2

PAGE The Indian Institute of Planning & Management, New Delhi

THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT

NEW DELHI

THESIS ON

analysis of cost benchmarking at jcbSUBMITTED TO:

Prof. sumanta sharma

dean (projects)

Under the guidance of:

prof. Vijay Kr. Boddu

Mr. yashvir chaudhary (internal)

(external)

SUBMITTED BY:

induALUMNI ID NUMBER: ds/9/11-f-289Batch: PGP/ss/2009-11ABSTRACTCost benchmarking is a widely used technique with a range of different applications. Traditionally, it has often been carried out for the general information of company managers or analysts. In such cases, data may be collected for a wide range of individual indicators, and the conclusions drawn from such analysis are usually relatively subjective. This type of analysis can be useful as a general management tool, and also to draw attention to specific areas of performance where a firm might appear to be lagging behind its competitors. These studies provide meaningful inputs to regulators decisions, and therefore can have a potentially significant impact on the prices that regulated firms are allowed to charge. In the worst examples of regulatory practice, the results from benchmarking studies have entered the regulators price cap calculations in quite formulaic ways, while in other cases regulators have used the results of benchmarking analysis alongside other efficiency indicators to reach a partly subjective (but more balanced) view of future operating costs. The core economic theory underlying the formulation of an industry cost frontier supposes that the minimum costs a producer in that industry can achieve, when using the most efficient technology available, are a function of its output and the prices of its factor inputs. The cost function is based on the behavior of a representative cost-minimizing producer who is able to control the amount of each input used subject to producing a given output.Completion letter from external guide

SIGNATORY LETTERThis is to certify that the thesis titled Analysis of Cost Benchmarking at JCB prepared by Ms. Indu for the award of degree in Master of Business Administration (MBA - PGP/SS/2009-11 batch) from Indian Institute of Planning & Management under my guidance. It is an original piece of work based on primary as well as secondary data.

This work is satisfactory and complete in every respect. I wish her all the success in her future endeavor.

Yashvir Chaudharythesis topic approval Letter sent over mail

From: ThesisTo: indu eduSent: Thu, 24 Nov 2011 11:56:21 +0530 (IST)Subject: Thesis Topic Approval (F) SS 09-11

DearIndu,

This is to inform that your thesis proposal on Analysis of Cost Benchmarking at JCB, to be conducted under the guidance of Mr. Yashvir Chaudhary is hereby approved and the topic registration id number isDS/09/11-F-289Make it a comprehensive thesis by ensuring that all the objectives as stated by you in your synopsis are met using appropriate research design; a thesis should aim at adding value to the existing knowledge base.

You are required to correspond with us by sending the thesis final draft toProf. Vijay Kr. Boddu atboddu.vijay@iipm.eduPh.-0124-3350714 before the thesis submission.

NB:1) A thesis would be rejected if there is any variation in the topic/title from the one approved and registered with us.

2) The candidate needsto handwrite at least 1200 to 1500 words on the summary of thesis at the time of viva.

Regards,Prof .Sumanta SharmaDean (Projects)IIPM

Sumanta.sharma@iipm.eduPhone:+91 0124 3350701 (D)+91 0124 3350715 (Board)

approved Thesis synopsis

Name:INDU

Section:SF-3

Batch:SS 2009-11

Phone Number:9991110339, 9999960737

Email Address:Indu.edu@indiatimes.com

Specialization:FINANCE (SCM)

Desire Area of Student to do research: Finance Title of the thesis: Analysis of Cost Benchmarking-JCBProblem definition/Hypothesis:

Bench marking is one such innovative cost control tool which basically involves measuring an organizations operation, products, and services against those of its competitors.

Research Objective:

To identify the factors affecting cost management practices at JCB To identify the different levels of cost benchmarking at JCB To examine the process of cost benchmarking at JCB To identify the key cost variables in cost benchmarking at JCB To examine the effectiveness of cost benchmarking system at JCBIntroduction to the area of research: Cost benchmarking is a method used to compare total cost of a process, product, or manufactured good from receipt of materials to completion, test, and shipping; against costs incurred by other businesses who manufacture similar products. Cost benchmarking is not limited to manufacturing either, it can be used to determine cost-competitiveness in services sectors as well, or even software development. Basically JCB that uses a base material or idea and produces goods from that base material or idea can compare total cost of production. The benchmarking compares this against other companies' similar offerings and serves to show market competitiveness and expose areas where cost controls may be implemented in order to improve competitiveness.

Research Methodology:

1. Secondary Data:

The relevant data that would be collected through secondary research will be collected from:

Websites through internet

Published articles in the newspapers, magazines, journals, and

Books.

2. Primary Data:

The primary data to be collected for the purpose of doing the research will be through

Personal interview and discussion with Analysts3. Tools Used:

Websites

Published newspaper and magazine articles

Journals

Books

Company Reports

Excel Modeling

Scope of the work:

Numerous innovative cost control practices have been evolved during the last two decades. The entire gamut of the cost accounting system has been broadened to equip and assist managers to better serve the needs of the customers and manage the firms business processes that are used to create customer value. The vital aspect here is providing customer value for less cost than its competitors, thus enhancing the competitiveness and profitability of the firm. These innovative cost management tools help a firm to establish a competitive advantage by providing more customer value for less cost than its competitors. The three strategic areas that give the firm the extra competitive advantage over its rivals are the Time Based Performance, Quality and Cost Control. So this research work will present the cost management process of JCB and assist them about how to become more competitive in the current market place by implementing more effective cost benchmarking process.

Justification of Choosing the topic:

Cost and productivity, such as overheads and labour efficiency, total cost per unit, or per ton, cost related to inventories and supply chain, marketing cost are some of the key variables which can be bench marked with the market leaders and effective results can be produced. It forces an organization to set goals and objective based on external reality. It is neither a panacea nor a strategy but it is an important tool which will bring organizational efficiency and effectiveness if prudently used.

Summer training detailsI did my internship in Unitech Ltd. is in the field of infrastructure and real estate development. It comprises of group of 352 corporate and 22 joint ventures. Its estimates capitalization rates in the relevant micro market for the subject properties are in the range of 9.5% - 11%. Its wacc rate assumed 17%. I joined this company as a fresher because before this I have no idea how to do work an organization. I worked in finance department under Miss NEHA MITTAL (financial manager of finance department) I worked over on bank reconciliation statement, prepared sales deeds statement and prepare a project report on several projects. Its recently launched projects are Bhubaneshwar (kolkatta), Anthea floors (gurgaon), Birch court(Chennai), Gardens (Mohali)etc. I submitted my report on COMPARATIVE ANALYSIS STUDY OF HDIL (MUMBAI), DLF AND UNITECH LTD.

Details of external Guide:

Name: YASHVIR CHAUDHARY Contact no.- 9540099700

Qualification: Mechanical Eng., B.TECH, MBA

Company: JCB

AcknowledgementIt is well-established fact that behind every achievement lays an unfathomable sea of gratitude to those who have extended their support and without whom the project would never have come into existence.

I express my gratitude to Indian Institute of Planning & Management, New Delhi for providing me an opportunity to work on this thesis as a part of the curriculum.

Also, I express my gratitude to Prof. Sumanta Sharma and Prof. Vijay Kr. Boddu on the completion of my project and I am very thankful to Mr. Yashvir Chaudhary from my external mentor for his excellent guidance and kind cooperation throughout the thesis work.

Content

Abstractiicompletion letter from external guideiiithesis Topic approval letter sent over mailivApproved thesis synopsisv

Acknowledgmentix

1. Introduction 1

2. company profile173. research objective & methodology334. literature review355. finding and analysis526. recommendation597. conclusion608. Bibliography61INTRODUCTION

Indian Construction Equipment Sector:The Indian Construction Equipment sector has an estimated market size of US$ 2.4 2.6 billion for the year 2007. The industry has been growing due to the large investments made by the Government and the private sector infrastructure developments. The prospects of the construction equipment industry look attractive with a projected investment of US$ 320 billion in the infrastructure sector over the next few years. The Indian market is catered by about 200 domestic manufacturers (small, medium & large). Though the Indian construction equipment industry is a fraction of the global market, whose size is over US$ 75 billion, it has been growing at an average of 30 per cent annually compared to the global growth of 5 per cent. India is one among the top 10 markets for construction equipment and is one of the key international market. The growth in this industry is expected to be primarily due to investments in infrastructure, investments by the government in the form of external borrowings and internal accruals by Public-Private-Partnerships (PPP) model. Indian firms are strengthening their existing operations for catering to the growing domestic demand and are also planning to expand to tap overseas markets. At the same time international majors have ambitious plans for India.Sector Composition and Size:The following is the sector breakup of the construction equipment industry in India as of 2009. Product consumption constitutes the bulk of the segment with around 56 per cent while the unorganized sector contributes to around 15 per cent. Unorganized players are more prevalent in the relatively less technology intensive material handling, material preparation and concrete equipment segments.

