connections to 905541 BPL households have been released and 4243
villages electrified under the scheme. BPL families are provided with 1.5 point power
connections at a nominal charge of Rs.15/- each and the villages are electrified as per
new definition under this scheme.
Features of RGGVY scheme
1. The scheme aims to electrify all villages as per the 2001 census and according
to new definitions of electrification.
2. It aims to extend power supply to 100% BPL (Below Poverty Line)
Households. Service connections cost & in house one and half point fitting wiring
cost not to be recovered from such beneficiaries.
3. BPL category certificate is issued by the concerned Block Development
Officer.
Details of the recipients and nature of concession, permits
• 29 Lakh Agricultural Consumers.
• 82,281 Power Loom Consumers.
• 15, 76,708 B.C. Consumers.
• 1,55,172 Domestic Consumers in BPL category having Consumption
between 0 to 30 units per month.
• 1,20,653 RGGVY beneficiaries
The SC/ST/ DTNT category applicants can get the new residential connections by
paying only security deposit and application fees and they need not pay any other
charges.
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5.4.4 Restructured – Accelerated Power Development & Reforms Programme (R-APDRP)
R-APDRP is a flagship scheme sponsored by Govt. of India and financed by Power
Finance Corporation of India (PFC). There are 134 towns having population more
than 30,000 as per 2001 census selected in Maharashtra under this scheme. The work
in 95 towns has already commenced. The scheme is being implemented in phases –
Part-A and Part-B. Creation of IT infrastructure and allied works are included in Part-
A for which a turn key contract of Rs. 204 crore has been awarded to M/s. Larsen and
Tubro Ltd..On completion of Part-A, the works under Part-B which include
renovation and modernization of distribution network, load bifurcation, load
balancing, aerial bunched conduct ring, HVDS, capacitor bank etc. will be taken up.
Distribution loss in R-APDRP towns is targeted to be reduced to 15%. Since incentive
financing is proposed to be integrated with the existing investment programme to
achieve commercial viability of SEBs
Objectives of R –APDRP :
Improving financial viability of State Power Utilities
Reduction of Aggregate Transmission & Commercial (AT&C) Loss
Improving customer satisfaction
Increasing reliability &quality of power supply
Establishment of baseline data
Fixation of accountability
Reduction of AT&C losses
Commercial viability
Reduction of outages & interruptions
Increase consumer satisfaction through strengthening & up-gradation of
Transmission & Distribution network & adoption of Information Technology
during XI Plan .
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5.4.5 Mahavitaran - Infrastructure Plan Projects
The basic Objectives of the Infrastructure Plan projects are :-
To Provide Reliable and Quality Supply of power.
To meet the Load Growth Demand.
To Reduce Distribution Losses.
MERC provided in-principle clearance for works at 120 divisions amounting
Rs. 9013.95 Crore
5.4.6 Gaothan Feeder Separation Scheme Phase II.
Objectives : 1) To provide un-interrupted power supply particularly to
Rural / Semi urban consumers and thereby reducing the
feeling of discrimination and discontent compared to urban
consumers.
2) Flattening of load curve in a judicial way. Therefore
reducing the cost on Power purchase and reducing the
penalty for unscheduled interchanges.
3) Better energy accounting for Ag consumption.
4) Reduction of T&D losses.
5) System strengthening by improving the infrastructure.
5.4.7 Single Phasing Project
Project Objective
1) Single Phasing of the selected rural mixed load feeders is carried out by use of
changeover switches at substation. The scheme envisages supplying Single
Phase rural lighting load through three nos. of single phase transformers.
During the normal operation, the agricultural load continues to be supplied
from the three phase transformers. On operation of the changeover switch,
there will be no supply to the 3-phase load on the 11kV distribution network
whereas single phase supply is available to the lighting and fan load. On
revising changeover switch, normal 3- phase supply shall be restored.
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2) To overcome the load shedding problem in rural areas, it was decided to
implement the Single Phasing Scheme for rural areas to provide Uninterrupted
single-phase power supply to the rural consumers.
3) Minimizing the unrest among the rural consumers and the feeling of
discrimination compared to urban consumers in respect of domestic supply .
4) On operation of the changeover switch, there will be no supply to the 3-phase load
on the 11kV distribution network whereas single phase supply is available to the
lighting and fan load. On revising changeover switch, normal 3- phase supply shall be
restored.
5) To overcome the load-shedding problem in rural areas, it was decided to implement
the Single Phasing Scheme for rural areas to provide Uninterrupted single-phase
power supply to the rural consumers.
6) Minimizing the unrest among the rural consumers and the feeling of discrimination
compared to urban consumers in respect of domestic supply.
Program Completed : No. of Sub-station - 424 Nos HT Line - 863 Kms. No. of DPs - 11427 No. of feeders - 1186 No. of villages
covered - 8085
Expected Load Management
- 1153 MW
5.4.8 Major Achievements Post Restructuring :
Energisation of Agricultural Pumps : Maharashtra has a record number, highest as
compared to any state, of agricultural pumps energized so far. The number is about 30
lakhs. Earlier, there used to be a long list of pending applications and the farmers used
to wait for years together for supply. The issue was addressed in a proper perspective
by MSEDCL. Now a days about 1 lakh agricultural pumps are energized every year.
MSEDCL, in a year or two, would be in a position to grant agricultural connections
on demand on par with other categories of consumers.
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Loss Reduction:
In just 5 years, MSEDCL reduced distribution losses from 35 % to 20 % through
various drives such as :
Anti Theft Drive :
This is being implemented on regular basis. MSEDCL has established 43 flying
squads and 6 dedicated police stations functioning under vigilance department to
detect and handle power theft cases quickly.
Meter Shifting :
For many consumers, meters were installed in hard-to-access places, making theft
easy to conceal. MSEDCL, therefore, decided to shift all meters to the front of
buildings to make them as conspicuous as possible. This project is currently in
progress on a large scale.
Mass Meter Replacement Project :
MSEDCL has decided to replace all the meters which have been in service for last 10
years and more under mass meter replacement programme. It is planned to replace all
the electro mechanical meters with static ones. A process has already been initiated
for purchasing about 30 lakh meters for the purpose. This is a huge project which will
definitely lead to increase in metered sale.
Energy Accounting: MSEDCL has undertaken accurate energy accounting through various methods such as :
Feeder Metering-
MSEDCL plans to install high quality meters at all necessary system points, including
interconnecting points. Feeder metering of all 10,240 feeders in complete and again,
photo reading of these feeder meters are taken.
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DTC Metering-
There are in all 2,84,633 Distribution Transformer Centers(DTCs) in operation, out of
which about 1.51 Lakh DTCs have already been metered.
Distribution Franchisee :
Bhiwandi a power loom city, also known as the Manchester of India, had typical
problems like rampant theft and non-payment. MSEDCL opted for a input based
franchisee model for electricity distribution. It has handed over Bhiwandi Circle to
M/S Torrent Power on 26th January 2007. This experiment proved to be very
successful and a trend setter in power distribution sector of the Country.
Recently the Company has appointed Distribution Franchisees for Aurangabad Urban
I & II Divisions of Aurangabad Urban Circle and Gandhibag, Civil Lines and Mahal
Divisions of Nagpur Urban Circle.
Zero Load Shedding Model :
Zero Load Shedding Model is implemented at certain places with the active
participation of local citizens through consumer groups and people-s representatives.
The mechanism is extremely transparent and is prior approved by the Regulator.
Beginning from Pune, the Model was under implementation in Navi Mumbai, Thane,
Pen and Baramati also. Of late MSEDCL itself filed a petition before the MERC for
implementing Zero Load Shedding Model at all the Headquarters of Revenue
Divisions - Nagpur, Amravati, Navi Mumbai ,Pune and Aurangabad. MERC
approved the proposal and the model is under implementation at these headquarters
with effect from Dec. 2009. MSEDCL has planned to extend it further to district
headquarters, taluka headquarters and so on.
Power to all by 2014 In keeping with the national agenda of power to all by 2014,
Maharashtra has already planned a massive capacity addition programme and also
initiated process to tie up power from other sources. By December 2014 Maharashtra
will be a power surplus State .
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5.5 Improvement in Consumer Services by MSEDCL
• Online bill payment facility has been made available for all LT consumers
across the state by commissioning own Payment Gateway on MSEDCL
website .Earlier the facility was available to People in Pune, Bhandup, Kalyan,
Thane, Vashi, Kolhapur, Nashik, Aurangabad and Nagpur only.
• Consumer Facilitation Centers (CFCs) comprise of a single window system
with a help desk for customers are put in place. The CFCs accept consumer
complaints, application forms for new connections, meter change requests and
name or address change forms etc.
• 6 State of the Art CFCs have been opened at Rastapeth Pune, GaneshKhind
Pune, Nagpur, Amravati, Nanded and Baramati. More being planned.
• Small CFCs at 32 Circle headquarters have been established and more being
established.
• 15 call centers have been established at the Municipal Corporations of Kalyan,
Bhandup, Pune, Nashik, Aurangabad, Nagpur, Kolhapur, Sangli, Akola,
Solapur, Nanded, Dhule, Jalgaon, Ahmednagar and Amravati.
• Customers can receive their monthly bills via email by registering on
MSEDCL’s website.
• Internal Complaints Redressal Units at all 40 Circles established. Consumers
approach this platform for redressal of their complaints before going in appeal
before Zonal Consumer Grievances Redressal Forums which are there at every
Zonal Headquarter.
5.6 Zonal offices of MSEDCL
1. Amravati Zone 8. Konkan Zone
2. Aurangabad Zone 9. Jalgaon Zone
3. Latur Zone 10. Kolhapur Zone
4. Nanded Zone 11. Nagpur Zone
5. Bhandup Urban Zone 12. Nagpur Urban Zone
6. Kalyan Zone 13. Nasik Zone
7. Pune Urban Zone
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Each Zone is divided in to circles and each circle in to divisions and further each
division is divided in to sub-divisions. Second, all the managers working at the three
levels viz. strategic Planning level , Managerial .Control level and operational Control
level.
5.7 MSEDCL Board
The Chairman / Managing Director and members of the MSEDCL are appointed by
the Maharashtra state \ Government in exercise of the powers conferred by sub-
section (2) of section 5 of the Electricity supply act 1948 .
The Maharashtra State Electricity Distribution company s constituted as under
1. Chairman and Managing Director
2. The Administrative Members
3. Board of Directors
4. Member Transmission
5. Regional Directors
6. Member operations
5.7.1 Functions of MSEDCL Board
The functions of the Board are prescribed in Electricity Supply Act 1948. According
to this , the Board is charged the general duties of promoting the co – ordinate
development of supply and distribution of electricity within the state in the most
efficient and economical manner . In order to discharge this duty efficiently , the
Board operates its own distribution stations in transmission and distribution network
and employs a workforce of around 70000 , constituting persons of all the ranks .
Board has a full –fledged accounts and Audit wing to ensure efficient financial
management on commercial lines and for proper accounting of its financial
transactions. As the demand of power is increasing at a rapid pace , the Board also
undertakes planning for the future by preparing schemes, getting them approved from
appropriate authority and executing these schemes through its construction
organization .
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5.7.2 MSEDCL Board of Management
Subject to the condition that total number of members shall not exceed seven , there
shall be at least one member possessing one of the following these qualifications :
1. Experience of and capacity in commercial matters.
2. Electrical engineers with wide experience
3. Experience of accounting and financial matters in a public utility undertaking ,
preferably an electricity supply undertaking.
4. Experience in Large scale distribution public enterprise.
It follows that the minimum number of member has to be there, where each member
holds one of the above qualifications in such a manner that the members taken
together come to hold all the three qualifications. Each qualification shall be
processed by at least one member does not exceed .
However there are specific provisions for the suspension or the removal from office
of any of the member , under section 10 of the Act. A member is liable to be
suspended if he is found , inter alia , to be a lunatic or becomes of unsound mind or is
convicted of an offence involving moral turpitude or an enquiry is pending against
him . The member concerned shall be given an opportunity to explain the charge
against him or her .
All the officers and subordinates appointed by the Board exercise powers delegated to
them by the Board from time to time . The Board has framed regulations of Business
in exercise of powers conferred by section 79 of the electricity Act.
The Managing Director of the Board , who is usually an I.A.S officer , is appointed by
the Maharashtra State Government . He/ she is the Chief Executive officer of the
Board. It is he who is responsible for putting up the agenda notes to the Board for
decisions, keeping a record in his behalf , circulating the decision to the quarters
concerned and ensuring the implementation thereof.
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The whole time members are the second level of decision making authority in the
Board. Apart from this each member is assigned a specific function . the distribution
of duties and functions between the whole time members is decided by the Managing
Director according to the provisions of the Act.
5.7.3 Organisational Setup of the MSEDCL
The full Board consisting of seven members in the supreme decision making authority
of the MSEDCL . All other authorities exercise powers delegated to them by the
Board from time to time . Board of Directors meets periodically to transact the
business placed before it. In the transaction of its business it is assisted by the
Secretary of the Board who is responsible for presenting matters for decision by the
Board , keeping a record of its decision , circulating these decisions to the concerned
quarters and for ensuring proper follow- up action.
5.7.4 Technical Members of Transmission and Distribution
1. Chief Engineer
2. Superitendenting Engineer
3. Executive Engineer
4. Dy. Executive Engineer
5. Assistant Engineer
6. Junior Engineer
5.7.5 Departmentation
The organization of the Board level is of members is divided in to 32 departments
carved on the basis of functional lines. Out of these 18 departments are technical
departments , one Vigilance and security , and four pertaining to the Accounts , audit ,
finance and Cost Control and one pertaining to General administration headed by the
Managing Director.
Departmentation by Location or territory organization's MSEDCL activities are
scattered and if the differences across locations are significant in terms of customer
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preferences or the difficulty in handling complex scheduling issues, or the importance
of local participation in decision making , it makes sense to use departmentation by
territory or location. This method of departmentation is observed in the distribution
and service departments of MSEDCL Zonal offices , where the major departmentation
at the first level below the head of the organization is along functional line, but at the
sub-department level, the sales department would have geographic regions or zones
catered to by regional or zonal offices and section office in field operations of
MSEDCL .
Organisational structure of MSEDCL at the Distribution level .
Source : MSEDCL , Prakashgarh , Bandra , NHQ , 2010 Fig. 5.1 Organisational structure of MSEDCL at the Distribution level
Director Operations
Chief Engineer - Operations
Chief Engineer - Stores
Chief Engineer - Testing
Regional Director – ED 2
Regional Director - ED 1
Superintendent - EMAC
Superintendent - Engineer TRC
Regional Director - ED 3
Chief Engineer – Bhandup , Kalyan ,Konkan
Chief Engineer – Kolahapur , Nashik , Pune ,
Chief Engineer – Akola , Aurangabad, Amrabati , Nagpur
198
5.8 Management team of MSEDCL and their functions
Powers and duties of functional heads/officers & employees of MSEDCL
AUTHORITY DUTIES BEING PERFORMED
Board of Directors As per the provisions of Memorandum of Association & Article of Association. Executive Director (HR) In charge of Human Resources Affairs. Executive Director (Commercial) In charge of Commercial, Load Management, Power Purchase, Distribution Franchise.
Executive Director (Projects) In charge of distribution projects like Infrastructure, APDRP, Special Projects, RGGVY & Material Management.
Executive Director In charge of Corporate Planning, Internal (Corporate Planning) Reforms, Regulatory affairs, Testing, Civil & Corporate Communications.
Regional Executive Director I In charge of Bhandup (Urban), Konkan and Kalyan Zones.
Regional Executive Director II In charge of Kolhapur, Latur, Nasik and Pune Zones.
Regional Executive Director III In charge of Nagpur (Urban), Nagpur (Rural), Amravati and Aurangabad Zones.
Zonal officers of MSEDCL:
Regional Director
1) Overall supervision and implementation of various activities under his area of
jurisdiction as per the policies set out by Corporate Office and GoM from time
to time or special duties given by MD.
2) To redress the grievances of the employees and consumers .
3) Monitoring of release of connections to the new applicants as per rules and
procedure of MSEDCL .
4) Monitoring of recovery of company’s dues from the consumers every month .
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5) To attend the meetings convened by the Ministers, GoM/GoI offices like
Commissioner , and local
6) To utilize the funds as per the target set by Corporate Office from time to
time.
7) To provide trainings to all field staff as per the requirements and
recommendations of the company .
To determine the tariff for generation, supply, transmission and wheeling of
electricity, wholesale, bulk or retail, as the case may be within the State to regulate
electricity purchase and procurement process of distribution licensees including the
price at which electricity shall be procured from the generating companies or
licensees or from other sources through agreements for purchase of power for
distribution of supply within the State .
200
Source : MSEDCL, NHQ - Mumbai
Fig. 5.2 Organization chart of MSEDCL
201
5.9.1 Duties of Field Chief Engineers
1) Overall supervision and implementation of various activities under his area of
jurisdiction as per the policies set out by Corporate Office and GoM from time
to time,
2) To redress the grievances of the consumers
3) Monitoring of release of connections to the new applicants as per rules and
procedure
4) Monitoring of recovery of company’s dues from the consumers.
5) To attend the meetings convened by the Ministers, GoM / GoI offices like
Commissioner.
6) To utilize the funds as per the target set by Corporate Office from time to
time.
5.9.2 Field Superintending Engineers duties (Circle)
1) Overall supervision and implementation of various activities under his area of
jurisdiction as per the policies set out by MSEDCL from time to time.
2) To redress the grievances of the consumers
Monitoring of release of connections to the new applicants as per rules and
procedure
3) Monitoring of recovery of company’s dues from the consumers.
4) To attend the meetings convened by the Ministers, GoM offices like Collector,
Chief Executive Officer of Zilla Parishad.
5) To utilize the funds as per the target set by Corporate Office from time to
time.
5.9.3 Functions & duties of Field Executive Engineers (Divisions)
1. Overall supervision and implementation of various activities under his area of
jurisdiction as per the policies set out by MSEDCL from time to time.
2. To redress the grievances of the consumers
3. Monitoring of release of connections to the new applicants as per rules and
procedure
4. Monitoring of recovery of company’s dues from the consumers.
202
5. To attend the meetings convened by the Ministers, GoM offices like
Collector, Chief Executive Officer of Zilla Parishad.
6. To utilize the funds as per the target set by Corporate Office from time to
time.
Source : MSEDCL,NHQ - Mumbai
Fig.5.3 : Circle Organization chart of MSEDCL divisional office
5.9.4 Functions & duties of Field Dy. Executive Engineers/Assistant Engineers
(Sub Div.)
1) Overall supervision and implementation of various activities under his area of
jurisdiction as per the policies set out by MSEDCL from time to time.
2) Maintenance of supply and redressal of fuse call off complaints.
3) Issue and distribution of energy bills to the consumers and redressal of billing
complaints.
4) Release of connections to the new applicants as per rules and procedure .
5) To recover company’s dues from the consumers.
6) To redress the grievances of the consumers.
7) To attend the meetings convened by the Block Development Officer of
Panchayat Samiti.
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5.9.5 Functions & duties of Field Junior Engineers/Sub Engineers (Section
Office)
1) Overall supervision and implementation of various activities under his area
of jurisdiction as per the policies set out by MSEDCL from time to time.
2) Maintenance of supply and redressal of fuse call off complaints.
3) Acceptance of A-1 forms for new connections, undertake survey and
check technical feasibility, issue demand note and release connections as
per rules and procedure.
4) To recover company’s dues from the consumers.
5) To redress the grievances of the consumers .
5.9.6 Physical & financial norms set by the organisation
The financial norms are to be followed strictly as per the procedure set out in the GO2
and amended from time to time. Further based on the techno- economic
considerations and subject to availability of funds the physical targets are also set
circle wise, division wise and efforts are made to achieve them.
5.9.7 Statement of the categories of documents held by it or under its control
• A-1 form for new connection, Forms for change of name in connections.
