Bulletin of Research Developments March 2015

From Editor in chief's Desk

It gives me great pleasure to launch the second issue of our journal, Bulletin of Research

Developments.

There are a lot of challenges which the growing economies face in the realms of basic necessities in

life. Technology can play a very distinct role in bringing about this change.

It is very important that different stakeholders unite and collaborate on issues which confront the

society. One of the key objectives of research should be its usability and application.

This journal attempts to document and spark a debate on the research focused on technology in context

of emerging geographies.

The sectors could range from education, energy, environment, health care, transport, shelter,

manufacturing and service areas.

The key focus would however be the emerging sectors and research which discusses application and

usability in societal or consumer context whether individual or industrial.

The application of technology is a key theme in every paper which is published in this journal. The

intent of this journal is to showcase technologies which could bring about a fundamental change in

achieving societal and consumer impact.

These technologies could be very sophisticated to very elementary but in terms of impact they would

be capable of being commercialized, scaled up and focus on real life challenges.

The second issue has been very carefully put together covering a range of technologies in different

domains.

The contributions have come in not only from India from industry and academics but also from very

renowned institutions and global industry groups as well.

I would like to thank all the editorial team members, reviewers and initial team which have helped

in making this journal a possibility. We hope that the research featured here sets up many new

milestones.

We have had an overwhelming response from some very eminent Editors and researchers globally

to support as Editorial Team. I look forward to make this endeavor very meaningful

Dr. Subramonian

Editor- in- Chief

Guinness World Record Holder in Online Teaching

National Record Holder in India for Continuous Teaching for 61 hrs 35 minutes

[email protected] Website-www.iirm.edu.in

Research Articles

Vol.2 No.2 5 March 2015th

Bulletin of Research Developments

Evaluation of Position of Female Workers in Construction Industries in India

Babu.M 00

Theory and Application on Critical Chain Project Management

S.Jothinathan 00

Functions and Profit Criteria of Indian Banks in Post Liberalization Period

Anup Varghese Cherian 00

XBRL: A New Tool for Electronic Financial Reporting

Jia Wu and Miklos Vasarhelyi 00

A Critical Reading of Tennyson's In Memoriam

Showkat Hussain Dar 00

Bulletin of Research Developments Vol.2, No.2, (5 March 2015)th

Evaluation of Position of Female Workers in Construction Industries in India

Babu .M

Doctoral Student Department of Project Management

Himalayan University-Arunachal Pradesh

Abstract

Construction industry provides job opportunity to large number of skilled as well as unskilledworkforce. The workforces employed in the industry have to face several difficulties at the work place.Several issues related to health, job stress, and injuries at work place are the major concern of theresearch among researchers. The present study is review of past research work related to the womenworkforceemployedinconstruction industry inIndia.Themajor focusof thestudy is to identify thekeyfactors related to the status of female worker in the industry. Women work as unskilled labour and faceseveral other difficulties in comparison to males. Sexual harassment, gender biasness, wagediscriminationare themajor factordue towhich theworkingenvironmentbecomesdifficult for themintheindustryandwomen'sareremainsatsamelevelofskillevenafterworkingfewnumberofyears .

Keywords

Constructionindustry,health, injuries, jobstress

I.Introduction

Women are almost unskilled labourers and they face serious problems related to work, viz., wagediscrimination, gender and sexual harassment, unhealthy job relationship, lower wages; despite these,construction industry over whelmingly attracts female workers.Their skills are never upgraded as theyare allowed to perform only certain types of work and usually they assist the male work force. India isoneof the fastestgrowingeconomiesof theworld.ThereareseveralpoliciesadoptedbyGovernmentofIndia for the development of infrastructure for the country's economic development. Constructionindustry is the key for the success of the globalization of Indian economy .Construction sector isproviding employment to 7% of total world employment. Today Indian construction industry employsabout 31 million people and creates assets worth over Rs 200,000 million (India Infra Guru, 2008; GOI,2008a) annually. In India, it is the largest employer of unorganized labour next to agricultural sector(Laskar and Murty, 2004). The contribution of construction sector in India to the GDP at factor cost in200607wasRs.1,965,550million,registeringanincreaseof10.7%fromthepreviousyearandtheshareofconstructioninGDPhasincreasedfrom6.1%in200203to6.9%in200607(GOI,2008).

Around 16% of the India's working population depends on building construction for its livelihood andthe Indian construction industry today employs about 31million people and creates assets worth over rs200,000 million (India Infra Guru,2008; GOI,2008a)annually. However, the construction industry inIndia is facing a huge shortage of manpower. The strength of skilled workforce in construction hasdwindled substantially from 15.34% in 1995 to 10.57% in 2005, whereas relative proportions ofunskilled workers have gone up from 73.08% in 1995 to 82.45% in 2005 (GOI, 2008b). Theseconstruction labourers are one of the most vulnerable segments of the unorganized sector as there is nopermanent job opportunity for them. The construction industry has an annual turnover of Rs 2, 10,000crores.

Construction workers are the backbone of the economy as they create the infrastructure necessary forindustrial growth. In a globalizing economy, it is they who are constructing the new economy. India'sthreecoreconstructionworkersareliterallythebuildersofmodernIndia.


Theycontribute in infrastructuraldevelopmentof Indiabybuilding theroadsandhighways, the railwaytracksandairports andports, the ITcities, thecall centre's andmegamalls that arecreatingnewformsofwealth today. It is they who are laying the cables for a rapidly expanding country-widetelecommunications network that connect the vast sub-continent and make India one country, toshorting the distance and supporting the business activitely in order to upgrade the economicdevelopment. Yet these workers, who are creating the base of the new economy, lives in a time warp,trapped in low skilled, low paid, insecure working conditions. About one-third of these workers arewomenandchildren.Womenarealmostunskilled labourers they faceseriousproblemsrelated towork,viz., wage discrimination, gender and sexual harassment, unhealthy job relationship, lower wages, etcdespiteall these, construction industryoverwhelminglyattracts femaleworkers.Their skills arealwaysat the same level and are not upgraded as they assist only the male work fare the workplace. Theirhusbandsareoftendrunkardsorare found tohaveother sexualpartnersandfind themselves indebt trap,due to these factors women are unable to strengthen their skills and economic position in the industry.The female employment in the construction industry is very high, even though they work only as thehelpers or unskilled workers .The present study aims at reviewing the existing literature to look forvariousissuesofdiscriminationduetogender.

II.LiteratureReview

The review of literature is pertaining to some of the important articles and survey documented byvarious researcher regarding theconstruction industryandwomen's status.Thefocusof reviewison thefactors such as gender biasness, sexual harassment, family conditions of the women working inconstruction industry .The variability in labour absorption in construction workers is much morepronounced for women than for men. It has often been noticed that whenever there is high demand forlabour in this sector, the female employment rates is much higher than that of males. On the other hand,whenever there isanyshrinkage in theworkforce, femaleworkersare theonewhowillbe removedfromthe work force than compared to males (Shramshakti Report). It appears that women constructionworkers form a buffer which provides the cushion to industry and as soon as the situation comes underthe control they are shifted towards some other industry. The literature review is categorized in tofollowing sections to have an in depth insight regarding discrimination of construction workers basedongender-

A. Women'sEmployment.

B. Gender Bias in Construction Sector.

C. Wage Discrimination.

D. Sexual Harassment at Work place.

E. Social and education context.

F. Health Hazards.

A. Women's Employment

When it comes to female employment, however, the trends revealed by statistical analysis are more

mixed.

Public sector employment and Private sector employment of women in construction industry

(in thousands)

Year

Public sector

Privet sector

1981 1991

49.8 55.3

9.5 6

2000

63.2

4

8 Bulletin of Research Developments Vol.2, No.2, (5 March 2015)th


[1]. Occupational Stress of Women Workers in Unorganized Sector,Aadya and Kiran, U.V. (2013),

International Journal of Scientific and Engineering Research, 4(3),3-13.

[2]. Issues of Occupational Health and InjuriesBharara, K., Sandhu, P., and Sidhu, M. (2012).

among Unskilled Female Labourers in Construction Industry:AScenario of Punjab State.

[3]. Sex Discrimination against Female Workers in Unorganized Sector,Das, D. K. (1985). Indian

Journal of Industrial Relations, 21(2), 232-244.