The imports market is estimated around US$ 375 million. Of these, the earthmoving, excavation and hauling equipment categories command around 25 per cent. Imported used equipments, which include high end hydraulic mobile cranes, excavators, motor graders, vibratory compactors comprise a negligible 0.4 per cent of the total construction equipment market.

The exports of Indian construction equipment industry were estimated at US$ 35 million in 2009-10. The growth in exports in the period 2005-06 to 2009-10 was around 30 per cent. The potential exports market for construction equipment from India is projected to be around US$ 100-120 million by 2013. Spare parts revenues range anywhere from 2029 per cent of the total sales for representative companies and are predominant in tunneling and drilling equipments. Services revenues have been higher for global players at around 1120 per cent in comparison to 28 per cent of Indian players. The construction equipment industry in India has more than 200 players; however, the top 6 players occupy about 60 per cent of the market. The following are players and their contribution to the Indian construction equipment industry.Industry Structure:

India produces the entire range of construction equipment for different applications. The industry can be broadly classified under the following categories:

Earthmoving equipment

Road construction equipment

Material handling equipment

Tunneling and Drilling equipment

Construction vehicles

The following is the industry structure and the categories involved in the construction equipment industry: In terms of size, earthmoving equipment constitutes the biggest segment, accounting for nearly 57 per cent of the overall equipment market. Material Handling equipment and tunneling and drilling equipment follow with 13 per cent and 12 per cent respectively. The performance of each segment is discussed separately under various heads.

Earthmoving Equipments:The earthmoving equipment market in India is estimated at about US$ 1.4 billion. The predominant sub-segment in this is excavators, which account for just over half the market. Backhoes account for 26 per cent and loaders for another 5 per cent share. The prime driver for earthmoving equipment is mining activities and construction industry. Within these industries, the key demand drivers going forward are likely to be road construction, urban infrastructure, irrigation, real estate. construction and mining.

Earthmoving Equipment Segment

Total Market Size ~ US$ 1.4 billion

Excavators:Excavators are extensively used in many roles such as digging of trenches and foundations, demolition, general grading/landscaping, heavy lifting (e.g. lifting and placing of large concrete pipes), river dredging, mining and brush cutting with hydraulic attachments. Excavators come in a range of capacities and are usually classified on the basis of tonnage. The lower end excavators, referred to as mini excavators, find greater usage in urban infrastructure development and road development. The heavier duty excavators are used in mining and heavy construction. In India, the level of technology of the equipment manufactured is at par with international standards with some exceptions being the limited usage of electronic controls and hydraulic systems and engines adhering to the latest emission norms. The excavator market in India was around US$ 733 million in FY09 with a total of about 4455 units being sold. There is a sizeable market for used equipment as well. Excavators have registered a 30 per cent CAGR (Compounded Annual Growth Rate) for the past four years. Given the long term nature of Indias infrastructure development plans, similar growth rate is expected in future as well. High end excavators incorporating modern technology are witnessing faster growth compared to the traditional low end excavators. In terms of tonnage, 618 tonne excavators have grown at a CAGR of 9 per cent while 1822 tonne excavators have registered a growth of

23 per cent CAGR during the period of FY04-10. The 22-50 tonnes excavators have seen a CAGR of 35 per cent and over 50 tonnes have registered 19 per cent CAGR in the same period. Increase in the sales of smaller sized excavators is largely driven by irrigation projects. Increased privatization of mining and capacity augmentation in cement industry has propelled the growth for larger excavators. The key players in this sector are Telcon, L&T - Komatsu, Volvo, CAT and JCB. Telcon is the market leader with about 50 per cent of the market.

New Entrants Gaining Share:

A product range catering to the entire basket of equipment requirement of the customer is one of the differentiators in the market place. Indian players have the advantage of long experience in the market, leading to deep relationships with buyers, well spread out service networks and a deep understanding of the customers current and emerging needs. Multinationals that are relatively new entrants have strengths in the areas of technology, presence across the spectrum of equipment and providing end-to-end solutions. New technology enables better quality of service, low cost of ownership (low fuel consumption, less downtime, ease of maintenance, etc.), better resale value and reliability

even in case of overuse or abuse of the equipment. Presence across the spectrum enables the firm to present a one-stop shop to customers. End-to-end solutions to customers help in retaining customers over the entire equipment usage cycle, right from financing through service and maintenance, till resale / disposal. Based on these strengths, over the last few years, relatively new entrants into the Indian market have been gaining share at the expense of the traditional market leaders.

Backhoe:

The backhoe loader, consisting of a tractor, front shovel/bucket and small backhoe in the rear is a versatile piece of equipment and is therefore often the only piece of heavy equipment brought onto small to medium landscaping projects. A backhoe can duplicate the work of a bulldozer, front end loader and excavator. The backhoe loader also has the advantage of being driven directly to the different job areas as opposed to other specialized machines which need to be towed into the site and require external power sources. India is the second largest market for backhoe loaders in the world with a market size of approximately US$ 358 million. The market has been growing at a rate of close to 37 per cent CAGR over last four years. Going ahead growth is likely to be at least 11 per cent CAGR over the next few years. Most industry players however expect much faster growth (around 30-40 per cent) in the near term. JCB India is the leader in this segment with a share of over 70 per cent. Other players include Telcon, L&T, Caterpillar and Terex. While technology plays a key role especially for lowering operating costs by making the machine more fuel efficient, it is not perceived to be as important for backhoes as it is for excavators. With more players and increased competition, price competition may increase. The drivers for this market have been the housing and urban construction. Backhoes are used for all construction applications and hence have a very high utilization for renters. Backhoes are perhaps the only market in India amongst construction equipment that have reached a stage of maturity and scale where exports could be considered. Loaders:

Loaders are used mainly for uploading materials into trucks, laying pipes, clearing rubble, and digging. The flexibility of usage is low as compared to a backhoe and loaders

are largely used as complimentary products for material re-handling in construction and mining applications. The total market for wheeled loaders was approximately US$ 64 million in FY06 with a total of about 1321 units being sold and has been growing at a CAGR of about 41 per cent over the last 4 years. The growth is expected to continue at 10 per cent CAGR over the next few years. As in the case of backhoes, faster growth of about 20-30 per cent is expected in the near term. Unlike excavators, the growth in loaders is greater in the lower capacity categories (15T), Volvo is a significant player. Most of the customers for loaders are first time buyers and this is the reason for huge sales of lower end loaders. Just as it is for excavators, a complete range of products and comprehensive maintenance and service support are becoming the critical success factors for players in the industry. The demand of loaders is from increased global demand for iron ore mining activities in the country.

Construction equipment & Vehicles:

Equipment in this category typically find multi purpose application for various construction activities. Some of the construction equipment used are road rollers, concrete equipment, mixers, hot plant mixers, stone crushers, compactors, pavers, pneumatic tyre rollers (PTR), dumpers, tippers, trailers, and others. Compactors account

for majority of the market share of road construction equipment. There are two main types of compactors - Tandem Vibratory Rollers (TVR) and soil compactors. These are used for compaction of asphalt and soil respectively primarily in road construction. The road construction equipment market share was around US$ 175 million in FY 06. Of this, the compactor market (TVR and Soil Compactors) was about US$ 48 million, with a total of about 1076 units being sold (516 TVR and 560 soil compactors). Reconditioned equipment account for about 5 10 per cent of this segment The segment has seen erratic growth over the last 3 years owing largely to delays in the road infrastructure development plans of the Government. However, the CAGR over the last 3 years has been healthy at 20 per cent. Going ahead, growth is likely to be at least 11 per cent CAGR over the long term. Demand for road construction equipment will be driven not only by road construction activities but also by irrigation, power projects and other construction activities. Some of the major players in this sector are Ingersoll Rand (IR), Escorts Construction Equipment Limited (ECEL), L&T and Greaves. These companies largely compete on price though there are differentiators around service support. The market is now led by Ingersoll Rand with around 37 per cent market share in the TVR and soil compactors market. Both ECEL and L&T account for about 22 per cent each in the TVR and soil compactor market. Greaves occupies fourth position with a share of 17 per cent a large part of which it has gained in the last year (increase in share from 9-17 per cent between FY09 and FY10) mainly at the expense of IR. Tunneling & Drilling equipment are primarily used for mining, irrigation, construction (road, ports, airports, railways, power, etc.), urban infrastructure, and pipeline infrastructure. The product range in this category includes Rotary / DTH drilling, hammer track drill, boring equipment, and demolition equipment. Bharat Earthmovers Limited (BEML) & Caterpillar lead the market of construction vehicles, consisting primarily of dumpers & dozers. The competitive advantage of construction equipment lies on technological superiority and a wide product portfolio. Its also important to maintain strong relationships with the large, organized buyers.