• Copy of the Energy bills
• Consumer personal ledger (CPL)
• Complaint registers
• Receipt/dispatch registers
• Maharashtra Electricity Regulatory Commission (MERC) (Standard of
Performance of Distribution Licensees, period for giving supply and Determination
of Compensation) Regulations, 2005 . Maharashtra Electricity Regulatory
Commission (MERC) (Electricity Supply code and other conditions of Supply)
Regulations, 2005 .
5.9.8 Manner of execution of subsidy programmes and details of beneficiaries
MSEDCL is basically involved in Distribution of Electricity through 33/22/11 KV
Sub-stations. MSEDCL provides power supply at a highly subsidized rate to about
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75% consumers including the consumers in BPL, Agriculture, Public Water Works,
Residential (lower consumption) etc. categories. The Agriculture & power loom
consumers are further subsidized by GoM & this subsidy is paid by GoM to
MSEDCL in cash. The Power supply for SC,ST is released on priority under Special
Component Plan (SCP), Tribal sub plan (TSP), other tribal sub plan (OTSP). The
funds are generally provided by GoM as grant. Rajiv Gandhi Gramin Vidyutikaran
Yojana (RGGVY) is the scheme sponsored by Government of India .
5.9.10 Details of information in electronic form available in office
• Consumer Bills, consumption pattern & payment pattern, history
• Monthly metered consumer’s sale, billed amount & Collection reports.
• Feeder hourly readings
• Reliability Indices (SAIFI/SAIDI/CAIDI)
• Number of Consumers, Contract Demand & Connected Load
• Energy Audit Reports
Facilities available (library, public counter etc) to citizens for obtaining information
Notice Boards are provided in the premises of the MSEDCL offices. Presently there
are no Libraries .
Such other information as may be prescribed
• For redressal of consumer grievances MSEDCL has set up Consumer Grievances
Redressal Forums (CGRFs) at Zonal level.
• Forums for Redressal of Consumer Grievances have started functioning at zonal
level with Chairperson and a Member in the service areas as per provisions of
Electricity Act-2003.
• Internal Consumer Grievances Redressal Cells (ICGRCs) are established for
redressing consumer complaints at all circle offices.
• For Customer satisfaction 24x7 operating 15 call Toll Free Call centers have been
commissioned for redressing “no power” complaints of consumers in that area.
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• 50 Customer Facilitation Centers (CFCs) have been commissioned at sub division
level for redressing billing complaints of consumers. The basic idea is to introduce
single window clearance for consumers at sub divisional level.
• Any time payment machines for bill payment (24X7 hours) have been installed in
major cities.
• Energy bill of the individual consumer can be viewed on the MSEDCL website .
• The Urja Mitra meetings are arranged at division, circle and zone levels after
regular intervals.
5.9.11 State Load Dispatch Centre (SLDC)
The functions of the State Load Dispatch Centre have been articulated in the
Electricity Act, 2003. The State Load Dispatch Centre plays a most important role in
operation and management of intra-State transmission system is an important and
complex activity which regularly requires addressing a number of complex, and often
conflicting issues, such as:
i. To ensure reliable power supply, within available generation capacity to all
consumers located at all points of the system;
ii. To ensure frequency and voltage conditions within permissible limits;
iii. To supply power in most economic manner possible; and
iv. To limit the duration and extent of repercussions due to faults and restore
normal functioning of the network as soon as possible .
v. Monitor grid operations vi. Keep accounts of the quantity of electricity transmitted through the State grid
vii. Be responsible for optimum scheduling and dispatch of electricity within a
State, in accordance with the contracts entered into with the licensees or the
generating companies operating in that State
viii. Exercise supervision and control over the intra-state transmission system ix. Be responsible for carrying out real time operations for grid control and
dispatch of electricity within the State through secure and economic operation
of the State grid in accordance with the Grid Standards and the State Grid
Code.
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Tariff Regulations
The Commission, in exercise of the powers conferred by the Electricity Act, 2003,
notified the Maharashtra Electricity Regulatory Commission (Terms and Conditions
of Tariff) Regulations, 2005, on August 26, 2005. These Regulations superseded the
MERC (Terms and Conditions of Tariff) Regulations, 2004.
5.10 Transmission and Distribution Losses ( T&D) Transmission Losses MSEDCL is making rigorous efforts in various areas including metering and billing
and is conscious of the fact that reduction in distribution losses will enable reduction
in costs and increase in revenue, which will benefit the power sector in Maharashtra.
To reduce the distribution losses, MSEDCL has taken the following initiatives:
1) Photo Meter Reading
2) DTC and Feeder Meters reading through Digital Camera. A new concept of
Data Collection for Feeder wise Energy Audit .
3) Metering of all feeders completed
4) Massive Theft Control Drive
5) MSEDCL police stations for efficient handling of theft of energy/other cases.
6) Checking of doubtful energy intensive consumers
7) Capital investment plans
8) Accelerated Power Development Reforms Programme (APDRP) schemes
9) Strict disciplinary action against delinquent employees.
10) ACB cases dealt centrally at Head Office. In such cases, quick departmental
action initiated against employees .
Distribution Losses Distribution loss achieved by MSEDCL during FY 2007-08 are realistic and as per
audited accounts of MSEDCL for FY 2007-08. Regulation 19 of MERC Tariff
Regulations provides for mechanism for pass through of gains or losses on account of
controllable factors. The Commission in its APR Order dated June 20, 2008 has
determined distribution loss for FY 2006-07 as 30.2% with a distribution loss
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reduction target of 4% for FY 2007-08, i.e., 26.2%. However, actual distribution loss
for FY 2007- 08 was 24.09%. Hence, over achievement of 2.11% translates to
revenue of Rs 425 Crore.
MSEDCL is making rigorous efforts in various areas including metering and billing
and is conscious of the fact that reduction in distribution losses will enable reduction
in costs and increase in revenue, which will benefit the power sector in Maharashtra.
To reduce the distribution losses, MSEDCL has taken the following initiatives:
1. Monthly Energy Accounting at Division level / Feeder level / DTC level
2. Giving target for each Division / Subdivision for LT loss reduction
The Maharashtra State Electricity Distribution Company Limited (MSEDCL) —
which has been able to curb power loss by seven-and-a- half-per cent in the State .
“Today barring Pune which has zero load-shedding, all the areas in Maharashtra have
to bear the brunt of load shedding,” he said and even warned the MSEDCL officials
of sending them to these areas if they did not ensure that losses were brought down in
the areas within three months.
At present, all the areas in Maharashtra have load-shedding except for Pune. With the
Tarapore power plant facing crisis and Dabhol power plant being shut for a couple of
days, the problems have compounded. “There will be a power shortage and obtaining
power from other traders is expensive,” .
Of the total investment of Rs 810,000 crore in the power sector during 11th Plan, over
Rs 270,000 crore may well evaporate into an unknown space if war-footing steps are
not taken to control mammoth transmission and distribution losses, an Assoc ham Eco
Pulse (AEP) study has found.
According to AEP study, India can more than make up its severe power shortages if
only 50 per cent of the transmission and distribution losses are reduced by stoppage
of theft and up-gradation of transmission and distribution system.
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The “Study on Mounting T&D losses” warned that almost one third of the Rs.
8,10,000 crore of investments envisaged in the 11th Five Year Plan may go down the
drain if immediate steps are not taken to reduce these losses. Given this situation,
India would not be able to come out of the power crisis as the financial health of the
utilities would go on deteriorating.
The ambitious target of adding 78,000 MW of power generation capacity in the 11th
Plan period (2007-2012) would call for private participation in a big way. However,
the T&D losses of 30 to 40 per cent may act as a major deterrent to the private as well
as global investments in the sector. It is noteworthy that none of the global power
majors has shown interest in India’s transmission and distribution sector.
“India is far from the global standards of T&D losses which are about 5-10 per cent.
Persistence of high transmission and distribution losses would effectively mean
pouring of funds in a bottomless bit”. A majority of the T&D losses are due to
rampant theft.
Transmission & Distribution losses (in per cent)
No. of States/Union Territories*
0-10 010-20 3 20-30 8 30-40 9 40-50 4 50-60 1 Note: * States with upper end of the range are included in following class interval
Source: Centre for Monitoring Indian Economy (CMIE) , 2009
Fig. 5.4 : T&D losses-wise distribution of States
In India, average T & D (Transmission & Distribution) losses, have been officially
indicated as 23 percent of the electricity generated. However, as per sample studies
carried out by independent agencies including TERI, these losses have been estimated
to be as high as 50 percent in some states. In a recent study carried out by SBI Capital
Markets for DVB, the T&D losses have been estimated as 58%. This is contrary to
claims by DVB that their transmission and distribution losses are between 40 and 50
percent. With the setting up of State Regulatory Commissions in the country, accurate
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estimation of T&D Losses has gained importance as the level of losses directly affects
the sales and power purchase requirements and hence has a bearing on the
determination of electricity tariff of a utility by the commission.
Components of T&D losses Energy losses occur in the process of supplying electricity to consumers due to
technical and commercial losses. The technical losses are due to energy dissipated in
the conductors and equipment used for transmission, transformation, sub-
transmission and distribution of power. These technical losses are inherent in a system
and can be reduced to an optimum level. The losses can be further sub grouped
depending upon the stage of power transformation & transmission system as
Transmission Losses (400kV/220kV/132kV/66kV), as Sub transmission losses (33kV
/11kV) and Distribution losses (11kV/0.4kv). The commercial losses are caused by
pilferage, defective meters, and errors in meter reading and in estimating unmetered
supply of energy.
Level of T& D Losses The officially declared transmission and distribution losses in India have gradually
risen from about 15 percent up to the year 1966-67 to about 23 percent in 1998-99.
The continued rising trend in the losses is a matter of serious concern and all out
efforts are required to contain the them. According to a study carried out by Electric
Power Research Institute (EPRI) of the USA some time back, the losses in various
elements of the T&D system . The losses in any system would, however, depend on
the pattern of energy use, intensity of load demand, load density, and capability and
configuration of the transmission and distribution system that vary for various system
elements.
Reasons for high T&D Losses Experience in many parts of the world demonstrates that it is possible to reduce the
losses in a reasonably short period of time and that such investments have a high
internal rate of return. A clear understanding on the magnitude of technical and
commercial losses is the first step in the direction of reducing T&D losses. This can
be achieved by putting in place a system for accurate energy accounting. This system
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is essentially a tool for energy management and helps in breaking down the total
energy consumption into all its components. It aims at accounting for energy
generated and its consumption by various categories of consumers, as well as, for
energy required for meeting technical requirement of system elements. It also helps
the utility in bringing accountability and efficiency in its working.
Reasons for high technical losses The following are the major reasons for high technical losses in our country: -
• Inadequate investment on transmission and distribution, particularly in sub-
transmission and distribution. While the desired investment ratio between
generation and T&D should be 1:1, during the period 1956 -97 it decreased to
1:0.45. Low investment has resulted in overloading of the distribution system
without commensurate strengthening and augmentation.
• Haphazard growths of sub-transmission and distribution system with the short-
term objective of extension of power supply to new areas.
• Large scale rural electrification through long 11kV and LT lines.
• Too many stage of transformations.
• Improper load management.
• Inadequate reactive compensation
• Poor quality of equipment used in agricultural pumping in rural areas, cooler
air-conditioners and industrial loads in urban areas.
5.10.1 Operation and maintenance expenses MSEDCL is a new organization born out of restructuring of erstwhile MSEB under
the provisions of Section 131 of EA 2003. The Provisional Transfer Scheme is yet to
be finalized by the State Government. Under these circumstances and considering the
inherent involved nature of restructuring exercise of a SEB, MSEDCL is in a
transition period and still grappling with the issues of transition. MSEDCL has
recovered Rs. 508 Crore more than what has been approved by the Commission,
which is indicative of MSEDCL’s commitment to improve its efficiency. MSEDCL
requests that consumer should not only look at the business of MSEDCL from
controllable/uncontrollable paradigm but also from the view that it has inherited a
legacy, which was not in a good shape.
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CHAPTER 6
MANAGEMENT CONTROL SYSTEM (Status, Structure and its usage in MSEDCL)
Contents: 6.1 Status of MCS at MSEDCL
6.2 Design of Control System
6.3 Usage of Control System in Distribution area of
MSEDCL to increase Productivity
6.4 Evaluation of designed Control Systems in
distribution
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CHAPTER 6
MANAGEMENT CONTROL SYSTEM
(STATUS, STRUCTURE AND ITS USAGE IN MSEDCL) Study of Management Control System practices being adopted in various functional
areas of the Maharashtra State Electricity Distribution Company Ltd, Accordingly it
deals with a framework as set-up for status, structure and usage of Management
Control System in the Company, by which the managers can ensure control over the
actions of their subordinates as well as over the entire operations in an organization.
In the MSEDCL , with appropriate decentralization of authority, Management Control
Process begins with a review of the past performance of strategic business units and
responsibility centres , and negotiations of specific objectives and targets . During
this process, areas, where improvement is necessary, are identified an reasons for
shortfall are analyzed. Then remedial actions are decided upon. It is the whole
network of the MCS which enables manager to ensure the achievements of the targets
As far as the Management Control System of MSEDCL concerned, it is designed by
incorporating the following steps.
1. The division of the MSEDCL into responsibility centre’s.
2. Fixing up responsibility in accordance with the MSEDCL’s objectives and
deciding circuital variables/key factors for each responsibility centre.
3. Developing information system which provides on time information regarding
operations that deviate from the desired results, critical variables and also
relates results to individual accountability.
4. Performance reporting to management for remedial actions.
5. On time control action by Management.
6. The concepts and objectives of internal controls,
7. The periodic monitoring of the effectiveness of an internal control structure
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6.1 Status of MCS at MSEDCL To know the status of the MCS in the distribution system of the MSEDCL, the
respondents were asked two questions. The first question was aimed to know their
awareness regarding the existing MCS as a separate department; and the second was
asked only from those respondents who were found aware regarding the existence of
separate MCS department. The responses of these two questions have been listed in
tables respectively.
All the respondents were asked the question about separate department for MCS but
the entire respondent responded negatively.
Strategic Level Management Level
No of responses Percentage No of responses Percentage
YES 0 0 0 0
NO 56 100.0 251 100
Table 6.1 : Separate Department for MCS
Almost all of the respondent at both the level, management and strategic responded
that MSEDCL do not have separate department for the MCS.
Responsibility Centers
A responsibility structure is a collection of responsibility centers. A responsibility
center is a function, division, or unit of an organization under a specified authority
with a specified responsibility. Responsibility accounting can be defined as a system
of management accounting under which accountability is determined according to the
responsibility allotted to various levels of management. In an organizational setting, it
is necessary that the performance measurement systems are designed to be fair. Two
major aspects to be considered are controllability and goal congruence. The
controllability principle says that each manager should be assessed and rewarded only
for those factors that are under his/her control. Goal congruence is achieved when
managers (and employees), while working toward their best self-interest as perceived
by themselves, take decisions that are successful in attaining the overall goals of the
organization. This happens when their individual objectives are aligned with the
214
organizational goals. Transfer pricing is a tool used in responsibility accounting to
assign monetary values to transactions taking place between two or more
responsibility centers.
According to the nature of monetary inputs and outputs, responsibility centers can be
classified into four types. They are cost centers, revenue centers, profit centers, and
investment centers. Cost centers are further divided into standard cost centers and
discretionary expense centers.
Designing an optimal management control system involves determining the specific
control measures to be used and the degree of tightness or looseness of control
required to provide the desired level of certainty of achievement of objectives. An
organization may choose any one or a combination of action control, results control,
and personnel/cultural control. The decision on the choice and degree of tightness of
control is made on the basis of a cost-benefit analysis. Costs include the consumption
of available resources, harmful behavioral side-effects, and the development of
negative attitudes among employees. Benefit refers to the level of certainty that the
organization is able to achieve by implementing the control system
Discussions held with the managers it was observed that strategic level are given the
major responsibility of implementing and maintaining the designed control system in
the MSECL . Thus they are aware of the utilization of MCS .
Strategic Level Management Level
No of responses Percentage No of responses Percentage
YES 56 100 233 92.8
NO 0 0 18 7.2
Table 6.2 : Responsibility Centre
The above table shows good awareness about MCS at both the levels. At strategic
level almost all of the respondents are aware about the responsibility centre or
department for MCS. But at Management level, it is observed that 7.2 percentage of
the respondent are not aware about the responsibility centre. While responding for the
departments or responsible centres all of them have identified more than one
department as the responsibility centres.
215
MCS key variables is that aspect of the operation at the responsibility centre , which
if not carried out efficiently , the realization of the goals of the organization will be
adversely affected irrespective of the fact that other operations are being performed
effectively and efficiently at distribution level of the MSEDCL .
MCS Key Variables: The MCS key variable at the managerial and strategic level are
identified as
No of response Percentage Yes 34 60.7 No 22 39.3 Total 56 100.0
MCS Key variables is that aspect of the distribution at the responsibility centre, which
if not carried out effectively, the realization of the goals of the company will be
adversely affected other operations in the organization are being performed
effectively and efficiently in sub stations .
The discussion on the above tables leads to the conclusion that strategic management
considered Budgets, Government instructions, objectives and time limit for the job are
accorded utmost priority but other significance factors like capability of the
employees and external environmental threats and opportunities are treated with less
priority. As a result, the existing MCS does not match with the current needs of the
managers.
Complexities and uncertainties in the business environment make it necessary to
design the organization structure and management control system in such a way that
the benefits earned from operating in numerous locations are higher than the costs
incurred in operations .
Ultimately responsible for the adequacy of the internal control structure and its
implementation, it is important that managements of MSEDCL organizational units
within government understand the nature of the internal control structure and the
objectives internal controls are to achieve.
216
6.2 Design of Control System
Design of control comprises setting targets to be achieved, reviewing of performance
and taking corrective actions. When an wherever necessary to ensure that the targets
are achieved. The design of MCS and MSEDCL has been studied in the index
mentioned three areas that is:-
1) Financial Control based practices
2) Administrative Control based practices and
3) Personnel Control based practises
The analysis of information supplied in the questionnaires shows that the design of
MCS in the MSEDCL is structured as per the following steps:
1) Setting of targets
2) Checking actual performance
3) Comparing actual performance with the standards and
4) Taking corrective action
5) Measuring productivity
The design of MCS in MSEDCL is based on some steps , such as target setting,
collection of actual information , comparison and taking corrective actions.
Financial
Control
Administrative
Control
Personnel Control
Average S. D. Average S. D. Average S. D.
Setting Targets 3.98 .863 3.96 1.026 3.88 .854
Actual
Performance 3.57 1.024 3.46 .808 3.95 .903
Comparison 3.91 .815 4.29 .803 3.75 .837
Corrective action 3.59 .848 4.25 .611 3.79 .868
Table 6.3 : Design of MCS at Strategic level In order to update the system MSEDCL has to observe the utilization and
performance of the existing control system and the requirements for the new control
217
system, if any, must be worked out on a continuing basis. This would help the
MSEDCL keep MCS in its healthy state.
In conclusion it may be held that existing control system does not match with the
present controlling requirements of the distribution level of the MSEDCL , thus
modifications in the existing MCS are required. However, suggestions are not clearly
put forward by the managers and thus ranking of these suggestions in terms of priority
has not been done.
It is further observed that these responsibility centres have created on the pattern of
departmental divisions of the MSEDCL , in such a manner that the responsibility can
be fixed on the departmental head who is answerable to the higher authority and
obliged to perform his task .
To sum up it is recommended that management as whole in all the three selected areas
ie. Finance , Productivity , Administration and Personal must attach priority to
identify all those key variables which would contribute to maximize the interruption
free supply of electricity at cheaper rates and full collection of outstanding dues in a
limited period.
6.3 Productivity and usage of Control System in Distribution area of MSEDCL In personal Control area the different opinions for target setting , comparisons and
corrective actions . While evaluating the performance of the designed control system
strategic and managerial level shows different opinions at the step of taking
corrective action in administrative control area. And in the financial control , different
views are expressed by strategic and operational level managers for the step of target
setting and corrective action and also for comparison and corrective action in the
administrative and personal control area. Whereas managers working at the
distribution levels have different opinions at the step of standard setting , actual
performance and corrective action in the financial and personal control area and for
setting targets and actual performance in the administrative control area.
