Management

BALANCED SCORECARD: A Multi-stream Performance Measurement tool for Public Sector Corporations in Bangladesh
Md. Nazim Uddin Bhuiyan, FCMA* Mofijul Hoq Masum**
Abstract: The Balanced Scorecard (BSC) developed by Kaplan and Norton (1992) has become a very popular and useful performance measurement and strategic management tool, because it considers both the financial and non-financial factors of a firm to measure its performance. However, the assumptions of the BSC, as developed by Kaplan and Norton (1992), are essentially based on private organizations (PO). In this paper a framework of the balanced scorecard for the Public Sector Corporations (PSC) was attempted based on the original BSC theoretical framework. From the study, five dimensions are suggested for a Public Sector Corporations BSC (PSC-BSC), those are 1. Financial condition; 2. Service Efforts Accomplishments and stakeholders satisfaction; 3. Internal operating efficiency and effectiveness; 4. Innovation, learning and growth and 5. Non market perspective. It is expected that by applying this technique the Public Sector Corporations will be able to get competitive advantages in the market as it uses some strategically linked financial & non financial measurement tools in order to evaluate performance. This technique will help them to translate their strategies into actions as well. Keywords: Public Sector Corporations Balanced Scorecard, Performance Measurement, Service Efforts Accomplishment, Nonmarket Perspective.

Introduction
Over the past two decades, several financial crises involved major governmental entities in the country like the Adamjee Jute Mills in Naraynganj, Khulna Newsprint Mills Limited in Khulna, Karnaphully Paper Mills in Chittagong, Bangladesh Biman, etc. Some of the public sector corporations were liquidated due to the incurrence of huge loss over the years. One of the severe problems of these public sector corporations is their one stream performance measurement systems which only consider the financial factors, in case of measuring the performance of the corporations. The arguments put forward in the relevant literature reveal that the use of non-financial measures for performance evaluation enables the manager to understand those factors that are most critical to the firms long term success (Lynch and Cross, 1991; Maisal, 1992; Newing, 1995; Thorne, 1995). Besides this there were hardly any linkage between the activities of these public sector corporations & the vision & mission of these companies. For these reasons we need a multi facet performance measurement system that considers not only the financial factors, but also the nonfinancial factors. At the same time the performance measurement system of the entities should construct a linkage among the vision, mission and functions of an entity. Kaplan and Norton (1992) developed an innovative performance measurement tool called Balanced Scorecard (BSC) that consider both the financial & nonfinancial factors to measure the performance of the entities. We believe that this performance measurement tool can be adopted for the public sector corporations in Bangladesh. After more than ten years, the BSC has become popularly accepted and its literature is now inexhaustible. Figg (2000) reported that
* Mr. Md. Nazim Uddin Bhuiyan, FCMA, Associate Professor, Department of Accounting & Information Systems, Faculty of Business Studies, University of Dhaka, Cell Phone: 01818946368 ** Mr. Mofijul Hoq Masum, Lecturer, Faculty of Business Administration, Eastern University, Dhanmondhi R/A, Dhaka-1205, Cell Phone: 01199436474

Many of the worlds leading organizations claim that balanced scorecard technique gives them an edge in objectively quantifying, tracking, and managing business performance. Kaplan and Norton (1993) suggested how to put the BSC to work, while Kaplan and Norton (1996, 2001a and 2001b) extended the BSC beyond a simple measurement tool to a strategic tool. Hence we believe that the BSC philosophy can provide us the way to remove the existing shortcomings of the public sector corporations & accelerate its operations.

Objectives of the Study

The Balanced Scorecard (BSC) is a performance measurement tool that considers both the financial & non-financial factors of the entitites. Within the last two decades, it becomes a very popular and useful measurement and strategic tool. However, the assumptions of the BSC, as developed by Kaplan and Norton (1992), are essentially based on private organizations (PO), some scholars suggest that with some modifications it is applicable to the public sector corporations also. In this study we try to show that balanced scorecard is applicable not only for the private organization, but also for the public sector corporations. We also suggested that with some modifications the BSC can be adopted in the public sector corporations in Bangladesh. The study is organized as follows- first, we dictate the major differences between PO and PSC. Second, we propose distinctive performance measurement perspectives that take into consideration the specificities of PSC. Last of all, we tried to develop a framework of BSC for the public sector corporations in Bangladesh.

Literature Review
Traditional financial performance measures such as Return On Investment (ROI) or Net Income (NI) does not consistently support the intended strategy. In recent years numerous authors have expressed discontent with traditional measures of organizational
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performance, which mainly focus on financial criteria (Lynch and Cross, 1991; Kaplan & Norton, 1996). Consequently the past overemphasis on such financial criteria as operating income , sales growth, return on investment and earnings per share to measure the firms performance have resulted in the organizations losing sight of important indicators which measures levels of customer satisfaction, process flexibility or adaptation in response to changing needs. The argument put forward in the relevant literature that use of nonfinancial measures for performance evaluation enables the managers to understand those factors that are most critical to the firms long term success (Lynch and Cross, 1991; Maisal, 1992; Newing, 1995; Thorne, 1995). The National Association of Accountants (NAA) in its monograph Measuring Entity Performance (1986) observed: Nonfinancial performance measures provide a rich opportunity for managers to improve entity evaluations and operations. Such measures direct managements attention to the entities operation and, in the long term, may better reflect the financial returns generated by an entity, than do the short term historical financial measures. (cited in Lothian, 1987) Several writers (e.g.,Kaplan & . Norton, 1996; Simons 1995) suggested the appropriate performance measures to include in a performance reporting system depended on the business strategy. Ittner et al. (1978) suggested one potential determinant of the relative information content of alternative performance measures is the firms business strategy. Kaplan and Norton (1992) developed an innovative performance measurement tool called balanced scorecard (BSC) that consider both the financial & non-financial factors to measure the performance of the entities. Moreover the balanced scorecard translates an organizations mission & strategy into a comprehensive set of performance measures (Kaplan and Norton, 1996). However, until recently, researchers have essentially focused their attention on the application of the BSC in private organizations only. Research on the applicability of this useful measurement and strategic management tool to public sector corporations is very limited. A few prior studies have looked at the application of the BSC to not-for-profit organizations like schools and universities (Pineno, 2007; Papenhausen & Einstein, 2006; Drtina, Gilbert, & Alon, 2007; and Chang & Chow, 1999; Hoque, Akter, Hossain 2008). Studies on the applicability of the BSC to public sector corporations are needed, because the contexts in which private organizations (PO) and PSC operate and the ways they operate are not exactly the same. Hence the development of a customized BSC model for public sector corporations is beyond question. initiative to revise the investment policy making greater room for private enterprises in the economy. In the revised investment policy of 1974, only 18 sectors were reserved for the public sector and the remaining sectors were kept open for private investment and the ceiling for private investment was raised to taka 30 million. The Second Five-year Plan for 1980-85 was revised and the allocation for private sector industry was enhanced from 25% in 1980-81 to 59.4% in 1981-82 (2nd Five-year plan). A few sectors were set aside for state-owned enterprises; those were air transport, telecommunication, and nuclear energy, power, and defense goods. All other sectors and kinds of industries were made open for private investment without any upper limit. The major capital intensive public sectors such as jute and cotton textile, sugar, paper, steel, shipbuilding, heavy electrical, minerals, and oil and gas were also made open for either public or private investment or for partnership of both. In 1998-99, the non-financial public sector enterprises as a whole suffered operating loss of taka 47.56 million while the financial, insurance and other departmental undertakings transferred taka 31.58 million from their profit to the treasury (www.banglapedia.org). Thirty eight public sector enterprises have been identified as defaulters in repayment of loan of the nationalized commercial banks and development financial institutions and the amount of default on 31 January 2000 stood at taka 209.01 million, which was 47% of their total borrowings (www.banglapedia.org). Earlier, on June 30, 2002, the government closed the Adamjee Jute Mills after it had incurred a loss of Tk 12 billion since its nationalisation in 1972 (www. thefinancialexpress-bd). The government took the decision to hand over the total area and assets of the closed mill to BEPZA for establishing an EPZ on December 1, 2004. One of the major problems of these public sector corporations is their one stream performance measurement system. Moreover these companies have very little linkage between its opertions and its mission & vision. For that reason we believe that if these corporations use the multi stream performance measurement system, like the Balance Scorecard then they can avoid the above phenomena.

Public Sector Corporations (PSC) VS Private Organization

The realistic application of the BSC framework to the public sector corporations requires an in-depth knowledge about the differences between PSC and PO. Anthony (1995) pointed out that a major difference between public sector corporations and profitable organizations is the source of their equity capital because unlike PO, which obtains equity capital from shareholders, PSC obtain equity capital from contributors (in form of endowment, buildings, works of art, and similar long-lived items). Again, contributors of PSC do not expect to receive either repayment or economic benefits of the contributions made. Anthony (1995) also argued that movements in the price of POs stocks provide quick signals of how well a company is doing and allows unhappy investors to cast a no vote by selling their stocks. Indeed, the American Institute of Certified Public Accountants (AICPA) has indicated that the principal goal of a business enterprise is to maximize monetary wealth so that over time it can return the maximum amount of cash to its owners. In contrast, the operating objective of public sector corporations is not only to maximize profit but also to implement some other strategies of the government. These differences in operating objectives between the two types of organizations have significant implications for information reporting and for performance measurement.
The Cost and Management, September-October, 2010

Historical background of Public Sector Corporations in Bangladesh

Following the independence of Bangladesh in 1971, major changes were made in the ownership structure of the enterprises of industrial, commercial and financial sectors. Through nationalization, the government gained control over 86% of the total industrial assets in the country (www.banglapedia.org). The government took over all the units of the industries abandoned by West Pakistani and other non-Bengali owners and nationalized them. In July 1972, the government imposed ceiling on private investment. The limit set for private investment in small industrial units was taka 2.5 million, which was later, enhanced to taka 3.5 million including the investment of profits, and simultaneously, the government preserved the right to nationalize any private enterprise whenever felt necessary. In 1974, in an effort to check the accentuating crisis, the government took
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For instance, according to the Financial Accounting Standard Boards (FASB) Concept Statement No. 4, the primary objective of external financial reporting of the PSC is to provide information that is useful to resource providers. On the basis of this information they usually decide whether or not to provide additional resources to these organizations. Statement of Accounting Standards (SAS) No. 117 have enumerated the followings with respect to the content of information about PSC: Name of the Statement Contents Statement of Financial Position Amount and nature of the assets, liabilities and net assets of the organization Statement of Activities The effects of transactions and other events and circumstances that change the amount and nature of net assets The amount and kinds of inflows and outflows of economic resources during a period and the relation between the inflows and outflows, how cash is obtained and spent. The service efforts and accomplishments of the PSC. some modifications. We show this by discussing the elements included in each of the four perspectives of the general BSC: financial, customer, internal, and innovation and learning. Besides this we also discuss the significance of non-market perspective, an added perspective with the original BSC model, in case of measuring the performance of the PSC.

The Proposed PSC-BSC Framework

After conducting the extensive study, it becomes very clear that in case of performance measurement the public sector corporations can use the BSC approach (Dodor, Jean Baptiste K. Gupta Rameshwar D. and Daniels Bobbie (2008). But in that case they should include another aspect named as non-market perspective in their scorecard. The four perspectives of the original scorecard should be considered a template, not a straightjacket. No mathematical theorem exists that four perspectives are both necessary and sufficient. Companies rarely use fewer than four perspectives, but depending on industry circumstances and a business units strategy, one or more additional perspectives may be required (Advanced Management Accounting; Kaplan, Atkinson, 3rd edition). Hence the proposed PC-BSC has five major aspects: 1- financial condition, 2- Service Efforts Accomplishments (SEA) and stakeholders satisfaction, 3- internal operation efficiency and effectiveness, and 4- innovation, learning and growth and 5- Non Market perspectives. (1) Financial perspective: Assessing financial perspective of a PSC has become more important because, over the past three decades, several financial crises involved major governmental entities of the country, including the Adamjee Jute Mills in Naraynganj, Khulna Newsprint Mills Limited in Khulna, Karnaphuly Paper Mills in Chittagong, etc. These crises underscored the need for a better way to provide stakeholders with an early warning of impending financial difficulty of a PSC. A financial perspective analysis aspect of a BSC could fulfill such a need. Financial perspective is the PSCs ability to finance its products or services on a continuing basis. The evaluation of financial perspective of a given PSC also includes the evaluation of financial position of that PSC. It appears that a good financial position of a PSC will be a necessary condition for its good financial condition as well. Hence, assessing financial perspective necessarily includes assessing financial position. The public sector corporations accounting literature provides a framework to assess financial perspective. In addition, according to another framework suggested by Grove and Valente, there are 12 factors that affect the financial condition of a Governmental Organisation (Grove and Valente, 1994). These factors are further categorized into three blocks: 1- Pure financial factors, 2Environmental factors, and 3- Organizational factors. Pure financial factors comprise six measures: revenues, expenditures, operating position, debt structure, unfunded liabilities, and condition of capital plant. The framework of Groves and Valente (1994) is very interesting and could be very useful in assessing financial condition of a PSC. It does in fact go beyond pure financial quantitative measures to consider environmental and management practices and organizational factors that include qualitative measures as well. Groves and Valente (1994) give practical directions, including 13 key ratios, which can help in measuring financial condition of a PSC. The goals, measures & factors of financial perspective are stated in Table-01 in the appendices.
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Statement of Cash Flows

Statement of service efforts and accomplishments

Source: Statement of Accounting Standards (SAS) No. 117

According to International Accounting Standard (IAS) # 01, an entity should include the followings on its complete set of financial statements: Name of the Statement Income Statement Contents Shows all of the expenses and revenues of the company during a period. Shows all of the assets, liabilities & capital of the company. Shows all the financial impacts of items concer-ned with the owners. Shows all the cash inflow & outflow of the companies according to its operating, investing & financing activities.

Balance Sheet Statement of Changes in Owners Equity Cash Flow Statements

Source: International Accounting Standard (IAS) 01.

Besides this the company should disclose all other related information that has impact on the above financial statements on the notes & disclosures.

Adaptability of BSC on PSC

Can we adopt the BSC to the public sector corporations? The answer is yes. First, performance measurement is not solely for the private organizations only; it is also necessary for every organization, no matter what the nature and the purpose of the organization are and what the measurement systems include. Secondly, the use of financial measures alone can give misleading signals for continuous improvement and innovation of PO (Lynch and cross, 1991), which is relevant to the PSC as well. Thirdly, most of the assumptions of the BSC concept can be applied to PSC subject to
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(2) Service Efforts Accomplishments and Stakeholders Satisfaction: The Service Effort Accomplishment (SEA) component is typical for PSC. It addresses how the customer perspective of the original BSC might be applied to the public sector organizations. The SEA allows considering several factors in the analysis. For example, in private organization, sales revenues reflect a market assessment of perceived utility of the product or service provided. Customers perceiving some utility of a product or a service voluntarily enter into transactions with the providers of that goods or services on a supply and demand law basis. Values received and values given are directly related to the utility or satisfaction that the consumer expects to find in the product or service. Although, in case of PSC there exists no such direct relationship; the level of the value given by a producer or supplier may be unrelated to the level of value (and thus the satisfaction) received in counterpart. For instance, the level of taxes paid by a tax payer has nothing to do either with the level, the quality or utility of the public service that he or she may receive. Additionally, the high transaction cost associated with PSC prohibits the stakeholders to assess the value of these organizations properly (Zimmerman, 1977). The customer satisfaction aspect of the BSC could not apply directly to the PSC, but SEA and stakeholders satisfaction be used instead. Assessing Service Efforts Accomplishments and stakeholders Satisfaction can be based on existing public sector corporations accounting literature. The goals, measures & factors of Service Efforts Accomplishments and Stakeholders Satisfaction perspective are stated in Table-02 in the appendices. (3) Internal Operation :The third analysis block of the PSC-BSC gives the internal perspective which administrators may need to better serve their stakeholders. Specifically, this block must help to assess the technological capability, manufacturing or service excellence, design productivity, and new product or service introduction performance. One can assess technological capability by divergent manufacturing or servicing compared to the other PSCs. According to Kaplan and Norton (1992), manufacturing or service excellence can be measured in term of cycle time unit cost yield . Design productivity can be estimated by the efficiency of the PSC engineering. Finally, new product or service introduction performance of a PSC can be obtained by comparing actual introduction schedule with predetermined schedule, for an instant variance analysis. The goals, measures & factors of internal operation perspective are stated in Table-03 in the appendices. (4) Learning and Growth : Though previous performance measures are important for the competitiveness of a PSC, the measures related to innovation, learning and growth are also more significant as it energies the above factors overwhelmingly. It will assist the PSC to create the intellectual worker for them. Undeniably, the intense global competition of the knowledge-based era requires that, not only private companies, but also public sector corporations make persistent improvements to their existing services, products and processes. Moreover the PSCs have innovations ability to leverage and sustain existing capabilities as well. It is already been stated, like Kaplan and Norton, that a PSCs ability to innovate, improve, learn and grow is directly tied to the value of that PSC. That value can be assessed through the PSCs ability to launch new products, services, create more value for stakeholders, and improve operating efficiency continually. The appraisal can focus on the PSCs technological leadership, its manufacturing or
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service learning, its product or service focus, and its time to introduce a new service. The technological leadership of a PSC will be measured through the relative time to develop the next cohort of a product or service provided by that organization. The estimation of the process time to maturity may be a way of assessing the manufacturing or service learning of a PSC. Lastly, the contrast of new product or service ability of a PSC, compare to the ability of other organizations may comprise a way of assessing a PSCs time to market. The goals, measures & factors of learning & growth perspective are stated in Table-04 in the appendices. (5) Non Market Perspectives: The rationale of this perspective is to present the fundamental factors (the environmental factors suggested by Groves and Valente) that may have influence on reported performance. The public sector corporations should consider the relevant environmental or social aspects that significantly influence the success of the PSC. The performance of the public sector corporations depends on some other environmental factors for an instance, satisfaction of community needs, utilization of aggregate resources, external economic conditions; inter governmental constraints and political cultures (Groves and Valente). Although, some time the PSC has to incur loss, its existence can not be denied for the smooth running of the social functions of any country. Financial profit should not be considered as the core base of performance measurement technique for a public sector corporation. The implicit performance measurement factors of a PSC are: how does it contribute to the society? How it increases the standards of living? How it ensures the utilization of the resources in the society? The PSC should act as an invisible hand of the government that will maximize the interest of the citizens. Hence the performance of the PSC overwhelmingly depends on these factors. To measure the performance of the public sector corporations it must be considered. The goals, measures & factors of non-market perspective are stated in Table-05 in the appendices. Government Mission Financial For-Profit Business Goals/Strategies Financial Customer Internal Processes

Customer/Service Users Internal Processes

Learning & Financial

Figure: Comparing the Scorecards for Government Versus For-Profit Organizations (Nicholas J. Mathys, 2006)

Conclusion
The main purpose of this paper, was initially to know whether the Balanced Scorecard (Kaplan and Norton, 1992) is applicable to
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the public sector corporations and on the basis of the literature review, it is found that the BSC can be applicable to the PSC. Consistently, a PSC-BSC is proposed as a possible performance measurement tool for public sector corporations. Like the original BSC, the proposed PSC-BSC incorporates both financial and nonfinancial as well as both lag and lead performance measures. In addition, another extra perspective is suggested for the public sector corporations named as non-market perspective. One of the main purposes of the public sector corporations is to serve the nation and for that reason non-market perspective must be included with the dimensions of BSC for PSC. Hence the proposed PSC-BSC has five perspectives, a special focus was placed on service effort accomplishment (SEA) & Non-market perspectives. The service effort accomplishment (SEA) is crucial because the SEA information, in terms of outputs and of programs, is predicted to significantly enhance the value of information provided to PSC stakeholders. The Non-Market perspective is vital because the PSC must put their efforts to serve the nation. In the above circumstances, it is beyond question that the one stream performance measurement systems is impractical and mislead the performance of the public sector corporations of the country. The public sector corporations in Bangladesh may enhance their contribution to the economy & enlarge their performance by implementing the BSC in their operations. To do so, the performance measurement system of the public sector corporations should consider the qualitative & quantitative information and in this situation the public sector corporations should adopt the Balanced Scorecard suggested above to ensure their survivality. r References:
Kaplan, Robert S. and David P. Norton (1992). The Balanced Scorecard: Measures that drive performance. Harvard Business Review (January-February): 71-79. Kaplan, Robert S. and David P. Norton (1993). Putting the Balanced Scorecard to work. Harvard Business Review (September- October): 134-147. Kaplan, Robert S. and David P. Norton (1996). Using the Balanced Scorecard as a strategic management system. Harvard Business Review (January-February): 75-85. Kaplan, Robert S. and David P. Norton (2001a). Transforming the Balanced Scorecard from performance measurement to strategic management: Part I. Accounting Horizons (March) . Vol.15, No. 1, 87-105. Kaplan, Robert S. and David P. Norton (2001b). Transforming the Balanced Scorecard from performance measurement to strategic management: Part II. Accounting Horizons (June ). Vol. 15, No. 2, 147-161. Anthony, Robert. N., (1995). The Nonprofit Accounting Mess. Accounting Horizons. Vol. 9 , No. 2, 44-54. Chang, Otto H. and Chee W. Chow (1999). The Balanced Scorecard: a Potential Tool for Supporting Change and Continuous Improvement in Accounting Education. Issues in Accounting Education, Vol. 14(3): 395-413. Drtina, Ralph; James P. Gilbert and Ilan Alon (2007). Using the Balanced Scorecard for Value Congruence in an MBA Educational Setting. Sam Advanced Management Journal, Vol. 72(1): 4-13. FASB, (1980). Statement of Accounting Concepts No. 4: Objectives of Financial Reporting by Non-business Organizations. FASB, (1993). Statement of Financial Accounting No. 117: Financial Statements of Not-forProfit Organizations. GASB, (1994). Concepts Statement No.2: Service Efforts and Accomplishments Reporting. Norwalk, CT (April). Groves, Sanford. M. and Maureen G.Valente (1994). Evaluating Financial Condition: A Handbook for Local Government. Washington, DC: International City/County rd Management Association, 3 Edition: 200p. Ingram, Robert W. and Ronald M. Copeland (1981). Financial Accounting Information and Voting Behavior. The Accounting Review, Vol. 5(4): 830-843. Papenhausen, Chris and Walter Eistein (2006). Insights from the Balanced Scorecard: Implementing the Balanced Scorecard at a College of Business. Emerald Group Publishing Limited, Vol. 10(3): 15-22. Pineno, Charles J. (2007). The Business School Strategy: Continuous Improvement by Implementing the Balanced ScoreCard. Research in Higher Education Journal, Vol. 1: 68-77. Wrege, William. T.; R. Penny Marquette (1998). Service Efforts and Accomplishments: a new reporting requirement? Ohio CPA Journal, Vol. 57( 2): 34-39. Dodor, Jean Baptiste K. Gupta Rameshwar D. and Daniels Bobbie (2008) A Framework for Governmental Organizations Balanced Scorecard. Journal of Financial Accountancy, Vol. 13, 27-39. Isoraite Margarita (2008). The Balance Scorecard Method : From Theory to Practice. Intellectual Economics, No. 1(3), p. 1828 Nicholas J. Mathys. (2006) Using the Balanced Scorecard: Lessons Learned from the U.S. Postal Service and the Defense Finance and Accounting Service. p. 910.

