Management Control Systems - Management Control and Information systems- ICFAI Solved assignments and papers

 

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Management Control Systems / Management Control and Information systems

 

·       Section 1: Caselets (30 Marks)

·       Read the Caselets and Answer All the Questions

 

Caselet 1 (15 Marks):

 

In January 2004, the Board of Defense Storage and Distribution Agency (DSDA) took the decision to introduce a Balanced Scorecard based performance management system for use at management board level. The choice to use Balanced Scorecard as a framework was influenced by two factors. First, a Balanced Scorecard based system was already in use at the Ministry of Defense and the Defense Logistics Organization (DLO). Second, through benchmarking with the United States Defense Logistics Agency and in particular, the US DDC (Defense Distribution Centre), DSDA had established that a Balanced Scorecard based system was also used in equivalent organizations in the USA. Prior to starting the design project, DSDA paid for members of the project team (drawn from its Human Resources and Corporate Plans Departments) to receive two days training in Balanced Scorecard design from an external organization. This training focused on the design and implementation of “2nd Generation” Balanced Scorecard designs, and accordingly the team constructed and executed a project plan to create a Balanced Scorecard of this type.

2nd Generation Balanced Scorecard designs focus on the development of a number of linked 'strategic objectives' that in turn become the basis for the selection of appropriate performance measures and targets that are used to inform Balanced Scorecard reports made to managers. Notoriously hard to design, management engagement in the process itself is hard to obtain. The DSDA project team, working on their first Balanced Scorecard with just two days training (and a book) to work from, struggled to get good contributions from the management team. The result was (as is common) a set of strategic objectives that were notable primarily for their vagueness. This vagueness was thought by the design team to be a direct result of insufficient senior management engagement during the design process used. Three examples of the original vague objectives are:

•            “Secure new investments”

•            “Long-term beneficial partnerships”

•            “Embrace diversity”

This vagueness made measure selection and target setting difficult: since they could mean most things to everybody, picking a specific measure was hard to justify. However, the design was completed, and reporting against the Balanced Scorecard commenced at the October 2004 DSDA board meeting, but at that point the majority of objectives had no measures defined.

No useful clarification of the specific meaning of these objectives for DSDA was obtained from the management team, which made improvements to the design difficult. By January 2005 only seven out of nineteen objectives could be reported on some nine months after the start of the initiative. The absence of 'hard' data at management meetings undermined the utility of the device and so little time was allocated to discussion of the Balanced Scorecard at management meetings. Frustration mounted with the tool itself and the lack of tangible benefits arising from the activity associated with it. In January 2005, use of the system had been put on hold.

Nevertheless, DSDA’s underlying need for better performance management information and tools remained, and the project team and Corporate Plans department who had driven the initial work were still sure that the Balanced Scorecard could benefit DSDA if only it could be made to work. Following an internal review and a change in the Board membership, the Board commissioned a new project in March 2005 to overhaul the existing mechanism with a view to improving the utility of the system, re-establish its credibility, and incorporate recent organization changes to the management of DSDA. A part of this process was the decision to engage an external party (2GC Active Management) to assist with the redesign.

These problems faced by the previous implementation are all addressed by the 3rd Generation Balanced Scorecard approach. It deliberately involves all members of the management team supposed to be using the resulting Balanced Scorecard in its design. It relies on a series of facilitated workshops, which uses a pre¬determined design framework to force managers to articulate their priorities for the future, the key objectives that need to be met and how they will be monitored and measured, all of which is based on consensus decision making. It achieves this by using a quick design process easy for executive managers to participate in – a direct consequence of the inclusion of an additional design element to the Balanced Scorecard design. This element - the Destination Statement -  neatly and effectively addresses both the issue of design process difficulty, and that of target setting, two of the issues found with 1st and 2nd Generation Balanced Scorecard designs.

 

Answer the following Questions:

A. In January 2004, the Board of Defence Storage and Distribution Agency (DSDA) took the decision to introduce a Balanced Scorecard based performance management system for use at management board level. What are the two factors that influence the Balanced Scorecard framework? Also Discuss the measures taken to implement 2nd generation of Balanced Scorecard Framework and the flaws in the original implementation of BSC. (10 Marks)

 

Answer: Two factors that influenced the use of BSC:

1.       First, a Balanced Scorecard primarily based entity was already in use on the Ministry of Protection and the Protection Logistics group (DLO).

2.       Second, by benchmarking with

 

 

B. What made DSDA to implement the 3rd generation Balanced Scorecard. Do you think the issues of 2nd generation were addressed? Discuss. (5 Marks)

Answer: What made DSDA to implement the 3rd generation Balanced Scorecard :

To improve the utility of the system, re-establish its credibility, and incorporate recent organization changes to the management of DSDA.

DSDA always wanted a better performance management information and tools.

Problems faced by the previous implementation are all addressed by the 3rd Generation Balanced Scorecard approach.