218
Further on the basis of secondary data it has been observed that the performance
budget is one of the most important managerial tools for planning and control which
envisages fixation of targets of key operating area in consultation with the heads of
the various departments.
In MSEDCL The results of the productivity shows that, if the MCS of MSEDCL is
effective, will have direct impact on the productivity and other factors like
Distribution system, revenue collection, Utilization of resources and handling of
consumer complaint. If the MCS of organization is improved , will have direct impact
on the productivity.
The following are the current areas in which targets are fixed for the distribution
system of the MSEDCL :
• Release of new connection
• New transmission line
• 24 hour electricity supply
• Power transformers
• Limit of transmission and distribution losses
• Limit of damage to domestic supply transformers
• System improvement works
• Repairs of meters
• Collection of defaulting amount
• Storing and maintenance of inventory and disposal of surplus
• Some aspects of Manpower
• Redressal of consumer complaints
• Co ordination with top management
In the course of discussion held with the officers it was found the Management
Information report is one of the major publication of the company which highlights
the quarterly reviewed actual performance of the company .
This report is divided in two parts :
1. Follow up actions
2. Main report
219
The first part of this report , highlights the follow up action on the minutes of the
meeting of whole time members held in each quarter to review the Management
information report .
The second part of the report highlights actual performance in comparison with the
targets fixed. To review the actual performance and for taking corrective or remedial
actions , revenue monitoring diary is introduced which is indented to facilitate
effective monitoring of revenue at sub – divisional level , and servers as an analytical
tool in the hands of operational managers engaged in the distribution of electricity for
exercising timely control on revenue at sub stations .
The data maintained in duplicate , first diary is meant for sub stations and has to be
filled by the financial officials on finalization of revenue section. During the
inspection of the sub stations , Chief Engineer and Superintendent Engineer checks
the diary for its proper maintenance. And consumer complaints register is checked
for proper redressal . The diary monitors the various activities for remedial actions .
1. Number of connections of various categories of consumers as per return.
2. Connected load of various categories as per return .
3. Units sold to various categories of consumers.
4. Sundry debtors for revenue assessed and revenue realized .
5. Status of financial statements.
6. Position of defaulting amounts for consumers .
7. Position of Consumer complaints .
8. Position of key exceptions in the categories of GSC , small supply , medium
supply , large supply , bulk supply and public lighting.
9. Reconciliation of connections of various categories of consumers.
10. Reconciliation of connected load of various categories of consumers.
11. Power consumption record of consumers with connected load above 100Kw.
12. Productivity reports of sites section offices.
This review mechanism helps in identifying the reasons of abnormal variations, if any
and taking timely corrective action for achieving the targets fixed. Targets fixed are
capable of achievement with sincere effort at the various levels.
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CHAPTER – 7
DEVELOPMENT PROCESS OF CONTROL SYSTEM AND DIAGNOSTIC PROCEDURE
ADOPTED IN THE MSEDCL Contents: 7.1 Development Process of Control System and
Diagnostic Procedures
7.2 Impact of Management Control System on
Productivity
7.3 Methods most commonly adopted for actual
productivity performance
7.4 Major Factors responsible for success of MSC
7.5 Computer based control practices in MSEDCL
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CHAPTER 7
DEVELOPMENT PROCESS OF CONTROL SYSTEM AND DIAGNOSTIC PROCEDURES ADOPTED IN
MSEDCL 7.1 Development Process of Control System and Diagnostic Procedure
The development process of the control systems in MSEDCL Distribution area . This
chapter covers various steps in relation to the development process control systems,
which have been initiated of ignored by the management of the MSEDCL. In the
second part, the developed MCS is evaluated by the highlighting the diagnostic
procedure adopted in the MSEDCL to analyze the actual performance of the control
system. The development process of the control systems is always exercised within
the perspective of the overall corporate plan, although the two functions .
(i) The management planning process which leads to the creation of a corporate plan
(ii) The management control process which controls performance within the
framework of that corporate plan, are distinct.
The first process is followed in solving control problems and in setting up effective
control systems. Thus it is basically concerned with functions going on at the strategic
level.
The second process is the process of the controlling the operations and making
decisions once the control system has been developed. Thus it is mainly concerned
with the activities going on at the managerial and operational levels. Generally, for
developing the controls system, following outline is followed.
1. Diagnose the situation in order to define the control problem.
2. Examine the control problem and review the facts in order to find the key factors.
3. Developed alternative solutions to the problems in key areas.
4. Test and evaluate these alternatives.
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5. Construct a clear statement of the selected solutions and implement the decision into an action plan.
6. Maintenance and updation of the developed control systems up to date .
The diagnostic procedure in the control system is studied at three steps. The first step
attempts to study the methods of data collection on performance. In second step, the
study of models used for evaluating actual performance and in the third step the way
of corrective actions on the basis of information is studied.
Reporting
System Informal System Observation
Feedback/Compla
ints from other
sources
Very often 4 11 0 10
Always 19 17 5 22
Frequently 12 17 19 13
Rarely 13 7 25 5
Never 8 4 7 6
Total 56 56 56 56
Table 7.1 : Method mostly adopted for data collection on actual performance
Strategic Level
Reporting
System
Informal
SystemObservation
Feedback/Complaint
s from other sources
Very often 28 42 3 38
Always 49 76 37 71
Frequently 48 82 68 68
Rarely 68 28 94 42
Never 57 22 48 30
Total 250 250 250 250
Table No. 7.2 : Method adopted for data collection on actual performance
Managerial Level
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Extraction of important component at both the levels independently: After studying
the significance of difference between the proportion of responding at least frequently
for the each method, we tried to find out the important methods out of these given
method used for data collection. We used factor analysis method for extraction of
these factors.
Strategic Level:
Out of the four components there are two components which together explain almost
60% variance. These two components are rated very highly at Strategic Level as data
collection method. These can be identified from rotated component matrix.
Component 1 Component 2
Reporting System .281 .779
Informal System .828 -.101
Observation -.637 -.101
Feedback/complaints from other sources -.411 .661
Table 7.3 : Rotated Component Matrix at Strategic level
It can be seen from in rotated component matrix that, in component 1 column the
maximum value is 0. 828; this is associated with Informal system and for component
column 2 the maximum value is 0.779; associated with reporting system. Thus we can
conclude that these two factors are most commonly used for data collection at
strategic level.
Out of the four components there are two components which together explain almost
62% variance. These two components are rated very highly at manager Level. These
important factors can be identified from rotated component matrix given below.
It can be seen from in rotated component matrix that, in component 1 column the
maximum value is 0.689; this is associated with Informal system and for component
column 2 the maximum value is 0.945; associated with Feedback /complaints from
other sources. Thus it can be concluded that these two factors are most commonly
used for data collection.
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The informal system method of data collection is adopted at both the levels while as
from other remaining methods, reporting system is used at strategic level while as
feedback / complaints from other sources is used at managerial level.
7.1.2 Models used for the evaluating actual performance of MCS
There are many models which are used for actual evaluation of performance. In this
study researcher considered 22 models. Respondents were asked to how frequently
the models are used. To reduce the variables and to extract important amongst these
22 models we carried out factor analysis. The factor analysis shows that there are 9
models which are used very frequently explains almost 79% of the total variance at
strategic level. These nine models are further compared.
Strategic Level
The rotated component matrix can be used to identify the important variables. The
following table gives us the names of the nine Identified components which are used
very frequently for actual performance evaluation.
The respondents at strategic level were asked to rate the models on the basis
performance in diagnosing the deviation in the distribution system of MSEDCL on
five point scale (5- maximum score and 0-minimum). Since we identified nine
models which are most frequently used in diagnostic procedures, we considered only
those models for further analysis. The average score for each model is calculated.
ANOVA method is used to find the significance of difference between mean scores of
the models. Mean Std. Deviation
Budget 3.68 1.208
Internal Audit 2.41 1.156
Cash Flow Statement 3.91 .721
Break Even Analysis 1.93 1.173
Responsibility Centre 3.45 1.464
Management Audit 2.38 1.342
225
Manpower Planning and forecasting
system 4.20 .724
Personal Information System 3.55 1.205
CPM 2.11 1.139
Table 7.4 : Descriptive statistics at strategic level
Since the p-value is very small (p-value = 0.000) we reject the null hypothesis and
conclude that the models mean score given by strategic level respondent differ
significantly. Thus we can conclude that the performance of the model for diagnosing
the deviation differs. To identify, which of these model differ significantly we further
carried out post-hoc test. The results of the post hoc test (Duncan test) are as below.
The Duncan test categorizes the variable into homogeneous sets, it means that the
variable following in within sets do not show significant difference (p-value > 0.05).
Thus we can conclude that according to the ratings given by respondents at strategic
level model number 8 and 9 are given very high scores and equally rated on the
ground of performance. From Duncan test results it can be observed that there are
four groups (Subsets) and variables falling in different subsets shows significant
difference.
Managerial Level: The factor analysis shows that there are 9 models which are
used very frequently explain almost 76% of the total variance at managerial level.
These nine models are further compared. The following table gives us the names of
the nine Identified components which are used very frequently for actual performance
evaluation.
The respondents at management level were asked to rate the models on the basis
performance in diagnosing the deviation in the distribution system of MSEDCL on
five point scale (5- maximum score and 0-minimum). Since we identified nine
models which are most frequently used in diagnostic procedures, we considered only
those models for further analysis. The average score for each model is calculated.
ANOVA method is used to find the significance of difference between mean scores of
the models.
226
Since the p-value is very small (p-value = 0.000) we reject the null hypothesis and
conclude that the models mean score given by management level respondent differ
significantly. Thus we can conclude that the performance of the model for diagnosing
the deviation differs. To identify, which of these model differ significantly we further
carried out post-hoc test. The results of the post hoc test (Duncan test) are as below.
The Duncan test categorizes the variable into homogeneous sets, it means that the
variable following in within sets do not show significant difference (p-value > 0.05).
Thus we can conclude that according to the ratings given by respondents at strategic
level model number 8 and 9 are given very high scores and equally rated on the
ground of performance. From Duncan test results it can be observed that there are
four groups (Subsets) and variables falling in different subsets shows significant
difference.
7.1.3 Corrective Actions: Corrective action is also forms one of the important
steps for studying the objective on diagnostic procedure. The corrective actions are
studied at both the levels. The respondents at both the levels (managerial and
strategic) level were asked with the question on process of corrective action, follow
ups time period taken for corrective action.
Initiation process: In initiation process respondents were asked, if the deviation is
identified then how do you initiate the process of corrective action. They have been
give the four responses to choose from.
1. Review meetings are held.
2. Deviations are communicated to concerned manager and warnings are issued.
3. Responsibilities are fixed and punitive actions against the defaulters is
initiated
4. Deviations are studied and standards are reviewed. At strategic level most of the respondent responded positively for review meetings
and communicating the deviations to concern person. It is observed that most of the
methods are adopted simultaneously to initiate the process of corrective action.
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Even at managerial level most of the respondent responded positively for review
meetings and communicating the deviations to concern person. At managerial level
also it is observed that most of the methods are adopted simultaneously to initiate the
process of corrective action.
Managerial Level Strategic Level
No of respondents Percent No of respondents Percent
Weekly 24 9.6 0 0
Fortnightly 3 1.2 0 0
Monthly 209 83.6 56 100
Half yearly 14 5.6 0 0
Yearly 0 0 0 0
Total 250 100.0 56 100
Table 7.5 :Responses for Review meetings
Managerial level respondent differ on meeting responses but at strategic level
respondents are 100% agrees that meetings are held monthly.
Managerial Level Strategic Level
No of respondents Percent No of respondents Percent
Yes 187 74.8 36 64.3
Table 7.6: Responses for Follow ups of review meetings
It can be observed from graph that both the levels of respondents show good
agreement for follow ups.
Managerial Level Strategic Level
No of respondents Percent No of respondents Percent
1-3 days 55 22.0 0 0
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One week 54 21.6 0 0
15 days 6 2.4 0 0
One Month 8 3.2 0 0
Not bound by
time 79 31.6 47 83.9
Table No. 7.7: Responses for the Time taken for corrective action
Priority for taking actions:
1. Heavy investment.
2. Time bound projects.
3. Critical activities. S. No. Steps
1. Determination of the goal and objectives 2. Designing the Control System
3. Testing the designed Control System on some activity 4. Proper implementation of the system 5. Proper maintenance of the implemented system
Table 7.8 : Steps in the Development process of Control System
7.1.4 Steps in the Development process of Control System
1. Determination of goal and objectives. As seen in the MSEDCL, its main goal
is to improve the supply of electricity. To attain this goal, the management
establishes various objectives like 24 hour supply of electricity, providing
education and training to engineers, minimizing transmission losses,
minimizing defaulting amount, construction of electricity saving facilities,
research and development. Each of these objectives has to be attained within a
certain period and each of them contributes to the achievement of the main
goal.
2. Designing the control systems. The next steps for developing the control
system is to design a proper system according to the requirements of the units
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or the departments. According to the option of the officers working at strategic
level, a Management Control System should be designed to
• Facilitated planning the implementation of strategies,
• Motivate managers to achieve organizational goals, and
• Develop information system for the evaluation of performance in the
achievement of goals. It relies heavily on measurements to do this, and to
measure it effectively. The strategy must lend itself to measurement of
performance, and the Management Control System must be designed to
provide suitable measures. If either of them does not exist, the Management
Control System can be if little help in implementing the strategies.
3. Testing the designed Control System This step is aimed at the evaluation of
the proposed design by testing it on some activity. And after that, if some
deviations or inefficiencies are found the need to modify the system in the
required position is felt. As the analysis further reveals, the revised solutions
or alternatives are usually developed at this stage. This is the phase during
which the officers of the MSEDCL have the opportunity to correct, adjust or
confirm the earlier designed control system in the light of the subsequent
evaluations.
4. Implementation of the control System. When a control problem has been
resolved and a new control system is developed, the question as how to use the
system most efficiently for controlling and making control decisions must be
explored. Some officers, interviewed in the MSEDCL, were of the opinion
that in many instances control is exercised automatically i.e. the performance
is checked and adjustments are made by automated equipments though the
type of control implemented at the distribution level in the MSEDCL is not
automatic.
Thus, the primary aim of the proper implementation of the control system in
the management is to stimulate better use of assets, create new ways of work,
coordinate the efforts of individual operating departments better, and educate
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the operating personal for a closer gearing of their efforts for the
accomplishment of specific objectives.
5. Maintenance of the implemented Control System in both levels.
After implementation, the next step in the development process of control system is to
update system in the MSEDCL. As discussed above, a great capacity to design and
implement control system in the MSEDCL is based upon a great improvement in the
techniques, especially in the application logical, managerial and mathematical tools to
generate data, and in the ability to process and analyze large masses of data very fast.
At this step, a Management Control System that is excellent in design and
implementation may prove to be ineffective if it is not properly maintained and
updated. For proper maintenance and updation, it would be necessary that the top
management is closely involved in changes, which are required in the existing control
system due to the changed environment. So the management has to assess the
environment regularly at the both levels, external and internal.
At the internal level, changes and updations are basically concerned with the changes
seen at the working level (strategic & managerial); at the external level, change and
updation is basically related to the changes required in goals and strategies ( at the
strategic level) as per the requirements of the external business environment. As per
the working of the MSEDCL examined, this step is not properly initiated, mainly due
to improper planning and lack of funds.
7.2 Impact of Management Control System on Productivity
Strategic level Management Level P-value Strongly Agree, Agree
56.3 62.3 0.408
Table No. 7.9 (A) Relationship of productivity and Management control system
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Since the p-value is 0.408, which is greater than that of 0.05. we accept null
hypothesis and conclude that the both level respondents agrees, MCS has impact on
productivity. Distribution system:
Strategic level Management
Level P-value
Strongly Agree, Agree
72.5 73.6 0.8684
Table No. 7.9 (B)
Since the p-value is 0.8684, which is greater than that of 0.05. We accept null
hypothesis and conclude that the both level respondents agrees, MCS has impact on
productivity.
Since the p-value is 0.8684, which is greater than that of 0.05. We accept null
hypothesis and conclude that the both level respondents agrees, MCS has impact on
Effective use of manpower.
Since the p-value is 0.5979, which is greater than that of 0.05. We accept null
hypothesis and conclude that the both level respondents agrees, MCS has impact on
Effective use of resources.
Since the p-value is 0.641, which is greater than that of 0.05. We accept null
hypothesis and conclude that the both level respondents agrees, MCS has impact on
Revenue collection system.
Since the p-value is 0.6064, which is greater than that of 0.05. We accept null
hypothesis and conclude that the both level respondents agrees, MCS has impact on
consumer complaints handling.
Since the p-value is 0.000, which is less than that of 0.05. Thus we conclude that all
the factors are more preferred than that of other. From the graph and mean rank given
232
above one can observe that Distribution system, Revenue collection system and
consumer complaints handling are the major factors for which respondents agreed that
the MCS will have effect.
7.3 Methods most commonly adopted for actual productivity performance Control systems
Control characteristi
cs
Control objectives
Control advantages Control
obstacles
Control environments
Regulation Control Systems Regulation Doing
right things
Definite regulations, easy to operate
Lack of quantification and initiatives
Weak management foundation and environments
Budget Control Systems Process Achieving
objectives
Quantifying objectives; adjust in time
Lack of changes and initiatives
Good management foundation and environments
Evaluation Control Systems
Objective Exploring potentials
Emphasizing results; encouraging progress
Lack of process adjustments and environment
Better management foundation and environments
Incentive Control Systems
Interest Creating wealth
Related interests; quickly change according to the condition
Lack of corresponding environments and conditions
Excellent management foundation and environments
Table 7.10 : Methods most commonly adopted for actual productivity
performance 1) Management control environment is the key element to establish MCS. It is
impossible for MCS to work efficiently and effectively without considering
management control environment.
2) Management control environment, which the organizations face to when carrying
out management control, consists of external and internal environment.
3) The modes of MCS closely relate to external economic environment. MCS evolves
with the development of economic mechanism and environment.
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4) Under the same external environment, the models of MCS may be different
because of different internal environment, although the fundamental objectives of
management control are the same.
5) Different companies with different management foundation may apply the same
MCS model and the emphasis they stress on may be different either. The emphasis
can be different as well. The MCS should be established according to the
characteristics of company specific environment.
6) The external environment of MCS in China is different from the foreign
counterpart. Only a small part of companies in China are in the stage of
empowerment. The open and natural MCS is not suitable for most of the companies in
China.
7) There is no one-size-fits-all MCS model since the internal environment may be
varied. The main characteristic of the application of MCS models is the coexistence of
the four kinds of MSC models for a long time.
7.4 Major Factors responsible for success of MCS
The major factors which are responsible for the success of the MCS according to the
management level respondents are .
1 Accounting system which supports control
2 Sound communication system
3 Well planned control system
4 Management awareness towards the need of effective control system
Table 7.11 : Major factors responsible for Success of MCS
From table, the major factors which are responsible for the success of the MCS
according to the management level respondents are
1 Control by exception
2 Timely and effective decision making
3 Accounting system which supports control
Table 7.12 : Factors responsible for Success of MCS at Managerial level
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There are different success factors at managerial and strategic levels. Following table
gives the comparative distribution of the important factors .