Appendices:
Goals Assessing financial viability Table 01: Financial Condition Perspectivective Measures Factors Financial measures l Revenues l Expenses and Expenditures l Operating position l Debt structure l Unfounded liabilities l Condition of capital plan

Note: These 6 measures are based on Grove & Valente (1994) Table 02: SEA and Stakeholders Satisfaction Perspective Goals Assessing Service Effort Accomplishment Assessing stakeholders Satisfaction Measures SEA measures Factors l Accountability l Economy l Efficiency and Effectiveness

Stakeholders Satisfaction l Citizenship Behavior Index measures l Voting rate and distribution l Location propensityd tituents

Table 03: Internal Operation PerspectiveInte Goals Measures Factors Assessing Technology l Estimate of Technology Technology Capability measures infrastructure Assessing Service Service Delivery l Cycle time Unit cost yield Excellence measures Assessing Design Productivity l Productivity statistics Productivity measures Assessing ability to introduce new services Innovation measures l Comparison of actual introduction schedule with planed introduction schedule

Table 04: Learning and Growth Perspective Goals Assessing Technology Leadership Assessing Learning Assessing Service Focus Assessing Time to Constituents of services Goals Assessing environmental viability Factors Relative time to develop the next generation of a product or service provided to stakeholders. Process time An estimation of the process to maturity time to maturity Focus measures Percentages of services yielding at least 80% of the PSCs revenues New services introducAnnual number of new services tion measures introduced as compared to similar PSC. Table 05: Non Market Perspective Measures Factors External environment l Community needs and measures resources l External economic conditions l Intergovernmental constraints l Natural disasters and emergencies l Political cultures Organizational l Management practices measures l Legislative policies Measures Technological innovation measures

Assessing organizational aptitude

Note: These 7 measures are based on Grove & Valente (1994)

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Feature

Can one recover from the grip of Work-holism ?

Ruhul Ameen FCMA, F-0088 Former vice president ICMAB
Workholics spend much of their ltimes in working without a break. These types of people are termed workaholics. They work either because of their unquenchable love for work or of a compulsion beyond their control. Those who work from an irrepressible love for their work are the leaders in business, politics, arts and sciences. However, those who overwork through compulsion not only harm themselves but become a problem for others. These workaholics become emotionally dependent on work. They are susceptible to loss of careers, ill health and premature death. It is wise to identify ones work holism and learn how to cope with them. Workaholics should not be confused with work lovers- where work brings pleasure to them. It is said that the one who loves his work does not work. He takes the work as his passion. There is a saying Once you choose a job which you like, you never have to work. The work lover can work for longer hours, enjoying every moment of it. The healthy hard worker has other sources of satisfaction. A hardworking executive is one who is also a good spouse, parent, friend, citizen, art lover and sportsman. Many work addicts feel that they are indispensable. They seek status and admiration, and their status depends on what others think of them. They rely on work to boost their selfesteem and status. Work addicts are diligent executives, working out and processing every detail. They leave no time for the use of imagination and creativity. Creativity they feel calls for waste of time and idleness. So, they hardly ever come up with original solutions or any major contribution to the society. They hardly reach the top of corporate management and if they do, they become difficult, demanding, hard-hitting bosses literally a pain in the neck of those who have to live and work with them. The compulsively hard working hostile persons are particularly prone to heart attacks, ulcers, and other stress triggered illness. The hardworking and hard driving persons of the work force have been classified by psychologists and cardiologists as Type A and Type B persons. Both types can be workaholics. Type A, the excessively ambitious, competitive, aggressive executives who feels pressurized by deadlines. He is more prone to stress related illness than Type B and lose themselves in dull paperwork and other routine actions. He identifies with the company he works and not him self. These work addicts quite often find themselves in workaholic companies where work expectations are hard driving. These organizations are not necessarily the most successful as they along with their employees lack imagination and creativity. The family life of a workaholic can be a disturbing one. While he does not give a hand with the family, finds fault with the efficiency of household activities-cleaning, cooking, punctuality etc. A holiday with a work-addict can be a nightmare for the family. Free time makes him
Sl No. 01 02 03 04 05 Questions Answers No Yes No No Yes 11 Yes Do you call friends frequently just to chat? Would you prefer to be admired or liked by co-workers and friends? Do you generally let people finish what people are saying to you? Do your spouse and friends think you are a relaxed easygoing person? (a) (b) Do you curse or lose your temper, when you can not overtake and the driver ahead of you is driving too slowly? When this happens, do you express your annoyance to others or rather keep it to yourself?

uneasy and anxious. He can make everyone around him miserable by not being able to unwind constantly telephoning the office to ask whether all is well, every two hours, giving instruction as to how to carry on till he returns. Why some persons are such compulsive executives? Some experience the addicts symptoms at particular times-the accountant at year ending, the sales-girls and salesmen at festive times. Some others because they feel they may be fired, if they are not seen working hard and for long hours; others because they cannot do their job as they should. Some try to create an impression, seeking a promotion. Some others engage themselves in work to escape or gain comfort in distress from depressing emotional problems-a death, loss of job etc. Occupational therapy has always been an effective pain killer and tranquilizer for them. Most A Types, try to do too much in too little time, in an attempt to store up accomplishment; to overcome a general sense of insecurity and to control what is often not controllable. Work- addicts find them selves fighting for time. It is as though they are using a stop watch every minute of the day. The best way to throw away an invisible stop watch is to substitute a calendar as a time line to success. Think in terms of years and months, instead of minutes and seconds. Set weekly priorities that are realistic, this will take them from where they are, to where they want to be without being affected by stress related diseases, Slow down and live. It is well to remember that life is not a destination, but a road to be enjoyed. Can one recover from the grip of work holism? Yes, they can if the workaholic can recognize the symptoms and seek to develop interests in matters other than job. Develop hobbies pursue interest in music, arts, sport, collection of stamps, art objects, gardening, poetry, reading, social service, renewing friendships etc. or whatever he enjoys doing. Diagnosis/ warning: Any sudden change from hard driving to slowing down, may tend to develop a variety of physical and psychological illnesses. These addicts may benefit from frequent short breaks. An incipient addict with a hard driving Type A personality should soon consider a slowing down pace of life. The introduction of a changed lifestyle, regular walks, exercise, routine yoga, meditation, relaxed times with the family, short holidays and time for cultivation of hobbies is bound to cure work holism and make way for long life and happiness for the victim, colleagues, family and friends. So as with all illnesses, an early diagnosis promises hope of an early cure, good health and happiness. So, if are you a workaholic, work hard to analyze yourself and prescribe a suitable cure suiting your needs and interest. You can diagnose yourself where you stand by answering the following questions. You are Type A, if your answers to questions are similar to given below otherwise you are Type B.
Sl No. 06 07 08 09 10 Questions Answers No. Yes Yes Yes No. Yes Do you like to help your spouse with her chores? Do you often, bring work home? Are you particular about being punctual? Do you get annoyed and upset, when kept waiting? When you are in a meeting or doing work, do you refuse telephone calls and ask Not to be disturbed? When someone is talking to you, do you let your mind be occupied with other thoughts?

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Memory of Md. Nurul Hassan

DAZZLING SUPERSTAR IN THE FINANCIAL AND SOCIAL ARENA

(In the previous March-April issue of the journal this article by M/S. Shaukat-Ali Hassan and Sk. Md. Najmul Hassan was concluded without printing some paragraphs inadvertently which is regretted. The paragraphs however, appear here.) 3.17 Confidence & Courage An enquiry committee was formed for the purpose of investigation into the affairs of the Private University where he was employed and when he was also interviewed with others he answered that he was solely responsible for any draw backs in the Accounts and Finance Department, if any, since he was the Head of Finance Department. Later it was learnt that the committee was satisfied with his answer and declared that at least one person in the university was found confident in discharging his responsibilities and outspoken to the office affairs. There were lot of illustrations in various fields of responsibilities in different places which are not disclosed here due to lack of space.

Professional Field
3.16 Honesty, Loyalty & Corruption Eradication He was thoroughly an unbiased person throughout his life. He used to find, hear, feel and try to asses the problems whole heartedly ad give solutions to those problems for overall welfare of all and in the greater interest of the establishment. In all the projects /undertakings of the Public Sector Corporations where he served the ultimate relationship between himself and the Trade Union Leaders developed so friendly that the latter started giving him due respect. But in one project, we know, he never compromised

4.00 Social Field:

4.01 Qualities He was the bright morning'star in the galaxy of intellectuals. He always faced the problem not as a problem. He termed the problem as the opportunity and the advancement. At the same time, he had firm determination. A handsome, stylish, well dressed, smart, cheerful, friendly to a child, boy, teenager, youth and above all an elderly man he maintained his flow of conversation and treat each of them in their own levels and astonished all and made people spell bound by his artistic expressions because he was well conversant with the types of communication needed for every grades of persons. He was pious but never claimed to be a pious rather treated him a God Fearing Person. He was self help, independent person and served tremendously to others in the profession, at home, office and

The Late Editor of The Cost & Management, Mr. Md. Nurul Hassan, FCMA, Past President, ICMAB and SAFA, is seen with his family members. with the Union Leaders and finally got himself transferred to another project and even preferred to go outside Dhaka. In the beginning of his service life in the Military Accounts Department, Lahore, Pakistan he discovered a little big forgery case when he was young. The forgery matter was then taken up by his superior bosses in the department. Finally we came to know the alleged person was jailed. After confession in the court the Guilty announced that he purchased necklace worth Rupees ten thousand for his beautiful wife.
The Cost and Management, September-October, 2010

personal life but never expected any services to be rendered from others even from his own family members. This also occurred truly at the time of his last departure from this earth. 4.02 Determination One day, he told me, "Suppose you are on the battle field. It you go to the front side, you will be killed there, if you go to the back side, you will be killed there. What the side will you choose? Definitely you should choose the front side to be
43

Memory of Md. Nurul Hassan

killed yourself in heroic manner like Shahid. So for any personal or official task your aim should be effective for reaching your goal." 4.03 Politics He had the clear conception about the National, Regional and International Politics. He respected all the political parties and politicians particularly Hussain Shahid Suhrawardy, Shere Bangla AK Fazlul Huq, Maulana Shawkat Ali, Maulana Mohammad Ali, Maulana Bhashani, Bangbandhu Sheikh Majibur Rahman and Ziaur Rahman. He respected the sacrificing Razia Sultana, Nawab Sirajuddowla, Tipu Sultan and Titu Mir. As the President of Bengali Association which he formed earlier alongwith two colleagues he was permitted an appointment along with two colleagues half an hour with the then Prime Minister of Pakistan, Hussain Shahid Suhrawardi: When they reached to the hotel, the Prime Minister was sitting alone. Seeing/ watching them the Prime Minister asked: 'tell me what is on my head'? Two of his colleagues remained silence. But the deceased (Mr. Hassan) replied: your Excellency the sword, sir'. The Great Leader Suhrawardi became fully astonished to observe the prudence of his Political thought. Actually at that time, the Pakistani Janta

the Hon'ble deceased again proved to be true. He used to remind us the verdict announced by the Great Leader Suhrawardy when the latter was confined to hospital bed before his death "I am not intended to live more because I am unable to do anything for my people any more". He hated some politician those who are contradictory in nature and commitments before and after sworned in. At the same time he strongly criticized the Military rule in the country. On the other side he used to say there must have a definite rule of conduct for the Politician as they are bound to respect the rules and regulations on their performances towards, responsibility and accountability in the Parliament, so that the Army rule could no longer exist. Although he was not a Politician he honoured the sovereignty of our motherland and was eager to enhance the economic and professional cooperation among the SAARC countries internationally. When OBAMA became the President elect, the Iranian people started dancing and enjoying on the road side that was telecasted in the TV news. He told us "how foolish the Iranian people are"? He told us that they had no idea about American foreign policy. The American never compromise with their foreign policy. Wait and see what OBAMA does later after holding power. As the 70% of the American economy is controlled by the Jews the concept of foreign policy would be as before. We may guess what prudence he had in the international politics. There are lot of facts relating to his political knowledge that can only be expressed in larger episode. r
The Cost and Management, September-October, 2010

was leading by General Ayub Khan, The Chief of Army Staff of the then Pakistan was plotting against to overthrow him from the power though he was elected democratically within a few days the situation happened like that General Ayub Khan took over power and declared himself as the President of the country, banning the parliament-and all constitutional rights and arrested Leader Suhrawardy and the rule of the great leader was over and the prudence of
34

Management

Financial Impact of Supply Chain Management Decisions and Performance

Imtiaz Alam, FCMA*, Arjun Kumar Das** and Rajib Datta***
Abstract: This paper attempts to describe the fundamental concept of Supply Chain Management(SCM) strategies that encompases the emerging and end to end business activities in an business entities. Many companies leaders still have a traditional vision of supply chain and dont always realize the opportunities that the different decisions and actions of the supply chain could bring to the bottom line of their company. However,now a days top exceutives of leading companies changes their views about SCM and considered as critical drivers of shareholders value and competitive differentiation. Thus the leading companies have started incorporating supply chain into their business strategies. Confirming that perspective, this paper shows a strong conection between high performance of supply chains and financial sucecsses and also focuses some of the alternative supply chain strategies and their linkage with profitability. Keywords: Supply chain management, Financial performance, Competitive differentiation, Supply chain alternatives.

Introduction
Globalization has had a major impact on all types of business entities, companies activities have become global by nature, thereby affecting the greater part of economic life(ohmac,1990,Barnet and Cavanagh,1994,Brecher Costello,1994 and perraton et al,1997).Person and Seyfang(2001)describe globalization as a recent and accentuated trend against the context of accelerating global institutional governance of international integration, while increasing the deregulation and de-protection of workers. The costs and benefits of globalization are unevenly distributed, with developing countries facing special difficulties in meeting this challenge, according to the literature, which suggested that the current process of globalization is unsustainable in the long run unless we introduce new institutions and policies able to govern it (Tisdell,2001). Inresponding to the challenges of globalization business entities are organised differently compared to the past. Changes have been made to the supply chain in the form of new development such as inter company organizational structure. However, the supply chain management performance strategies affects the customer satisfaction, present profitability and future sales. Especifically, the supply chain process influences the flow of products from the supplier to the ultimate desired customers. the resources used in exceuting this process determine the production cost of a product available to the customers(Niraj et al,2001). Thus landed cost will affect the buyers decision to purchase the product for consumptions. Again, the level of costs will determine the profits of the company. The decision to structure the supply chain process is an optimization issue and powerful tool capable to measure internal and external performance of a company and where the management evaluates the various supply chain alternatives to optimize the corporate goal of profit maximization. Inventory management decision have direct impact on the required capital of the company(Rebert,2005). The latest supply chain techniques such as Just-in-time(JIT), Efficient consumer response(ECR) and Quick
* Mr. Imtiaz Alam, FCMA, General Manager and CFO, Mosotafa Group of Industries, M. Rahaman Chamber, 277, Khatungonj,Chittagong, Bangladesh, Cell: 01970006500, Email: imtiaz_fcma@yahoo.com ** Mr Arjun Kumar Das, Assistant Professor, Faculty of Business Studies, Premier, University, Chittagong, Bangladesh. Cell: 01712684826, Email: arjun_puc@yahoo.com *** Mr. Rajib Datta, Lecturer, Faculty of Business Studies, Premier University, Chittagong, Bangladesh., Cell: 01819895389 Email: supta_ part@yahoo.com

response(QR)focus on reducing the inventory level of a company, thereby reducing the capital required for inventory. But companies with high value products such as light commercial vehicles, heavy commercial vehicles and heavy industrial items are more concerned about reducing the finished goods inventory because of higher value of finished products.

Objectives of the study

The main objectives of the paper is to review the theoretical and empirical literature with the help of hypothetical data on the economic consequences of financial performance and supply chain management process. To achieve this main objective,the following specific objectives of the study are identified: a) b) To examine the opportunities that the different actions of the supply chain could bring to bottom line of the business entites. To Know the present real value of the supply chain management including internal and external performance of the company. To know the application of alternatives supply chain strategies and their linkage with profitability.

c)

Methodology of the Study

The study has been conducted mainly on the basis of literature survey and secondary hypothetical information. Various journals and research papers, diagnostic study reports and newspaper articles have been surveyed in making this study significantly fruitfull and objective oriented. Few academicians, qualified accountants (Chartered Accountants and Cost and Management Accountants) and senior management personnels have been personally consulted with in order to have their thoughts in this regards.

Supply chain management: Definition and Foundation

Supply chain mangement(SCM)is a term that has received increasing attention since the begaining of the 90s(Svensson,2002; Skjoettlarson,1999). Important resions for this include the increasing specialization of companies towards their core competencies in connection with respective outsourcing activities, the increasing importance of a strategic supplier base and key accounts as well as
11

The Cost and Management, September-October, 2010

Management
the increasing level of international competion. Despite the wide use of the term, no standard definition for supply chain management has been accepted. However, a conceptual framework for the classification of the different definitions has been developed by bechtel and Jayaram,1997). They have defined five school in this context, each with a different approach and focus in the definition of SCM. By analyzing definitions of SCM, two different fundamental approaches can be found: the first group explians SCM in direct reference to logistics(e.g. Simchi-Levi,2004,Kaninsky and Bowersox, Close and Cooper,2004, Chirstopher,1998)as this group understands the SCM as a logistic chain and logistic network, the second group does not consider SCM as having a direct relationship to logistics, rather, they interpret SCM generally as the inter-organizational management of business processes, as co-operation management or relationship management(e.g. Coopher, Lambert and Pagh-1997, Lambert,Emmelheinz and gardner,1997, Hewitt,1994). Nevertheless, an overarching clarification of the term has not been achieved. Following an extensive literature and the conducted interviews with leading managers and top executives of the industry level, we define SCM in the industry in the following manner: Supply chain management is the powerful & strengthens design and use of interrelations among atleast two organizations that are positioned on different tiers of the same value chain. The goal is internal, as well as inter-organizational processes optimization of all concerned material and information flows, inorder to maximize the creation of value. The prime task of SCM is to gurantee a smooth flow of goods. For this, an efficient and effective information flow, which has to be ensured inter-departmentally by the SCM is crucial. The aim is to design the exchange of information between the departments in such a way that each individual employee process the necessary information promptly. In addition, SCM must guarantee an efficient and effective information flow to the market partners beyond the organizations border. The supply chain is often refferred to as a value chain. A typical supply chain includes information, funds and physical material flows, which run parallel to the value chain. Supply chain management is the integration of the integration of the activities associated with the flow and transformation of goods from the raw materials stage(extraction), through to the end-user and improved supply chain relationship to achieve competive advantages material and information flow up and down the supply chain(Hardfield and Nichols,1992). The diagrammatic presentation of the overall picture of the core function of the SCM includes an array of interdependent activities
Developed part of the world:
Research & Development

from sourcing and purchasing production distribution and transportation and sales that operate in the developed and developing world, as shown in (figure-1) very often, offices in the developed world deal with research and development(R&D), sourcing and purchasing functions and sales to the customers. Products are manufactured and packeged in the developing world and transported to the developed world.

The why and how of supply chain and sectorial platforms

It is clearly stated that, the diffusion of new technological advances is often at the heart of innovations in products and processes. These new technologies can dramaticaly affect an product value and chain activities,from R&D, to design to manufacturing, to distribution, to customer service. Hence, in order to maintain an edge, major players adopt these new technologies and correlate then into critical driver activities along with their product value chains. Too often, basic activities such as MRO(maintenance,repair and operations), procurement are overlooked,although significant savings could be realized if some of the processes or ways of doing things were optimized. Sectorial platforms are just one of the means by which savings can be obtained,albeit an important one. Generally the automative supply chain integrates four groups of players: OEMs(original equipments manufacturers),Frist-tier suppliers,Sub-tier suppliers, infrastructure suppliers. Ofcourse, different types of technologies were used to established the links between these groups. L.Cassivi, L.A.Lefebvre and G.Le Hen (2000) have identified the following some top categories reasons why an automative companies outsource.The complexity of designing and producing a motor vehicle is forcing OEMs to identify key first-tier supplier and give them more responsibilities. A typical motor vehicle consists of approximately 15,000 parts and accessories that must be designed to compatible and integrated. Hence, instead of having multiple suppliers for the production of a deshboard OEMs are asking first- tier suppliers to produce and assemble the deshboard(sub-assembly)to certain spceifications. a) Reduce and controls operating costs. b) Improve company focus. c) Gain access to world class capabilities. d) Free internal resources for other purposes. e) Resources not available internally. f ) Accelerate reengineering benefits. g) Functions difficult to manage or out of control. h) Make capital funds available. i) Share risks. j) Cash infusion. The sales- cost saving relation: While supply chain management stresses on process efficiency, where as the top level management exceutives are interested in increased sales and maximize profits. The conflicting goals can be resolved if the cost savings are considered and are converted into increased sales. It can be identified with the following equation:
The Cost and Management, September-October, 2010

Sales
Figure-1: The Typical Supply Chain Mangement cycle.

