I.

BALANCED SCORECARD/ STRATEGY EVALUATION/ PRODUCTIVITY

MEASURES
A. NATURE OF THE BALANCED SCORECARD

1. The Balanced Scorecard

The balanced scorecard translates an organization’s mission and

strategy into a set of performance measures that provides the framework for
implementing its strategy. The balanced scorecard does not focus solely on
achieving short-run financial objectives. It also highlights the nonfinancial
objectives that an organization must achieve to meet and sustain its financial
objectives. The scorecard measures an organization’s performance from four
perspectives: (1) financial, the profits and value created for shareholders; (2)
customer, the success of the company in its target market; (3) internal business
processes, the internal operations that create value for customers; and (4)
learning and growth, the people and system capabilities that support
operations. A company’s strategy influences the measures it uses to track
performance in each of these perspectives.

B. PERSPECTIVE OF THE BALANCED SCORECARD

1. Four Perspectives of the Balanced Scorecard

a) Financial perspective. This perspective evaluates the profitability of

the strategy and the creation of shareholder value. Because Chipset’s key
strategic initiatives are cost reduction relative to competitors’ costs and sales
growth, the financial perspective focuses on how much operating income results
from reducing costs and selling more units of CX1.

b) Customer perspective. This perspective identifies targeted customer

and market segments and measures the company’s success in these segments.
To monitor its customer objectives, Chipset uses measures such as market share
in the communication-networks segment, number of new customers, and
customer-satisfaction ratings.
c) Internal-business-process perspective. This perspective focuses on
internal operations that create value for customers that, in turn, help achieve
financial performance. Chipset determines internal-business-process
improvement targets after benchmarking against its main competitors using
information from published financial statements, prevailing prices, customers,
suppliers, former employees, industry experts, and financial analysts. The
internal-business-process perspective comprises three sub processes:

(1) Innovation process: Creating products, services, and processes

that will meet the needs of customers. This is a very important process
for companies that follow a product-differentiation strategy and must
constantly design and develop innovative new products to remain
competitive in the marketplace. Chipset’s innovation focuses on
improving its manufacturing capability and process controls to lower
costs and improve quality. Chipset measures innovation by the number
of improvements in manufacturing processes and percentage of
processes with advanced controls.

(2) Operations process: Producing and delivering existing products

and services that will meet the needs of customers. Chipset’s strategic
initiatives are (a) improving manufacturing quality, (b) reducing delivery
time to customers, and (c) meeting specified delivery dates so it
measures yield, order-delivery time, and on-time deliveries.

(3) Post sales-service process: Providing service and support to the

customer after the sale of a product or service. Chipset monitors how
quickly and accurately it is responding to customer-service requests.

d) Learning-and-growth perspective. This perspective identifies the

capabilities the organization must excel at to achieve superior internal
processes that in turn create value for customers and shareholders. Chipset’s
learning and growth perspective emphasizes three capabilities: (1) information-
system capabilities, measured by the percentage of manufacturing processes
with real-time feedback; (2) employee capabilities, measured by the percentage
of employees trained in process and quality management; and (3) motivation,
measured by employee satisfaction and the percentage of manufacturing and
sales employees (line employees) empowered to manage processes.
 2. Illustrative Balanced Scorecard
The Balanced Scorecard for Chipset, Inc., for the Year 2005

Strategic Objectives Measures Initiatives Target Performance Actual Performance

Financial Perspective

 Operating  Manage costs  ₱40,000,000  ₱42,000,000

income from an unused
productivity capacity
gain
 Increase  Operating  Build strong  ₱30,000,000  ₱68,400,000
shareholder income from customer
value growth relationships
 Revenue  6%  6.48% a
growth

Customer Perspective

 Increase  Market share in  Identify future  6%  7%

market share communication needs of
network segment customers
 Identify new
 6b
 New customers target customer  5
segments
 Increase  Customer  Increase  90% of  87% of
customer satisfaction customer focus customers customers
satisfaction survey of sales give top two give top
organization ratings two ratings

Internal Business Process Perspective

 Improve  Percentage of  Organize R & D/  75%  75%

manufacturing processes with manufacturing teams
capability advanced to implement
controls advanced controls
 Improve  Yield  Identify root causes  78%  79.3% c
manufacturing of problems and
quality and improve quality
productivity
 Reduce  Order delivery  Reengineer order  30 days  30 days
delivery time time delivery process
 to customers
 Meet specified  On-time delivery  Reengineer order  92%  90%
delivery dates delivery process

 Learning and Growth Perspective

 Develop  Percentage of  Employee  90%  92%

process skill employees training
trained in programs
process and
quality
management
 Empower  Percentage of  Have  85%  90%
workforce frontline supervisors act
workers as coaches
empowered to rather than
manage decision
processes makers

 Align employee  Employee  Employee  80% of  88% of

and satisfaction participation employees employees
organization survey and give top two give top two
goals suggestions ratings ratings
program to
build
teamwork
 Enhance  Percentage of  Improve off-  80%  80%
information manufacturing line data
system processes with gathering
capabilities real-time
feedback
 Improve  Number of  Organize R & D  5  5
manufacturing major /
processes improvements manufacturing
in process teams modify
control processes
a. (Revenues in 2003- Revenues in 2002) + Revenues in 2002 =(₱28,750,000 - ₱27,000,000) ÷ ₱27,000,000 = 6.48%

b. Customers increased from 40 to 46 in the year 2003

c. Yield = Units of CM1 produced ÷ Units of CM1 started × 100 = 1,150,000 ÷ 1,450,000 × 100 = 79.3%
 The arrows in Illustrative Balanced Scorecard indicate the broad cause-
and-effect linkages: how gains in the learning-and-growth perspective lead to
improvements in internal business processes, which lead to higher customer
satisfaction and market share, and finally lead to superior financial
performance. Note how the scorecard describes elements of Chipset’s strategy
implementation. Worker training and empowerment improve employee
satisfaction and lead to manufacturing and business-process improvements that
improve quality and reduce delivery time. The result is increased customer
satisfaction and higher market share. These initiatives have been successful from
a financial perspective. Chipset has earned significant operating income from its
cost leadership strategy, and that strategy has also led to growth.

A major benefit of the balanced scorecard is that it promotes causal

thinking. Think of the balanced scorecard as a linked scorecard or a causal
scorecard. Managers must search for empirical evidence (rather than rely on
faith alone) to test the validity and strength of the various connections. A causal
scorecard enables a company to focus on the key drivers that steer the
implementation of the strategy. Without convincing links, the scorecard loses
much of its value.

C. ALIGNING THE BALANCED SCORECARD TO STRATEGY

There are many reasons why organizations have performed strategic alignment,
but perhaps the most critical one is that it can help them improve performance and
competitive advantage in the organizations when properly applied. Managers should be
capable of interpreting the external business environment in order to capitalize the
opportunities, and deal with threats. The Balanced Scorecard approach (BSC) recognizes
the rise of intangible assets in value creation strategies and the limitations of traditional
financial measurements for this type of assets. Balanced Scorecard translates an
organization’s mission and strategy into a comprehensive set of performance measures
by providing a framework for the strategic alignment between an organization’s
strategy and its business units. BSC uses a balanced mix of financial and non-financial
measures to evaluate performance through four perspectives, based on a cause-and-
effect logic.
 Mapping a strategy is an important way of evaluating and making an
organization’s perspectives, objectives and measures visually explicit, and also the
causal linkages between them. Process mapping represented by strategy maps makes
this alignment more explicit, as well as the relationship between a performance
scorecard and the organization’s strategy. Strategy maps facilitate the communication
of strategy throughout the organization, enabling the alignment the goals of people and
business units. In order to develop a strategy map, managers need to select a few
strategic objectives within each of the perspectives, and then have to define the
cause-effect chain among these objectives, by drawing links between them. A BSC of
strategic performance measures is then derived directly from the strategic objectives.
As an important part of this strategic process, long-term strategic initiatives are then
identified and aligned, which reduces the attention on short-term financial measures,
and increases the focus on drivers of long term success. To create an organizational
alignment, a BSC needs to be designed for all levels of the organization, as a means of
ensuring that all the employees are pursuing goals that are consistent with, and lead to,
the achievement of the organization’s strategy. Despite the advantages and
disadvantages of BSC, it is important to recognize that this tool is truly beneficial for the
alignment of organizational strategy with business, and it represents a powerful
strategic tool for internal communication when it is fully integrated and adopted by an
organization.

D. FEATURES OF A GOOD BALANCE SCORECARD

1. BSC creates an image of a company’s story in the mind of all internal

stakeholders of the company by clearly articulating the sequence of cause-and-effect
relationships. A good BSC should have the capability of creating clear picture of the
overall company objective, its target and a strategic map that are all linked together in
such a way that conflicts are reduced to its barest minimum.

2. BSC acts as a communication tool that conveys a company strategy to all

members of the organization. This it does by cleverly translating strategy into coherently
developed feasible targets. The BSC should be the compass that shows managers and
other employees what direction of action should be followed when faced with a
somewhat unfamiliar situation. To make it more efficient, grassroots development of
balanced scorecard should be encouraged.

