UNIVERSITY OF MUMBAI

Mcom 1
Semester 2st

Name
MANSI JAYESH SHAH

Roll No
60

Subject
STRATEGIC MANAGEMENT

Academic Year
2015-16
 DECLARATION

I Miss MANSI SHAH, Student of Malini Kishor Sanghvi

College of Commerce & Economics Studying in M.COM (Part
I) Semester 2nd, hereby declare that I have completed the
project on “STRATEGIC MANAGEMENT” in the Academic
year 2015-16. The information submitted herein is true and
original to the best of my Knowledge.

28/03/2016

Date of Submission Signature of Student

(Miss MANSI SHAH)
 ACKNOWLEDGEMENT

I would like to thank Malini Kishor Sanghvi College of Commerce &

Economics & the faculty members of M.COM for giving me an
opportunity to prepare a project on “STRATEGIC MANAGEMENT
. It has truly been an invaluable learning experience. Completing a task
is never one man’s efforts. It is often the result of invaluable
contribution of number of individuals in direct or indirect way in
shaping success and achieving it. I would like to thank Principal of the
College (Mrs.) Krishna Gandhi and Co-ordinator Prof . Rajesh Dharawat
for granting permission for this Project. I would like to extent my sincere
gratitude and appreciation to Prof. NILESH RATHOD who guided me
in the study of this project. It has indeed been a great learning,
experiencing and working under him during the course of the project.
 DISASTER MANAGEMENT – CONCEPT

The Word Health Organisation (WHO) defines disaster as “ Any event concentrated in time in
space in which a society or a relatively self –sufficient sub- division of a society, undergoes
serve danger and occur such losses to its member and physical appurtenance , that the social
structure is disrupt and the fulfillment of all or some of the essential function of the society is
prevented.”

Disaster can be classified in to two groups- manmade disaster and natural disaster;

 Manmade Disaster include vehicles related accident , forest, fire, wars and civil
disturbance , ecological balance disaster due to deforestation ,air water and soil
pollution ,industrial accident such as gas leak and fire etc.
 Natural Disasters which include :
 Wind related such as storm , Cyclones, Tsunami, Hurricane, Tidal wave, etc
 Water related such as flood and drought
 Land related – Earthquake , Avalanches, Landslides, Volcanic eruption ,etc
Problems and challenges in Disaster Management

Natural Hazard

A natural hazard is a natural process or phenomenon that may cause loss of life, injury or other
health impacts, property damage, loss of livelihoods and services, social and economic
disruption, or environmental damage.

Various phenomena like earthquakes, landslides, volcanic eruptions, floods, hurricanes,

tornadoes, blizzards, tsunamis, and cyclones are all natural hazards that kill thousands of people
and destroy billions of dollars of habitat and property each year. However, the rapid growth of
the world's population and its increased concentration often in hazardous environments has
escalated both the frequency and severity of disasters. With the tropical climate and unstable
land forms, coupled with deforestation, unplanned growth proliferation, non-engineered
constructions which make the disaster-prone areas more vulnerable, tardy communication, and
poor or no budgetary allocation for disaster prevention, developing countries suffer more or less
chronically from natural disasters. Asia tops the list of casualties caused by natural hazards.

Human-instigated disasters

Human-instigated disasters are the consequence of technological hazards. Examples

include stampedes, fires, transport accidents, industrial accidents, oil spills and nuclear
explosions/radiation. War and deliberate attacks may also be put in this category. As with natural
hazards, man-made hazards are events that have not happened—for instance, terrorism. Man-
made disasters are examples of specific cases where man-made hazards have become reality in
an event.

This essay examines the disaster management challenges in India and assesses the implications
of those challenges for that country’s economic, political, and security environments.

Main Findings
 In the past two decades, India’s public policy on disaster management has shifted from a focus
on relief and rehabilitation efforts to holistic management of disasters. This new policy approach
incorporates pre-disaster issues of prevention, mitigation, and preparedness, as well as post-
disaster issues of response, recovery, and reconstruction.
 New initiatives, such as mainstreaming disaster risk reduction in development, building capacity
through education and greater awareness at all levels, and utilizing advanced technologies, have
enhanced India’s preparedness for each phase of disaster management.
 Unsafe building practices in rapidly growing urban settlements constitute one of India’s greatest
challenges for disaster management. A major earthquake in any of India’s densely and heavily
populated cities in seismic zones would be catastrophic in terms of fatalities.
 Climate change has far-reaching implications for managing disaster risk in India, as the
frequency and intensity of flash floods, landslides, droughts, cyclones, and storm surges are
expected to increase in upcoming decades.

Policy Implications
 While significant achievements have been made in post-disaster response and reconstruction,
there are still formidable challenges to reducing the risk of future disasters.
 Disaster management policies must incorporate programs to protect the most vulnerable
segments of society—the poor, marginalized, women, children, disabled, and elderly.
 Mechanisms must be designed and adopted for transferring lessons learned for pre- and post-
disaster management between communities.
 Given that natural disasters do not always follow national boundaries, cross-boundary issues of
disaster management should be addressed through enhance regional cooperation. Furthermore,
an effective regional response system should be developed to pool capacity for mutual benefit.
 Left extremism is likely to be one of the most serious challenges to Indian security in the
forthcoming decade if the government does not address basic issues of governance and
accountability.
Q) Disaster Prevention Strategies

A) Prevention involves all those activities that are requires to prevent the disaster or prevent the
gravity of loss, if the disaster occurs the prevention phase involves active participation of all
groups of the society- Government, non- government organization and other institutions.

The following are the different Strategies of the prevention phase:

1. The State Disaster Management Action Plan:

DMAP has been prepared for its operationalisation by various department and agencies of the
Government of Maharashtra and other Non- Government Agencies expected to participate in
disaster management. This plan provides for intuitional arrangements, roles and responsibilities
of the various agencies, interlinks in disaster management and the scope of their activities. An
elaborate inventory of resources has also been formalized.
The purpose of this plan is to evolve a system to-
 Assess the status of existing resources and facilities available with the various
departments and agencies involved in disaster management in the state.
 Asses their adequacies in dealing with a disaster
 Make the state DMAP an effective response mechanism as well as a policy and
planning tool.
The state DMSP specifically focuses on the role of various governmental departments and
agencies like the Emergency Operations Centre in case of any of the above mentioned disasters.
This plan concentrates primarily on the response strategy.
2. Disaster Warning:
The disaster management authorities need to plan for early warning of impending disaster and
its effect. For instance, storm or hurricane warning provide advance notice to citizens thereby,
giving them time to protect property, safeguard family members and move to safer places.
A warning system is essential to indicate the onset of a disaster. This may range from alarms
(e.g. for fires) and sirens (e.g. for industrials accidents) to public announcement through radio,
television etc. and other traditional modes of communication (e.g. beating of drums, ringing of
bells, hoisting of flags).
 Important Elements of Warning:
 Communities in disaster prone areas are made aware of the warning systems.
 Alternate warning systems must be kept in readiness in case of technical failures (such
as power failure)
 All available warning system should be used.
 The warning should, to the extent possible be clear about the severity, the duration and
the areas that may be affected.
 Warning should be conveyed in a simple, direct and non technical language to
incorporate day to day usage patterns.
 The dos and don’ts should be clearly communicated to the community to ensure
appropriate responses.
 Warning statement should not evoke curiosity or panic behavior. This should be in a
professional language devoid of emotions.
 Spread of rumors should be controlled.
 All relevant agencies and organizations should be alerted.
 Whenever possible, assistance of community leaders and organized groups should be
sought in explaining the threat.
 In the event of a disaster threat receding, an all-clear signal must be given.
3. Education and Training:
There is a need to educate the various sections of the society on disaster management.
Involvement of educational the training institutions, corporate sectors and non- government
organizations in order to generate knowledge on disaster management by conducting various
training and awareness programmes are long term key factor for the prevention and
preparedness relating to disaster management.
Q) Strategies to cope with disasters

A) The strategies for coping with disaster are explained from individuals affected by the disaster. An
individual may be able to cope up with the disaster with the help of the following strategies.

1. Physical Coping Strategies: A natural disaster can deplete affected persons physically. By taking
care of oneself physically, one may increase the extent to which one can cope with the stress and
other effects of a natural disaster.

 Rest: One needs to get adequate rest to over the problem of stress arising on account of a
disaster. Adequate rest is the foundation of stress management. One needs to establish a routine
and get to bad at a reasonable hour.

 Exercise: One needs to exercise to overcome the problem of stress. Exercise can be done either
early in the morning or in the evening. One may consult a doctor before starting any exercise
routine.

 Eat: One needs to eat a well- balanced diet and at regular intervals, especially when adequate
food is available. At times, after a natural disaster, there may be shortage of food and whatever
food is available may not be adequate.

 Relax: Whenever possible, schedule extra time for relaxing. Choose the activities that one
enjoys or that one find relaxing. The relaxing activities may include – reading, listening to music,
gardening, paining,-whatever one likes to do.

 Avoid alcohol and drugs: One should avoid overdose of alcohol as a means to cope up with
stress arising out of disaster. Also, one should not indulge in drugs, unless a doctor prescribes
certain medicines to deal with the stress or trauma.
2. Mental Coping Strategies:

 Get the facts: One should get information about the effects of the disaster from reliable
sources, than relying on the rumor mill to provide information. Also, relevant information
must be obtained from authentic sources regarding the venue, the dates and timings of relief
distribution by Government and NGOs.

 Prepare a Schedule: Try to establish. Set regular times for meals, waking up in the morning,
or taking with family and friends. A natural disaster can greatly disrupt your regular
schedule, increasing the extent to which your life feels chaotic and out of control. Coming up
with a daily, structured can help you establish a sense of predictability and control.

 Develop an action plan: One needs to decide who’s going to do what and when. Also, one
needs to assess one’s financial alleviate stress relating to financial concerns. A proper plan
may enable a person to make progress in overcoming the problems arising out of disaster.

 Focus on your strengths: One needs to focus on one’s strengths to cope up with the effects of
disaster. One can make self statement such as “I can handle this crisis”. One needs to be
mentally strong to handle the situation and also to help other in the area to cope up with the
post traumatic stress disorder.

 Reply on your spirituality: Turn the problem over to your spiritual power for guidance and
strength. It is a known fact that the human spirit is very strong. One may read inspirational
writings that make us confident to manage one’s life.