[4]. Socio-Economic Conditions of Construction WorkersGirija, R. and Geetha, R. et al.)(1989).

in Tamil Nadu, Report submitted to ICSSR,(Mimeo).

[5]. Occupational profile of child labour in Chikankari IndustryKumari, N and Kiran, U.V.(2012). ,

Advanced Research Journal of Social Science, 44 (4), 247-250.

[6]. Report on the status of women workers in the construction industry NationalMadhok, S. (2005).

commission for women New Delhi.

[7]. Female Work Participation in India: Facts, Problems, and PoliciesReddy, D. N. (1979). Indian

Journal of Industrial Relations,15(2), 197-212.

[8]. Women's Status and Economic Globalization,Richard, D. L. and Gelleny, R. (2007).

International Studies Quarterly, 51(4), 855-876.

[9]. Workplace Culture & Status of Women Construction Labourers;Rai, A. and Sarkar, A. (2012).

A case study in Kolkata, West Bengal, Indian Journal of Spatial Science 3.0(2) Winter Issue,

44 54.

[10]. Recruitment and EmploymentShivakumar, M.S., Sheng, Y.K. and Weber, K.E. (1991).

Practices in Construction Industry: A Case Study of Bangalore: Economic and Political Weekly

26 (8), M27-M40.

[11]. Labouring Brick by Brick:Self Employed Women's Association (2000). A Study of

Construction Workers.

[12]. A review on the occupational health and socialTiwari, G., Gangopadhy, P.K. (2011).

security of unorganized workers in the construction industry, Indian Journal of Occupational

and Environment Medicine 5(1).


Theory and Application on Critical Chain Project Management

S.Jothinathan

Doctoral Student

Department of Management

Himalayan University Arunachal Pradesh

ABSTRACT

It is now over 10 years since the first publication on Critical Chain Project Management (CCPM)

(Goldratt, 1997). Since then, software and implementation practice have developed rapidly. The logic

and assumptions underpinning this new knowledge has recently been published (Goldratt, 2007) in

the form of a strategy and tactics (S&T) tree. It is, therefore, timely to review the CCPM claims from

both a theoretical and practical perspective in the light of this new guidance. The paper includes

interim findings of longitudinal case research of a construction company following the S&T logic to

implement CCPM.

The paper, firstly, provides an overview of CCPM in the light of prior publications before reviewing

the newly published implementation guidance and evidence of current industrial practice. This

includes the use of CCPM within a government construction project initiative in India. Secondly, the

case research methodology applied to a construction company is presented followed by the interim

results and findings. Finally, the interim case findings are evaluated in the light of prior research and

the wider theoretical links.

The paper concludes that CCPM is now making a significant contribution to improving project

management performance worldwide. The S&T guide provides a more comprehensive

implementation methodology as well as updated thinking on how CCPM should be implemented -

particularly in relation to flow control and continuous improvement. The research findings are only

interim, but largely support the logic within the S&T implementation guide with minor reservations.

However, the study, thus far, does not include the flow planning of multiple projects. Further research

is clearly needed to test the guidance in more detail as well as to clarify the relationship between lean

and TOC concepts with particular reference to flow control and continuous improvement.

Keywords: Theory of Constraints, Critical Chain, Buffer Management, Construction industry

INTRODUCTION

Theory in operations has undergone significant change in the past 40 years with a shift from an

economics cost-based view to one emphasizing flow and the reduction of waste and variation in

delivery systems (Ohno, 1988; Deming, 1982; Womack et al., 1990). This has, however, not been so

evident within the largely separate field of project management. The underlying theoretical basis for

project planning and control has not significantly changed in over 50 years, even though the planning

and control tools, such as network planning long have been acknowledged to be ineffective in practice

(Fondahl, 1980).

'All too often, however, only the original plan and scheduling data are ever produced. They

continue to cover the office wall long after they are obsolete and bear little resemblance to the current

progress of the job.'

CCPM under the umbrella of TOC has been presented as an answer to this weakness but lean

protagonists would make similar claims. Koskela & Ballard (2006), with reference to construction

projects, argue project management theory needs to mirror the transition in thinking experienced in

production operations. They advocate changing from an economics based transformation model to a

flow model, as adopted by Toyota, and now associated with lean. They advocate adopting practices to

manage a flow routine and encouraging local control to improve synchronisation, seeing this as a

natural extension of lean practices.

However, although the direction of improvement is clear, means of developing formal planning and

control tools to accommodate the uncertain project environment are not apparent.

Goldratt (2007) claims the TOC versus lean debate is a false dichotomy, and that TOC encompasses

the same underlying concepts of flow and continuous improvement associated with the Toyota

Production System (TPS) (Ohno, 1988). However, he and others assert TOC adds value by offering

thinking processes (Goldratt, 2008) that support the development of applications for different

environments, as in the case of projects. More specifically, Goldratt (1997, 2007) claims CCPM is a

means of applying the principles of flow and continuous improvement to a project environment.

Leach (1999) and others have previously emphasized this link by arguing that CCPM is an extension

of Shewhart's (1939) continuous improvement concepts and Ohno's (1988) TPS flow concept.

In reviewing the 10 years of development of CCPM and the case research findings this paper tries to

look beyond the more evident practical benefits to the underlying conceptual assumptions and

theoretical links with lean production.

The paper is structured as follows:

Overview key features of CCPM with reference to prior publications, newly published

implementation guidance and industrial practice - including the Indiaese Ministry of Infrastructure,

Transport and Tourism construction initiative.

Present the case research method and interim research findings of a UK construction company's

ongoing longitudinal case, utilising Goldratt's S&T guide and Concerto software.

Discuss findings and reach conclusions on the in the light of prior research and a wider theoretical

framework that links TOC and lean concepts.

CCPM REVIEW: OUTLINE, LITERATURE, PRACTICEAND GUIDANCE

This section sets the scene by outlining the core elements of CCPM before reviewing critical

literature, evaluating recorded practice and outlining the recently published implementation guide

(Goldratt, 2007).


CCPM in outline

A central driver for adopting CCPM is enabling more predictable and shorter project lead times. The

argument is that this not only will enhance time-related order-winning criteria but also will reduce cost

and improve adherence to specification. To achieve this the focus is on improving the flow of projects

using similar logic to that of lean manufacturing and the operations-based TOC application entitled

Drum-Buffer-Rope (Schragenheim and Detmer, 2001).

The main conceptual elements of CCPM are presented below in the context of planning, execution and

continuous improvement. Its distinctive differences with conventional project management are also

presented.

Project planning

CCPM takes account of resource as well as precedence dependencies in determining the project

duration. This is termed the critical chain. In Figure 1, the critical path would be denoted by activities

1-3-4, whereas in CC it is denoted by 1-3-2-4 due to common resource B. In such cases, the critical

chain is shown to be longer than the critical path and all four activities need to be managed

accordingly.

CCPM introduces the concept of project and feeder time buffers to accommodate the effective

management of buffer time that is commonly wasted at the activity level when managed locally. The

project buffer is located at the end of the project to protect the critical chain, and feeder buffers isolate

activity sequences with float from the critical chain (see Fig.1). Thus, such buffers enable aggregation

of the buffer time as well as better control, enabling both shorter and more controllable lead times. In

establishing these buffers, the proposed start point is to halve existing activity times and put half of the

remainder into the aggregated buffer. Therefore, the buffer is equal to a third of the activity and buffer

combination (see Fig. 1 for illustration).

When planning in a multi-project environment, CCPM advocates staggering the release of projects

around a designated resource that acts as a drum. This is used to ensure flow and avoid too many open

projects that result in excessive multi-tasking and missed due dates.

Figure 1 Network diagram and critical chain schedule showing buffers

Project execution and continuous improvement

Task completion reporting


It is common practice for activity times to be reported in terms of work done, an economic measure

that is often only formally reported weekly or even monthly. With CCPM the remaining time to

complete the activity is reported on a much more frequent basis ideally daily.

Provide visibility of upcoming tasksAs there are no intermediate task dates in the planning system the

task-time-remaining data provides advanced notice of upcoming tasks (this has previously been

referred to as a resource buffer).

Current and upcoming tasks are monitored in line with priorities to ensure tasks are effectively

progressing.