Sourcing & Purchasing

Transportation

Manufacturing & Warehousing

Packing & Distribution

Developing part of the world: 12

Management
Where, Then, Where, Therefore, Profits = Sales-Costs Costs = P % of Sales Profits = Sales-(P % of Sales) or, Profits = Sales (1- P %) (1- P %)= Profit Margin Sales= Profit + Profit Margin Figure -2 Supply chain impact on Return on Assets:
Supply Chain Effectiveness

Revenue

Supply Chain Efficiency

Profits

The following table(Table-1) shows the equivalent sales for various supply chain cost savings using the data of a hypothetical Automobile manufacturer. Table-1 Sales Equivalent for Cost Savings Sales Equivalent for Cost Savings of:
(000) Sales Total Costs Net Profits % 12,50,000 78,12,500 65,62,500 12,50,000 25,00,000 1,56,25,000 1,31,25,000 25,00,000 37,50,000 2,34,37,500 1,96,87,500 37,50,000 50,00,000 3,12,50,000 2,62,50,000 50,00,000 20,00,000 100% 16,80,000 3,20,000 84% 16%

Costs

+
Inventory Return on Assets (RO A)

+
Receivables
Accounts Capital Employed

Assets Deployment and Utilization

+
Cash

Tk. 12,50,000 supply chain costs savings 16% Profit margin. Tk. 25,00,000 supply chain costs savings 16% Profit margin. Tk. 37,50,000 supply chain costs savings 16% Profit margin. Tk. 50,00,000 supply chain costs savings 16% Profit margin. Table-1 shows the equivalent sales for different supply chain costs savings. On the basis of a profit margin 16%, a Tk.12,50,000 supply chain costs savings has the same effect as increasing sales by Tk. 78,12,500, a percent increase in sales. Similarly, Tk.25,00,000, Tk.37,50,000 and Tk. 50,00,000 costs savings have equivalent sales of Tk.1,56,25,000,Tk.2,34,37,500 and Tk. 3,12,50,000 respectively. The lower profit margin, the higher will be sales equivalent for a given supply chain cost because it takes a greater sales volume to produce a given profit. For a Tk. 1,00,000 cost savings, the equivalent sales are, 1,00,00,000 with a profit margin but it is only Tk. 5,00,000 with a 20% profit margin. Therefore, supply chain cost savings have a greater sales impact for companies with low profit margins. The Table-2 shows the equivalent sales with varying profit margins. Table -2 Equivalent sales with varying profit margins Profit Margins
20% Sales Total Costs Cost Savings/Net profits 5,00,000 4,00,000 1,00,000 16% 6,25,000 4,25,000 1,00,000 10% 10,00,000 9,00,000 1,00,000 5% 20,00,000 19,00,000 1,00,000 1% 1,00,00,000 99,00,000 1,00,000 Sales cost of goods sold Gross margin

+
Fixed Assets

The supply chain effectiveness affects the revenues/ sales level, and the efficiency affects the total costs of the company (Gianpaols et, al, 2005). It forms the first components of ROA. The Level of inventory held in the supply chain determines the assets deployed. The account receivables and cash depend on the average collection period, which further depends on the order-processing time and the transit time. Finally, the warehousing decisions impact the fixed assets. Thus the capital employed is the second component of ROA. ROA = Profit Capital employed Higher the profits, higher will be the ROA, alternatively, the lower the capital employed for a given level of profits, the higher the ROA. Table-3
Financial impact of 10 percent reductions in inventory, Transportation and warehousing costs in an Automobile industry Automobile Industry 1,00,00,000 80,00,000 20,00,000 1,00,000 1,20,000 1,50,000 3,00,000 6,70,000 13,30,000 1,30,000 60,000 11,40,000 Average inventoty reduced by 10% 1,00,00,000 80,00,000 20,00,000 1,00,000 1,20,000 1,50,000 3,00,000 6,60,000 13,40,000 1,30,000 60,000 11,50,000 Warehousin Transportation cos reduced cost reduced by 10% by 10% 1,00,00,000 80,00,000 20,00,000 1,00,000 1,20,000 1,50,000 3,00,000 6,58,000 13,42,000 1,30,000 60,000 11,52,000 1,00,00,000 80,00,000 20,00,000 1,00,000 1,20,000 1,50,000 3,00,000 6,55,000 13,45,000 1,30,000 60,000 11,55,000

The Supply Chain Financial Impact: Return on Assets (ROA) is also used a benchmark to compare the efficiency of supply chain management of a company with that of another. Return on Net worth and Return on Assets both are dependent on the profitability level of the company. An efficient supply chain management assures the higher profitability of the supply chain costs will lower the profitability of the company. The following figure (Figure-1) shows the financial relationship between the supply chain management and return on assets (ROA) (Coyle, Bardi and Langley, 2003)

inveventory costs Warehousing costs Transportation costs Other operating costs Total operating costs EBIT Interest Taxes EAIT

The Cost and Management, September-October, 2010

13

Management
Assets deployment Fixed Assets Inventory Cash/Bank Accounts Receivable Total Assets Ratio Analysis* 60,00,000 2,00,000 2,50,000 3,50,000 68,00,000 60,00,000 2,00,000 3,50,000 3,50,000 67,80,000 60,00,000 2,00,000 1,80,000 3,50,000 68,00,000 60,00,000 2,00,000 2,50,000 3,50,000 68,00,000 Aupperle, K.E., Carrol, A. B. and Hatfield, J.D. (1985) An Empirical Examination of the Relationship between Corporate Social Responsibility and Profitability Academy of , Management Journal, Vol.28, No.2, pp.446-463. Ahmed, K. and Nicholls, D., (1994), The impact of non-financial company characteristics on mandatory disclosure compliance in developing countries: the case of Bangladesh, The international Journal of Accounting 29, pp 62 77. Bacallan, J.J. (2000) Greening the Supply Chain Business and Environment, Vol. 6, No.5, , pp.11-12. B. Sonnier, K. Carson, C. Philips,(2007), Accounting for intellectual capital: The relationship between profitability and Disclosure Journal of Applied Manager and Entrepreneurship Bowen, F. E., Cousins, P. D., Lamming, R. C. and Faruk, A. C. (2000) Explaining the Implementation of Environment-Related Green Supply Initiatives: the Role of Supply Management Capabilities Paper accepted for presentation at the Academy , of Management Annual Meeting, held in Toronto. Bowen, F.E., Cousins, P.D., Lamming, R.C. and Faruk, A.C. (2001) The Role of Supply Management Capabilities in Green Supply Production and Operations , Management, 10(2): 174-189. Bremer, J. and Udovich, J. (2001) Alternative Approaches to Supply Chain Compliance Monitoring Journal of fashion marketing and management, Vol.5, No.4, pp.333-352. , Bowen, F.E., Cousins, P.D., Lamming, R.C. and Faruk, A.C. (2001) The Role of Supply Management Capabilities in Green Supply Production and Operations , Management, 10(2): 174-189. Bremer, J. and Udovich, J. (2001) Alternative Approaches to Supply Chain Compliance Monitoring Journal of fashion marketing and management, Vol.5, No.4, pp.333-352. , Business Impact (2000) Winning with Integrity: A Guide to Social Responsibility, Business in the Community, London. Carter, J.R. and Narasimhan, R. (1998) Environmental Supply Chain Management: Focus Study, Center for Advanced Purchasing Studies, Michigan State University, U.S. Christopher, M. G. (1998) Logistics and Supply Chain Management: Strategies for Reducing Costs and Improving Services, Pitman Publishing, London. Cadbury, A. (2002) Corporate Governance and Chairmanship: A Personal View, Oxford University Press, Oxford, pp.160-161. Coyle, Bardi and Langley (2003) The Management of Business Logistics- A Supply Chain Perspective, 7th Ed. Thomson South- Western, Singapore. Carter, J.R. and Narasimhan, R. (1998) Environmental Supply Chain Management: Focus Study, Center for Advanced Purchasing Studies, Michigan State University, U.S. China Business Strategy Daily News (2004) East China Electricity Shortage Worsens, in http://www.chinaready.com/news/May2004/EastChinaElectricityShortageWorsens0 50504.htm. Christmann, P. and Taylor, G. (2001) Globalization and the Environment: Determinants of Firm Self-Regulation in China Journal of International Business Studies, Vol.32, No.3, , pp.439458. Christopher, M. G. (1998) Logistics and Supply Chain Management: Strategies for Reducing Costs and Improving Services, Pitman Publishing, London. Clarke, C. E. (2000) Differences between Public Relations and Corporate Social Responsibility: An Analysis Public Relations Review, Vol.26, No.3, pp.363-380. , Daily Times (2005) Critics Brand: 4 Multinational Companies Irresponsible, World Economic Forum on the 27th Jan, 2005 in Switzerland, in www.dailytimes.com.pk. Frankental, P. (2001) Corporate Social Responsibility A PR Invention? Corporate Communications An International Journal, Vol.6, No.1, pp.18-23. Gascoigne, J. (2002) Supply Chain Management: Project Acorn Corporate environmental , strategy, Vol.9, No11, pp.62-68. Gianpaolo et al. (2005) Inventory Driven- CostsHarvard Business Review,March 2005. , Handfield, R.B. and Nichols, E.L. (1999) Introduction to Supply Chain Management, New Jersey: Prentice Hall. Handfield, R.B. and Nichols, E.L. (1999) Introduction to Supply Chain Management, New Jersey: Prentice Hall. Havard Business School (HBS) (2003) Harvard Business Review on Corporate Responsibility, The Competitive Advantage of Corporate Philanthropy, Havard Business School Press, pp.28. Henderson, D. (1996) Introduction to purchasing and supply chain management, Chartered Institute of Purchasing and Supply, pp.88. Mohan, A. (2001) Corporate Citizenship: Perspectives from India Journal of Corporate , Citizenship, Vol.2, pp.107-117. Moir, L. (2001)What do We Mean by Corporate Social Responsibility? Corporate Governance, Vol.1/2, pp.16-22. M.H.U. Bhuiyan, P. K. Biswas: (2007) Corporate Governance and Reporting: An Empirical Study of the Listed Companies in Bangladesh Journal of Business Studies, 28(1). Niraj, Gupta and Narsimhan(2001) Customer Orifitabily in a Supply Chain Journal of , Marketing, Vol.55 July,2001,pp 1-16. O. A. Farrooque, T. V. Zijl, K. Dunstan and A. W. Karim (2007), Corporate Governance in Bangladesh : Link between Ownership and Financial Performance, CorporateGovernance, 15(6). Robert Avanzo et al(2005) Supply Chain and the Bttom Line: A Critical Link The ICFAI Journal of Supply Chain Mangement,Vol.II No.2 June 2005

Comparison of supply chain alternatives 11.50% 16.7617% 40.4444 times 1.50% 1.20% 11.52% 16.9411% 40 times 1.50% 1.20% 11.55% 16.9853% 40 times 1.50% 1.20%

1. Profit Margin 11.40% 2. Return on Assets 16.7647% 3. Inventory Turnover 40 times 1.50% 4. Transportation as % of Sales 1.20% 5. Warehousing as % of Sales 6. Inventory carrying cost as % of Sales l l l l l l

Profit Margin= EAIT/Sales Return on Assets= EAIT/ Total Assets Inventory Turnover= Cost of Goods Sold/ Average Inventory Trnsportation as % of Sales= Transportation Costs/Sales Warehousing as % of Sales =Warehousing Costs/Sales Inventory Carrying Costs as % of Sales= Inventory Carrying Costs/ Sales

Based on the financial data given in the Table-3, we can analyze the different alternatives available to the industry to improve profitability. The basic supply chain alternatives a variable are reduction in the different alternatives has been analyzed, to determine the financial impact. The firm had a net income of Tk.11,40,000 on sales of Tk.1,00,00,000 with a profit margin of 11.40% . Total assets utilized were Tk.68,00,000 and the ROA was 16.7647%. The inventory turnover was 40 times and the transportation costs amounted to 1.5% on sales, warehousing 1.2% and inventory carrying costs 1.00% of sales. The 10% reduction inventory has increases from 11.40% to 11.50%. Return on assets increases from 11.7647% to 16.9617%. Inventory carrying cost as a percentage of sales goes down from 1.00% to 0.90%. Transportation and warehousing costs as a percentage of sales dont change. The table3 also shows the changes and the effects on various financial ratios due to 10.00% decrease in warehousing and transportation costs. In each case the comparisons are made. In both the cases the profits, profit margins and ROA increase. This analysis provides the data to answer the question related to that supply chain alternatives, which provides the greatest advantage for increased profitability. The greatest advantage in terms of profit margin and ROA lies when the transportation cost is decreased. This is due to the fact that transportation cost is a greater percentage of sales than the warehousing and inventory costs. However, the benefit through reduction in inventory cost alternatives is two-fold, reduction in the inventory carrying cost and a reduction in assets. The inventory turnover ratio has increased from 40 times to 44.4444 times.

Conclusion
The financial goal of supply chain management is to increase the profitability of the company by examining and optimizing various alternative courses of actions. In this context, the impact of cost saving or reductions, inventory level changes and other supply chain action on profitability is significant. r References:
Altekar, Rahul.(2005) Supply Chain Management- Concepts and cases, Prentice Hall of India, New Delhi. Ackerman, R.W. (1975) The Social Challenge to Business, Harvard University Press, Cambridge, M.A. Arrow, K.J. (1973) Social Responsibility and Economic Efficiency Public Policy Vol. 21, pp.303. 317.

14

The Cost and Management, September-October, 2010

Economics
( Continued From Previous Issue )

Globalization: A way of Prospects and Threats for the Economy of Bangladesh

Md. Saidur Rahman Sarker, ACMA
GATT latter on formation of WTO is the cornerstone of protecting the interest of developed countries. However, the negative aspect of globalization is very much touching and continuing discrimination between rich and poor, massive poverty throughout the world and rate of illiteracy are the evidence against globalization. At present it is observed that, wherever cross-border economic transactions are dominated by transnational corporations, governance is moving from national policies and rules to international institutions and rules but until the mid-1990s, the economic activities of transnational corporations were governed largely by national rules or national policies. TNCs extracted more resources through transfer pricing or excessive royalty payments and still the practices exist and can be significant and damaging (Nayar, 2002). It is true that TNCs, in the form of FDI, have invested in different sectors of Bangladesh but there is scope for them detrimental profitshifting activities through transfer pricing (Akram, 2002).There is a growing consensus that accepting a package of finance, technology, managerial skills and other capabilities offered by TNCs may not be as good for long term industrial development as encouraging national firms to construct their own package using their own managerial skills with some necessary outsourcing. Bangladesh in her economic sphere is continuously facing a great challenge from many transnational corporations of developed countries. Consequently, the economy is losing its own way of expansion and gradually is being captured in the trap of Multinational Corporations and by aid donors. The thrust sectors of economy: readymade garments, knit wears and shrimp are under threat of Globalization. 8.2 Cultural Diffusion Culture is a way of life. It varies from nation to nation. Social behaviour, education, politics, and economics tie to cultural bondage to every nation but globalization considers only the economic aspect of culture to be most important. It is observed that capitalist and rich countries have twisted globalization to achieve their business motive. The capitalist countries are more advance in technology and science resulted in huge chain in production and they need to sell these productions with more market access. Logically to have more market access they have introduced open market idea. Following the WTO, globalization has created unique opportunities for developed countries to capture the global market. They tried to establish their culture of consumerism by diffusing own culture of LDCs. Being not be capable enough to utilize domestic resources with the capital movement, MNCs have already diffused cultural bondage of developing countries. The spread of globalization will undoubtedly bring changes to the countries it reaches. It is felt that globalization brings changes in the culture of the nations; Nigeria is one of the examples, where the local culture is being eroded by the wave of globalization. The wave of globalization is a shock for developing countries like Bangladesh to utilize their domestic resources. 8.3 Weak Nation-State The concept of a nation-state is founded on the idea of sovereignty. Sovereignty is defined as autonomous, absolute political and military
32

power embodied in a ruler or governmental body. In international relations, a sovereign state is equal to other states; it can govern its own territory, declare war, and so on. In the wave of globalization the concept of nation-state is increasingly becoming irrelevant. Globalization is undermining nation states by two ways. First, it is empowering corporations at the expense of the nation state, and secondly, the international institutions such as the WTO and World Bank are not democratic. They are making their mission to open the world to the influence of transnational corporations. The IMF rules make it hard for nations to legislate to stop currency speculators from attacking their economy. The World Bank insists that nations to which it makes structural adjustment loans privatize government enterprises, often handing them to transnational. It is clear that the World Trade Organizations effort to break down trade barriers is designed to open markets to transnational corporations (Globalizationguide, 2002). However, the increasing significance of a global economy and communication network has gone hand in hand with a decline in the nation state. And TNCs are the driving force behind a world-wide system of competitive capitalism which increasingly creates conditions that allow TNCs to escape the rules and controls of national states. As individual countries feel increasingly powerless to regulate investments from TNCs, they try to make themselves competitive to attract investors, often at the price of reducing wages and benefits for workers and by deregulating environmental protection. This however, is only one aspect of globalization and there are other components of this process (Jauch, 2000). The IMF (2000, cited in Mostert, 2003) argues that globalization does not impact negatively on the sovereignty of nations in terms of economic policy, but acts as discipline for the monetary and fiscal authorities in countries. Despite this view of the IMF, it is still true that excessive short term capital flows can be disruptive to the economy of a country. The response to globalization by different societies, even societies within a nationstate, will be different. Those societies expecting to benefit are likely to welcome globalization while others will view it as an immediate threat to their lifestyle. The new global economy looks like a battlefield between economic giants in the form of TNCs from the USA, Western Europe, Japan and more recently the Asian Tigers. These TNCs are the driving force behind a world-wide system of competitive capitalism which increasingly creates conditions that allow TNCs to escape the rules and controls of national states. As TNCs operate across the globe, national governments have less power to control them. Democratic rules and decisions are difficult to enforce due to weak bargaining positions of national governments and parliaments. In the absence of a global government to set the rules, TNCs have become powerful organizations which try to control the global economy while nation-states feel compelled to offer a competitive environment to attract investment. So, Bangladesh as controlled by World Bank and International other Agencies are gradually becoming powerless to control the TNCs. 8.4 NGOs activities Social context in 21st century is far different from twentieth century.
The Cost and Management, September-October, 2010

Economics
Globalization is a focused issue already started from the end of twentieth century. Absence of competition between two polarized countries has assisted in forming one globe. In the sphere of economic and societal life globalization is booming and booming. It strengthens civil society particularly NGOs often through the intervention of external actors. Bangladesh features globally as the country of the NGOs for their leading role in the social mobilization, getting access to over one-fifth of the countrys external resources. Using this opportunity they not only encroach into the democratic realm but may also further limit the scope of democratic governance and hence of the democratic route to globalization. While professedly they serve as agents of civil society in reality they themselves most often are unaccountable and non-transparent. Most importantly, the NGOs have also intruded both into businesses as well as into the minefield of the countrys politics, adding further volatility to the fragile political system of Bangladesh (Kalam, 2008). Now foreign NGOs are able to impinge on business dealings in ways that were unimaginable only a few years before. So NGOs are formidable actors for many businesses (Pearce et al 2003). Although in the present context of Bangladesh, accountable, transparent and non-political NGOs are evitable but a survey showed that the role of NGOs for overall development activities is about 9 percent (Rashid, 2001). It is also complained that many NGOs for example BRAC, ADAB, ASA, CARITUS, PROSIKA etc are directly involving politics even they already intruded into the businesses. Furthermore, for commercialization of poverty, World Bank and donor agencies are gradually pushing government to conduct development works through NGOs. It is open that NGOs are getting money from abroad and they are utilizing these funds and earning but they in return are not paying any tax on income. This leads to a huge revenue loss of government. Contrary, native traders and industrial entrepreneurs are administering their businesses within the rules and regulations of government (ibid). So government needs to reduce the disparity otherwise NGOs will grab the control of economy as well as also businesses. managed, otherwise it may be harmful. Nevertheless the wave of globalization is not stoppable, this is why Bangladesh like other developing countries, must consider the benefits that can be derived by minimizing the level of threats of globalization as because the country has no way to overlook the impact of globalization. However, Bangladesh needs to establish competitive capabilities beyond cheap labor. These can take the form of educated workers, high quality infrastructure, local R&D capabilities, and strong entrepreneurial skills.

