Wednesday, November 18, 2009

PRISMA Inc.............

PRISMA ………………. Prism for ur vision & ideas

Monday morning in M/s Prism Inc is very busy day for the MIS team, marketing team and sales team. They publish their turnover data for the previous week to their management for performance reporting.

Mr CIO of Prism is very busy trying to push his battery of data entry operators [ other wise designated as MIS managers ] to get the Sales data collated for the week. The team is struggling to put the data into a standard template as preferred by the Mr CEO since the data have to received by them from all corners of the market in a multiple formats with non-standard product description. The non standard data is an accepted reality in the organization. The Sales force have been given complete flexibility in terms of data collection. The Marketing Head and CEO both feel that this a favor that these guys are doing to the organization. Because their prime job is to do selling in the market place and not data collation.

While, Mr CIO is dire hurry to get the weekly sales report for the marketing director and stressfully sitting in his office, gets a service call from a vendor. He promptly shouted back to the vendor in a very dismal mood and said “ Don’t you know that today is Monday. I have no time to take your call early morning and waste my time.” Reply from the vendor “ I know Sir, today is monday …but couldn’t understand what so special about the day?” Mr CIO said “ It is our sales report day. You SME vendors will understand all these. We report sales for the week to the management board on this day every week” Vendor replied with a surprise “ But Sir, we do it every hour, everyday! From our system data flows automatically to us with every invoice that we raise”. Mr CIO with great surprise disconnected the phone but keep wondering “ How is that possible!”

During the sales review meeting with board members, CEO broached the topic of everyday sales report review in view of growing competitiveness in the market place and with increase in number of product ranges and its variants. The immediate reaction of the Marketing director is like “ how that is possible?” He reacted by saying “ Do you expect boys to sit back in office and collate sales numbers instead of pushing sales in the market place?” CEO looked at CIO and asked “ Can IT do something in this area ?” Mr CIO remembered what his vendor told him in morning about tracking of sales data every hour, responded by saying “ I think the same could be done by doing ERP system implementation. Somebody in our vendor organization was mentioning that they track in the system almost on hourly basis”. Mr CEO said “ But we also get our sales data from the system. Then in that case the same should be possible in our organization also”. Mr CIO replied in confused manner “ But we have our systems which are all localized at the sales offices spread across various locations and they are not integrated. Hence, we get the data from each of the sales offices and collate the sales data centrally in the MIS department for weekly review. The entire activity requires atleast one full working day for data to get collated at the Head Office for Sales Reporting. On-line data capture and reporting requires implementation of ERP system for the entire enterprise.” CEO immediately said “Then lets go for it”. Mr CFO replied “ But this is a very expensive proposition. ERP implantation is very resource intensive and returns on that investment may not come that thick and fast”. CEO said “ Lets have a full fledged board meeting on the same immediately to have some detailed level of understanding ”.

On the next day Mr CIO prepared a detailed level presentation covering various aspects of ERP system, its deliverables and benefits to the organization. But the board members seem to be not very convinced with the fact that the unique business practice and processes could be easily put into the system easily which are currently being done by their high skilled and trained resources of the organization. Further, all of them are very concerned as to how suddenly the age old work practices could be changed overnight for which the organization had spend fortune for training and development of their resources. On hearing such apprehensions, CEO requested to each of the board member to put down their expectation from the proposed ERP system in order to engage some implementation consultant who have good experience in such implementation and have better understanding of the industry best practices.

The exact from the minutes of the meeting of the board held are ……………

Marketing Director expects that sales data to be made available in the system with every invoicing done in the sales office across all markets and location. The data must be available on real-time basis.

Finance Directors expects a very ROI from this investment in qualitative terms

Supply Chain Director expects that system will be able to help the business to optimize the inventory holding and do the demand servicing on least cost basis

Technical Director expects system to improve upon the Good Manufacturing Practices and measure production efficiency

CIO expects the system should enable to drive ‘ single version of truth’ in terms of data and reports

CEO expects the system to be a ‘decision support’ and ‘decision enabler‘.

As per instruction of CEO, all these expectations are collated and CIO briefed all potential ERP consultant for proposal.

Almost, all reputed consulting firms are invited for their presentation to the Board on the proposal. Everybody has impressed that all the stated expectations and objective will be delivered but everybody has left the board with some after thoughts by using some terms like Business Process definition, Change management, Change agent, Project Governance and Role definition, Enterprise scope definition, User classifications, training etc. The entire Board suddenly started realizing that onus of such ERP system implementation of more them rather than on the consultants.

Now, the entire board is grappling with these terminologies and trying to decipher more appropriate meaning in context to their own business. Realization has started dawning on them that ERP implementation success lies more on the business rather than on the quality of consulting firm. The debate and deliberation is still on since no consultant can provide input to your business since YOU KNOW THE BEST…………………..

Come, let’s see whether we can provide you with any cues and pointer to sharpen your own thought processes, so that you have a better clarity and understanding about of all these buzz words and terminologies which are frequently used by your consultants. We shall try to walk you through our library of experiences which we have gathered in a very hard way in the past. You share your pain points and we shall try to apply our experiential learning on to it to make your journey more pleasant and smooth. Promise is not the moon or starts it is very hard-core ground level realities which people tend to overlook during such grand phanole.

Exposure Draft on Fair Value Measurement

Observations on the Fair Value Measurement Exposure Draft is detailed under :-

a/ Refer Appendix A - definition of " most advantageous market" - The fair value measurement is done to benchmark the value of the existing asset / liability of the entity. The intent of the measurement is not to ascertain exit price / realisation price of the asset / liability which are an integral part of going concern and the entity will continue to derive economic benefit from the same. In such context, the consideration of transaction cost and transport cost will destort the true spirit of the value measurement since such cost operate under various market conditions. In the absence of the definition of transaction cost, the value measurement will further get distorted since the element of subjectivity will prevail.

Further, the reason stated for inclusion of the term tranportation cost [ as explianed by Mr K Prabhakar - Board member is ISB on 8/09/09 during deliberation ] is to neutralise the locational disparities between the operating markets and to bring the value more closer to realistic terms. In view of such consideration, then the other costs like storage, handling cost etc. should also be considered. However, there is no mention of such other costs in the exposure draft.

Hence, it is recommended that the operating price in the advantageous market unadjusted for any other cost should be a better reference for fair value measurement. The most relevent reference in this context would be quoted [ unadjusted] price - as mentioned in para 45 of the exposure draft for level 1 input for fair value measurement purpose.

b/ Reference para 53 - 54 of the exposure draft on Level 3 input, read alongwith disclosure requirements as per para 57, the value measurement for assets/liabities will be done basis unobservable input. In absence of any any specific guidline, the entity valuation will get influenced by management assumption and interpretaion. Thus the scope of subjectivity will be very high in the value measurement of assets/ liabilities.
Further, the disclosure requirements as specified in the draft standard will lead to the exposure of entity specific confidential information to competitors.