In the more complex multi-project environment, there are many in-progress tasks competing for a

resource provider's time. In CCPM they are prioritised in terms of the ratio of critical chain completion

and buffer consumption, commonly using green, yellow and red priority colour codes. Upcoming

tasks are also displayed, indicating their relative priority as well as the projected time when these tasks

are expected to become available to that resource.

Buffer consumption is monitored daily by the project manager and recovery action taken where

necessary. Consumption of the buffer indicates a task is exceeding the ambitious time and that the task

manager may need assistance.Action at the project level may be needed to recover a situation.

Senior managers monitor the status of all projects and take action where necessary. At this level, the

priority status of all projects is reviewed periodically to monitor and address higher level programme

recovery.

Reasons for delay are monitored and provide focus for improvement. The relevant reasons for delay

are extracted to focus improvement activity.

Review of literature

Much of the literature relating to CCPM is positive but the focus here is on the more critical sources.

This is an attempt to expose underlying weaknesses that may be tested in subsequent research. The

main issues raised have been categorised as follows.

Originality

The main distinction between CCPM and traditional project management is well reported (Newbold,

1998; Leach, 1999; Umble and Umble, 2000; Steyn, 2001). However, there are questions over

whether elements of the design are original to Goldratt. Trietsch (2005) is most critical in this area and

goes into some detail on the elements of the approach he would attribute to others:

This includes earlier reference to resource dependency 'the critical sequence' (Wiest, 1964) and

general awareness of the need to consider limiting resources in the network plan. It would appear

resource dependency was acknowledged academically but this was not effectively incorporated in

professional tools before CCPM.

The abolition of intermediate due dates which he links back to Schonberger (1981), among others,

who was an early proponent of lean and had seen the damage that intermediate dues dates had on

traditional batch manufacture.


Trietsch acknowledges the important contribution of feeding buffers, but again questions their

originality, citing his work as earlier. He suggests project buffers naturally arise under other names as

in Obrien's (1965) term 'contingency'.CCPM is inherently simple in concept; therefore, it would be

surprising if the elements had not already been identified. However, even Trietsch (2005)

acknowledges Goldratt's important contribution in drawing together these elements in a holistic

manner, as do other more critical authors (Raz et al., 2003).

Oversimplification

It is clear that Goldratt's (1997) original publication was focused on presenting a radically different

conceptual approach that lacked detail, as in the case of the management of multiprojects highlighted

by Elton and Roe (1998). Several authors (Raz et al., 2003; Elton and Roe, 1998) argue the approach

brings more discipline but raise reservations over downplaying the traditional importance of personal

project management skills. Raz et al. (2003) also suggest the industrial successes are due to the

adoptions having been made in organizations who have poor project management implementations in

the first place. However, no empirical evidence was offered and the growth in applications and the

case research reported here do not support this assertion.

Paradigm change / over complication Lechler et al. (2005) acknowledges the clear benefits but

highlights the challenge in adopting a different mindset and suggests it could explain some failures.

The issues include the greater discipline of having activity times with the buffers removed, and the

complexity of managing multiple buffer types. They suggest a CCPM-lite version that would not have

feeder buffers (p56). It is interesting to note that in healthcare patient flow, such a variant has been

developed (Umble and Umble, 2006) but this complexity argument is explored in this research in

more traditional project environments.

Raz et al. (2003) also argue that the software and training cost resulting from the need for a change in

the organisational culture works against this approach. For example, the need to give up task time

ownership, not use task due dates and to avoid multi-tasking. Again no research evidence is offered,

but these issues are explored in the case research that follows.

Pipeline scheduling

Raz et al. (2003) question the stability of a bottleneck resource within a project environment, as does

Trietsch (2005). Raz quotes the work of Hopp and Spearman (2000) in questioning the merits of DBR

over CONWIP, arguing that CONWIP is less susceptible to bottleneck instability. Although this

critique was not directed at CCPM, the instability of the bottleneck resource in project management

has more recently been acknowledged by Goldratt (2007). His original guidance (1997) was to plan

projects around a 'drum' in the form of a resource. This has now been changed to a virtual drum

resource that acknowledges any limiting resource is likely to move, and the real issue in projects is not

resource constraints but synchronisation (2007). It is intended that this new development will be

closely investigated through this research if the opportunity arises.



Buffer sizing

The introduction of buffers is generally seen as a positive step in providing a means of managing

uncertainty, with this acknowledging the need to not attempt to set intermediate task start and end

dates (Deming, 1982). Several authors raise question over the sizing of buffers to comprise one third

of the path duration. It needs to be acknowledged that there is no scientific bases for the buffer sizing

but it is clear the size of the buffer required depends on several factors, including frequency of updates,

task uncertainty and project service level.Aproposal to size a buffer, using a fixed as well as a variable

element (Raz et al., 2003), is an interesting possibility but Goldratt advocates that even in

construction, where uncertainty is relatively low, the generic sizing rule still holds as the buffer is a

natural extension of the task time. Although this results in an inherently simple policy, there are clear

merits in simplicity, but undoubtedly further justification is desirable.

These matters will be closely monitored in the design of the case research that follows. However, we

need to determine whether any additional complications add significant value. Raz et al. (2003) also

question the validity of the assumption that tasks are routinely overestimated then wasted, as well as

the practicality of extracting the buffer time from the task estimates. They suggest that transferring

some of the estimate to the buffer will reduce commitment or encourage further escalation of the task

time estimates.Again, this claim is central to the CCPM approach and will be specifically investigated

in the case research.

Concern is also raised over the use of a buffer penetration ratio for priority setting, arguing that other

factors such as project value could be more important. This argument is indeed valid if it is assumed

not all projects can be finished on time.

Herroelen and Leus (2001) conducted computational experiments and argued the buffer sizing can be

improved by ' . They suggest suchclever project scheduling methods such as branch and bound'

'advanced project scheduling tools can be implemented as black boxes without forcing management

or workers to know the technical details of the scheduling mechanism involved'. Further work is

clearly warranted here but due consideration needs to be given to the uncertain nature of the real world

and the benefit of simple pragmatic solutions that work with the full engagement of management

rather than the use of 'black box' logic.

Conclusion

There are clearly many questions regarding the details underpinning the application of CCPM. The

overriding consensus is that CCPM makes a significant conceptual and practical contribution. The

process of improvement is ongoing, as illustrated in the S&T developments (Goldratt, 2007)

discussed later and, as all solutions are underpinned by assumptions, it is important to expose those

that may prove to be invalid in establishing the boundaries and targeting the improvement process.

Trietsch (2005) advocates more scrutiny over the underlying assumptions stressing Goldratt's claim 'it

works' only means the flawed assumptions are not fatal. This is indeed true and, therefore, what is

needed is to identify the fatal flawed assumption first in embarking on a process of ongoing

improvement. To do this, however, research needs to be closely allied to practice which is a particular

concern in designing the case research that follows.


Goldratt's Strategy and Tactic (S&T) tree implementation guide

The original publication presenting CCPM (Goldratt, 1997) addressed the main elements of the

overall design but many of the details had to be worked out and refined in practice, as in the case of

staggering multi-projects (Goldratt, 2007). The S&T guide to CCPM implementation has clearly been

created with close reference to the implementation experiences of CCPM software providers, such as

Realisation. This knowledge has been provided in an innovative format that communicates the

implementation process and logic in a way that links strategy and tactics with increasing levels of

detail (see Figure 2). The part of this tree that concerns the core elements of CCPM is the focus of the

following research that follows which particularly centres on the 'Build' and 'Sustain' elements.

Figure 2 Extract of the CCPM S&T Tree breakdown


At each level of the S&T tree, the format is the same, with the assumptions linking the strategy

with tactics (see Figure 3).

4.14 Executing

Necessary

Assumptions

These assumptions (necessary, parallel and sufficient) are designed to support the logical links. The

value in clarifying these assumptions is particularly evident in 5:131 Building the CC network

diagram (PERT).

Strategy Projects are actively managed to ensure their successful, rapid completion

Parallel

Assumptions

Tactics

Sufficiency

assumption

Knowing when not to intervene is almost as important as knowing when to

intervene.