10.0 Recommendations
Different opinions explain the impact of globalization differently. Somebody explains globalizations as the panacea- the elixir that will eradicate all poverty, remove disparity and enable the global citizens to enjoy a decent lifestyle, others look at globalization as the evil that will further enslave them to the rich. It is evident that globalization is not necessarily going to have homogenizing effects; rather its impact is more likely to be asymmetric over different societies. In this context, Bangladesh like other developing countries needs to consider the benefits that can be derived by minimizing the level of threats of globalization as because the country has no way to overlook the impact of globalization. The best way is to prepare ourselves to face this challenge with prudence and determination way. However, this study suggests some recommendations described below: l Cross-border economic transactions are dominated by transnational corporations, governance is moving from national policies and rules to international institutions and rules but until the mid-1990s, the economic activities of transnational corporations were governed largely by national rules or national policies. TNCs extracted more resources through transfer pricing and still the practices exist. TNCs, in the form of FDI, have invested in different sectors of Bangladesh but there is scope for them detrimental profit-shifting activities through transfer pricing. In order to protect the thrust sectors of economy: readymade garments, knit wears and shrimp Bangladesh as far as possible to govern the TNCS by her own rules and policies. Moreover, extracting resource through transfer pricing by TNCs should be controlled through national taxation polices. Technology, managerial skill and other capabilities offered by TNC should be utilized adapting our own style of industrial development. l GATS open the country's gate for a host of services including the foreign giants. Foreign banks and other service organisations with their superior financial and technological base pose tougher and bitter competition to the local banks and other service institutions that have very weak technological and financial base. The government can hardly withstand the prescriptions given by the World Bank (WB), International Monetary Fund (IMF) and other international aid giving agencies and if these agencies want that more service sectors should be opened, then it will be difficult to resist. It is, therefore, important that we should prepare ourselves to face the challenges of globalization prudently and without further delay. l In the wave of globalization the concept of nation-state is increasingly becoming irrelevant. Globalization is undermining nation states by two ways. First, it is empowering corporations at the expense of the nation state, and secondly, the international institutions such as the WTO and World Bank are not democratic.
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9.0 Conclusion
Globalization has become a rare opportunity to breakout the cycle of perennial poverty. More and more countries consider global economy as a path to economic success. Multinational Corporations continue looking for new markets and low-cost production sites, and creating new opportunities for those countries to participate in the global economy. Bangladesh with her low economic profile has already aligned with the globalization process. A number of remarkable changes have been observed in the economic arena. Obviously, the potential benefits of globalization for Bangladesh are great. Increased access to capital inflow and technology, availability of goods and services at lower costs and employment opportunity are remarkable benefits for the economy of Bangladesh. It is proven that the benefits are not automatic and there are costs to liberalization. Domestic companies may be affected by foreign competition in home. Actually globalization is a deadly game, if we can call it a game; there will be winners and losers. In most cases developing countries are in the list of losers. It is evident that in the globalization process, developing countries are interacting in different ways with developed countries but in real sense they have very little chance to gain from this process. Meanwhile developing countries have confronted a great disaster in economic sphere, political arena, in the field of technology and even in the cultural. It should be understood that globalization is good, if it can be
The Cost and Management, September-October, 2010

Economics
They are making their mission to open the world to the influence of transnational corporations. TNCs operate across the globe; national governments have less power to control them. Democratic rules and decisions are difficult to enforce due to weak bargaining positions of national governments and parliaments. So, it is necessary to form global government to set the rules for controlling TNCs. l Bangladesh features globally as the country of the NGOs for their leading role in the social mobilization, getting access to over onefifth of the countrys external resources. Using this opportunity they are trying to encroach our democratic realm and are also trying to limit the scope of democratic governance and hence of the democratic route to globalization. Most importantly, the NGOs have also intruded both into businesses as well as into the minefield of the countrys politics, adding further volatility to the fragile political system of Bangladesh. While professedly they serve as agents of civil society in reality they themselves most often are unaccountable and non-transparent. Functioning as like as commercial organization certainly NGOs are deviating from their prime operation. However, in the present context of Bangladesh; government control mechanisms are inevitable to make the NGOs accountable, transparent, non business oriented and non-political. l Culture is a way of life. Social behaviour, education, politics, and economics tie to cultural bondage to every nation. But Globalization considers only the economic aspect of culture to be most important. The capitalist countries tried to establish their culture of consumerism by diffusing own culture of LDCs. Being not be capable enough to utilize domestic resources with the capital movement, MNCs have already diffused cultural bondage of developing countries. The spread of globalization will undoubtedly bring changes to the countries it reaches. It is not fully possible to protect the culture of consumerism but we should at least maintain our own way of life to defend the wave of globalization. r References:
Akram T.(2002) Transfer Pricing Policy for Bangladesh Columbia University, Graduate School of Arts and Sciences, Department of Economics BAKISA, 2009) Impact of Globalization on economic growth, quality of life, external stability on market economies. Web address: http://www.bukisa.com/articles/92708_impact-of-globalization-on-economicgrowthm-quality-of-life-external-stability-on-market-economies Barker, B.(2000), Technology and the Quest for Sustainability, Electric Power Research Institute, vol.25 (2000), available at WL2345. Bhuiyan, H. A. M. (2003), Study Materials on International Business, ICMAB, Dhaka. . CAFOD,(1998)The Asian garment industry and Globalization CAFOD policy papers at http://www.cafod.org.uk/policy/garment_industry.shtml CAFOD,(1998), A Development NGO Critique of Globalization CAFOD,(2002), A Development NGO Critique of Globalization Dipok Nayyar and Julius Court. Governing Globalization: Issues and Institutions UNU World Institute for Development Economics Research, 2002 (UNU/WIDER) DRPAD (1999), Information Technology, Globalization and Development, Economic and Social Survey of Asia and the Pacific, 1999. Globalizationguide, (2002).What is the role of the internet and communications technology in globalization? Website reviewed: http://www.Globalizationguide.org/index.htm Haq A.B.M. N.(2008) Globalization and its impact on insurance industry in Bangladesh IMF(1997), IMF, World Economic Outlook, May, 1997. www.imf.org/external/pubs/ weomay/weocon.htm Islam, S(2009), Paradoxes of Globalization, The Daily Star. Jauch,H(2000) Globalization and Employment: New Opportunities or Continued Marginalization? Web address: http://www.larri.com.na/papers/Globalization-Employmen.PDF Kalam, A(2002), Globalization and Bangladesh- In the New Century, Published by Forkan Ahmad , Palok Publisher, Dhaka Lall, S.(2002),The Employment Impact Of Globalization In Developing Countries. Mahmud, W.(2003), Bangladesh Faces the Challenge if Globalization. Reliance on exports and remittances exposes vulnerability Mostert, J (2003),The impact of globalization on developing countries. http://www.essa.org.za/download/2003Conference/MostertJ_The%20Impact%20Of%20 Globalization%20On%20Developing%20Countries.pdf Mozumder, S.(2007),Globalization and Bangladesh Najam, A., Runnalls, D., and Halle, M(2007),Environment and Globalization Five Propositions: International Institute for Sustainable Development, Denmark Osmani, R.S.(2004),The impact of Globalization on the poverty of Bangladesh, Pearce L. J. ().Globalization and NGOs: Transforming Business, Government and Society Edited by Jonathan P. Doh and Hildy Teegen Piven, F.F. (1995). Global Economics. New Left Review No.213, September/October 1995. RAHMAN, S. (2004), GLOBAL SHIFT: BANGLADESH GARMENTINDUSTRY IN PERSPECTIVE Asian Affairs, Vol. 26, and No. 1:75-91, January-March, 2004. Sarker, M. S. R.(2005) Information and Communication Technology: Engine of Growth and Poverty Alleviation: Asian Region, The Cost and Management, Number 2, Volume XXXIII,2005, Dhaka Rashid.R. Harrun(2001), Industrial and Trade Crisis of Bangladesh in Open Market Economy, Nowroz Kitabistan, Dhaka Ray O.(2001) Globalization and National Sovereignty - And the Struggle Against Opportunism www.mltranslations.org/us/ROL/ROLglobalization.htm Shamsuddoha, M.(2005) Opportunities and Challenges of Globalization for Bangladesh Social Science Research Network TIB, () Problems of Governance in the NGO Sector: The Way Out. Web address: http://www.ti-bangladesh.org/research/ExecSum-NGO-English.pdf Yusuf, S.(2001), Globalization and the Challenge for Developing Countries. Working Paper Number 93

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The Cost and Management, September-October, 2010

ICMAB News
CPD Program on IAS and IFRS
Accounts & Admn., RZ Power Limited presented the papers on IAS 36 Impairment of Assets, Financial Instruments: Presentation, Recognition and Measurement covered by IAS 32 and IAS 39 , "Accounting for Income Tax covered by IAS 12" , and IAS 23- Borrowing Costs and IFRS 8 Operating Segments in four technical sessions respectively. Mr. Mohammad Abdul Mannan, Managing Director, Islami Bnak Bangladesh Limited, Mr. Ranjit Kumar Chakraborty, Additional Secretary, Ministry of Finance, Finance Division, Government of the People's Republic of Bangladesh. Mr. Md. Aminur Rahman, Member (Income Tax Policy), National Board of Revenue (NBR), and Mr. Shawkat Ali

The Institute of Cost and Management Accountants of Bangladesh (ICMAB) organized a 2 day long CPD Program on October 7-8, 2010 at ICMAB Ruhul Quddus Auditorium, Dhaka. Mr. Mohammad Faruk Khan, M.P., Honble Minister for Commerce, Government of the Peoples Republic of Bangladesh inaugurated the CPD Program as Chief Guest on October 7, 2010. Among others President of the Institute Mr. Md. Abdul Aziz, FCMA, Past President and Chairman, Seminar & Conference Committee Mr. AKM Delwer Hussain, FCMA, also spoke on the occasion and Treasurer and Past President of the Institute Mr. Md. Abdur Rashid, FCMA, offered vote of thanks. Mr. Mohammad Nesar Uddin, FCA, ACMA, Senior Vice President, Islami Mr. Bank Bangladesh Ltd, Muhammad Maniruzzaman, ACMA, Head of Financial Operations & Control, Eastern Bank Ltd. Mr. Ranjan Kumar Bhowmik, FCMA, Additional Director, BCS (Tax) Academy, and Mr. Arifur Rahman Meethu, FCMA, Manager-

Waresi, Joint Secretary, Ministry of Commerce, Government of the People's Republic of Bangladesh conducted the technical sessions-1,2,3 and 4 as Session Chairmen

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ICMAB News
iii) Transfer of books and Model Solutions to the Branch Offices
During the year 224 copies of books and 576 copies of model solutions have been sent to the branch offices for providing services to the students, teachers and members.

iv) Extension of Library Facility

To enhance sitting capacity some renovation work has been done inside the Library. Some renovation works were also carried out for making the environment healthy and enhance preserving facility for bags alongwith setting up of a token counter. ADMINISTR ATION DEVELOPMENT AND

i (a) Civil works have been crried out for constructing 2(two) rooms at 3rd floor of the CMA Bhaban, lawn improvement and internal road construction of ICMAB Chittagong Premises. Members Corner was set up there. (b) 52.5 KVA Generator has been installed at Chittagong CMA Bhaban. ii) The Institute started construction of 5 storied building at Khulna. By now, construction of Basement, Ground and First floor have completed and expected to start class from next session i.e. JanuaryJune, 2011.

New Appointment
Dr. G.M. Baqui Billah, DAIBB, FCMA has recently joined EXCELSIOR Group a very large group of Bangladesh involved in the production of Pharmaceuticals, respectively. A good number of Members of the Institute participated in the CPD Program. garments, accessories, shoes, biscuits, engineering and other big trading ICMAB Library business etc. as a Group Adviser. Prior to his new appointment he served as i) Procurement of books for Library Executive Director at Omani Group, A total of 1007 copies of text and reference books were procured in CA Bhaban, Dhaka and Senior this year to meet the growing needs of users of the libraries of General Manager Janata/Sonali Bank Ltd. for last 33 years. Mr. Billah has Dhaka, Chittagong, Khulna, Rajshahi and Comilla. wide exprience both at home and abroad specially in Banking sector of ii) Sold out unusable and old Books Bangladesh. We wish him success in Some written off books and Journals were sold out to the Members his new assignment. & Students of the Institute at a token price. The remaining items have been sold out as waste paper to make the Library environment neat & clean and enhance the storage capacity.
38 The Cost and Management, September-October, 2010

ICMAB News Advancement to Fellowship (on October 21, 2010)

1. Mr. Md. Zillur Rahman, FCMA
Membership No.

F-0606 SM Tazul, Mamun & Associates 2. Mr. Md. Mamun-Ur-Rashid Chowdhoury, Cost & Management Accountants Partner ACMA House # 25/26 (2nd floor) Road # 23 A-1060 Block D, Section 6 Mirpur, Dhaka-1216 Bangladesh Cell: 01816-269377

New CMA Firm

SM Tazul, Mamun & Associates 1. Mr. Mohammad Tazul Islam, ACMA Cost & Management Accountants Partner, A-1049 House # 25/26 (2nd floor) Road # 23, Block D, Section 6. Mirpur, Dhaka-1216, Bangladesh Off. 9011982, Cell: 01716-620288 E-mail: nayoncmabd@yahoo.com

DBC News
Reception to the Newly Qualified CMAs

Observance of the Eighth Death Anniversary of the Institutes Founder President

The DBC of the Institute organized a program to observe of the Eighth Death Anniversary of the Institutes Founder President and pioneer of CMA profession Late Ruhul Quddus, FCMA on September 28, 2010. DBC Secretary Mr. G.M. Omar Faruque Chowdhury, FCMA presided over the program and gave a brief overview of the checkered life-sketch of the founder President and pioneer of CMA profession Mr. Ruhul Quddus. Institutes President Mr. Md. Abdul Aziz, FCMA was present in the program as the principal speaker. Among others, Past Presidents of the Institute Mr. Rafiq Ahmad, FCMA, Mr. A.B.M. Shamsuddin, FCMA, Professor Mamtaz Uddin Ahmed, FCMA, Mr. A.K.M. Delwer Hussain FCMA, Mr. Zahir Uddin Ahmed, FCMA, ICMAB Secretary Mr. Md. Jasim Uddin Akond, FCMA Council Member of the Institute Abu Sayed Mr. Shaykhul Islam, FCMA spoke on the

The Dhaka Branch Council (DBC) of the Institute organized a reception to the newly qualified Cost and Management Accountants (April, 2010 Exam) on September 21, 2010 at ICMAB Seminar Room. Mr. Md. Munirul Islam, FCMA, Acting Chairman of DBC presided over the program, while Mr. Md. Abdul Aziz, FCMA was present as the Guest of Honour. 23 CMAs qualified in April 2010 Exam attended the program along with their family members. All of them as well as their family members shared their feeling of dedication to the CMA profession. They also spoke of the hindrances in achieving the final success. A crest was awarded to all of them alongwith a small DBC souvenir as a token of recognition on behalf of DBC by the Institutes President. DBC council member Mr. Jayanta Kumar Podder FCMA, gave the welcome address. DBC Council Members Mr. Md. Akhtaruzzaman FCMA and Mr. Md. Kausar Alam FCMA, also spoke on the occasion. DBC Council Member Kazi Muhammad Ziauddin, ACMA conducted the program.
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ICMAB News
different aspects of dedication of Mr. Ruhul Quddus FCMA. It may be mentioned that Mr. Ruhul Quddus left on 28th September, 2002. Secretary, Council Members and Past Presidents of ICMAB, current office bearers and other council members of DBC and a large member of fellow and associate members of ICMAB, officials of the Institute attended and prayed for the salvation of the departed soul.

Discussion Session on Important Changes in Customs & VAT issues in the Fiscal Budget 20102011
The Dhaka Branch Council (DBC) of ICMAB organized a discussion on Important Changes in Customs & VAT issues in the Fiscal Budget 2010-2011 for CMAs on October 27, 2010 at ICMA Bhaban, Nilkhet, Dhaka. Mr. Ali Haider Chowdhury FCMA, presided over the session. Mr. Zahir Uddin Ahmed, FCMA, Past President & Present Council Member of the Institute was present as the Session Chairman. Kazi Muhammad Ziauddin ACMA, D e p u t y Commissioner of Customs & VAT, National Board of

ICMAB Students Orientation Program

The Dhaka Branch Council of The Institute of Cost and Management Accountants of Bangladesh (ICMAB) organized "Orientation Program (July-December 2010 session)" for the newly admitted students of ICMAB at the ICMAB Ruhul Quddus Auditorium, Dhaka on October 13, 2010. Mr. Md. Munirul Islam FCMA, Acting Chairman of Dhaka Branch Council presided over the program. Mr. Munirul Islam in his speech emphasized the role of CMA in the context of present global economy and competitive business environment. Among others Institute's President Mr. Md. Abdul Aziz FCMA, Past President & Present Vice-President Mr. A. K. M. Delwer Hussain FCMA, Past President of ICMAB & Present Treasurer Mr. Md. Abdur Rashid FCMA, Past President of ICMAB & Present council Member Mr. Zahir Uddin Ahmed FCMA, Secretary Mr. Jasim Uddin Akond FCMA, spoke in the program. Mr. Ali Haider Chowdhury FCMA, conduct the program. DBC Treasurer Mr. Md. Bakhtiar Alam ACMA, proposed vote of thanks. There were some acrobatic events and cultural program organized by the DBC. A large number of newly admitted students and members of the Institute were present in the program.

Revenue spoke on the session as the resource person. DBC Council Member Mr. Jayanta Kumar Podder FCMA gave the welcome address and introduced the Session Chairman. DBC Treasurer Mr. Md. Bakhtiar Alam CMA gave the vote of thanks. A good number of members were present and actively participated in the discussion session.

40

The Cost and Management, September-October, 2010

ICMAB News

CBC News
CPD on Mutual Fund-Bangladesh Perspective and Iftar Mahfil

The program was divided in two technical sessions in two days. The resource persons Dr. Saleh Jahur, Professor, Department of Finance & Banking and Information, University of Chittagong presented the paper on IFRS/IAS- 16 : Valuation of Property, Plant and Equipment on October 28, 2010 and Mr. Ahmad Dawood, ACA, ACMA presented the paper on IFRS for SMEs on October 29,2010. Mr. Imtiaz Alam, FCMA, Chairman, Chittagong Branch Council presided the two days long program and delivered the welcome address. A Good number of Fellow and Associate Members and senior students of the Institute attended the Workshop. The whole program was conducted by Mr. Md. Mostafa

A CPE on the topic of Mutual Fund Bangladesh Perspective was organized by Chittagong Branch Council (CBC) of the Institute of Cost and Management Accountants of Bangladesh (ICMAB) on the 3rd September, 2010 at Ambrosia Hotel & Restaurant, Agrabad, Chittagong. Mr. Ahmed Dawood, ACA, ACMA Head of Finance & Company Secretary, Chittagong Stock Exchange Ltd., Chittagong presented the paper on the occasion while Mr. Imtiaz Alam, FCMA, Chairman, Chittagong Branch Council chaired the program. The whole session was nicely conducted by Mr. Md. Mostafa Kamal, FCMA, Secretary, Chittagong Branch Council and the vote of thanks was offered by Mr. Md. Mahfuzul Hoque, FCMA, Vice Chairman of CBC. The session was followed by an Iftar Mahfil. Workshop on IFRS/IAS Chittagong Branch Council of the Institute of Cost and Management Accountants of Bangladesh organized 2 (two) day long Workshop on IFRS/IAS-16: Valuation of Property, Plant and Equipment and Section-23 of IFRS for SMEs at CMA Bhaban, Agrabad Chittagong on 28 & 29 October, 2010. Mr. AKM Delwer Hussain, FCMA Vice President & Past President, ICMAB and Mr. Mohammed Mohiuddin, FCMA, Past President, ICMAB & Managing Director, Island Securities Ltd., attended the programs as Chief Guest while Mr. Md. Jasim Uddin Akond, FCMA, Secretary, ICMAB was present as Special Guest.
The Cost and Management, September-October, 2010

Kamal , FCMA, Secretary, CBC & Vote of thanks was given by Mr.

Mohammed Nazmul Hoque, FCMA, Treasurer, CBC.

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ICMAB News

ICMAB Canada Chapter News

The Chapter Night - 2010

The Chapter Night - 2010 was organized by the Canada Chapter Council of ICMAB on October 23, 2010 at the "Messy Square Party Centre", Toronto. Mr. S. M. Ebadul Islam, FCMA, Chairman, Canada Chapter Council gave the welcome address. Among others Mr. Akhtar Ahmad, FCMA, Mr. Aqamuddin Ahmed, FCMA, Mr. Nayeem Ali Kadri, ACMA, Mr. G M S Aziz Uddin Ahmed, FCMA, Mr. Md. Mahfuzur Rahman, ACMA, spoke on the occasion. A large number of members of Canada Chapter Council along with their spouses and children attended the program. The function was followed by a colorful cultural function, raffle draw and a fellowship dinner. Mr. Md. Mamunur Rashid, ACMA, gave the vote of thanks.

UK Chapter News

UK Chapter committee met several times to explore ideas for professional issues, shared information, exchanged ideas on future activities supportive to both social and professional development. r
The Cost and Management, September-October, 2010

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ISSN 1817-5090

(Bi-monthly Journal of the Institute of Cost and Management Accountants of Bangladesh)

The Cost and Management

Volume XXXVIII Number 5 September-October, 2010

THE INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF BANGLADESH

The Institute is an autonomous professional and examining body constituted with a view to regulating the cost and management accounting profession and promoting accounting education, research and allied matters in the country.

Contents
1. Editorial 2. The Council 3. Articles a) The Balanced Scorecard: A Renewable Methodology and Framework of Action Towards Success for Air Line Prof. Md. Salim Uddin, FCA, MBA, FCMA M. Takibur Rahman b) Financial Impact of Supply Chain Management Decisions and Performance Imtiaz Alam, FCMA Arjun Kumar Das Rajib Datta c) Stakeholder Model of Corporate Governance under Islamic Framework Mohammed Mostafa Kamal FCMA Shahadat Hossain Balanced Scorecard: A Multi-stream Performance Measurement tool for Public Sector Corporations in Bangladesh Md. Nazim Uddin Bhuiyan, FCMA Mofijul Hoq Masum e) The impact of Asset Liability Management on the profitability of Private Commercial Banks of Bangladesh A comparative Analysis between the Conventional PCB'S and Islamic PCBS 24 Kazi Homaira Nirjhar, BBA, MBA f) Investment Pattern for Required Economic Growth to Achieve Poverty Reduction Targets Abdullahil Mamun Serajul Islam g) Globalization: A way of Prospects and Threats for the Economy of Bangladesh Md. Saidur Rahman Sarker, ACMA Feature 4. Can one recover from the grip of Work-holism ? Ruhul Ameen FCMA, F-0088 5. ICMAB News 6. Memory of Md. Nurul Hassan 37 43 35 32 29 15 11 3 4

EDITOR
Mr. Rafiq Ahmad, FCMA ASSOCIATE EDITORS Mr. Mohammad Abdul Hai, FCMA Mr. Md. Mamunur Rashid, FCMA JOURNAL COMMITTEE-2010 Chairman
Mr. Rafiq Ahmad, FCMA

Vice-Chairman
Prof. Aminul Islam, FCMA

Members
Mr. A.B.M. Shamsuddin, FCMA Mr. A. K. M. Delwer Hussain, FCMA Mr. Md. Jasim Uddin Akond, FCMA Mr. Md. Abdur Rashid, FCMA Mr. Md. Ishaque, FCMA Mr. Muzaffar Ahmed, FCMA Mr. Zahir Uddin Ahmed, FCA, FCMA Prof. Mamtaz Uddin Ahmed, FCMA Mr. Abu Sayed Md. Shaykhul Islam, FCMA Mr. Mohammed Salim, FCMA Mr. Arif Khan, FCMA Mr. Ranjaneswar Halder, FCMA Mr. A.K.M. Anwarul Islam, FCMA Mr. Zahir Uddin Ahmed Chowdhury, FCMA Mr. Md. Munirul Islam, FCMA Mr. Md. Sarwar Hossain, FCMA Mr. Md. Ejajur Rahman Chowdhury, FCMA Mr. Abul Bashir Khan, FCMA Qazi Meraz Uddin Arif, FCMA Mr. Md. Abadullah, ACMA Mr. Md. Bakhtiar Alam, ACMA Mr. Md. Rafikol Amyeen, ACMA Mr. Bipul Kumar Bhowmik, ACMA Mr. Muhammad Maniruzzaman, ACMA Mr. Md. Shafiqul Alam, ACMA Mr. Abdullah Al Mahbub, ACMA Mr. Sarif Mohammad Jana Alam, ACMA Mr. Joel Utpal Halder, ACMA Mr. Shamim Ahmed, ACMA Mr. Mahbubul Alam, ACMA Mr. Md. Rafiqul Islam, ACMA Mr. Md. Mahfuzar Rahman, ACMA

d)

19

Secretary
Mr. Mohammad Mizanur Rahaman Deputy Director, ICMAB

PUBLISHER Mr. Aminul Islam, FCMA Executive Director (In-charge) The Institute of Cost and Management Accountants of Bangladesh

Request for Articles for The Cost and Management - Journal of The Institute of Cost and Management Accountants of Bangladesh
You are requested to submit article/paper for publication in the ICMAB Journal The Cost and Management. The following may kindly be treated as broad guidelines for the articles/papers. (a) The articles/papers should be original research based or theme based and should demonstrate the authors own thought and judgment.

