Indian Railway Codes and Manuals-Administration and Finance Code-Chapter- 5 (V)
CHAPTER V
MANAGEMENT ACCOUNTABILITY
501. Management
has been defined as involving responsibility for judgment and decision in
effectively planning and controlling operations towards known objectives
attained through efficient co-operation of the personnel concerned. Arising out
of this definition, management may be said to have the following characteristic
features :—
(i) Management is a ' Process ', in the sense of a combined
pattern of mental action and human behavior;
(ii) ' Decision ' is of its essence, and this presupposes
consideration and judgment, as well as assembling facts and data
from which to judge ;
(iii) The Manager has to obtain effective co-operation of
other people, and this implies a need for ability to guide, motivate and get on
with people in the organization ;
(iv) The ' objectives ' at any given time are determined by
the corporate policy of the undertaking ;
(v) The management process has an essential economic
character in its primary concern for effective attainment of selected
objectives with optimum use of resources ;
(vi) The achievement of objectives can be ensured only by
continuous review of the actions ensuring from the decision and this means that
the judgment-cum-decision process is in the nature of a feedback circuit, and
finally,
(vii) The management process is basically future-oriented,
since it is concerned with planning the course of action for attainment of
objectives in future.
The above characteristic features of management require of
the managers unceasing responsibility for (a) high performance and its
betterment, (b) cost control and cost reduction to optimum level, (c) good
profitability and its improvement, and (d) attainment of all these objectives
through the co operation of many functionaries of diverse disciplines whose own
interests and objectives may not synchronise or may even be quite different.
502. The
Railways are owned and managed by Government of
India. The Railway Management is, therefore, accountable
to the Parliament for the efficient operation of this vital transport
system in the country The
annual revenue budget of the Railways is based on specific performance targets
for movement of freight and passenger traffic, and comprises the
estimated amount of money required to be spent to achieve the specified
targets. The annual works budget provides for additions,
restorations and replacement of assetst to enable the railways to
progressively increase their capacity to meet the
transport needs. Parliamentary financial
control is designed to keep a watch over the performance of
Managers entrusted with handling and disposal of public
funds. The budget grants voted by Parliament and the
appropriations sanctioned by the President are thus the limits upto which
expenditure can be incurred by the Central Government during a financial year
on the specific purposes for which the grants and appropriations have
been obtained. While it is
the duty of the Railway Board as the controlling authority in respect
of the total amount of
each Grant voted by Parliament and
appropriations sanctioned by the President, to watch the progress of
expenditure and to restrict the aggregate expenditure within the
amount of grant or appropriation placed at
their disposal, it is
the responsibility of
the individual Railway Administrations to exercise a similar control over the
allotments made to them.
503. Accountability to Parliament.—The
accountability to Parliament is satisfied
through the submission of the annual Appropriation
Accounts, that is to say records suitably devised for the
scrutiny, by Public Accounts Committee and the Comptroller and
Auditor General, of incurred and adjusted expenditure
in relation to the grants and appropriations so as to ensure
authenticity of each item in relation to the budget grants and
appropriations. The constitutional principle underlying these
Accounts is that the Parliament approves every year
the provision of certain sums of money which are distributed to the Railway
Managers for spending on approved
objects. Parliament has therefore, to be
satisfied when the year has ended, that the moneys have, in
fact, been spent as authorized. The certified Appropriation Accounts
show how the revised/final allotments/appropriations vary from the original one
and the actual expenditure from the final allotment/
appropriation. The Railway Management is thus accountable to
Parliament for achieving the financial targets
envisaged in the Budget for realisation of revenues and restricting the
disbursement of moneys and adjustment of expenditure within the authorized
limits.
504. Accountability for Performance—Performance
Budgeting.—Underlying the annual budgets are
certain assumptions in. respect of physical outputs such as movement of a
specific quantum of traffic, consequential workload on
maintenance of track, rolling stock and other assets, fuel
consumption, optimum utilization of assets and generally
operating the system efficiently, etc. The extent to which
these assumptions are actually realized is judged through a number of
performance indices which are
worked out periodically and
annually. The more important and commonly used operating
efficiency indices are—
(a) Freight traffic—
(1) Originating tonnage of revenue-earning
freight traffic by broad commodity groups.