3. One of the greatest features of a BSC is that it has the ability to highlight some
potential suboptimal decisions that may be taken by managers when both financial and
non financial factors are not considered in designing and implementing performance
measure techniques. A good BSC should have a predictive ability to tell when a short-
term decision is likely to hurt potential growth. Managers tend to be overly short term
minded when there is no tool in place to checkmate their investment decisions.
 4. With a well designed and developed BSC, the number of measures that
management need to monitor is greatly reduced. This would free responsible officers or
employees of a company to focus on other management functions like; planning,
staffing, risk management, coordinating, effective human resource management, etc.
Proliferation of performance measure or key performance indicators (KPIs) should be
avoided when possible and this is where a good BSC should play an important role.
Many management dashboards and ERP systems have the capability of streamlining the
KPIs in such a way that managers have spare time that would be channelled to value
adding activities like building sustainable effective business models and implementing
organizational change.

5. A BSC should be both functionally and operationally flexible. The aim of a

balanced scorecard which is to a efficiently link company’s strategy with its
organizational culture will be defeated if managers and other employees see the design
and implementation of the BSCs being too rigid. The BSC perspective where this feature
of flexibility is most prominent is the innovation, learning and growth perspective. Here,
managers flex their muscles in terms of managing relatively complex situation. This is
fun for managers and should not be silenced by any management tool- not even the
almighty balanced scorecard.

E. PITFALLS IN IMPLEMENTING A BALANCED SCORECARD

Pitfalls to avoid in implementing a balanced scorecard include the following:

1. Assuming the cause-and-effect linkages are precise; they are

merely hypotheses. An organization must gather evidence of these
linkages over time.

Managers should not assume the cause-and-effect linkages - the links

among the various perspectives that align implementation of the strategy are
precise. They are merely hypotheses. Over time, a company must gather
evidence of the strength and timing of the linkages among the nonfinancial and
financial measures. With experience, organizations should alter their scorecards
to include those nonfinancial strategic objectives and measures that are the
best leading indicators (the causes) of financial performance (a lagging indicator
or the effect). Understanding that the scorecard evolves over time helps
managers avoid unproductively spending time and money trying to design the
“perfect” scorecard at the outset. Furthermore, as the business environment
and strategy change over time, the measures in the scorecard also need to
change.
 2. Seeking improvements across all of the measures all of the time.

Managers should not seek improvements across all of the measures all
of the time. For example, strive for quality and on-time performance but not
beyond the point at which further improvement in these objectives is so costly
that it is inconsistent with long-run profit maximization. Cost-benefit
considerations should always be central when designing a balanced scorecard.

3. Using only objective measures in the balanced scorecard.

Managers should not use only objective measures in the balanced

scorecard. Chipset’s balanced scorecard includes both objective measures (such
as operating income from cost leadership, market share, and manufacturing
yield) and subjective measures (such as customer- and employee-satisfaction
ratings). When using subjective measures, though, managers must be careful
that the benefits of this potentially rich information are not lost by using
measures that are inaccurate or that can be easily manipulated.

4. Ignoring nonfinancial measures when evaluating managers and

employees.

Despite challenges of measurement, top management should not ignore

nonfinancial measures when evaluating managers and other employees.
Managers tend to focus on the measures used to reward their performance.
Excluding nonfinancial measures when evaluating performance will reduce the
significance and importance that managers give to nonfinancial measures.

5. Failing to consider both costs and benefits of different initiatives

before including these initiatives in the balanced scorecard.

F. EVALUATION OF THE SUCCESS OF A STRATEGY

To evaluate the success of a company’s strategy, we analyze changes in

operating income into components that can be identified with growth, product
differentiation, and cost leadership. Subdividing the change in operating income to
evaluate the success of a company’s strategy is similar to variance analysis. The focus
here, however, is on comparing actual operating performance over two different time
periods and explicitly linking it to strategic choices. A company is considered to be
successful in implementing its strategy when the amounts of the product
differentiation, cost leadership, and growth components align closely with its strategy.
 Assume the following operating incomes:

Year 2003 Year 2004

Revenues:

(1,000,000 × $26) $26,000,000

(1,100,000 × $24) $26,400,000

Expenses:

Materials 4,050,000 3,631,320

Other 16,000,000 16,000,000

Operating income $5,950,000 $6,768,680

How can the increase in operating income of $818,680 be evaluated?

1. Growth Component

Revenue effect of growth component:

Actual units of output sold this year 1,100,000

Less: Actual units of output sold last year) 1,000,000

Increase (Decrease) 100,000

Multiply by: Output price last year $26

Favorable (Unfavorable) $2,600,000 F

Assume that for 2003, Dallas produced and sold 1,000,000 units at $26 per unit.
During the year 2004, Dallas produced and sold 1,100,000 units at $24 per unit. What is
the revenue effect of growth?

To produce 1,100,000 units in 2004 compared with the 1,000,000 units

produced in 2003(a 10% increase), Dallas would require a proportional increase in direct
materials. Assume that 3,000,000 square centimeters of materials were used to produce
the 1,000,000units in 2003 at a cost of $1.35per square centimeter. Assume that
manufacturing conversion costs, selling and customer service costs and research and
development costs were $16,000,000and remained stable during 2004.
 Cost effect of growth component:

Actual units of input or capacity that would

have been used to produce this year’s

output assuming the same input-output

relationship that existed last year (3,000,000 × 110%) 3,300,000

Less: Actual units or capacity to produce last year’s output 3,000,000

Increase (Decrease) 300,000

Multiply by: Input prices last year $1.35

(Favorable) Unfavorable $405,000 U

What is the net increase in operating income as a result of growth?

Revenue effect of growth component $2,600,000 F

Cost effect of growth component 405,000 U

Increase in operating income due to growth component $2,195,000 F

2. Price-Recovery Component
Revenue effect of price-recovery component:

What is the revenue effect of the price-recovery component?

Output price this year $24

Less: Output price last year $26

Increase (Decrease) in Output price (2)

Multiply by: Actual units of output sold this year 1,100,000

Favorable (Unfavorable) ($2,200,000) U

 Assume that in the year 2004, direct materials costs were $1.31 per square
centimeter. What is the cost effect of the price-recovery component?

Cost effect of price-recovery component:

Input prices this year $1.31

Less: Input prices last year $1.35

Increase (Decrease) ($0.04)

Multiply by: Actual units of inputs or capacity that would

have been used to produce this year’s output

assuming the same input-output relationship

that existed in 2003 3,300,000

(Favorable)Unfavorable $132,000 F

What is the total effect on operating income of the price-recovery component?

Revenue effect of price-recovery component $2,200,000 U

Cost effect of price-recovery component 132,000 F

Decrease in operating income due to price-recovery component $2,068,000 U

 3. Productivity Component

Assume that 2,772,000 actual square centimeters of direct materials were used
in the year 2004.Actual price was $1.31 per square centimeter. What is the productivity
component of cost changes?

Actual units of inputs or capacity to

produce this year’s output 2,772,000

Less: Actual units of inputs or capacity

that would have been used to produce this

year’s output assuming the same

input-output relationship that existed last year 3,300,000

Increase (Decrease) 528000

Multiply by: Input price this year $1.31

Favorable (Unfavorable) $691,680 F

Increase in operating income

$818,680

Growth Price-recovery Productivity

component component component

$2,195,000 F $2,068,000 U $691,680 F

To evaluate how successful a company’s strategy and its implementation have

been, its management compares the target- and actual-performance columns in the
balanced scorecard. A company will continue to seek improvements on the targets it did
not achieve.

How would a company know if it had problems in strategy implementation? If it

did not meet its targets on the two perspectives that are more internally focused:
learning and growth and internal business processes.
 What if a company performed well on learning and growth and internal business
processes, but customer measures and financial performance in this year and the next
did not improve? A company’s managers would then conclude that the company did a
good job of implementation (the various internal nonfinancial measures it targeted
improved) but that its strategy was faulty (there was no effect on customers or on long-
run financial performance and value creation). Management failed to identify the
correct causal links. It implemented the wrong strategy well! Management would then
re-evaluate the strategy and the factors that drive it.

Now what if a company performed well on its various nonfinancial measures,

and operating income over this year and the next also increased? Company’s managers
might be tempted to declare the strategy a success because operating income
increased. Unfortunately, management still cannot conclude with any confidence that a
company successfully formulated and implemented its strategy. Why? Because
operating income can increase simply because entire markets are expanding, not
because a company’s strategy has been successful. Also, changes in operating income
might occur because of factors outside the strategy.

For a company to conclude that it was successful in implementing its strategy, it

must demonstrate that improvements in its financial performance and operating
income over time resulted from achieving targeted cost savings and growth in market
share. Because its strategy has been successful, a company’s management can be more
confident that the gains will be sustained in subsequent years.

G. STRATEGIC ANALYSIS OF OPERATING INCOME

Problem:

Metro Corp. makes a special-purpose machine MO used in the textile industry.