Managerial Level Strategic Level
1 Control by exception Accounting system which l
2 Timely and effective decision making Sound communication system 3 Accounting system which supports Well planned control system
4 -------- Management awareness towards the need of effective
Table 7.13 : Factors responsible for Success of MCS at Strategic level
1 Lack of employees interest 2 Inadequate MCS as per the requirements of the distribution system 3 MSEDCL is a government undertaking
Table 7.14 Major failure factors as per Managerial level
Managerial Level Strategic Level
1 Lack of employees interest Responsibilities centres are provided but responsibility accounting is not
2 Inadequate MCS as per the requirements of the distribution
MSEDCL is a government undertaking
3 MSEDCL is a government Lack of trained and professional
Table 7.15 Comparative distribution of the important factors
So from above discussion it can be observed that managerial level respondents and
strategic level respondents differ while rating for success and failure factors of MCS. 7.5 Computer based control practices in MSEDCL
In view of the complex and turbulent environment in which modern organizations
operate, the task of management control has become increasingly challenging. One
useful approach that can be helpful in this task is the utilization of IT / EDP
(Information Technology / Electronic Data Processing) machines, mainly computers.
Computers can improve the effectiveness of management information system by
providing up-to-date and timely reports to management for planning and control.
235
These systems can provide altogether new dimensions to the practice of Management
control systems in large scale organizations.
7.5.1 Usage of Computers at MSEDCL
Since the p-value is greater than that of 0.05 we accept the null hypothesis and
conclude that both level respondents do not differ on the opinion for the use of
computers in decision making.
Computer is use differs at different levels. Even the proportion of use when compared
using statistical test shows significance of difference for many parameters. At
management level, computer is more prominently used for the activities like
Preparation of Bill, Recording rebates for timely and advance payment, Inventory
Control, Checking theft and malpractices, Recording and writing of defaulting amount
etc. At strategic level, it is used for the activities like Pay roll controls, Financial
accounting control, Checking theft and malpractices, Claims and refunds etc. This
shows that both the levels do not use computers for all activities. It is observed that
for some activities the use of computer is very low at both the levels.
As for the other reasons about limited use of computers, the negative responses of the
respondents indicate that the management and employees are ready to recommend/use
the computers at the distribution level, because they are of the opinion that existing
manual system is not giving required results, and, computers are able to handle all at
the problems of the distribution system. And they also do not have any kind of fear in
their mind regarding retrenchment.
Since the p-value is 0.000 less than that of 0.05, we reject null hypothesis and
conclude that there is significant difference between the scores of computerized
activities for their performance. To find out which of these activities differ
significantly, a post hoc test (Duncan’s test) was carried out. The results of the post
hoc test are as below:
Post-hoc test results: In Duncan test the parameters which differ significantly are
categorized in different subsets. So the activities falling in the last subset is with
236
highest score while as first activity in the first subset is with least score. The
subsequent activities can be interpreted further in same way .
Activity No Activities Preference 1 Preparation of Bill First 2 Collection of billing amount Second 3 Claims and refunds Third
Table 7.16 : Activities with overall highest rating So for as the objectives of this research study are concerned, computer based activities
in MSEDCL have been studied as one of the main objectives of this study.
For the preparation of bills, MSEDCL has to transfer its data to the Regional
Computer data Centres, because billing process of the MSEDCL is done at the
Regional Computer Centres. In order to collect this data, all the consumers have been
divided into a number of groups and cycles. Here a group includes the consumers who
are liable to pay bills, and information about these consumers is collected on group
basis. A group changes after every 15 days. Further each cycle includes 4 groups in a
cycle and the cycle changes after one month. Therefore, there are 12 cycles in every
year.
Thus, the process of collection of data regarding reading of meters, preparation of
bills and collection of billings amount is worked on the basis of above mentioned
groups and cycles. Some places photo reading of meters is introduced by MSEDCL .
Which contain information regarding following transactions:-
1. Name of the consumer
2. Consumer number
3. Address of the consumer
4. Meter no and readings previous and current
5. Units consumed and summery of units for last 11 months
6. Type of the bill
7. Payable or due amount of the bill
8. Amount payable after due date
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9. Above mentioned information about the defaulters
For proper recognition of billing data, MSEDCL has distinguished every sub-division
according to its name code number. Bills can be paid at MSEDCL section offices or
franchises which are appointed by MSEDCL in all the district places. Consumers can
pay the bills directly online also. Once the consumer is registered for this service a
automatic message is sent to such consumers by means of SMS and consumer can
know his bill amount and last date of payment etc. Or same can be done by ECS (
Electronic clearing service ). But in ECS and Online payment facility bills can be paid
only on or before due date. But not after due date. After due date bills can be paid to
authorized centers or MSEDCL office only.
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CHAPTER – 8
DATA ANALYSIS
Contents:
8.1 Statistical Tool
8.2 Reliability of data
8.3 Data distribution
8.4 Hypothesis testing
8.5 Interpretations
8.6 Test used for data analysis
239
CHAPTER 8
DATA ANALYSIS 8.1 Statistical Tool Statistical analysis was performed using Statistical Package for the Social Sciences
(SPSS) and Microsoft Excel for analysis.
8.1.1 Reliability of Data The data was collected by using questionnaire method. The respondents were divided
into two groups. The first group of respondents were those respondents who are
working at strategic level while the second group of respondents are working at
managerial level the reliability of the questionnaire was tested using Cronbach’s
alpha.
Reliability Statistics
Cronbach’s Alpha No of items
.600 79
Table 8.1 : Reliability Statistics
The Cronbach’s alpha value shows good reliability.
Objective 1: To study the Management Control System in distribution arm of MSEDCL The management control system in MSEDCL, researcher focused on following
aspects of the system. Any MCS to be consider as an effective MCS should consider
factors like Designing of system by considering critical points, integration in existing
system, updating and evaluation with some scientific models, collection and
management of information. Thus researcher tested each factor independently to test
the above hypothesis. While designing the questionnaire, researcher asked question
about designing of control system, evaluation and updating of the system, evaluation
of performance. Hence to test the hypothesis of effective management control system
it became necessary to consider all these questions.
240
8.1.2 Designing the Control System: H01: The MCS in MSEDCL is designed by considering the important factors.
H11: The MCS in MSEDCL is designed by not considering the important factors.
Level of Significance: 5%.
8.1.3 Design of control system at distribution:
The data is collected from two independent groups. The first group consist of
respondent at strategic level while as second group consist of respondent from
managerial level. In MCS of MSEDCL setting of targets, Actual performance,
comparison and corrective actions are the important points in all the three important
steps that are financial control, Administrative control and Personal control being the
three important steps. The respondents were asked to rate it on five point scale.
8.1.4 Test used for data analysis:
Since the responses are taken at two levels (strategic and managerial level) it is
necessary to compare the significance of difference and agreement between them for
the important factors which needs to be considered while designing the system. The
responses are collected on ordinal scale and two independent groups are to be
compared, researcher used Mann-Whitney U test for testing the significance
difference.
8.2 Financial Control
Mean Rank table: Respondent Mean Rank
Setting Targets Strategic Level 109.08
Managerial Level 108.30
Actual Performance Strategic Level 113.26
Managerial Level 106.83
Comparison Strategic Level 104.24
Managerial Level 109.99
Corrective action Strategic Level 103.55
Managerial Level 110.23
Table 8.2 : Mean rank of Financial control
241
Mean and standard deviation:
Strategic Level Management Level
Average S. D. Average S. D.
Setting Targets 3.98 .863 3.92 1.009
Actual Performance 3.57 1.024 3.44 1.045
Comparison 3.91 .815 3.96 .910
Corrective action 3.59 .848 3.66 .931
Table 8.3 : Mean and standard deviation
Mann-Whitney U test results:
Setting
Targets
Actual
Performance Comparison
Corrective
action
Mann-Whitney U 4448.0 4214.0 4242.0 4203.0
Wilcoxon W 17330.0 17090.0 5838.0 5799.0
Z -0.085 -0.687 -0.634 -0.733
p-value 0.932 0.492 0.526 0.463
Table 8.4 : Mann-Whitney U test results
Interpretation:
Since p-value for the variables is greater than that of 0.05, shows that respondents
don’t differ in the opinion about the important factors. Thus it can be concluded that
financial control factors are considered while designing the MCS
8.3 Administrative Control:
Mean Rank table:
Respondent Mean Rank
Setting Targets Strategic Level 108.46
Managerial Level 108.51 Actual Performance Strategic Level 105.90
242
Managerial Level 109.41
Comparison Strategic Level 108.93
Managerial Level 108.35
Corrective action Strategic Level 106.93
Managerial Level 109.05
Table 8.5 : Mean Rank table for Administrator control factor
Mean and standard deviation
Strategic Level Management Level
Average S. D. Average S. D.
Setting Targets 3.96 1.026 3.93 1.136
Actual Performance 3.46 .808 3.51 .769
Comparison 4.29 .803 4.27 .808
Corrective action 4.25 .611 4.25 .691
Table 8.6 : Mean and standard deviation
Mann-Whitney U test results:
Setting
Targets
Actual
Performance Comparison
Corrective
action
Mann-Whitney U 4478.0 4334.0 4456.0 4392.0
Wilcoxon W 6074.0 5930.0 17340.0 5988.0
Z -.005 -.393 -.065 -.245
p-value .996 .694 .948 .807
Table 8.7 : Mann-Whitney U test results
Interpretation:
Since p-value for the variables is greater than that of 0.05, shows that respondents
don’t differ in the opinion about the important factors. Thus it can be concluded that
administrative control factors are considered while designing the MCS.
243
8.4 Personal Control:
Mean Rank table:
Respondent Mean Rank
Setting Targets Strategic Level 103.79
Managerial Level 110.15
Actual Performance Strategic Level 108.97
Managerial Level 108.33
Comparison Strategic Level 108.64
Managerial Level 108.45
Corrective action Strategic Level 106.74
Managerial Level 109.12
Table 8.8 : Mean Rank for Personal Control
Mean and standard deviation:
Strategic Level Management Level
Average S. D. Average S. D.
Setting Targets 3.88 .854 3.94 .920
Actual Performance 3.95 .903 3.93 .905
Comparison 3.75 .837 3.74 .901
Corrective action 3.79 .868 3.80 .970
Table 8.8 (A) : Mean and standard deviation for Personal Control
Mann-Whitney U test results:
Setting
Targets
Actual
Performance Comparison
Corrective
action
Mann-Whitney U 4216.0 4454.0 4472.0 4382
Wilcoxon W 5812.0 17330 17350 5978
Z -.695 -.069 -.021 -.256
p-value .487 .945 .983 .798
Table 8.9 : Mann-Whitney U test results
244
Interpretation:
Since p-value for the variables is greater than that of 0.05, shows that respondents
don’t differ in the opinion about the important factors. Thus it can be concluded that
personal control factors are considered while designing the MCS . Conclusion: Since the statistical test at all the steps showed that, financial,
administrative and personal control factors are considered while designing the
management control system. Thus we accept the null hypothesis that while designing
the control system all the important factors are taken into consideration.
8.5 Evaluation of designed Control System Once the system got developed it needs to be evaluated regularly for the performance
. In this questionnaire the question about how often the system is evaluated.
H01: The MCS once developed is evaluated frequently.
H11: The MCS once developed is not evaluated frequently.
Strategic Level (%)
Management Level (%)
P-value Average percentage
Frequently, Often and Very often
71.4 73.2 0.88 72.3
Rarely and Never 28.6 26.8 27.7
Total 100 100 100
Table 8.10 : Evaluation of Control system
Interpretations: The above table shows that the proportion of respondent saying that
the control system is evaluated at least frequently is more. Even researcher compared
the proportion of responses at management and strategic level. The calculated p-value
is 0.88 which is greater than that of 0.05, indicates there is no significant difference
between the proportions at two levels. This shows that at both level there is good
agreement.
245
Updating the system:
H01: The proportion of respondent who agrees that MCS once developed is often
updated is almost 50%.
H11: The proportion of respondent who agrees that MCS once developed is often
updated is not 50%.
Level of significance: 5%
Yes Percentage P-Value Strategic Level 32 56.1 0.178
Management Level 147 58.8 0.002
Table 8.11 : MCS development at strategic and Managerial level Interpretations: 1. Since p-value strategic level is 0.178 which is greater than that of 0.025. Hence the
null hypothesis will be accepted and conclude that the proportion is almost 50 percent,
which clearly indicates that system is updated.
2. Since p-value managerial level is 0.002 which is less than that of 0.025. Hence the
null hypothesis will be rejected and conclude that the proportion is greater than that of
50 percent, which indicates that the system is updated.
Even in this research it is tried to check the significance of difference between opinions at two different levels. Yes Percentage P-Value Strategic level 32 56.1
0.79 Management Level 147 58.8
Table 8.12 : Opinion at Managerial & Strategic levels
Interpretation: Since p-value at strategic level is 0.79 which is greater than that of
0.05. Hence we accept the null hypothesis and conclude that there is no difference in
the opinions at two levels.
Completely replace the old system:
246
Strategic Level (%)
Management Level (%)
P-value
Frequently, Often and Very often 84.4 91.0 0.18
Rarely and Never 15.6 9.0 Total 100 100
Table 8.13 : Opinion of MCS review at Managerial and Strategic Level
Interpretations: Since p-value strategic level is 0.18 which is greater than that of
0.05. Hence we accept the null hypothesis and conclude that there is no difference in
the opinions at two levels.
Conclusion: Since from above interpretations it can be concluded that the old
system is updated and most of the time completely replaced.
Objective 2: To study the impact of MCS on productivity in MSEDCL 8.7 Relationship of productivity and MCS H0: There is no significant difference between the proportions of respondents
saying there is relationship between MCS and Productivity at managerial and
strategic level.
H1: There is significant difference between the proportions of respondents saying
there is relationship between MCS and Productivity at managerial and
strategic level.
Productivity: Strategic level Management Level P-value Strongly Agree, Agree
56.3 62.3 0.408
Table No. 8.14 : Relationship of productivity and MCS
247
Fig. 8.1 : Percentage distribution of responses of Strategic and Managerial level
respondents
Interpretations: Since the p-value is 0.408, which is greater than that of 0.05. we
accept null hypothesis and conclude that the both level respondents agrees, MCS has
impact on productivity. Distribution system:
H0: There is no significant difference between the proportions of respondents
saying that effective MCS affects the distribution system at managerial and
strategic level.
H1: There is significant difference between the proportions of respondents saying
that effective MCS affects the distribution system at managerial and strategic
level.
Strategic level Management Level P-value Strongly Agree, Agree
72.5 73.6 0.8684
Table 8.15 : Difference between proportions
248
Fig. 8.2 : Percentage distribution of responses for Distribution System of MSEDCL
Interpretations: Since the p-value is 0.8684, which is greater than that of 0.05. We
accept null hypothesis and conclude that the both level respondents agrees, MCS has
impact on productivity.
Effective use of manpower:
H0: There is no significant difference between the proportions of respondents
saying that effective MCS affects the effective use of manpower at managerial
and strategic level.
H1: There is significant difference between the proportions of respondents saying
that effective MCS affects the effective use of manpower at managerial and
strategic level.
Strategic level
Management Level
P-value
Strongly Agree, Agree
62.1 58.8 0.6489
Table 8.16 : Effective use of manpower
249
Fig. 8.3 : Percentage distribution of respondents for Effective manpower
utilization
Interpretations: Since the p-value is 0.8684, which is greater than that of 0.05. We
accept null hypothesis and conclude that the both level respondents agrees, MCS has
impact on Effective use of manpower.
Effective use of resources:
H0: There is no significant difference between the proportions of respondents
saying that effective MCS affects the Effective use of resources at managerial
and strategic level.
H1: There is significant difference between the proportions of respondents saying
that effective MCS affects the Effective use of resources at managerial and
strategic level.
Strategic level Management
Level P-value
Strongly Agree, Agree
66.1 69.8 0.5979
Table 8.17 : Effective use of resources
250
Fig. 8.4 : Percentage distribution of respondents for Effective resource
utilization
Interpretations: Since the p-value is 0.5979, which is greater than that of 0.05. We
accept null hypothesis and conclude that the both level respondents agrees, MCS has
impact on Effective use of resources.
Revenue collection system:
H0: There is no significant difference between the proportions of respondents
saying that effective MCS affects the Revenue collection system at managerial
and strategic level.
H1: There is significant difference between the proportions of respondents saying
that effective MCS affects the Revenue collection system at managerial and
strategic level.
Strategic level Management
Level P-value
Strongly Agree, Agree
73.1 70.0 0.641
Table 8.18 : Revenue collection system
251
Fig. 8.5 : Percentage distribution of respondents for Effective revenue collection
system
Interpretations: Since the p-value is 0.641, which is greater than that of 0.05. We
accept null hypothesis and conclude that the both level respondents agrees, MCS has
impact on Revenue collection system .
Consumer complaints handling:
H0: There is no significant difference between the proportions of respondents
saying that effective MCS affects the consumer complaints handling at
managerial and strategic level.
H1: There is significant difference between the proportions of respondents saying
that effective MCS affects the consumer complaints handling at managerial
and strategic level.
Strategic level Management Level P-value Strongly Agree, Agree
71.1 67.6 0.6064
Table 8.19 : Consumer complaints handling
252
Fig. 8.6 : Percentage distribution of respondents for Effective handling of
Consumer complaints
Interpretations: Since the p-value is 0.6064, which is greater than that of 0.05. We
accept null hypothesis and conclude that the both level respondents agrees, MCS has
impact on consumer complaints handling.
Kruskal-Wallis test: The non-parametric ANOVA is used to check whether all the
factors considered above are equally important or some of them are more important
than other.
Factors N Mean Rank Distribution system 306 843.94
Effective use of manpower 306 674.28 Effective use of resources 306 756.11Revenue collection system 306 778.41Consumer complaints handling
306 774.75
Table 8.20 : Kruskal-Wallis test
253
Fig. 8.7 : Mean ranks for productivity components
Test result:
H0: All the factors are equally important.
H1: Some factors are more preferred than that of the other
Test Statistics
Chi-Square 25.404 Df 4 p-value .000
Interpretations: Since the p-value is 0.000, which is less than that of 0.05. Thus
researcher concludes that all the some factors are more preferred than that of other.
From the graph and mean rank given above one can observe that Distribution system,
Revenue collection system and consumer complaints handling are the major factors
for which respondents agreed that the MCS will have effect.
254
Objective 3: To study the diagnostic procedures used in MCS for maintaining
these systems up to date
The diagnostic procedure in the control system is studied at three steps. The first step
attempts to study the methods of data collection on performance. In second step, the
study of models used for evaluating actual performance and in the third step the way
of corrective actions on the basis of information is studied.
Method mostly adopted for data collection on actual performance:
Strategic Level
Report
ing
System
Informal System Observation
Feedback/Complain
ts from other
sources
Very often 4 11 0 10
Always 19 17 5 22
Frequently 12 17 19 13
Rarely 13 7 25 5
Never 8 4 7 6
Total 56 56 56 56
Table 8.21 : Methods adopted for data collection Strategic Level
Fig. 8.8 : Distribution of Respondents for the Method adopted for data collection
Strategic Level
255
Managerial Level:
Reporting
System
Informal
System Observation
Feedback/Complaints
from other sources
Very often 28 42 3 38
Always 49 76 37 71
Frequently 48 82 68 68
Rarely 68 28 94 42
Never 57 22 48 30
Total 250 250 250 250
Table 8.22 : Method adopted for data collection Managerial Level
Fig. 8.9 : Distribution of responses for Methods adopted for data collection
Managerial Level
Comparison of Strategic Level and managerial level:
H0: All the methods are equally important at both levels (Strategic and
Managerial) for data collection.
H1: All the methods are not equally important at both levels (Strategic and
Managerial) for data collection.
256
Methods Strategic
Level
Management
Level
p-value
Reporting System 62.5 49.8
Informal System 80.4 80.3
Observation 42.9 43.4
Feedback/complaints from other
sources 80.4 71.1
Table 8.23 : Distribution of the respondent for different methods at strategic
level
Fig. 8.10 : Distribution of the respondent for different methods at strategic level
Interpretations:
Extraction of important component at both the levels independently: After studying
the significance of difference between the proportion of responding at least frequently
for the each method, researcher tried to find out the important methods out of these
given method used for data collection. We used factor analysis method for extraction
of these factors.
