Aligning COST MANAGEMENT with VALUE CREATION and GOVERNANCE Experience of Godrej & Boyce Mfg. Co. Ltd. GODREJ & BOYCE MFG. CO. LTD. ¢ Established in 1897, over a century old ¢ One of the largest privately-held diversified industrial corporations in India ¢ Revenue from operations INR 72 billion (US$ 1.2 billion) ¢ Godrej Group revenue INR 223 billion (US$3.7 billion) ¢ Godrej Group touches the lives of 400 million Indians who use at least one of its products every single day. Godrej is a household name in India synonymous with Quality & Reliability
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Aligning COST MANAGEMENT
with VALUE CREATION and
GOVERNANCE Experience of Godrej & Boyce Mfg. Co. Ltd.
GODREJ & BOYCE MFG. CO. LTD.
¢ Established in 1897, over a century old
¢ One of the largest privately-held diversified industrial
corporations in India
¢ Revenue from operations INR 72 billion (US$ 1.2 billion)
¢ Godrej Group revenue INR 223 billion (US$3.7 billion)
¢ Godrej Group touches the lives of 400 million Indians who
use at least one of its products every single day.
Godrej is a household name in India synonymous with Quality & Reliability
INDUSTRY BUSINESS PROFILE
¢ Appliances
¢ Interio (Furniture)
¢ Security Solutions
¢ Locks
¢ Storage Solutions
¢ Prima- Vending Machines
¢ Process Equipment
¢ Precision Engineering
¢ Precision Systems
¢ Toolings
Office & Consumer
Products Industrial Products
Others
¢ Construction
¢ Electricals & Electronics
¢ Lawkim- Electric Motors
¢ Material Handling Equipment
COMPETITIVENESS
G&B’s cost management philosophy is
considering total cost management inclusive
of cost audit to improve cost competitiveness
TOTAL COST MANAGEMENT TO FACE
CHALLENGES OF INTENSE COMPETITION
¢ Improve competitiveness strategically and operationally
¢ Cost strategy for
� Customer focused orientation of product design
� Futuristic and predictable cost structure of products and NPD
� Visualising technology issues addressing the product and process
¢ Operational analysis for
� efficient resource utilisation
� Productivity and process improvements
TCM is the shift in the paradigm from cost measurement to cost management to
cost leadership for sustainable profit and growth in the business.
GOVERNANCE
G&B’s cost management philosophy of cost
management linked to governance
complements integration of TCM with ERM
TOTAL COST MANAGEMENT FOR DE-
RISKING BUSINESS CONTINUITY
¢ BOD and Audit Committee are major stakeholders
¢ Governance reporting entails risk management for business
continuity and de-risking value creation
¢ TCM de-risks the strategy with cost information that will
improve decision making
TCM focuses costing as a tool for management rather than accounting.
TCM INTEGRATION WITH ERM
Maturity of ERM process depends on maturity of cost management processes.
Basic ERM Process
•Process of identifying and mitigating critical risks
•Companies' high risk areas driven by high input costs
•Risk owners identified for each key cost element
Mature ERM Process
•Framework to address fluctuations in commodity prices
•Forecast on trends in input costs
•Employee life cycle costs
Advance ERM Process
•Insurance cost management and Self Insurance
•Tracking technology trends and its impact on prices
•Feedback on current and future costs
TCM INTEGRATION WITH ERM AT
ELECTRICAL & ELECTRONICS DIVISION
Maturity of ERM process depends on maturity of cost management processes.
Low working capital turnover
Challenges in attracting / retaining skilled employees at key positions
Delays / Disruptions in project execution
Less than desired project cost management mechanisms
Volatilities, uncertainties and noncompliance with tax regulations VoVo
Project cost overruns
Unfavorable contractual terms
Risk of competition from existing/ emerging players
Procurement at uneconomical terms / cost overruns
Unavailability of workmen
Violation of prescribed safety standards (regulatory / internal) ViVi
Untapped opportunities resulting in loss of potential business
TCM INTEGRATION WITH ERM AT
ELECTRICAL & ELECTRONICS DIVISION
Maturity of ERM process depends on maturity of cost management processes.
Low working capital turnover
Challenges in attracting / retaining skilled employees at key positions
Delays / Disruptions in project execution
Less than desired project cost management mechanisms
Volatilities, uncertainties and noncompliance with tax regulations VoVo
Project cost overruns
Unfavorable contractual terms
Risk of competition from existing/ emerging players
Procurement at uneconomical terms / cost overruns
Unavailability of workmen
Violation of prescribed safety standards (regulatory / internal) ViVi
Untapped opportunities resulting in loss of potential business
TCM INTEGRATION WITH ERM AT
ELECTRICAL & ELECTRONICS DIVISION
Maturity of ERM process depends on maturity of cost management processes.
Low working capital turnover
Challenges in attracting / retaining skilled employees at key positions
Delays / Disruptions in project execution
Less than desired project cost management mechanisms
Volatilities, uncertainties and noncompliance with tax regulations VoVo
Project cost overruns
Unfavorable contractual terms
Risk of competition from existing/ emerging players
Procurement at uneconomical terms / cost overruns
Unavailability of workmen
Violation of prescribed safety standards (regulatory / internal) ViVi
Untapped opportunities resulting in loss of potential business
VALUE CREATION
Performance Appraisal Report provides
business case for maintenance of cost
accounting records and its audit.
ENGAGEMENT WITH AUDIT COMMITTEE
¢ Anchoring role to improve maturity in cost management
processes was initiated at corporate level.
¢ Divisional finance teams were assigned role of maintenance of
cost records at divisional level.
¢ Operation management teams were familiarised with the
changes in Cost Accounting Record Rules and Cost Audit Report
Rules by way of discussion, workshops and training programmes.
TCM necessitated stakeholder engagement process, creating the critical cost
awareness across the value chain.
ENGAGEMENT WITH AUDIT COMMITTEE
¢ Divisional cost management issues were
interactively classified in the four
quadrants to finalise management
expectations from performance appraisal
under cost audit.
¢ Report was discussed in the Audit
Committee Meeting.
Performance appraisal report is a tool to improve total cost maturity in business.
Operational Outcome
Strategic Process
Operational Process
Strategic Outcome
Operational Outcome
PERFORMANCE APPRAISAL REPORT FOR
STORAGE SOLUTION GROUP (SSG) STRATEGIC OPERATIONAL
PR
OC
ES
S
System for measuring customer segment
profitability
Aligning with the annual business plan,
SSG has introduced segment profitability analysis.
System for Material cost control (Effect of
timing difference between order booking,
procurement and utilisation, on steel prices)
Division has started working on this.
OU
TC
OM
E
Customer Segment profitability review
As a pilot attempt, identified few low profit segments and created focused action plan.
Operational cost review and waste
elimination
SSG introduced material balance procedure
for steel and cut down wastages by 1.4%
(Rs.100 lakhs)
Fuel consumption in the paint shop oven was identified for waste elimination
Performance appraisal report is a tool to improve total cost maturity in business.
THANK YOU
Ajay Palav
Godrej & Boyce Mfg. Co. Ltd.
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