(2) Earning per million stones of originating
traffic by selected commodities.
(b) Wagons—
(3) Wagon kilometers per wagon day.
(4) Net tonne kilometers per wagon day.
(5) Wagon turn-round (time elapsed between successive
loadings of a single wagon).
(6) Detentions to wagons in important marshalling yards.
(7) Percentage of loaded to total wagon
kilometrage.
(8) Net tonne kilometres moved per annum per
tonne of wagon capacity.
(c) Engines—
(9) Hours worked per day per engine available for
use, service wise and traction wise.
(10) Engine kilometers per day per engine day on
line/in use on goods services traction wise.
(I I) Net tonne kilometers per goods engine hour on line/in
use.
(12) Engine kilometers per engine failure,
traction .vise.
(13) Fuel consumption under the various services,
traction wise.
(d) Train operation—
(14) Average speed of goods trains, traction
wise.
(15) Average load of goods trains, gross and net
in terms of wagons, traction wise.
(16) Punctuality of Mail and Express and other passenger
trains.
(e) Rolling Stock repairs.—
(17) Percentage of under and awaiting repairs-locomotives,
coaches and wagons.
505. Ideally,
Railway Managers should set themselves performance targets/norms under each of
the above and other important indices taking into account the additional
investment on modernisation. Failure to
realise the norms should require a detailed examination of reasons and adequacy
of remedial action. A direct correlation between the norms as
may be laid down in these efficiency
indices and the budgetted
financial targets is, however, extremely difficult. In
financial terms, the final test of the working of a
Zonal Railway is its operating ratio, profit/loss and the
return on capital which enable
the Railway Board to monitor
the overall efficiency of each Zonal Railway management.
506. The
concept of Management Accountability applies all along the line from the top Manager down
to the Divisional/Workshop Officer. Or viewed upwards
from below, the performance/financial targets set
for a Division/Workshop are the responsibility of the concerned
officers. The Divisional Superintendent
is accountable for the operating/financial targets fixed for the
Division. As accounts of earnings are maintained for the Zonal
Railway as a whole without any break-up by divisions or sections, the
accounting records of the Railways do not indicate the
complete financial results of working of a
Division. Expenditure accounts are,
however, maintained for the different spending units like Division,
Workshop, Headquarters, etc. At
the Divisional level, the financial targets, therefore, do not relate to
earnings but only to expenditure within the budget
allocation. There is thus no separate profit and
loss accounts
for each Division, nor is it
feasible under the present accounting arrangements
to prepare such accounts. The accountability
of the Divisional Superintendent is, therefore, restricted to the financial
limits of expenditure laid known in the sanctioned budget and the physical
(operating and commercial, etc.) target set for his
Division. He is duly authorized, under
a system of delegation of financial powers, to incur expenditure for the
specified purposes up to the limits laid down in the sanctioned
budget. The monthly financial review prepared at the
Divisional level compares the actual expenditure with the proportionate budget
under the sub-heads of grants. At the level of
the Headquarters of the Zonal Railway, however, the
accountability of the General Manager and his Heads of Departments extends
fully to the total financial performance—profit/loss—of
the Railway Administration in relation to the budgeted
target. The monthly financial review prepared by the Financial
Adviser and Chief Accounts Officer for the Zonal Railway Administration as a
Whole compares the actual earnings and expenditure with the budget
anticipations, with brief explanations for variances, from the budgetary
proportions.
507. Management Controls.—Management controls have been defined as a combination of
the objectives of plans, policies, procedures, techniques, and standards in
addition to measurement, appraisal
or evaluation of
results. Business controls represent
the patter of activity followed by
the manager; and should not be isolated from performance,
standards or plans of action. The controls may
be categorised in the following manner:—
(i) the controls provided to standaridise levels of
performance ;
(ii) controls used in safeguarding corporate assets ;
(iii) controls which set the limits of the delegation of
authority ;
(iv) the rule used to plan and programme operations ;
(v) the regulations employed to standardise quality levels
and to measure job performance ; and ; (vi) the rules for motivating employees
within the organisation.