257
Strategic Level:
Total Variance Explained
Compo
nent
Initial Eigen values
Extraction Sums of
Squared Loadings
Rotation Sums of Squared
Loadings
Total
% of
Variance
Cumu
lative
% Total
% of
Varian
ce
Cumu
lative
% Total
% of
Variance
Cumulativ
e %
1 1.35
7 33.928
33.92
81.357 33.928
33.92
81.340 33.490 33.490
2 1.04
7 26.171
60.09
9 1.047 26.171
60.09
9 1.064 26.610 60.099
3 .975 24.372 84.47
1
4 .621 15.529 100.0
00
Table 8.24 : Total Variance at Strategic Level
Interpretations: Out of the four components there are two components which
together explain almost 60% variance. These two components are rated very highly at
Strategic Level as data collection method. These can be identified from rotated
component matrix.
Rotated Component Matrix
Component 1 Component 2
Reporting System .281 .779
Informal System .828 -.101
Observation -.637 -.101
Feedback/complaints from other sources -.411 .661
Table 8.25 : Rotated Component Matrix
258
Interpretations: It can be seen from in rotated component matrix that, in component
1 column the maximum value is 0. 828; this is associated with Informal system and
for component column 2 the maximum value is 0.779; associated with reporting
system. Thus it can be concluded that these two factors are most commonly used for
data collection at strategic level.
Managerial Level:
Total Variance Explained
Compo
nent
Initial Eigen values
Extraction Sums of
Squared Loadings
Rotation Sums of
Squared Loadings
Total
% of
Var.
Cumu.
% Total
% of
Var.
Cumu.
% Total
% of
Var.
Cumu.
%
1 1.428 35.703 35.703 1.428 35.703 35.703 1.400 35.005 35.005
2 1.045 26.114 61.817 1.045 26.114 61.817 1.072 26.812 61.817
3 .847 21.176 82.993
4 .680 17.007 100.000
Table 8.26 : Total Variance at Managerial Level
Interpretations: Out of the four components there are two components which
together explain almost 62% variance. These two components are rated very highly at
manager Level. These important factors can be identified from rotated component
matrix given below.
Rotated Component Matrix
Component 1 Component 2
Reporting System .680 .400
Informal System .698 -.137
Observation -.668 .033
Feedback/complaints from other sources -.058 .945
Table 8.27 : Rotated Component Matrix
259
Interpretations: It can be seen from in rotated component matrix that, in component
1 column the maximum value is 0.689; this is associated with Informal system and for
component column 2 the maximum value is 0.945; associated with Feedback
/complaints from other sources. Thus it can be concluded that these two factors are
most commonly used for data collection.
Conclusion: The informal system method of data collection is adopted at strategic
and managerial levels while as from other remaining methods, reporting system is
used at strategic level while as feedback/complaints from other sources method is
used at managerial level.
8.8 Models used for the evaluation of actual performance:
There are many models which are used for actual evaluation of performance. In this
study researcher consider 22 models. Respondents were asked to how frequently the
models are used. To reduce the variables and to extract important amongst these 22
models researcher carried out factor analysis. The factor analysis shows that there are
9 models which are used very frequently explains almost 79% of the total variance at
strategic level. These nine models are further compared.
Strategic Level:
Total Variance Explained
Compo
nent
Initial Eigen values
Extraction Sums of
Squared Loadings
Rotation Sums of
Squared Loadings
Total % of Var. Cumu. % Total
% of Var.
Cumu. % Total
% of Var. Cumu. %
1 2.914 13.244 13.244 2.914 13.244 13.244 2.411 10.959 10.959
2 2.816 12.798 26.043 2.816 12.798 26.043 2.096 9.526 20.485
3 2.548 11.581 37.623 2.548 11.581 37.623 1.998 9.081 29.566
4 2.059 9.357 46.980 2.059 9.357 46.980 1.909 8.676 38.242
5 1.675 7.613 54.594 1.675 7.613 54.594 1.825 8.295 46.538
6 1.492 6.782 61.375 1.492 6.782 61.375 1.818 8.262 54.799
7 1.393 6.334 67.709 1.393 6.334 67.709 1.797 8.168 62.967
260
8 1.266 5.756 73.466 1.266 5.756 73.466 1.793 8.149 71.117
9 1.092 4.964 78.429 1.092 4.964 78.429 1.609 7.313 78.429
10 .912 4.145 82.574
11 .759 3.452 86.026
12 .657 2.985 89.011
13 .546 2.481 91.492
14 .422 1.919 93.411
15 .333 1.514 94.925
16 .311 1.414 96.338
17 .248 1.130 97.468
18 .214 .975 98.442
19 .130 .589 99.032
20 .107 .488 99.520
21 .075 .341 99.861
22 .031 .139 100.000
Table 8.28 : Models used for actual performance
The rotated component matrix can be used to identify the important variables.
Rotated Component Matrix
Component
1 2 3 4 5 6 7 8 9
Q13-1 -.011 -.130 -.204 .824 .155 .107 .008 -.046 -.034
Q13-2 .211 .645 .119 .105 .071 .380 .099 .100 -.307
Q13-3 -.658 -.083 .394 .077 -.034 -.056 .145 .285 -.334
Q13-4 -.131 .100 -.077 .073 -.223 .879 .137 .031 -.106
Q13-5 -.093 .361 -.107 -.370 .103 -.009 -.048 .272 -.601
Q13-6 .125 -.148 .771 -.337 -.062 .000 .065 .103 .125
261
Q13-7 -.528 .016 .258 -.228 .236 .273 -.179 .104 .302
Q13-8 .017 -.191 -.780 -.154 -.025 .125 .005 .023 -.021
Q13-9 -.369 .038 .262 .675 -.189 -.220 -.161 -.050 .027
Q13-10 -.162 .123 .077 .091 .186 -.035 -.129 .812 .018
Q13-11 -.051 -.084 .168 -.140 .014 .142 .827 -.225 -.040
Q13-12 .030 .856 -.061 -.169 .240 -.011 -.166 -.115 .061
Q13-13 -.072 .053 .068 -.108 -.044 -.097 .189 .071 .855
Q13-14 .078 -.064 -.151 .034 -.049 -.047 .793 .075 .394
Q13-15 -.131 -.010 .079 .254 -.367 -.594 .437 .174 -.044
Q13-16 .182 .027 -.109 .276 .803 -.183 -.012 -.081 .017
Q13-17 .216 -.617 -.323 .007 .127 .497 .262 -.172 -.006
Q13-18 .256 -.102 -.024 -.359 -.247 -.039 .020 .732 -.039
Q13-19 .479 -.478 .062 -.002 .447 -.179 -.167 -.089 -.050
Q13-20 .196 -.208 -.056 .166 -.693 -.112 .002 -.136 .121
Q13-21 .816 .074 .233 -.240 .055 -.011 .040 .112 -.045
Q13-22 .583 -.160 .425 -.038 -.055 .183 -.038 .474 -.077
Table 8.29 : Rotated component matrix used to identify the important variables
The following table gives us the names of the nine identified components which are
used very frequently for actual performance evaluation.
Codes Used in
Analysis Variable Name
Frequently, Often and Very
often (%)
Q13-1 Budget 89.3
Q13-4 Internal Audit 37.5
Q13-6 Cash Flow Statement 53.6
Q13-10 Break Even Analysis 46.4
Q13-11 Responsibility Centre 71.4
262
Q13-12 Management Audit 37.5
Q13-13 Manpower Planning and
forecasting system
78.6
Q13-16 Personal Information System 80.4
Q13-21 CPM 28.6
Table 8.30 : Identified components used very frequently for actual performance
evaluation
Fig. 8.11: Distribution of responses for Identified components used frequently for
actual performance evaluation
The respondents at strategic level were asked to rate the models on the basis
performance in diagnosing the deviation in the distribution system of MSEDCL on
five point scale (5- maximum score and 0-minimum). Since researcher identified nine
models which are most frequently used in diagnostic procedures, researcher
considered only those models for further analysis. The average score for each model
is calculated. ANOVA method is used to find the significance of difference between
mean scores of the models. H0: All nine models are equal in performance for diagnosing the deviation in the
system.
H1: Models are not equal in performance for diagnosing the deviation in the
system.
263
Descriptive statistics: Mean Std. Deviation
Budget 3.68 1.208
Internal Audit 2.41 1.156
Cash Flow Statement 3.91 .721
Break Even Analysis 1.93 1.173
Responsibility Centre 3.45 1.464
Management Audit 2.38 1.342
Manpower Planning and forecasting system 4.20 .724
Personal Information System 3.55 1.205
CPM 2.11 1.139
Table 8.31 : Descriptive statistics
Fig. 8.12 : Mean for the different components of the model
Sum of Squares
df Mean Square F P-value
Between Groups 328.671 8 41.084 31.046 .000 Within Groups 655.036 495 1.323
Total 983.706 503
Table 8.32 ANOVA test results
264
Interpretations: Since the p-value is very small (p-value = 0.000) we reject the null
hypothesis and conclude that the models mean score given by strategic level
respondent differ significantly. Thus it can be concluded that the performance of the
model for diagnosing the deviation differs. To identify, which of these model differ
significantly researcher further carried out post-hoc test. The results of the post hoc
test (Duncan test) are as below.
Duncan test:
Models
Subset for alpha = 0.05 Model number 1 2 3 4 1 Break even analysis 1.93 2 CPM 2.11 2.11 3 Management Audit 2.38 2.38 4 Internal Audit 2.41 5 Responsibility Centre 3.45 6 Personal Information system 3.55 7 Budget 3.68 8 Cash flow statement 3.91 3.91 9 Manpower planning and
forecasting 4.20
P-value .052 .190 .050 .189
Table 8.33 : Duncan test
Interpretations: The Duncan test categories the variable into homogeneous sets, it
means that the variable following in within sets do not show significant difference (p-
value > 0.05). Thus it is concluded that according to the ratings given by respondents
at strategic level model number 8 and 9 are given very high scores and equally rated
on the ground of performance. From Duncan test results it can be observed that there
are four groups (Subsets) and variables falling in different subsets shows significant
difference.
265
Managerial Level: The factor analysis shows that there are 9 models which are used
very frequently explains almost 76% of the total variance at managerial level. These
nine models are further compared.
Total Variance Explained
Comp
onent
Initial Eigen values
Extraction Sums of
Squared Loadings
Rotation Sums of Squared
Loadings
Total % of Var.
Cumu. % Total
% of Var.
Cumu. % Total
% of Var. Cumu. %
1 3.242 14.737 14.737 3.242 14.737 14.737
2.26
3 10.287 10.287
2 2.559 11.633 26.370 2.559 11.633 26.370
2.03
2 9.236 19.523
3 2.199 9.993 36.363 2.199 9.993 36.363
1.97
0 8.953 28.476
4 2.107 9.575 45.939 2.107 9.575 45.939
1.94
5 8.841 37.317
5 1.691 7.685 53.623 1.691 7.685 53.623
1.85
8 8.447 45.765
6 1.554 7.062 60.686 1.554 7.062 60.686
1.79
9 8.175 53.940
7 1.267 5.759 66.444 1.267 5.759 66.444
1.71
3 7.788 61.728
8 1.131 5.139 71.583 1.131 5.139 71.583
1.71
3 7.784 69.512
9 1.049 4.769 76.352 1.049 4.769 76.352
1.50
5 6.840 76.352
10 .966 4.393 80.745
11 .815 3.703 84.448
12 .633 2.876 87.324
13 .597 2.713 90.037
14 .549 2.493 92.531
266
15 .412 1.874 94.405
16 .365 1.659 96.064
17 .246 1.119 97.183
18 .202 .920 98.103
19 .155 .704 98.807
20 .107 .488 99.294
21 .080 .363 99.657
22 .075 .343 100.000
Table 8.34 : Total Variance Explained
The rotated component matrix can be used to identify the important variables.
Rotated Component Matrix
Component
1 2 3 4 5 6 7 8 9
Q13-1 -.058 -.169 .614 -.061 .468 .059 -.006 -.042 -.256
Q13-2 .246 .046 -.162 .226 -.111 -.721 -.101 -.106 -.015
Q13-3 -.142 -.291 -.179 .318 .002 .283 .099 .600 .156
Q13-4 .236 .242 .206 .352 -.257 -.404 .354 .511 .060
Q13-5 .113 -.040 .080 .042 -.020 -.129 -.009 .081 .886
Q13-6 .523 .005 -.663 -.009 -.070 -.004 -.065 .044 -.088
Q13-7 -.017 -.024 -.107 .000 .090 .045 -.193 .891 .013
Q13-8 -.014 .077 .760 .020 -.158 .052 -.237 -.150 .197
Q13-9 -.175 .038 -.032 .001 .862 -.049 .059 .200 -.074
Q13-10 .050 -.280 -.332 .594 -.023 -.054 .292 -.091 .253
Q13-11 .051 .875 -.034 -.122 .181 -.028 -.024 .021 -.005
Q13-12 .017 .130 .110 -.110 -.079 .073 -.754 .158 .232
Q13-13 .219 .251 -.063 .088 .004 .784 -.051 .049 -.203
Q13-14 .091 .747 .058 .250 -.126 .310 .111 -.203 .019
267
Q13-15 .185 .250 .058 .039 .690 .310 .184 -.293 .180
Q13-16 -.060 -.305 .046 -.554 -.107 .289 .063 .003 -.358
Q13-17 -.201 .379 .465 -.270 -.407 -.068 .372 -.006 -.195
Q13-18 .726 .090 -.047 .321 .062 .076 -.190 .005 .127
Q13-19 .025 -.012 -.091 -.821 .003 -.008 -.061 -.189 .142
Q13-20 .059 .226 -.055 .056 .099 .191 .687 .033 .304
Q13-21 .658 .082 -.297 -.205 -.237 .141 -.060 -.109 .290
Q13-22 .838 .007 -.032 -.099 .001 -.205 .324 -.021 -.056
Table 8.35 : Rotated Component Matrix
The following table gives the names of the nine Identified components which are used
very frequently for actual performance evaluation.
Codes Used in
Analysis Variable Name
Frequently, Often and Very often
(%)
Q13-5 Accounting Ratios 52.0
Q13-7 Fund Flow Statement 73.2
Q13-8 Return on Investment 89.2
Q13-9 Direct Costing 89.6
Q13-10 Break Even Analysis 46.4
Q13-11 Responsibility Centre 79.2
Q13-13 Manpower Planning and
forecasting system
83.2
Q13-20 Statistical Control 42.8
Q13-22 PERT 34.8
Table 8.36 : Components used very frequently for actual performance
evaluation
268
Fig. 8.13 : Components used very frequently for actual performance evaluation
The respondents at management level were asked to rate the models on the basis
performance in diagnosing the deviation in the distribution system of MSEDCL on
five point scale (5- maximum score and 0-minimum). Since researcher identified nine
models which are most frequently used in diagnostic procedures, researcher
considered only those models for further analysis. The average score for each model
is calculated. ANOVA method is used to find the significance of difference between
mean scores of the models.
H0: All nine models are equal in performance for diagnosing the deviation in the
system. H1: Models are not equal in performance for diagnosing the deviation in the
system. Descriptive statistics: Mean Std. Deviation
Accounting Ratios 2.22 1.361
Fund Flow Statement 3.12 1.004
Return on Investment 4.10 1.175
Direct Costing 3.46 1.371
Break Even Analysis 2.30 1.366
Responsibility Centre 3.30 1.460
269
Manpower Planning and forecasting system 4.16 .749
Statistical Control 3.34 1.508
PERT 2.34 1.317
Table 8.37 : Descriptive statistics
Fig. 8.14 : Distribution of means for the components of model
ANOVA Results:
Sum of Squares
Df Mean Square F P-value
Between Groups 1079.329 8 134.916 82.672 .000 Within Groups 3657.196 2241 1.632
Total 4736.525 2249
Table : 8.38 :ANOVA results
Interpretations: Since the p-value is very small (p-value = 0.000) we reject the null
hypothesis and conclude that the models mean score given by management level
respondent differ significantly. Thus it can be concluded that the performance of the
model for diagnosing the deviation differs. To identify, which of these model differ
significantly and further carried out post-hoc test. The results of the post hoc test
(Duncan test) are as below.
270
Duncan test:
Models Subset for alpha = 0.05
Model number 1 2 3 4 1 Accounting Ratio 2.22 2 Break Even Analysis 2.30 3 PERT 2.34 4 Fund Flow statement 3.12 5 Responsibility Centre 3.30 3.30 6 Statistical control 3.34 3.34 7 Direct costing 3.46 8 Return on investment 4.109 Manpower planning and
forecasting 4.16
P-value .342 .074 .188 .575
Table 8.39 : Duncan test results for Managerial Level
Interpretations: The Duncan test categorizes the variable into homogeneous sets, it
means that the variable following in within sets do not show significant difference (p-
value > 0.05). Thus it can be concluded that according to the ratings given by
respondents at strategic level model number 8 and 9 are given very high scores and
equally rated on the ground of performance. From Duncan test results it can be
observed that there are four groups (Subsets) and variables falling in different subsets
shows significant difference.
Corrective Actions: Corrective action is also forms one of the important steps for
studying the objective on diagnostic procedure. The corrective actions are studied at
both the levels. The respondents at both the levels (managerial and strategic) level
were asked with the question on process of corrective action, follow ups time period
taken for corrective action.
Initiation process: In initiation process respondents were asked, if the deviation is
identified then how do you initiate the process of corrective action? They have been
give the four responses to choose from
271
1. Review meetings are held.
2. Deviations are communicated to concerned manager and warnings are issued.
3. Responsibilities are fixed and punitive actions against the defaulters is initiated
4. Deviations are studied and standards reviewed. Strategic Level:
Responses Frequency Percent Valid Percent Cumulative Percent1 5 8.9 8.9 8.9 1,2 9 16.1 16.1 25.0 1,2, 1 1.8 1.8 26.8 1,2,3 24 42.9 42.9 69.6 1,2,3,4 10 17.9 17.9 87.5 1,2,4 1 1.8 1.8 89.3 1,3 2 3.6 3.6 92.9 1,3,4 4 7.1 7.1 100.0
Table 8.40 : Review of meetings at strategic Level At strategic level most of the respondent responded positively for review meetings
and communicating the deviations to concern person. It is observed that most of the
methods are adopted simultaneously to initiate the process of corrective action.
Managerial Level: The following table gives the distribution of responses at managerial Level.
Responses Frequency Percent. Valid Percent Cumulative Percent
1 11 4.4 4.4 4.4
1,2 22 8.8 8.8 13.2
1,2,3 49 19.6 19.6 32.8
1,2,3,4 14 5.6 5.6 38.4
1,2,4 3 1.2 1.2 39.6
1,3 4 1.6 1.6 41.2
1,3,4 9 3.6 3.6 44.8
272
1,4 2 .8 .8 45.6
2 24 9.6 9.6 55.2
2,3 34 13.6 13.6 68.8
2,3, 8 3.2 3.2 72.0
2,3,4 36 14.4 14.4 86.4
2,4 5 2.0 2.0 88.4
3 15 6.0 6.0 94.4
3,4 4 1.6 1.6 96.0
4 10 4.0 4.0 100.0
Total 250 100.0 100.0
Table 8.41 : Review of meetings for Managerial Level
Even at managerial level most of the respondent responded positively for review
meetings and communicating the deviations to concern person. At managerial level
also it is observed that most of the methods are adopted simultaneously to initiate the
process of corrective action.
Review meetings:
Managerial Level Strategic Level
No of respondents Percent No of respondents Percent
Weekly 24 9.6 0 0
Fortnightly 3 1.2 0 0
Monthly 209 83.6 56 100
Half yearly 14 5.6 0 0
Yearly 0 0 0 0
Total 250 100.0 56 100
Table 8.42 : Review of meetings at strategic level and managerial level
273
Fig. 8.15: Review of meetings at strategic level and managerial level
Interpretations: Managerial level respondent differ on meeting responses but at
strategic level respondents are 100% agrees that meetings are held monthly.