Figure 3 Example of the format and detail underpinning each level of the S&T tree

29

Functions and Profit Criteria of Indian Banks in Post Liberalization Period

Anup Varghese Cherian

Doctoral Student

Department of Management

Himalayan University - Arunachal Pradesh

I. Introduction

The paper seeks to determine the impact of various market and regulatory initiatives on efficiency

improvements and profitability of Indian banks since the implementation of financial sector reforms

following the recommendations of the Narasimham Committee in 1992 and 1997. The reform process

has shifted the focus of public sector dominated banking system from social banking to a more

efficient and profit oriented industry. While the reform process has resulted in the private sector

replacing the government as the source of resources for public sector banks (PSBs), the infusion of

private equity capital has led to shareholders challenges to bureaucratic decision making. PSBs also

face increasing competition not only from private and foreign banks but also from growing

nonbanking financial intermediaries like mutual funds and other capital market entities. The

competitive pressures to improve efficiency in the banking sector has resulted in a switch from

traditional paper based banking to electronic banking, use information technology and shift of

emphasis from brick and mortar banking to use of ATMs. For instance, by March of 2007, 86% of

public sector bank branches were fully computerized and ATMs made up approximately 48% of total

bank branches in the country.

We use Data Envelopment Analysis (DEA) to identify banks that are on the output frontier given the

various inputs at their disposal. Efficiency of each institution is then derived relative to the best-

practice bank on the frontier that uses a comparable mix of inputs. We then use the random and fixed

effects multiple regression models to explain differences in the relative efficiency of different banks in

terms of differences in management structures, regulatory mandates, and macroeconomic

environment. Our study is perhaps the first one that recognizes that differences in macroeconomic

environment at the state level may impact bank performance. Subsequently, we attempt to understand

the impact of efficiency differences and other factors like non-performing assets, labor costs and

market concentration on bank profitability. We again use the random and fixed effects multiple

regression models. Fixed effects are incorporated by adding two control variables; time and

ownership.

While inputs and outputs are easily identified in most businesses, that is hardly the case in banking.At

the heart is the question of whether deposits are input or output.Atypical financial intermediation role

for banks involves the use of deposits together with physical inputs of land, labor and capital to make

loans and earn interest income. Banks also recognize the importance of generating non-interest

income as an anti-dote to the variability in interest income.


Table 1: Characteristics of Banks

Banks

State-owned

Private-Old

Private-New

Foreign

Nationalized

1997

26.7

65.0

7.7

6.2

0.1

2007 **

23.8

36.5

5.9

30.2

3.5

1997

28.2

58.6

6.4

2.0

4.8

2004

27.6

50.7

7.0

10.1

5.5

2007

23.5

50.4

5.1

15.3

5.6

1997

31.7

52.5

7.2

2.7

6.0

2004

25.7

48

6.8

13.1

6.5

2007

24.3

48.4

4.7

16.2

6.4

2004

25.7

62.9

8.3

2.7

0.3

2007

24.6

62.4

8.1

4.4

0.5

Branches% Total

ATMS% Total

Deposits% Total

Advances% Total

* End March ** Data for earlier years not available.

Partly in response to these measures and partly as a result of the economy's improved performance, the Indian

banking sector's characteristics have changed and its health has improved. Old and new private banks have

increased their market share in terms of number of branches andATMs as well as share in deposits and loans at the

expense of state-owned and nationalized banks (Table 1).

Since 1997, net interest margins have declined in every segment of the banking system save nationalized banksand profit margins with and without taxes have improved across the- board save new private banks up to 2004 butprivate banks' net interest margins and profits started improving from 2005 and outstripped overall industrymargins.All in all, industry-wide net interest and profit margins peaked in 2004 and have not recovered from theirdownward spiral to date. Our subsequent work in this paper will focus on which groups of banks have gained inefficiency in producing the specified outputs and also how individual banks stack up in terms of efficiency gainsduring the post reform period. We also look at the impact of efficiency gains on bank profitability in the postreform liberalization period.



State Banks

Nationalized Banks

Private Banks-Old

Private Banks-New

Foreign Banks

All Banks

Banks

1991

1999

S1

1997 1998

1.95

2.13

2.30

2.97

1.81

Table 2: Trend in Bank Spreads and Profits (%Total Assets) 1991 - 2007

P1

0.15

0.21

0.31

1.39

0.20

P2

0.15

0.21

0.31

1.39

0.20

2000

S1

2.80

3.44

2.94

2.79

3.87

2.97

P1

0.34

0.67

0.85

1.70

1.28

0.60

P2

1.47

2.07

1.82

2.71

3.75

1.66

2001

S1

2.64

3.68

2.58

2.22

3.75

2.74

P1

0.50

1.11

0.46

1.92

1.26

0.59

P2

1.19

2.26

1.81

1.88

3.48

1.62

State Banks

Nationalized Banks

Private Banks-Old

Private Banks-New

Foreign Banks

All Banks

2002

2.15

2.18

2.00

4.01

2.26

3.09

0.12

0.60

0.40

1.51

1.91

0.10

0.62

1.76

1.08

2.18

3.72

1.04

2003

2.53

2.94

2.33

1.85

3.59

2.59

0.40

0.79

0.11

0.93

0.92

0.57

1.20

1.98

1.08

1.93

2.77

1.50

2004

2.74

2.71

2.42

2.01

3.30

2.70

0.25

1.54

0.68

0.76

1.15

0.49

1.14

1.38

1.72

1.63

3.00

1.44

State Banks

Nationalized Banks

Private Banks-Old

Private Banks-New

Foreign Banks

All Banks

2005

2.63

2.62

2.30

1.12

3.08

2.43

0.66

0.74

1.04

0.39

1.30

0.71

0.76

1.87

2.57

1.17

3.13

1.83

2006

2.99

2.77

2.63

1.68

3.45

2.78

0.98

0.91

1.19

0.89

1.75

1.011

2.34

2.27

2.69

3.35

3.35

2.411

2007

3.05

2.83

2.56

1.96

3.54

2.86

1.18

1.02

1.16

0.82

1.70

1.13

2.72

2.62

2.58

2.05

3.75

2.67

Nationalized Banks

Private Banks-Old

Private Banks-New

State Banks

Foreign Banks

All Banks

3.02

3.06

2.70

2.17

3.34

2.83

0.89

0.91

0.33

1.05

1.29

0.89

2.17

2.44

1.68

1.85

2.98

2.17

2.89

3.07

2.75

2.27

3.58

2.81

0.81

0.86

0.58

0.91

1.54

0.88

1.79

2.17

1.51

1.78

3.34

1.95

2.71

2.79

2.83

2.34

3.74

2.69

0.88

0.82

0.70

0.91

1.65

0.90

1.77

1.69

1.89

1.88

3.45

1.90

S1 = Net interest income, P1 = Net Profits, P2 = Gross Profits

* End March


III. Data EnvelopmentAnalysis

Data Envelopment Analysis (DEA), developed by Charnes, Cooper and Rhodes (1978), uses

principles of linear programming to examine how a particular decision making unit (DMU) like a

bank in our exercise operates relative to other DMUs in the sample. Efficiency is defined by the ratio

of output to input. This is straight forward when there is only one output and one input. But the task

becomes complex where multiple of outputs and inputs are involved. DEA gets around this problem

by constructing an efficiency frontier from weighted outputs (virtual output) and weighted inputs

(virtual input). DMUs on the frontier are assigned an efficiency score of 1 while those inside receive

scores of between zero and one. The further away a bank is from the frontier, the lower its efficiency

score.

While inputs and outputs are easily identified in most industries, it is not so in the banking industry.

The DEA studies of bank efficiency have typically used either the intermediation approach or the

production approach in selecting outputs and inputs. The former considers banks as intermediaries

that use deposits together with other inputs such as labor and capital to produce outputs like loans.

Hence, the intermediation approach views deposits as an input. In the production approach, however,

banks are thought of as service providers and deposits are considered as an output. Thus, the

production approach postulates that banks produce deposits, and loans using labor and capital as

inputs. In using the two approaches, we also consider non-interest income earned by each banks as a

distinct output in view of the emphasis banks themselves place on it as a stable source of income. As

our subsequent quantitative analysis shows, whether deposits are treated as an input or an output does

not appear to make any difference to the efficiency scores of various banks.

A few DEA-based studies of efficiency in the Indian banking system have appeared in recent years.

