In many training programmes, the faculty urge the participants to... Read

In many training programmes, the faculty urge the participants to encourage and appreciate even the smallest efforts or accomplishments of other participants during the training. The participants are encouraged to find opportunities to appreciate each other. They go out of the way to find some small aspects in other participants’ lives or performance or activities that can lead to appreciation.

I’ve always wondered why they do this.

Recently, I happened to be present at the inaugural session of a training titled ‘Art of Self-Motivation’. I was there to meet one of the organisers with whom I had scheduled a discussion in the forenoon. He had suggested that we could meet immediately after the training commenced. And, so, I found myself sitting in the last row in the training hall.

During the icebreaker session, as all the participants introduced themselves, the faculty suggested that I introduce myself also. And, to my surprise, I could feel a pleasant glow in my face as the audience cheered after I introduced myself. I had just mentioned my name, that I had so many years of experience in the industry, that I was glad to be there for the inaugural session and wished them all a successful training session.

Yes, the faculty had told the participants to cheer after each participant introduced himself/herself. The participants’ appreciation after I introduced myself was probably a forced action. But, still, it did not prevent me from feeling great. If a forced appreciation, probably false at that, can bring in so much joy for a person, imagine how much more pleasure a person will have when he or she is appreciated for whatever he or she does.

Let’s learn to appreciate even minor achievements of others. Let’s not wait for major accomplishments or milestones before we express our appreciation. Pats on the back for small events will go a long way in strengthening relationships and promoting goodwill among all concerned.

In official circles, such appreciation will go a long way in improving inter-personal relations. When people realise that their actions are being rewarded by appreciation, their performance will improve in due course.

In our families, a smile in the morning or a pleasant look when one comes back from office or a word of appreciation on someone’s dress will make the day for both persons.

A simple thank you when someone serves you coffee or even a simpler smile will go a long way.

Let’s appreciate each other for even simple deeds. Let’s make our lives more pleasant.

You don’t have to appreciate only deeds or words. You can appreciate even one’s dress or hairstyle or accessories. Tell your friend, “Hey ! This dress suits you !” or “Hey ! You look fabulous today !”. See her glow. You have made her day !

But, please be sincere in your appreciation. Don’t appreciate for the sake of appreciation. You have to genuinely feel good to sincerely appreciate.

Go ahead. Appreciate. Make them happy. Hide

Many entrepreneurs are surprised when their accountants tell them... Read

Many entrepreneurs are surprised when their accountants tell them at the end of the year that the business made a loss. They wonder how the business can make a loss when they were never short of funds. They always had continuous cash flows and never felt any cash shortage. But, here is the accountant who says that the business has made a loss.

This does not happen with a trader. He knows exactly whether he is making a loss or a profit irrespective of his cashflows.

The difference lies in the fact that the trader knows how much to charge for his product. He has to price it above its cost price for him to make a profit. Whereas, the entrepreneur, many a time, does not know the cost of providing his product or cost of rendering his service and as a result may not price the product or service correctly.

Cost of production comprises the following elements, namely cost of raw materials, cost of converting the raw materials into finished product and incidental expenses incurred in the process of conversion. Very often, the entrepreneur does not know how much it costs to do the conversion.

The conversion process involves application of human effort (labour cost), use of utilities like electricity, gas, fuel or other resources, use of other consumable materials and some inevitable wastage or leakage.

How to correctly measure these costs? That’s where the entrepreneur slips up. He may know the exact cost of raw material consumed to produce one unit of the finished product, but he may not know the cost of conversion. It is important that the entrepreneur understands the method of costing the conversion process so that he can price his product correctly. Or for that matter the cost of rendering a service needs to be understood correctly.

As a result, while the entrepreneur has been producing and selling his goods, he has been incurring a loss on every unit sold. At the end of the years, this results in a loss. Hide

How does an entrepreneur price his product? He needs to understand... Read

How does an entrepreneur price his product? He needs to understand the cost structure in his business first. In any business, there are two types of costs involved. One type varies with the volume of production and the other type does not vary with the volume. Or in other words, the second type of cost remains fixed irrespective of the volume of production. To illustrate with an example, if we consider a readymade shirt producing unit, the cost of cloth consumed in making shirts varies directly in proportion to the number of shirts produced. For every shirt made, a specified quantity of cloth is required. Similarly, if we consider a car manufacturing unit, the cost of wheels per car is totally variable with the number of cars produced. Or to quote another example, the cost of keyboards in a unit producing laptops varies directly with the number of laptops produced. If there is no production, no cloth is consumed, no wheels are used and no keyboards are used. Thus, the variable cost varies directly in proportion to the volume of production.