3. Emotional Coping Strategies:

 Connect with social support: Getting social support from others can be a major factor in
helping people overcome the negative effects of a traumatic event and post traumatic stress
disorder (PTSD). Identify local support groups or available counselors may be brought with
the impact of a natural disaster. Take advantage of these opportunities.
 Release emotion and tension: Brainstorm your problem solving ideas with your loved ones,
relatives, neighbours and friends to get their input and ideas. One needs to talk about the
disasters effects or problems so to release emotions and tension.

 Spend time with friends and family: One needs to spend time in enjoyable activities with
friends and family members. This may involve some videos, storytelling or listening, playing
some games, preferably indoor games and so on.

 Recognize anger as a secondary emotion: Anger is often a surface emotion that covers up a
deeper emotion, such as fear, hurt, or feeling of powerlessness. When one finds self with a
feeling of anger, search for the deeper emotion, and work with it instead. Write about it and
talk about it with others who care and trust you.

 Do not take your anger on relatives and friends: One needs to avoid spilling one’s anger on
relatives and friends. It would be difficult for them to be emotionally supportive, if their
feelings are affected by you. Get cooperative and support from your relative and friends to
overcome the feeling of anger rather than attacking them by spilling one’s anger on to them.

Disaster Preparedness Measures

Individuals, families, businesses, religious and community groups, non-profit groups, schools
and academia, media organizations, and all levels of governments must take an active role in
preparedness efforts. A disaster can affect the whole community, so everyone must be ready,
by making a plan, being informed and taking action to mitigate the affects of future disasters.
At the Village/Local Level
At the village level, the Gram Panchayat can play an important role in disaster preparedness:
1. Preparedness Action Plan: Before the onset of a disaster such as a cyclone or flood, Gram
Panchayat (committee) members need to be made in-charge of the disaster warning
messages that are being relayed by District Level, or any other competent authority.
Radio sets, or TV sets, telephones lines, etc., must be kept in good working condition to
monitor the warnings.
 2. Dissemination of Warnings: As soon as the warnings are received from the District level
or State Head Quarters Control Room, the Sarpanch and the Panchayat members need to
disseminate the warnings to villagers. Hazard warnings should spread quickly in all
wards and lanes of the village.
3. Evacuation: The Panchayat should make arrangement to evacuate people who are likely
to be affected by the disaster to safer and stronger places. As far as possible, people
should be evacuated even from stronger places. As far as possible, people should be
evacuated even from stronger buildings in the low lying areas, especially at the time of
cyclone or flood.
4. Arrangement of Resources: The local authorities need to make proper arrangement of
resources and supplies such as stock of bleaching powder, lime powder, phenyl, drain
cleaning sticks, soaps, and other materials.
In shelter camps, people should be provided with safe drinking water, latrine facilities,
food and medicines. Necessary arrangements should be made for food grains, cooking
stoves, edible oils, etc.
5. Allocation of Responsibilities to Community Members: The Panchayat members alone
cannot undertake disaster preparedness measures. The Panchayat needs the support of
the local community members. Therefore, there is a need to select local community
members and to give them certain responsibilities, as follows:
 To institute periodic inspections to ensure that precautions are being taken.
 To ensure that equipment required for disaster purposes is available, and is
serviceable.
 To ensure that emergency food supplies are available.
 To nominate special wardens or safety officers.
 To designate immediate relief tasks (survey duties, provision of food and
temporary shelter, assistance in clearance, etc.).
At the District Level
At the district level, the concerned authorities need to take disaster preparedness measures:
1. Preparedness before the Onset of Disaster:
  The District collector needs to call an emergency meeting of the district members
to take stock of the situation and to take important decisions relating to disaster
preparedness.
 The District Collector needs to set up control rooms.
 There is an urgent need to announce the seriousness of the hazard situation.
 There is a need to instruct engineers to tour and identify the weak and vulnerable
points of roads, bridges, buildings, water supply works, etc., and make efforts to
strengthen or repair, wherever necessary
 The District collector must assign work to the district officers and hold them
responsible for execution of the various measures.
2. Action plan when Disaster warning is Received or during Disaster:
 Mobilize sufficient funds from the state government to meet the situation.
 Arrange immediate distribution of relief materials and spares to village
Panchayats and other local bodies.
 Coordinate with other districts administration to get their support, whenever
possible.
 Engineering staff needs to attain all urgent repairs of roads, bridges, bunds, etc.
 Immediate disposal of dead bodies and animal carcasses before they are
decomposed.
 Coordinate with village Panchayats in setting up relief camps, evacuation of
affected people.
 Coordinate with various agencies including the army, and NDRF.

Measures at State/Central Govt Level

 Aerial survey, search and rescue operations.
 Damage assessment and provisions of relief assistance.
 Organize training to volunteers, self-help groups, NGOs, youth, and employees
of government departments in dealing with disaster.
 Stocking of relief material and receiving relief materials from external sources.
Prompt supply of such materials to affected areas and to affected people.
  Effective management relief and rehab camps.
 Evacuation of people from vulnerable area to safer places.
 Establishment of disaster management and response teams.

Measures at Business Level

Business Firms can take disaster preparedness measures to overcome the industrial
disasters as well as the natural disasters that affect the local community. Business firms
may take the following measures:
 Training the employees to avert industrial accidents, by giving necessary
instructions regarding handling and maintenance of machines, and adopting safety
measures.
 Train or educating the members of the local community to play an active role in
disaster management.
 Depute its employees in rescue and relief activities.
 Supply of materials, medicines, food items to relief camps and other necessities.
 Providing donations to the Govt towards relief and rehab measures.
 Giving vital suggestions to Government authorities to manage disasters.

Measures at Social Level

Disaster preparedness measures can be taken by social groups such as voluntary agencies
or non-government organizations. Social groups such as voluntary agencies or small
community organizations are omitted from pre disaster planning activities. Many small
groups feel that preparedness or mitigation activities are beyond their capabilities, or feel
that it is not their place to get involved. Small groups, however, are among the most
effective of the coping mechanism and play a key role in disaster recovery. Thus they
should be encouraged to participate to the fullest extent possible.
There are many roles that small groups can fulfill and activities they can undertake,
especially in preparedness.
 At the most basic level, small groups can promote awareness of natural hazards
and promote public action to mitigate or prepare for a pending disaster.
  Second, agencies can work together for meeting people’s needs in a disaster and
assign responsibilities for certain task to appropriate groups. This, step, the
development of an organizational framework for coping, is the most important
action that can be taken at the local level.
Actions to reduce losses at local level are called “community-based disaster
preparedness” activities. Voluntary agencies and small groups can be very effective in
helping to organize and implement these measures. For example, in some cyclone-prone
rice-producing areas, two ways of reducing crop losses could be introduced. If the
weather permits, crops could be planted several weeks earlier so that they could be
harvested before the peak of the hurricane season.
Social service agencies, especially religious organizations and their affiliates should learn
more about their role in psychological recovery.
 One of the most valuable roles played by these organizations is helping families
and individuals overcome the emotional stresses of a disaster. It is surprising how
few groups are adequately trained or prepared to help individuals and families
deal with wide spread traumatic events, such as mass casualties, family
reunification, and the loss of possession.
 Organizations with access to resources for longer-term recovery should develop
policies to guide their recovery programs. It should be remembered that in a
region-wide disaster, the social services available at the local level will be
minimal, and organizations should determine in advance what affected groups to
serve and the best means for maximizing the resources available.

Measures at Individual Level

Individuals can also play an important role in disaster preparedness. Individuals can
volunteer to help the local authorities in rescue and relief measures. Individuals
staying in far way towns and citizens can work for getting donations, and suppliers
like clothes, utensils, food grains, etc. They can form a volunteer group and visit the
affected place and assist the local people in overcoming psychological effects of
disaster.strategic Alliance
Meaning

A strategic Alliance is an agreement between two or more parties or firms to work together to
achieve certain objective. Generally the alliance agreement is for a certain the objective are
achieved ,partners terminate the Alliance. The firms remain independent organisations and work
together without forming a new entity. The Alliance usually allow s transfer of technology, share
expenses and risks.

REASONS For strategic Alliance

the emerging globalization due to liberalization is opening up yet another major dimensions in
the field of strategic alliance. The concept of strategic Alliance is causing far more impact than
that of a mere business management pract strategic Alliances are formed because of the
following reasons:

SYNERGETIC ADVANTAGE:

strategic Alliance brings different competencies of partners together. This combined effect of
competencies generates SYNERGETIC effect; the Alliance helps to produce greater result s as
compared to the sum of their individual results, which in turn generates SYNERGETIC
advantage.

DEVELOPMENT OF NEW PRODUCTS:

New product development costs are quite high, especially in the field of pharmaceutical,
electronic, etc. therefore, in order to bear costs, organisations may form an Alliance to share
costs and results of new product outcomes.

GLOBAL MARKETS:
At times, a foreign firms may collaborate with a firm as local organisations may be well aware
about the local business conditions. Such a firm may collaborate with a local firm in another
country to expand its markets.

ADVANTAGE OF GOODWILL:

At times, a foreign firm may collaborate with a firm in another country in order to gain
advantage of the goodwill enjoyed by later. The reverse is equally true, Tata Group firm may
have an Alliance with a foreign firm in a forign market.

SHARING OF RISKS:

Strategic Alliance is a method of sharing high business risks among parties to the Alliance. This
enables an Alliance to undertake large risk project s such as R&D projects, where costs and risks
are involved.

Problem with Indian strategic alliances

Cooperative Spirit between the alliances partners is a vital for its success and survival.
However, in several cases of alliances in India, there is a untimely split which at times adversely
affect the alliances partners, at leat in short run.

The following are some problems with Indian strategic alliances or joint ventures:

LACK OF PLANNING:

A more serious reasons for the mismatch, however, is that there is very little planning that
goes, into setting up an alliances determining the interest of each partners, analyzing their
respective contributions and according structuring the alliance. Some alliance fail due to lack of
planning.

For instance, Godrej soaps entered into a joint ventures with P&G to manufacture and
manufacture and market soap brands. Under the agreement, Godrej licensed the marketing of the
soap brands. Godrej reserved its soap-making capacity at Mumbai, to manufacture its own and
P&G Brands.

