Journal of IMS Group
Vol. 10, No. 2, July-Dec 2013, pp. 56-67
Outsourcing Activity is Boon or Bane:
A Case Study of City Circle Bhopal
Dr. S.K. Khatik & Dr. G.S. Khanooja
Abstract
Outsourcing is a very common word in these days. Outsourcing is nothing but allowing someone else to
do your work for you so that you are able to devote your time to more important jobs. Outsourcing is a
better way of doing business. It is used by small as well as huge business firms in achieving greater
success. More and more firms are looking at new ways to reduce costs and meet the pressures of increasing
accountability. The main purpose of outsourcing is to take advantages of service providers of their
expertise in non-core activities with the economies of scale in order to reduce the expenses and ensure
quality services of M.P.M.K.V.V.Co.Ltd. It will help to reduce the incurred cost and improve their
financial position. This research paper reflects cost effectiveness of outsourced MRBD activity of city
circle Bhopal. The M.P.M.K.V.V.Co.Ltd. Bhopal carried out various activities to run their business, out
of them some activities were outsourced. This research study covers only one activity i.e. MRBD. MRBD
is a very important activity for any distribution company as the monthly receivables from consumers is
largely depends on how effectively this activity is carried out. Efficient and accurate Meter reading and
bill distribution not only results in high earning but also reduces the consumers complaints, most of
which arises only due to wrong reading of meters. In this regard we have taken a case study of City Circle
Bhopal and compare the cost of outsourced MRBD with the cost if these MRBD would be done
departmentally and found that departmental cost is very high and we come to the conclusion that the
outsourcing of MRBD activity is boon to the organisation
Keywords: Outsource, non-core, service provider, MRBD, in house, receivables, Cost effectiveness,
boon, bane
Dr. S.K. Khatik
Professor and Head, Department of Commerce,
Dean Faculty of commerce and Chairman BOS,
commerce, Barkatullah University Bhopal.
Email: [email protected]
Dr. G.S. Khanooja
DGM, M.P.P.M.C.L., Bhopal
Email: [email protected]
56
INTRODUCTION
Outsourcing is a very common word in these
days. Outsourcing is nothing but allowing
someone else to do your work for you so that you
are able to devote your time to more important
jobs. This concept is relevant in all areas, as today
one can also outsource some routine works to
some other person. Outsourcing is a better way of
doing business. It is used by small as well as huge
business firms in achieving greater success.
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
The concept of outsourcing gained popularity in
the mid of 1990 due to rapid growth in the
number of high-tech companies. The
outsourcing has become a buzz since the last few
years. Almost every country and almost every
organization is outsourcing a part of its task or
some task. The reasons that have been found for
the increase in the trend of outsourcing for
business process is that, it increases profit and
lowers cost, and business focuses mostly on these
aspects.
In short, it can be said that the transfer or
delegation of some of the operations of the
business to an external service provider is called
outsourcing. Outsourcing can simply be defined
as the continuous outsourcing of a specific part of
the business process. The practice of buying from
another company a commodity or service that is
not central to a company’s competitive
advantage is called outsourcing. The companies
realize that non-core activities can be affectively
and economically performed by others and
outsourcing helps the companies to focus their
charges on the core activities and leave the noncore activities to others who are specified in
performing the non-core activities.
In the current era of business scenario where the
customers are enjoying customer driven market,
there exists very high thrust on manufacturers or
companies to stand up to the expectation of
customers for their survival. Today’s customer is
not only demanding but is also very cost
conscious and expects innovative and
discriminative products. In order to stand up to
the customers’ demands and expectation the
companies have to constantly strive for
providing better features in their product, better
quality , correct timing of product life cycle and
high degree of value for money.
To include all the above requirements of the
customer under one roof often becomes difficult
for the companies or manufacturers, and hence in
order to achieve the solution to the above
problem the companies peep outside their
premises. The business process outsourcing
system allows companies to contract for services
that are not within the scope of their expertise, so
that they can focus their time, money and energy
on their core competencies instead of wasting
valuable resources trying to gain understanding
of areas that are somebody else’s expertise.