The operational control of the business of an organisation
may be further classified as cither policy control or systems control. In the
case of Railways the policy objectives are clearly defined in their Corporate
Plan. The. systems control comprises the plan of orgainisation and of
co-ordinated methods and measures adopted to promote the policy objectives of
the organisation. Management is a difficult art ; wise men use all available
aids to help them deal with their many problems. In recent years a number of
management aids or control techniques have increasingly come into operation and
Railway Managers should strive to make themselves familiar with some of these
techniques and make use of them for problem solving under given situations. An
illustrative list of the control techniques is given in Annexure together with
brief explanations. Some of the management aids progressively being used on the
Railways are given in the subsequent paragraphs.
508. Investment decisions.—During the
successive 5-year plan periods, the Railways have made massive
investments for increasing capacity and modernization and these investments
have been financed from borrowings from the General Revenues
and internally generated resources. The value of
total investment in the Railways went up from Rs. 855 crores as on 1st April,
1951 to nearly Rs. 16,851 crores on 31st
March 1989, Railways are a
Capital-intensive industry, and their economic viability depends to a large
extent on the productivity of the Capital inputs. Each
major investment proposal has, therefore, to be subjected
to a techno-economic feasibility study before it is accepted for inclusion in
the Railway's Plan/annual programme. At the same time due
regard must be had to the role of the Railway in the larger context of planned
development of the country. Further, after a project is executed and is in
operation for some time, the Railway Management
must carry out post-project appraisal to ascertain how far the benefits
expected to be available from the investment have been actually
realised. Investment decision-making
thus calls for use of refined and
effective methods of investment planning such as project
preparation, evaluation and grading together with a sound system of financial
control and post-project appraisal. These are
described in detail in Chapter II of
the Indian Railway Financial Code.
509. Inventory Management—Inventories of raw
materials, stores and spare parts, and
the value of unfinished jobs (known as
work-process) in Railway Workshops represent essential, but unproductive,
Capital investment. Efficient inventory management
requires lowest stock levels with the
highest service levels. This objective is secured through budgeting
for inventories after careful scheduling of
deliveries against purchases and regular monitoring of the
changing needs of the indentors. In view of high inventory carrying costs the
importance of inventory managements as a part of the overall accountability of
Railway Management cannot be overemphasized.
510. Financial Ratios.—The financial efficiency
of operating an enterprise can best
be seen from the ' financial ratios ' which are worked
out from the Statement of Profit and Loss for the year and
the Balance Sheet (of Assets and Liabilities) as at the end of the
year. The glossary of terms which should be used in Railway
Estimates and Financial statements is given in Para 308-F.
511. The
important financial ratios, applicable to Indian Railways, may now be described
as shown below:—
(a) Operating
Ratio, i.e., percentage of gross working expenses (item
(xiii) of Para 308-F.) to gross earnings (item (v) of
Para 308-F).
(b) Return on Capital—
(i) percentage of (revenue) surplus (item xxi of para 308-F)
to Capital-at-charge (item xxii of para 308-F).
(ii) percentage of net receipts (item xix of para 308-F) to
Capital-at-charge.
(c) Current Assets
/Liabilities— '
(j) Stores in stock in terms of month's consumption, (ii)
work-in-process (workshops) as a percentage of the value of workshop outturn.
(iii) stores inventory (stores, ' purchases', 'sales', and
miscellaneous advance- capital, etc.,) as percentage of the
total issue of stores.
(iv) Unrealised earnings at the year-end in terms of number
of days, earnings.
The above ratios, compared from year to year, provide useful
information for judging the financial performance of the Railways.