Metro has designed the OM machine for 2011nto be distinct from its competitors. It has
been generally regarded as superior machine. Metro presents the ff. data for the year
2010 and 2011:
 2010 2011__
1. Units of OM produced and sold 200 210
2. Selling price P40,000 P42,000
3. Direct materials (kilograms) 300 310
4. Direct material cost per kilogram P8.50
5. Manufacturing capacity in units of OM 250 250
6. Total Conversion costs P2,000,000 P2,025,000
7. Conversion cost per unit of capacity P8,000 P8,100
8. Selling and customer-service capacity 100 customers 95 customers
9. Total Selling and customer-service costs P1,000,000 P940,500
10. Selling and customer-service capacity cost per customer P10,000 P9,900
11. Design staff 12 12
12.Total designed costs P1,200,000 P1,212,000
13. Designed costs per employee P100,000 P101,000

Required:

a) Calculate the Operating income of Metro Corp. in 2010 and 2011.

b) Calculate the growth, price-recovery, and productivity components that

explain the change in operating income from 2010 to 2011.

Operating income for each year is as follows: 2010 2011

Revenue (P40,000 × 200; P42,000 × 210) P8,000,000 P8,820,000
Direct materials costs (P8 × 300,000; P8.50 × 310,000) 2,400,000 2,635,000
Manufacturing conversion costs (P8,000 × 250; 8,100 × 250) 2,000,000 2,025,000
Selling & customer service costs (P10,000 × 100; P9,900 × 95) 1,000,000 940,500
Design costs (P100,000 x 12; P101,000 x 12) 1,200,000 1,212,000
Total costs 6,600,000 6,812,500
Operating income P1,400,000 P2,007,500
Change in operating income P607,500 F
 1. The Growth Component

= (210 − 200) × P40,000

= P400,000 F

Direct materials that would be required in 2011 to produce 210 units instead of
the 200 units produced in 2010. [(300,000/2000) x 210]=315,000 kilograms

The cost effects of growth component are:

Direct materials costs (315,000 − 300,000) × P8 = $120,000 U
Manufacturing conversion costs (250 − 250) × P8,000 = 0
Selling & customer-service costs (100 − 100) × P25,000 = 0
Design costs (12-12) = 0
Cost effect of growth P120,000 U

In summary, the net increase in operating income as a result of the growth

component equals:

Revenue effect of growth P400,000 F

Cost effect of growth 120,000 U
Change in operating income due to growth P280,000 F

2. The Price-Recovery Component

= (P42,000- P40,000) x 210

= P420,000 F

Direct materials costs (P8.50 − P8) × 315,000 = P157,500 U

Manufacturing conversion costs (P8,100 − P8,000) × 250 = 25,000 U
Selling & customer-service costs (P9,900 − P10,000) × 100 = 10,000 F
Design costs (P101,000 – P100,000) x 12 = 12,000 U
Cost effect of price-recovery P184,500 U
 In summary, the net increase in operating income as a result of the price-
recovery component equals:

Revenue effect of price-recovery P420,000 F

Cost effect of price-recovery 184,500 U
Change in operating income due to price-recovery P235,500 F
3. The Productivity Component

The productivity component of cost changes are

Direct materials costs (310,000 − 315,000) × P8.50 = P42,500 F

Manufacturing conversion costs (250 − 250) × P8,100 = 0
Selling & customer-service costs (95 − 100) × P9,900 = 49,500 F
Design costs (12 – 12) x P101,000 = 0
Change in operating income due to productivity P92,000 F

The change in operating income between 2010 and 2011 can be analyzed as
follows:

Revenues P8,000,000 P400,000 F P420,000 F −− P8,820,000

Costs 6,600,000 120,000 U 184,500 U P92,000 F 6,812,500
Operating income P1,400,000 P280,000 F P235,500 F P92,000 F P2,007,500
P607,500 F
Change in operating income
H. PRODUCTIVITY MEASUREMENT
 common measure of how well an organization is using its resources
 more output per unit of input, more productive will the project
 PRODUCTIVITY = Output / Input

1. Total Factor Productivity (TFP) - is the ratio of the quantity of output

produced to the costs of all inputs used based on current-period prices.

Total factor productivity = Quantity of output produced

Costs of all inputs used

2. Partial Productivity Measures - the most frequently used productivity

measure, compares the quantity of output produced with the quantity of an individual
input used. In its most common form, partial productivity is expressed as a ratio:

(The higher the ratio, the greater the productivity)

Partial productivity = __Quantity of output produced

Quantity of input used

Problem (Partial productivity measurement)

Gerhart Company manufactures wallets from fabric. In 2011, Gerhart made

2,520,000 wallets using 2,000,000 yards of fabric. In 2011, Gerhart has capacity to make
3,307,500 wallets and incurs a cost of $9,922,500 for this capacity. In 2012, Gerhart
plans to make 2,646,000 wallets, make fabric use more efficient, and reduce capacity.

Suppose that in 2012 Gerhart makes 2,646,000 wallets, uses 1,764,000 yards of
fabric, and reduces capacity to 2,700,000 wallets, incurring a cost of $8,370,000 for this
capacity.

Required

a) Calculate the partial-productivity ratios for materials and conversion

(capacity costs) for 2012, and compare them to a benchmark for 2011 calculated
based on 2012 output.

b) How can Gerhart Company use the information from the partial-
productivity calculations?
1) (a) Gerhart Company’s partial productivity ratios in 2012 are as follows:
2)
Direct materials partial productivity = Quantity of output produced in 2012
Yards of direct materials used in 2012
= 2,646,000
1,764,000
= 1.5 wallets per yard
Conversion costs partial productivity =Quantity of output produced in 2012
Units of manuf.capacity in 2012
= 2,646,000
2,700,000
= 0.98 wallets per unit of capacity
Input
Direct materials = 2,000,000 yards ÷ 2,520,000 units = 0.79365 yards per unit × 2,646,000 units
= 2,100,000 yards

Manufacturing capacity = 3,307,500 units of capacity, because manufacturing capacity is fixed, and
adequate capacity existed in 2011 to produce year 2012 output.

Output
Direct materials partial productivity = Quantity of output produced in 2012
Yards of direct materials that would have been used
in 2011 to produce year 2012 output
= 2,646,000
2,100,000
= 1.26 wallets per yard
Conversion costs partial productivity = Quantity of output produced in 2012
Units of manufacturing capacity that would have
been used in 2011 to produce year 2012 output
= 2,646,000/3,307,500
= 0.8 wallets per unit of capacity

(b) Gerhart Company management can use the partial productivity measures to set targets for
the next year. Partial productivity measures can easily be compared over multiple periods.

Problem (Total factor productivity)

Refer to the data for Problem above. Assume the fabric costs $3.70 per yard in
2012 and $3.85 per yard in 2011.

Required

c) Compute Gerhart Company’s total factor productivity (TFP) for 2012.

d) Compare TFP for 2012 with a benchmark TFP for 2011 inputs based on
2012 prices and output.
 (a) Total factor productivity for 2012 using 2012 prices = Quantity of output produced in 2012
Costs of inputs used in 2012 based on 2012 prices
=2,646,000
(1,764,000 $3.70) + (8,370,000)
= 0.1776 units of output per dollar of input
(b) 2012 price of capacity = Cost of capacity in 2012
Capacity in 2012
=$8,370,000
2,700,000 units
= $3.10 per unit of capacity
Benchmark TFP = Quantity of output produced in 2012
Costs of inputs that would have been used in 2011
to produce 2012 output at year 2012 input prices
=2,646,000
(2,100,000 x $3.70) + (3,307,500 x$3.10)
=0.1468 units of output per dollar of input
Using year 2012 prices, total factor productivity increased 21.0% [(0.1776 − 0.1468) ÷ 0.1468] from
2011 to 2012.

II. MANAGEMENT OF THE CLIENT RELATIONSHIP

The organization needs an outsider, a third party , who can objectively review the
organization's system and procedures, and helps its management identify managerial and
operating problems, recommend practical solutions to these problems, and assist in their
implementation when necessary, this refers to Management consultant. A qualified by
education, experience, technical ability, and temperament to advise or assist businessmen on a
professional basis in identifying, defining, and solving specific management problems involving
the organization, planning direction, control, and operation of a firm. Since he is not an
employee of the organization. Note: Management Consultancy is not limited to CPA. Any
professional may practice the same as long as he has the required competence, experience and
technical ability to solve business problems.

A. SELLING OF CONSULTANCY SERVICES

New business opportunities for most professional service organization are
created through activities in four major areas. These are: (1) Present client
activities; (2) Non-client relationships; (3) Public relations or promotional activities;
and (4) Potential client activities. The specific marketing efforts in each of these
areas may be performed by individuals, by a firm as a whole or by any segment
within the firm such as an officer or industry group. A CPA undertaking these
marketing activities should ensure that the Code of Ethics for Professional
Accountants in the Philippines are observe at all times
1. Present Client Activities

In the professional environment a start-up situation means providing

service to a single client or small group of clients and almost always preceded by
a decision to "start" a public accounting practice or consulting services. As far as
present clients are concerned, the business development activities are usually
directed towards client

a) Retention

Some believe that it is easier to keep a current client than to attract

new one. Emphasis in new client acquisition over client retention
overlooks the fact that most professional firms have grown through
referrals from satisfied clients and by meeting full range of present
client requirements some activities that can be undertaken to
monitor client satisfaction

(1) Gather evaluation of personnel and performance through

client satisfaction letters, surveys or meetings.