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(b) The manuscript must be typed on one side of the paper in double space and normally should not exceed more than 15 pages. Softcopy in CD or 3 . 5 diskettes will be preferred. (c) All notes except those included in the table and diagrams should be numbered consecutively throughout the article. (d) Bibliographical references should be made in defined structure. In case of article, the initiation should be as follows: Authors last name, First name and Middle Initial. The year of publication. Title of the articles Name of the journal (Italicized), volume number , (month or issue). Page number. For example : (In case of article) 1. Nichols. D. 1989 The handbook of Investors Relations Homewood, IL: Dow Jones-I In the text of the article (i) Ahmed (1995) (ii) Khondoker & Mazumder (1993) (iii) (FASB 1986, 9) states. (e) An abstract of around 50 words should be given along with the articles/papers. (f ) Name(s) and designation of the author(s) with the title of the article/paper should be provided on a separate sheet. (g) Two copies of the article/paper should be submitted to: Office of the Editor The Cost and Management The Institute of Cost and Management Accountants of Bangladesh ICMA Bhaban, Nilkhet, Dhaka-1205, Bangladesh. (h) Articles on any demanding topics of Business and Economics can be submitted. But articles on Accounting, Costing, Management Accounting, Business Finance, Financial Management, Taxation, etc. with current concerned development will be appreciated. (i) Articles based on practical experience in various sectors of the economy, specially by members of the Institute will receive perference.

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Opinions expressed by the contributors in this Journal are their own and do not necessarily represent the views of the Institute.

The Cost and Management, September-October, 2010

Editorial

CMAs MARCH FORWARD

Management accounting appeared with the industrial revolution, through one of the earliest management tools: cost accounting. It used to determine the unit cost of products and applied only to manufacturing, it gradually evolved into cost analysis and into the field we know today, applicable to all sectors of the economy. Technological development has profoundly changed the role of cost & management accountants. Sophisticated information systems make it possible to use complex decision-making models and have freed accountants from concentrating on data collection and calculations. The result has been to make even more evident the need for accounting professionals able to interpret the data, design systems, make projections and participate in the decision-making process. Since the mid 1980s, the profession has been growing exponentially. In the context of market globalization, management accounting has become the field of expertise of CMAs. This phenomenon accelerated in 1990 with the advent of an innovative education and accreditation process, which was entirely reworked in the late 90's to give way to the CMA Strategic Leadership Program. As experts in strategic and financial management, CMAs organize the information necessary for making decisions, design systems and implement effective action plans. They apply advanced management and accounting practices in all business functions, including strategic planning, sales and marketing, information technology, human resources, finance, and operations. CMAs are trained to see the big picture as well as spot emerging trends. They deliver innovative strategies in every area that affects the value of products and services: quality, performance, cost, and customer responsiveness. The integrated and systemic approach to strategic and financial management makes CMAs value-added accountants who optimize the performance of organizations. r

The Cost and Management, September-October, 2010

The Institute of Cost and Management Accountants of Bangladesh

THE COUNCIL 2008-2010

President
Mr. Md. Abdul Aziz, FCMA Director (Finance, Administration & HR) Buildtrade Group, Dhaka Trade Centre (6th Floor) 99, Kazi Nazrul Islam Avennue Karwan Bazar, Dhaka-1215, Bangladesh Off: 9121866, 8158451 Cell: 01819-242036, Fax: 88-02-9143389 E-mail: aziz@builtradegroup.com, abdul.aziz49@yahoo.com

Member
Mr. Zahir Uddin Ahmed, FCA, FCMA(UK), FCMA House # 24, Road # 121 Gulshan, Dhaka-1212, Bangladesh Res. 8810468, 8851533

Member
Prof. Mamtaz Uddin Ahmed, FCMA Department of Accounting & Information Systems Faculty of Business Studies University of Dhaka Dhaka-1000, Bangladesh Off. 9661920-73/7891, 7906 Res. 9668889, Cell : 01816-235109 Fax: 88-02-8615583 E-mail: mamtaz_uddinahmed58@yahoo.com

Vice-President
Mr. A.B.M. Shamsuddin MBA (USA), FCMA Apt. # 2/803, Eastern Corner 10/A, Circuit House Road Kakrail, Dhaka-1000, Bangladesh Res. 8315815, Cell : 01819-252805 E-mail: abm_shamsuddin@hotmail.com

Member
Mr. Abu Sayed Md. Shaykhul Islam, FCMA Chairman, FATCOM Bangladesh Ltd. E/16, Arambag R.A, Eastern Housing Block # E, Road # 7, Section # 7, Pallabi, Mirpur Dhaka-1216, Bangladesh Off. 8061119, Res. 8024295, Fax: 88-02-9884546 E-mail: shaykhul@radiancegroup-bd.com

Vice-President
Mr. A. K. M. Delwer Hussain, FCMA Director (Finance) Bangladesh Sugar & Food Industries Corporation Chini Shilpa Bhaban (4th floor), 3, Dilkusha C.A. Dhaka-1000, Bangladesh Off. 9565866, Cell : 01711-171650 E-mail: delwer_fcma@yahoo.com Secretary Mr. Md. Jasim Uddin Akond, FCMA Comptroller Bangladesh University of Engineering and Technology (BUET) Dhaka-1000, Bangladesh Off. 9665615 (D), 9665650-80/7146 Cell : 01713-083618, Fax: 88-02-8613046 E-mail: jakond64@yahoo.com

Member
Mr. Mohammed Salim, MBA(UK), FCMA General Manager (Finance) Power Grid Company of Bangladesh Ltd. (PGCB) IEB Bhaban (3rd Floor), Ramna Dhaka-1000, Bangladesh Off. 9550514, 9560882, 9553663/25 Cell : 01711-644859, 01911-360928 E-mail: salimlsc@yahoo.co.uk

Member
Mr. Arif Khan, MBA, CFA, FCMA Deputy Managing Director IDLC Finance Limited Bay's Galleria (1st floor) 57, Gulshan Avenue, Dhaka-1212, Bangladesh Off. 8834990-4, Res. 8854137 Cell : 01713-019446, Fax : 88-02-8834377 E-mail: khan@idlc.com

Treasurer
Mr. Md. Abdur Rashid, DAIBB, LLB, FCMA Abdur Rashid & Company Cost & Management Accountants Suite No. 1203, Eastern Commercial Complex, 73, Kakrail, Dhaka-1000 Res. 9146108, 9144469 Cell : 01711-430121 E-mail : marashidfcma@hotmail.com

GOVERNMENT NOMINEES
Member
Prof. Syed Abul Kalam Azad Marketing Department University of Dhaka.

Member
Mr. Md. Ishaque, FCMA Adviser, DBL Group BGMEA COMPLEX (12 Floor) 23/1, Panthopath Link Road, Kawran Bazar, Dhaka-1215 Off. 8140207-12, Res. 9337288, Cell : 01713-041913 E-mail : ishaque@ho.dbl-group.com

Member
Mr. Shawkat Ali Waresi Joint Secretary Ministry of Commerce Government of the Peoples Republic of Bangladesh Bangladesh Secretariat, Dhaka.

Member
Mr. Amalendu Mukherjee Joint Secretary Finance Division, Ministry of Finance Government of the Peoples Republic of Bangladesh Bangladesh Secretariat, Dhaka.

Member
Mr. Muzaffar Ahmed, FCS, FCMA President and CEO Credit Rating Information and Services Ltd. Nakshi Homes (4th floor) 6/1-A, Topkhana Road, Segunbagicha, Dhaka-1000, Bangladesh Off. 9565780(D), 7173700-1, Res. 8314189 Cell : 01819-213014, Fax: 88-02-9565783 E-mail: crisl@bdonline.com

Member
Mr. Md. Khalilur Rahman Siddiqui Joint Secretary Ministry of Industries Government of the Peoples Republic of Bangladesh Shilpa Bhaban, Motijheel, Dhaka.

The Cost and Management, September-October, 2010

Finance Investment Pattern for Required Economic Growth to Achieve Poverty Reduction Targets
Abdullahil Mamun* Serajul Islam**
Abstract: Poverty Reduction Strategy Paper (PRSP) of Bangladesh has been designed targeting to eradicate extreme poverty and hunger by 2015. Success of PRSP largely depends on the assessment of the performance of the economy based on the benchmark information on poverty levels and various sectors. The paper will investigate the recent performance of Bangladesh economy with special attention to investment scenario and poverty trends of recent years. Relative share of public and private investment in GDP and the causal relationship exists between them- none can guarantee the required GDP growth rate to achieve the poverty reduction targets. An all out efforts both from government and private entrepreneurs are therefore necessary to place the economy on the growth path envisaged in PRSP. Keywords: Investment Pattern, Growth Rate, PRSP.

1. Introduction
According to the Poverty Reduction Strategy Paper (PRSP) document, an enhanced economic growth rate of 8 to10 percent per annum is required to achieve the poverty reduction targets set by Millennium Development Goals (MDGs) in Bangladesh. During 2006-09, the economic growth of Bangladesh is averaged 6.16 percent per annum. The economy is estimated to have grown at a rate of 6 percent in FY10, slightly above the growth rate (5.9 percent) of FY09, but still it falls short of an economic growth of 8 to 10 percent as would be consistent with PRSP. Therefore, poverty reduction targets will remain unrealized unless the factors responsible for lower economic growth are identified accordingly and managed, one of which is the lower investment spending. considerably higher than earlier, still our economy is operating far below the targeted growth rate as mentioned in PRSP. It may be the result of insufficient investment spending to attain and maintain the required growth rate set by the MDGs. It is therefore the major challenge of Bangladesh to raise investment to a certain level so that the required growth can be achieved. Again, a complementary relationship between public and private investment is crucial for sustained economic growth. And especially the acceleration of private investment growth does matter for fostering industrial growth. Annual growth rate data of public and private investment exhibit a perfectly symmetric inverse relationship between them, that is, in alternating periods, growth of investment in one sector offsets the growth of other sector and this causal relationship holds for most of the years. Atukeren (2004) lists the correlation coefficient as 0.90, 0.19, -0.41 and -0.43 for the sample period 1970-1979, 1980-1989, 1990-2000 and 1985-2000 respectively for the case of Bangladesh. In another study, Rahman (2005) reports the negative impact of percentage growth in public investment on percentage growth in private investment is -0.53 for the period 1992* Mr. Abdullahil Mamun, Lecturer, Department of Business Administration, International Islamic University Chittagong, Bangladesh, e-mail: ahm_economics@yahoo.com, Mobile: 01712138373 ** Mr. Serajul Islam, Associate Professor , Department of Business Administration, International Islamic University Chittagong, Bangladesh, Investment Pattern for Required Economic Growth to Achieve Poverty Reduction Targets

2004, which is slightly higher than -0.49 measured for the period 1987-2004. Both the studies testify a substitute relationship between public investment and private investment. However, Public investment may have substantial spillover benefits for private investment. Sound theoretical arguments point in both directions, so whether public investment actually helps or hinders private investment is an empirical question (Erden, Holcombe, 2005). In this backdrop, the paper will examine the nature of relationship between the growth of public and private investment. Growth of public and private investment and their relative contribution on economic growth will also get attention.

2. Relative Contribution of Public and Private Investment in Economic Growth Even though current investment spending in Bangladesh is
Cross country economic growth data says that the foremost essential for high economic growth is high investment-GDP ratio. Initially the Investment-GDP ratio in Bangladesh was very low, which was 9.48 percent in 1970s. Gradually it increases and reaches to 24.35 percent in 2010, but still it is low enough compared to some other Asian developing countries like Singapore, Malaysia, Taiwan and Hong Kong economies of which are recently experiencing 35-40 percent Investment-GDP ratio.

During 2006-09, the economic growth of Bangladesh is averaged 6.16 percent per annum. The economy is estimated to have grown at a rate of 6 percent in FY10, slightly above the growth rate (5.9 percent) of FY09, though it falls short of the average annual growth rate which was 6.16 during 2006-09, which is basically due to the adverse effects of global recession transmitted to our economy via cross-border financial linkages through capital flows, stock market investors, and exchange rates and the decline of growth in manufacturing and wholesale and retail trade sectors. Furthermore, economy of Bangladesh is projected to grow at a rate of 6.7 percent, 7.2 percent, 7.6 percent, 8 percent and 8 percent for FY2011, FY2012, FY2013, in FY2014 and 2015 respectively. Investment at the rate of 24.35 percent of GDP in 2010 enables us to achieve a growth at a rate of 6 percent. Thus, to achieve the projected growth rate of GDP 8 percent by 2015, the current rate is much lower than the required rate which should be around 35 percent. Furthermore, if the mission is to achieve the Millennium
29

The Cost and Management, September-October, 2010

Finance
Development Goals (MDGs) and elimination of poverty by 2015, the above mentioned rate of investment as percent of GDP is much slighter than required. It is to be noted that yearly average rate of poverty reduction increased from 0.50 to 1.50 while human poverty index went down to 32.0 from 41.6 due to adoption of different innovative programmes during 1996-2001, the present Government aims at reducing poverty rate from 25 to 15 within 2013 to 2021. In 1996 Investment-GDP ratio was 17 percent which rises to 23.1 percent in 2001, which claims an increase of average rate of investment by 1.02 percent per annum. Therefore, to achieve the MDGs at least by reducing poverty rate to 25 by 2013 as the government aims, an investment at the rate of 35 percent of GDP is required. become crucial as an intermediation cost of private investment spending, which is not as much significant for the case of public investment as public has many safe sources of investment financing with lower intermediation cost. Table B: Industrial term loans of banks and financial institutions (billion Taka) Particulars Disbursement Recovery Outstanding FY 05 87.0 85.4 226.3 FY 06 96.5 67.6 273.8 FY 07 123.9 90.7 339.2 FY 08 201.5 136.2 400.9 FY 09 199.7 163.0 478.1

Source: Bangladesh Bank Annual Report

3. Development of Investment Spending in Table C: Equity through private placement and public offerings (billion Taka) Bangladesh
An analysis of the investment data reveals that the contribution of public sector in total investment as percent of GDP is gradually decreasing whilst the contribution of private sector investment is gradually increasing. At the beginning of the nineties, the share of private investment in total investment was about 60 percent, which stood at 80.84 percent in FY 2008-09. Table-A shows the year-wise investment as percentage of GDP for the last few years. In FY 2001-02, the rate of total investment was 23.15 percent of GDP in which the shares of public and private sector were 6.37 percent and 16.78 percent respectively. The rate of national investment gradually picked up to 24.65 percent of GDP in FY 2005-06 but in FY 2006-07 it declined to 24.46 percent. In FY 2009-10 the rate of national investment further declined to 24.35 percent. Table-A: Investment as Percent of Gross Domestic Product (GDP)
FY 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10(P) Total Investment 23.15 23.41 24.02 24.53 24.65 24.46 24.21 24.37 24.35 Public Investment 6.37 6.2 6.19 6.21 6 5.45 4.95 4.70 4.62 Private Investment 16.78 17.21 17.83 18.32 18.65 19.02 19.25 19.67 19.74 Particulars Equity through private placement & IPOs (billion Taka) private placement (billion Taka) Public Offering (billion Taka) FY 05 FY 06 FY 07 1.2 0.1 1.1 1.7 0.2 1.5 3.14 0.04 3.1 FY 08 FY 09 5.2 1.5 3.7 5.9 0.9 5.0

Source: Bangladesh Bank Annual Report

4. Model Specification, Methodology, Data Sources

A regression analysis has been conducted to examine the statistical significance of the relationship between the annual percentage growth in private investment and public investment. Rather than on levels, the regression is based on percentage change because this is more relevant to serve the policy purposes and thus the model under consideration is consideration APCPRI = 1 + 2 APCPI Where, APCPRI and APCPI stand for Annual percentage growth in private investment and annual percentage growth in public investment respectively. Considering the substantial spillover benefits of public investment over private investment, the sign of the coefficient 2 is expected to be positive, that is, 2>0. If public infrastructure investment is complementary to private investment, the rate of return to private sector investments will increase, leading private sector investors to undertake more capital investment. The model has been estimated using Ordinary Least Square (OLS) method employing yearly data for the period 1991-2010 collected from various issues of Statistical Year Book of BBS (Bangladesh Bureau of Statistics), Bangladesh Economic Review, Financial Sector Review, Economic Trend, Bangladesh Banks Annual Report.

Source: Bangladesh Bureau of Statistics (BBS).

Moreover, major source of public investment is public borrowing from domestic and foreign sources which is less sensitive to the lending rates of our domestic commercial banks. Whereas, the primary source of external funds for business entrepreneurs are loans from commercial banks. The amount of industrial term loans disbursed by banks and financial institutions stood at Taka 199.7 billion, many-fold higher than the amount of Taka 5.9 billion raised by new capital issues, Taka 0.9 billion raised through private placements and Taka 5.0 billion through public offerings in FY09 (table-B and table-C). It denotes that banks and financial institutions are still the major sources of investment financing in Bangladesh due to narrow based capital market. As banks and financial institutions play the major role in investment financing in the private sector, lending rates
30

5. Estimated Results
Annual percentage growth in private investment (APGPRI) has been regressed on the annual percentage growth in public investment (APGPI) considering the recent 12, 15 and 18 year period based on their real data, which asserts that the relationship between public and private investment is firmly inverse meaning that rather than possessing a complementary relationship, a substitute association is found between them.- The relationship is quite stable for different periods, regression results are close to one another for alternative periods. However, the negative impact of public investment growth on private rises a little, -1.7419 compared to -1.7354, for the recent 12 year period (1999-2010) judged against period of 18 year (1993-2010).
The Cost and Management, September-October, 2010

Finance
Table-D: Regression of Annual percentage change in private investment (APCPRI) on Annual percentage change in public investment (APCPI)
Estimated Model: APCPRI = Period: 1999-2010
APCPRI = 13.255 Se = 3.093 t = 4.285 Period: 1996-2010 APCPRI = 13.515 Se = 2.752 t = 4.911 Period: 1993-2010
1

6. Policy Implication and Conclusion

The private sector component of investment as percentage of GDP increased over time from 16.78 in FY02 to 19.74 in FY10, while the public sector component of investment as percentage of GDP, however, continued to decrease from 6.37 in FY02 to 4.62 in FY10. Slow implementation and eventually downsizing of ADP may be one of the reasons for the declining share of public investment in GDP. But at the same time, we observe that government has taken prudent steps to strengthen the private sector to enable it to make substantial contribution to the overall economic development of the country. Government has been taken supportive steps to set up institutions and infrastructure, reforms and liberalization programs have been made more functional and effective to enhance the active participation of the private sector in development activities of the economy. Government has also started to prepare and implement the short, medium and long term plans for the creation of an investment friendly environment and a competitive market system, adoption of innovative technology that are able to attract entrepreneurs and expand domestic market. Implementation and funding of infrastructure development projects is a long drawn process and investment risk is much higher, the investment is not, in many cases, commercially viable. It is therefore difficult to attract private investment in all projects in this sector. Through the PublicPrivate Partnership (PPP) initiatives, a recently introduced innovative scheme, government involves the private sector to meet the probable investment gap in infrastructure development, especially power and energy; telecommunication and port development have been given the highest priority, which will provide a boost to every sector of the economy. Thus, taking stand beside the private sector, PPP model images the government a facilitator of private sector rather than a regulator. Now, time demands private entrepreneurs to step ahead along with government intuitions, this may help raise GDP growth and place the economy in the higher growth path envisaged in PRSP. r References
Ahmed Shamim and Islam E. Md. (2006), Interest Rate Responsiveness of Investment Spending in Bangladesh: A VAR Approach Working Paper Series: WP 0608, Policy Analysis Unit, Bangladesh Bank. Bangladesh Bank Annual Report (various issues), Bangladesh Bank, Dhaka. Bangladesh Economic Review (various issues), Finance Division, Ministry of Finance, Government of The People's Republic of Bangladesh. Economic Trend (various issues), Bangladesh Bank, Dhaka. Erdal Atukeren, September 2004, Interactions Between Public and Private Investment: Evidence from Developing Countries Swiss Institute for Business Cycle Research (KOF), , Swiss Federal Institute of Technology - Zurich (ETH Zurich), Presented at International Conference on Policy Modelling, June 30 July 2, 2004 Erden L. and Holcombe Randall G., 2005, The Effects of Public Investment on Private Investment in Developing Economies Public Finance Review, Vol. 33 No. 5, September 2005, 575-602, Sage Publications. Islam E. Md. and N. Begum (2004), High Lending Rates in Bangladesh: An Analytical Review Bank Porikrama, Bangladesh Institute of Bank Management (BIBM), Vol. 28 & 29, , pp. 100-119. Islam E. Md. and N. Begum (2005), Is Investment demand sensitive to Interest Rate in Bangladesh? An Empirical analysis Bank Porikrama, Bangladesh Institute of Bank , Management (BIBM), Vol. 30 (1), pp. 69-86 Rahman R. Islam (2005), Economic Growth, Invstment Pattern and Employment Generation: How to Achieve Pro-poor Growth Seminar Paper on National Budget for , 2005-2006 and PRSP Bangladesh Institute of Development Studies. , Statistical Year Book of Bangladesh (Various Issues), Bangladesh Bureau of Statistics, Planning Division, Ministry of Planning, Government of The People's Republic of Bangladesh.