On the other hand, fixed costs are those costs that remain fixed irrespective of the volume of production. Examples of fixed cost are rent paid for the factory, salary of supervisory staff in the production line at the factory and salary for the administrative staff at the head office of the company.

The price of the finished goods has to cover both the variable cost and the fixed cost. At the same time, it should be realised that the price of one unit of the finished product cannot cover the variable cost and the total quantum of fixed cost. The price of an individual unit of the finished product covers the variable cost of producing that unit and a small portion of the total fixed cost.

Let’s consider an example. Let the variable cost per unit of the finished product be Rs. 10 and the total fixed cost be Rs. 1000 with the price of the product at Rs. 20. It can be easily seen that if the company is to make a profit, it has to make a minimum of 101 units of the finished product. If it produces 101 units of the finished product, the income generated will cover the variable cost of producing 101 units and the total fixed cost and a profit of Rs. 10 will be generated.

In any organisation, there are variable and fixed costs. It is important to distinguish between these two and ensure that the fixed costs are also covered completely from the income generated from sale of products.

Incidentally, if the organisation in the above example produced only 100 units, it is said to breakeven i.e. it does not make a profit or loss. Hide

A business is said to breakeven when it makes no loss or no profit... Read

A business is said to breakeven when it makes no loss or no profit. If the total cost to produce 1000 units of a product is Rs. 1 lakh and the income generated from sale of the 1000 units of the product is Rs. 1 lakh, the business does not make a profit or loss. The volume of / value of sales at this level is known as Breakeven Sales or Breakeven Point.

The concept of breakeven is important for many reasons. When a new business is started, the owner needs to know at what level of sales the business will start earning a profit. This is important because the owner needs to estimate the demand for the product in the market. The pricing strategy will depend on this and the production capacity to be installed also depends on this.

At this stage, the business is experimenting with different prices for this product. If the price is fixed at Rs. 100 per unit, the business may sell 1000 units per month and if the price is fixed lower, it may be possible to sell more units per month.

This becomes an important decision for the business. Obviously, the business has to take into consideration the market conditions also while fixing the price. But breakeven sales is an important consideration while fixing the price of a product.

Breakeven Point is also important because the business want to know if it has to produce a high volume of products to sustain an adequate level of profit. Breakeven point could be at 1000 units or at 1 lakh units. Obviously, in the latter case, the business to produce and sell a lot more to make adequate profit.

Two important considerations come up here. One is whether or not the markets will support such a high volume of products. In other words, will there be sufficient demand in the markets to buy the entire volume of production? The second consideration relates to what is an adequate profit? Adequate profit is that level of profit that gives the business the return that the investor in the business (the entrepreneur) expects from his investment. Does he expect 5% or 10% or 20% return on his investment in the business? Hide

How much does an entrepreneur earn from his investment in a business?.. Read

How much does an entrepreneur earn from his investment in a business? Is it 5% or 10% or 20%? That return is known as Return on Investment (ROI).

How much would an entrepreneur expect as ROI? It depends on his opportunity cost and his own disposition. If he had invested the same amount in other avenues for investment instead of in the business, how much would he earn? He may earn different amounts from different avenues. Investment in land may yield him a certain return, gold may give him another figure and a deposit in a bank may give yet another rate. He has to basically decide how much is he expecting. That depends on his personal risk appetite and desire to earn income. Some people are happy with the returns they earn from fixed deposits with banks while other have higher risk appetite and invest in the equity markets for higher returns. Yet others may invest in land or gold and may keep them for the long term or trade in them.

The risk appetite and the personal preference of the individual determines his expectation of ROI.

Some entrepreneurs are contents with low margin, low volume business. Some are happy only with low margin but high volume business. There are entrepreneurs who venture into businesses that have high return but low volume.

ROI expectation is a matter of opinion of the individual. In any case, ROI from a business cannot be lower than ROI from an alternate avenue of investment of the entrepreneur’s choice.

While ROI expectation is a matter of choice, ROI needs to be maximised for a business to be successful. And, how does on maximise ROI? It is by maximising Return on Sales (ROS). Hide

Profit margin is a very popular term. It refers to the profit earned... Read

Profit margin is a very popular term. It refers to the profit earned per rupee of sales. Return on Sales (ROS) is nothing but profit margin.

ROS is calculated by dividing the profit earned by the total sales income and the result expressed as a percentage. Higher the ROI, more profitable is the business.

Can there be a business that earns ROS of 100%? Yes. It is possible. Given the right market conditions, it is possible. A simple example would be that of a trader who buys a product at Rs. 100, transports it to a remote location at a cost of Rs.50 and sells it at that location at Rs. 300. He makes ROS of 100%.

Not all business can enjoy such high ROS.