(2) Ensure that regular contact with significant clients is

maintained by more than one key personnel. 3. Develop client
service planning which includes detailed plans for providing
additional services to key clients.

b) Expansion of services

Another purpose of present client marketing is the so-called "cross-

marketing" of services to current clients. For instance, many
accounting firms learned that clients using accounting and auditing
services also needed tax planning expertise.

c) Generations of referrals for new business

Generation of referrals Satisfied current clients are best single

source of referrals for additional clients of professional service firms.
They should develop and cultivate service and personal relationship
with clients that will encourage referrals when an opportunity
arises. Current clients should be made aware of the firm's full range
of services through brochures, newsletters, seminars and other
programs.
 2. Non-client Relationships

These referral services oftentimes are fellow professionals who serve

mutual clients. E.g. accountants, Lawyers, investment bankers, insurance
brokers etc.

3. Promotional and Public Relation Activities

Because professional services are highly personal, most authorities

agree that promotional activities should be viewed primarily as vehicles for
creating and enhancing awareness of the firm. The following might be
considered representative * Institutional advertising * Newsletters * Seminars
and workshops * Press Relations *Symposia and panels

It is also important to remember that all public relations/promotional

activities should be designed to establish contacts that can be enhanced on a
personal basis as a follow up to the activity. Seminars remain a popular tool for
many professionals because they offer an opportunity to meet a large number
of people and to demonstrate indirectly the quality of the firms people and
expertise. Newsletters and Press relations This type of promotional activities has
also a large impact in order to promote consulting service for it is being
distributed to general public by means of radio, television and also through
internet.

Institutional Advertising ,Symposia and panels This type of advertising

not often happens because this needs additional expenses to the company.

B. CLIENT BEHAVIOUR AND OBJECTIVES

Client broadly, is the organization that engages the services of the consultant.
For example, a client may be private business enterprise, a governmental agency, a
hospital, a hotel or a university. In a more specific and immediate sense, however, the
term client refers to the individual(s) with whom the consultant has the initial and/or
ongoing contracts.

The main danger is of creating expectations that cannot be met. It is particularly

easy to 'over-promise' something when selling the project. If this occurs, the recipient
will be disappointed whatever is delivered, even though the recipient might have been
highly satisfied with the same outcome if what is delivered had been slightly 'undersold'.
Such disappointments will be hard to overcome in the future.
 Managers are busy people. The will have many commitments. The consulting
exercise will be only of the projects they are involved in. Events move on. As the project
progresses, the manager's priorities will change. The opportunity to develop new
business opportunities will loom. It is possible, even probable, that the importance of
the consulting project to the manager will diminish. If the manager's interest is to be
maintained, the consulting team must keep the managers informed and motivated
about the project.

Client’s objectives also deals about their expectations that these enumerated
must be observe in the consultant:

1. Personal Characteristics. In performing management advisory services, a

practitioner must act with integrity and objectivity and be independent in mental
attitude.

2. Competence Engagements are to be performed by practitioners having

competence in the analytical approach and process, and in the technical subject matter
under consideration.

3. Due Care. Due professional care is to be exercised in the performance of

management advisory service engagement.

4. Client benefit. Before accepting an engagement, a practitioner is to notify

the client of any reservations he has regarding anticipated benefits.

5. Understanding with the client. Before undertaking an engagement, a

practitioner is to inform his client of all significant matters related to the engagemen.

6. Planning, Supervision, and Control Engagements are to be

adequately planned, supervised and controlled.

7. Sufficient Relevant Data. Sufficient relevant data is to be obtained,

documented and evaluated in developing conclusions and recommendation.

8. Communication of Results. All significant matters relating to the results of

the engagement are to be communicated to the client.

C. ASSESSING OF CLIENT NEEDS

Asking these seven questions will enable you to rapidly assess any situation to
ensure that you address the right problem immediately.
1. The Diagnostic Question

The first question is obvious: What is the problem? However, answers

will almost always be symptoms and not causes. Great performance consultants
know this, and they begin a series of root cause analysis questions that are
framed by asking why, using the 5 Whys technique. When a solution fails to
deliver value, it can often be traced to a lack of problem definition. So it is
imperative to ask questions that reveal potential root causes.

2. The Metric That Matters Question

If you want your clients to give you time, money, and resources (also
known as getting their buy-in), align their problems and any potential solutions
to a metric that matters to them. Metrics that matter are always a variation of
time, quality, cost, and output that managers are held accountable for through
reporting requirements and performance measures. Continue the conversation
by asking, “Which metrics are you trying to positively affect?” This will enable
you to use the metrics to evaluate the success of the solution you eventually
deliver.

3. The Performance Gap Question

Like a person experiencing chest pains, clients will speak in terms of

symptoms. As expert diagnosticians, it is our job to conduct an initial diagnosis
to identify potential solutions. You can accelerate right past symptoms by
asking, “What are employees doing that they shouldn’t be doing?” or “What are
employees not doing that they should be doing?” The answers to these
questions provide a trail of evidence enabling you to rapidly assess what is
actually happening compared with what is perceived to be happening.

4. The Timing Question

The longer a problem persists and the higher the frequency of its
occurrence, the more urgent it is likely to be for your client. Gain valuable
insight regarding the timing of the problem by asking, “When did it first begin?”
and “When does it occur?” Answers reveal who else may be adversely affected
by the problem. They also point out where there is potential for unintended
consequences to occur if changes are made to the current way of operating.
 5. The Location Question

Problems occur in a specific part of a process, in a specific geographic

location, within a business unit, within a specific region, and so on. Get a clear
picture of the location by asking, “Where does the problem occur?” Clients
often will not know the details you seek. This is a great opportunity to identify
others who can provide the information and sell the benefits of using
observations and other data-gathering methods to ensure that the right
problem is addressed.

6. The Scoping Question

Many training and consulting professionals fail to determine the

potential size and impact of the problem. A simple way to initially assess the
scope is by asking, “How big is the problem in measurable terms?” The
measurable terms should be linked to the metrics that matter question. Help
the client determine just how much the problem is adversely affecting the
metrics cited for improvement earlier in the conversation.

7. The Powerful Closing Question

During a rapid needs assessment, every master consultant knows there

is highly valuable information left unshared by the client. They tap into their
clients’ minds by asking, “What questions should I have asked that I haven’t?”
This question triggers the client to share any last minute details that are
relevant to finding a solution.

D. SCOPING OF ASSIGNMENTS AND PROJECTS

Project Scope Management

Scope is the description of the boundaries of the project. It defines

what the project will deliver and what it will not deliver. Scope is the view all
stakeholders have from the project; it is a definition of the limits of the project.
Project Scope Management includes the processes required to ensure that the
project includes all the work required, and only the work required to complete
the project successfully. Project scope management’s primary concern is with
defining and controlling what is and is not included in the project.

Scope management consists of a series of tasks and steps designed to

help the project manager manage the project deliverables, the steps are:

a) Defining the Scope

 b) Assigning Scope Work

c) Verifying the Scope

a) Adapting the Scope

1. Defining Project Scope

Defining the project scope is identifying all the work that the project will
accomplish in order to achieve its final goal. The work includes the activities
identified in the Logframe and the activities the project team has identified that
will be necessarily to support the project, these includes activities such as team
capacity building, stakeholder management, meetings and project presentations
and all significant activities that will consume project resources.

d) Project Scope Statement

The Project Scope Statement is used to develop and confirm a

common understanding of the project scope among key project
stakeholders. The scope statement should include the project
justification, a brief description of the project outputs and its intended
benefits, a brief summary of the project major constraints, assumptions
and dependencies with other projects or external initiatives and a
statement of what constitutes project success. This document is used as
a communications tool with all project stakeholders to ensure all have a
common perception of what the projects is and what it is not, it is also
used to communicate any approved changes made to the project.

e) Work Breakdown Structure

 Once the Scope Statement has been completed, the next step to
further define the scope is to break it down to its most manageable
pieces. The purpose is to develop a complete list of all the tasks that are
needed by the project, this list will be used to determine the resources
requirements such as the time, skills and cost estimates. It is also used as
a baseline for performance measurement and project monitoring, and
supports the clear communication of work responsibilities. The output is
the Work Breakdown Structure or WBS. The Project Work Breakdown
Structure is an outcome oriented analysis of the work involved in the
project and defines the total scope of the project. It is a foundation
document in project management because it provides the basis for
planning and managing the project schedule, budget and requests for
any changes or deviations from plans. The WBS is developed in the form
of an inverted tree structure, organized by objectives; it looks like an
organizational chart which helps visualize the whole project and all its
main components.