5I2. Statistical and other techniques.—The
phenomenal growth in business activity in the second half of the 20th century
has given tremendous impetus to the development of management techniques, such
as work study and related quantitative disciplines at the same time making use
of the specialized knowledge of physical and behavioral sciences in the
problems of productivity and measurement of inputs. Work study is a generic
term applied to techniques used in the examination of human activity and the
investigation of all factors which affect efficiency and economy. While, the
conventional type of work study was adequate in the past for improving the
systems, it has been found that complexities of the interaction of various
sub-divisions within the same system and those of the system with related
external systems, can be determined with the required degree of clarity and
precision only by the simulation of problems through mathematical models
quantifying different alternatives to arrive at the optimum solution. This, has
borough about the quantitative discipline called Operation Research (O. R.)
which is defined as the science of decision making by simulating physical
situations through mathematical models. O. R. Techniques include linear
programming, queuing, simulation etc. An important technique used for project
scheduling is network analysis and the determination of the critical path.
ILLUSTRATIVE LIST OF MANAGEMENT CONTROL TECHNIQUES
(Refer Para 507)
1. Financial and cost ratios.—These
got their start as a device and
convention in the inspection of balance sheets for
credit purposes. They have been of some use to managements
internally, especially when extended to percentage-to-sales data on income
statements. Still in use, such ratios do not
have the highest regard, at least not for reliability, but one ratio, return on
capital, has achieved extreme and diversified recent application (commented
upon separately below).
2. Unit-costs.—-First needed for building inventory values for
balance sheets, the periodic derivation of costs incurred per product unit
manufactured grew to serve in assisting cost estimating for pricing purposes
and to facilitate control of costs.
3. Standard costs.—An
engineering device in origin, unit costs determined by time study, or otherwise
reliably, have corns into wide use as means of operating inventory in process
accounts and valuing period-end inventories. Even more,
and partly because detailed to material, labour, and overhead unit costs,
standard s
have been used to measure the operating performance of manufacturing cost
entres. Analyses of differences between
actual and standard costs, called variances, have
become a common and highly regarded cost appraisal tool.
4. Direct costing.—
Dependent upon the pioneering analysis done for
flexible budgeting and cost-volume-profit relationship, direct
costing is a system of accounting and/or reporting which, as a primary feature
excludes fixed costs from cost of sales, all such costs being grouped as period
costs with fixed costs of administration and sales. This
has the effect of providing a balance called gross margin, after deducting
variable costs from sales. This margin is unaffected by
production rate, which influences gross profit under
conventional (absorption) costing. Direct costing theory
extends to the balance sheet, on which inventories are stated at variable costs
only, not carrying forward period costs, as these must be re-incurred at any
event.
5. Budgeting-fixed.—This is normally a control
plan applicable to operations geared to a
particular volume and detailed as to allowable outlays for later comparison
with actual outlays. It is logical extension of fore-casting
and standardizing costs to the control field and has been responsible for the
establishment of bud-getting as a conventional internal
activity. Ordinarily, budgeting is the only tool
that introduces into statements, a set of figures as numerous
as the account balances to which they relate.
6. Budgeting-flexible.—This is a control plan devised to be
useful, as fixed budgeting is not, when volume of
production/activity changes. The key here has been the
recognition of cost behavior and the alignment of budget figures to the fact
that fixed, semi-variable, and variable costs will respond to volume changes in
the manner suggested by these terms. Considerable
analytical work precedes use of
a flexible budget, which usually proves
superior for performance measurements.
7. Integrated data processing.—The
computing machines now available ,
with capacities and 'skills of sorting,
analyzing, and communicating well beyond tabulating equipment,
are moderately in use in larger companies and pose wide challenges
and opportunities in management accounting generally.
8. Statistical techniques including
operations research.—A somewhat new set of accounting tools
seems to be shaping up from the discipline of
statistics. Sampling is being used in
auditing. Control charts, constructed on the concept of
standard deviation and control limits, are sometimes used to isolate
exceptional cost behavior. More intricate techniques
grouped as operations research-are occasionally introduced by
problem-solving in accounting tasks by qualified
personnel. Use of linear programming for inventory
control is an example of this. Regression analysis may
be used for assessing degree of correlation of expenditure to performance.