APCPI
df = 10 F = 54.232 Adjusted R2 = 0.7802 df = 13

-1.7419 APCPI n = 12, O.2365 -7.364

-1.7455 APCPI n = 15, O.2220 -7.762 F = 61.811

Adjusted R2 = 0.7815 n = 18, F = 62.266 Adjusted R2 = 0.7729 df = 16

APCPRI = 14.057 -1.7354 APCPI Se = 2.656 t = 5.292 O.2199 -7.891

If public investment is complementary to private investment, the rate of return to private sector investments will increase, leading private sector investors to undertake more capital investment. But the empirical results show that the relationship between public investment and private investment is inverse, that is, rather than possessing a complementary relationship, there prevails a substitute relationship between public and private investment usually offered in terms of crowding out theory. Public investment may crowd out private investment if they compete for the same resources, and the crowding out may be more significant if public investments are made in state enterprises that produce output that is in direct competition with the goods and services provided by private sector. Moreover, expansion in public investment shrinks private investment opportunity and public investment through borrowing leads to drying up of the sources of finance for private investment. A number of reasons may work together for having such a negative response of private investment towards public investment. Though empirical data shows substitute relationship between public and private investment, but crowding out private investment through capturing investment opportunity by the public sector seems to be unrealistic because of the following factsl Bangladesh frequently faces natural disaster like flood and cyclone, and especially in the year of severe natural calamity there has been increased aid flow for public investment on reconstruction of infrastructure. l In some years, countercyclical measures through increased investment have been taken by the government followed by decline in private investment. l Sectoral composition of public and private investment also draws attention in this regard. Areas of public and private investment are non-conflicting. Most of the public investment takes place in the area of physical infrastructure building and social sector, agriculture and power sector development also gets priority, while private investment mostly concentrates in industry and service sector. This would basically imply a complementary relationship between public and private investment. Apart from these, barriers before the potential investors to access to financing and cost of financing discourage private investment in Bangladesh. Some major constraints are lack of adequate and reliable supply of electricity and gas, poor transportation facilities, poor port facilities, official harassment, collection of illegal protection money, delays and corruption, an inadequate legal system, political instability, etc.
The Cost and Management, September-October, 2010

31

DEVASTATION OF PROPERTIES AND OTHER INFRASTRUCTURE IN EARTHQUAKE

CO R

TO O
Man age ou t Acc men t ntan

A Management Accountant can never be silent on the panic situation about the Earthquake in the country. His/Her emphasis should be to undertake specific agenda over the pre and post earthquake position and steps on Study Analysis for Disaster Management.

The Cost and Management, September-October, 2010

31

Capital Market

Stakeholder Model of Corporate Governance under Islamic Framework

Mohammed Mostafa Kamal FCMA* Shahadat Hossain**
Abstract: The paradigm of stakeholder oriented model of corporate governance and search for optimal governance structure has recently received considerable attention. In conventional economy, it is still not clear about who the appropriate stakeholders are and what are the firms obligations to non-owner stakeholders due to the absence of ethics, morality and trust. The main objective of present study is to solve this problem under Islamic framework with optimal economic implication. This is completely a desk study based on available literature. Conventional stakeholder model of corporate governance used in different countries and economies are critically analyzed here. Based on this analysis, some factors are identified and tried to solve in the light of the guidelines of Islam. In Islamic model, corporate governance is rule based which serve to prevent conflicts, reconcile different purposes of many individuals and facilitate co-operation among them. The behavior of individual becomes the behavior of manager of the firm and the manager act as a true believer in Islam. The managers obedience to shariah, faithfulness to the terms of contract, accountability to respect others property rights help in eliminating problems due to information asymmetry, moral hazard and adverse selection that would guarantee optimal governance. In Islamic framework, a strong institutional arrangement can ensure the right of the non-participant stakeholders. Keywords: Stakeholder, Corporate Governance, Contract, Shariah.

1. Statement of the Problem

In recent years, countries across the world have come to realize the importance of an official corporate governance regime, which provides a platform for market integrity and efficiency, as well as facilitating economic growth (Akhter and Uddin, 2009). The wave of global financial crisis and corporate scandals of Enron, Worldcom, Nortel, Crocus, Parmalat and Royal Ahold; and recently the ccollapse of the government backed mortgage system in the U.S.A. followed by meltdown of major investment banks (Lehman, Bear, Merrill) the investors watched helplessly that their investments were crashed due to systematic failures of investment protection mechanisms, combined with weak capital market regulation. Due to these, the issue of corporate governance and search for optimal governance structure is now a key concern and issue of public policy debate. The attention regarding optimal governance can be attributed to several factors such as - the growth of institutional investors (i.e. pension funds, insurance companies, mutual funds) and their role in major industrial economies (Iqbal and Mirkhar, 2004); widely articulated concerns and criticism about contemporary monitoring and control of publicly held corporations in developed countries are seriously defective, leading to sub optimal economic and social development (Kasey and Wright, 1997); a shift away from traditional shareholder value centered view of corporate governance to a wide circle of stakeholders view; and impact of increased globalization of financial markets, global trend of deregulation of financial sectors, and liberalization of institutional investors activities which have raised concerns over corporate governance (Balling et. al, 1998; Bloomestein, 1998). Although each of the above mentioned factors provides compelling reasons to examine current corporate governance structures, the matter of discussion is now whether it will give emphasis on
* Mr. Mohammed Mostafa Kamal FCMA, Assistant Professor and Head, Department of Accounting, Chittagong University of Engineering and Technology, Chittagong 4349; Bangladesh, E mail: mdmostafa_kamal@yahoo.com ** Mr. Shahadat Hossain, Assistant Professor , Department of Finance and Banking, University of Chittagong, Chittagong 4331; Bnagladesh, E-mail: sh_762002@yahoo.com, Cell: (+88) 0181 550 3067, Fax: (88) 031- 726310

shareholders view or stakeholders view in its principle. Many studies are done in this regard but still there is not enough intensive study found regarding Islamic framework of corporate governance. This study is an attempt to develop corporate governance structure from stakeholder viewpoint under Islamic framework.

2. Objectives of the Study

The main objective of this study is to outline corporate governance structure under Islamic framework from stakeholder viewpoint. The other objectives are examination of the loopholes of the conventional stakeholders model of corporate governance; identify the factors that act as guidelines for corporate governance within an Islamic framework; and finally to outline a stakeholder oriented model of corporate governance with optimal economic implication.

3. Scope and Methodology of the Study

This paper is an attempt to present the arguments in favor and against conventional model of corporate governance. This is completely a desk study based on available literature. In this regard, related published books, journal articles, periodicals, conference papers, working papers and online journal articles are explored. Conventional framework of stakeholder model of corporate governance used in different countries and economies are critically analyzed here. Based on this analysis, some points are identified and tried to solve in the light of the guidelines of Islam. The outline of this paper is as follows: section four is the critical analysis of conventional model of corporate governance; section five is the description of basic framework in Islam regarding property rights and ownership, and shariah ruling regarding the property owners rights and responsibilities. Section six is the discussion on framework of contract and governance from Islamic viewpoint and finally section seven is the outline of corporate governance under Islamic framework from stakeholder viewpoint following conclusion in section eight.

4. Literature Review
In conventional system, the concern is on how do the suppliers of finance get managers to return some of profit them, how they control
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Capital Market
managers and how do they make sure that managers do not steal the capital they supply or invest in a bad projects (Shleifer and Vishny, 1997). Based on the Coases (1937) theory of firms that exists as a substitute for more costly modes of transaction (Cornell and Shapiro, 1987), Alchian and Demsetz (1972) further refined the idea and viewed the firm through agency cost theory and focused on the cost of monitoring. They considered management of the firm to be a continuing process of negotiation of successive contracts. Jensen and Meckling (1976), developed the notion of the firm as nexus of contracts, and argued that contractual designs emerge to minimize transaction costs between specialized factors of production. Shleifer and Vishny (1997) focused corporate governance from agency perspective and restricted to the ways in which the supplier of finance to corporations assure themselves of getting a return on their investment. There is a great deal of disagreement on how good or bad the existing governance mechanisms are. For example, Easterbrook and Fischel (1991) and Romano (1993) make a very optimistic assessment of the U.S. corporate governance system, whereas Jensen (1989a, 1993) believes that it is deeply flawed and that a major move from the current corporate form to much more highly leveraged organizations, similar to LBOs, is in order. There is also constant talk of replacing the Anglo-Saxon model of corporate governance with those patterned after Germany and Japan (Roe, 1993; Charkham, 1994). But the US, Germany, Japan and UK have some of the best corporate governance system in the world, and the differences between them are probably small relative to their differences from other countries. Italian system of CG is also undeveloped to retard capital outflow from firms. In less developed countries, including some of the transition economies like Russia, CG mechanisms are particularly non-existent. (Barca, 1995; Pagano et. al, 1995; and Boycko et. al, 1995). However, traditional concept of corporate governance that is based on the agency relationship; concerned with the protection of shareholders or investors interests, unjustifiably neglects the right of non-shareholder groups and this profit maximization approach to the firm is too narrow (Iqbal and Mirakhor, 2004). It neglects welfare of management and workers who have invested their human capital as well as off-work related capital (like housing, spouse employment, schools, medication etc) in the employment relationship and on suppliers and customers (Blair, 1995; Turnbull, 1997; Tirole, 1999). According to Sen (1993) the denial of distinction between shareholders and others involved in the firms and the adoption of a more integrated view of enterprise as large family has worked in Japanese industry to develop its cooperative efficiency. The stakeholder model of corporate governance is introduced then which can be defined as a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs, maintain excellent relations with both customers and suppliers (Donaldson and Preston, 1995; Freeman, 1984, Boatright, 2002; Bharat and Kajipet, 2000). The new economists argue for inclusion of these groups with whom the firm has contractual obligations. According to this nexus of contract view, there is nothing unique to corporate governance; it is a complex version of contractual governance (Zingales, 1997).
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The question is now who really qualifies as an actual stakeholder? Why their rights are honored and why the managers have fiduciary duties to those non-investor stakeholders? Why such stakeholders should participate in the management and control of the firm? The Islamic view of the role of stakeholders try to answer these questions by pointing out two fundamental concepts of Islamic economic systems pertaining to property rights and contracts that govern the economic and social behavior of individual, society and state.

5. Property Ownership, Right and Governance in Islam

Men can consume or use all the wealth on the basis of the direction from the holy Quran and the Sunnah (practice) of the prophet (peace be upon him) and have to follow the obligations to others even all other creators (Al Quran, 4:29, 59:7, 9:346:1). In Islamic framework, the right of every human being is determined and this right is not limited to human beings only but encompasses all forms of life as well as environment. Allah has created all and these creations have been endowed with certain rights and each is obligated to respect and honor the rights of others that are bundled with some responsibilities for which humans are held responsible. When a person violates these rights he is said to have wronged his/ her soul (Al Quran 2:231). The rules defining the property rights that include the rights of ownership, acquisition, usage and disposition of the property is clearly identified in the shariah (Islam, 1999). 5.1. Property Ownership in Islam: Based on the aqidah (rulings) of Islam, the absolute ownership belongs to the almighty Allah (Ahmed, 1987). Allah is the creator of all and only Allah has given ownership to men for only short period based on some conditions (Rahman, 2000; Sadr, 1991; Iqbal, 2004). So men can not use all the rights of this wealth with full freedom and also cannot misuse or squander the wealth. It implies that the ownership pattern in Islam is two faceted: (a) real or absolute and (b) delegated or restricted through time bound possession (Ahmed, 1987; Sadr, 1991; Iqbal and Mirakhor, 2001). The first axiom of the property rights in Islam is that Allah is the real owner, creator and benefactor- reserves the right to prescribe for men- His vicegerent, recipient and possessor owner (delegated possession)- rules governing the property while it is in the temporal possession of man (Mirakhor, 1989; Ahmad, 1995). Men act as Khalifah (stewardship) or trustee and custodian of the property (Al Quran 57:7). It implies that man has the right to use and manage his private property in a manner similar to the custodian or trustee; and this property is not an end itself, but a means to discharge effectively his responsibilities as the vicegerent of Allah (Iqbal and Mirakhor, 2004). Second axiom of property right is the right of possession of the property as collective right and individual can only earn a priority in use of the property (resources). While a part of these resources are reserved for the exclusive possession of the collectivity, the remaining part is allowed to become of individuals without the collectivity losing its initial right of possession of these resources. Also, when an individual applies his creative labor to those resources he gains a right of priority in the use and enjoyment of the resulting product without the rights of others being nullified. This axiom implies that while individuals possession of these resources and his share in the outcome is allowed, sanctioned and protected by shariah, it is does not come into conflict with societys interest and well being. Hence, private initiative and choice are recognized, but such recognition is not allowed to subvert the principle of sharing or
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lead to violation of the rights of the society and the state (Mirakhor, 1989). Basic conditions concerning property acquisition, possession, usage and disposal are that (a) property should not have been acquired by unlawful means, (b) the acquisition and its continuity should not result in any damage or harm to others, and (c) the acquisition of the property should not invalidate any valid claim nor should establish a non-valid one (Behishti and Bahonar, 1990; Bashir, 1999). Islam places great emphasis on acquiring and maintaining rights to property through lawful means but does not impose any limits on the amount of property owned. 5. 2. Rights and Responsibilities of Property Owners: Islam recognizes two ways in which an individual can obtain rights to property: (a) through his own creative effort and/or (b) through transfer via exchange, contract, grant or inheritance of the property rights from other who has gained title to the property or asset through his own labor. Property acquired through non-permissible or unethical means like gambling, bribing, stealing, cheating, forgery, coercion or illegal trading does not qualify as ownership of the acquirer as shariah forbidden it (Islam, 1999). Moreover, hoarding with the intention to create artificial scarcity and the property acquired through breach of trust, adulteration, non-compliance with weights and measures or unethical means does not satisfy the definition of the property and is not acceptable in Islam. The property owner can not waste, destroy, squander, or use the property for purposes not permitted by shariah. The property owner can not limit or encroach on the rights of others. While the right of use and enjoyment of the property is affirmed by the shariah (Al Quran: 2:188, 25:67, 17:26-27), the exclusive and absolute right of disposition of the property is rejected (Ahmad, 1995).The individual may not make an alteration of his property that may harm even his neighbor. Hence, Even if the property owner proves his inability to use the property properly, he forfeits his ownership right to protect it from misuses by the owner (Bashir, 1999). 5. 3. Property Governance and Wealth Distribution in Islam: Men establish certain relations among themselves and with the nature that is called social system which influence the distribution of wealth produced by the society (Sadr, 1991). They have to take care of their amanah (trusts) in a balanced manner; confirm equality implied by the assumption of universal brotherhood. There may have the possibility of some sort of inequality based on the talent and capitalism (Ahmed, 1987). As Allah is the absolute owner (first axiom of ownership) of the property and resources, it should be recognized that there is right of needy and destitute people on these resources or wealth and even this right encompasses not only the human being, but also other creatures as man is the only trustee of this wealth. For this, compulsory distribution is ensured in shariah by means of zakah and usher on the property of individual and corporation to those who are in poverty and destitution as they are created by mal-distribution and deviation from the desired relationship between the rich (property owner) and the poor (Sadr, 1991). faithful to their stipulations is a characteristic, which distinguishes a Muslim. The concept of justice, faithfulness, reward and punishment are linked with the fulfillment of the contracts and all these are protected by the shariah (Iqbal and Mirakhor, 2004). The contract may be either explicit or implicit. In case of explicit contracts, parties to the contract clearly stipulate expected behavior, duties and responsibilities in response to the terms of the contract. Implicit contracts are not formal and the terms are not clearly defined but the claims and obligations that come with the rights to be a part of the society (Cornell and Shapiro, 1987). Within property right framework, one has contractual obligations to others including the community and the society according to the rules of shariah, and honoring of this obligation is considered a sacred duty. Islamic framework of contract places an equal emphasis on obligations arising from both explicit and implicit contracts. This behavior is expected from individuals, public and private entities and it is obligatory on them to preserve sanctity of implicit contracts by recognizing and protecting property rights of stakeholders, community, society and state. A firm in an Islamic economic system can be viewed as the nexus of contracts whose objective is to minimize transaction cost in order to maximize profit and return to investors subject to constraints that these objectives do not violate property rights of any party whether it interacts with the firm directly or indirectly. In pursuit of these goals, firm honors its obligations to explicit as well as implicit contracts without impairing social order. This concept incorporates stakeholders role in firm and supports recognition and protection of their rights and work as the basis of corporate governance. Rules regarding property rights and contracts in Islam establish clearly who can qualify as stakeholder and whether such stakeholder has influence in the decision making and governance of the firm. An individual or group with whom the firm has any explicit or implicit contractual obligations qualify as stakeholder. A stakeholder is one whose property rights are at stake or at risk due to voluntary or involuntary actions of the firm. In case someones rights are encroached or threatened as a result of a firms operations, that individual, group, community or society becomes a stakeholder (Freeman, 1984; Iqbal and Mirakhar, 2004). Firms responsibility to the stakeholder is established from Islamic viewpoint. But the question is now whether the stakeholders have the right to participate in firms decision making?

7. Corporate Governance Structure in Islam

The inclusion of all stakeholders, especially internalization of the externalities in the governance is now critical issue in conventional system (Tirole, 1999). Some argue that each stakeholder or constituency is free to bargain with a firm and to choose most effective means for protecting its interests (Boatright, 2002). Islamic governance system is rule based with the ultimate goal of maintaining harmonious social order. Rules are restrictions on what the members may do without upsetting social order on whose existence all members count in deciding on their individual choices and actions. Rules serve to prevent conflicts, reconcile the different purposes of many individuals and facilitate co-operation among them (Mirakhor, 1989; Iqbal and Mirakhor, 2004). In Islam, expected behavior of firm is not different from the expected behavior of individual and hence, the behavior of managers becomes the behavior of the firm and their actions are subject to the moral and
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6. Contracts and Stakeholders in Islamic Framework

A contract is a time bound agreement that stipulates the obligations that a party is expected to fulfill in order to achieve the objectives of the contract. Islam forcefully imposes all economic relations with moral consciousness and virtue of being faithful to their words. Freedom to enter into contracts and the obligations to remain
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ethical commitment expected from a Muslim (Islam, 1999; Iqbal and Mirakhor, 2004). It is the duty of managers to ensure that behavior of the firm conforms to the principles and the rules of shariah. Faithfulness to the terms of contracts and accountability to respect others property rights will lead to elimination of problems due to asymmetric information, moral hazard and adverse selection and thus would guarantee optimal governance (Bashir, 1999). The design of corporate governance in Islamic framework entails implementation of the rule-based incentive system that ensures an efficient governance system to preserve social order and justice among all members of society (Iqbal and Mirakhor, 2001). The observance of rules of behavior guarantees internalization of stakeholders rights (including those of the society at large). However, in order to ensure compliance to the Islamic rules, there is need for institutional arrangements. Islamic economic framework can ensure it incorporating all stakeholders rights into fiduciary duties of managers of the firm on be half of non- investors stakeholders. A shariah board, consisting of fuqah (shariah scholars) can oversee the operation (Grais and Pellegrini, 2006) and code of conduct of the firm in accordance with the rules of shariah. This board will consist of scholars from different disciplines including shariah, economics, finance, and law to ensure that rules are defined and enforced so that the economic agents fully comply with contractual obligations to all stakeholders with morality, ethics and efficiency.
Behishti, M.H. and Bahonar, J ((1990): Philosophy of Islam, Islamic Seminary of Pakistan, Karachi. Bharat, T and Kajipet, O. (2000): Corporate Governance in India: Retrospect and Prospects, Contemporary Issues in Business Finance, (Ed: Kajipet, O.), pp 168-178, Delhi. Blair, M.M. (1995): Corporate Ownership, The Brookings Review, volume 15, number 2, pp 16-19. Bloomestein, H.J. (1998): The New Financial Landscape and Its Impact on Corporate Governance, London. Boycko, M, Shelifer, A. and Vishny, R. W. (1995): Privatizing Russia, M.I.T. press, Cambridge. Charkham, J. (1994): Keeping Good Company: A Study of Corporate Governance in Five Countries, Oxford. Clarkson, M.B.E. (1995): A Stakeholder Framework for Analyzing and evaluating Corporations, The Academy of Management Review. Coase, R. H. (1937): The Nature of the Firm, Economica, volume IV, number16, pp 386-405. Cornell, B. and Shapiro, A. C. (1987): Corporate Stakeholders and Corporate Finance, Financial Management, spring. Donaldson, P. and Preston, L. E. (1995): The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications, Academy of Management Review, volume 20, number 1, pp 65-91. Easterbrook, F. and Fischel, D. (1991): The Economic Structure of Corporate Law, Harvard University Press, Cambridge. Foss, N. J., Henrik, L. and Thomsen, S. (1998): The Theory of Firm, Working Paper of Copenhagen Business School. Freeman, R. E. (1984): Strategic Management: A Stakeholder Approach, Boston. Grais, W. and Pellegrini, M. (2006): Corporate Governance and Shariah Compliance in Institutions Offering Islamic Financial Services, World Bank Policy Research Working Paper 4054, November. Iqbal, Z. and Mirakhor, I.: (2001): Role of Stakeholders in Corporate Governance of Islamic Financial Institutions, Conference proceedings on Governance, Transparency and Risk Management of Islamic Financial Institutions, Beirut, March. Iqbal, Z. and Mirakhor, I.: (2004): Stakeholder Model of Governance in Islamic Economic System, Islamic Economic Studies, volume 11, number, 2, March. Islam, M.W. (1999): The Concept of Property in Islamic Legal Thought, Arab Law Quarterly, pp 361-368. Jensen, M. and Meckling, W.H. (1976): Theory of the Firm: Managerial Behavior. Agency Cost and Ownership Structure, Journal of Financial Economics, October, pp 305360. Jensen, M. (1993): The modern Industrial revolution, Exit and the Failure of Internal Control Systems, Journal of Finance, volume 48, pp 831-880. Kasey, K. S. T. and Wright, M. (1997): Corporate Governance, Economics and Financial Issues, Oxford University Press. Mirakhor, A. (1989): General Characteristics of an Islamic Economic System, in Baquir, H. and Mirakhor, A. (eds.), Essays on Iqtisad: The Islamic Approach to Economic roblems, USA. Mirakhor, A. (1995): Outline of an Islamic Economic System, Zahid Hussain Memorial Lecture Series no. 11, State Bank of Pakistan, Islamabad. ODonovan, G. (2003): A Board Culture of Corporate Governance, Corporate Governance International Journal, volume 6, issue 3. Pagano, M. Penetta, F. and Zingales, L. (1995): Why do Companies go Public? An Empirical Analysis, Manuscript of Graduate Business School, University of Chicago, Cited in Shelifer et. al, (1997)in A Survey of Corporate Governance. Rahman, S.M.H. (2002): Islamic Economic Framework, Islamic Economics- Selected Essays (in Bangla), pp 19-33, Rajshahi. Roe, M. (1993): Some Differences in Corporate Governance Structure in Germany, Japan and the United States, The Yale Law Review, volume 102, pp 1927-2003. Romano, R. (1993): The Genius of American Corporate Law, American Enterprise Institute Press, Washington D.C. Sadr, M. B. (1991): General Edifice of the Islamic Economy, Islamic EconomicsContemporary Ulama Perspective, pp 31-47, Kualalampur. Sen, A. (1993): Money and Value: On the Ethics and Economics of Finance, Economics and Philosophy, volume 9, pp 203-227. Shelifer, A. and Vishny, R. W. (1997): A Survey of Corporate Governance, Journal of Finance, volume 52, number 2, January, pp 737-783. Tam, O. K. (1999): Development of Corporate Governance in China, Cheltenham, UK. Tirole, J. (1999): Corporate Governance, Discussion Paper No. 2086, Centre for Economic Policy Research, London. Turnbull, S. (1997): Stakeholder Corporation, Journal of Cooperative Studies, volume 29. Williamson, O. (1985): The Economic Institutions of Capitalism, New York. Zingales, L. (1997): Corporate Governance, Working Paper No. 6309, National Bureau of Economic Research, Cambridge.