They have used a variety of specifications for inputs and outputs as evident from Table 3. Inputs vary

from purely financial such as interest and non-interest expenses to purely physical like number of

branches and employees. Outputs are either income related -- interest and non-interest income or

product/service related loans, investments and non-interest income. Deposits appear as inputs or

outputs depending upon whether the authors work with the intermediation or production

interpretation of banking business.

The efficiency scores are found to be relatively sensitive to the specification in terms of inputs and

outputs, which makes it difficult to reach generalized conclusions on how bank efficiencies stack

up by ownership. In a few studies that use a large number of inputs, not surprisingly many more

banks are found to be on the efficiency frontier ((Das, Nag and Ray). In earlier papers Ketkar et.

al. used deposits as well as physical inputs such as number of full time employees as a proxy for

labor and number of branches as a proxy for capital, and loans and investments as outputs. The

efficiency scores of most domestic banks were found to be quite low in that specification of inputs

and outputs. On reflection, we conclude that this


Table 3: Input & Output Specifications

Author(s)

Bhattachryya A. C.A.K.

Lovell & P. Sahay

Saha & Ravisankar

Ketkar & Noulas

Sathye M.

Ketkar, Noulas &

Agarwal.

Ketkar, Agarwal, Singh

& Mitra

Interest Expense,

Operating Expense

No. Of Branches,

No. of Employees,

Establishment & Non-

establishment

Expenditures

Capital No. Employees

Deposits

Capital No. Employees

Deposits

Model 1 Deposits Staff.

Branches

Model 2 Staff.

Fixed Assets

No. of Branches

Model B Deposits &

No. of Staff

Advances, Deposits

Investments

Advances, Deposits

Investments, Spread,

Total Income, Interest &

Non-interest income

Investment Advances

Investment Advances

Net Interest Income

Non-interest Expense

Net Interest Income


Interest Expense,

Model 2 Operating

Expense

Interest Income,

Non-interest Income

Investment Advances

Advances Deposits Investment

Inputs Output Period

1986-91

1991-92

1994-95

1993

1990-1995

1996-2003

1997-98

1997-98

1992-2000

Chakrabarty & Chwala Interest Expense,

Model 1 Operating

Expense

Advances, Deposits &

Investments

1990-2002

1997-2003Borrowed Funds, No. of

Employees, Fixed Assets,

Equity

Das A. A. Nag & S. Ray Investments, Performing Loans,

Non-interest Income

Model A Interest Expense


Rammohan & Ray Operating Costs,

Deposits

Investments, Loans &

Non-interest Income


0.6563

0.6071

0.7515

0.8227

0.8487

0.7151

0.7677

0.6882

0.7898

0.8377

0.8373

0.7674

0.6647

0.6358

0.7027

0.7954

0.8492

0.7058

0.7719

0.7196

0.7649

0.8328

0.8668

0.7722

0.7103

0.6289

0.6723

0.8018

0.9244

0.7091

0.8058

0.7087

0.7287

0.8342

0.9188

0.7676

2002 2003 20041997

State owned

Nationalized

Private - Old

Private - New

Foreign

All Banks

Spec. 1

Spec. 1

Spec. 1

Spec. 1

Spec. 1

Spec. 1

0.5878

0.4407

0.6218

0.6568

0.7487

0.5807

0.5150

0.4593

0.6458

0.6686

0.7529

0.5868

0.5372

0.5268

0.5909

0.7399

0.7799

0.6049

0.5907

0.5539

0.6420

0.7544

0.7844

0.6390

0.7561

0.5046

0.7202

0.6671

0.6958

0.6492

0.6623

0.5072

0.7077

0.6419

0.7099

0.6322

0.6924

0.5517

0.6500

0.6739

0.7425

0.6389

0.7324

0.5904

0.7042

0.6968

0.7781

0.6803

0.5896

0.5676

0.6466

0.7539

0.8732

0.6545

0.7286

0.6304

0.6970

0.6841

0.8424

0.6954

Spec. 2

Spec. 2

Spec. 2

Spec. 2

Spec. 2

Spec. 2

1998 1999 2000 2001

Table 4: Efficiency under Alternative Specifications and CRS

In sum, the perceived low efficiency of state-owned and nationalized banks appears to resultfrom their mission of generating deposits in addition to other outputs and the low income areasin which they operate. Their profits do suffer in the process; in recent years state-owned andnationalized banks have earned lowest levels of profits (Table 2), perhaps with occasionalexception of new private banks.

Turning to the five most efficient banks over the sample period under the two alternative inputs

and outputs specifications (Tables 5 and 6), it is clear that foreign and private banks are found to

be the most efficient banks whether deposits are treated as output or input.

Only two domestic banks - the Catholic Syrian Bank (#38) and Lord Krishna Bank (#44) appear in

the top five most efficient banks in Specification 1. In addition to banks #38 and 44, bank 28 (Federal

Bank Limited) also shows up in the top five in Specification 2.All these are old private banks that have

had a good track record in producing non-interest income.

Table 5: Five Most Efficient Banks

Specification 1:

Outputs: Loans, Deposits, Non-interest Income

Inputs: No. of Branches, Equity, Total Operating Expenses

Year/Rank 1

591996

591997

561998

49, 56, 57, 511999

38,51,56,59,622000

38,48,49,51,56,622001

38,49,50,56,58,592002

49, 56, 58, 60, 622003

2

38

38

59

3

50

49

48

4

49

51

61

5

44

61

38

59

State-ownedNationalized

Old Private

New PrivateForeign


Table 6: Five Most Efficient Banks

Specification 2:

Outputs: Loans, Non-interest Income

Inputs: No. of Branches, Equity, Deposits, Total Operating Expenses

Year/Rank 1

501996

381997

571998

44,52,57,601999

52,60,632000

57,632001

57,632002

57,59,60,61 532003

2

38

60

52

3

60

44

60

49

51

4

51

52

62

57 50

50 52

53 61

5

57

62

28

62

V. Explaining Efficiency Differences

In this section, we attempt to explain differences in bank efficiency scores due to regulatory mandates

and managerial decisions. We use multiple regression method with random and fixed effects for this

purpose. The dependent variable in the efficiency equation is each individual bank's efficiency score

(ES) and the independent variables are: the percent of bank branches located in rural and semi-urban

areas (RSB), the number of officers as percent of its total employees (OS), the level of fixed assets as

percent of its total assets (FA), priority sector loans as percent of total loans (PSL), investment as

percent of total assets (INV), number of ATMS relative to bank branches (ATM) and each bank's

market size index (MSI)6. The RSB, PSL, INV variables reflect RBI mandates, the OS variable

represents a management decision, the variables FA and ATMs is influenced by both RBI mandates

and managerial decisions, and finally the MSI variable is an amalgam of management decisions,

regulatory mandates, and macroeconomic environment at the state level.


All employees of new private banks, for instance, are classified as officers and majority of foreign

banks' employees are classified as officers. Our results should reveal whether that improves the

efficiency with which new private and foreign banks operate. As regards PSL, domestic as well as

foreign banks are required to allocate, respectively, 40% and 32% of their net bank credit (NBC) to

priority sectors including agriculture and small scale industries and businesses. Domestic banks that

fail to allocate the requisite percent of their NBC to PSL are required to contribute the shortfall to the

Rural Infrastructure Development Fund. Similarly, foreign banks are required to deposit the shortfall

with the Small Industries Development Bank of India. Thus, banks have some ability to deviate from

the proscribed PSL levels. Furthermore, the RBI has enforced the PSL mandates a lot more flexibly in

recent years. The net result is that the PSL as percent of total loans has varied from low teens to high

60s. Banks undertake investment in government securities (INV) to meet the statutory liquidity

requirement (SLR). While the RBI has lowered SLR from a high of 33% to 25% of bank liabilities,

many banks (public sector banks in particular) continue to hold government securities in excess of the

proscribed liquidity requirement, sometimes as high as 40%. This is reflection of banks' reluctance to

seek loan business aggressively. INV thus measures degree of lazy banking in India. As INV

increases for a bank, its lending is curtailed and its efficiency score ES is reduced. Finally, the market

size index is calculated by weighting state-level GDPs by the share of each bank's branches in each

state in the total of all bank branches in that state and then summing the resulting magnitudes across all

states.7 The market size variable is converted into an index. Market size index (MSI) is constructed by

first calculating the average market size for all banks for each year. As a second step, we compute

market size faced by each bank in relation to the average market size for a given year. The MSI faced

by state owned and nationalized banks partly reflects the mandates on opening bank branches in rural

and semi-urban areas triggered by the management's decision to open up branches in urban centers.