9. Project evaluation.—'Evaluation
of proposed capital expenditure has been a popular topic for over 3 decades
because of the marked business expansion during this
period. Refinements in the methods of project
measurement have been made in theory and practice, but rough and ready methods
have also been retained, the main consideration being the estimated outlay
involved and the relative simplicity or complexity of the
situation. Whatever the methods used, the basic concepts
are based on segretion of cost and revenue, calculation of risk involved,
determination of prospective return to the company with or without consideration
of the timing of income. In recent years how ever, time
value of money has been brought into operation for evaluation of
projects by discounted cash flows over the entire period of the anticipated
project life.
10. Program Evaluation and Review Technique (PERT).—
The basic concept of PERT requires concise visualization of all the individual
tasks (operations) to completes a given project. These are classified as
"events", stages of completion, and "activities", placed in
sequential order, and various time estimates are prepared for each activity.
The sequence in which the activities are scheduled to be performed creates
" paths ", from the beginning to the end of the project network. The
time required by the paths is determined by totaling the time for each activity
along the path. The most significant results of the calculation involved with
PERT are the determination of a " critical path " and " slack
time " for the network. Since the longest time path through the network
will control the schedule for the entire project, it is the ' critical path '.
Delays -in completing the activities on this path will create a potential
schedule slippage (time variance) for the project as a whole-. The other paths
through the network are referred to as slack paths. The critical path and slack
time calculations result in a slack order report furnished to management
periodically during the course of the course of the project's operation. !n
determining a schedule for a project, if the target time required to complete
the project is less than the time available on the critical path (total of
timed activities), then these activities must be re-analyzed to determine
whether their time requirements can be reduced, it may be possible for some of
the activities to be performed concurrently. When the time required by the
critical path is less than the time required to meet the original target date
for the completion of the project, then either the target date can be moved
forward or costly methods of operation can be employed. In any case, management
has information available upon which it can base a course of action. The system
also provides a timely index on the percentage of funds expended against the
capita! budget for the project.
11. Management/Operational Audit.—Management/Operational Audit (OA) is a comparatively new
control technique for evaluating the effectiveness of operating procedures and
internal controls. OA is a constructive method of assisting management to
improve business operations in various ways, viz., by alerting management to the
breakdown of operational controls, by pin-pointing areas for cost reduction, by
suggesting potential operating improvements, and by pointing out failure of
functional, responsibilities in various areas.
Management in Indian Railways is defined as involving responsibility for which of the following?
a) Judgment and decision-making in effectively planning and controlling
operations
b) Coordination without decision-making
c) Only financial control
d) Primarily focusing on customer satisfaction
Answer: a) Judgment and decision-making in effectively planning and controlling operations
2. Which of the following is NOT a characteristic feature of management according to the provided text?
a) Management is a process of combined mental action and human behavior
b) The essence of management is decision-making
c) The objectives of management are always fixed and unchanging
d) Management has an essential economic character concerned with effective use
of resources
Answer: c) The objectives of management are always fixed and unchanging
3. The Railways in India are accountable to which body for their operations?
a) The President of India
b) The Supreme Court
c) The Parliament of India
d) The Ministry of Transport
Answer: c) The Parliament of India
4. What does the annual revenue budget of Indian Railways comprise?
a) The estimated amount of money required for corporate events
b) The estimated amount of money required for new railway projects
c) The estimated amount of money required to achieve specific performance targets
for freight and passenger traffic
d) None of the above
Answer: c) The estimated amount of money required to achieve specific performance targets for freight and passenger traffic