The WBS is a hierarchy of all project work, it is a vertical

breakdown, moving from the project goal to the tasks or subtasks. This
decomposition process allows a good level of confidence in estimating
the final project schedule and budget. It shows all the work that needs to
be accomplished. At the top level is the project ultimate goal, the second
level contains the project objectives, the third level has the project
activities and depending on the size and complexity of each activity the
WBS may contain a fourth level that describe the tasks.

f) Project Scope Change Control Plan

An important component of scope management is the scope

change control plan, which specifies the process to: submit any changes
to the projects scope, identifies the people with responsibility to approve
changes and the role of the manager to assess the implications on the
schedule and budget from the requested changes. The purpose of this
plan is to minimize scope creep which is the natural tendency of all
projects for increasing the project scope without compensating the other
project constraints. Components of this plan include:

(1) Project Change request form. This is a form that is used

to record any request for changes to the project scope coming from any
project stakeholders, specially the donor or the beneficiaries. It records
the justification for the change, the person requesting the change, date
and the justification of why the change is needed.
 (2) Scope Change analysis. The analysis is done to determine
the impact to the project by the change, in some cases the change may
be a new activity in substitution of another activity with no impact to
the schedule or budget, in other cases is the addition of activities that
will increase the project budget and lengthen the schedule. No change
should be included in the scope statement or WBS unless an analysis is
made and an approval is obtained.

(3) Scope change approval. The project will determine the key
stakeholders for approving any changes; these include the Donor, for
changes that will affect the budget or schedule, the organization
management for changes that affect the strategies, methodologies or
approaches the organization has identified for the project; and the
beneficiaries for changes that may affect the initial agreements or
expectations of what they need from the project. All changes are to be
approved before any work is started.

(4) Update project scope statement and projects plans.

Once the change has been approved the project must update any
relevant project plans, including the schedule, budget, the scope
statement, the logframe and the WBS. Failure to update this
information may lead in the project not recognizing the change or
making the necessary actions to implement the change.

(5) Communicate changes to scope. Once all plans have been

updated the project manger needs to communicate to the project team,
stakeholders, and management the changes and its implications to the
project. The scope of the communication will depend on the
significance of the change. All the above documents will need to be
revised as the project makes progress and new information or insights
are gained that leads to changes to the original assumptions the project
was originally designed. An efficient Scope Change Control plan should
have a balance between flexibility and control. If the process is too
difficult, either valuable changes will be lost or the team will ignore the
rules. If the process is too easy, then many changes may be applied with
insufficient thought given to their merits and consequences.

2. Assigning scope work

 Once all the work needed to accomplish the project has been identified
the next step in the scope management process is to assign the work to the
people responsible for it. Inputs to this step include the WBS, the project
schedule that identifies when each activity or task should occur, and the
Resource Requirements Matrix (RRM), which identifies the skills required to
accomplish the activities, this matrix us used to select the project team.

Elements of this step include the actions to assign scope work to the
project team via the Work Assignment Sheet, and assign work to consultants via
the Scope of Work document; part of this process includes collect information
on the work completed, get and acceptance of the work by the beneficiaries.

a) Work Assignment Sheet

All activities or tasks identified in the WBS need to be assigned

to a person responsible for its deliverable. Scope of work is assigned
based on the different cycles of phases of the project and follows the
project schedule. A project team member may get on a monthly or
quarterly basis a list of work that needs to be accomplished during that
period, these may include analysis of information, meetings with
stakeholders, training session or developing a report.

The assignment sheet should include the date of the assignment,

the expected completion date, the beneficiaries involved and the
locations of the activities and any other resources needed to accomplish
the activity or task. Depending of the skills and authority of the team
member the assignment could be at the objective level or at the task
level, but should include a brief description of the instructions or
approaches selected to carry out the activity. For example a technical
professional may be assigned to accomplish an objective using gender
based approaches, while a field worker may be assigned a task to collect
baseline data on a specific community using detailed instructions and
forms.

b) Scope of Work (SOW)

 Scope if work is a similar process, but in this case the work is
assigned to a contractor or consultant hired to deliver a specific work for
the project, The Scope of Work or SOW usually follows a Terms of
Reference (TOR) that helped define the objectives and select a
consultant to do a specific work that required skills not present in the
team or organization. For more on this subject see Chapter 12 Resource
Management). At the completion of the work the consultant should
present a document that informs on the progress made and the results
and outputs generated by the SOW.

3. Verifying the work

This step refers to the actions required to ensure that the work
delivered meets the specifications of the project and it is used as a guarantee
that the project is delivering the promised quality in its work. At the end of the
assignment the team members or consultants, report the activities
accomplished, any deviations from the plan, changes or modifications to the
activity and any information that will help update the project plan.

a) Scope Verification

Scope verification deals with obtaining the stakeholders’ formal

acceptance of the completed project work scope and the goods or
services delivered. Verifying the project scope includes reviewing
deliverables to ensure that each is completed satisfactorily. If the project
is terminated early, the project scope verification process should
establish and document the level and extent of completion. Scope
verification differs from quality control in that scope verification is
primarily concerned with acceptance of the deliverables, while quality
management which is primarily concerned with meeting the quality
requirements specified for the deliverables. Quality management is
generally performed before scope verification, but these two processes
can be performed in parallel.
 Verification comes from three sources, the project manager or
project person assigned with this responsibility verifies and checks that
the work planned has been delivered according to specifications; the
project beneficiaries who are the ultimate judges of the quality of
services or goods received by the project; and the project donor who in
the process of project evaluation or project audit verifies once again the
project deliverables.

Scope verification includes activities such as inspections,

measuring, examining, and verifying to determine whether work and
deliverables meet requirements and product acceptance criteria. Scope
verification is also called reviews, product reviews, audits, and
walkthroughs. In some development sectors, such as engineering or
health, these different terms have narrow and specific meanings. For
example verification may include the inspection that a community
health center received the equipment in the quantities and quality
approved and agreed by the beneficiaries.

b) Work Acceptance

Once the scope verification confirms that the work meets the
requirements of the project, the next step is to obtain acceptance of the
work; work acceptance is needed in cases when the beneficiary needs to
give testament that the work or activities delivered by the project were
achieved as agreed, and that they met the needs of the beneficiaries
within the scope of the project.

c) Change Requests

Out from the delivery of work and the verification of work,

requests to change the scope may occur based on new insights gained
on the project, changes in the original conditions or assumptions of the
project or discovery of new opportunities. Changes are not necessarily
made to correct a situation but could also include changes in approaches
or strategies that will impact the project scope. Changes can originate
from the project team, beneficiaries, organization’s management, or the
donor. In any case the project manager should use the Project Scope
Change Control Plan defined to manage the process or change request,
obtain approval and incorporate and communicate the changes.
 The Project Manager should pay a great deal of attention to
managing scope. Allowing unauthorized changes to the scope usually
means added costs, greater risks and longer duration. Many projects fail
due to poor scope management. Very often it is a large number of small
scope changes that do the damage, rather than the big, obvious ones.
The successful Project Manager knows that rigorous scope control is
essential to deliver projects on time and on budget.

The decision whether to accept or reject a change would be

based on a number of rules. The fundamental logic to recommend the
acceptance of a change should be:

(1) The change unavoidable, external factors uncontrollable by the

project such as legal, social or economical factors require a change in
the scope.

(2) The change increase the overall benefit to the community,

taking into account any impact on the costs, benefits, timescales and
risks

(3) The Project Team is able to make such a change, the skills and
knowledge are in the team to successfully implement the change The
Scope Change Plan defines various responsibilities and authority levels
so that routine changes can be dealt with efficiently but significant
changes receive due management attention. Where a proposed change
affects the scope of the project it should be seen as a decision requiring
approval from the donor of the project. Where scope is not affected, it
may be agreed that the Project Manager has the power to approve the
change within certain authority limits.

4. Adapting the scope

Once changes to the project scope have been approved, the project
needs to update all project plans and communicate these changes to the
stakeholders and inform the way the changes will impact the project. Adapting
the scope is a step whose sole function is to incorporate changes that will
provide improvements to the project and increase the chances for its success.
No changes to the project scope should be incorporated that do not add value
and that have not been approved.

a) Incorporate approved Scope Changes to baseline

 Approved change requests affecting the project scope can
require modifications to the WBS and WBS dictionary, the project scope
statement, and the project scope management plan. These approved
change requests can cause updates to components of the project
management plan including the schedule, budget, risk and quality plans.

An integral part of project change is the documentation which

protects the project team from any audits or evaluations that will
question the validity of a change. The project should keep all approved
changes as part of the projects information system and properly
communicate all affected parties of the change. The project should
maintain a project Log of all request for changes including approve and
not approved changes with their justifications. This log will become
handy during the project audit or evaluations at the end of a major
phase or at the end of the project.

Update and Communicate Approved Scope Statement and WBS

All project plans affected by the change needs to be updated and the
change communicated to the stakeholders, failure to do this may result
in an oversight to incorporate the changes in the day to day work of the
project which may lead to an increase in the project risk, beneficiary
dissatisfaction or donor formal complaints to the organization.

For every change the change request form should incorporate a

list of the project plans that need to be updated and communicate, the
most common plans that need to be updated are: The Scope Statement
and WBS, the project schedule and the project budget.

Communication of the scope changes would be directed to the

people, or parties that will be most affected by the change, the
communication can occur right after the approval of a change when the
change has significant implications to the project or communicated in
the regular communication cycles the project has established to keep all
project stakeholders updated.