For all other banks, of course, MSI is a purely managerial decision. MSI takes into account the impact

of state-level macroeconomic environment on bank efficiency at the national level. We estimate

equation (1) for each of the two efficiency specifications by controlling for ownership and time.

It is observed from the regression results in Table 7 that the RSB regulatory mandate has had a negative

impact on ES in specification 1 but when we control for ownership, the impact of RSB is positive and

statistically significant implying that branch expansion improves business by bringing in deposits.

RSB has statistically significant positive impact on ES in specification 2 for



Table 7: Determinants of Efficiency Scores Differences

*t-statistics are reported in parentheses below the estimated coefficients. T-statistic above or below +/-

1.96 implies significance at 5% and above or below +/-1,645 at 10%. both random and fixed effects

models. Thus, a bank's urban-rural presence by itself does not seem to impede efficient operations. A

rise in the percent of officers in total employment (OS) does appear to enhance efficiency significantly

and that is not surprising.

This enhancement in efficiency can be attributed to the officers' ability to work with modern

technology. A rise in the percent of fixed assets in total assets (FA) has negative and statistically

significant impact, which again is not a surprising result. We observe that both PSL and INV have the

expected negative and statistically significant signs, implying that RBI mandates adversely impact

bank efficiency scores. Finally, the MSI's statistically significant negative impact on efficiency

suggests that larger market size together with less competition in many states makes banks less

efficient in providing

Specification 1 Specification 2

Independent

Variables

Random

Effects

Fixed Effects

Ownership Time

Fixed Effects

Ownership Time

Random

Effects

Intercept 0.792 0.542 0.962 0.969 0.880 1.221

RSB -0.00036

(0.807)*

0.002

(3.39)

-0.0001

(0.30)

0.0013

(2.77)

0.0024

(3.60)

0.0016

(3.98)

OS 0.0020

(4.80)

0.001

(1.78)

0.0017

(4.27)

0.0019

(4.39)

0.0029

(4.30)

0.0014

(3.77)

FA -0.020

(4.08)

-0.021

(4.03)

0.013

(2.75)

-0.24

(4.68)

-0.159

(2.81)

-0.0146

(3.17)

PSL -0.002

(2.48)

-0.001

(1.32)

-0.002

(2.82)

-0.0018

(2.16)

-0.0023

(2.68)

-0.0021

(2.82)

INV

MSI

-0.0027

(2.77)

-0.001

(1.01)

-0.0057

(5.72)

-0.0086

(8.33)

-0.007

(6.90)

-0.13

(13.10)

-0.021

(4.80)

-0.0098

(2.02)

-0.02

(4.92)

-0.015

(3.30)

-0.104

(1.99)

-0.014

(3.48)

R- Square 0.25 0.33 0.34 0.20 0.25 0.15

F- Statistic 28.40 21.15 21.29 17.89 9.325.06


banking products and services. The State Bank of India, for instance, has an extensive branch network

all over the country to raise its MSI which actually contributes to its relative lack of efficiency.

Finally, we attempt to determine the impact of estimated bank-specific efficiency levels under

specifications 1 and 2 on their profitability. To do this, we estimate the following regression equation:

where ROA is the gross profit margin as percent of total assets , ES is efficiency scores from the DEA

model, IS is the net interest spread, NPA is non-performing loans as percent of total loans, PSL

represents priority sector loans, WS is total compensation per worker, and HHI is the Herfindahl-

Hirschman concentration index based on each bank's market share in total loans and deposits. We

expect an increase in ES, IS and HHI to increase bank profitability (ROA) and an increase in NPA, PSL

and WS to reduce ROA. Equation 2 is estimated using specifications 1 and 2 for ES estimates. For both

specifications, we estimate equation (2) using random effects model and then re-estimate for fixed

effects by controlling for ownership and time.

From Table 8, we observe that ES, IS and NPAvariables have the expected and statistically significant

effects. As expected, ROA decreases as NPAs increase and the decline in ROA is statistically

significant. NPAs affect ROA on two fronts. First, NPAs directly reduce interest income and second,

RBI mandates banks to make provisions against bad loans. The effect of PSL variable is mixed. When

we include ES scores from specification 1, the effect of PSL variable is positive but not statistically

significant.

VI. Efficiency and Profitability


Table 8: Determinants of Bank Profits (ROA)

Significant at 5% (10%) level if t is above or below +/-1.96 (+/-1.645)

However, when we control for ownership and time, the PSL variable has the expected negative and

statistically significant effect. When ES from specification 2 are included and the equation is re-

estimated, the PSL variable has the expected negative and statistically significant effect. Thus, priority

sector lending, PSL, not only negatively impacts bank efficiency (ES), it also adversely affects bank

profitability (ROA). In the Indian context, an increase in WS increases ROA but the effect is not

statistically significant. Perhaps, this implies that as banks hire more skilled and educated workers or

officers, their efficiency (ES) increases but their profitability (ROA) is not materially impacted. When

we control for ownership or time, the results do not change.

Specification 1 Specification 2

Independent

Variables

Random

Effects

Fixed Effects

Ownership Time

Fixed Effects

Ownership Time

Random

Effects

Intercept 1.32 -1.3 -0.0741 -1.03 -0.97 -0.87

ES

IS

NPA

PSL

WS

HHI

R- Square 0.48

-0.32 -0.28 -0.25 -0.33 -0.26 -0.4

-0.0003 -0.0003 0.0002 -0.0003 -0.0002 -0.0003

-0.84 -0.98 -0.64 -1.2 -0.49 -0.97

1.41 1.9 1.11 2.034 0.96 1.66

-1.45 -2.02 -1.95 -2.37 -1.59 -2.83

0.008 -0.013 -0.011 -0.013 -0.01 -0.02

-4.28 -4.28 -3.86 -4.65 -3.84 -4.24

-0.036 -0.038 -0.032 -39 -0.035 -0.04

-16.03 -14.72 -16.09 -15.74 -14.51 -15.8

77.05 75.62 77.13 76.01 75.16 76.35

(8.20)* -7.67 -7.28 -7.69 -7.50 -6.52

2.79 2.79 2.51 2.46 2.37 2.14

0.47 0.49 0.47 0.47 0.48

F- Statistic 76.16 38.47 73.86 44.42 37.0146.01


VII. Summary and Conclusions

The paper investigates the efficiency of Indian banks since systemic reforms began to be undertaken in

the 1990s. Our study is perhaps the first one that examines the long run impact of reforms and

liberalization on individual banks' efficiency and profitability. We do this using Data Envelopment

Analysis and bank-specific data from 1997 to 2004. We recognize the controversy on the role of

deposits as input or output by deriving efficiency scores under alternative specifications.

Our DEA results show that the relative efficiency of banks by ownership does not critically depend

upon whether deposits are treated as an input (intermediation approach) or output (production

approach). In general, we find foreign banks to be the most efficient followed by new private banks.

While the efficiency scores of all banks have increased over the reform period, the nationalized banks

have registered the strongest gains. This reflects the infusion of new capital and the increase in

competition that these banks have experienced in recent years.

The regression analysis undertaken to explain efficiency differences among banks shows that the

mandates on priority sector lending have hurt the efficiency of state-owned and nationalized banks but

bank branch expansion mandates have not hurt their efficiency.

The latter may reflect efforts by banks to locate rural and semi-urban branches close to population

concentrations. The managerial decision by new private and foreign banks to have a high percent of

officers in their workforce has added to their efficiency. Excessive bank investment in government

securities has negatively impacted bank efficiency. Such overdependence on government securities

by public sector banks is an indication of their risk-averse behavior. Finally, the new MSI variable

developed to measure the income environment facing each bank is found to be quite relevant in

explaining lower efficiency scores of state-owned and nationalized banks. Turning to banks'

profitability, we find that efficiency scores and net interest spreads impact it positively while

nonperforming assets and priority sector lending have the opposite impact.