DIFFERENCE OF OPINION:

Most JVs get derailed due to differences in aspirations and approaches. The mismatch of
aspirations and approachesz becomes a bone of concentration between the alliances partners. A
case in point is HDFC(India)- chubb general insurance( USA)- non- life insurance. It appears
that chubb wanted to go about the insurance business in a fairly conservations manner. This
became a bone of contention between the partners. It became a barrier for the JVs rapid roll out,
especially in the commercial segment.

CONTINUOUS DISAGREEMENTS:

There are cases, where there are constant disagreements between the alliances partners that
lead to the collapse of the alliances. For instance, kinetic India Honda entered into a joint
ventures with the objectives of manufacturing scooters and mopeds in 1984. As Honda had
another kinetic and Honda was confined to mopeds and scooters.

The continuing difficulties led to the split between Honda and Kinetic in 1998. In 1998,joint
ventures was terminated after which Kinetic enigeering continued to sell the models under the
brand name kinetic until 2008. When kinetic was sold to Mahindra & Mahindra.

VIOLATIONS OF AGREEMENT CLAUSES:

Violations of agreement clauses may lead to the collapse of an alliance. For instance, Titan
industries and Timex watches (USA) Entered into a joint ventures in India in 1990.

Titan began to complete in lower market segments, which violated the non-compete clause in the
agreements. Top conunteract this, timex began its entry in the up-scale market segment. The
partners entered into negotiations to resolve the issues surrounding this ventures and in March-
1998 they announced the break-up of the ventures.

PROBLEM OF INDEPENDENT PLANS:

Alliances agreements may be signed for a certain specific period. After the specific period, the
parties to the alliances may renegotiate terms and conditions. Parties may try to dictate terms at
the time of renegotiations, and may adopt independent plans which may sour the relations
between the alliance partners.

The technology for manufacturing the bikes was provided by Honda whereas Hero was strong
in its distribution and service network spread across the country.

In December 2010, both the companies decided to part ways in a phased manner because of
unsolved differences and independent plans. Honda decided to sell its stake of 26% to the munjal
family and to exit from the venture.

PROBLEM OF RESOURCES

At times, lack of resources or funds either with one partners or with two parties to the
alliance lead to break-up of the alliances.matters came to a head in 1994, with its internal
resources generations not being adequate, Suzuki proposed a combinations of additional debt and
equity.due to financial constraits,govt.of India finally had to reduce its shareholders from 76% in
1982 to 50% in 1992 and less than 20% in the subsequent years. As of December 2013, Suzuki
motors hold over 56% of total equity and remaining by DFIs and others.

LACK OF TRUST

Qite often, the lack of trust between the alliance partners is responsible for the break-up. The
alliance partners are reluctant to share ideas and support due to the lack of trust. This is possible,
when strangers are brought together to form an alliance and therefore there is no mutual
connections.

In many cases, one party to the alliance blames the other for the failure. Shifting the blame
does not solve the problem but increase the tensions between the alliance partners. Several
alliances in India and overseas have failed due to lack of trust causing unsolved problems, lack
of understanding and despondent relationships.
CULTURAL CLASHES

Clash of cultures is probably a major problem that alliance face today worldwide. The
cultural problems include languages barriers, egos, and different philosophies towards business,
which can create problems in the functioning of an alliances.

Language barriers can affect the parties working together. Thus a good number of strategic
alliances have broken up within a few years of operations.
STRATEGIC CHANGE

MEANING & NATURE OF ORGANISATION CHANGE

A change may be influenced by internal & external factors. Organizational change is any
alteration that occurs in the working of an organization. Changes are introduced in strategies,
procedures, objectives, technology, structure, jobs, design & people

The following are the features of organizational change:

1) Pervasive in nature: Changes are required in all organizational. No organizational can

succeed without a change. A change in one part of the organizational may affect changes
in the other parts of organizations. Some parts may have direct impact whereas others
may have indirect impact. Therefore it is essential for the management to assess
implications of any change in the organization.

2) Necessitates new equilibrium: When a change take place in any part of organization, it
disturbs the existing equilibrium in the organization. A change requires the need for new
equilibrium in the organization.

3) Continuous in nature: Organizational changes are continuous in nature. As long as the

Organizational exists, there would be changes.

4) Reactive & Proactive: A change may be reactive or proactive. A reactive chance is

unplanned & it takes place due to changes in the environment. A proactive chance is the
deliberate attempt on the part of the organizational. It involves deliberate design &
implementation of a structural innovation a new policy, new goal etc.

5) Changes are different from Innovations: Change & Innovation are two different
concepts. All innovation is change, but not every change is innovation. Innovation takes
place when an organization exploits an idea to introduce a new & innovative product, to
develop a new technique method etc. However, change involves any alteration or
modification in an organizational established way of doing things.
 6) Internal & External Factor: An organizational change can take place due to variety of
factors or forces. The forces can internal or external. The internal factors may be in
respect of management –labour relations, management polices etc

7) Degree of change: Changes may differ in terms of degree. Some changes may require
massive restructuring in the organizational such as mergers, takeover etc

8) Risk & Rewards : Changes are subject to risks & rewards Changes may bring positive &
negative outcome.

Reasons for Strategic Chance

1. Crisis: Obviously September 11 is the most dramatic example of a crisis which caused
countless organizations, and even industries such as airlines and travel, to change. The
recent financial crisis obviously created many changes in the financial services industry
as organizations attempted to survive
.
2. Performance Gaps: The organization's goals and objectives are not being met or other
organizational needs are not being satisfied. Changes are required to close these gaps.

3. New Technology: Identification of new technology and more efficient and economical
methods to perform work.

4. Identification of Opportunities: Opportunities are identified in the market place that the
organization needs to pursue in order to increase its competitiveness.

5. Reaction to Internal & External Pressure: Management and employees, particularly those
in organized unions often exert pressure for change. External pressures come from many
areas, including customers, competition, changing government regulations, shareholders,
financial markets, and other factors in the organization's external environment.
 Mergers & Acquisitions: Mergers and acquisitions create change in a number of areas
often negatively impacting employees when two organizations are merged and
employees in duel functions are made redundant.

6. Change for the Sake of Change: Often times an organization will appoint a new CEO. In
order to prove to the board he is doing something, he will make changes just for their
own sake.

7. Sounds Good: Another reason organizations may institute certain changes is that other
organizations are doing so (such as the old quality circles and re-engineering fads). It
sounds good, so the organization tries it.

8. Planned Abandonment: Changes as a result of abandoning declining products, markets,

or subsidiaries and allocating resources to innovation and new opportunities
CORPORATE GOVERNANCE

PRINCIPLES

Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which
came into force on 30th September 1961, the Organisation for Economic Co-operation and
Development (OECD) shall promote policies designed: – to achieve the highest sustainable
economic growth and employment and a rising standard of living in member countries,
while maintaining financial stability, and thus to contribute to the development of the
world economy; – to contribute to sound economic expansion in member as well as non-
member countries in the process of economic development; and – to contribute to the
expansion of world trade on a multilateral, non-discriminatory basis in accordance with
international obligations. The original member countries of the OECD are Austria,
Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy,
Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the
United Kingdom and the United States. The following countries became members
subsequently through accession at the dates indicated hereafter: Japan (28th April 1964),
Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973),
Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May
1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak
Republic (14th December 2000). The Commission of the European Communities takes part
in the work of the OECD (Article 13 of the OECD Convention). The OECD Principles of
Corporate Governance were endorsed by OECD Ministers in 1999 and have since become
an international benchmark for policy makers, investors, corporations and other
stakeholders worldwide. They have advanced the corporate governance agenda and
provided specific guidance for legislative and regulatory initiatives in both OECD and non
OECD countries. The Financial Stability Forum has designated the Principles as one of the
12 key standards for sound financial systems. The Principles also provide the basis for an
extensive programme of cooperation between OECD and non-OECD countries and
underpin the corporate governance component of World Bank/IMF Reports on the
Observance of Standards and Codes (ROSC). The Principles have now been thoroughly
reviewed to take account of recent developments and experiences in OECD member and
non-member countries. Policy makers are now more aware of the contribution good
corporate governance makes to financial market stability, investment and economic
growth. Companies better understand how good corporate governance contributes to their
competitiveness. Investors – especially collective investment institutions and pension funds
acting in a fiduciary capacity – realise they have a role to play in ensuring good corporate
governance practices, thereby underpinning the value of their investments. In today’s
economies, interest in corporate governance goes beyond that of shareholders in the
performance of individual companies. As companies play a pivotal role in our economies
and we rely increasingly on private sector institutions to manage personal savings and
secure retirement incomes, good corporate governance is important to broad and growing
segments of the population. The review of the Principles was undertaken by the OECD
Steering Group on Corporate Governance under a mandate from OECD Ministers in 2002.
The review was supported by a comprehensive survey of how member countries addressed
the different corporate governance challenges they faced. It also drew on experiences in
economies outside the OECD area where the OECD, in co-operation with the World Bank
and other sponsors, organises Regional Corporate Governance Roundtables to support
regional reform efforts. The review process benefited from contributions from many
parties. Key international institutions participated and extensive consultations were held
with the private sector, labour, civil society and representatives from non-OECD countries.
The process also benefited greatly from the insights of internationally recognised experts
who participated in two high level informal gatherings I convened. Finally, many
constructive suggestions were received when a draft of the Principles was made available
for public comment on the internet. The Principles are a living instrument offering non-
binding standards and good practices as well as guidance on implementation, which can be
adapted to the specific circumstances of individual countries and regions. The OECD offers
a forum for ongoing dialogue and exchange of experiences among member and non-
member countries. To stay abreast of constantly changing circumstances, the OECD will
closely follow developments in corporate governance, identifying trends and seeking
remedies to new challenges. These Revised Principles will further reinforce OECD’s
contribution and commitment to collective efforts to strengthen the fabric of corporate
governance around the world in the years ahead. This work will not eradicate criminal
activity, but such activity will be made more difficult as rules and regulations are adopted
in accordance with the Principles. Importantly, our efforts will also help develop a culture
of values for professional and ethical behaviour on which well functioning markets depend.
Trust and integrity play an essential role in economic life and for the sake of business and
future prosperity we have to make sure that they are properly rewarded. The OECD
Principles of Corporate Governance were originally developed in response to a call by the
OECD Council Meeting at Ministerial level on 27-28 April 1998, to develop, in conjunction
with national governments, other relevant international organisations and the private
sector, a set of corporate governance standards and guidelines. Since the Principles were
agreed in 1999, they have formed the basis for corporate governance initiatives in both
OECD and non-OECD countries alike. Moreover, they have been adopted as one of the
Twelve Key Standards for Sound Financial Systems by the Financial Stability Forum.
Accordingly, they form the basis of the corporate governance component of the World
Bank/IMF Reports on the Observance of Standards and Codes (ROSC). The OECD
Council Meeting at Ministerial Level in 2002 agreed to survey developments in OECD
countries and to assess the Principles in light of developments in corporate governance.
This task was entrusted to the OECD Steering Group on Corporate Governance, which
comprises representatives from OECD countries. In addition, the World Bank, the Bank
for International Settlements (BIS) and the International Monetary Fund (IMF) were
observers to the Group. For the assessment, the Steering Group also invited the Financial
Stability Forum, the Basel Committee, and the International Organization of Securities
Commissions (IOSCO) as ad hoc observers. In its review of the Principles, the Steering
Group has undertaken comprehensive consultations and has prepared with the assistance
of members the Survey of Developments in OECD Countries. The consultations have
included experts from a large number of countries which have participated in the Regional
Corporate Governance Roundtables that the OECD organises in Russia, Asia, South East
Europe, Latin America and Eurasia with the support of the Global Corporate Governance
Forum and others, and in co-operation with the World Bank and other non-OECD
countries as well. Moreover, the Steering Group has consulted a wide range of interested
parties such as the business sector, investors, professional groups at national and
international levels, trade unions, civil society organisations and international standard
setting bodies. A draft version of the Principles was put on the OECD website for public
comment and resulted in a large number of responses. These have been made public on the
OECD web site.