To understand ROS better, we need to call it as profit margin and split in into gross profit margin and net profit margin. Gross profit margin refers to the ROS before deducting administrative expenses. In other words, if only the cost of production is deducted from the sales value, it is known as gross profit and the corresponding term for profit margin is gross profit margin.

When administrative expenses are deducted from the gross profit, the resultant figure is net profit. Dividing net profit by the sales value, net profit margin is obtained.

This split into gross profit margin and net profit margin is important. Gross profit margin denotes the profit margin taking into consideration only the cost of production. The cost of production comprises the cost of raw materials consumed, the labour cost incurred for producing the products and a few other costs associated with production. If the business does not make a gross profit, then either the selling price of the products has to be increased or the cost of production has to be reduced. If neither the selling price can be increased nor the cost of production can be reduced, then the business is not financially viable because the objective of any business is to make profit.

If the gross profit is positive i.e. the business makes a gross profit, it needs to meet its administrative expenses such as salaries for office staff, transportation expenses, communication expenses etc. So, the gross profit has to be sufficiently high to cover these expenses also. The profit that remains after meeting the administrative expenses is the net profit.

If a business wants to increase its net profit, given a certain level of gross profit, its administrative expenses have to be reduced. This can be done by cutting down on non-value adding costs, lean organisation structure and other means.

One way of comparing the profitability of two or more business in the same line is to look at the gross profit margin and net profit margin. If the gross profit margins of two businesses are similar but the net profit margins vary considerably, the business with higher net profit margin is managing its business better than the other one. Hide

Business processes today require integration of statutory... Read

Business processes today require integration of statutory compliance, internal controls and risk management. Processes are no longer isolated and self-sustaining. Every process in an organisation is inter-related and involves co-ordinated working at the minimum of personnel from two different functions. Even within one function, business processes are dependant on other internal resources or external factors.

Combined with increasing statutory compliance requirements and increasing risk exposure, it is imperative that all processes are robust and satisfy demands from various quarters.

Technology can be the enabler for achieving effective process management.

Software that integrates various processes, compliance and risk management measures is available today for even small to mid-sized organisations.

Application of technology can best be illustrated with the following example.

Let’s consider payment of salaries to employees by an organisation. In the olden days, payment of salaries would have involved the following steps:

a. Compilation of attendance data by the HR department from various registers and records

b. Calculation of salary for each employee based on the attendance data and the individual’s salary structure, by the payroll department

c. Advice to accounts department to prepare cheques or cash for handing over to each employee on the due date

d. Advice from the accounts department to the finance department for making funds available

e. Advice to systems department for printing payslips

f. Actual disbursement of cheques / cash on due date by cashier

g. Preparation of statutory reports for PF, ESI and other deductions

h. Remittance of statutory deductions and employer’s contribution to concerned authorities

i. Reporting to top management

We find the involvement of so many departments and personnel to complete the entire process.

Technology has simplified the entire process.

Software can deal with the entire process in a fraction of the time required in the olden days. The trigger for the software to start the salary disbursement process will be a date. On the designated date, the software will initiate and complete the following activities with minimal human intervention but for authorisations:

a. On the designated date, the software will compute the salary for each employee from the data base that would already have the salary structures and attendance details of all employees. Attendance details would have been captured by attendance trackers and fed into the database on a real time basis.

b. Once the total salary is computed, the software will send an advice to the concerned person for authorising the payment, if the specified internal controls are satisfied. The internal controls will be monitored by the software and no human intervention would be required. If the internal controls are not satisfied, the software would trigger an alert to the concerned authority.

c. Once the authorised person approves the payment, the software will send instruction to the bank to transfer the salaries for the employees from the Company’s account to the employees’ respective bank accounts. The software will also send emails to each of the employees crediting of their bank accounts.

d. The software will then initiate remittance of statutory dues to the concerned Government authorities. It will prepare the statutory reports for P.F., ESI and other deductions and generate printouts or electronic reports to be submitted to the concerned authorities. It will also advise the concerned authorised persons to either sign the reports manually or digitally.

e. The final step would be preparation and submission of dashboard to the top management by the software.

In the above automated process, chances of delays or omissions in complying with any statutory provisions are eliminated. If any human intervention such as authorisation of payment does not occur on time, the software can trigger exception reports / alerts to the next level of authorised persons. The processes are not people dependant and absence from work of any particular individual would not affect or delay the process. Hide

The essence of customer service is satisfaction of... Read

The essence of customer service is satisfaction of customer’s needs. Many sales personnel and after-sales personnel do not understand the full import of this essence of customer service.

I’ll quote a couple of instances of what I feel to be real customer service.