Thus, the liberalization and deregulation of banks have raised efficiency scores over time of all banks

in India regardless of their ownership. These gains in efficiency have also improved bank profitability.

Still, the remaining RBI mandate of priority sector lending continues to hurt both the efficiency and

profitability of state-owned and nationalized banks. The practice of hiring more officers in relation to

non-officers among foreign and new private banks also appears to have contributed to their enhanced

profitability. This reflects perhaps the computer and credit-assessment skills that officer employees

bring to the table. Finally, the statistically insignificant impact of the Herfindahl-Hirschman

concentration index indicates that the State Bank of India has not been successful in leveraging its

relatively large market share to raise either its efficiency or its profitability. In all fairness, however, the

Herfindahl-Hirschman index is not that high even for the State Bank of India.

Table 5.2. A comparison of three markup languages

5.3.1 XBRLComponents

XBRL consists of three major components: the XBRL specification, XBRL schema, and XBRL

instance documents.

5.3.2 XBRLSpecification

XBRL specification aims at standardizing the creation of XBRL taxonomies and instance documents.

XBRL allows each user to define his/her own set of meta-data tags. However, unless these tags are

created following certain uniform standard, information exchange would be inhibited since the tags

defined by one user may be incompatible with and incomprehensible to the other user's application.

XBRL specification is such a uniform standard that provides guideline on how to design taxonomies

and instance documents in XBRL. It defines XBRLelements and attributes that can be used to prepare,

exchange, and analyze financial reports, ensuring that user-defined tags do not overlap or clash. These

elements and attributes include syntax of instance documents, syntax of taxonomies, semantics of

instance documents, and semantics of taxonomies.


Function

Flexibility

Tags

Components

Parser

Similarities

HTML XML XBRL

Web page

presentation

Limited

Predefined

Tags

Web Browser

Plat-form independent, language independent, easy for document exchange

Data processing

Great

User defined

Schema (DTD), tags

XML-enabled

applications

Financial data processing

Great

User defined

Specification, taxonomy,

instance document, tags

XML-enabled

applications

Table 5.3. Example of XBRL Specification Elements

5.3.3 XBRLTaxonomies

XBRL.org defines taxonomies as a standard description and classification system for the contents of

accounting reports. XBRL taxonomies can be regarded as extensions of XML Schema. Information

producers take their accounting information from their accounting system and code it in a standard

fashion as described by the taxonomy. Taxonomies are used for different types of business reports.As

we know, accounting can be divided into several subsets, including financial accounting, management

accounting, SEC reporting, IRS reporting, etc. Each subset usually requires a special set of accounting

terms, policies, and methods for reporting. Addition- ally, different accounting standards may require

different taxonomies. For instance, U.S. General Accepted Accounting Principles (GAAP) are

different from International Accounting Standards (IAS). Therefore, two taxonomies may be needed

to prepare the business reports in accordance with these two different standards.

Consequently, XBRL communities have determined to create one taxonomy for each accounting

subset. For example, there are taxonomies for general ledger, financial reporting, management

reporting and SEC certification. Currently, two taxonomies are available to the market. One is U.S.

GAAP CI taxonomy, which deals with financial reporting for commercial and industrial companies

under GAAP. The other is GL taxonomy, which is concerned with reporting at the transaction level. A

number of new XBRL taxonomies, including taxonomy for management notes and discussions,

taxonomy for SEC certification, and taxonomy for IAS accounting, are either under development or

under review.

5.3.4 XBRL Instance Document


Syntax of

instance

document

Syntax of

taxonomies

Elements Examples Meanings

NASDAQ:MSFT

CUSIP:41009876AB

The company with

NASDAQ ticker

symbol MSFT

The entity with CUSIP

number 41009876AB

Define the elements. Note

that both the colloquial

name and its immediate

parent are included in the

element

Company ID,

reporting period,

entity names

Elements,

Monetary and

shares data- types,

rollup

An instance document is an XBRL-coded business report. It can be an XBRL-tagged balance sheet, an

XBRL-tagged debt covenant report, or an XBRL-tagged SEC 10Q filing.

XBRL specification, XBRL taxonomies and XBRL instance documents constitute the XBRL world.

An XBRL instance document includes the XBRL specification version ID as well as the name and

location of XBRL taxonomies. Upon receiving an XBRL instance document, the XBRL- enabled

application can process the instance document in accordance with the matching specification and

taxonomies.

5.4 XBRLand Business Intelligence

XBRL has far-reaching implications for the entire business community. XBRL can dramatically

facilitate business reporting. The processes of pre- paring, presenting, extracting, and analyzing

financial reports can be largely automated using XBRL-enabled applications. Both financial report

preparers and users can harvest the huge benefits from XBRL.

5.4.1 Benefits for Financial Report Preparers

Accounting computerization has already for a large measure alleviated accountants' workload. XBRL

can further increase the efficiency and effectiveness of accountants' work. XBRL can facilitate the

preparation of financial reports. Traditional financial reporting requires multiple inputs of financial

data for different types of financial reports. Accountants need to input a company's entire set of

financial and non-financial data for its annual report to be placed on the company web site. They may

input the same set of data again to prepare an SEC 10K filing or a credit report filing for bank loan

application because these reports have different data and format requirements.

These multiple entries of data into the computer system not only waste time and labor but also result

in many input errors. XBRL eliminates this redundant task. Since XBRL applies standard tags to the

raw financial data, an XBRL-enabled application can understand and process the data. The same set of

data can be used across applications. Accountants can enter data once into the computer system and

use it multiple times. It would be time saving, effort saving, and paper saving for accountants to

prepare different business reports for different purposes using different formats. It is comparable to

having a word document file that can be converted effortlessly into txt, pdf, and rtf documents.

XBRL can be integrated with ERP systems, corporate data warehouses, and other corporate

information systems. ERP systems and corporate data warehouse can capture data at the transaction

level and feed the data into XBRL- ready applications. Then the information can be tagged in XBRL

using XBRL GL (general ledger) taxonomy. Afterwards, the general ledger level XBRL-compliant

report can be further processed, consolidated, and customized for different user needs. The entire

process can be computer automated without human intervention. This practice will further reduce the

costs for financial report preparation.


5.4.2 Benefits for business report users

In addition to facilitating accountants' business reports preparation, XBRL can also streamline the

extraction and analysis of business reports for a large variety of financial report users. These users can

include company decision makers, auditors, creditors, financial analysts, stockholders, as well as

regulators.

Different financial report users usually have different interests in the financial reports. Local

managers may be interested in the sale volume and inventory turnover ratio. Top decision makers may

be interested in the overall profit of the company. Auditors may be more interested in knowing if the

company hidden financial problems. Creditors will be interested if the company will be able to pay

back the loans. Stockholders and financial analysts are usually interested in the company's earnings,

stock dividends and growth potential. Regulators usually pay more attention to if the company has

complied with the laws and regulations. For example, IRS officials may pay attention to the company's

taxable income and payments.

Currently, these users have to manually extract relevant data from business reports and then import

these data into various computer applications for analyses. A bottleneck lies in this manual data

extraction process.

Computerized data extraction is hampered for four major reasons. First, not all the companies use the

same set of accounting terms. For example, cash and cash and equivalents can mean the same

accounting item (Kogan et. al, 2002). It would be easy for human users to identify but will cause

confusion for computer programs. Second, what makes things worse; there is no consistency for the

report layout and format. The length of an annual report can vary from 5-7 pages to 70-80 pages. An

income statement can be found at the beginning, middle, or end of an annual report.A line item, such

as inventory, can be located at the 3rd, 4th, or even 5th line under the current assets account. The

inconsistency in accounting terms and report formats prohibits the automation of data extraction and

analyses from business reports.

However, with the adoption of XBRL, these problems can be easily solved. If financial reports are

encoded in XBRL tags, XBRL-enabled computer applications can quickly scan the tags in the report,

locate the desired line items, and extract the data for analyses. Since these XBRL tags are clearly-

defined standard tags, the computer application will not have any confusion in identifying the needed

data.

The financial report users only need to inform the application what type of information they are

interested in, and the application can extract the relevant information for them automatically. Thus, the

time for data extraction can be greatly reduced by using XBRL.