Today outsourcing, in its most concise form, can
be defined as the delegation to another party of
the authority for the provision of services under a
business contract that incorporates service-level
agreements related to cost, quality, and the
timelines of deliverables. Given a diverse nature
of business processes a firm has to manage today,
it is nearly impossible for a firm to manage all of
its processes by solely depending on its own
expertise. Even if it is feasible, the firm may lose
its focus and efficiency. Outsourcing some or all
of non-core business processes can enable a firm
to focus on core competencies, rather than
services that fall outside of expertise. It will not
only improve function effectiveness and
flexibility by accessing a support network with
highly qualified and specialized workforce, but
also help firms control their costs and business
risk by transforming high fixed costs to
predictable expenditures.
Technically speaking, outsourcing is not nearby
the contract with a third party to perform a
service for an organization, but it also involves
transferring a significant amount of management
control and decision making to the external
supplier. The process of outsourcing is very
much formed like other business process and it
always includes a considerable degree of two
way information exchange and trust.
IMPORTANCE OF OUTSOURCING
Outsourcing is a grand opportunity especially
for the individuals who are lucky to have the job
and its more advantages for the company who is
doing this kind of strategy. It is beneficial to
companies or firm who are using it but one of the
best impacts of this business strategy is giving
more job opportunities to countries that had a
low employment rate.
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
57
Larger corporations use outsourcing to cut their
overhead costs. But the other benefits of
outsourcing particularly in the area of marketing,
manufacturing, risk management, use of IT etc.
etc. necessitate all size of business companies to
adopt this management tools.
OUT SOURCING: A BOON OR BANE
Outsourcing flourished in India after the new
economic reforms. In Indian economy
population, poverty and employment have
always being long debated issues. Public and
private sectors create only a few jobs. They could
not create ample job opportunities for the public.
Hence Indians are facing unemployment. In this
era outsourcing has became a new source of
employment. After outsourcing Indian
companies are feeling a big relief for cut-throat
competition and fulfil the accountability towards
the society by creating more and more jobs
through outsourcing. After outsourcing the large
number of jobs are created by the companies with
the help this technique. Apart from these benefits
companies are also able to reduce their cost and
increase foreign reserve resulted to increase in
growth of Indian economy. All these could be
possible when companies are adopting
outsourcing technique in their business. As
above the facts it is clear that outsourcing is a
boon for the developing country like India.
Outsourcing technique is able to create only low
cadre employment opportunities like testing and
operating data entry, billing, meter reading, Tele
calling, Tally accounting, bill distributing,
complaint attending, queries, cleanliness etc.
They are not been paid sufficient salary to
survive. Apart from it, outsourcing has negative
impact on our culture and tradition because
youth is moving away from our values and
culture. Their thinking and their outlook,
outwards values have undergone through a
drastic change due to western culture. The
influence of the western culture is all time high
on our culture and it has nothing to do with
industry. The life style and ideologies of an
august college student in a metro may not be any
different from a young outsourcing employee.
58
Outsourcing is killing our tradition, culture,
value and education. However on the above
reasons outsourcing should be banned for the
Indian economy. Thus it is clear that outsourcing
is not able to create better jobs like research,
development and controlling of the organization
etc. and it has a negative drastic effect on our
Indian culture. It has hampered our society
because it is not accountable towards the weaker
section of the society and also against the
employee salaries as they render their services
and they deserve a good salary, but outsourcing
is paying less salary as compared to their work.
JUSTIFICATION OF TOPIC
Madhya Pradesh Madhya Kshetra Vidyut Vitran
Co. Ltd., (M.P.M.K.V.V.Co.Ltd) manages power
distribution and retail supply in the central
region which comprises of the commissionaires
of Bhopal, Hoshangabad, Gwalior and Chambal.