It is responsibility of the project manager responsibility to

communicate scope change status and resolution to project team
members and other appropriate stakeholders through the methods
established in the Communication Plan, including the project Status
Report.

b) Register Lessons Learned

 At the end of each project phase or at the completion of a
significant milestone the project needs to capture the lessons learned in
managing the project scope. This include the causes or reason why
something did not went according to plans, the causes that contributed
to success, and the actions the project took to deal with an issue or
challenge. The idea behind is to capture the lessons right after an action
and not wait until the end of the project; the project should incorporate
a practice that builds a discipline and a routine to capture lessons
continuously and creates spaces for the project team to reflect on the
lessons and incorporate them in the next phases or cycles of the project.

E. QUALIFICATION OF BUSINESS OPPORTUNITIES

No matter how one begins in the consultancy profession, one will need
connections that reach into areas of prospective business.

1. A number of consultants could trace most of their current

business to the following sources.

a) Business contact gains throughout the business community

b) Speeches in professional and business organizations

c) Books written from experience

d) Referrals from speeches, books and articles

e) Word-of-mouth referrals

2. Some suggestions on how business contacts can be established

and made to grow are:

a) Join at least three organizations that offer regular meetings and the
opportunity to interact with peers in the industry. The Philippine institute of
Certified Public Accountants, Management Association of the Philippines,
Employers Association of the Philippines, Financial Executives of the Philippines
and other trade associations are excellent organizations because they provide
seminars, workshops and breakfast meetings with influential authorities, books,
videos, libraries and reference libraries that can be accessed by phone or
internet. The dues are reasonable and the benefits are considerable.
b) Create a reference library that includes marketing resources and other
publications that will assist the the consultant in marketing, implementation and
even travel.

c) Establish a circle of informal advisors, and make it a point to contact

them once a month. The “inner circle” should include other consultants, clients,
vendors (e.g printer or graphic artist), professionals and others whose
judgement can be relied upon such as friends, community leaders and business
associates.

d) Establish collaborations with other consultants. Some consultations are

asked to subcontract projects by other firms. Networking with other consulting
firms in an effective marketing tool in that it is free and unlimited. The
practitioner can put other consultants in his mailing list, keep them apprised of
what he is doing and develop those relationship. If the consultant sees other
consultants as colleagues and the sources of opportunities, sooner or later one
of them will pass your name along for a project that they cannot handle. This is
long term marketing, but it’s a niche that shouldn’t be ignored.

e) Mail to clients items of interest. Some consultants do this by direct mail,

while many by e-mail. Relevant and/or provocative information are sent to
appropriate clients. For current clients, sending then these information may be
done but nonactive clients probably could be communicated with monthly.

f) Mail to prospective client items of interest. This move is considered very

vital because it is a cost-effective way of keeping the consultant’s name in front
of potential clients. This should be done within the boundaries of the Code of
Ethics.

g) Publish articles in relevant periodical. Publishing articles provide

tremendous credibility and this effect should be an ongoing one.

h) Offer probono work for community, government and nonprofit

organizations. Be ready and willing to offer help to organizations that provide
charitable, civic and other services to the community you belong. For example,
the Philippine Chamber of Commerce may need consultations to work with small
businesses. This work provides the opportunity for the consultant or practitioner
to gain visibility, meet potential contacts and demonstrate how the consultant
can successfully apply his/her expertise and will be interacting with other
community leaders many of whom are executives in local and national
businesses.
 i) Accept speaking engagements at trade associations and conferences.
Even if speaking is not an income source for the consulting firm, it should be a
publicity technique. It will provide opportunity to address hundreds of business
leaders who may later on request for more information and may be new sources
of consulting engagement.

j) Create a website. Presence on the internet is a wonderful, passive

marketing effort. The consultant’s site should feature user-friendliness; graphics
that are relevant and helpful and most of all, an interactive nature. Provides a
free “article of the month” for downloading. Create a dynamic presence that
impels visitors to return on a regular basis.

k) Business listing in phonebook / yellow pages. If one has a business

phone line, he automatically get listed for free. But for a modest amount, one
can use bold print and some descriptive lines. This is money well spent for your
prospects and business expansion.

F. PROPOSALS/BIDS

1. Proposal Development Process

A Proposal Development Process helps organizations respond to

buyer Request for Proposals (RFP). Having an established proposal development
process should help ensure organizations develop the best proposal possible
that satisfies all the buyers needs and requirements. Organizations that
understand the customer’s procurement process, proposal evaluation
methodology, governing regulations, standards and laws have an inherent
advantage over their competitors.

Notional Steps in a Proposal Development Process

Step 1: Form Your Team

The most important step is gathering the most knowledgeable and

effective team members to write the proposal. The key players include the
Program Manager (PM), who runs the actual project if awarded, and the
Proposal Manager who is responsible for executing the proposal development
process.

Step 2: Plan
 A plan should address how the Proposal Content should be developed
and the main proposal requirements to achieve. The plan should list these
proposal requirements in a Compliance Matrix. An effective plan that gives a
timeline on when items are due and roles and responsibilities to all proposal
team member.

Step 3: Develop the Outline

Each volume team leader is responsible for developing a Proposal

Outline for the assigned proposal volume. This outline adds details to the High-
Level Outline such as customer requirements, specific descriptions, Work
Breakdown Structure (WBS) and administrative approach to each volume and
section.

Step 4: Hold Formal Kickoff Meeting

The kickoff meeting is where the Program Manager and Proposal

Manager officially start proposal development efforts with all team members.
This is the best opportunity to make sure all team members are informed of
their responsibilities and overall goals of the proposal.

Step 5: Prepare Story Board

Proposal storyboards should be developed using brainstorming and

storyboarding techniques. The volume team leader should be responsible for
planning and holding a brainstorming session with the volume technical writers.
Together, each section of the proposal volume should be divided into sub-
sections. For each sub-section, supporting themes, key selling points, and
visuals should be developed.

With the information obtained through the brainstorming session,

technical writers should then complete a storyboard for each assigned section
of the volume. The volume team leader should be responsible for deciding the
storyboard walk-through schedules with the team. The volume team leader
must approve the storyboards before passing them to the proposal project
manager for final approval. Once the storyboards are complete and approved
by the proposal project manager, the volume team leader must ensure that the
information is added to the annotated proposal outline on the server.

Step 6: Pink Review

Each volume leader should brief their story board to the Proposal
Manager. It’s the responsibility of the proposal manager to ensure that story
board satisfies the requirements in the RFP and complements the overall story
of the proposal
Step 7: Prepare First Draft

The first rough draft is prepared by team members and reviewed by

each volume manager.

Step 8: Prepare Second Draft

The second rough draft is prepared by team members and reviewed by

the Project Manager.

Step 9: Red Team Review

The proposal project manager should arrange to have a Red Team

Review of the technical, management, and cost volumes. This review should be
scheduled towards the end of the proposal writing but should still provide
sufficient time for the Red Team Review comments and recommendations to be
evaluated and incorporated into the proposal. Details for the review should be
forwarded when complete Every volume team leader should be responsible for
having the volume material ready for review should be prepared to make
presentations on the assigned volume.

Step 10: Submit Final Draft

Make sure the proposal is submitted to the exact submittal terms in the
RFP. Always have a backup plan for submitting just in case something goes
wrong or missing.

2. The Bid Process

a) Identifying the work and procurement strategy.

b) Procurement notice (offer).

c) Prequalification.

d) Shortlisting and refining.

e) Invitation to tenders.

f) Evaluation of tenders.

g) Interaction with bidders.

h) Awarding the contract.

 i) Contract terms and conditions.

j) Managing and reviewing.

G. CONTRACTS AND IPR

1. Definition of Contract

A consultant contract is a legal agreement between a consultant and a

client, by means of which the client buys the services of the consultant.
Consultant contracts may also be called consultant agreements, consulting
contracts, consulting agreements, consultancy contracts and consultancy
agreements.

2. Key Elements of a Consulting Contract

a) Description

The description of the contract details the scope of the project

and the purpose of the contract. The description generally answers
several questions, such as what work the consultant will perform, what
the company wants and what problem needs to be solved. This section
also details the method used by the consultant to attend to the
company’s needs.

b) Schedule

The schedule element of a consulting contract details the project

deadline and any timelines agreed upon for completing deliverables or
key tasks. This element also deals with the repercussions for any late
work on the consultant's part and details when the project will be
recognized as completed and the acceptance criteria of the completion.

c) Ownership

The ownership element details what party will own the rights to
the final work; the client or the consultant. Generally, in this section of
contracts dealing with various types of property, such as creative work,
intellectual property or copyrights, the contract states that any work
performed is “work for hire,” and is solely owned by the client.
 d) Payment

The consultant’s fee details all relevant information about the

payment, such as the amount and form of the payment and any
opportunities for incentives or bonuses. This element also details the
basis for charging, any budget restrictions, the definition of expenses
and if the consultant charges a retainer, flat-rate consultant fee, hourly
fee, day rate or a fee based on completion of the task.

e) Warranty

The warranty element details any warranties given by the

consultant to the client regarding the consultants work, such as the
client has a certain amount of days to notify the consultant of any errors
or problems with the work. This section also details any costs associated
with the warranty.

f) Confidentiality

The confidentiality clause details the terms of confidentiality the

consultant must uphold. This clause is essential as consultants may learn
a client’s trade secrets while working for the company. The
confidentiality clause typically defines the legal penalties a consultant
will face for telling any confidential information about the company.

g) Cancellation

The cancellation terms detail what actions are necessary for either
party to cancel the contract as well as what penalties are faced if either
party cancels the contract. This information includes notice
requirements, fees for canceling and the mechanism for canceling.