PRACTICES

The scope and significance of corporate governance in India increased sizeably in the
recent period, particularly following the financial sector reforms. As Indian corporates are
finding new space in domestic and global markets for business growth, their interaction
with the financial markets and investing community too witnessed significant surge. In this
process, corporate governance came as an effective instrument for companies to
communicate with the various types of stakeholders in general and investors in particular.
What began as an industry initiative of CII, corporate governance today became an
essential part of the culture that defines better run companies and those held in esteem by
the investors and stakeholders. As the rigour of the regulation intensified, governance
standards began to be codified and formed an important part of the evaluation and
assessment process. Clause 49 of the Listing Agreement of the Stock Exchanges is the key
instrument that drives compliance of the corporate governance standards and practices by
companies. Stock Exchanges and regulatory authorities which receive the compliance
reports of the companies regularly assess the record of performance in this regard and take
relevant actions. Securities and Exchange Board of India sending notices to 20 companies
amongst which there are five public sector undertakings, is an instance of review processes
following the receipt of information and filing of reports on 2 compliance of corporate
governance norms. Such measures will make companies more alert in adhering to the
stipulated norms and guidelines. Notwithstanding the ongoing review process of the
regulatory authorities, a scope exists for reviews and studies by independent agencies, and
this study is an instance of such nature. The review makes an attempt to capture the
essence of the quality of corporate governance practice in Indian companies. Given the
huge mass of companies that India has, it would be rather difficult to take a large sample,
which is a time consuming exercise and that require considerable resources. Moreover, it
would be useful to know how the leading companies have devised effective ways of
improving governance standards that could serve as benchmarks for the others. The
review thus examined the practice of corporate governance in 42 companies across 12
sectors that represent the vital sections of the Indian industry. The information is obtained
through corporate governance reports, published in the annual reports of the companies,
feedback obtained through a questionnaire, consultations with officials of corporates, stock
exchanges and regulatory authorities as also independent professionals and analysts. The
outcome of the study is quite encouraging. India has advanced significantly in adopting
better governance standards and its standing in the world is quite high in regard to
designing effective policies and procedures. Several companies go beyond the mandatory
requirements in fulfilling the corporate governance objectives. Companies have developed
philosophies governing the governance practices that were introduced in their respective
companies and the outcome that is being expected from these initiatives. Some of the
modern governance practices such as separation of the Chair and the CEO, constitution of
boards, representation of independent directors, meetings of the board and audit
committees, discussion on the corporate governance practices in the annual reports,
disclosure through a wide range of media and company sources etc., have greatly enhanced
the image of the quality of corporate governance in India. India currently is ranked third
in Asia for the overall quality of corporate governance.

Foreign Direct Investment

Strategies for FDI in India

Foreign direct investment (FDI) is also called "direct foreign investment (DFI)", "direct
investment", or "foreign investment." It is an activity where foreigners come to your
country to set up and/or run a factory, hotel, farms, or other business enterprises. More
precisely, here are some definitions of FDI (my italic):

Definition #1: "Direct investment refers to investment that is made to acquire a lasting
interest in an enterprise operating in an economy other than that of the investor, the
investor's purpose being to have an effective voice in the management of the enterprise."
[IMF Balance of Payments Manual, 4th ed, 1977, p.136]

Definition #2: "The balance-of-payments accounts define direct investment as that part of
capital flows that represents a direct financial flow from a parent company to an overseas
firm that itcontrols." [E.M. Graham and P.R. Krugman, "The Surge in FDI in the 1980s"]

Definition #3: "Direct investment is intended to comprise investments involving a certain

degree of control (by the investor) over the use of the funds invested, whereas portfolio
investment lacks such control." [Rivera-Batiz & Rivera-Batiz, p.220)
It is clear from the above that FDI intends to "control" or, more mildly, "participate in"
the management of a business enterprise. Thus, my definition is:

Definition #4: FDI is an international financial flow with the intention of controlling or
participating in the management of an enterprise in a foreign country. [K Ohno]

FDI is contrasted to "portfolio investment" where there is no intention or interest to

control an enterprise. The purpose of portfolio investment is to get a good financial return
as in the case of investing in stocks, bonds, gold, art objects, etc.

Operationally, there are three types of FDI:

(1) Equity acquisition--buying shares of an existing or a newly created enterprise

(2) Profit re-investment--FDI firms re-investing their profits for further expansion

(3) Loans from a parent company

In additional terminology, if foreigners come to build an entirely new factory (rather than
buying an existing one), it is called greenfield-type FDI.

In addition to 100% foreign-owned firms, there are also "joint venture" (JV) firms where
foreigners and domestic partners set up a company together. The ratio of ownership
(shareholding) varies from company to company. In some countries there are restrictions
on how much foreigners are permitted to own (say, up to 49%). Ownership restriction may
be imposed on only certain "sensitive" sectors. In other countries, there is no such
restriction and 100% foreign ownership is acceptable.

Difficulty in measurement

While the theoretical definition of FDI is clear, in reality there are serious measurement
problems. For example,

(1) Whether a foreign investor has an intention to control or participate in the management
is not directly observable. In the Japanese and US balance-of-payments statistics,
investment is considered FDI if the foreign share is 10% or more; otherwise, it is classified
as portfolio investment. Clearly, this rule is a bit arbitrary.

(2) While a loan from the parent company is counted as FDI, a bank loan guaranteed by
the parent company is not. Again, this is an arbitrary distinction since the two loans would
have virtually the same economic effect.

(3) Whether the value of foreign investment is recorded at book value or at market value
makes a difference. The latter changes due to inflation/deflation and capital gain/loss.
(4) Statistics for commitment (approval or promise to invest) is easier to collect, but actual
implementation is more difficult to know.

General features

Here are some general features of global FDI flows:

(1) FDI is less volatile than portfolio investment or bank loans. In the 1997-98 Asian crisis,
capital inflows in the form of short-term bank loans suddenly reversed, but FDI did not
leave the affected countries. In fact, FDI in the form of mergers and acquisitions (M&A)
rose sharply after the crisis, as foreigners bought up local firms at low cost (i.e., at greatly
depreciated exchange rates).

(2) Generally speaking, FDI among developed countries is much greater than FDI from
developed to developing countries. FDI among developing countries is very small. The only
notable exception to this rule is China's huge absorption of FDI in recent years.

(3) Total FDI data includes mergers & acquisitions (M&A), setting up branch offices,
service FDI, energy and mineral extraction, and so on. Greenfield-type manufacturing FDI,
most desired by developing countries, is only a small part of FDI flows.

(4) Over time, popular destinations of FDI shift. From the viewpoint of Japan as a source
country, the most popular FDI destination in the 1970s was NIEs (Hong Kong, Singapore,
Korea, Taiwan). In the late 1980s it was ASEAN4 (especially Thailand and Malaysia).
Since the 1990s to present, China has emerged as the most popular FDI destination in the
entire developing world.

(5) As far as Japanese companies are concerned, the main motive for investing in East Asia
is the pursuit of low cost and the building of regional production networks. However, the
main motive for investing in EU and NAFTA (US-Canada-Mexico) is market access. This
includes producing within a free trade area (FTA) or customs union so that tariff
exemption and other benefits are enjoyed.

The flying geese pattern

East Asia has emerged from the situation of wars, crises and stagnation in the early
postwar period into the status of industrial competitiveness and higher standard of living
within several decades. While there are different stages of development and growth
performance among the East Asian countries, over time and as a region, their economic
and social achievements have been outstanding. This is the only developing region that
succeeded in catching up with the forerunners significantly and collectively (even with the
setback suffered during the recent Asian crisis). This is in stark contrast with the other
developing regions, especially Sub-Saharan Africa, where no such consistent progress is
visible.

New regional environment

Within East Asia, the patterns of industrialization in Northeast Asia and Southeast Asia
are quite different.

Northeast Asia (Japan, Korea, and possibly Taiwan): In the early stages of
industrialization, tariffs and policy loans were used heavily to protect and promote
domestic enterprises. As they grow bigger and more competitive, protection and policy
interventions were gradually removed. The state played the key role in directing resources.
This is the classical "infant industry promotion" industrialization.

Southeast Asia (Singapore, Thailand, Malaysia, etc.): In these countries, domestic firms
were weak and external pressure for trade liberalization was relatively strong. Instead of
protecting local firms, these countries invited foreign firms to become the core industrial
base. Initially protection and localization requirement were in place. Later, they were
gradually removed. Their big problem is how to link local firms (still weak) with FDI firms,
as supporting industries and receivers of international technology and management skills.

In the current situation, the Japan-Korea type industrialization has become almost
impossible. The main reason is that the pressure for globalization is so strong that no
country can maintain high tariffs in order to protect domestic industries. Latest comer
countries must open up even faster than Thailand or Malaysia, even before they
accumulate sufficient FDI base. The second reason is that local firms of most developing
countries (including ASEAN) are generally much weaker than Japanese or Korean firms of
a few decades ago.