8. Conclusion
The issue of corporate governance and search for optimal governance structure has recently received considerable attention. The paradigm of stakeholder oriented model of corporate governance views a firm as a nexus of contracts with different stakeholders and it argues that firms objective should be to maximize the welfare of all stakeholders. But in conventional economy, it is not clear about who the appropriate stakeholder is, and what is the firms obligation to non-owner stakeholders due to the absence of ethics, morality and trust. Islamic principles of property rights and contractual obligations to each other make it clear. The property ownership pattern, property rights and contractual obligations of shareholders, investors, managers, employees, suppliers and consumers are clearly depicted under shariah guidelines. Property rights of all contractual parties (individuals, local communities, society or even state) are preserved and protected and the implementation of an incentive system as per shariah guideline will ensure that all economic activities must adhere to the shariah rulings to make the social order harmonious. A strong and sound institutional arrangement can ensure the non-participant stakeholders in decision making under Islamic economic system. r
References: Ahmad, M. (1995): Business Ethics in Islam, International Institute of Islamic Thought, Islamabad. Akhter, B. and Uddin, M.B. (2009): Corporate Governance across Countries: A Literature Review, Bangladesh Accountant, (April-June), pp 119-129. Hmad, S. (1987): Principles of Distribution in Islam, Thoughts on Economics, Volume 8, number 3 & 4, pp 1-11, Dhaka. Alchin, A. and Demstez, H. (1972): Production, Information Costs, and Economic Organization, American Economic Review, December, pp 777-795. Balling, M. E. H. and OBerin R. (1998): Corporate Governance, Financial Markets and Global Convergence, London. Barca, F. (1995): On Corporate Governance in Italy: Issues, Facts, and Agency, Manuscript of Bank of Italy, Rome. Bashir, Abdel H. M. (1999): Property Rights in Islam, Conference Proceedings of the Third Harvard University Forum on Islamic Finance, October, pp 71-82.

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The Balanced Scorecard: A Renewable Methodology and Framework of Action Towards Success for Air Line
Prof. Md. Salim Uddin, FCA, MBA, FCMA* M. Takibur Rahman**
Abstract: Among the service industry airlines industry is one of the area that require much emphasize on measurement of performance in order to achieve operational excellence. The main aspects of performance measurement of airlines industry are efficiencies, quality, and timeliness above all operational excellence. Therefore this study primarily concentrated on the development of Balanced Scorecard-a performance measurement tool that guides a strategic map for Airline Company by taking in consideration the only public sector airline company. The main activity of the company is providing transportation services to the passengers. Thus the operational efficiency is the main strategic theme that it should build up in order to operate successfully. In this study it is found that there is a cause and effect relationship among these perspectives both from top to bottom and from bottom to top. Thus to achieve the operational efficiencies company in this study has to ensure sufficient profitable growth and long-term prospects. It is only possible when the market share and revenue increases. This, in turn, will increase the customer and in order to retain the customer it has to be effective in scheduling and on time services that drive the internal business management process. In addition to that, to improve the internal process, the technological competencies should be build and that is only possible by designing an effective training program, increase R & D, improves operating system and techniques. Keywords: Balanced Scorecard, Framework, Methodology, Airline, and industry.

Introduction
The Balanced Scorecard (BSC) is a strategic tool that provides a framework for strategic management by transforming a company's strategic goals into an integrated collection of objectives and performance indicators. As reported by Robert Kaplan and David Norton (2005, p. 172), by the 1980s, many executives were convinced that traditional measure of financial performance didn't let them manage effectively and wanted to replace them with operational measures. Moreover too much reliance on financial measure in a management system was causing organizations to do the wrong things. So the question arises that if the financial measures were causing to do the wrong things then what measure would prompt to do the right things. The answer turned out to be obvious: Measure the strategy. Thus all objectives and measure on a BSC- financial and non financial- should be derived from the organization's vision and strategy (Kaplan & Norton, 1996, p.3). Making strategy work in organizations demands to take advantage of all the competencies within the organization and articulate strategy with several perspectives in mind to ensure that balance is maintained. According to Kaplan and Norton (2005, p.172) there are four perspectives that can guide companies as they translate strategy into actionable terms. However, they do not argue that these perspectives are necessary and sufficient conditions for success. In fact, they recommend these perspectives but suggest that organizations add any perspectives that are more relevant (Kaplan & Norton, 1996, p.3). The four perspectives of the scorecard permit a balance between short-term and long-term objectives, between outcomes desired and the performance drivers of those outcomes, and between hard objectives measures and softer, more subjective measures (Kaplan and Norton,
* Prof. Md Salim Uddin, FCA, FCMA, MBA, Department of Accounting & Information Systems, University of Chittagomng, salimtahia@yahoo.com ** Mr M. Takibur Rahman, Assistant Professor, Patuakahli Science and Technology University, takibctg@yahoo.com

2005, p. 174). These perspectives (Figure-1) framed with an organization's mission, vision, values and strategic theme from the Balanced Scorecard arsenal.

Financial Perspectives

Customer Perspectivee

Internal Management Perspectives

Learning and growth Perspective

Figure 1: Balance of Perspective (Source: Nair, 2004, p.21) Kaplan and Norton (2005, p. 174) also stated that BSC shows the way to make strategy actionable. Usually, strategic planning exercises drive for aligning vision, mission, values, and strategy. BCS also discuss items such as competencies, strengths, weaknesses and opportunities, and threats (Nair, 2004, p. 21). This method is often called SWOT analysis, which is a way for organizations to ensure that all elements of the business are incorporated into a strategic plan in the marketplace. Hence, the exercise usually covers the internal and external challenges that a corporation is facing and will face, in an attempt to look ahead and find the next big thing. Meanwhile, the corporation is running along driving to current measures at the operational level, and the challenge comes when the senior management wishes to drive new strategies into the organization. BSC fits this purpose of providing a framework for aligning strategy to the tactics, with corresponding objectives and measures (Kaplan & Norton, 2005, p. 176). A good Balanced Scorecard should have an appropriate mix of outcomes (lagging indicators) and performance drivers (leading indicators) that have been customized to the organization's strategy (Kaplan & Norton, 1996, p.3). However, instead
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of replacing or competing with the historic concept of financial controls for current activities, the balanced scorecard embraces the need for financial measures and complements them with strategic and operational measures that are the drivers of future success (Nair, 2004, p. 21). The scorecard provides a framework to communicate mission and strategy by using the measurement to inform about the drivers of current and future success (Kaplan & Norton, 1996, p.3). the organization is at achieving the goal. The balanced Scorecard became the operating system for a new strategic management process.

The Precursor to Balanced Scorecard

Mission, core values, and vision are the basis not just for Balanced Scorecard but also for any action that an organization could undertake (Kaplan & Norton, 1996, p. 3). Without the purpose of these From Management to Performance Management statements, the guiding principles of the organization will not exist. In Measurement can be very valuable functions in organizations whose order to design a balanced Scorecard mission statement, strategies people look for accountability. Many organizations have found that a and values of the organization is analyzed to build the vision of the lack of measurement only allows the weak players to exist which company. The mission statement must be translated so that the further demoralizes the strong players who eventually leave the actions of individuals are aligned and supportive of the mission organization (Nair, 2004, p. 32). BSC practitioners declared that the (Kaplan & Norton, 1996, p. 72). The overarching mission of the greatest impediment to projects is the lack of upper management organization provides the starting point; it defines why the support. Upper management prefers strategy but must see the organization exists or how business units fit within a broader relationship between strategy and a strategy framework for the corporate architecture. As mission statement focus on why an entire organization. Before supporting a BSC project, Balanced organization exists, values are focused on how the organization will Scorecard needs performance measurement. The result of a BSC perform to the mission (Nair, 2004, p. 56). Value guides the entire exercise is a set of objectives with owners, measures, targets, and process of objectives settings, goal acquisition, and strategy initiatives (Kaplan & Norton, 1996, p. 3). As a framework for action, BSC deployment. The value statement should be closely linked with the can be updated and creates a renewable methodology and Balanced Scorecard. In fact the key elements of mission, core value and vision drive the entire success of any organization. Vision is the framework. picture of what an organization believes the future can be (Nair, 2004, p. 58). Vision portrays the Clarifying and Translating the vision target the organization strives to achieve. A welland Strategy stated vision statement facilitates the Balanced * Clarifying the vision Scorecard to initiate solution to the problem that * Gaining Consequences Strategic Feedback and Communicating and exists in the organization. Strategy is one step in a learning linking logical continuum that moves an organization * Articulate the shared * Communicating and vision from a high-level mission statement to the work Balanced educating * Supplying the straegic Scorecard performed by frontline and back-office employee * Setting goals feedback * Linking rewards to (Kaplan & Norton, 1996, p. 72). Without strategy, * Facilitating the stralegy performance measures review and learning organization cannot isolate key strategic theme to Planning and Terget Setting pursue. Without strategic theme, organization * Setting targets cannot formulate key perspectives to focus on * Aligning strategic theme. Without the key perspective, Balanced initiatives Scorecard is not a balanced set of perspective and * Allocating resources * Establishing Milestone the model will break down (Kaplan & Norton, 1996, p. 24). The strategy defines the logic of how this vision will be achieved. Vision and strategy are Figure 2: Balance Scorecard as strategy framework for action essentials complements. The Balanced Scorecard provides executives (Source: Kaplan & Norton, 1996, p. 11) with a comprehensive framework that translates a company's vision Companies are using BSC as strategic management system to and strategy into a coherent set of performance measures (Kaplan & manage their strategy (Kaplan & Norton, 2001, p. 10). They are using Norton, 1996, p. 72). Balanced Scorecard is the basis for bringing a the measurement focus on the BSC to accomplish the critical strategic focus to any performance management process. management process as shown on Figure 2 (Kaplan & Norton, 1996, p. 11). The Balanced Scorecard as a Performance Management system Justification of the Study can be used in any organization to align vision and mission with In Bangladesh there are 13 airlines companies among which customer requirements and day-to-day work, manage and ev aluate Bangladesh Biman was the national airlines from 1972 to 2007. business strategy, monitor operation efficiency improvements, build Biman, the national flag carrier of Bangladesh has started its journey organization capacity, and communicate progress to all employees. from scratch virtually with no aircraft, no ancillaries. Bangladesh Building and implementing a Balanced Scorecard is one thing; Biman came into operation immediately after the war of turning the scorecard as meaningful and useful performance independence (Biman Air: Corporate Profile, n.d.). Though the early management tool is something entirely. As mentioned by Robert reputation of Biman is appreciable, it is not happening at present. The Kaplan and David Norton (2005, p. 176) the key to transforming the operational inefficiency due to lack of sufficient expertise, qualified scorecard as performance management tool is just to create a link at personnel and strategic direction, it is now going to ruin. Biman has the right level among strategy, operations and the budget been aiming in achieving the goal of being truly international formulation and the cost reporting process. Performance measures commercially viable airline of the region with its warmth and ties the parts together and give the way to measure how successful
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Economics
friendliness, care, safety record, traditional hospitality and comfort of the services it offered (Biman Air: Corporate Profile, n.d.). Though the operational performance of Biman is not appreciable but it can be overcome by building a performance measurement system. Keeping pace with trends and technology of the time along with a perspective plan for the future that embraces all aspects of an international airline and overall improvement, developing a balanced Scorecard is of utmost necessary. The scorecard provides a framework to communicate mission and strategy by using the measurement to inform about the drivers of current and future success. In order to overcome the poor operational performance, the mission and strategies of Biman can be linked to the four key perspective of Balanced Scorecard. As a result, Biman can be better able to execute its strategy. After the Balanced Scorecard is developed action plans are made in order to achieve the strategic objectives and target. There are several methods to implement the scorecard for instance Six sigma, Total Quality Management (TQM), Management by Objectives (MBO), and Activity Based Costing (ABC). Data Analysis: In order to achieve the broad objective data are gathered, analyzed by considering the SWOT analysis, critical success factors, strategy, and target or action plan. Analyzing the data considering all these factors, Balanced Scorecard is being developed. Tables and figure help to visualize the data and information.

Development of Balanced Scorecard

This part and onward dealt with the development of Balanced Scorecard for the company. In order to develop the scorecard the vision for the company is built first and the scorecard is developed based on the vision. The data that has been collected through interview were analyzed so as to build the vision of the company. Following are the steps followed to develop the BSC. Build the Vision and Set up the Strategies: The vision of an organization's future is at the core of building process of the Balanced Scorecard. The first step in developing Balanced Scorecard is to build the vision and the strategies. The vision statement is developed by reviewing the organizational principles from three perspectives such as the mission, the values and the objectives of the organization (Figure 3). Internal resource and external environment of the organization are also analyzes through SWOT analysis to build the vision statement. Strategy defines the logic of how the vision will be achieved. Before employing the BSC, the organization's strategy must be clarified and translated into the objectives and measures with the key performance indicators. To be clear, so that the employees may understand, and to achieve the vision successfully, the strategic objectives of the company were clarified by reviewing SWOT analysis.

Objectives of the Study

The broad objective of this study is to develop a Balanced Scorecard for Air Lines Industry by examining five perspectives of Balanced Score Card like financial, customer, internal business management, technological, and learning and growth perspective. In the pursuit of achieving and supplement the above broad objectives the following have set out as specific objectives. l To addresses and analyzes the operational problem that the company in consideration had been confronting with by examining internal and external environment. l To set up vision and strategy for developing the Balanced Scorecard for the company. l To identify the critical success factors for setting up the performance measurements of the company. l To set up a targets and the strategic program for achieving the strategic objectives of the company. It is expected that the analysis would assist the company to devise their vision and strategies and fix loopholes in their operations.

Methodology of the Study

Research Design: Two-phase approaches of data collection were used for this study. Primary data was collected in both phases of data collection. In the first phase, interview was conducted. This interview was required for the research, as the researcher has to detect precise variables from the respondents that influence the operation. By collecting defined variables, more effective and accurate questionnaire has been constructed. These types of information have been collected by unofficial interviews with the employees. Expert opinions were gained from the key personnel of the company. In the second phase, in order to collect data (standard data), the researchers had used mostly open-ended self-administered questionnaire. This research method is commonly used in this type of study. In addition to that relevant books, newspaper, journals etc, published documents, articles of different researches and websites were used as secondary source of data.
The Cost and Management, September-October, 2010
Set up the Strategies 1. Improved operational Efficiency 2. Increase Market Share 3. Purchase Technology and Technically competent aircrafts.

Figure 3: The Vision statement, the strategies and SWOT analysis of the company. 7

Economics
Define the Perspectives by the Critical Success which are desired to improve financial performance. The financial perspective of the company is profitable growth, increased market Factors Analysis:
Balanced Scorecard provides a framework for strategic management by transforming a company's strategic goals by integrating them into a collection of objectives and performance indicators. The scorecard describes the multiple indirect linkages required to connect improvements in an organization's intangible assets to the tangible customer and financial outcomes strategy. In the framework, key performance indicators are grouped into five perspectives. share and increased revenue. The critical success factors for achieving the financial perspectives are given on the appended part. Customer Perspectives: This perspective aims at identifying the customer and market segments in which the business will choose to compete. In this perspective the first thing is to determine the core measures that will describe the successful outcomes of a well formulated and implemented strategy. Therefore, it is important to identify the attribute that the customer value and choose the value proposition to deliver the attribute to the targeted customer. The basic theme of customer perspective is customer satisfaction and it will motivate customer and customer retention. The customer perspective that is developed for the company is to increase satisfied customer through on time services.

Figure 4: Possible perspective

Financial Perspectives: In the Balanced Scorecard, financial measures play a dual role: they define the financial performance expected from the strategy and they serve as the ultimate targets for the objectives and measures of all other scorecard perspectives. Financial Performance measures indicate whether a company's strategy, implementation, and

Figure 6: Customer Perspectives (Symbol ? shows the importance of the objectives)

Internal Business Management Perspectives: The focus of this perspective is on the customer satisfaction and financial objectives. In this perspectives the internal process were identified that were critical to the company. The critical processes are those that help to deliver superior value to customer and achieve the financial targets. Effective scheduling through reduction of delays is the basic theme of internal business management perspective.

(Symbol I shows the importance of the objectives) Figure 5: The Financial Perspective

execution are contributing to bottom-line improvement. Financial objectives typically relate to profitability measures by operating income, sales growth etc (Kaplan & Norton, 1996, p. 25). After the implementation of BSC, financial performance relies on the identification of key leading indicators (Performance measures),
8

(Symbol I shows the importance of the objectives) Figure 7: Internal Business Management Perspectives
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Economics
Technological Perspectives: Balanced Scorecard should not only consider operations process but also innovation process. By incorporating innovation process measures, the balanced Scorecard provides managers' set of tools that reflect not only the short-term but also gives insight about the longer-term. Technological perspectives play an important role in such case, especially in airlines industry. To achieve the three perspectives mentioned above, the company must strengthen its technological base. In addition to this if the company could purchase technologically competent aircraft then it would be possible for the company to achieve the above-mentioned perspectives. efficiencies, the company has to identify what kind of training, support system, and working condition employees need in the company. Indicators such as employee skill level, training availability, employee satisfaction, research and development power, staff competencies etc are the performance measurement that attempt to measure the learning and growth ability of the company.