3. Benefits of Developing a Written Consulting Contract

a) Define the Scope of Work

 When selling your consulting services to a new client, you are
likely to discuss a variety of projects that could be tackled. In fact, the
client's wish list can quickly grow quite extensive. However, when it
comes time to perform the job, it helps to have a clearly defined scope of
work by outlining what tasks will be tackled in the contract. Having this
written description of the services you will perform prevents
disappointment or confusion about what the client may or may not have
been expecting you to handle.

b) Upsell Your Services

A written contract is not only a legal document, it can also be

used as a marketing tool. For example, take time to verbally review the
terms of the agreement with your customer before he signs it,
particularly the portion defining the scope of work. Sometimes a client
will decide to broaden the services performed, once he sees the details in
writing.

Another upsale opportunity occurs upon the expiration of the

contract. Prior to a project being completed, or shortly before the
consulting agreement is slated to end, meet with the customer. Discuss
opportunities for new projects and how it will help his business, and
review the potential for extending your services for the next phase of
work now that initial results have been realized.

c) Identify Expectations and Client Responsibilities

There's more to a contract than simply regurgitating the

legalese of a broiler plate document. A well-written contract goes
beyond legal terms and conditions to clearly state the responsibilities of
both the consultant and the client. What results does a client expect
from the consultant? Does the client understand that certain
performance issues and time frames are dependent upon the client
providing specific information in a timely manner? During the course of
the relationship, should there be a misunderstanding about results, or
the time in which a project was completed, you can easily refer back to
the written document and quickly resolve the issue.

d) Establish the Relationship

 When you work on a freelance basis, a written agreement can
be an important method for establishing that you are operating as an
independent contractor. This could prove especially beneficial to the
client should he need to prove to the IRS that you are not an employee.
In addition to stating that fact clearly in the contract, you should also
detail where, how and when the work is to be completed and make it
clear that, as a consultant, the client does not dictate those terms.

4. Definition of IPR

A right that is had by a person or by a company to have exclusive rights

to use its own plans, ideas, or other intangible assets without the worry of
competition, at least for a specific period of time. These rights can include
copyrights, patents, trademarks, and trade secrets. These rights may be
enforced by a court via a lawsuit. The reasoning for intellectual property is to
encourage innovation without the fear that a competitor will steal the idea and
/ or take the credit for it.

5. Types of Intellectual Property

a) Patent

A patent is a title which provides its owner the right to prevent

others from exploiting the invention mentioned in the patent. It does not
allow by itself making or selling an invention but it rather gives the right
to exclude others from making, using, selling or importing the patented
invention.

b) Trademark

A trademark is a sign by which a business identifies its products

or services and distinguishes them from those supplied by competitors. It
can be distinctive words, marks or other features. Its purpose is to
establish in the mind of the customer a link between all the different
products and/or services that the company offers, and then distinguish
them from those supplied by competitors.

c) Design

Designs are concerned with the features, the appearance of a

part or the whole product:

(1) two-dimensional features such as patterns, lines and/or colour

 (2) three-dimensional features such as shape, texture and/or
surface of an article are protectable by design right if they are not
dictated by functional considerations.

d) Copyright

Copyright is a legal term describing rights given to creators for

their original literary, musical or artistic works which allow them to
control their subsequent use.

6. Intellectual property rights strategy

A good intellectual property rights strategy should include both an
analysis of competitors and an analysis of risks, and take into account the
company’s long-term commercial objectives. An intellectual property rights
strategy can also include a plan which sets out the extent to which and the way
in which the company is prepared to defend its intellectual property rights in
the event of infringement, e.g. pirate copying of one of the company’s products
or the unlawful use of copyright-protected material. Many consultants within
the field of intellectual property rights have a business concept of helping
companies to draw up an intellectual property rights strategy and provide
services which include applying for, acquiring, maintaining and defending a
company’s intellectual property rights.

7. IP Ownership
When an individual is providing services to a business, questions of IP
ownership will inevitably arise. The parties involved must always first turn their
minds to whether the worker, be they a consultant or otherwise, is engaged as
an employee or a contractor.

Where IP arises from a person’s employment, or engagement as a

contractor, the issue of ownership will be different. As a consultant, you can
either be engaged as an employee or contractor and so it is important to know
your IP rights and protect them.

Where an employee creates IP in the course of their employment, the

employer generally owns that IP. An employee can claim ownership if he or she
creates the IP outside the normal course of their employment duties. The scope
of work the employee is engaged to complete should be clearly stated in the
employee’s contract to avoid uncertainty about IP ownership.

8. Assignment and Licensing

If you license your IP, you retain ownership and grant the other party or
parties the right to use the IP on the terms outlined in the License Agreement.
The license can be exclusive, which means you can only grant one and may not
 use the IP yourself for the duration of the license, or it can be non-exclusive. You
can also grant a license and retain a right to use the IP yourself. Whatever the
case is, you should charge fees to reflect appropriately the limitations placed on
the license.

An assignment is different to licensing, as you are permanently

transferring ownership of your IP. Many employment agreements specifically
provide that all IP created during employment is an assignment to the business.
If you are a contractor and decide to enter into an assignment agreement, you
may consider charging a higher fee as you will only receive one payment.

H. NEGOTIATING THE ENGAGEMENT

1. Ascertain real problem and what is required to reach a solution.

2. Identify end product of the assignment.

3. Agree on the Role to be performed by the CPA

4. Agree on the basis for establishing and billing fees

5. Confirm understanding in writing

I. MANAGEMENT OF CLIENT/CONSULTANT RELATIONS

1. Management of Client or Consultant Relations

The consultant in any consulting engagement must maintain two key

relationships.

a) Between the consultant and the problem-solving process

b) Between the consultant and the client.

 A requisite to the successful conduct of the problem-solving process is a
harmonious relationship with the client.

The client broadly is the organization that engages the services of the
consultant. A client may be:

a) Private business enterprise

c) Governmental agency

d) Hospital

e) Hotel

f) University, etc.

The term “client” refers to the individual(s) with whom the consultant has the
initial and/or ongoing contracts. This persons (or persons) discusses the engagement
and its process with the consultant and, at the completion of engagement, accepts the
final report from the consultant. Generally, the client may be one or more of the higher-
level managers or administrators of the enterprise. While in smaller-scale engagements,
the client may consist of middle or lower-level managers.

Relationships must also be established by the consultant with other personnel

of the client’s organization such as

a) Administrators and employees who have information and facts concerning

the problem situation
b) Managers and employers who are likely to be affected by the
implementation of solution to the problem situation.

c) Managers and employees who are assigned to perform the tasks under the
consultant’s guidance.

d) Managers and employees who are assigned to serve as liaison on a daily

basis between the consultant and higher-level managers or other
organizational units with support system.

2. How to Develop and Maintain Harmonious Relationship

To some employees of the client organization, the entry of a “consultant” could
be threatening and create a feeling of insecurity, and hostility. It is very important that
the client or entity understands that the consultant is hired in order to create value for
the organization. The motivation to call in a consultant arises because managers have
identified a project that they think will benefit the organization but they recognize that
they are not in a position to deliver it themselves. The reasons for their inability to fill
these gaps, the consultant is offering to complement and develop the role profile within
the organization.

The consultant from the very start of an engagement, should aim to develop a
sense of trust and openness. The presence of consultant in an organization oftentimes
creates widespread anxiety and fear. Specific measures should be taken to counteract
this anxiety, fear and possibly hostility.

Harmonious relationships may be achieved through both written and oral

means. A written announcement, prepared jointly by the client and the consultant,
should be issued as soon as the terms of engagement are settled. The announcement
should be addressed to all employees and managers within the organization who are
affected by the problem situation

Oral presentations should be made at meetings. Several presentations will

probably be needed, since each presentation should involve a relatively small group of
employees and managers from one of the affected areas. At these meetings, the
consultant should be introduced and should be willing to answer questions concerning
the engagement. While certain questions may affect organization managers attending
the meetings, polite and earnest responses from the consultant can establish incipient
feelings of good will.

Harmonious relationship can also be established through a round get-

acquainted interviews. The consultant should obtain appointments to meet all the
managers who are affected by the problem situation. During a typical interview, the
consultant should chat about the responsibilities and difficulties of the manager’s
position. The consultant’s main goal during this initial interview should be to establish
friendly relationship.

During the engagement, the consultant should reflect an attitude of helpfulness.

The consultant may maintain an “open-door” policy, welcoming the questions and
communications of anyone at any time. The consultant can also arrange meetings for
discussion of the problem and provide written summaries of meeting.