XBRL can also facilitate the information exchange of financial reports. Traditional financial reports

have limitation in information exchange. First, financial reports are usually prepared in different file

formats by different computer applications. For example, a study of online financial reporting found

that the formats of online financial reports include pdf, word document, txt, excel, and html. These

files have limited compatibility. Smooth information exchange is rendered impossible by these

incompatible file formats. Moreover, different platforms, such as Windows 98, Windows


2000, Windows XP, Unix and Linux, have created more barriers for financial report exchange between

different platform-dependent applications. Second, financial reports can be prepared in different

languages, including but not limited to English, German, French, Chinese, Japanese, and Korean.

Current financial analysis software suites are language dependent. Most of these applications can only

process financial reports in one language, mostly in English.Ahuge portion of non-U.S.-based capital

markets is excluded from the financial community due to language barrier. Last, but not least, different

accounting standards, regulations and policies have prohibited seamless comparison between

financial reports prepared under different accounting standards. U.S. GAAP, International

Accounting Standards (IAS), and other proprietary national standards such as Japan's accounting

principle prevent expedited exchange and analysis of the financial reports because the information

contained in these financial reports is not comparable if the user is not familiar with these different

standards.

XBRL can nicely resolve the above-mentioned problems. First, if a financial report is coded in XBRL

tags, the conversion of this report into other formats can be as easy as several mouse clicks, using the

XBRL- ready application. Microsoft has already added an XML module into its Office XP software

package. It is expected that an XBRL module for Office applications will soon be available. On the

other hand, the conversion of financial report in various formats into XBRL-compliant document is

also effortless. University of Kansas has developed a prototype of an XBRL conversion tool, which

can convert a text-format financial report in- to an XBRL-encoded one. UB Matrix and Case Ware are

among the increasing number of software vendors who are developing XBRL-enabled applications

to create XBRL-encode financial reports.

Second, in order to overcome the language barrier, XBRL uses Unicode as its default font. Unicode

can support over 120 languages, which makes XBRL language independent. Hence, even if a human

user does not understand the language in the financial report, an XBRL-ready computer application

can automatically translate and analyze the financial reports for the user.

Third, the barrier caused by the different accounting standards can also be removed by XBRL. Each

XBRL-compliant financial report contains taxonomy information, which indicates the type and

location of the taxonomy. Financial reports based on different accounting standards use different

XBRL taxonomies. An XBRL-ready computer application can retrieve the matching taxonomy from

the designated location and process data contained in the financial reports accordingly.

In summary, XBRLis a language independent, platform-independent, accounting-policy independent

standard. Its adoption can facilitate financial report preparation, extraction, exchange and analysis.

Accountants can prepare financial reports with ease. More frequent financial reporting is made

possible by XBRL. Using XBRL-enabled software, Managers can have both very detailed and highly

consolidated view of a company's financial data. More effective decisions can be made. Auditors can

integrate their auditing software with XBRL business reports. Financial data can be electronically fed

into the auditing software as opposed to manual input. Thus, auditing sample size can be dramatically

increased, and the audit risk can be lowered. Frauds and errors can be detected more promptly. With

XBRL, investors and creditors can follow more companies, including domestic and international,


large and small ones. The capital and loan market will become more rational and efficient. Similarly,

regulators can monitor more companies' financial performance.

5.5 XBRLSoftware Vendors

Although XBRL is a recent innovation, several software companies have already developed XBRL-

enabled applications.Awell-known application is a jointly-developed project called Excel Investor's

Assistant by Microsoft, PricewaterhouseCoopers, and NASDAQ. This application can pull financial

data from the Internet, build XBRL instance documents, and conduct financial analyses of 21 selected

companies. The beauty of this application is that it is a macro which runs on the widely-used Excel.

Therefore, no new software is required. It can prepare XBRL instance documents, perform ratio

analysis, compare up to five companies' financial measures, and analyze financial and nonfinancial

information. Every process and task can be completed in seconds.

A number of business software vendors have developed XBRL-enabled applications. Generally

speaking, current market available applications can be categorized into two major groups: XBRL

instance document builder and XBRLtaxonomy builder.

Fig. 5.1 shows the initial startup screen of the application. It allows the user to input the fiscal period

and company names for analysis. In this case, Microsoft and Intel are added for analysis. The fiscal

period is from 1st quarter in 1997 to 4th quarter in 2002. The application retrieved the XBRL

documents for these two companies from the Internet immediately after the Build Analyses button

was pressed.

Fig. 5.1 Excel Investor's Assistant initial screen


Fig. 5.2 Time series comparison

Fig. 5.2 displays the screenshot a time series comparison chart of Intel Corp's annual financial

measures and ratios, such as total revenue, gross profit margin, inventory turnover, and ROI. Through

the charts, financial statement users can instantly compare the current financial performance to

historical performance.

Fig. 5.3 Comparison chart


Fig. 5.3 shows a comparison chart of Intel and Microsoft's annual net in- comes from 1997 to 2002.

The financial measure comparison between these two companies is clearly visualized through the

charts.

Fig. 5.4 Accounting numbers for Intel

Fig. 5.4 presents the accounting numbers for Intel. The increase and decrease of accounting

numbers can be indicated by different colors. The variance percentage will pop up if the mouse is

moved over the appropriate numbers.

XBRL instance document builders focus on making XBRL-compliant business reports. These

applications either generate XBRL-compliant business reports directly from the corporate data

warehouse such as PeopleSoft and SAP's financial modules and Case Ware's Working Papers; or the

applications convert traditional business reports into XBRL-compliant reports such as Hyperion

Solutions' Hyperion Reports and Price water house Coopers' Edgar Scan. XBRL taxonomy builders

allow users to create their own taxonomy. As we know, variations exist in different business reporting

requirements for different business entities. Standard taxonomy is not all inclusive, which may not

always satisfy business reporting needs. Sometimes an organization needs to create its own taxonomy.

XBRL taxonomy building applications can help to create new taxonomies, ensuring that the

taxonomies created conform to XBRL specifications and can be mapped into the company's database.

This type of application includes UBMatrix's Taxonomy Builder, Decision Soft's X-Meta, and Fujitsu

Ltd's Taxonomy Editor. In addition, another group of XBRL vendors provides a repository for XBRL

instance documents. These vendors include Edgar Online and OneSource Information Services.


5.6 Conclusion

XBRL can facilitate financial report preparation, exchange, extraction and analysis. Business report

preparation and analysis will be much faster and less costly than ever. The adoption of XBRL

technology has far-reaching benefits for accountants, decision makers, creditors and regulators.

Financial data only needs to be entered into the computer system once and can be used multiple times.

The workload for accountants can be reduced. Financial reports in XBRL can be easily exchanged

through the Internet. Data extraction and analysis from XBRL-coded financial reports can be largely

automated by computer applications. Financial report users can analyze more efficiently and

effectively.

XBRL will invoke great changes and create new opportunities in the financial reporting community.

For accountants, since financial reports can be prepared more efficiently with XBRL, it is possible that

more frequent and detailed financial reporting will be made.As a result, financial reports will be more

transparent and informative. For company management, they can know more accurately how their

unit performs as compared with other units and previous periods. Better decisions can be made based

on the information contained in XBRL reports. For auditors, XBRL reduces the opportunities for

management fraud and manipulation of accounting numbers.Additionally, audit sampling and testing

are facilitated with XBRL. These improvements will dramatically reduce auditor risks and cut the

auditor's workload. It is also expected that XBRLwill enable continuous auditing.

Auditors can use XBRL to perform audits on a high frequency or even real time basis. With XBRL,

creditors can closely monitor a large group of clients' debt covenant compliances at the same time.

They can make better and faster credit decisions and increase the customer base. For investors, XBRL

can help them to follow more companies than before and improve their investment decisions. Mid-

and small-sized companies can compete with large companies for the capital market, since the cost of

investment analysis will be reduced by using XBRL. Regulators will also have better control of their

subjects since XBRLcan provide improved monitoring functionality.

In order for XBRL to be widely employed in financial reporting, a few issues need to be solved. First,

good taxonomies need to be created. Only two taxonomies, CI and GL, are available. We need more

taxonomies to satisfy various reporting requirements. Second, regulator

Bulletin of Research Developments March 2015

Education

Transcript of Bulletin of Research Developments March 2015