Draw the Strategic Map and Set the Overall Objectives

The framework "strategy map" is a logical and comprehensive architecture for describing strategy. The strategy map helps organizations to see their strategy in a cohesive, integrated and systematic way. The strategy map provides the foundations of the management system to implement strategy effectively and rapidly (Kaplan & Norton, 1996, p. 72). To establish the necessary focus and attain the goals, new measurements for instance Balanced Scorecard, is important for all employees to understand the organization's strategy and to install employees in his or her role in overall effort for success. Cause and Effect Relationships Figure-4 shows the strategic map that portrays the cause and effect relationship among each perspective both from top to bottom and bottom to top. Thus to achieve the operational efficiencies the company has to ensure sufficient profitable growth and long-term prospects. It is only possible when the market share and revenue of the company increases. This, in turn, will increase the customer and in order to retain the customer the company has to be effective in scheduling and on time services that drive the internal business management process. To improve the internal process the

(Symbol I shows the importance of the objectives) Figure 8: Technological Perspectives Learning and Growth Perspectives: This perspective can identify the skills and the tools that are needed to improve the internal process. In order to improve the operational

(Symbol I shows the importance of the objectives) Figure 9: Learning and growth Perspectives
The Cost and Management, September-October, 2010

Figure 10: Cause and Effect Relationship

9

Economics [ The scorecard provides a framework to communicate mission and strategy by using the measurement to inform about the drivers of current and future success. In order to overcome the poor operational performance, the mission and strategies of Biman can be linked to the four key perspective of Balanced Scorecard. As a result, Biman can be better able to execute its strategy. After the Balanced Scorecard is developed action plans are made in order to achieve the strategic objectives and target. There are several methods to implement the scorecard for instance Six sigma, Total Quality Management (TQM), Management by Objectives (MBO), and Activity Based Costing (ABC). ]
technological competencies should be build and that is only possible by designing an effective training program, increase R & D, and improves operating system. From bottom to top it can be seen that an effective training program can enhance employees' skills and competencies by designing an effective training program, enhancing R & D activities, and improving operating system and technology. This will lead the company to secure proprietary technology. Proprietary technology will enhance the schedule effectiveness and maintaining of time, which in turn will drive to increased satisfied customer and ensure increase market share and revenue. Increased revenue and market share will thus ensure the profitable growth of the company. routes. But this action failed to improve the situation of the company rather leads to a greater loss. So, it would possible for the company to revive its performance in attaining the desired goal through the successful implementation of Balanced Scorecard. r Reference
1. Balanced Scorecard Institute (n.d.). Developing meaningful performance measures for Government and industry program. Retrieved July 22, 2007, from http://www.balancedscorecard.org/ training/desc/details/details303.html. 2. Biman Bangladesh Airlines (n.d.). Biman Air: Corporate profile. Retrieved July 7, 2007, from http://www.bimanair.com/aboutus/corporate_profile.asp/ 3. Brimson, j. A. (1996). An overview of activity based management. In Brinker, Barry J. (Ed.), Handbook of cost management (pp. C 1-2). New York: Warren, Gorham & Lamont. 4. Chadwick, L. (1997). The essence of management accounting (2nd ed.). England: Prentice Hall International. 5. Daly, J. L. (2002). Pricing for profitability: Activity based pricing for competitive advantage. New York: John Wiley & Sons, Inc. 6. Hobdy, T. B. (1999). Increasing customer and stakeholder satisfaction, and supporting benchmarking and performance measurement with ABM. In Player, S. & Keys, D. (Eds.), Activity based management: Arthur E. Andersen's lessens from the ABM battlefield (2nd Ed., pp. 159). New York: John Wiley & Sons, Inc. 7. Kaplan, R. & Norton, D. (1996). The balanced scorecard. Boston: Harvard Business School press. 8. Kaplan, R. & Norton, D. (2005). The balanced scorecard. Boston: Harvard Business School press 9. Kaplan, R. & Norton, D. (2001). The balanced scorecard. Boston: Harvard Business School press 10. Nair, 2004. Lessons from implementing the balanced scorecard in a small and medium size manufacturing organization: ScienceDirec .com, Volume-26, Issues 5-6, MayJune 2006. 11. Pallister, J. & Isaacs, A. (Eds.). (2002). Oxford Dictionary of Business (3rd ed.). New York: Oxford University Press. 12. Player, S. & Keys, D. (1999). Getting off to the right start: Pitfall No. 1 to 10. In Player, S. & Keys, D. (Eds.), Activity Based Management: Arthur E. Andersen's lessens from the ABM battlefield (2nd Ed., pp. 3). New York: John Wiley & Sons, Inc. 13. Robbins, S. & Coulter, M. (2000). Management. New Jersey: Prentice-Hall, Inc. 14. Rotch, W. (1996). Activity based costing for service businesses. In Brinker, Barry J. (Ed.), Handbook of cost management (pp. c 2-5). New York: Warren, Gorham & Lamont. 15. Turney, P. B. (1996). Activity Based Costing Implementation Issues. In Brinker, Barry J. (Ed.), Handbook of cost management (pp. B 3-2). New York: Warren, Gorham & Lamont. 16. Zeithaml and Bitnerc, 2003, p. 245) A balanced scorecard for leaders: implications of the Malcolm Baldrige National Quality Award criteria. SAM Advaanced Management Journal January,1 2004. 17. Wikipedia: The Free Encyclopedia (n.d.). Biman Bangladesh Airlines. USA: Free Software Foundation, Inc. Retrieved June 10, 2007, from http://en.wikipedia.org/wiki/Biman_Bangladesh_Airlines/

Conclusion
To become an outcome-focused company, the Balanced Scorecard (BSC) has been developed for the company to address the need for a broader perspective of enterprise performance. Since its inception the company had encountered many problems. Shortage of technically competent aircraft was one of the prime weaknesses of the company. In addition to this too much debt, high cost of fuel and shortage of adequate fund had also affect adversely the operation of the company. Moreover, currently operated aircraft are somehow technically defective. With this few technically inefficient aircrafts it is not possible for the company to cover the long distance routes. Additionally such aircraft incurred huge cost that can't be manageable by the company. As a result it had curtailed many long

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The Cost and Management, September-October, 2010

Banking The impact of Asset Liability Management on the profitability of Private Commercial Banks of Bangladesh A comparative Analysis between the Conventional PCB'S and Islamic PCBS
Kazi Homaira Nirjhar, BBA, MBA*
Abstract: This study finds out the impact of asset and liability management on the profitability of Bangladeshi private commercial banks. It applied modified Statistical Cost Accounting method which incorporated market structure and macroeconomic factor along with bank assets and liabilities as independent variables. Net operating income is used as measure of bank profitability. The study deals with the twenty seven local commercial banks of Bangladesh which conducted banking business between 1997 to 2007. These banks are segmented into Conventional private commercial and Islamic private commercial banks of Bangladesh to provide a comparative analysis. The study finds that Liability management of Islamic banks is better than conventional commercial banks but they are not better than conventional banks in respect asset management. Keywords: Asset and liability management, Statistical Cost Accounting method, Macroeconomic.

INTRODUCTION
Banking system plays a vital role in the economic life of a nation. The health of the economy is closely related to the soundness of its banking system. And the soundness of banks depends mainly on the constant profitability. And the profitability can be managed with the proper combination of revenue and cost of the banks. Banks receive deposits or liabilities from their customers and invest in assets. Commercial Banks incur costs for their liabilities and earn income from their assets. Thus profitability of banks is directly affected by management of their assets and liabilities. In addition, different market and macroeconomic factors also influence the ability of the banks to make profits (Short, 1979; Molyneux and Thornton, 1992; Athanasoglou et al, 2008). This study examines how asset and liability management together with external variables such as degree of market concentration and inflation rate impact the profitability of twenty seven Local Private commercial banks classified in 21 conventional and 6 Islamic PCBs in Bangladesh. The objective of this study is to compare ALM performance between Conventional PCBs and Islamic PCBs of Bangladesh and to provide suggestions for improving banks profitability through better asset and liability management. Financial intermediation in Islamic framework is based on profit-loss sharing principles (Chapra, 1985) unlike on debtor-creditor relationship (Hassan & Tariq, 1992), where a conventional principle of prefixing profit has been replaced with a variable rate of return based on real economic performance (Mangla & Uppal, 1990). For the operational and conceptual differences between conventional and Islamic financial banks, some indicators or varidables are identified to analyze and differentiate the asset and liability management and its impact on the profitability of the banks. A modified Statistical Cost Accounting (SCA) model is applied to test whether there are differences in return on assets and cost from liabilities between Islamic banks and conventional banks. It also examined that whether conventional banks can manage their assets and liabilities more profitably than the Islamic banks.

- To find the impact of Asset Liability management on the profitability of the Bangladeshi Commercial banks classified into conventional private commercial banks and Islamic private commercial banks. To obtain the broad objective the following specific objective was needed to solve To find out the impact of Asset Liability management on the profitability of the Bangladeshi conventional PCBs. To find out the impact of Asset Liability management on the profitability of the Islamic PCBs. To compare the effect of the specific Asset Liability Factors of both type of the banks.

METHODOLOGY
Statistical Tools and Analysis Panel data (Unstructured) is used for the study and processed through the econometrics software, SPSS 12. T-test & F-test are conducted to examine whether two different sets of banks have significant differences in profitability and their underlying causes. The equation (5) for two different sets of BCBs has been estimated through regression method. Quantitative research is used to quantify relationships between variables (Hopkins, 2000). This study examined the relationship between ALM and profitability. The basic model that is used here is an extended version of statistical cost accounting model (SCA). Profit measures of banks are regressed with a number of assets and liabilities along with one significant macroeconomic variable. Regression analysis for panel (Unstructured) data is used to estimate the equations. The Traditional Model A number of authors (Hester & Zoellner, 1966; Kwast & Rose, 1982; Vasiliou, 1996; Kosmidou et al, 2004; and Asiri, 2007) used the SCA model to study the impact of the ALM on banks profitability. These studies are related with the differences in asset and liability compositions with differences of profitability by regressing operating profit of the banks with their assets and liabilities. SCA model is described by Hester & Zoellner (1966) as a regression method by which rates of return are imputed to earning assets and deposit
The Cost and Management, September-October, 2010

OBJECTIVE OF THE RESEARCH

The main objective of this study is-* Kazi Homaira Nirjhar, BBA, MBA,IBA (Jahangirnagar University), MIS Officer, BHP, BRAC.

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Banking
liabilities (p. 373). The current study adopts the SCA model with some modification proposed by Kwast & Rose (1982). A bank earns revenue from many sources and prominent of these are interest income, service fees and commissions from its assets and income from using liabilities. Thus variations in banks revenue, Rbt can be expressed for bank b and time t in terms of variations of assets and liabilities in the following way: Rbt = r1 + r2iAibt + r3jLjbt + ebt ---(1) Rbt = Operating revenue, Ai = ith asset ,Lj = jth liability, ebt = the stochastic term The coefficients r2 and r3 of this equation are gross rate of returns on ith assets and jth liabilities. The revenues that are not generated from assets or liabilities are represented by r1 . It is used as contact term. These revenues are earning from off-balance-sheet items, underwriting fees and charges from interest rates and currency swaps. On the other hand, costs of banks are also sourced from banks assets and liabilities. Thus, variations in cost can be expressed by the following equation: Cbt = C1 + C2i Aibt + C3j Ljbt + ebt ---(2) While Cbt represents operating costs which include interest expenses on deposits, other liabilities and administrative expenses. c2 and c3 are rates of costs on the assets and liabilities. C is the fixed cost that does not vary with the changes of asset and liability portfolios of the banks.
1

Where, ubt = ebt /Abt Here the stochastic term ubt is normally distributed random errors which are characterized by a zero mean, homoskedasticity and are non autoregressive

The Modified Model

The structure of the traditional SCA model implies that all banks experience identical interest rates on banks assets and liabilities. In reality, a number of factors may affect banks earning and costs relating to assets and liabilities. These factors are market structure and macroeconomic conditions. If these factors are not included in the model, regression results will be unreliable and coefficients will be biased. Kwast & Rose (1982) incorporated the influences of these factors and presented a modified model as equation 5. This modified model is adopted to study, for the first time, selected commercial banks in Bangladesh.
Ybt/ Abt = 1/Abt + 2iAibt/Abt + 3jLjbt /Abt + 4Ht + 5fMft + ubt ----(5)

Where H = Herfindahl Index of market concentration associated with each bank M = inflation as a binary variable for number of years. The Herfindahl Index is the sum of the squared market shares of the firms in the market. Pasiouras and Kosimidou (2007) found a direct relationship between market concentration and firm profitability. Thus, the inclusion of H in the model helps to assess the influence of local market concentration on bank earnings. Oguzsoy and Guven (1997) found that banks profitability is adversely affected by inflationary situation which make banks vulnerable to default risk, interest rate risk and liability risk. Due to onslaught of so many risks, bank may face a huge amount of loss in a variable inflationary environment. This indicates that banks profitability is also linked with non-inflationary environment. Since inflation is one of the most important macroeconomic variable that impact banks profitability, it is included in the model as a binary variable (M) in equation (5). This study conducts two different regressions for each set of bank by assuming income measure as dependent variable: net operating income (Ybt). This variable was also considered by (Hester & Zoellner (1966) and Kwast & Rose (1982). Net operating income (Ybt) is the portion of total income that is left out after deducting operating costs from the total income. Thus, when this variable provides the income measure in the second regression, the 2i estimates net rates of return on assets. Similarly, the liability coefficients may be interpreted as the marginal cost of a particular liability. The sign of each 3j should, therefore, be negative or zero because operating costs are generally higher than the service charges earned from the deposits. The 1 coefficient reflects net operating income (costs) which are related to off-balance sheet items. Thus the sign of 1 may be positive or negative. Moreover, since 1 reflects a net income variable, it may be interpreted as a measure of economies of scale (Kwast & Rose, 1982). Since any differences between the coefficients of these two regressions are the operating costs, comparisons between the Since any differences between the coefficiets of these two regressions are the operating costs per protfolio item. This study does not use net income tax as a
25

The author find the revenue and cost coefficients by running two sets of regressions using equation 1 and equation 2. Now, if any one subtract cost coefficients from revenue coefficients he will get coefficients that represent net rate of return on asset and liability portfolios. We know, Y = R C. Where, Y = Net Operating income before tax, R = Operating revenue, C = Operating costs. By subtracting equation (2) from equation (1) we get the following equation which is known as statistical cost accounting (SCA) model: Ybt = 1 + 2iAibt + 3jLjbt + ebt Where, Ai = ith asset Lj = jth liability 1 = constant term elt = stochastic term ---(3)

2i = r2i c2i = marginal rates of return on assets

a3j = r3j c3j = marginal costs of liabilities. 1 = net fixed income that is not dependent on assets and liabilities. As banks have wide variations in their business volume it would be inefficient to use the book value of the assets and liabilities (Kosmidous, Pasiouras & Floropoulos, 2004). In order to avoid this problem, all the variables of equation (3) are divided by a banks average total asset (Abt). Thus equation (4) takes the form of: Ybt/ Abt = 1/Abt + 2iAibt/Abt + 3jLjbt /Abt + ubt ----(4)
The Cost and Management, September-October, 2010

Banking
dependent variable. The reason is that the elements that are added and deducted from net operaing income to bring "net income" are not related to a bank's protfolio. The major difference here is income tax and rate of such tax is fixed by the government from time to time. Thus net income after tax is not included in the SCA. compute the average book values. These values are divided by average total asset of the year to express them as ratios for the same period.

LITERATURE REVIEW

All assets and Liabilities not included as independent variables in this Studies of Hester & Zoellner (1966), Hester (1979), Vasiliou (1996) and model. Since balance sheet identity is that total assets are equal to Kosmidou et al (2004) examined the impacts of asset and liability composition as the total liabilities and owner's determinants of bank equity, inclusion of all assets and liabilities would For the operational and conceptual differences between profitability by applying SCA model. These studies create perfect co-linearity within the independent conventional and Islamic financial banks, some frequent did not asses the impacts variables. Hence "Cash" arguments have to be identified to analyze and of market concentration and macro economic and "Fixed assets" on the on the assets side "equity capital" differentiate the asset and liability management and its variables profitability of banks. On on the liabilities side is the other hand, studies excluded from the model. impact on the profitability of the banks. conducted by Bourke The reason for such exclusion is that expected rate of return from cash and fixed assets are zero and that the cost of equity is not considered in the (1989), Angbazo (1997), Kunt and Huizinga (1998), Saunders & computation of net operating income as advocated by Kwast and Schumacher (2000), Naceur & Goaied (2001), Drakos (2002), Goddard et al (2004), Iannotta (2007), Pasiouras & Kosmidou (2007), DePrince & Rose (1982) and Vasiliou (1996). Morris (2007) and Kosmidou (2008) examined the impact of a wide The variables of Modified SCA model range of determinants on bank performance. As mentioned earlier, the modified model is estimated for one Kwast & Rose (1982) proposed an expansion in SCA model to include independent variable which is net operating income (Y). The regional, market structure and macroeconomic variables along with explanatory variables used in the analysis are described in Table-1. the traditional variables representing assets and liabilities of banks. The model Equation (5) is used to estimate different rates of return He applied the model on a sample of large US banks which were on the following main four assets and four main liabilities of the segmented into high earning and low earning banks. balance sheet of the commercial banks in Bangladesh. Asset and liability management (ALM) is an integrated approach, Table 1: Explanatory variables relating to BCBs assets and liabilities which requires simultaneous decisions about the types and amounts of financial assets and liabilities the institutions hold, in other words, Variables Description the asset/liability mix and volume (Gardner and Mills, 1994). Gup and Liabilities Brooks (1993) argue that ALM in banks requires simultaneous L1 Fixed/time deposits planning of all asset and liability positions on the banks balance L2 Saving deposits sheet. As such, the objective of ALM is to maximize banks profits (Tektas et al, 2005). Therefore the core issue of ALM is to find out the L3 Current and other non-interest bearing liabilities optimal combination and composition of banks assets and liabilities L4 Other borrowings and funding that maximize the banks profit, (Asiri, 2007). Assets Mohammad Abu Sayeed has done work on the contribution of ALM toward profitability and project differences between the ALM A1 Loan performances of PCBs & NCB's of Bangladesh. A2 Bill discounted and purchased BANKING SECTOR OF BANGLADESH: AN OVERVIEW A3 Deposit with other banks The financial system of Bangladesh consists of Bangladesh Bank (BB) A4 Government security as the central bank, 4 State Owned Commercial Banks (SCB), 5 In addition, the following explanatory variables are also included in government owned specialized banks, 30 domestic private banks, 9 the model to improve the reliability of the results. foreign banks and 29 non-bank financial institutions. Moreover, Table 2: Non-Balance Sheet variables MRA(Micro finance regulatory Authority) has given license to 298 Micro-credit Organizations. The financial system also embraces Market structure variable insurance companies, stock exchanges and co-operative Banks. H Herfindahl Index of market concentration on Alongside the conventional interest based banking system, each bank Bangladesh entered into an Islamic banking system in 1983. At Macroeconomic variables present, out of 48 banks in Bangladesh, 7 PCBs are operating as fullfledged Islamic banks and 20 branches of 9 conventional banks are M Inflation rate partially involved in Islamic banking. Under this banking system, For asset and liability values, average figures are used in the model. loans and Amanat operations are conducted through giving profit For each year, the beginning and ending book values are used to shares instead of interest.
26 The Cost and Management, September-October, 2010

Banking
Total deposits of the Islamic banks and Islamic banking branches of the four variables have a negative impact on the profitability. It the conventional banks stood at BDT 464.4 billion at end June 2009. means that if there is a change of a single unit liability then the profit This was 26.0 percent of the deposits of all private commercial banks of the banks change negatively. They are efficient in handling the and 17.8 percent of the deposits of the total banking system at the only liability that is savings deposit (L2).But they are very efficient in managing asset end of June 2009. Total specially- Bill Discounted investment of the Islamic This indicates that banks profitability is entwined and Purchased (A2), banks and the Islamic banking branches of the with non-inflationary environment. Since inflation is Deposit with Other banks (A3) and conventional banks stood at BDT 434.4 billion at one of the most important macroeconomic variable Government Security (A4).The most well end June 2009. This was that impact banks profitability, it is included in the managed asset is Bill 29 .3 percent of all private Discounted and banks and 22.4 percent of model as a binary variable (M) in equation (5). Purchased (A2) as it the total banking system increases the profitability of the country. And PCBs deposits in 2008 amounted to BDT 1450.7 billion or 56.6 percent of 2.540 times. And from the t value it is seen that all the liabilities and the total industry deposit against BDT 1150.2 billion or 53.5 percent assets are significant in nature for the profitability of the conventional banks. And the two macroeconomic variables are creating negative in 2007. impact on the profitability of the banks. And from the t value of these ANALYSIS two factors it is seen that only Market Concentration (H) is SCA model as modified was applied to measure the impact of ALM significant for the profitability of the conventional PCBs. on banks profitability. Results obtained after application of Anova F On the other hand the Islamic banks are more efficient in managing Test shows that conventional PCBs use asset and liability portfolio liabilities, specially- Fixed Account (L1), Savings Account (L2) and mix which are different from those used by the Islamic PCBs.The Borrowing from other Banks (L4).All these three variables have a result of regressions was separately run for conventional PCBs and positive impact on the profitability of the Islamic PCBs. But Islamic Islamic PCBs based on net operating income (Y) as dependent banks are not efficient in managing assets as three variables among variables. Table 5.4 shows the regression results for conventional four different types of assets are creating negative impact on the PCBs and Islamic PCBs respectively. profitability of the Islamic PCBs. Among the four variables Loan (A1) Table 3: Regression for conventional and Islamic PCBs
Variables Conventional Coefficient
Constant Fixed Account (L1) Savings Account (L2) Current Account (L3) Borrowing from other Banks (L4) Loan (A1) Bill Discounted and Purchased (A2) Deposit with Other banks (A3) Government Security (A4) Market Concentration (H) Inflation R squared Adjusted R squared F-statistic Probability(F statistic) Durbin Watson statistic .00 -1.110 .209 -.220 -.230

Islamic T value Coefficient

-.490 (-2.157)* (2.067)* (-3.469)* (-6.320)* .00 1.080 .531

T value
-1.001 -1.164 -1.089

can be well managed by them. Among the two macroeconomic variables only Inflation (M) has positive impact on the profitability. But both of them are insignificant for the profitability of the Islamic PCBs. The table shows that the coefficients of 1/TA are not significantly different between the conventional and Islamic banks and that is zero (0) for both of the banks. Thus both of they are not experiencing any better economies of scale.

-.652 (-2.009)* .335 -1.372

RECOMMENDATIONS
With the above findings the author try to find the reasons of such findings and try to suggest measures that will enhance the profitability of both types of banks. As market structure is significant at 5% level of significance, conventional banks should be more aware as it affects the profitability negatively. If they will turn the market concentration with a positive coefficient then they might be able get the power to charge for their service. From the coefficient value of H reflects the market concentration of banks. With the negative value of coefficient of H is the evident of lower market concentration of both of the local commercial banks. This means they dont have monopoly power. Thus both of the banks should price their services with a competitive price. Otherwise they will lose their market position. As Islamic Banks focused on Islamic Shariah, the customers who are interested to maintain their savings with the Islamic concept want to keep their savings all time in the same way. So it can be assumed that the higher return is the result of the loyalty of the customers of Islamic Banks affects profitability positively. So the suggestion goes to the Islamic banks that it will be profitable for them if they concentrate
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-.252 (-14.450)* 2.540 .310 .505 (7.520)* (11.748)* (12.349)*

.274 -(2.159)* -.227 -.159 -.071 -.058 .044 - .481 1.706 1.737 -.885 -1.160 .969 .962 135.030 .000 1.584

-.830 (-19.714)* -.006 -.780 .989 .989 1683.421 .000 1.772

* significant at 5% level As regards to Islamic PCBs, five out of ten independent variables are found to have positive impacts on net operating income (Y) of these banks. From the above table it is seen that conventional banks are not efficient in managing the liability as the three variables among
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Banking
Impacts of market structure are found significant for conventional local PCBs and they are negatively affected by rising level of inflation. In general, PCBs are found to charge equitable and competitive price for their services. The Bangladesh Bank and Government of Bangladesh (GOB) should provide regulations so that assets of the banks are adequately protected from impairment and loan loss can be managed at a tolerable limit to ensure reasonable returns on assets of the local PCBs of Bangladesh. In addition, BCBs are to be supported by policy measures which will promote non-inflationary environment.
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CONCLUSION
This is a comparative study on the asset and liability management of Conventional versus Islamic private commercial banks of Bangladesh. It is evident that conventional PCBs are better than Islamic PCBs in terms of Asset management, but they do not have superiority over the Islamic PCBs in terms of Liability management. From the findings it can be told that the two banks are specialized in two different side of the balance sheet. r REFERENCE
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END NOTE : ALM - Asset Liabilty Management BCB - Bangladeshi Commercial Bank PCB - Private Commercial Bank SCA - Statistical Cost Accounting Model.

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The Cost and Management, September-October, 2010