Material Handling Equipment:

The chart below explains the different material handling equipment and their market share. Pick and carry cranes is the largest segment with 27 per cent share of the US$ 325 million material handling equipment market. Slew cranes, crawler cranes and tower cranes together account for another 24 per cent. Forklifts have 12 per cent share.

Pick & Carry Cranes:

Pick and Carry cranes provide wide range of applications and high cost economies in material handling requirements. Some of the typical uses include loading, unloading, moving, shifting and erecting material. The pick-n-carry crane segment in India has an estimated market size of US$ 87 million (3698 units), and these cranes comprise 27 per cent of the overall material handling market and over 50 per cent of the cranes market. The market has grown at a CAGR of 72 per cent in volume terms in the last 3 years. Going forward, the growth rate is expected to be in the range of 15-20 per cent over the next few years. The key drivers are the construction and industrial sectors. Within the construction sector the key demand driver is urban infrastructure (expected investment growth of 13 per cent annually). Within industrial applications, the key demand drivers are steel and power industries (growing at around 9 per cent annually). The major players in this segment are ECEL and Actions Construction Equipment (ACE). While ECEL has been the traditional leader in this segment, ACE has been gaining share. A third player Omega has been able to capture 2.5 per cent of the market within one year of commencing production. The barriers of entry in this segment are low. The first movers have the added advantage of established sales, service and distribution network along with an existing component supplier. Other cranes prevalent in India primarily consist of slew cranes, crawler cranes and tower cranes. These are higher value, more sophisticated cranes than pick-n-carry cranes and are typically used for heavier duty work. The market for slew cranes is about US$ 35 million (300 numbers) with about US$ 13 million (180 numbers) of this being accounted for by imported used equipment. Within slew cranes, yard cranes are the most prominent, comprising 65 per cent of all new slew cranes. The crawler cranes market is about US$ 25 million (210 numbers) with imported used cranes comprising about US$ 9.5 million (110 numbers). Tower cranes are about US$ 15.6 million (175 numbers). In volume terms other cranes comprise about 16 per cent of the overall cranes market in India, but in value terms these cranes account for almost 47 per cent of the market. While slew cranes have witnessed a CAGR of 34 per cent over the last 2 years, tower cranes have grown at 71 per cent CAGR in the same period. Industry sources indicate a growth rate of between 15-20 per cent over the next few years. Demand for other cranes is driven primarily by the construction and industrial sectors. Within industrial applications, the key demand drivers going forward are likely to be the power, refinery and mining sectors. With increasing average scale of infrastructure and construction projects, the growth rate of slew (specifically yard/rough terrain) and tower cranes is likely to surpass the average growth rate of the overall cranes segment. With improved road networks by 2008-09, demand for truck mounted cranes may also witness a spike. In the slew cranes segment, used imports dominate the market, with Tractors India Limited (TIL) being the market largest domestic player. TIL and ECEL have a market share of around 32 per cent and 6 per cent in terms of volumes. Telcon is the sole player in the crawler cranes segment with a share of approximately 50 per cent by volume (balance is accounted for by used imports). Shirke Potain is the market leader in the Tower crane category with 50 per cent market share followed by ACE at 25 per cent market share. ACE plans to widen its product portfolio in the cranes segment through manufacture of Truck Mounted and Tower cranes. This segment has healthy growth prospects.

Forklifts:

Fork lifts are low tonnage vehicles used to transport materials stored in pallets, within limited spaces. Most forklifts are in the 1 tonne5 tonnes range, though equipment up to 20 tonne are available. The flexibility and speed these equipment offer make them ideal for repetitive material handling tasks especially in restricted areas like warehouses and yards. There are 3 types of forklifts based on fuel input - Diesel, Liquefied Petroleum Gas (LPG) and Battery. Each variant finds application in different industries based on the load

factor determined by the power inputs, pollution etc. The current market is approximately of 2150 units per annum for forklifts with a market size of approximately US$ 38 million.

The segment has been on a 20 per cent growth trajectory year-on-year and is estimated to grow at a CAGR between 10-20 per cent. Diesel powered forklifts comprise a bulk of the market size at 83 per cent and are likely to drive growth going forward. Demand for forklifts will be driven primarily by new capacity creation and increased automation in the manufacturing and logistics (warehousing) sectors. Forklifts contribute to making the end user industry organized and less labour intensive (in material handling).It has also increased the levels of palletization and containerisation. Godrej and Voltas are the two major players having around 80 per cent market share, with Godrej having 48 per cent share. The forklifts market is highly price sensitive. Technology is presently not seen as a differentiator, but with the end user industries becoming more organised and competitive, it would become increasingly important.

Key Growth Drivers & User Industries:

The construction equipment industry is primarily driven by three key sectors:

Construction

Mining

Manufacturing

Construction Investment:

The Indian construction industry is worth US$ 145 billion. The sector represents the second largest economic activity after agriculture and employs around 18 million people. Construction investments account for 11 per cent of GDP and around 50 per cent of the gross fixed capital formation, and are expected to grow to the tune of US$ 182 billion at a CAGR of 8 per cent over the years of FY 2008-2010. Construction equipment accounts for around 524 per cent of the total cost incurred in any construction project. The construction industry is a primary demand driver for earthmoving and road construction equipment. Increasing mechanization of industry and construction facilitates greater penetration of construction equipment. Recent Government policies around tax benefits for infrastructure ventures have boosted equipment usage. Construction investment is composed of three components - infrastructure investment, real estate construction investment and industrial construction investment. Each of these components is discussed separately in the following sections.Infrastructure Investment:Investments in infrastructure can be classified under investments for roads, ports, airports, railways, pipelines, irrigation and waterways and urban infrastructure

Roads:

Significant investments are expected to be made in this sector over the next 5 years. The National Highway Authority of India (NHAI) has drawn up detailed plans for highway development as part of the National Highway Development Program (NHDP). The total potential orders are around US$ 55 billion over the next five years. While the initial impetus has been given by the investment in the Golden Quadrilateral (GQ) and North-East-West-South (NEWS) corridor, once these arterial roads are completed, further growth will be fuelled by the second level of roads

viz. state highways and rural roads. Further, the maintenance of these newly developed roads in addition to the increased maintenance expenditure on existing roads will fuel further growth. Construction equipment constitutes around 22 per cent of the total investment in road construction.

Ports:

The projected investment for improving major and minor ports in India is around US$ 18 billion over the next four to six years. A major portion of the investment for improving the major ports is expected to come from private players. Privatization has been regarded as one of the key avenues for increasing investments in this segment. Another pertinent factor is the expected growth in the cargo handled at all Indian ports, which is expected to grow at a CAGR of 8 per cent. These developments would drive demand for material handling equipment such as cranes for handling cargo and construction equipment for infrastructure development in the ports.

Airports:

Domestic passenger and international inbound and outbound traffic is expected to increase with increasing investments and trade activity necessitating improvement in infrastructure at airports. The estimated investment for developing airports is around US$ 9 billion over the next 3 to 4 years of which the estimated cost for upgrading the major airports in the four metros is around US$ 2.2 billion. Privatization of a few of these airports is expected to attract bulk of the investments.

Railways:

The investment in this segment is expected to be focused on relaying of tracks and improving the existing network. The Government has awarded US$ 820 billion of projects to private firms.Pipelines:

Gas discoveries are the key drivers for laying pipelines. An estimated 18,671 Km. of domestic oil & gas pipeline network is expected to be laid between 2004 and2008.