Follow ups:
Managerial Level Strategic Level
No of respondents Percent No of respondents Percent
Yes 187 74.8 36 64.3
Table 8.42 (a) : Follow ups at Managerial and Strategic level
Fig. 8.16 : Responses for meetings follow-ups
274
Following responses received for follow-ups .
Managerial Level Strategic Level
No of respondents Percent No of respondents Percent
Very often 41 21.8 6 16.7
Always 68 36.2 13 36.1
Frequently 44 23.4 11 30.6
Rarely 25 13.3 3 8.3
Never 9 5.3 3 8.3
Total 187 100 36 100
Table 8.43 :Responses for meetings follow-ups
Fig. 8.17 :Responses for meetings follow-ups
Interpretations: It can be observed from graph that both the levels of respondents
shows good agreement for follow ups.
275
Time taken for corrective action:
Managerial Level Strategic Level
No of respondents Percent No of respondents Percent
Yes 207 82.8 47 83.9
Table 8.44: Time taken for Correction actions at both levels Limit of time period for corrective actions:
Managerial Level Strategic Level
No of respondents Percent No of respondents Percent
1-3 days 55 22.0 0 0
One week 54 21.6 0 0
15 days 6 2.4 0 0
One Month 8 3.2 0 0
Not bound by
time 79 31.6 47 83.9
Table 8.45 : Limit of time period for corrective actions
Priority for taking actions:
1. Heavy investment.
2. Time bound projects.
3. Critical activities for maintenance.
Managerial level Strategic Level
Frequency Percent Frequency Percent
1 37 14.8 1 2 3.6
1,2 77 30.8 1,2 28 50
1,2,3 37 14.8 1,2 2 3.6
1,3 47 18.8 1,2,3 11 19.7
2 18 7.2 1,3 15 26.8
276
2,3 3 1.2 Total 56 100.0
3 31 12.4
Total 250 100.0
Table 8.46 : Priority for taking actions Objective 4: To study the success and failure factors of Management Control
System practices Hypothesis: H0: Same success and failure factors exist at managerial and strategic level.
H1: Different success and failure factors exist at managerial and strategic level. Success factors: Strategic level respondents:
Factors SA A NAND D SD
1 Sound communication system 28 18 0 8 22 Motivation of employees 25 15 6 5 53 Control by exception 25 17 5 4 54 Using adequate controlling techniques as 25 17 6 4 45 Accounting system which supports 23 25 3 3 26 Well planned Productivity control system 21 25 5 2 37 Timely and effective decision making 20 18 8 6 48 Clear cut organizational structure 20 16 11 7 29 Participation by the employees in standard 20 12 7 10 7
10 Trained Manpower 18 22 6 5 511 Management awareness towards the need 18 25 9 2 212 Proper delegation of responsibility and 17 20 9 5 513 Sound reporting system 14 26 4 7 514 Top management involvement 10 25 10 6 5
Table 8.47 (A) : Table for distribution of responses
277
When response for Agree and strongly agree taken together
Factors SA A SA+ A
1 Accounting system which supports control 23 25 482 Sound communication system 28 18 463 Well planned productivity control system 21 25 464 Management awareness towards the need of 18 25 435 Control by exception 25 17 426 Using adequate controlling techniques as per 25 17 427 Motivation of employees 25 15 408 Trained Manpower 18 22 409 Sound reporting system 14 26 40
10 Timely and effective decision making 20 18 3811 Proper delegation of responsibility and authority 17 20 3712 Clear cut organizational structure 20 16 3613 Top management involvement 10 25 3514 Participation by the employees in standard setting 20 12 32
Table 8.47 (B) : Table for distribution of responses
Fig. 8.18 : Table for distribution of responses
From table, the major factors which are responsible for the success of the MCS
according to the management level respondents are.
278
1 Accounting system which supports control 2 Sound communication system 3 Well planned control system 4 Management awareness towards the need of effective control system
Table 8.48 : Major factors for success of MCS
Managerial level respondents:
Factors SA A NAND D SD
1 Timely and effective decision making 108 96 27 10 92 Control by exception 105 102 14 15 143 Accounting system which supports control 90 112 34 10 44 Participation by the employees in standard 82 100 37 17 135 Motivation of employees 76 105 39 22 86 Using adequate controlling techniques as 75 91 43 32 87 Sound communication system 73 103 41 25 88 Sound reporting system 69 113 44 17 69 Well planned productivity control system 68 109 45 20 8
10 Management awareness towards the need 65 121 33 17 1411 Proper delegation of responsibility and 65 103 48 24 1012 Clear cut organizational structure 63 90 56 29 1213 Trained Manpower 53 104 56 22 1514 Top management involvement 35 58 65 64 28
Table 8.49 (A) : Responses of distribution at managerial level
When response for Agree and strongly agree taken together
Factors SA A SA + A
1 Control by exception 105 102 2072 Timely and effective decision making 108 96 2043 Accounting system which supports control 90 112 2024 Management awareness towards the need of 65 121 1865 Participation by the employees in standard setting 82 100 1826 Sound reporting system 69 113 1827 Motivation of employees 76 105 1818 Well planned productivity control system 68 109 1779 Sound communication system 73 103 176
10 Proper delegation of responsibility and authority 65 103 168
279
11 Using adequate controlling techniques as per 75 91 16612 Trained Manpower 53 104 15713 Clear cut organizational structure 63 90 15314 Top management involvement 35 58 93
Table 8.49 (B) : Responses of distribution at Strategic and managerial level
Fig. 8.19 : Responses of distribution at managerial level
From table, the major factors which are responsible for the success of the MCS
according to the management level respondents are
1 Control by exception 2 Timely and effective decision making 3 Accounting system which supports control
Conclusion: There are different success factors at managerial and strategic levels.
Following table gives the comparative distribution of the important factors
Managerial Level Strategic Level
1 Control by exception Accounting system which supports control
2 Timely and effective decision making Sound communication system
3 Accounting system which supports control Well planned control system
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4 -------- Management awareness towards the need of effective
Table 8.50 (a) : Failure factors Strategic Level
Failure factors of MCS at Strategic Level:
Factors SA A NAND D SD Total (SA +
A)
1 Responsibilities centres are provided but responsibility accounting is not done
18 27 3 4 4 45
2 MSECL is a government undertaking 27 16 4 6 3 43 3 Lack of trained and professional staff 20 22 6 4 4 42
4 Government rules ,regulations and restriction 17 22 7 4 6 39
5 Restrictive behavior of Management to change. 14 21 19 2 35
6 Work is not divided in to responsibility centres 8 17 21 5 5 25
7 Lack of employees interest 9 14 14 11 8 23 8 Inadequate finance 1 12 19 17 7 13
9 Inadequate MCS as per the requirements of the distribution system
4 7 4 24 17 11
10 No reward and punishment system 6 5 6 22 17 11
Table 8.50 : Failure factors Strategic Level
Fig. 8.20 : Distribution of responses for the Failure factors at Strategic Level
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Failure factors according to strategic level respondents
1 Responsibilities centres are provided but responsibility accounting is not done2 MSECL is a government undertaking 3 Lack of trained and professional staff
Failure factors as per Managerial Level
Factors SA A NAND D SD
Total (SA + A)
1 Lack of employees interest 68 113 39 17 13 181
2 Inadequate MCS as per the requirements of the distribution system
79 99 43 21 8 178
3 MSEDCL is a government undertaking 75 103 48 20 4 178
4 Inadequate finance 87 85 48 22 8 172
5 Government rules ,regulations and restriction 72 94 44 29 11 166
6 No reward and punishment system 56 104 51 28 11 160
7 Responsibilities centres are provided but responsibility accounting is not done
51 108 41 33 17 159
8 Restrictive behaviour of Management to change. 61 97 51 26 15 158
9 Lack of trained and professional staff 39 71 58 55 26 110
10 Work is not divided in to responsibility centres 42 44 53 72 39 86
Table 8.51 : Failure factors Managerial Level
Fig. 8.21 : Failure factors Strategic Level
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Failure factors according to managerial level respondent:
1 Lack of employees interest 2 Inadequate MCS as per the requirements of the distribution system 3 MSEDCL is a government undertaking
Conclusion: There are different success factors at managerial and strategic levels.
Following table gives the comparative distribution of the important factors .
Managerial Level Strategic Level
1 Lack of employees interest Responsibilities centres are provided but responsibility accounting is not
2 Inadequate MCS as per the requirements of the distribution
t
MSEDCL is a government undertaking
3 MSEDCL is a government d ki
Lack of trained and professional ff
Table 8.52: Comparative distribution of the important factors
Conclusion: So from above discussion it can be observed that managerial level
respondents and strategic level respondents differ while rating . Objective 5: To study the Computer based MCS practices in MSEDCL
Are you using computer based system in your decision making?
H0: There is no significant difference between the proportions of respondents at
both levels for use of computer in decision making.
H1: There is significant difference between the proportions of respondents at both
levels for use of computer in decision making.
Managerial Level Strategic level
No of respondent PercentageNo of
respondent Percentage
P-value
Yes 130 52.0 33 58.9 0.3479
No 119 47.6 23 41.1 -- Total 249 99.6 100.0
Table 8.53 : Computer in decision making responses
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Interpretations: Since the p-value is greater than that of 0.05 we accept the null
hypothesis and conclude that both level respondents do not differ on the opinion for
the use of computers in decision making.
Computerization of activities:
Parameters Strategic level Management Level
No of respondent Percent
No of responden
t Percent
Inventory Control 46 82.1 191 76.4 Checking theft and malpractices 51 91.1 186 74.4
Recording and writing of defaulting amount 39 69.6 175 70
Financial accounting control 52 92.9 93 37.2 Recording rebates for timely and advance payment 44 78.6 195 78
Preparation of Bill 47 83.9 197 78.8 Collection of billing amount 44 78.6 171 68.4 Claims and refunds 50 89.3 104 41.6 Purchasing activities 39 69.6 163 65.2 New connections released 46 82.1 46 18.4 Recording and limiting transmission losses 34 60.7 128 51.2
Disposal of scrap, obsolete material and stock 33 58.9 161 64.4
Productivity controls 52 92.9 155 62 Invoicing 41 73.2 142 56.8
Table 8.54 : Computerization of activities in decision
Interpretations: Computer is use differs at different levels. Even the proportion of
use when compared using statistical test shows significance of difference for many
parameters.
At management level, computer is more prominently used for the activities like
Preparation of Bill, Recording rebates for timely and advance payment, Inventory
Control, Checking theft and malpractices, Recording and writing of defaulting amount
and to check productivity of sub stations etc.
At strategic level, it is used for the activities like Pay roll controls, Financial
accounting control, Checking theft and malpractices, Claims and refunds etc. This
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shows that both the levels do not use computers for all activities. It is observed that
for some activities the use of computer is very low at both the levels.
Fig. 8.22 : Computerization of activities in decision
Reasons for limited use of computers
Parameters Strategic level Management Level
No of respondent Percent
No of respond
ent Percent
Lack of trained staff 41 73.2 168 67.2 Financial problems 39 69.6 149 59.6 Existing manual systems are giving good results 42 75.0 117 46.8
Not recommended by the top management 22 39.3 98 39.2
Computers can’t handle all the 27 48.2 100 40.0
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problems of distribution department Fear of retrenchment 31 55.4 145 58.0 Resistance to change 45 80.4 145 58.0
Table 8.55 : Reasons for limited use of computer
Fig. 8.23 : Reasons for limited use of computer
8.9 Rating for the computer based practices on the basis of performance:
Hypothesis
H0: There is no significant difference in the performance of computer based
activities.
H1: There is no significant difference in the performance of computer based
activities.
Mean Scores
Sr. No. Activities Management
Level Strategic
Level Overall
1 Inventory Control 3.95 3.89 3.92 2 Checking theft and malpractices 3.56 2.68 3.12 3 Recording and writing of defaulting
amount 3.78 3.39 3.585
4 Financial accounting control 3.85 4.29 4.07 5 Recording rebates for timely and
advance payment 3.58 3.91 3.745
6 Preparation of Bill 4.31 4.86 4.585 7 Collection of billing amount 4.16 4.45 4.305 8 Claims and refunds 3.94 4.39 4.165 9 Purchasing activities 3.40 2.91 3.155
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10 New connections released 3.81 3.71 3.76 11 Recording and limiting
transmission losses 3.63 3.20 3.415
12 Disposal of scrap, obsolete material and stock 3.82 3.80 3.81
13 Productivity controls 3.96 4.05 4.005 14 Invoicing 3.99 4.00 3.995
Table 8.56 : Computer based practices on the basis of performance
Fig. 8.24 : Computer based practices on the basis of performance ANOVA is used to test the hypothesis, of no difference in the rating for the computer
based activities
Sum of Squares df Mean Square F P-value
Between Groups 359.666 13 27.667 23.023 .000Within Groups 5126.521 4266 1.202
Total 5486.187 4279
Table 8.57 : Computer based practices ratings
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Interpretations: Since the p-value is 0.000 less than that of 0.05, we reject null
hypothesis and conclude that there is significant difference between the scores of
computerized activities for their performance. To find out which of these activities
differ significantly, a post hoc test (Duncan’s test) was carried out. The results of the
post hoc test are as below:
Post-hoc test results: The Duncan test is used as post hoc test. In Duncan test the
parameters which differ significantly are categorized in different subsets. So the
activities falling in the last subset is with highest score while as first activity in the
first subset is with least score. The subsequent activities can be interpreted further in
same way
Activities Subset for alpha = 0.05
1 2 3 4 5 6 7 8
9 3.3105
2 3.3987 3.3987
11 3.5490 3.5490
5 3.6447 3.6447
3 3.7124 3.7124
10 3.7934 3.7934
12 3.8137 3.8137
4 3.9281 3.9281
1 3.9379 3.9379
13 3.9804 3.9804
14 3.9902 3.9902
8 4.0229
7 4.2131
6 4.4118p-value .320 .090 .081 .082 .051 .351 1.000 1.000
Table 8.58 : Computer based practices on the basis of performance
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Following are the activities, for which overall rating is highest.
Activity No Activities Preference 6 Preparation of Bill First 7 Collection of billing
amount Second
8 Claims and refunds Third
Table (A)
Training for the Staff:
Level Frequency Percentage Training Period
Formal Training Manageme
nt 210 84.0 One Month
Strategic 53 94.6 One Month
Table (A) and (B) 8.59 :Training of Computers for Staff
Test Used: 1. Mann-Whitney U test: The test is used two compare the two variables when
variables are defined on ordinal scale. The Mann-Whitney U test is considered as non-
parametric counterpart for parametric independent t-test. We used Mann-Whitney test
in our analysis because, in some part of the analysis researcher compared two ordinal
types of variables.
2. Z-test: This test is used to test the proportion between two variables. This is
large sample parametric test. Since responses are collected from two levels of groups
and it is necessary to compare the proportions of two levels for their difference in the
opinion on many factors. Even the number of respondents in each group is more than
30 (large sample test) researcher used z-test of proportion.
3. ANOVA: ANOVA is parametric test used when more than two variables are
to be compared which are defined on continuous scale. ANOVA gives the
information whether there exist significance of difference between different variables.
In some part of the analysis compared the scores of the more than two variables for
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the significance of difference for the mean score. This analysis is carried out by using
ANOVA test.
4. Kruskal-Wallis test: This test is used in that same way as that of ANOVA.
The only difference between these two tests is, ANOVA is used with parametric data
and K-W test is used with non-parametric data. Since in this analysis researcher
compared non parametric data, researcher used K-W test.
5. Duncan’s Test: This is post hoc test which always go with the ANOVA with
significant p-value. This test is used to find out which amongst the many variables
exactly differs significantly. Wherever researcher used ANOVA for comparison it is
further tested it by using Duncan test. So Duncan test is an essential test which is
always used with ANOVA for further comparison.
6. Factor Analysis: Factor analysis is variable reduction tool used for reducing
the number of variables for comparison. Factor analysis sometimes is used for
extracting important factors. The extracted factors are then considered for further
statistical analysis. In analysis researcher tried to extract important factors on many
aspects. Researcher used factor analysis.
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CHAPTER 9
MAJOR FINDINGS
Contents: 9.1 Results Summary
9.2 Revisiting Research Objectives and findings
9.3 Other useful findings
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CHAPTER 9
MAJOR FINDINGS
Whereas Management Control is the process by which managers ensure that resources
are obtained and used effectively and efficiently in the accomplishment of the
organization’s objective, the MCS is an organized systematic process and structure
that management uses in Management Control practices in any organization .
A Management Control System may be briefly defined as a system of organizational
information seeking and gathering accountability and feed-back, designed to ensure
that the enterprise adapts to changes in its substantial environment and that the work
behaviour of its employees is measured by reference to a set of operational sub-goals
(which conform to overall objectives) so that the discrepancy between the two can be
reconciled and corrected.
In the present age most organizations engage in the practice of management control
ensuring that
(1) Resources are used and decisions are made consistently with organizational
objectives.
(2) Through the medium of annual business planning or budgeting exercises and,
(3) Comparison of actual versus budgeted performance primarily of mid-level
managers.
To study this system in one of the service organizations, this research work is
conducted in the area of distribution system of the Company and concentrates mainly
on the field of Finance, Productivity , Administration, Computer usage and personnel
control practices . Thus at the distribution level, Management Control System based
practices have been studied and evaluated from the point of view of their usefulness
and adequacy to higher management, for exercising complete control over the
working of the Company. This helps to point out the shortcomings and to suggest
improvements to make the system more effective and enhance the quality of control
system in the various sub-systems as well as in the overall organization of the
Company.
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Major findings 9.1 Revisiting Research Objectives and findings The dealt with finding the Management control system at the distribution system of
the company does not have an independent department in its organizational setup
with well defined authority and responsibility , but MCS has not been practiced in
latter and spirit.
In conclusion, it has been held that existing control system does not match with the
present controlling requirement, thus, modification is recommended. Managers, on
the whole, at both levels accord priority to modify the system but the users (managers
working at the managerial and operational levels) of the control system are not clear
about the problem, and thus unable to recommend the particular suggestion regarding
modification.
An analysis of the responses highlights that revenue and investment centres have been
identified by the majority of the respondents. It may be due to the fact that the attitude
of the managers is such that they consider the Company as an organization where
investments are made and revenues are collected.
Organisational structure of the Company as well as responses of the managers
indicate that various functions going on in the responsibility centres, that is, authority
relationship, performance evaluation of the responsibility centres and flow of
information among various responsibility centres, are based mainly on the divisional
or zonal structure of the distribution system of the Company.
Discussions lead to the conclusion that while structuring Management Control
System in the MSEDCL, the strategic management considers Budgets; rules
regulations and government instructions; objectives of the job/project; time limit for
the job at the first, second, third and fourth rank. But other significant factors like
capacity of the employees and external environmental threats and opportunities are
accorded less priority.
At the managerial and strategic levels, factors like reporting to the government;
collection of defaulting amount; cost reduction; and regular supply of finance are
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ranked as first to fourth key variables respectively. But other significant factors
(collection of billing amount; claims and refunds; evaluation of information system;
and maintenance of stores) are considered less important and ranked low.
Management Control System in the MSEDCL is frequently designed at the strategic
level and then implemented at the managerial and operational levels. All the steps of
the MCS including setting of targets; checking of actual performance; comparing
actual performance with the norms; and taking corrective action, are found to be
performed, meticulously by the distribution system of the Company.
Further study reveals that the quality of the design and performance of the control
system has declined at the step of taking corrective action, because at this step it is not
designed and evaluated in time.
The first phase of the control system development process ends by designing the
system and in the second and third phase testing and implementation phases have
been started. About 71% of the respondents indicated that designed control system is
not being tested before its implementation. Second, it also not properly implemented
and maintained in the MSEDCL.
To collect information in the Company , reporting, observations, feedback, complaints
and informal system are mainly used but out of these reporting techniques is very
popular and gives effective results. Consumer complaints are handled more
effectively at zonal offices levels. Major complaints are rectified more effectively .