Sometime back one of my friends was travelling to London for an assignment. He was expected to be in London for three months from December to February. His wife went shopping for some woollen gloves and similar stuff. In the market place, she was about to enter a store when she noticed a pavement vendor from whom she usually bought handkerchiefs, small towels and the like. She thought she will buy some large, white handkerchiefs also and stepped across to the vendor. The vendor greeted her with a smile and asked her in Tamil whether she wanted the usual stuff. She replied that this time she wanted white coloured, large handkerchiefs and not the usual coloured ones. Before she even completed the sentence, the vendor asked her whether her husband was going abroad. She was taken aback and asked him why he asked that. He replied that from his experience, people usually bought colour kerchiefs bought white coloured ones only for special occasions or for travelling abroad. And, he had made a wild guess that her husband was going abroad. It turned out to be right. Then, she asked him whether people did not buy white kerchiefs otherwise. He said that they do. But, they are all regular buyers of white coloured ones.

The more interesting part comes after this. The vendor then asked her to which country her husband was going. She said that he is going to London. What followed for the next few minutes stunned her. He told her that London during the winter months would be very cold, particularly for people from Chennai, because they are not used to such severe cold seasons. So, her husband should carry him with at least two pair of woollen gloves, four or five pairs of woollen socks, a woollen neck scarf, a woollen cap, three or four sets of thermal wear and a long overcoat apart from sweaters and woollen trousers. He went on to advice her on in which shop she will get which items. All free and unsought for advice from a pavement vendor, who did not deal with those goods.

She asked him how he knew so much. He replied that many software engineers go to various countries today and they all come to this market place for their purchases. In course of conversations with them, he had understood about seasons in different countries, what kind of accessories is required for overseas travellers and other similar details?

This lady thanked him for this advice and went to the shops recommended by him and was able to buy all the stuff in these shops.

We can only be surprised and wonder why he did this. Is it possible that this pavement vendor will ever lose this lady as a customer? Or will not this lady recommend him to all her friends?

The same friend of mine, around the time that I am referring to, was using an ordinary mobile handset; a basic one that could be used for making and receiving voice calls and for sending and receiving text messages. Nothing beyond that. He wanted to have one that was capable of sending and receiving emails. He approached a multiband showroom and explained his request to a salesperson. The salesperson was a young girl and she went on to explain to him the technology that was being used in U.K. at that time and what kind of mobile handset would be most suitable for him. When he enquired about another model, she explained that the model would not work in London because the technology was different. Then, when he suggested her to show some costlier models, she asked him whether he was moving permanently to London. When he replied in the negative, she suggested to him to go in for a lower cost model as that particular technology was not available in India and that he would be unable to use the handset on his return to India. My friend was impressed with her knowledge and asked her how she had learnt so much. She said that she made friends easily and by interacting with customers who came to the showroom and browsing the internet for mobile related articles, she was able to learn all this. On further prodding my friend learnt that she had not yet completed her graduation and was in her teens.

My friend may not go on a regular basis to the showroom but I am sure that if at all he wants to buy a new mobile handset, he will go to that showroom and seek out that salesperson. Hide

Operational risk management is one of the core risk... Read

Operational risk management is one of the core risk management areas in business and other organisations. The real application of operational risk management can be leant from the simplest of business organisations.

In a retail grocery store you may find that the person who bills for an item and the person who collects cash are different. The role of the billing clerk is to only bill for the items. She is not authorised to collect cash. And the person who collects cash does not prepare bills. The goods that you buy are not handed over to you unless you produce the bill with a ‘paid’ impression with a rubber stamp on it.

Is it possible that the billing clerk makes a mistake in billing? No. There is a barcode reader and every item that buys has a barcode sticker on it to identify it. Can the count of the same product go wrong? For instance, if you buy three packets of the same product, can the billing clerk enter two numbers instead of three? No, she can’t because usually she shows every item in the cart in the barcode reader; she doesn’t show the item once and enter the quantity.

Okay. What if the billing clerk accidentally omits to show one item in the barcode reader? It will be found by another assistant standing closely who will check the bill and match the number of items bought before putting it in a bag to be handed over to the customer.

Simple activities but with lot of impact. Internal controls are very strong and but for collusion among the employees in the store and the customer, the changes of a product going out of the stores without billing is remote. The chances of collusion are also remote.

If the customer goes back in to pick up another product, he has to either leave his first bag at the entrance or it will be secured in such a manner that no other product can be dropped into that. The customer is now free to carry the sealed bag inside the store again.

These internal controls or operational risk management measures are not adopted by sophisticated or well educated store owners. They are followed by store owners using their intrinsic and native intelligence.

We don’t require sophisticated computers or software to effectively implement operational risk management. All that is required a clear objective of what we want to be achieved and the methodology to achieve it. Hide