Irrigation and water supply:

After road, irrigation is one of the key sectors expected to contribute significantly to the total infrastructure investment over the next 3 years. Estimated US$ 10.1 billion of investment is expected in irrigation and water supply projects over the period 2006-10. Over 300 new irrigation projects have been taken up or are in the process of being taken up by the Government of India as part of the 10th plan to increase the irrigation potential. A total of US$ 208 million has been released under the program during the current year, in addition to US$ 1 billion allotted for repair, renovation and restoration of 20,000 water bodies with a command area of 1.47 million hectares.Increased emphasis by some state governments such as Gujarat and Andhra Pradesh on irrigation and water supply projects is expected to drive growth. Over the next 5 years the Andhra Pradesh government alone has envisaged an investment of US$ 8.8 billion. 60 per cent of the total investment on irrigation is on construction and around 21 per cent of this construction investment is on construction equipment. The total investment planned in irrigation are as follows:

Urban Infrastructure:

Development of urban infrastructure has been a priority area for the Government of India, and the Government has been encouraging private participation in this segment. Investment in urban infrastructure is expected to double from US$ 5.4 billion in 2005 to nearly US$ 10.9 billion in 2010. The Central Public Health and Environmental Engineering Organisation (CPHEEO) has estimated the requirement of funds for 100 per cent coverage of the urban population under safe water supply and sanitation services by the year 2021 at US$ 41.2 billon. Estimates by Rail India Technical and Economic Services (RITES) indicate that the amount required for urban transport infrastructure investment in cities with population 100,000 or more during the next 20 years would be of the order of US$ 49.3 billion. To catalyse development of urban infrastructure, 100 per cent FDI under the automatic route has been permitted in housing and urban infrastructure projects. An estimated US$ 13.8 billion of investments is expected in the next 5 years in mass road transport systems, drinking water supply, sewage treatments, etc. There would be a need for removing huge infrastructure bottlenecks that impact the growth of large Indian cities. The investments are expected through Government and private participation. The estimated CAGR over the next 3 years is 12.9 per cent. These investments would lead to demand for backhoe loaders, excavators and cranes.

Real Estate Construction Investment:

The segments which come under real estate construction include residential construction; commercial construction and retail construction. The real estate segment is expected to contribute around 61 per cent of total investments in construction over the next 3 years. Over 90 per cent of the real estate developed is residential and the rest comprises of commercial and retail. It is estimated that India needs another 16 billon square feet of construction by 2010. These include 15.9 billion square feet of residential real estate for a projected 17 million new houses, 160 million square feet of commercial real estate and 212 million square feet of retail real estate.COMPANY PROFILE

J.C. Bamford:

"Our mission is to grow our company by providing innovative, strong and high performance products and solutions to meet our global customers' needs."

JCBBam ford Excavators Limited is global construction, demolition and agricultural equipment company headquartered inRochester,United Kingdom. It is the world's third-largest construction equipment manufacturer. It produces over 300 types of machines, including diggers ("Backhoes"), excavators, tractors and diesel engines. It has 18 factories across Asia, Europe, North America and South America and its products are sold in over 150 countries. It is a family-owned company and was founded in 1945 byJ. C. Bam ford, after whom it is named. In the UK "JCB" is often usedcolloquially as ageneric descriptionfor mechanical diggers and excavators and now appears in theOxford English Dictionary, although it is still held as atrademark. Over the years, the companys pioneering spirit and reputation has led to huge success: JCB now leads the world in backhoe loaders and telescopic handlers and manufactures a range of over 300 machines with some of the finest engineering facilities in the world. With a range that covers compact products, including mini excavators and skid steer loaders, and mid-range machines such as the iconic backhoe loader and the Load all telescopic handler. JCB also produces tracked and wheeled excavators articulated dump trucks and wheeled loading shovels. As well as the innovative Fastback tractor, the record breaking Diesel ax engine, light compaction equipment and a range of consumer and power products. All of these products are designed with the needs of a diverse range of industries in mind waste and recycling, ports and airports, forestry, quarrying, aggregates, road building, demolition, rail and muck shifting, to name but a few. JCB has also made significant inroads into defense, providing high-speed excavators and other specialist products.History:20th Century:

The company was founded byJoseph Cyril Bam fordin October 194 in Uttoxeter, Staffordshire, England. He rented a lock-up garage 12 feet by 15 feet. In it, using a welding set which he bought second-hand for 1 fromEnglish Electric, he made his first vehicle, a tipping trailer from war-surplus materials. The trailer's sides and floor were made from steel sheet that had been part ofair-raid shelters. On the same day as his son Anthony was born he sold the trailer at a nearby market for 45 (plus a part-exchanged farmcart) and at once made another trailer. At one time he made vehicles in Eckersleys coal yard in Udometer. The first trailer and the welding set have been preserved: see image gallery.

In 1948 there were six people working for Bam fords company, and it made the firsthydraulictipping trailer in Europe. In 1950, he moved to an old cheese factory inRochester, still employing six. Then, a year later, he began painting his products yellow. In 1953, the first backhoe loader was launched, and the JCB logo appeared for the first time. It was designed by Derby media and advertising designer Leslie Smith. In 1957, the firm launched the "hydra-digger", incorporating the excavator and the major loader as a single all-purpose tool which was useful for both the agricultural as well as construction industry, which JCB grew with. In 1960, JCBs hydraulic tractors entered theNorth Americanmarket, proving a long lasting success. JCB became, and still is, the brand leader in the world. By 1964 JCB had sold over 3,000 3C backhoe loaders. The next year, the first 360 degree excavator was introduced, the JCB. In 1969, Joseph Bam ford was awarded theCBEfor Services to Export. In 1975 he retired. In 1978, theLoad allmachine was introduced. The next year, JCB started its operation inIndia. In 1991, the firm entered a joint venture with Sumitomoof Japan to produce excavators, which ended in 1998.Two years later, a JCB factory was completed inPoolernearSavannah, Georgiain the USA, and the next year a factory was opened inBrazil.

21st century:In 2001, Joseph Cyril Bam ford died aged 84. In his later life he was atax exile. Production of the first engine designed and manufactured by JCB, the JCB444diesel engine, started in 2004.In 2005, for the first time in nearly forty years, JCB bought a company, purchasing the German equipment firmMiramax. In the same year, JCB opened a new factory inchingatPuddingclose toShanghai, and by the next year, the firm had 4000 employees, twice what it had in 1975. Planning of a new 40 million pound JCB Heavy Products site began in 2007, and by the next year, the firm began to move from its old site in Pinfold Street in Uttoxeter to the new site beside the A50. The Pinfold Street site was demolished in 2009. During that year, JCB announced it was to make India its largest manufacturing hub. Its factory atAligarhinHaryana was to be become the worlds largestbackhoe loadermanufacturing facility. The firm shed 2,000 jobs during the recession, but in 2010 it announced it was recruiting up to 200 new workers.

Operations:

JCB has 18 factories in the UK, Germany North and South America,Indiaand China.The company employs some 7,000 people on four continents and sells its products in 150 countries through 1500 dealer depot locations. The company has a range of more than 300 products. The firm is headquartered inRochester,United Kingdom, which is also the production site for Backhoe Loaders and Telescopic 'Load all' handlers. It has other factories in nearbyChile, Staffordshire,Rangeley,Uttoxeter,and Fosstonin Derbyshire andWarehamin North Wales. Its Indian factories are based inAligarh(Haryana) andPane, its US factory is inPooler, Georgia, its Brazilian factory inSorocaba, and its Chinese factory was completed in 2005 inPuddingnearShanghai. JCB al Gaterslebenso ownsMiramax, a German compaction equipment company based in. The company has also licensed its name and image to a line of consumer power tools, manufactured byAlba PLC.

Products:

Many of the vehicles produced by JCB are variants of thebackhoe loader, includingtrackedorwheeledvariants, mini and large versions and other variations for carrying and moving items, for examplefork liftvehicles andtelescopic handlersfor moving materials to the upper floors of a building site. Wheeled loading shovels and articulated dump trucks are also produced.

Excavator:Tracked 360 excavators ranging from the JZ70 (7 tone zero tail swing excavator) to the JS460 (46 tone tracked excavator). In 2008 at Con expo JCB revealed a new top range JS520 which included the new style paintjob with rams painted black (nadimwilson c). Wheeled 360 excavators ranging from the JS130W to the JS200W. Machines can be produced with either moonbeam or a triple articulated boom.

Tractors:JCB has also made its name in thetractorworld by producing one of the first such machines that features proper suspension and is capable of traveling at speed on roads. TheJCB Fastbackentered production in 1990. Prior to this design, the suspension was difficult because of the fixed-height connections required tofarm machinery, and tractors were notoriously slow on the roads. Dependent on the model the Fastback can travel at 50km/h, 65km/h or 75km/h (40mph). The machine was featured on the BBC television programmedTomorrow's Worldwhen it first appeared due to its innovative design.