Today, industrialization has become synonymous with inviting FDI. To receive more FDI,
developing countries compete with each other by offering more attractive FDI environment
and incentives, concluding free trade agreements, sending commercial missions to invite
more investment, and so on. This is a big change from a few decades ago, when FDI by
multinational corporations was regarded as economic invasion and exploitation. There
were often violent popular protests against Japanese and Western firms investing in
Southeast Asia. Now we have much less opposition. One reason for this is the great success
of ASEAN type industrialization. Another reason is that foreign companies have learned to
behave more carefully and respect local cultures and sensitivities compared with earlier
times.

Trade liberalization is considered to be very important for inviting FDI (although I am not
sure if this assumption is always valid empirically, or even theoretically). In East Asia, as in
other areas, there are many frameworks for promoting free trade, at various levels
including global, regional and bilateral.

WTO is a global organization. However, its effectiveness is seriously questioned in recent

years. Its trade negotiations seem to proceed too slowly, and many developing countries feel
that they are not receiving enough benefits while being asked to liberalize their trade
regimes too quickly. Many officials and economists pay customary lip service to the
importance of WTO, but they seem to have little trust on multilateral trade negotiations. I
believe this is a sad state of affairs.

AFTA (ASEAN Free Trade Area) is a framework of 10 ASEAN countries (ASEAN in turn
means the Association of South East Asian Nations). Its main purpose is to lower intra-
regional tariffs (called the Common Effective Preferential Tariffs) to 5% or less by 2003
(latecomer countries have later targets) and remove all non-tariff barriers as well. ASEAN
also has other cooperative schemes, including ASEAN Industrial Cooperation (AICO),
ASEAN Investment Area (AIA), Initiative for ASEAN Integration (IAI), etc. One of the key
objectives of ASEAN is to narrow the income gap between original ASEAN members,
which are more developed, and newcomers of "CLMV" (Cambodia, Laos, Myanmar and
Vietnam), which are still very poor.

There was also APEC (Asia-Pacific Economic Cooperation) covering a wide range of
countries, including East Asia, Russia, Australia, New Zealand, US, Canada, Mexico, Peru,
etc). It set the trade liberalization goal of 2010 (for developed countries) and 2020 (for
developing countries). But the momentum of APEC has been lost almost completely. The
main reason for this is that it admitted too many countries with different interests.

Instead, ASEAN-Plus-Three (APT or ASEAN+3) has emerged as the most important East
Asian cooperative framework. The "Three" here means Japan, China and Korea. It is
noteworthy that it excludes Anglo-Saxon Pacific countries like the US, Canada, Australia
and New Zealand. The ASEAN+3 has begun to operate as an institution for regional
economic cooperation, integration and institutional harmonization. (Malaysia's former
prime minister proposed this framework under a different name earlier, but it was rejected
at that time).

At present, China has emerged as a very strong competitor and the "factory of the world,"
at least in the eyes of observers outside China. Not only are its products cheap, but the
quality is also improving. For ASEAN countries, the rise of China is considered a very
serious threat to their industrial development. Not only do they compete directly with
Chinese products in the home and third markets (US, EU, Japan, etc) but they seem to be
losing FDI to China. But China itself faces a serious challenge of domestic restructuring
(SOEs, farm products, automobiles, consumer electronics, etc) as it implements WTO
commitments. How serious and permanent is the Chinese threat? This is a hotly debated
topic today. Since late 2003, China's economic boom (some say bubble) in construction and
consumer goods is causing a worldwide shortage of energy and materials leading to price
hikes in oil, steel, mineral ore, etc. The Chinese economy now greatly affects global prices
and markets.

Recently, China has begun an aggressive economic diplomacy in Southeast Asia. It has
targeted this region as an export market and an FDI destination. The Chinese government
offers selective economic aid to the region (since China is not a member of the OECD
Development Assistance Committee (DAC), it is not bound by the international code of
conduct for ODA providers, including information disclosure, untying of aid, and aid
coordination). China has proposed the China-ASEAN Free Trade Agreement, which
surprised Japan and prompted it to make a similar proposal to ASEAN.

Agglomeration and fragmentation

The third FDI hypothesis mentioned above also suggests that the government wishing to
receive a great amount of FDI must understand the forces behind FDI dynamics very well.
Recent research on trade and FDI points to two forces at play.

Agglomeration: this is an extension of trade theory with spatial external economies (scale
merit in geographical concentration). Similar producers tend to gather in one place. For
example, Silicon Valley in California attracts high-tech firms, while Akihabara in Tokyo is
a huge collection of electronic outlets. Bangalore in India has accumulated software
programmers while Guangdong in China has a concentration of garment and electronics
industries. The importance of agglomeration as a source of locational advantage is now
clearly recognized, although its microeconomic foundation (why they gather like that,
theoretically?) is not well known yet. The important (and in a sense very shocking) thing
about this is that the trade and investment pattern is determined mainly by wise FDI
policy. Even a country with little capital and low educational achievements can attract FDI
and industrialize. In other words, locational advantage is not a given thing, but it can be
created relatively easily (if the government has the will and the skill).

Fragmentation: this means splitting of the production process of one product (from raw
materials to final assembly) into many steps ("production blocks") which are undertaken
in different locations. For example, to produce garment, cotton can be grown in Pakistan,
spinning and weaving can be done in Taiwan, accessories may be produced in China,
sewing and cutting can be done in Vietnam, and marketing can be done in the US. Each
country can participate in the process in which it excels (namely, each country realizes its
dynamic comparative advantage). But to do this, the costs of transportation,
communication and production coordination (these are summarily called "service links")
across countries must be sufficiently low. Otherwise, international division of labor will not
be beneficial. Fragmentation is the opposite to vertical integration, where every process
Foreign direct investment

A foreign direct investment (FDI) is a controlling ownership in a business enterprise in one

country by an entity based in another country.[1]

Foreign direct investment is distinguished from portfolio foreign investment, a passive

investment in the securities of another country such as public stocks and bonds, by the element
of "control".[1] According to the Financial Times, "Standard definitions of control use the
internationally agreed 10 percent threshold of voting shares, but this is a grey area as often a
smaller block of shares will give control in widely held companies. Moreover, control of
technology, management, even crucial inputs can confer de facto control."

The origin of the investment does not impact the definition as an FDI: the investment may be
made either "inorganically" by buying a company in the target country or "organically" by
expanding operations of an existing business in that country.

There are various strategies for attracting & promoting FDI :

1) Greenfield Investment
A green field investment is a form of foreign direct investment where a parent
company starts a new venture in a foreign country by constructing new operational
facilities from the ground up. In addition to building new facilities, most parent
companies also create new long-term jobs in the foreign country by hiring new
employees.

2) Reinvestment of earning
several countries encourage reinvestment of earnings by foreign firms by providing
special incentives such as tax benefits. This strategy does not result in outflow of foreign
exchange by way of dividend or transfer of profits. This strategy adds to the host-
country’s capital stock and as such the productive capacity increases. The host country
may also benefit by way of transfer of technology by the investing firm from abroad.

3) Intra- Company Loans

 Loans made within company from one division or subsidiary to another. Such loans
come under
the scrutiny of the IRS to determine whether it is a bona fide debt or
an equity contribution.

4) Mergers & Acquisitions

Mergers and acquisitions (M&A) are transactions in which the ownership of companies,
other business organizations or their operating units are transferred or combined. As an
aspect of strategic management, M&A can allow enterprises to grow, shrink, change the
nature of their business or improve their competitive position.

From a legal point of view, a merger is a legal consolidation of two entities into one
entity, whereas an acquisition occurs when one entity takes ownership of another
entity's stock, equity interests or assets. From a commercial and economic point of view,
both types of transactions generally result in the consolidation of assets and liabilities
under one entity, and the distinction between a "merger" and an "acquisition" is less
clear. A transaction legally structured as a merger may have the effect of placing one
party's business under the indirect ownership of the other party's shareholders, while a
transaction legally structured as an acquisition may give each party's shareholders partial
ownership and control of the combined enterprise. A deal may be euphemistically called
a "merger of equals" if both CEOs agree that joining together is in the best interest of
both of their companies, while when the deal is unfriendly (that is, when the management
of the target company opposes the deal) it may be regarded as an "acquisition".

5) Non Equity Forms of FDI :

These my involve arrangements in the form of
subcontracting,licensing,franchising,etc.Such
arrangements may not involve capital flows from abroad. However,such arrangements
contribute to the development of the host country’s economic growth & development.

a) Franchising :
Franchising is the practice of the right to use a firm's business model and brand for a
prescribed period of time. The word "franchise" is of Anglo-French derivation—
 from franc, meaning free—and is used both as a noun and as a (transitive) verb. For the
franchisor, the franchise is an alternative to building "chain stores" to distribute goods
that avoids the investments and liability of a chain. The franchisor's success depends on
the success of the franchisees. The franchisee is said to have a greater incentive than a
direct employee because he or she has a direct stake in the business.

b) Licensing means renting or leasing of an intangible asset. It is a process of creating and

managing contracts between the owner of a brand and a company or individual who
wants to use the brand in association with a product, for an agreed period of time, within
an agreed territory.
03)
1) Public private participation in India

A public private partnership {ppp} is a public private business venture which is funded and
operated through a partnership of government and one or more private sector companies.

PPP involves a contract between a public sector authority and a private party, in which the
private party along with a government organization undertakes a public project such as roads and
highways. This partnership assumes substantial finance, technical and operational risk in the
project. The various strategies involved in PPP projects are as follows:

-In some types, capital investment is made but the private sector on the basis of a contract with
government and the cost of providing the service is borne wholly or in part by the government.

-in some cases, the cost of using the services is borne by the users of the services, such as road
toll tax.

-government contributions to a PPP may also be in kind .

-in projects that are aimed at creating public goods like in the infrastructure sector, the
government may provide a capital subsidy in the form of a one-time grant<so as to make it more
attractive to the private investors.

There are usually two main reasons for the govt to enter in PPP.

-PPP enables the public sector to harness the expertise and efficiencies that the private sector can
provide certain facilities and services.

-in certain, where the private sector does the capital investment, the government is relieved from
the burden of borrowing to finance the project.