5. What does the term 'Appropriation Accounts' refer to in the context of Indian Railways?
a) Accounts used to track the personal expenses of railway employees
b) Records devised for the scrutiny of incurred and adjusted expenditure
c) A detailed list of assets owned by the Railways
d) An account of revenues generated from passenger services
Answer: b) Records devised for the scrutiny of incurred and adjusted expenditure
6. The performance budgeting in Indian Railways includes assumptions about which of the following?
a) Movement of a specific quantum of traffic
b) Maintenance of track and rolling stock
c) Optimum utilization of assets
d) All of the above
Answer: d) All of the above
7. What are the important financial ratios used to judge the financial performance of Indian Railways?
a) Operating Ratio and Return on Capital
b) Revenue per employee and Net Profit Margin
c) Current Assets/Liabilities ratio and Debt-to-Equity ratio
d) None of the above
Answer: a) Operating Ratio and Return on Capital
8. Which of the following is NOT a financial ratio applicable to Indian Railways mentioned in the text?
a) Operating Ratio
b) Return on Capital
c) Profit Margin per employee
d) Current Assets/Liabilities
Answer: c) Profit Margin per employee
9. The accountability of Divisional Superintendents in Indian Railways is primarily related to which of the following?
a) Earnings from freight and passenger services
b) Expenditure within the budget allocation
c) Setting and achieving profit targets
d) All of the above
Answer: b) Expenditure within the budget allocation
10. Which technique is described as the science of decision-making by simulating physical situations through mathematical models?
a) Network Analysis
b) Work Study
c) Operation Research (O.R.)
d) Financial Accounting
Answer: c) Operation Research (O.R.)
11.Financial
and cost ratios were originally used for what purpose?
a) To assist in setting sales prices
b) As a convention in the inspection of balance sheets for credit purposes
c) To evaluate employee performance
d) For determining the cost of raw materials
Answer: b) As a convention in the
inspection of balance sheets for credit purposes
12.
What is the primary use of unit costs in management?
a) To evaluate the company's stock
performance
b) To set pricing for products and control costs
c) To assess employee productivity
d) To determine the total sales revenue
Answer: b) To set pricing for
products and control costs
13.
Standard costs are commonly used for what purpose in manufacturing?
a) Calculating income tax
b) Operating inventory in process accounts and valuing period-end inventories
c) Managing customer relationships
d) Setting sales targets
Answer: b) Operating inventory in
process accounts and valuing period-end inventories
14.
What does direct costing exclude from the cost of sales?
a) Variable costs
b) Fixed costs
c) Direct labor costs
d) Material costs
Answer: b) Fixed costs
15.
What is the main feature of flexible budgeting?
a) It is only applicable to fixed
costs
b) It does not account for volume changes
c) It aligns budget figures with cost behavior, accommodating volume changes
d) It is a tool for forecasting only
Answer: c) It aligns budget figures
with cost behavior, accommodating volume changes
16.
Integrated data processing in management accounting involves which of the
following?
a) Manual calculation of data
b) Simple tabulating equipment
c) Advanced computing machines capable of sorting, analyzing, and communicating
data
d) Basic spreadsheet software
Answer: c) Advanced computing
machines capable of sorting, analyzing, and communicating data
17.
Statistical techniques in accounting include which of the following methods?
a) Estimating future sales revenue
b) Using control charts to isolate exceptional cost behavior
c) Direct negotiation with suppliers
d) Manual inventory counting
Answer: b) Using control charts to
isolate exceptional cost behavior
18.
What is the main consideration in project evaluation?
a) The project's impact on employee
morale
b) The estimated outlay involved and the simplicity or complexity of the
situation
c) The company's market share
d) The current economic climate
Answer: b) The estimated outlay
involved and the simplicity or complexity of the situation
19.
In Program Evaluation and Review Technique (PERT), what does the term 'critical
path' refer to?
a) The path with the shortest
duration
b) The longest time path through the network that controls the project schedule
c) The path with the least number of tasks
d) The path with the most slack time
Answer: b) The longest time path
through the network that controls the project schedule
20.
What is the purpose of a Management/Operational Audit?
a) To assess the aesthetic appeal of
the company's branding
b) To evaluate the effectiveness of operating procedures and internal controls
c) To conduct market research
d) To create new marketing strategies
Answer: b) To evaluate the
effectiveness of operating procedures and internal controls
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