From 2006 the company also produces a range of compact tractors designed for grounds-care, horticultural, and light agricultural duties.

Military vehicles:JCB also makes a range of military vehicles, which also concentrate on load-handling and excavation.These include theJCB HMEE.

JCB Diesel ax:In April 2006, JCB announced that they were developing a Diesel-poweredLand Speed Recordvehicle known as the 'JCB Diesel ax'. The car is powered by two specially modified JCB 444dieselpower plants that use a two-stageturbochargerto generate 750bop, one engine driving the front wheels and the other the rear wheels. On August 22, 2006 the Diesel ax, driven byAndy Greenbroke the diesel engine land speed record, attaining a speed of 328.767mph (529km/h). The following day, the record was again broken, this time with a speed of 350.092mph (563.418km/h).

Marketing:

In Russian-language text on JCBs Russian website, their name and trade names of their products are in theRoman alphabet.Logo:The JCB logo dates from 1953; from 1960 the company typewriters were given an extra key to render it accurately. The company has mainly advertised in the trade publications and their advertisements have won many awards, particularly for photography. The logo was designed by Leslie Smith, and is off-set at 18 degrees from the horizontal and 22 degrees from the vertical because that is the angle whichSir Anthony Bam fordliked it.

Display team:To demonstrate his faith in the hydraulic failsafe on JCB machines (which lock the arms in the event of a loss of hydraulic pressure, preventing them from crashing to the ground), Joe Cyril Bam ford arranged to have several backhoes raise themselves up on their arms, and drove his car beneath them. This has since developed into a world famous demonstration of the versatility of the backhoe configuration. The JCB display team (JCB Dancing Diggers) tour agricultural shows and produce videos, showing some of the unusual ways in which such vehicles can support themselves or maneuver. For example, it is quite common for drivers to support the vehicle on both buckets, either for turning on the spot without damaging ground, or for spinning thetracksin a puddle to clean them. The display team expanded this concept into a sort of vehicle gymnastics. The drivers are members of Jobs demonstration team, who visit prospective customers and demonstrate machines on the customer's property in order to prove the machine's suitability for the task at hand.

In Popular Culture:

In 1958 the singerLenny Greenhad a song calledJCB and Me.

InUKversion of theTeletubbiesone of the live-action visual 5-minute segments (seen from a Teletubby belly) featured number counting involving vehicles in lines. A row of Jobs are seen in line, their hydraulics operated as if they are 'dancing'.

JCB is gaining international notoriety of sorts after being prominently featured in the song "JCB" by the music groupMiscopy, which has achievedUK Number Onestatus. The song is about a boy who goes to work with his father for the day.

A JCB (not talking) namedJacobappears in volume ofThe Bromeliad(alias Names) series byTerry Pritchett.

TheLegoTechnicalrange featured a scale-model of the JCB backhoe complete with working hydraulics systems and many other features of the original.

In series 9 ofTop GearJeremy Clarksonbought a JCB Fastback 8250 for a challenge involving "growing your ownpetrol".Jeremy Clarkson,James May, andRichard Hammondall had to reverse their vehicles around theTop Gearcar park.

The song 'Cavity'by the UK groupThe Mac Ladscontains the line "He's filled more holes than a JCB" to (rather crudely) demonstrate the sexual prowess of the band-member being sung about.

One digger stars in themusic videoSunday Morning- 1985 hit song byThe Bolshevik. Three band members are standing on this 360-degree excavator whileTrevor Tanner(the singer) is lying on thesofa.

Success through responsibility:

As a responsible company, JCB has the greatest respect for the environment and its employees, as these were the foundations of our success over the past 65 years. The world is changing and we have to realign our responsibilities accordingly we need to respond to the threat of climate change, we must improve workplace health and safety to an even higher level and we must rise to the challenge of rebuilding global prosperity in the wake of the financial crisis. As we emerge from recession, we must increase our focus on improving carbon performance, health and safety and on how we help to generate wealth from the products we provide to customers Recent successes include a reduction of 23% in our direct carbon emissions since 2007, a 50% drop in our accident potential rate and a 16% improvement in fuel consumption from our new Backhoe Loader model. Under the banner of JCB Sustainable Innovation, we are committed to sharing our progress with our stakeholders. We will collaborate with the worlds leading companies, governments and individuals to help achieve our goals, as it is only through co-operation that we will help to deliver collective prosperity and a sustainable society for future generations.Sustainability Vision:

At JCB we design and manufacture construction, agricultural and material handling equipment, for use in both established and emerging markets. As such we embrace the challenge of helping to deliver a future based upon environmental, social and economic sustainability. Our aim is to develop products and services that delight the customer and exceed their expectations. In doing this, we recognize the potential impact we have on: The welfare of the communities in which we operate

The health and safety of our employees

The environmental footprint we generate

We do everything that is reasonable and practicable to optimize the benefits and minimize the negative effects of these. Our future prosperity depends not only in providing quality products and services, but understanding that quality means:

Ensuring that our employees and the communities in which we operate are better off because of us

Tackling workplace and product safety responsibly

Taking the need to operate within environmental limits seriously

We are therefore, committed to continuous improvement in how we design and manufacture our products and services to ensure that our contribution to a sustainable future is realized.Our Standards:

To demonstrate our commitment to the environment, to our workers and to the wider community we work hard to achieve international standards and awards. Our factories in the UK, India and the USA are accredited to ISO 14001 Environmental Management System with the UK and India also being accredited to OHSAS 18001 Health and Safety management System. All products are built to ISO 9001 Quality Standard. In 2009, JCB India received the Golden Peacock Award and JCB World Parts Centre was honoured with a Rosa Gold Award, both for achievements in Health and Safety. We have also been awarded The Carbon Trust Standard for our commitment to and achievements in reducing direct carbon emissions from our factories in the UK.

Employee Relations:People have made JCB the company it is today. A positive attitude and commitment to our employees is essential in maintaining our success and attracting world class talent. As an equal opportunities employer, the welfare and rights of all current and potential employees is paramount. This is shown through our relationship with the Trade Unions and Employee Representatives which has developed over many years. We also provide a wide range of attractive Employee Benefits incorporating profit sharing, pensions, private medical insurance and long-term disability schemes. Staff development is central in ensuring world class products and services, as well as helping attract and retain employees. We encourage our workforce to improve their performance through training and development programs.Key Performance Indicators:

Supply Chain:

Governance:

With 75% of our suppliers having ISO 9001 accreditation and over 30% with TS16949, it is our aim is to achieve a similar level of supplier compliance with ISO 14001 and OHSAS 18001 (or equivalent). With over 40% having an Environmental and H&S Management System, our target is to increase this by 10% year on year.

Carbon Management:

Looking at the greenhouse gas impact of our value chain, it soon becomes clear that the embedded carbon from our supply chain compared with transport and manufacturing, is one of our biggest challenges. As a responsible company we have started to work with the Carbon Trust with the aim of understanding the impact of the supply chain and develop a strategy to realize carbon reductions across it. Transport and logistics also have a significant part to play. This is currently being looked at through the JCB logistics strategy which will bring transport under our direct control which will result in increased usage of green transport corridors, ensuring carriers have a recognized environmental and H&S management system and that the most efficient engines and driver techniques are being used.Waste and Packaging Reduction:

With an aim to be zero landfill by 2012, waste reduction and returnable packaging has huge part to play in reaching this. At JCB Power Systems, which has been Zero Landfill since 2008, returnable packaging has been part of its culture from when its doors opened in 2004. Managing its supply chain to drive a zero landfill way of life, JCB Power Systems returns nearly 90% of all packaging to the supplier for re-use. The rest is recycled or incinerated for energy.

CB Sustainable Innovation is a holistic approach to managing every aspect of our business, from our supply chain, to our manufacturing footprint to the impact of our machines in use and how we interact with our employees and communities around the world.Carbon Impact of our Supply Chain

Power Systems Waste

A Global Manufacturer:

The JCB name is synonymous worldwide with world-class quality: all our products are designed and built for hard work and reliability. Each of our factories - whether in the UK, Brazil, North America, India or Germany - uses only the most advanced technology, components and manufacturing processes, whilst our meticulous design, rigorous testing, and best-practice lean manufacturing techniques ensure that wherever they are in the world, our customers will receive the same world-class JCB product quality. Also expanding in India, where manufacturing started at its Delhi plant in 1979, JCB has constructed a second factory in Pane. 1,000 miles from JCB India's Delhi factory it is positioned strategically close to the port of Mumbai. Lean manufacturing processes in all factories.