A final suggestion concerns the solution to the problem. The consultant should
not directly tell the client what decision to make. Instead, the consultant should
diplomatically guide the client toward the solution. The consultant might provide copies
of articles that discuss solutions by other organizations having similar problems. The
consultant might right memoranda summarizing the key factors and relationships in the
problem situation, as well as the possible alternative solution. The consultant might also
chair “brainstorming” sessions concerning the problem situation.
3. Managing Client Expectations
An important aspect of maintaining harmonious relationship is managing the
expectations that being developed. The main danger of creating expectations is that it
cannot be met. It is particularly easy to ‘over-promise’ something when selling the
project. If this occurs, the recipient will be disappointed whatever is delivered, even
though the recipient might have been highly satisfied with the same outcome if what id
delivered had been slightly ‘undersold’.

When communicating what the consulting project can do for the business, the
following should be observed:

a) Be clear as to what can be offered.

b) Be positive about what can be offered, but be realistic.

c) Be honest about the limitation of the project.

d) When talking about limitations put them between positive statements.

Credibility relates to the recipient’s perception of the sender’s ability to satisfy

the expectations being generated. In other words; can this person (or organization) can
make this happen? Credibility is provided through evidence. This will center on the
following:

a) Is what is being offered viable?

e) Does the proposer have the expertise/ability to make the offer?

f) Are the necessary resources in place?

g) How satisfactory have previous experiences been?

h) What is the proposer’s reputation?

Confidence occurs if the level of credibility suggests that expectations will be

achieved to a degree that satisfies concerns about those outcomes not being achieved.
The ability to consider and manage expectations, to develop credibility and engender
confidence is crucial in getting people to take actions that they believe to have some
element of risk. Credibility comes from satisfying realistic expectations. Expectations are
managed through the consulting proposal. If expectations are unrealistic at the start
credibility will be hard to manage later.

4. Maintaining Client Interest

As the project progresses, the manager’s priorities will change. The opportunity
to develop new business will loom. If the manager’s interest is to be maintained, the
 consulting team must keep the manager informed and motivated about the project.
Keep communicating and keep the consultant-client rapport.

J. ISSUES FOR CLIENT IN THE EFFECTIVE USE OF ADVISERS AND

CONSULTANTS

K. ISSUES FOR SOLE PRACTITIONERS IN CLIENT RELATIONSHIPS

According to Greiner and Metzger (1893): “management consulting is an
advisory service contracted for and provided to organizations by specially trained and
qualified persons who assist, in an objective and independent manner, the client
organization to identify management problems, and help, when requested, in the
implementation of solutions.”
1. Benefits of a consultant:

a) A consultant can see the problem as outside of it. Hence, his opinion is
free from organizational limitations and biases.

b) Seeing the problem at the micro level and then at the industry level and
then globally.

c) With consultant, the horizon of knowledge expands. And it becomes

easier to solve the problem.

2. Issues in consultant-client relationships:

a) Entry and contracting

An initial discussion that can lead to an OD consulting contract

can occur in various ways. An executive has some concerns about his or
her organization and the consultant has been recommended as someone
who could help. After a brief description of some of the problems and
the discussion of the extent to which the consultant’s expertise is a
reasonable fit for the situation, an agreement is made to pursue the
matter. During the face-to-face meeting, the consultant explores with
the potential client some of the deeper aspects of the presenting
problem. Furthermore, in the first meeting, the consultant and the client
probably begin to sort out what group would be the logical starting
point for an OD intervention. If the problems appear to lend themselves
to OD intervention, the consultant describes how he or she usually
proceeds in such circumstances.

b) Defining the client system

The question of who the client becomes an important issue in

consultant-client relationships. We think a viable model is one in which,
in the initial contract, a single manager is the client, but as trust and
confidence develop between the key client and the consultant, both
begin to view the manager and his or her subordinate team as the client,
and then the manager’s total organizations as the client.

c) The trust issue

 A good deal of the interaction in early contacts between client
and consultant is implicitly related to developing a relationship of
mutual trust. The consultant’s trust of the client may be starting at
neutral. The consultant will be trying to understand the client’s motives
and will want to surface any that are partly hidden.Trust and resistance
problems also center on what we call the “good guy-bad guy syndrome.”
Confidentiality must be maintained if trust is to be maintained, as
implied in Weisbord’s ground rules for contracting. Even unintentional
errors can be disastrous to consultant-client relationship.

d) The nature of the consultant’s expertise

Partly because of the unfamiliarity with organization

development methods, clients frequently try to put the consultant in the
role of the expert on substantive content, such as on personnel policy or
business strategy. The OD consultant needs to resist the temptation of
playing the content expert and will need to clarify his or her role with the
client when it becomes an issue.

FOUR GOOD REASONS SHOULD ENCOURAGE THE OD CONSULTANT TO

AVOID FOR THE MOST PART THE EXPERT ROLE:

(1) The expert role creates a kind of dependency that typically does
not lead to internal skill development.

(2) The expert role almost inevitably requires the consultant to

defend his or her recommendations.

(3) The expert role has to do with trust. Any impression that the
consultant is making recommendations inimical to members of client
groups puts the consultant in the role of an adversary.

(4) The expert role has to do with confidence. If the consultant goes
very far in the direction of being an expert on substance in contrast to
process, the client is likely to expect more and more substantive
recommendations, thus negating the OD consultant’s central mission
which is to help with the process.

e) Diagnosis and appropriate intervention

 Another pitfall for the consultant is the temptation to apply an
intervention technique he or she particularly likes and that has produced
good results in the past, but may not square with a careful diagnosis of
the immediate situation. The consultant should do what he or she can
do, but the intervention should be appropriate to the diagnosis, which
requires an intensive look at the data.

f) Depth of intervention

A major aspect of selecting appropriate interventions is the

matter of depth of intervention. In Roger Harrison’s terms, depth of
intervention can be assessed using the concepts of accessibility and
individuality.

By accessibility Harrison means the degree to which the data are

more or less public versus being hidden or private and the ease with
which the intervention skills can be learned.

Individuality means the closeness to the person’s perceptions of

self and the degree to which the effects of an intervention are in the
individual in contrast to the organization.

TWO CRITERIA FOR DETERMINING THE APPROPRIATE DEPTH OF

INTERVENTION (HARRISON):

(1) Intervene at a level no deeper than that required to produce

enduring solutions to the problems at hand

(2) Intervene at the level no deeper than that at which the energy
and resources of the client can be committed to problem solving to
change.

g) On being absorbed by the culture

 One of the many mistakes one can make in the change-agent
role is to let oneself be seduced into joining the culture of the client
organization. Even though one needs to join the culture enough to
participate in and enjoy the functional aspects of the prevailing culture –
an example would be good-natured bantering when everyone is clear
that such bantering is in fun and means inclusion and liking –
participating in the organization’s pathology will neutralize the
consultant’s effectiveness. Internal change agents may be even more
susceptible to absorption by the prevailing organizational culture that
are external change agents. As long as they work with people and units
that have considerable “political changes” from their own unit, their
objectivity may not be any more vulnerable.

h) The consultant as a model

Another important issue is whether change agents are willing

and able to practice what they preach. The consultant also needs to
check on meaning, to suggest optional methods of solving problems, to
encourage and support, to give feedback in constructive ways and to
accept feedback, to help formulate issues, and to provide a spirit of
inquiry.

i) The consultant team as microcosm

The consultant-key client viewed as a team, or consultants

working as a team, can profitably be viewed as microcosm of the
organization they are trying to create. Unresolved and growing conflict
between two consultants can paralyze an intervention. Or simple lack of
attention to team maintenance matters can produce morale problems
that reduce spontaneity and creativity in planning sessions or in
interacting with the client system.

j) Action reserch and the od process

A related issue is whether the OD process itself will be subject to

the ongoing action research being experienced by the client system. The
issue of congruency is, of course, important, but the viability of the OD
effort and the effectiveness of the consultants may be at stake. Unless
feedback loops relate to various interventions and stages in the OD
process, the change agents and the organization will not learn how to
make the future OD intervention more effective.

k) The dependency issue and terminating the relationship

 If the consultant is in the business of enhancing the client
system’s abilities in problem solving and renewal, then the consultant is
in the business of assisting the client to internalize skills and insights
rather than to create a prolonged dependency relationship. An issue of
personal importance to the consultant is the dilemma of working to
increase the resourcefulness of the client versus wanting to remain
involved, to feel needed, and to feel competent. Another dimension of
the issue arises, however, when the consultant senses that his or her
assistance is no longer needed or could be greatly reduced. For the
client’s good, to avoid wasting the consultant’s own professional
resources, and to be congruent, the consultant should confront the issue.

l) Ethical standards in od

Louis White and Kevin Wooten see five categories of ethical

dilemmas in organization development practice stemming from the
actions of either the consultant or client or both.

TYPES OF ETHICAL DILEMMA:

(1) Misrepresentation and Collusion

(2) Misuse of Data

(3) Manipulation and Coercion

(4) Value and Goal Conflicts

(5) Technical Ineptness

m) Implications of od for the client

(1) To enlarge database for making management decisions

(2) To expand the influence process

(3) To capitalize on the strengths of the informal system and to

make the formal and the informal system more congruent

(4) To become more responsive

(5) To legitimize conflict as an area of collaborative management

(6) To examine its own leadership style and ways of managing

(7) To legitimatize and encourage the collaborative management

team, inter-team, and organizational cultures