PPP IN INDIA

The govt.of India defines a PPP as “a partnership between a public

sector entity and a private sector entity for the creation and or management of infrastructure for
public purpose for a specified period of time concession on commercial terms and in which the
private partner has been procured through a transparent and open procurement system.’

Sector wise, the road project accounts for over 50%of the total projects in numbers, and 46% in
terms of values. Ports come in the second place and accounts for8% of the total projects and21%
of the total values .Other sectors including power, irrigation, telecommunication, water supply
and airports have gained momentum through the PPP model. As of2011,these sectors were
expected to get an investment over rs20 lakhs crore.

PPP INFRASTRUCTURE PROJECTS IN INDIA-APPRAISAL AND APPROVAL

PPP project means a project based on a contract or concession agreement, between a govt r a
statutory entity on the one side and a private sector company on the other side, for investing in
construction and maintenance of or delivering an infrastructure service.

PUBLIC PRIVATE PARTNERSHIP DATABASE

The PPP database is collection of project information on PPP projects undertaken in India. The
database maintains, on regular basis, data initially on the following sectors:

-airports

-education

-health care

-ports

-power

-railways

The database captures all the PPP projects since 1996 in India and is updated regularly with any
new development in the existing and under construction projects. The new projects are updated
as and when they are in the public domnent. The database covers only those projects that are
approved by the govt .of India, state government or local bodies.

GOVERNMENTS FINANCIAL SUPPORT FOR PPP PROJECTS

The govt of India has introduced the Viability gap funding scheme for financial support to PPP
in infrastructure.VCF Scheme of the govt of India provides financial support in the form of
grants, one time or deferred ,to infrastructure projects undertaken through public private
partnerships with a view to make them commercially viable. It is a plan scheme administered by
the Annual plans on a year to year basis for the scheme.

The govt also set up India Infrastructure Project Development Fund. The IIPDF would assist
ordinarily up to 75% of the project development expenses .On successful completion of the
bidding process, the project development expenditure would be recovered from the successful
bidder.

PPP PROJECT APPROVAL COMMITTEE

The cabinet committee on economics affairs in its meeting of 27Th oct2005 approved the
procedure for approval of public private partnership approval committee was set up comparing
of the following.

-secretary, department of economics affairs

-secretary ,planning commission

-secretary, department of expenditure

-secretary department of legal affairs

The committee would be serviced by the department of economics affairs, which has set up a
special cell for servicing such proposals. The committee may co-opt experts as necessary.

GOVT GUIDELINESS FOR APPRASIAL OF PPP PROJECTS

Different guidelines for different categories of central sector PPP projects have been issued by
the government from time to time.

The guidelines are:

-guidelines for formulations appraisal and approved of public private partnership projects costing
less than rs100 crore.

-guidelines for formulation, appraisal and approved of public private partnership projects.

-Of all sectors costing more than rs 100 crore and less than rs250 crore.

-Under NHDP Costing rs250 crore or more and less than rs 500 crore.

-Procedure for approval of PPP projects and guidelines for formulation, appraisal of public
private partnership projects in central sector.

These guidelines apply to all PPP projects sponsored by central government ministers or central
undertakings, statutory authorities or other entities under their administrative control.

The procedure specified in the guidelines shall apply to all PPP projects with capital costs
exceeding rs100 crores or where the underlying assets are valued at a sum greater than rs100
crores .For appraisal of ppp projects involving a lower capital cost value, detailed instructions are
issued by the department of expenditure.

IDENTIFICATION OF PROJECT FOR APPRASIAL /APPROVAL

The sponsoring ministry identifies the project to be taken up through PPPs and undertakes
preparation of feasibility studies, project agreements etc. with the assistance of legal, financial
and technical experts as necessary.

PROCEDURE FOR APPROVAL OF CENTRAL PPP PROJECT BELOW RS100CR.

The sponsoring ministry identifies the projects to be taken up through PPP and undertakes
preparation of feasibility studies, project agreement.etc with the assistance of legal ,financial and
technical experts as necessary.

A request for proposal along with copies of all the agreement that are proposed to be entered
with the successful bidder is sent by the administrative ministry to sfc/efc for seeking approval
before financial bids are invited.

Once cleared by the sfc/efc the projects put to the competent authority for approval.
PROCEDURE FOR APPROVAL OF PPP PROJECT COSTING

The government vide notification no 10/32/2006 dated april2,2007 modified the earlier
guidelines for approval.

Accordingly, REP i.e invitation to submit financial bids must include a copy of all the agreement
that are proposed to be entered into the with the successful bidder. After formulating the draft,
the administrative ministry would seek clearance of the SFC.

Planning commission appraises the project proposal and forwards its appraisal note to the
administrative ministry. Ministry of law and any other ministry involved also forward written
comments to the Administrative ministry. The SFC takes a view on the appraisal note and on the
comments of different ministries, along with the response from the administrative ministry.

Financial bids are invited after approval of the competent authority has been obtained. The
competent authority for each project will be the same as applicable for normal investment
proposals costing more than rs 100 cr. However ,pending approval of the competent authority
,financial bids can be invited after the approval clearance by the committee.
2) MEANING OF CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility is a form of corporate self regulation integrated into a business
model. With the help of CSR POLICY, a business organization monitors and ensures its active
compliance with the spirit of the law ,ethical standards ,and international norms. In some models,
a firms implementation of csr goes beyond compliance and engages in actions that appears to
enhance some social goods, beyond the interests of the firm and that which is required by law.
CSR is a process with the aim to embrace responsibility for the company actions and encourage a
positive impact through its activities on the environment ,consumers, employees, communities,
shareholders and all other members of the society.
LORD HOLME and RICHARD WATTS defines CSR ‘as the continuing commitment by
business to behave ethically and contribute to economics development while improving the
quality of life of the workforce and their families as well as local community and society at
large.”

POTENTIAL BENFITS OF CSR

1. TRIPLE BOTTOM LINE: CSR enables a firm to achieve a triple bottom line. the triple
bottom line consists of 2 main elements-people ,planet ,and profit

-people relates to fair and beautiful business practices towards employees, the community and
the region where a firm conducts its business. In other words, business should create social
value.

-planet refers to sustainable environment practices. A triple bottom line company does not
produce harmful or destructive products such as toxic chemicals or batteries containing
dangerous heavy metals.
It focuses on eco friendly initiatives such as conservation of natural resources and recycling of
waste.
It also focuses on eco friendly products. I other words, a business needs to create environmental
value.
Profit is the economics value created by the organization after deducting the cost of all inputs,
including the cost of the capital. It is necessary for a firm to create economic value to survive and
prosper.

2 .Human resources: A CSR program can be an aid to recruitment and retention. ESPICALLY
IN ADVANCE countries, potential recruits or employees often ask about a firm csr policy
during an interview and having a comprehensive policy can give an advantage.csr can also help
improve the perception of a company among its staff, particularly when staff can become
involved through payroll giving fundraising activities or community volunteering.

3. Risk Management : Managing risk is a central part of many corporate strategies. Reputation
that take decades to built up can be ruined in hours through incidents such as corruption scandals
or environmental accidents. These can also draw unwanted attention from regulations, courts,
government and media. Building a genuine culture of doing the right thing within a corporation
can offset these risks.

4.Brand Differentiation: In competitive business environment, companies strive for a unique

selling proposition that can separate them from the competition in the minds of consumers.CSR
can play a role in building customers loyalty based on distinctive ethical values. Several major
brands are built on ethical values. Business services organization can benefit too from building a
reputation for integrity and best practice.

5. Engagement Plan : An engagement plan assists in reaching a desired audience. A

CORPORATE SOCIAL RESPONSIBILITY TEAM OR INDIVIDUAL IS needed to effectively
plan the goal and objectives of the organization. Determining a budget should be of high priority.
The activities of corporate social responsibility planning.

6. License to operate: Business firms are keen to avoid interference I their business through
taxation or regulations. By taking substantive voluntary steps, firms can persuade govt and the
wider public that they are taking issues such as heath and safety, diversity or the environment
seriously as good corporate citizens with respects to labour standards and impacts on the
environment.

7.Corporate Image: On the whole, csr improves corporate image in the minds of various sections
of the society . customers ,employees, shareholders and other stakeholders respects and trust
business firms that focus on csr activities which are socially desirable.

3) ENVIRONMENTAL ACCOUNTING

The term environmental accounting has many meanings and uses. It can support national income
accounting, financial accounting or internal business management accounting. Environmental
protection Agency (EPA) of USA has explained environmental accounting at three levels:

1. Environmental accounting with reference to national income accounting refers to

natural resource accounting, which can entail statistics about a nation or region's
consumption, extent, quality and value of natural resources both renewable and
nonrenewable.
2. Environment accounting with reference to financial accounting refers to the preparation
of the financial environmental reports for external audiences using GAPP (Generally
Accepted Accounting Standards).
3. Environmental accounting as an aspect of management accounting serves business
managers in making capital investment decision, costing determination, process/ product
design decisions, performance evaluation, etc. Thus, environmental accounting at this
level refers to the use of data about environmental costs and performance in business
decisions and operations.
 Identification includes a broad examination of the impact of corporate products,
services and activities on all corporate stakeholders.
 After companies identify the impacts on stakeholders as far as they can, they
measure those impacts (costs and benefits) as precisely as possible in order to
permit informed management decision-making.
  After their environmental impacts are identified and measured, companies
develop reporting systems to inform internal and external decision-makers.

Reasons for Environmental Accounting:

 To help managers make decisions that will minimize their environmental costs;
 To better track environmental costs that may have been previously obscured in overhead
accounts or otherwise overlooked;
 To better understand the environmental costs and performance of processes and products
for more accurate costing and pricing of products;
 To broaden and improve the investment analysis and appraisal process to include
potential environmental impacts; and

Role of Management Accountant in Environmental Accounting

The management accountant has an important role to play on the corporate environmental team.

The management accountant may help develop and implement environmental analysis tools and
techniques in several ways, such as:

 Helping assess the need for new or modified management information and financial
systems;
 Developing capital investment and appraisal tools that more effectively incorporate
environmental costs and benefits;
 Isolating and computing individual environmental costs;
 Helping resolve conflicts between environmental management and traditional financial
management systems, such as those that occur in capital investment appraisal;
 Considering the financial costs and risks associated with an investment or product/
process design choice that will likely cause or increase pollution;

TECHNIQUES OF ENVIRONMENTAL ACCOUNTING

Companies use a variety of tools and techniques in order to integrate environmental impacts into
management decisions. Therefore, management needs to focus on three decision-making
processes:

 Costing Analysis
 Investment Analysis
 Performance Evaluation.