World leader in innovation, research & development.

Worldwide common standards & procedures.

18 factories - UK, Brazil, North America, India, China & Germany.

World-class manufacturing facilities.

World Class Products:

JCB is committed to constant innovation: we challenge accepted knowledge and use our understanding to develop more productive, more powerful and more profitable machines. It's due to our investment into research and development that we can offer a continually updated range of over 300 machines. We now boast the largest range of compact equipment in the world and have developed solutions for industries as diverse as construction, agriculture, waste handling, landscaping, military, timber and many other specialist areas.And there's much more in the pipeline. Largest range of compact products in the world

Over 300 machines in the range World leader in telescopic handlers

Number 1 worldwide in backhoe loaders

Major player in heavy line productsGlobal Support Network:

To deliver our promise of world class customer support, JCB has continued to invest in a comprehensive global network of dealers who really deliver the support you need. JCB boasts over 1,000 dealer depots worldwide, and 92 dealer depots in the UK. Operating out of those UK depots are 357 service technicians, all JCB-trained, and 265 service vans. JCB dealers understand that this is a business about relationships, as well as machines. We aim for customer satisfaction every time, and understand that this means supporting the machine throughout its life. 1500 JCB dealer depots worldwide

92 JCB dealer depots in the UK

821 service technicians

660 service vans in the UK

Part Support:

At the heart of our support network is the purpose-built JCB World Parts Centre: a state-of-the-art facility employing more than 200 people and dispatching around 4,000 orders every day. JCB has the widest range of parts of any manufacturer - genuine JCB parts can help your machine remain truly JCB. The Centre uses some of the most advanced technology around, improving productivity to such an extent that we now achieve 2 hour dispatch in 96% of cases. All JCB parts are fitted by JCB-trained technicians and carry a 12-month warranty for real peace of mind. 35m World Parts Centre

89 parts delivery vans in the UK

Parts availability: JCB dealers have over 80% in stock

Genuine JCB parts

Business Solutions:

JCB total business solutions are designed to give you, your machine and your business the support you need to achieve your true earning potential. JCB Finance helps you to preserve your working capital whilst spreading the cost in the most effective and tax-efficient manner. Finance provided by JCB Finance Ltd is only available within the United Kingdom (UK). JCB Insurance, regulated by the FSA, specializes in construction and industrial insurance, as well as offering Insurance Premium Finance facilities. Finance options are available for new and used machinery, cars, commercial vehicles, static plant and access equipment.

JCB Insurance offers the full insurance package, including liability, motor and property coverTechnical Assistance:

Whether you need machine servicing or emergency breakdown solutions, with JCB technical assistance you're guaranteed the highest possible service levels. In an emergency, it's all about speed of response. Our dealers operate their own customer support vehicles so that emergency parts can be delivered straight to your door and expertly fitted on the spot. In addition, dealers can tap into the expertise of our experienced Product Technical Specialists and Field Service Managers. They all know their machines inside out and can quickly offer the best solutions to ensure minimum downtime for maximum earning potential. 821 service technicians

All service technicians JCB-trained

The World Parts Centre operates 24/7

660 service vans in the UK

Research objective & methodology

Research Objective:

To identify the factors affecting cost management practices at JCB To identify the different levels of cost benchmarking at JCB To examine the process of cost benchmarking at JCB To identify the key cost variables in cost benchmarking at JCB To examine the effectiveness of cost benchmarking system at JCBResearch Methodology:

1. Secondary Data:

The relevant data that would be collected through secondary research will be collected from:

Websites through internet

Published articles in the newspapers, magazines, journals, and

Books.

2. Primary Data:

The primary data to be collected for the purpose of doing the research will be through

Personal interview and discussion with Analysts3. Tools Used:

Websites

Published newspaper and magazine articles

Journals

Books

Company Reports

Excel Modeling

LITERATURE REVIEW

Cost benchmarking is a method used to compare total cost of a process, product, or manufactured good from receipt of materials to completion, test, and shipping; against costs incurred by other businesses who manufacture similar products. Cost benchmarking is not limited to manufacturing either, it can be used to determine cost-competitiveness in services sectors as well, or even software development. Basically any organization that uses a base material or idea and produces goods from that base material or idea can compare total cost of production. The benchmarking compares this against other companies' similar offerings and serves to show market competitiveness and expose areas where cost controls may be implemented in order to improve competitiveness Cost savings and providing for cost reduction opportunities, or cost avoidance, are not new concepts. Private industry has developed these terms into an accounting science that impacts the bottom line and profit and loss statements. Whole theories of management have been fostered from them and opinions and definitions are as varied as industry itself. For some time, the private sector has bee conducting cost analysis and cost savings/cost avoidance benchmarking activities and using the results to establish best practices. While there are many similarities between public and private procurement best practices and sourcing techniques, attempts to find commonality and benchmarks for cost savings and cost avoidance have been somewhat alien to the public sector.

Cost Saving: Reduced Baseline Appropriation A reduction in available resources3 based o legislative actions or targeted cuts in certain areas.

Reduction from Budgeted Spend A reduction in the projected/budgeted resources staff time, materials, and equipment) used for an activity or business process, as a result of a Savings Project.

Volume Reductions Reducing the amount of a good or service used. Savings captured in this category include projects that intentionally seek volume reductions through direct action (e.g., demand management).

Refunds/Credits/Rebates Payments made to the state by vendors as a result of a Savings Project.

New Revenue New streams of revenue instituted by the state.

Enhanced Reimbursement Improvements in the accuracy or completeness of a business process that generates a higher rate of recovery of funds from external organizations. This activity may be generally associated with business process re-engineering and is an element of the most complex cost savings model, Tier Three.

Cost Avoidance: Cost Avoidance A cost reduction opportunity that results from an intentional action, negotiation, or intervention. Procurement Cost Avoidance A cost reduction opportunity that is generated from the competitive bidding process. o Negotiated Cost Avoidance An avoided cost as a result of the issuance of Best and Final Offers, Sole-Source negotiations, or post-procurement/post-award negotiations. 3 GASB o In-Contract Cost Avoidance A cost reduction opportunity produced as a result of the intervention of a purchasing official in responding to contractor requests for increases in prices, market fluctuations, indices upward alterations, etc. o Rate Reductions Obtaining lower rates or prices for goods, services, and construction purchased by a State. The adoption of cost reduction and cost avoidance definitions and categories to be used for the cost benchmarking initiative are of paramount importance when members submit survey results. In order to develop commonality and advance best practices, uniformity in these areas is essential to ensure the benchmarking initiative can grow and mature and thereby provide members with useful, accurate, and meaningful data.

Definition of Capital Costs:

The scope of work covered by the Capital cost of a project generally includes:

1. Building works (New and/or alterations)

2. Building services including central plant and related infrastructure

3. Built in equipment

4. Site works and site preparation

5. Loose furniture, furnishings and equipment

6. Project Management, Design and other consultancies

7. Associated authority charges

8. Contingencies and other risk provisions. In some cases, the capital cost may also include:

9. Decanting of staff and facilities from an existing building and later removal o temporary facilities

10. Client associated administration costs (such as additional management time, insurances and the like).

Project Specific Allowances:Project Specifics enable adjustments to be made to the building cost for any non-standard items or specification not common to all projects. These items include, but are not limited to, central energy, lifts, kitchen and cafeteria equipment, sterilizing equipment, theatre lights and support, PABX including handsets, specific footing requirements, earthquake requirements, mine subsidence requirements, increased standards (client request), heritage constraints, feature faade, abnormal planning constraints, temporary works and any other similar items. Adjustments for such items are treated as allowances over and above the base building cost and include an allowance for a proportion of builders preliminaries.Site works Allowances:Site works consist of all work beyond the perimeter of the building including site preparation, bulk excavation, special foundation requirements, roads, footpaths, covered ways, drop-off points, soft landscaping, fencing, parking, line marking, road signs and any other similar items. Allowances are added over and above the base building cost and include an allowance for a proportion of builders preliminaries.

External Services Allowances:External Services consist of all services work beyond the perimeter of the building including sewer, storm water, water, fire, gas, electrical supply, external lighting, telephone, security, amplification of main supplies and any other similar items. Allowances are added over and above the base building cost and include an allowance for a proportion of builders preliminaries.