At the strategic level the responsibility accounting technique is mainly in use for
measuring performance, and the other techniques such as product-wise measurement
(number of jobs completed) are not popular, whereas at the managerial and
operational levels, managers are evaluated on the basis of revenue collected by them,
quantity and quality of the jobs (number of completed in a particular responsibility
centre). Closer of complaints in time . But no SLA defined for consumer complaints .
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The information system of the Company is based on the traditional methods and
techniques, and this traditional system is just fulfilling the basic requirements but not
giving effective results; so modifications are required.
While setting targets only tangible aspects of the problems are considered because
targets are set at the strategic level and this level is not properly aware regarding the
intangible aspects of the problems which are seen at the functional levels. The
managers working at the managerial and operational levels are not given an
opportunity to participate in the designing process. Thus they are unaware of the
designing of the process and its utilization. And productivity is not up to the mark of
the distribution area of the sub stations in filed.
Managers concluded that unrevised and unrevised targets further create the problem
of improper measurement of variations. Accordingly, corrective action is not initiated
in an effective manner and in time.
All the managers have the problem of overloading of information which indicates that
the information system of the Company is not giving accurate and timely information
because before transmission of information it (information) is not properly analyzed.
It is further concluded that, the present information system is unable to provide
information in advance regarding the accidents; so no preventive measures are
feasible. And this results in low productivity at field levels .
The present MCS is lacking in the area of personnel control system, mainly due to
dissatisfaction amongst the employees; hence, system at this point suffers from the
problem of co-ordination. More and effective co ordination required between down
line employees and managerial level . Field staff is not satisfied with personal or HR
control .
In the financial control area, models like budgets, fund flow statement and cash flow
statement are used most of the times. Among these models, budget is one of the most
important models and performs above average. Other models like standard costing,
ratio, return on investment and direct costing are applied rarely and rated as average.
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Responsibility centres and internal audit are two major models used in the area of
administrative control to evaluate the performance of the managers. These models
have been rated average by the managers at all the levels. Other inventory control
models, such as, ABC analysis techniques as well as level setting models and
scientific models like CPM and PERT are seldom applied in the Company.
In the personnel control area, to control the manpower, mainly responsibility
accounting model is applied and rated average. Other models like incentive and award
system, performance appraisal and manpower planning system are not presently
adequate in the Company.
It has been analyzed that to check the deviations and for taking corrective actions,
review meetings are held frequently by the strategic and managerial level
management and then revised standards are communicated to the next level
management for implementation (only 1/3 of the total managers are aware of the
existence of the whole process of corrective action), but it does not provide expected
results due to its improper structure and design. Some remote places there is crunch of
resources due to this the down line staff is overloaded. Hence backfill should be taken
up seriously.
72% respondents have revealed that the review meetings at the strategic level are held
every month. Generally, time limit for taking corrective action varies from one week
to one month but for critical activities, managers are not bound by time.
9.2 Other useful findings:
The management of the Company at every level is provided with over crowed data in
the form of redundant reports which, in turn, adversely affects the overall control
system. The basic conclusions emerging through the findings of success and failure
related factors are given below:
(i) Adequate controlling techniques are used in planned control system and this
system has clear-cut organisational structure as well as supporting communication,
accounting and reporting system. Due to this, proper delegation of authority and
responsibility, is becoming feasible.
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(ii) Top management involvement and managers participation in standard setting
effectively help to motivate them.
(iii) Efficiency of the existing control system is decreasing day by day as present
working system at the distribution level requires modifications, but due to inadequate
finance, rules, regulations and restrictions of the government, it is not possible to
completely remove the present control system.
(iv) Inadequate MCS (less number of responsibility centres and improper
responsibility accounting) and lack of latest training requirements, reduces interest of
the managers in their jobs. Various important activities at the distribution system of
the Company, such as claims and refunds, recording of transmission losses and
defaulting amount, checking of theft and malpractices, releasing of new connections
and maintaining of financial records are required to be computerized. However, the
Company is not in a position to computerize these applications because of the
problems of finance and availability of trained personnel. Whereas other reasons such
as non-recommendation by the top management, effectiveness of the existing manual
system, fear of retrenchment, resistance to change, and incapability of the computers
to handle distribution system based problems, have not been considered responsible
for the limited use of computers.
• In conclusion , it has been held that existing control system does not match with the
present controlling requirement , thus modifications is recommended. Managers, on
the whole, at both the levels accord priority to modify the system but the users of the
control system are not clear about the problem , and thus unable to recommend the
particular suggestion regarding modification .
• An analysis of the responses highlights that revenue and investment centres have been
identified by the majority of the respondents. Thus it is affecting the productivity.
• Organizational structure of the distribution company as well as responses of the
managers indicate that various functions going on in the responsibility centres that is
authority delegation , authority relationship, performance evaluation of the
responsibility centres are based mainly on the divisional structure of the distribution
systems of the MSEDCL .
• Discussions lead to the conclusion that while structuring Management control system
in the MSEDCL , the strategic management considers budgets. Rules regulations and
297
government instructions .But other significant factors like capacity of the employees
and external environmental threats and opportunities are accorded less priority.
• Management control system in the MSEDCL is frequently designed at the strategic
level and then implemented at the managerial and operational levels. All the steps of
the MCS including setting of targets , checking actual performance , and taking
corrective action , are found to be performed meticulously by the distribution system
of MSEDCL.
• The information system of the MSEDCL is based on the traditional methods and
techniques , and this traditional system is just fulfilling the basic requirements but not
giving effective results, so modifications are required. Computerization not yet fully
implemented at all levels. Still there is lack of systems at lower level of the
employees.
• The present Management control system is lacking in the area of personal control
system mainly due to dissatisfaction amongst the employees, hence system at this
point suffers from the problem of co-ordination.
• It had been found that bills are prepared on computers at the main computer centre in
the zones . And collections of bills are distributed to franchise in all the Zones. All
the collection centers are not connected to main server. Data is collected and then
uploaded in the main server for updation. Data is collected through different franchise
in the zone wise. And complete data is processed in central server .And bills are
generated for zones.
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CHAPTER 10
RECOMMENDATION AND SUGGESTIONS
Contents: 10.1 Recommendations
10.2 Direction for Further Research
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CHAPTER 10
RECOMMENDATION AND SUGGESTIONS
Based on the finding of the study following recommendations on the dimensions of
the Management Control Systems could be drawn.
10.1 Recommendations It is observed that the organization do not have separate department for the MCS, so it
is recommended that there should be a separate department which should look after
MCS activities of the Company in the departments .
The study has highlighted various important findings which can be of great use for the
management of MSEDCL. In the light of these findings and opinions of the managers
of the Company, the following concrete recommendations can be made:
• In order that the MCS enjoys its defined status, the Company must strengthen
this discipline and managers must act according to its defined authority and
responsibility. Second, an orientation programme for all its managers is called
for at all major levels .
• Besides emphasizing the implementation of the old control system, the
MSEDCL, should go in vigorously for its updating by observing the utilization
and performance of the existing control system and the requirements for the
new control system on a continuing basis as this would help the Company to
keep the MCS in a healthy state.
• The attitude of the managers of the Company needs a change, for which
various training programmers are required to be organized. They must be
made to understand that profit centres and expense centres are also important
responsibility centres of the Company.
• In order to restructure the effective control system, the management of the
Company has to monitor the key variables which are significant but have been
ignored at the strategic level. These factors include strength and quality of
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manpower and external environment related factors. While at the managerial
and operational levels if the process of collection of the billing and defaulting
amount is checked and modified, the occurrence of defaulting amount shall be
less. Second, key variables like a clear-cut direction for the maintenance of
material, claims and refunds along with a planned information system further
help to strengthen the high quality structure of the MCS.
• As efficiency of the present control system tends to decline at the step of
taking corrective actions, the Company should monitor the existing control
system mainly at this step from both the angles (design and implementation).
• Testing being one of the most critical steps in the development of the MCS,
cannot be ignored at any cost. Similarly, implementation and maintenance are
equally important steps for the successful running of the system .Thus an
effective development process of control system requires a thorough study of
the whole organization regularly as also its division into controllable
components. A close scrutiny must be made for making changes in each
component to develop a new or maintain the existing control system, because
development process of the control system in MSEDCL is lacking at the steps
of testing, implementation and maintenance.
• Participation of the managers from all the levels should be encouraged as they
are properly aware of both the aspects of the problem (tangible and intangible)
at their levels. This participation could prove useful to the management to
improve the system on the one hand and to self motivate them on the other.
• The norms once set, must be reviewed on a continuous basis and be revised, if
needed.
• The present information system of the Company needs an immediate
restructuring, so that new system makes available accurate and right
information to the concerned managers at the right time and in a precise
manner. Preventive information on critical factors must be reported more
frequently, so as to avoid faulty decisions. And productivity can be increased
in filed levels .
• The problem of discontentment among the employees creates a number of
problems at the personnel level. It is recommended that the self-motivation
level of the employees should be stepped up to alleviate this problem and to
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increase co-ordination. For this more challenges in the job are needed to be
added along with their adequate participation in the decision-making
processes. There is no company sponsored trainings for employees now. It
was there earlier but now stopped due to lack of funds.
• The recommendations given below, must be applied in the control decisions to
make the decision process systematic and rational and thus to increase the
reliability of the managerial decisions.
(a) In the Finance area, it is recommended that all the managers should be notified
about the desired level of return on investment and about various ratios which would
enable comparison between profitability level and expenses incurred in the previous
year and to be expected in the current year, so that they can create a number of cost
centres and be able to measure the cost of each centre.
(b) In the Administration area, the application of inventory control models including
ABC analysis; level setting techniques; and scientific models like CPM and PERT are
required to be increased in the distribution area of the Company. In some places
records are not maintained up to the mark.
(c) In the Personnel area, scientific models such as implementation of awards and
incentive systems, proper manpower planning system and management information
system are recommended in place of existing traditional methods. Company should
implement new reward systems for best performs once in a year in all the areas.
d) In Productivity area , at managerial and operational levels the flow of
information’s should be prompt so that the productivity of the sub stations can be kept
up to the date , and there will be less complaints from the consumers. Hence
immediate actions are required in this area.
• Review meetings at all the levels (strategic, managerial and operational) after
a long interval (after a month) tend to hamper the successful monitoring. In
order to make MCS more effective, the review meetings must be held at least
fortnightly at the strategic level and weekly at the lower levels. There must
302
also be provisions to meet in between for some emergent decisions. Provisions
for emergency meetings are not communicated to concerned at time. There is
lack of co ordination in the departments for emergencies meetings.
• Overloading of information and redundant reports should be reduced at each
level of management to increase the efficiency of the managers.
• To maintain and update the present control system, it is recommended that the
system should provide proper planning, a clear-cut design of MCS and an
effective information and communication system. The involvement of the top
management and high motivation level of managers is also recommended to
change the control system.
• To plug the gap created by the inadequacy of the existing manual control
system and the requirements of the current economic environment the
Company must arrange for adequate funding from other resources to
computerize all the applications and to train the manpower on top priority,
because this would increase the efficiency and effectiveness of the MCS in the
distribution system of the company.
• Most of the departments are using very old systems hence productivity of the
department is not up to the mark. And some systems needs immediate up
gradation of the systems installed for billing purpose in the remote places.
These systems take more time to fetch the data from main server. Preventive
information on critical factors must be reported more frequently so as to avoid
faulty decisions. Backups taken of old data are stored in local places which are
not properly locked . And data audit for backup is not adequate. The frequency
of data audit is once in a quarter period. Old data should be stored in some
remote place in lock and key environment. Redundant line for connectivity of
remote locations should be implemented.
10.2 Area for further research 1. Similar studies are required to be undertaken in the generation and
transmission systems of the Companies.
2. Studies on the Management Control System practices in other large scale
service organizations, mainly in Banking and Insurance companies are
required to be undertaken so as to broadly frame the policies on the MCSs.
303
3. Similar studies are required to be carried to be carried out in major
commercial industries at the National/International level so as to evaluate the
Management Control System practices.
4. Similar studies on MCS required in the area of large Telecommunication
companies to be taken. Since these companies have presence across country
wide.
To conclude, it can be said that the study provides useful and relevant insights in the
area of Management Control System Practices. The suggestions put forward in this
study, if implemented, will go a long way in improving the existing Management
Control System, which in turn, will improve the functioning of the Company in all the
areas. This will affect the economy of the State and the Nation at large. The
highlighted practices of the system in one organization in the public utility can be
used as a frame work for evaluation and to modify the existing Management Control
Systems in other organizations.
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CHAPTER 11
BIBLIOGRAPHY
Contents: Bibliography
Web addresses visited
Departmental Publications
New paper articles
305
BIBLIOGRAPHY
Alvarez, R. (2008), “Examining technology, structure and identity during an
enterprise system implementation”, Information Systems Journal, Vol. 18, No. 2, pp.
203-224.
Arnold, V. (2006), “Behavioral research opportunities: understanding the impact of
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Departmental Publications
1. Secretariat Organization of the Board.
2. Annual Administration Reports (2007 to 2009, 2010 -2011)
3. Management Information Reports (from 2007 to 2009)
4. Performance Budgets (from 2008 to 2010)
5. Delegation of Power , Functions and duties.
6. Internal Audit manual I and II
7. Annual financial Statements
8. Productivity reports of sub stations
9. Annual Plan for Distribution
10. Cadre strength of Staff in MSEDCL. (as on 31st March 2011)
11. Job order control Register.
12. Consumer Cash Receipt book.
13. Revenue monitoring system
14. Book of sale of Power
15. The electricity ( Supply ) Act 1948.
16. Hitguj internal circulation news .
17. P. N Khare MSEB, Power Theft – A Root Cause of T& D Losses
18. Mr. M.H.P. Rao ‘Power Sector bogged down by T&D Losses’ in Financial
Express, dated July 9 ,1999
19. Guidelines for Energy Audit in Power Systems, CEA, New Delhi May 1992
326
Web sites Visited.
http://www.ehow.com/info_7736152.management-controls productivity. html#ix
http://www.ehow.com/info_7736152_effects-management-controls-productivity
http://onlinelibrary.wiley.com/doi/abstract
http://www.erika.cresti.unif.it
http://www.ssrn.com/abstract
http://www.elsevier.com/locate/aos
http://www. Mop.gov.in\wgp.html
http://www.icmrindia.org/courseware/Managementl
http://www.wisegeek.com/what-are-management-controls
http://www.oecd-ilibrary.org/docserver/
http://www.freepatentsonline.com/article/International-Journal-Business-Strategy
http://www.mu.ac.in/misc
http://www.emeraldinsight.com/journals.htm/journals.htm?issn
http://www.icmrindia.org/courseware/Management
http://www.electricity.puducherry.gov.in/index.htm
http://electricity.puducherry.gov.in/apdrp/index.htm
News paper articles
Times of India – Mumbai 26th May 2011 , Demand & shortage of Power sector in
India , Page 17.
Business Times – Mumbai 11th March 2011 , Power Cuts to hit state electricity boards
by 26 % across India .
Bloomberg – 1st august 2011 , Sought as Worst Power Crisis May Hurt Growth in India .
327
APPENDICES
Contents: Appendix 1 : Questionnaire – Strategic Level, & Managerial Level Appendix 2 : MSEDCL Rules and regulations & Power Sector in India Appendix 3: Parametric tests / Non Parametric tests
328
ANNEXURE – I
QUESTIONNAIRE Management Control System (M C S) in MSEDCL
The purpose of this questionnaire is to study the Management Control System
Practices in the distribution system of Maharashtra State Electricity Distribution
company for a purely academic research. The information furnished by the
respondents will not be used for any purpose other than academic. Your co- operation
in this academic pursuit will be highly appreciated. Your responses will be kept
confidential.
Thanking you in anticipation for your co operation.
1. Does the company have a separate department to operate the functions of
MCS ?
Yes No
If yes , please give the name of such department.
2. For exercising controls , do you have responsibility centres / Departments ?
Yes No
If yes , tick the name of these responsibilities centres.
I. Revenue Centre
II. Expense centre
III. Profit centre
IV. Investment Centre
3. Does the company accord priority to MCS as
I. Equal to other functions
II. Below other functions
III. Above other functions
4. Can you identify some key variables / factors for your department?
329
Yes No
If yes, please tick the critical variables, which are considered important for
controlling your department. (Please rate on the five point scale)
Key Variable
Stro
ngly
Agr
ee
Agr
ee
Nei
ther
Agr
ee
Nor
Dis
agre
e
Dis
agre
e
Stro
ngly
disa
gree
1)
2)
3)
4)
5)
6)
7)
Objective of the job project
Budgets
Strength and Quality of the
Personal Available in the
Company
Time Limit
Rules and regulation
External factors
Any other
Please specify
5. How often do you design the Control system of the Distribution system of the
Company? ( Please rate on five point scale)
Steps
Ver
y of
ten
Alw
ays
Freq
uent
ly
Rar
ely
Nev
er
A) Financial Control
‐ Setting of Targets ‐
‐ Actual Performance ‐
‐ Comparisons ‐
‐ Corrective actions
330
‐ B) Administrative Control
‐ Setting of Targets ‐
‐ Actual Performance
‐ Comparisons ‐ Corrective actions C) Personal Control ‐ Setting of Targets ‐ Actual Performance ‐ Comparisons ‐ Corrective actions
6. With respect to the following activities, how often do you rate the
performance of the designed Control System?