I. Costing Analysis

Effective corporate environmental management is impossible without an adequate system to

identify and measure environmental costs. Some of the tools and techniques that can help
companies define the activities, processes and products that causes environmental costs are:

 Allocation of environmental costs;

 Product Life-cycle assessment;
 Hierarchical cost analysis;
 Activity-based costing; and
 Quantification and monetization of externalities and full environmental cost accounting.

1. Allocation of Environmental Costs : It is generally agreed that, decades ago, the lack of
understanding of the environmental impacts of products and services and their related
legal liabilities caused companies to ignore those impacts in their calculation of product
costs. Thus, the products that caused those costs were under costed and probably under-
priced.
Companies generally distinguish among three categories of environmental costs. These
are costs incurred to respond to:
 Past pollution not related to ongoing operations;
 Current pollution related to ongoing operations;
 Future environmental costs related to ongoing operations.
2. Product Life-Cycle Assessment: The momentum toward responsible management of
global energy and environmental resources is unmistakable and irreversible. Proper
 Product LCA provides opportunities for impact reduction which includes: minimizing
energy and raw material consumption; introducing closed-loop systems for chemicals;
minimizing activities that destroy habitat; and minimizing release of pollutants.
Professional firms in developed countries are applying various methods and techniques
that encourage a comprehensive evaluation of all "upstream" and "downstream"
effects of their activities or products.
3. Hierarchical Cost Analysis: At the initial stage of implementing a corporate
environmental strategy, companies are seeking the least costly option for complying with
environmental standards. Companies may believe pollution concerns have minimal
importance or value to their success; their investments for environmental projects usually
focus on pollution control
In one such study, the EPA developed a hierarchical costing method to identify, track and
monitor environmental costs for companies. This technique for pollution prevention
contains a four-tier hierarchy of costs including:
 Tier O, Usual Costs - are directly linked with a project, products or process.
They typically include the following:
 Tier I, Hidden Costs - refer to regulatory compliance or other costs that are
"hidden" or lumped into a general account. These are hidden costs because
they are obscured in overhead accounts, making it impossible for managers to
manage them effectively.
 Tier 2, Liability Costs - are costs associated with contingent liabilities that
may result from waste and materials management. Just as the regulatory costs
of Tier 1 are hidden, so too are many of the contingent liability costs.
In Tier 2, Liability Costs - the management needs to:
 Identify waste-management issues with which liabilities can be
associated.
 Estimate total expected liabilities.
 Estimate expected years of liability incurrence.
 Estimate the firm's share of total future liabilities.
 Tier 3, Less Tangible Costs - are benefits that derive from improved
corporate image, customer acceptance and community goodwill. A company
 may realize savings in less tangible costs as a result of reducing or eliminating
pollution.
Tier 3, Less Tangible Costs - the management needs to:
 Identify qualitatively less tangible costs and benefits of pollution
prevention.
 Quantify less tangible costs and benefits of pollution prevention.
4. Activity-Based Costing (ABC): When organizations incur environmental costs, not all
processes and products are equally responsible for cost generation. Even in modest sized
manufacturing firms with two or three production lines, environmental costs are not
driven equally by each production line. Various lines may contain more hazardous
materials, generate more emissions per unit of output, require more frequent intensive
inspection and monitoring, and generate greater quantities of waste requiring off-site
disposal.
Traditional accounting systems usually fail to provide accurate environmental cost
information, for two main reasons:
 They often allocate environmental costs to overhead costs;
 They often combine environmental costs into cost pools with non-
environmental costs.
ABC provides two approaches for tracking the costs of activities:
 One approach is to establish sub-accounts in the general ledger, which
allocates costs to various activities in the appropriate proportions. This
approach resembles traditional accounting systems but permits the
organization to emphasize environmental costs.
 The other approach is to mirror more closely the actual flow of costs through
the organization.
5. Quantification and Monetization of Externalities and Full Environmental Cost
Accounting: Despite much progress, corporate costing systems fail to produce a true
picture of environmental costs. For instance, no company has fully implemented a system
to integrate all present and future external and internal environmental costs into its
product costing system. For external costs, it is difficult to measure the cost to society of
such factors as the degradation of quality of life caused by air pollution.
 II. Investment Analysis and Appraisal

In many organizations, traditional investment analysis and appraisal approaches overlook

pollution prevention projects. Pollution prevention projects usually fare poorly because a
systemic bias in traditional investment analysis places them at a competitive disadvantage.

Total Cost Assessment (TCA)

Company investment projects must usually pass a so-called "hurdle rate," or an acceptable
profitability threshold. Environmental projects must compete with other investment alternatives
environmental or otherwise. A critical dimension of this capital allocation process is to examine
how a firm defines and estimates project costs and benefits.

Multi-Criteria Assessment (MCA)

Another technique that offers improvements to traditional investment analysis and appraisal is
multi-criteria assessment (MCA). MCA is designed to help companies systematically evaluate
options according to multiple criteria that are sometimes measured on different and/ or non-
commensurable scales. This evaluation tool enables organizations to consider and trade off all
relevant criteria in decision-making.

The main objectives of MCA are to:

 Display trade-offs among different objectives (i.e., cost, social, environmental,

reliability, risk, etc.)
 Help participants in the decision-making process decide what trade-offs they are willing
to accept, determine which alternatives they prefer, and document the results.

Environmental Risk Assessment and Uncertainty Analysis

Although the terms uncertainty and risk are often used interchangeably, they are distinctly
different.

Uncertainty relates to a situation in which the probability distribution of an event is unknown;

risk relates to a situation in which such a distribution is known. To assess risk in environmental
situations, it is often suggested that the company make adjustments to the cost and benefit
profiles rather than to the discount rate. A better approach to this problem is to test the sensitivity
of the outcome of project evaluations to variations in the key parameters.

Environmental decisions are considered complex and risky, and can cause enormous financial
impact. Remediation costs for environmental spills and other accidents, fines, penalties, legal
costs, damages and bad decisions have increased dramatically in recent decades.

III. Performance Evaluation

At this stage, companies are committed to fully integrating environmental considerations into
corporate life and recognize the importance of integrating environmental measurements into their
performance evaluation systems. This ensures that statements of environmental responsibility
articulated by the CEO and in corporate mission statements are properly implemented.

Environmental performance evaluation techniques include:

 Corporate, strategic business units and facilities evaluations;

 Individual incentives;
 Environmental multipliers;
 Internal waste and environmental taxes.

Corporate, Strategic Business Units and Facilities Evaluations

Numerous organizations have developed environmental performance indices to help them gauge
the performance of strategic business units and company facilities. This development is
sometimes prompted by external evaluators and sometimes as part of a comprehensive
performance evaluation system that is used partly to encourage better environmental
performance.

Individual Incentives

The traditional accounting system in most organizations acts as a negative incentive

(disincentive) to report potential hazards or violations of environmental laws, corporate goals
and corporate practices. Employees are sometimes reluctant to notify a manager about a potential
hazard, as they believe that eliminating the hazard might cause the business unit to suffer a short-
term financial loss. This expenditure typically is viewed as an expense rather than an asset and
often reduces a manager's overall rewards.

To confront this concern, many companies encourage excellence in environmental performance

by establishing individual environmental goals and tracking progress toward those goals.

Balanced Scorecard Measures

Companies seldom connect various financial performance measures with non-financial measures
of corporate performance in such areas as productivity and environmental management.

The corporate scorecard developed by Kaplan and Norton is based on recognition that managers
need both financial and operational measures to effectively manage an enterprise and that a
choice between the two is unnecessary.

Kaplan and Norton state that "the balanced scorecard is like the dials in an airplane cockpit: it
gives managers complex information at a glance. It also forces managers to recognize how
implementing one corporate policy affects the performance of several variables simultaneously
and to consider whether improvement in one area may have been achieved at the expense of
another."

ENVIRONMENTAL AUDIT

Environmental audit aims at verification and validation to ensure that various environmental
laws are complied with and adequate care has been taken towards environmental protection and
preservation.

The International Chambers of Commerce (ICC) in its publication Environmental Auditing

(1989) defines environmental auditing as "a management tool comprising a systematic,
documented, periodic and objective evaluation of how well environmental organization,
management and equipment are performing, with the aim of helping safeguard the
environment by:

a. Facilitating management control of environmental practices;

 b. Assessing compliance with company policies which would include meeting
regulatory requirements.’’

The definition given by ICC is unanimously accepted definition. Many leading companies follow
the same basic philosophy and approach as given by this definition.

Features of Environmental Audit:

1. Management Tool: Environmental audit is generally considered as one of the

management tool which is a part of internal control system and is mainly used to assess,
evaluate and manage environmental performance of a company.
2. Aim of Environmental Audit: A green audit may be conducted for many purposes, for
example, to comply with environmental laws or as a social responsibility measure or to
meet some certification requirements. But the main and ultimate aim of any
environmental audit is to evaluate and control the adverse impact of economic activities
of an organization on the environment.
3. Environmental Audit is Different from Environmental Impact Assessment (EIA):
EIA is a tool used to predict, evaluate and analyze environmental impacts mostly before a
project commences. It assesses the potential environmental effects of a proposed facility.
Environmental audit looks at environmental performance for an existing operation or
activity.
4. Systematic Process: Environmental audit is a systematic process that must be carefully
planned, structured and organized. As it is a part of a long-term process of evaluation and
checking, it needs to be a repeatable process so that over time, it can be easily used by
different teams of people in such a way that the results are comparable and can reflect
change in both quantitative and qualitative terms,
5. Documented: Like any other audit, the base of any environmental auditing is that its
findings are supported by documents and verifiable information. The audit process is
designed in such a way that it seeks to verify on a sample basis past actions, activities,
events and procedures with available evidences to ensure that they were carried out
according to system's requirements and in a correct manner.
 6. Periodic: Environmental audit is generally conducted at pre- defined intervals. It is a
long-term process because it can sometimes take long time before sustainable
environmental change and improvement can be tracked clearly.
7. Objective Evaluation: Though environmental auditing is conducted using pre-decided
policies, procedures and a proper documented system, there is always an element of
subjectivity in an audit, particularly if it is conducted internally.
8. Environmental Performance: As mentioned before, the essence of any environmental
audit is to find out how well the environmental organization, environmental management
and environmental equipments are performing.