Loose Furniture, Equipment & IT

Rates for costing of loose furniture, furnishings & IT equipment in the calculation of cost for projects are provided for each Functional Unit. The rates include allowances for telephones, pagers, cleaning equipment, EDP workstations and some relevant specialist EDP software. The rates exclude super-specialties (egg cardiothoracic surgery) or unusual specialties (egg aphaeresis, hyperbaric and reproductive biology).

Constraints in respect of specific Functional Units include:

Library rates assume a manual card index system. Add costs are applicable for computerized indexing and book security systems.

Information Technology rates are based on general furniture and equipment. Central IT and communications hardware and software are project specific items.

Medical Records rates are based on traditional manual paper storage. Optical disk based technology increases the m2 rate considerably but may eliminate archiving and most storage floor areas.

Medical Imaging rates are based on traditional film and do not include digital imaging (PACS) except where associated with specific modalities.

Security rates do not include CCTV

Stores and Supply rates assume minimal mechanical materials handling equipment.

Where specific major or unusual equipment is proposed for a project:

The major item(s) should be identified and coasted as project specific item/s.

The relevant Functional Unit furniture and equipment rate(s) should be reduced to an appropriate administrative or clinical rate (to allow for general items).

The furniture, fittings and equipment guideline rates assume Greenfield projects where equipment is not transferred from existing facilities. The impact of transferred items is can have a significant impact on project FF&E costs, varying from less than 10% of total value where little is transferred to about 80% where most existing furniture and equipment is transferred. The opportunity for transfer of existing equipment (including refurbishment and re-installation costs) should be evaluated at the preliminary planning stage.

It is recommended that the following be regarded as project specific items:

Window furnishings

Artwork

Information technology

Communications (PABX, paging, etc)

Furniture and equipment commissioning - tendering, receiving, storing, distributing cleaning, testing and pre-occupancy security.

Todays economic challenges have had at least one salutary effect for the nations healthcare system: They have helped to better focus our collective attention on the need to reduce costs and improve efficiencies in health care. In all likelihood, the effects of this national focus on performance improvement are being felt in your organization. Hospital financial leaders, in particular, have been intensifying their efforts to identify the specific steps their organizations can take that will make a difference. To this end, one of the most important steps you can take to identify opportunities for improvement is to examine your organizations performance around diagnostic groups. All that you require is a practical approach to proceed with this analysis. To illustrate such an approach, and demonstrate effective analytical techniques, the following discussion focuses on diagnostic groups that represent important lines of business for most of the nations hospitals and health systems. For purposes of comparison, the analysis uses publicly available data on national average costs of routine care, special care, and ancillary services. Using such data, you can compare your facilitys costs with peer group averages to determine whether your costs differ in any areas to a degree that warrants investigation. Costs for a particular procedure or treatment can be driven up by operational problems in a single cost center, over utilization of services, excessive supply costs, or many other potential issues. Addressing these issues can lead to more efficient operations and measurable savings. Starting with the most frequent diagnoses make good sense in analyzing costs because performance improvement with respect to any of these

five diagnoses could have considerable impact for many hospitals. After addressing these groups, a hospital could extend the analysis in a number of directions, including proceeding to other high volume diagnoses, selecting other high-revenue services that may not necessarily have high volumes, or focusing on known areas of difficulty. A benchmarking analysis should seek to identify any unexpected variations in your average costs when compared with those of similar hospitals. For such a comparison to be meaningful, it is important to choose peer hospitals carefully. For some hospitals in metropolitan areas, it might make sense to compare the facility with others in town. Some hospitals, however, may prefer a different approach. For example, if your organization is a teaching hospital, you might want to compare it with other teaching hospitals in a region. Similarly, if your organization is a hospital that specializes in a particular medical service, you may want to compare it only with other hospitals having the same specialization. Numerous innovative cost control practices have been evolved during the last two decades. The entire gamut of the cost accounting system has been broadened to equip and assist managers to better serve the needs of the customers and manage the firms business processes that are used to create customer value. The vital aspect here is providing customer value for less cost than its competitors, thus enhancing the competitiveness and profitability of the firm. Bench marking is one such innovative cost control tool which basically involves measuring an organizations operation, products, and services against those of its competitors. It is a means by which targets, priorities and operational strategies are evolved based on external realities that will lead to competitive advantage which in turn improves the profitability and competitiveness of an organization. The last two decades has witnessed the genesis of various innovative cost management practices. The focus and thrust of these cost accounting systems has been broadened to enable managers to better serve the needs of the customers and manage the firms business processes that are used to create customer value. These innovative cost management tools help a firm to establish a competitive advantage by providing more customer value for less cost than its competitors. The three strategic areas that give the firm the extra competitive advantage over its rivals are the Time Based Performance, Quality and Cost Control. These three strategic components influence the competitive feature of an organization in the contemporary liberal free market economy.

(a) Global Competition-

Free market economic policies and improvement in transportation and communication system have led to a global market for manufacturing and service firms. This new competitive environment has increased the demand not only for more cost information but also for more accurate cost information.

(b) Growth of the Service Industry. The service sector had a meteoric rise in the last decade and a half. The liberalization and deregulation of many services like Airlines, Telecommunications and other Utility sectors has resulted in fierce competition in this segment. The increased competition has made managers in this industry more conscious of the need to have accurate cost information for planning, controlling and decision-making.

(c) Advances in Information Technology The Information Technology innovations have revolutionized every aspect of business management. The Enterprise Resource planning (ERP) which provides an integrated software system that can run all the operations of a company, the availability of Personal Computer (P.C), Online Analytic Programs (OLAP), Decision Support System (DSS) and the Electronic Data Interchange (EDI) which involves the exchange of documents between computers using telephone lines have empowered the cost accountant to become more flexible to respond to the managerial need for more complex product costing.

(d) Advances in Manufacturing Environment Innovative manufacturing approaches like the Theory of Constraints (TOC) and Just in Time Management (JIT) have allowed firms to increase quality, reduce inventories, eliminate waste, and reduce cost. The Computer Aided Design (CAD) Computer Aided Manufacturing (CAM), Computer Aided Engineering (CAE) and the Flexible Manufacturing System (FMS) have all contributed in cost reduction and increasing productivity.

(e) Total Quality Management Non stop improvement and the elimination of waste are the two basic criteria of contemporary manufacturing. Product Quality is the key to success in todays highly competitive business environment. Cost management supports the concept of Total Quality Management by providing crucial information concerning quality related activities and quality cost control.

(f) Time and Efficiency as a Competitive Element. Time and Efficiency are two vital components in the phases of the value chain. The highly competitive environment forces modern day firms to reduce time to market by redesigning products and processes, by eliminating waste and non value- added activities. Similarly improving efficiency is also an essential concern. Cost is a critical measure of efficiency. For the various efficiency measures to be of values, cost must be properly defined, measured and accurately assigned. All these factors have resulted in the need to innovate and introduce strategic cost control techniques in order to withstand the prevailing competitive business environment and enhancing competitiveness. Bench marking has been evolved as a potent tool to be used for Strategic Cost Control and improving and enhancing competitiveness.

Defining Benchmarking:The word Bench mark is a reference or measurement standard used for comparison and it is a continuous process of identifying, understanding and adapting best practice and processes which result in superior performance along with cost effectiveness. Stamatis (1997) has defined benchmarking as the process of gathering, analyzing and evaluating the world on outside your organization and comparing it to your own. The findings and the results of this process becomes the vital foundation and basis of your improvement

Genesis of Benchmarking:This concept was evolved and used in as early as 1950s by W. Edward Deming when he taught the Japanese the idea of quality control, but after this the concept of bench marking lost its relevance. This concept again became prominent in the early 1980s when multinational giants IBM, Motorola and Xerox used Bench marking for their strategic advantage. From then onwards till today bench marking is being used as an effective tool for various managerial functions including cost control.

Levels of Benchmarking: Benchmarking is a systematic method by which organizations can measures themselves

against the best industry practices. The main focal point or critical aspect of Benchmarking is the process of borrowing ideas and adapting them according to the strategy of an organization to gain competitive advantage Richard Chang and Keith Kelly (1998) have evolved four common approaches to benchmarking These Include:

a) Internal Bench Marking- It is done within an organization, or perhaps in conjunction with another branch office. Internal bench marking is typically the easiest to conduct since data and information should be readily available and confidentiality concerns are minimized.

b) Competitive Bench marking- Generally each organization has at least one competitor that excels at the exact processes which an organization wants to study. However in this approach bench marking will be slightly difficult when compared to internal bench marking because it is very difficult to collect or learn a competitors trade secret. Firms usually hire the services of a third party consultant to gather strategic information relating with the competitors.

c) Non-competitive Benchmarking Non competitive benchmarking helps an organization to improve its core-competencies. The benefits of non competitive benchmarking include: A related process in your industry with a firm you do not directly compete with.ii) A related process in a different industry.

iii) An unrelated process in a different industry. The most striking phenomenon of noncompetitive benchmarking is that new and innovative processes can be find out and adapted in an organization.