 

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Caselet 2 (15 Marks):

Home Meal Replacement (HMR) products also known as ‘meal solutions’, appear to be the latest trend in the food industry. In addition to affordable prices, product characteristics such as convenience, quality, quick and easy availability are the salient features important to consumers in a particular product market.

In February 1997, Crandon Farms introduced Café CRANDON as its HMR product line for retail consumers. As Crandon is known for its fresh products, Café CRANDON HMRs were developed to be fresh, never frozen. Café CRANDON HMRs introduced three flavors, fettuccine Alfredo, Fajitas, and stir fry. Servings per kit vary between three and four. Although the United States Department of Agriculture (USDA) originally wanted the package to state that it contained between eight and nine servings, Crandon successfully argued for the package to be described as containing three to four servings.

All the three Café CRANDON HMRs products could have their costs reduced dramatically by changing the form of the product from fresh to frozen. By changing to a frozen product, the company would save on product costs from $.31 per unit for the Fajitas HMR to $1.47 for the stir fry HMR, which is the maximum savings of the three. The cost savings for the stir fry HMR would be $1.20 and the shelf life of the vegetables would be increased from 14 days to an indefinite period. Additional cost savings could be obtained by using cheaper chicken containing more fat, which the company also made available for use but for short run only. Other factors the company had to consider before switching to the cheaper chicken includes reduced quality, inadequate portion controls, outsourcing packaging of chicken, increased overhead, and the loss of SHORT CUTS brand awareness. By using the company’s SHORT CUTS chicken, Crandon could possibly attain the processing plant efficiencies and the plant’s capacity utilization would increase. This would lower costs to the company as a whole. Also, the company’s trademark SHORT CUTS would be on the Café CRANDON package promoting the SHORT CUTS product line as well. This, in turn, would increase consumers’ willingness to cross buy Crandon’s products.

Target costing is closely linked with the company’s long-term profit and product planning process and allows the company to focus on profit and product in an integrated strategy, which does not discriminate against high-quality, high-price, high-margin products that require high costs. Using target costing, Crandon Farms was able to proceed in a very methodical and rational way to avoid having a very good, but noncompetitive product in the HMR market. It began this process with satisfactory marketing research taking into consideration the wants and needs of the retail grocery chains and the consumers, both of which were extremely important to its success. By adhering to such policies and including its profits in the ingredient costs, Crandon could focus on the retail price and the retail grocer’s required gross margin. On the other side of the target costing process, Café CRANDON had to calculate its allowable product costs. Finally, the company had constraints placed on it in terms of the price (retail and wholesale), product characteristics, product quality, the supply chain, etc. Going through an iterative process and a cross-functional approach, the company found that it could meet the price, cost and product constraints by changing to frozen HMRs in the long run. Had this change not been made, the target costing process would have dictated that Crandon drop the Café CRANDON product line altogether.

The company will, no doubt, use other cost management techniques on an ongoing basis. In future, when the HMR products are to be changed or new Café CRANDON products are to be added, target costing will enhance the product and manufacturing planning process to assure greater efficiency and profitability.

 

 

Answer the following Questions:

A. According to the caselet, can Café CRANDON reduce costs by changing the product? Discuss. (8 Marks)

Answer: Yes, costs can be reduced dramatically by changing the form of the product from fresh to frozen. By changing to a frozen product, the company would save on product costs from $.31 per unit for the Fajitas HMR to $1.47 for the stir fry HMR, which is the maximum savings of the three. The cost savings for the stir fry HMR would be $1.20 and the shelf life of the vegetables would be increased from 14 days to an indefinite period.

 

B. Using target costing, Crandon Farms was able to proceed in a very methodical and rational way to avoid having a very good, but noncompetitive product in the HMR market. Enumerate how Café CRANDON used target costing for effective strategic control. (7 Marks)

Answer: Café Crandon™ Objectives:

The Café CRANDON™ HMR line was designed to develop a new product category for Crandon and for the retailers to address the HMR trend. By providing a unique positioning versus the competition, this single-serve entrée line would help reduce the loss of market share caused by consumer's money being spent outside the grocery store chains for quick meals. In turn, the consumer would have a unique choice for dinner that could be served at home and prepared in less than 10 minutes.

Café CRANDON™ would effectively address the needs and desires of the market and the following three important current consumer

 

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Section 2: Applied Theory (20 Marks)

Answer any One Question:

1. To market a product successfully, the information about the availability, ability and price must be effectively communicated to prospective buyers. Discuss the various control aspects of marketing communication.

Answer: Having a great product available to your customers at a great price does absolutely nothing for you if your customers don’t know about it. That’s where promotion enters the picture: it does the job of connecting with your target audiences and communicating what you can offer them.

In today’s marketing environment, promotion involves integrated marketing communication (IMC).  In a nutshell, IMC involves bringing together a variety of different communication tools to deliver a common message and make a desired impact

 

 

(Or)

2. The objective of application control is to ensure that application systems safeguard assets and maintain data integrity. Discuss the various application control.

 

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