Objectives of Environmental Audit

The following are major objectives of environmental auditing:

 Determine and document compliance status;

 Help to improve environmental performance at operational facilities;
 Assist facility management;
 Increase the overall level of environmental awareness;
 Improve the risk management systems;
 Protect the corporation from potential liabilities.

Benefits of Environmental Auditing:

1. Improves efficiency of Environmental Management System (EMS): Environmental

auditing encourages an organization to examine its operations in a constructive manner
and is the cornerstone of an effective EMS. It helps in assessing performance of the EMS,
identifies deficiencies in the system and provides the basis for environmental
improvement plans.
2. Compliance with environmental laws and standards: The most important benefit of
environmental audit is that it ensures cost effective compliance with environmental laws
and regulations, industry guidelines and standards, and company's own environmental
policies.
 3. Risk mitigation: There is a growing belief that environmental issues represent a source
of risk in terms of unforeseen or foreseen reputation damage or similar other risks. In
fact, it is the concern regarding environmental risks which has led to the development of
the field of environmental auditing.
4. Meeting stakeholders' expectations: These days, stakeholders have heightened
expectations for a company's environmental performance. They are concerned about
environmental responsibility and want to know about potential hazards and future
environmental liabilities of the companies. Conducting environmental audits will help in
reassuring various stakeholders that the company is living up to its environmental
principles. It helps in enhancing reputation of the company as a good corporate citizen.
5. Reduction in operational inefficiencies: Environmental auditing can highlight areas of
inefficiencies in the operations and processes, for example, where the amount of
resources used are out of proportion to the amount of items or services produced and
sold.
6. Encourages continual improvement: By pinpointing both strengths and weaknesses in
the environmental management and other environmental audit encourages continual
improvement. It is to be noted that environmental audit will cost an organization both
time and money but if approached correctly, the organization should be able to recover
these costs very easily.
7. Compliance with certification requirements: Conducting an environmental audit can
be an important step towards gaining a companywide certifications like, ISO 14001 or
product specific certification from organizations like, Energy Star, LEED (Leadership in
Energy and Environmental Design), the Forest Stewardship Council, Chlorine Free
Products Association, etc.

Environmental Audit Process

Stage I: Pre-audit or Planning Stage.

1. Collect background information about the entity: Collect information about

environmental policy and goals of the organization, relevant environmental laws,
regulations and standards governing the entity, persons responsible for carrying
 environmental duties, environmental budget, significant environmental matters like,
material costs, risk areas, etc.
2. Define objectives of audit: What are the goals of the audit?
3. Define scope: areas of a facility (operations) that will be audited - the programmes that
will be audited - the period for which audit will be done.
4. Choose audit criteria: Against what will the facility be audited (e.g., for regulatory
compliance audits, against the specific regulations or standards will the facility be
audited.
5. Select the audit team members: The audit team leader selects team members based on
appropriate knowledge and experience. The team can consist of external consultants, and
internal staff. If internal staff is going to be involved, they should be chosen in a proper
way so as to avoid conflict of interest. The facility environmental manager, for example,
should not be on the audit team.
6. Develop audit plan and protocols: Protocols are written guides for the auditors that
outline the activities to be undertaken in conducting a review of a given topic area during
the environmental audit.
7. Inform the facility: Arrangements for on-site activities need to be made.

Stage II: On-site or Field Audit

1. Opening conference: Communicate the objectives and methods of the audit of key
facility personnel and schedule necessary meetings and interviews.
2. Facility tour: Identify areas of concern for more detailed inspection, get a feel for the
site and modify the audit schedule accordingly.
3. Site/facility inspection: Established protocols should guide the inspection. The team
may also wish to inspect areas of concern or interest that they have been identified in the
facility tour. It may not be possible to inspect the entire facility therefore, sampling
techniques may be an important part of determining the parts of a site to be inspected.
4. Evidence: Collect sufficient, appropriate and reliable audit evidences to check the
activities, performance impacts and reports.
5. Records/ document review: The audit protocols should give instructions as to the types
of records to request as well as what to look for when examining the documents.
 6. Staff interviews: Interviews with key informants will yield the least reliable information,
due to the fallibility of human memory, but are important in the identification of potential
problems and in collecting information about facility operations.
7. Initial review of findings: Findings are the result of the evaluation of evidence collected
against audit criteria. It is Important at this stage to review where the facility does not
meet the audit criteria.
8. Closing/exit conference: This is a chance for auditees to identify misunderstandings and
to be introduced to the findings of the audit team.

Stage III: Post – Audit

1. Final evaluation of findings: Findings must be backed by evidence. It is important to

note areas of deficiency that were present during the previous audit, but are not yet
corrected, Often finding are labeled as major or minor depending on the level and types
of risks posed and speed with which the audit team feels they should be addressed.
2. Drafting of preliminary audit report
3. Approval of the management
4. Holding of exit conference
5. Discussion on recommendations, if any
6. Preparation and submission of final report.

Stage IV: Follow up or Review Stage

This is also called corrective action follow-up phase. While not technically part of the audit, the
audit manager or team leader may be involved in developing a corrective action plan for
addressing audit findings with the facility. He needs to report to senior management as to the
progress of this plan.

ENVIRONMENTAL AUDIT REPORT

The end product of environmental audit is environmental audit report (EA Report) which
contains findings or results of environmental audit and recommendations for improvement, if
any. EA report should be concise and informative with information displayed in a format that is
easy to interpret and understand.
Contents of Report

A standard EA report should include the following:

1. Executive summary
2. Object of environmental audit
3. Scope of environmental audit
4. Audit criteria
5. Description of Audit approach and methodology used
6. Evidences used
7. Conclusion
8. Recommendations: It includes possible impacts of negative finding and suggested
corrective action and recommendations for environmental performance
improvement.
9. Signatures of auditor with date.

The Audit report should be complete, precise, accurate and balanced. It should contain
constructive and precise recommendations. It must be persuasive and instrumental in inspiring
the managements of entities to take corrective actions. The violations and omissions should also
be effectively mentioned in the report. The contents of green audit report should be easy to
understand and free from vagueness or ambiguity, include information which is supported by
complete and relevant audit evidence and be independent, objective fair and constructive.

Tools and Techniques Used in Environmental Auditing

1. Checklists: Checklists are very useful tools used to ensure that different tasks or topics
are included during the audit. They are very useful in specialized cases where a complex
range of issues and questions need to be asked to ensure that nothing is missed.
2. Questionnaires: Audit protocols or audit questionnaires provide the basis and structuring
for most audits. They are based upon checklist questionnaires but are more complex and
include more detail and sometimes logistical information and data relating to the audit
and the site being audited.
 3. Questioning: Questioning is one of the most crucial aspects of auditing yet from a
training and awareness point of view, it is often given the least attention. The purpose is
information gathering in nature and not an interrogation. The questioner must, therefore,
be sensitive to the perspective of the auditee and avoid making the questions accusatory,
judgmental or aggressive.
4. Observation: Observation is a vital component of an auditing exercise.
Observation is a disciplined activity which must be carried out in a very deliberate and
controlled manner. The idea of looking at something twice is important because it is part
of the process that checks that the observation is accurately noted, analyzed and
recorded.
5. Photographs: These are a very valuable aid in the audit process. However, in order to
use them, a number of important practical points must be borne in mind. The most
important one is formal approval before using this technique.
6. Research: It is useful to try and undertake some background research and investigation
into the site or company to be audited. Familiarization with the operations, products, raw
materials reports, press material and newspaper articles etc. all provides useful
background information to supplement questioning sessions and help understand the
operational processes.

TYPES OF ENVIRONMENTAL AUDIT

According to International Organization of Supreme Audit Institutions (INTOSAI)

environmental audits can be broadly classified into three parts:

 Environmental Compliance Audit,

 Environmental Performance Audit,
 Environmental Financial Audit.

A. Environmental Compliance Audit

It consists of verification of environmental activities to check compliance with environmental
legislation, standards, industry guidelines, and company policy. The need for compliance audits
is clear.

1. Objective: To provide assurance that organizational activities are conducted in

accordance with relevant environmental laws, standards, guidelines and policies.
2. Focus: All applicable obligations.
3. Audit Criteria: National law, Supra-national law, International agreements, Applicable
standards, Industry guidelines, or corporate policy.
4. Main Benefits: The main benefits of compliance audit are:
 Helps in ensuring compliance with environmental laws.
 Reduces risks and costs associated with non-compliance.
 Identifies liabilities and risks (present and potential).
 Helps in knowing the gap between promises and results achieved by policies.
 Saves costs by minimizing waste, conserving resources and preventing pollution.
 Helps in improving environmental performance.

There are various types of compliance audits such as energy audit, certification audit,
surveillance audit and supplier audits:

B. Environmental Performance Audit

Measurement of environmental performance and impacts and its reporting to concerned

shareholders has become important in past few decades.

1. Objective: To assess whether an organization meets its environmental objectives, is

effective in producing environmental results, and operates efficiently and economically.
2. Focus: Focus of environmental performance audit is on
 Environmental performance of the audited entity in different areas.
 Conduct of Environmental programmes in an economical, efficient and effective
manner.
 3. Audit criteria: Performance indicators prescribed by some professional institutes,
government or non-governmental organizations, supra-national bodies, academic
literature or environmental organizations..

C. Environmental Financial Audit

In environmental financial audit, all financial/ monetary transactions relating to environmental

activities of an organization are verified by the auditor.

1. Objective: To enable an auditor to establish whether the reporting entity has

appropriately recongized, valued and reporting all significant environment costs, benefits,
assests, liabilities, and contingencies.
2. Focus: On accuracy and authenticity of environmental financial information provided in
the annual reports.
3. Criteria: Standards issued by recognized bodies, standard setting authorities, guidance
notes, and other academic literature.

As per International Auditing Practices Statement (IAPS) 1010, following environmental matters
may significantly affect financial statements and hence, should be considered during an audit of
financial statements:

1. Initiatives to prevent or remedy damage to the environment, or to deal with conservation

of renewable and non-renewable resources.
2. Consequences of violating environmental laws and regulations;
3. Consequences of environmental damage done to others or to natural resources; and
4. Consequences of vicarious liability imposed by law (for example, liability for damages
caused by previous owners).