REALIZATION PER RGFTE: In simple words, itcan be defined as the contribution made to the total revenue by each RGFTE employed by the company. <br /> Realization per RGFTE = Production revenue<br /> Production RGFTE Head count<br />
Figure No. 4.1:- Trend of revenue per RGFTE.<br />
SALARIES AND BENEFITS: While calculating salaries and benefits, total of all kinds of salaries paid during the year is taken.<br />Cost Driverfor salaries and benefits is the total Head Count of the COE.<br />Salaries & Benefits per RGFTE = Total Salaries & Benefits<br /> Total Head Count <br />
Figure No. 4.2: Any significant deviation seen in the cost during the contract period.<br />
Figure No: 4.3: Cost line that shows maximum increase according to the team.<br />
Figure No. 4.4: Trend for salaries per Head Count.<br />
Figure No. 4.5: Trend for Infra Expenses per seat.<br />
IT EXPENSES<br />Cost driver for IT expenses taken is SU, i.e. total number of work stations being used at one time.<br /> IT Expenses per SU = Total IT Expenses<br /> Total Work Stations<br />
Figure No. 4.6: Trend of IT Expenses per seat. <br />
OTHER EMPLOYEE COSTS: <br />Training<br /> Recruitment<br />Other expenses<br />Cost Driver for other expenses taken is HC. Total of HC up to band 4 and band 5 is taken into consideration.<br />Other expenses per HC = Total Cost<br /> Total HC (Band 4 & 5)<br /> <br />
Figure No.4.7: Trend of other expenses per head count.<br />
Figure No. 4.8: Inflation charged in the accounts. <br />
Figure No. 4.9: Percentage of inflation charged in the accounts.<br />
Figure No. 4.12: Revenue, cost and inflation.<br />
FINDINGS<br /><ul><li>The cost line that is majorly affected by the change in the rate of inflation is salary and benefits that constitute around 60-65% of the total cost of the company.
On an average company has inflation clause in nearly all its accounts.
Company is charging on an average an inflation rate of 5% on fixed rate basis from its clients.
The Company is doing fairly enough as far as overcoming inflation is concerned by offsetting the overall effect of inflation by deflating other cost lines such as infra expenses and It expenses etc.</li></li></ul><li><ul><li>There has been a decline in the revenue by 10% and the cost has increased by 3.50%. Therefore, reducing the overall EBIT earned by the company in 2010.
India contributes 72% in the total operations carried on the company as a whole.</li></ul>If the inflation continues to rise at the same pace and company continues to apply the cost cutting at the same rate, the profitability of company has a huge possibility to decline in the future.<br />
SUGGESTIONS<br /><ul><li>The company should try to control the attrition rate as that lead to hiring of new employees at the market rate.
There are some accounts where no inflation clause is charged. Company should try to negotiate with the clients in order to introduce an inflation clause.
If possible, negotiations should be made that during the contract period with completion of every year there should be some increment in the inflation rate provided to the company by its clients.</li></ul> <br /> <br />
For example – if inflation for 1st year is 4% then for 2nd year the rate should be increased to 4.5% or 4.25% or so.<br /><ul><li>Company should try to control its internal cost such as cost on infrastructure, information technology and so on.</li></ul> <br />