Steps V
ery
ofte
n
Alw
ays
Freq
uent
ly
Rar
ely
Nev
er
A) Financial Control
‐ Setting of Targets ‐
‐ Actual Performance ‐ Comparisons
‐
‐ Corrective actions B) Administrative Control
‐ Setting of Targets ‐ Actual Performance
‐ Comparisons ‐ Corrective actions C) Personal Control ‐ Setting of Targets ‐ Actual Performance ‐ Comparisons ‐ Corrective actions
7. What do you think are the shortcomings in the existing Control System of the distribution system in the MSEDCL.
331
Shortcomings
Stro
ngly
A
gree
Agr
ee
Nei
ther
A
gree
nor
di
sagr
ee
Dis
agre
e
Stro
ngly
D
isag
ree
1) Targets are set by other departments
2) No time investment in target selling
3) Targets are not realistic or adequate
4) Targets once fixed, are not reviewed
5) Information systems provides late information
6) Too many returns/overloading information is there
7) Information provided is not adequate
8) Motivation for self control is lacking
9) Personal goals of the employees are neglected
10) Proper analysis of information is not done
11) Deviations are not properly taken up
12) Corrective actions are not initiated in time
13) Incentive system is not fair
14) Preventive measures are not taken
15) Efficiency measurement techniques are inappropriate
16) Control reports may place you in an embarrassing situation
17) MCS lays emphasis on the tangibility aspect of work only
18) Management Control System merely finds defects and does not take corrective action
19) MCS suffers from the problem of co –ordination Any other (Please specify)
8. For developing any control system in the MSEDCL, is the new control system got developed by :
332
1. Managers themselves
2. External Consultants
3. Partly by internal managers and partly by consultants
4. If any other ? (Please specify)
9. Kindly rate the development of the system under the following heads Yes No
1. Analyzed in terms of its objectives /goals 2. Designed properly 3. Tested in some activity 4. Implemented properly
10. Do you think that MCS has any relationship with productivity? 1. Yes 2. No If yes, Please rate the following factors of the productivity
Sr. Methods
Stro
ngly
Ag
Agr
ee
Not
Agr
ee
Dis
agre
e
Stro
ngly
D
isag
ree
1 MCS effect on distribution system.
2 MCS effect on manpower utilization
3 MCS effect on resources utilization other than human.
4 MCS effect on Revenue collection system.
5 MCS effect on handling of consumer complaints.
11. For measuring the performance of your responsibility centre. Do you measure the output by:
1. Product 2. Department 3. Responsibility 4. All of the above 5. Any other ( Please specify)
(Kindly provide the actual and budgeted performance of your department for the three years)
333
12. Kindly rate the information system of your department on the following aspects (Please use the five point scale) Variables
Ver
y H
igh
A li
ttle
ab
ove
aver
age
Ave
rage
A li
ttle
be
low
av
erag
e
Ver
y lo
w
(A) Financial Control ‐ Timeliness ‐ Relevance ‐ Adequacy ‐ Duplication free ‐ Accuracy ‐ Exceptional reporting ‐ Clarity and conciseness ‐ Frequency of reporting ‐ Format of control report ‐ Contents and Periodic review
of management reports
(B) Administrative Control ‐ Timeliness ‐ Relevance ‐ Adequacy ‐ Duplication free ‐ Accuracy ‐ Exceptional reporting ‐ Clarity and conciseness ‐ Frequency of reporting ‐ Format of control reports ‐ Contents and Periodic review
of management reports ( C ) Personnel Control
‐ Timeliness ‐ Relevance ‐ Adequacy ‐ Exceptional reporting ‐ Clarity and conciseness ‐ Frequency of reporting ‐ Format of Control Reporting ‐ Contents and periodic review
of management reports
334
13. Which models do you use for evaluating the actual production performance ( Kindly rate on the five point scale) Models
Ver
y O
ften
Alw
ays
Freq
uent
ly
Rar
ely
Nev
er
Budgets
Capital Budgeting
Standard Cost
Internal Audit
Accounting Ratios
Cash flow statements
Fund flow statements
Return on investment
Productivity
Responsibility centre
Management Audit
Manpower planning & forecasting system
Performance Appraisal
Incentives and Award system
Personal Information systems
Inventory Control Models
ABC analysis
Level Setting
Statistical Control
Critical Path Method (CPM) Project evaluation Review Technique (PERT)
335
14. Please rate the performance of thee models in diagnosing the deviations in the distribution system of the MSEDCL ( Please rate on the 5 point scale) Models
Ver
y H
igh
A li
ttle
ab
ove
aver
age
Ave
rage
A li
ttle
be
low
av
erag
e
Ver
y lo
w
Budgets
Capital Budgeting
Standard Cost
Internal Audit
Accounting Ratios
Cash flow statements
Fund flow statements
Return on investment
Direct costing
Productivity of Resources
Responsibility centre
Management Audit
Manpower planning & forecasting system
Performance Appraisal
Incentives and Award system
Personal Information systems
Inventory Control Models
ABC analysis
Level Setting for productivity
Statistical Control
Critical Path Method (CPM) Project evaluation Review Technique ( PERT)
336
15. Having identified the deviations , how do you initiate the process of corrective action ?
1) Review meetings are held 2) Deviations are communicated to concerned managers and warnings are issued 3) Responsibilities are fixed and punitive action against the defaulters is initiated 4) Deviations are studied and standards are reviewed 5) Any other ( please specify)
16. How often review meetings are held ? 1) Weekly 2) Fortnightly 3) Monthly 4) Half yearly 5) Yearly
17. Do you take the follow up actions in the subsequent review meetings : Yes No If yes, how often ? ( please rate on the five point scale)
18. Is the corrective action taken within a limited time ? Yes No If yes, please state the limit of time period:
1) 1- 3 days 2) One week 3) 15 days 4) One month 5) Not bound by time
19. Please indicate the priority for taking action :
1) Heavy investment units 2) Time bound projects 3) Critical activities 4) Any other ( Please specify)
20. Does the control system provide information for preventive measures ?
Very often
Always Frequently Rarely Never
337
Yes No
21. Do you take preventive actions on the basis of information provided by the control system ?
Yes Depends No
22. How many redundant reports , have you to prepare for the higher level managers ? ( please rate on the five point scale)
Practically All Many About half A few None
23. How many redundant reports do you receive from the lower level managers ?. ( Please rate on the five point scale)
Practically All Many About half A few None
24. Do you apply any obsolete model for analyzing the reports.
( Please rate on the three point scale) Yes Depends No
25. How you have sufficient funds for updating your control system. Yes No
26. How often do you evaluate your control system ? ( Please rate on the five point scale)
Very often Always Frequently Rarely Never
27. While implementing new system / any modification in the existing system . do you completely do away with the existing / old phase in the system ?
Yes No
If yes, how often do you completely remove the old system /part of old system. (please rate on the five point scale)
338
Very often Always Frequently Rarely Never
28. Please tick the factors , which you feel are responsible for the success of Management Control System. ( Please rate on the five point scale)
Factors
Stro
ngly
A
gree
Agr
ee
Nei
ther
A
gree
Nor
D
isag
ree
Dis
agre
e
Stro
ngly
D
isag
ree
1) Well planned control system
2) Trained Manpower 3) Management awareness
towards the need of effective control system
4) Timely and effective decision making
5) Proper delegation of responsibility and authority
6) Motivation of employees
7) Top management involvement
8) Clear cut organizational structure
9) Accounting system which supports control
10) Control by exception
11) Sound communication system
12) Sound reporting system
13) Participation by the employees in standard setting
14) Using adequate controlling techniques as per requirements
15) Any other (Please specify)
339
29. Tick the factors ,which you feel are responsible for the failure of Management Control system (Please rate on the five point scale )
Factors
Stro
ngly
A
gree
Agr
ee
Nei
the
r Agr
ee
N Dis
agr
ee
Stro
ngly
D
isag
r
1) Restrictive behavior of Management to change.
2) Lack of trained and professional staff to increase productivity .
3) Inadequate finance 4) Lack of employees interest 5) Inadequate MCS as per the
requirements of the distribution system
6) Work is not divided in to responsibility centres
7) Responsibilities centres are provided but responsibility accounting is not done
8) Government rules ,regulations and restriction
9) MSEDCL is a government undertaking
10) No reward and punishment system
11) Any other (Please specify)
30. Kindly tick the activities which have been computerized in your department .
(A) Inventory Control
(B) Checking theft and malpractice
(C) Recording and writing off defaulting amount
(D) Financial accounting control
(E) Recording rebates for timely and advance payment
(F) Preparation of bills
(G) Collection of billing amount
(H) Claims and refunds
340
(I) Purchasing activities
(J) New connections released
(K) Recording and limiting transmission losses
(L) Disposal of scrap . obsolete material and stocks
(M) Pay roll controls
(N) Invoicing
(O) Any other ( Please specify)
31. State the reasons, which are responsible for the limited use of computers in the
control system of the distributions system.
(A) Lack of trained staff (B) Financial problems (C) Existing manual systems are giving good results (D) Not recommended by the top management (E) Computers can’t handle all the problems of distribution department (F) Fear of retrenchment (G) Resistance to change (H) Any other (Please specify)
32. Are you using computers based system in your decision making Yes No 33. Kindly rate the performance of the computers –based activities in the
following areas . (Please rate on the five point scale)
Computer based
activities Ver
y H
igh
A
little
ab
ov
Ave
rag
eA
lit
tle
belo
w Ver
y lo
w
1) Inventory Control 2) Checking theft and
malpractices
3) Recording and writing off of defaulting amount
4) Financial accounting control
5) Recording rebates for timely and advance payment
341
6) Preparation of bills 7) Collection of billing
amount
8) Claims and refunds 9) Purchasing activities 10) New connections released 11) Recording and limiting
transmission losses
12) Disposal of scrap, obsolete material
13) Productivity controls
14) Invoicing
34. Do you give any formal training in the use of computers ?
Yes No
If yes, please tick the following :
(A) One month training (B) Six month training (C) One year training (D) Two year training
Please state your brief Info :-
1. Department Name
2. Experience in MSEDCL
3. Designation (Level -1 )
a. CE b. SE
4. Designation (Level- II )
EXEN JE/AE
342
APPENDIX - 2
MSEDCL
Rules, regulations, instructions, manuals, records related with the functioning of office constituting the organisation ACT : INDIAN ELECTRICITY ACT 2003 Regulations : As per MERC / CERC circulars On matters relating to Operation and Maintenance, Commercial, Personnel, Financial and Administration are issued from time to time.
Statement of the categories of documents held by it or under its control
• A-1 form for new connection, Forms for change of name in connections.
• Copy of the Energy bills
• Consumer personal ledger (CPL)
• Complaint registers
• Receipt/dispatch registers
• Maharashtra Electricity Regulatory Commission (MERC) (Standard of
Performance of Distribution Licensees, period for giving supply and
Determination of Compensation) Regulations, 2005 .Maharashtra Electricity
Regulatory Commission (MERC) (Electricity Supply code and other conditions of
Supply) Regulations, 2005 .
Manner of execution of subsidy programmes and details of beneficiaries
MSEDCL is basically involved in Distribution of Electricity through 33/22/11 KV
Sub-stations. MSEDCL provides power supply at a highly subsidized rate to about
75% consumers including the consumers in BPL, Agriculture, Public Water Works,
Residential (lower consumption) etc. categories. The Agriculture & power loom
consumers are further subsidized by GoM & this subsidy is paid by GoM to
MSEDCL in cash. The Power supply for SC,ST is released on priority under Special
Component Plan (SCP), Tribal sub plan (TSP), other tribal sub plan (OTSP). The
343
funds are generally provided by GoM as grant. Rajiv Gandhi Gramin Vidyutikaran
Yojana (RGGVY) is the scheme sponsored by GoI.
Details of the recipients and nature of concession, permits
• 29 Lakh Agricultural Consumers.
• 82,281 Power Loom Consumers.
• 15, 76,708 B.C. Consumers.
• 1,55,172 Domestic Consumers in BPL category having Consumption
between 0 to 30 units per month.
• 1,20,653 RGGVY beneficiaries
The SC/ST/ DTNT category applicants can get the new residential connections by
paying only security deposit and application fees and they need not pay any other
charges.
Details of information in electronic form available in office
• Consumer Bills, consumption pattern & payment pattern, history
• Monthly metered consumer’s sale, billed amount & Collection reports.
• Feeder hourly readings
• Reliability Indices (SAIFI/SAIDI/CAIDI)
• Number of Consumers, Contract Demand & Connected Load
• Energy Audit Reports
Purchase Procedure at MSEDCL Purchases are made by inviting Public / Global Tenders Tender Advertisement : Advertisements of Tender Notices are published for wide publicity in English News
paper in following area
Mumbai/Pune/Ahmadabad.
Delhi/Calcutta , Madras.
Tender Document :- It is a standard document and consists of - i ) Instruction to Tenderers.
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ii ) General Terms & Conditions of Tender.
iii) Special Terms & Conditions
iv ) Schedule of requirement, prices and break up of prices.
v ) Questionnaire to Tenderer.
vi ) Technical Specification, if applicable.
vii)Price Variation Formula, if applicable.
Following important information are given in Advertisement.
i ) Tender No.
ii ) Description of Material.
iii) Estimated Amount.
iv ) Tender Fee.
v ) Due date & Time (Hrs.) for submission of tender.
vi ) Due date & Time (Hrs.) for opening of tender.
vii) The aspects like reservation of item for SSI Sector and materialrequirement with ISI mark are indicated.
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) The tender documents are supplied in triplicate.
The address for issue, receipt and opening of tender is - Office of the
Technical Director (Stores) Maharashtra State Electricity Board
Opening of tenders
i ) The tenders are opened in presence of the representatives of the tenderers
and MSEDCL Officers. The details like prices, delivery period and terms
and conditions related to the evaluation of offers such as Excise duty, Sales
tax etc. are read out at the item of tender opening .
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ii ) Annexure "C" regarding acceptance of matching with lowest acceptable
rate submitted along with officers is read out.
Opening of annexure b "c" ( Matching Rate):-
The tenders are opened in presence of the representatives of the tenderers
and MSEDCL Officers. The details like prices, delivery period and terms
and conditions related to the evaluation of offers such as Excise duty, Sales
tax etc. are read out at the item of tender opening .
Confirmation for acceptance of the order at the lowest acceptable rate in
Annexure "C" (form enclosed with the tender documents) is required to be
submitted in a separate sealed cover duly Super scribing Tender No. and
Due date and Time of submission on or before 3 pm on the same date of
the next month of tender opening or earlier as prescribed in the tender
document when required
Evaluation of tenders:-
i ) Distribution of Material - The offer not in conformity with standardized
terms and conditions of the tender in Toto are not evaluated.
Compliance of qualifying requirements wherever specified is also checked.
No correspondence is made with the tenderer about deviations in their
offer.
ii ) EHV and Generation Material , Post Tender negotiation with tenderers for
withdrawal of Technical/ Commercial deviations in offer are permitted
without affecting original prices and ranking of tenderers.
After receipt of technical evaluation report form indenting department the
purchase Proposal is prepared and submitted to Competent authority for
decision.
Factory of New Tenderers are inspected by our Inspection Wing. After receipt of decision purchase orders are placed by respective Purchase
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Groups,
Tenderer is exempted on account of statutory directives as below: All Government and Semi Government Institutions under Government of
Maharashtra and Zilla Parishad in Maharashtra and fully owned undertaking of any
State Government and Government of India (for the item manufacture4 by such
institutions / units) .
SSI Unit permanently registered with the Directorate of Industries, Maharashtra only
for the items mentioned in their Permanent Registration Certificate.
SSI Unit registered with National Small Industries Corporation (NSIC) and Small
Industries Services Institute of Government of India only for the items manufactured
by them.
If exempted from payment of E.M.D., Documentary evidence should be produced.
New firms should get the B.G. approved from Bank. Guarantee Section before due
date of submission of Tender, in prescribed form of the Board. E.M.D. should be 3%
of the offered value up to Rs. 1,75,000/- and thereafter, 1% of the balance offered
value. The maximum E.M.D. payable against the tender shall be limited to Rs. Five
lakhs.
Such other information as may be prescribed
• For redressal of consumer grievances MSEDCL has set up Consumer Grievances
Redressal Forums (CGRFs) at Zonal level.
• Forums for Redressal of Consumer Grievances have started functioning at zonal
level with Chairperson and a Member in the service areas as per provisions of
Electricity Act-2003.
• Internal Consumer Grievances Redressal Cells (ICGRCs) are established for
redressing consumer complaints at all circle offices.
• For Customer satisfaction 24x7 operating 15 call Toll Free Call centers have been
commissioned for redressing “no power” complaints of consumers in that area.
• 50 Customer Facilitation Centers (CFCs) have been commissioned at sub division
level for redressing billing complaints of consumers. The basic idea is to introduce
single window clearance for consumers at sub divisional level.
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• Any time payment machines for bill payment (24X7 hours) have been installed in
major cities.
• Energy bill of the individual consumer can be viewed on the MSEDCL website .
• The Urja Mitra meetings are arranged at division, circle and zone levels after
regular intervals.
Maharashtra Electricity Regulatory Commission ( MERC) The MERC was established on August 5, 1999 under the Electricity Regulatory
Commission Act, 1998, a Central Act which was superseded by Electricity Act (EA),
2003. The Commission is continued as provided under Section 82 of the EA, 2003.
The Act was mandated to promote competition, efficiency and economy in the power
sector and to regulate tariffs of power generation, transmission and distribution and to
protect the interests of the consumers and other stakeholders.
Functions of the Commission
The functions of the Commission as stated under the Section 86 of the Electricity Act (EA), 2003 are as following: To determine the tariff for generation, supply, transmission and wheeling of
electricity, wholesale, bulk or retail, as the case may be within the State to regulate
electricity purchase and procurement process of distribution licensees including the
price at which electricity shall be procured from the generating companies or
licensees or from other sources through agreements for purchase of power for
distribution of supply within the State .
• Facilitate intra-State transmission and wheeling of electricity
• Issue Licenses to persons seeking to act as transmission licensees, distribution
licensees, and electricity traders
• Promote cogeneration and generation of electricity from renewable sources of
energy
• Adjudicate upon the disputes between the licensees and generation companies
and to refer any dispute for arbitration
• Levy fee for the purposes of this Act
• Specify State Grid Code
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• Specify or enforce standards with respect to quality, continuity and reliability
of service by Licensees
• Fix the trading margin in the intra-State trading of electricity, if considered,
necessary
• Discharge such other functions as may be assigned to it under this Act
• Advise the State Government as mandated under Section 86(2) of the EA,
2003
Electricity Ombudsman & Consumer Grievance Redressal Forums (CGRF)
In exercise of powers under Section 42(6) of the EA, 2003, the Commission has
appointed vide its Notification dated 23rd December, 2004 as the Ombudsman for
Electricity for the state of Maharashtra.
Authorized Consumer Representatives
As mandated under Section 94(3) of the EA, 2003 has authorized the following
consumer representatives to represent the interest of the consumers in the proceedings
before it. Section 87 of the EA, 2003 mandated the Commission to constitute a State
Advisory Committee to advise the Commission on major questions of policy, matters
relating to quality, continuity and extent of service provided by the Licensees,
compliance by Licensees with conditions and requirements of their license; protection
of consumer interests, etc.
State Load Dispatch Centre (SLDC) The functions of the State Load Dispatch Centre have been articulated in the
Electricity Act, 2003. The State Load Dispatch Centre plays a most important role in
operation and management of intra-State transmission system is an important and
complex activity which regularly requires addressing a number of complex, and often
conflicting issues, such as:
i. To ensure reliable power supply, within available generation capacity to all
consumers located at all points of the system;
ii. To ensure frequency and voltage conditions within permissible limits;
iii. To supply power in most economic manner possible; and
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iv. To limit the duration and extent of repercussions due to faults and restore
normal functioning of the network as soon as possible .
Consumers’ Contribution, Grants and Subsidies towards Cost of Capital Assets :
a) Consumers’ Contribution, Grants and Subsidies received towards Cost of Capital
Assets are treated initially as Capital Receipts and are credited to Capital Reserve.
The assets created out of Consumers’ Contribution, Grants and Subsidies are shown
as assets and the Consumers’ Contribution, Grant and Subsidy to the extent of
depreciation provided during the year on such assets is transferred to Profit and Loss
Account and grouped under other income by debiting Capital Reserve Account .
b) Grants received conditionally are treated as deferred income and amount is
transferred to income over the period of fifteen years equally from the year of receipt
of such grant.
Employee Benefits:
a) Company’s contributions to Provident Fund and Group Insurance Scheme are
charged to Profit and Loss Account
b) Provision towards accrued liability for gratuity and leave encashment is accounted
for based on the report given by the Actuary.
c) Bonus / ex-gratia is accounted for on ‘cash basis’.
d) Short term employee benefits are recognized as an expense at the undiscounted
amount in the profit & loss account of the year in which the related services are
rendered.
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APPENDIX – III
Tests Used in the study: Parametric Test 1. Z-test: This test is used to test the proportion between two variables. This is
large sample parametric test. Since responses are collected from two levels of
groups and it is necessary to compare the proportions of two levels for their
difference in the opinion on many factors. Even the number of respondents in
each group is more than 30 (large sample test) researcher used z-test of
proportion.
2. ANOVA: ANOVA is parametric test used when more than two variables are to
be compared which are defined on continuous scale. ANOVA gives the
information whether there exist significance of difference between different
variables. In some part of the analysis compared the scores of the more than two
variables for the significance of difference for the mean score. This analysis is
carried out by using ANOVA test.
3. Duncan’s Test: This is post hoc test which always go with the ANOVA with
significant p-value. This test is used to find out which amongst the many
variables exactly differs significantly. Wherever researcher used ANOVA for
comparison it is further tested it by using Duncan test. So Duncan test is an
essential test which is always used with ANOVA for further comparison.
Non-Parametric test:
1. Mann-Whitney U test: The test is used two compare the two variables when
variables are defined on ordinal scale. The Mann-Whitney U test is considered as
non-parametric counterpart for parametric independent t-test. We used Mann-
Whitney test in our analysis because, in some part of the analysis researcher
compared two ordinal types of variables
2. Kruskal -Wallis test: This test is used in that same way as that of ANOVA.
The only difference between these two tests is, ANOVA is used with parametric
data and K-W test is used with non-parametric data. Since in this analysis
researcher compared non parametric data, researcher used K-W test.
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3. Factor Analysis: Factor analysis is variable reduction tool used for reducing the
number of variables for comparison. Factor analysis sometimes is used for
extracting important factors. The extracted factors are then considered for further
statistical analysis. In analysis researcher tried to extract important factors on
many aspects. Researcher used factor analysis.