(d) World class benchmarking This approach is the most ambitious and broad form of bench marking. It involves the process of making comparison with the strategies of the worlds best establishments and analyzing and learning from their strategic approaches.

Benchmarking Process:John S Oakland (2003) has classified the bench marking process into five main stages.

Figure highlights the various stages of bench marking in the following manner.

The bench marking process commence with the plan phase. The managers of the organization share their views and objectives for the study and establish roles and responsibilities. They will analyze their own organization to study and investigate the strengths and areas of improvement. The next phase belongs to the data collection aspect. It is during this phase that the bench marking partners are identified. The main objective is to identify organizations that are superior so that the firms own operation can be targeted. The quickest way to identify excellent performance is through site visits with appropriate training. Five to seven site visits might take place in one visit. Databases are an expanding source of comparison information. The two most important difficulties that organizations face are identifying top performing companies in specific functions and finding companies that have already conducted studies in specific areas. The American Productivity and Quality Center (AP&QC) is a premier organization in The United States which maintains sizable database information and serves as a central networking source and has the support of top benchmarkers.Cooperative sharing agreements between companies is another source of best-in-class identification. Members of the agreement may or may not be competitors and may or may not be in the same industry. The Data collected from the site visits and from other sources will be analyzed in the next phase to identity best practices and the enablers which deliver outstanding performance. At this step an organizations own performance should have been pre-measured; other wise there is nothing to compare against the bench marking data. In the Adapt phase, the managers will attend a feed back session where all relevant conclusions from the site visit analysis and its comparison with their own performance level will be discussed upon. The best practices from the bench mark studies will be adapted in the organization. The last phase of the bench marking process is the post Completion Review Stage. The managers will assess the performance of the bench marked area of operation and decide on what actions are required to sustain improved performance. Best practice data bases many be created in the organization which must be shared among all the members of the organization.Benchmarking and Key Cost Variables;Benchmarking can be used as an important strategy for cost and quality improvements. The functions, activities, and processes can be measured in terms of specific output measures of operations and performance. Swift (1998) evolved two broad categories of cost variables which can be effectively benchmarked in order to attain improved cost efficiency and cost effectiveness.

These two categories are as follows:

(a) Cost and Productivity - Overhead costs and labour efficiency, total cost per unit, direct labour per unit are some of the vital cost drivers which result in a very high proportion of expenditure in any production process. These variables provide an excellent platform for benchmarking and enable an organization to become cost efficient. Comparing one companys financial statements and cost breakdowns against those of others is an effective strategy to improve especially when you are comparing with a detailed financial statement of your competitors or the best- in class.

(b) Business Processes It includes all those processes which are not directly related to product design, production, sales and service. Human resources, data processing, accounts receivables, marketing services, security warehousing, public relation are some of the key variables in this segment. A number of companies develop severe cash flow and profit problems due to uncontrolled cost of these business or support processes. All these costs can be grouped under general and administration expenses and these expenditures have tremendous scope of improvement through benchmarking.

Myths and Realities about Benchmarking:Bench marking is a new concept in the management scenario and as a result people are having varying notions about the concept of bench marking. The common myths and the actual realities that surround the bench marking concept are as follows:

Cost Comparison Basis:

The focus of the analysis was on hard costs only because it was determined that the soft costs contain subtle aspects that are difficult to quantify on a normalized basis. In order to the prevent having to compare apples to oranges, the authors eliminated soft costs from the analysis. If soft costs are of interest, a more dedicated study can be conducted. Below figure shows the building cost relationships. Because Building B and C have similar square footage, construction, and material cost, B was used to test the cost of C. Similarly, because B and A both use commercial construction approaches, the cost of B was tested against A, which was then extrapolated for the required A-to-C cost comparison.

The figure shows the typical breakdown of project costs into hard and soft costs. In this particular project, our focus was on the hard costs only. The figure shows the specific breakdown of the cost of Building C into its components. Figure 4 shows the breakdown for the cost of Building A.

Building C Cost Breakdown Structure

50,000 sq ft

Building A Cost Breakdown Structure

378000 sq ft

The objective is to identify and analyze the factors responsible for the cost differences. The soft costs are equivalent. So, they were excluded from the analysis. The hard cost difference to be distributed over the five factors is $63, which is the per square foot difference between Building C and Building A.

Analysis of the Cost drivers:The research team narrowed the cost drivers into five primary factors that could account for the cost differences. The factors are summarized as follows:

Factor Impact of Davis Bacon wages.

Factor Impact of Project Labor Agreement (PLA).

Factor Additional ESH&Q, Oversight, Safety Meetings, Site Training.

Factor A Excessive requirements of contract terms and conditions.Factor Impact of procurement process.

These factors represent a consolidation of major and subtle cost drivers in the construction projects.

Selecting a Peer Group for Comparison:A benchmarking analysis should seek to identify any unexpected variations in your average costs when compared with those of similar hospitals. For such a comparison to be meaningful, it is important to choose peer hospitals carefully. For some hospitals in metropolitan areas, it might make sense to compare the facility with others in town. Some hospitals, however, may prefer a different approach. For example, if your organization is a teaching hospital, you might want to compare it with other teaching hospitals in a region. Similarly, if your organization is a hospital that specializes in a particular medical service, you may want to compare it only with other hospitals having the same specialization. Depending on your operational interests, other general selection criteria can also be used, such as bed size, type of facility (e.g., for-profit versus not-for-profit), services provided, system affiliation, and competitive market. Selecting the appropriate peer group is important and should reflect your intentions. There is one important limitation to keep in mind. Comparing your facility with a single hospital or a small number of hospitals offers little benefit as there would not be adequate volumes to establish normative benchmarks; any variations between your hospital and the peer group would simply indicate differencesnot variations with a significant number of peer hospitals. Although there is a place for small group comparisons, it is generally preferable to use larger, carefully selected peer groups.

Other Reporting Formats:Comparative information can also be expressed as average costs per case for ancillary areas and average costs per day for routine care and special care. One disadvantage to using this approach is that gross charges for a service or supply item vary among hospitals and the use of cost-to-charge ratios is an imperfect way to allocate costs. Nevertheless, the approach is usually adequate to identify significant variations between a hospital and a peer group that may warrant investigation. Also, the use of allocated costs can be adjusted for factors such as differences in CMI and local area wages.

Variability and What It Means:

A large group analysis helps to illustrate the variability in costs among hospitals. This variability results in part from differences in areas such as the utilization of services, medical practice patterns, formularies, and purchasing power. Such an analysis is not to be interpreted as a standard of care or as an identification of best practices. It is a tool for determining whether your hospital is an outlier relative to other, similar facilities. It identifies diagnoses and/or departments that may need closer examination to determine whether there are opportunities to reduce costs.

FINDINGS AND ANALYSIS

In todays mature JBC environment, revenue growth is difficult to achieve. Until the last few years, new entrants into the JBC market experienced significant growth and a favorable level of competition for physicians and cases. Now, growth is decelerating, with the growth in the number of JBCs and cases per JBC slowing. This dynamic has caused an increased focus on the expense side of the profit equation in the JBC industry. Measuring JBC performance against internal and external comparable benchmarks has become a critical tool for achieving efficiency as JBC operators focus on making their current caseloads more profitable. In a mature industry one in a state of equilibrium with an absence of significant growth businesses tend to behave in a fairly standard manner. JBCs are no different. JBCs are reacting predictably to the normal market-maturation process, in which earnings may remain stable, but growth prospects and expectations decrease significantly. In this changing business environment, we have witnessed JBC managers change their focus from growth to operations, innovation, and maintenance. This significant systematic effort within the JBC industry has required a shift in resources and managerial skill, with emphasis to innovation and efficiency. Benchmarking is but one component of organizational improvement. Benchmarking is not a one-time, quick fix. It is a process, a continual process of monitoring and adjusting. The process is commonly described in three steps identify, track and change. If you can identify or measure a metric, you can track it. If you can track it, you can change it. Developing and implementing a benchmarking plan for your JBC has the benefits of improving operational efficiency and maximizing performance, both clinically and financially, which will lead to