The company is facing a net loss since its
inception in 2002. An attempt has been made
through this study to determine the significance
and meaning of outsourcing of different
activities of M.P.M.K.V.V.Co.Ltd. and also how
the net saving can be achieved through these
outsourced activities is also studied. The
increased savings by way of outsourcing noncore activities will increase the earning of the
company which in turn will enable the company
to pay interest and debt, without the financial
help from outside agencies.
REVIEW OF LITRATURE
Outsourcing has become commonplace in
modern business. In addition to outsourcing in
profit seeking organization; there is considerable
outsourcing effort in government and non-profit
organization also. According to Hannan and
Freeman (1984) ongoing outsourcing practices
are due to organizational inertia in following the
leader without any efficiency concerns. Apart
from various advantages of outsourcing like cost
reduction, use of advance technology, capital
investment etc, William Son (1985) in his study
suggest
that
the
outsourcing
creates
opportunities for firms to shift the burden of risk
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
and uncertainty associated with the business to
someone else. Prahalad and Hamel (1990 P. 84)
point out “outsourcing can provide a shortlist to
a more competitive product but it typically
contributes little to building the people
embodied skills that are needed to sustain
product leadership”. A desire to save indirect
cost may also drive outsourcing. Having fewer
employees requires less infrastructure and
support system Hubbar (1993). Before
implementing outsourcing, there are some
additional indirect and social cost associated
with outsourcing which must be considered
indirect cost like contract monitoring cost,
contract generation cost, transition cost etc.
Gillett (1994). Capital expenses incurred by the
relationship should also be calculated by
Burzawa (1994). The Major reason behind
outsourcing is to save the cost Bergsman (1995),
and Saunders et al. (1997) in a study of
outsourcing found that in many cases the major
motives for outsourcing were technological and
strategic and not cost reduction. It was found that
the outsourcing allowed organizations to achieve
a number of strategic benefits ranging from the
more rapid adoption of new technologies to
being more responsive to customer needs by
better coping with variations in product demand.
As Oates (1998) suggests the outsourcing
decision is a strategy one and is generally taken at
a senior level. Ulrich (1998) suggested that core
activities are transformational work that creates
unique value for employees, customers, and
investors. Non-core activities would be
transactional work that is routine and standard
and can be easily duplicated and replicated. Hall
and Torrington (1998) found that training,
management, development, recruitment and
selection, outplacement, health and safely,
quality initiatives, job evaluation and reward
strategies were the likely HR activities to be
outsourced either because they were considered
non-core or because of the organization locked
the expertise to handle them internally. There
are, however, potential pit falls when
outsourcing is done for strategic reasons.
Organization may give away the crown jewels if
they are not careful Gillett (1999). The most often
cited strategic reason for outsourcing is to allow
organization to
focus more on its core
competencies Quinn and Hilmer (1999).
Price Waterhouse Coopers (1999) in a study of
outsourcing have found that outsourcing has
moved from searching for efficiencies and
improvements in a single process or activity, to
reconfiguring entire processes in order to obtain
greater value across the organization. The ability
of organizations to reduce costs is regarded as a
pre-requisite for participation in many industries
whereas innovation and responsiveness to
customer needs are regarded as potential sources
of competitive advantage. Before implementing
different types of outsourcing like human
resources, legal processes, marketing,
Information Technology, call centre,
manufacturing operation process etc. proper
care must be taken or proper process must be
followed for the successful outsourcing. If proper
care is not taken in implementing outsourcing i.e.
poor contract or poor selection of partner then
according to Klopack (2000), outsourcing may
result in loss of control or loss of core competence
and it may also result in power shift to supplier
Kakabadse and kakabadse (2000). The supplier
or outsourcer may also not give access to best
talent and may lose customers, opportunities
Robert V. (2001).
Quelin and Duhamel, (2003) in a study of
outsourcing gives idea about whether
outsourcing is appropriate for the organization
and, if so, how the outsourcing process should be
managed, Economist Paul Samuelson, a Nobel
Prize winner, wrote in a 2004 paper that the
economic effect of outsourcing is similar to
allowing mass immigration of workers willing to
compete for service jobs at extremely low wages.
Scott Naxton (2006) in his article “Outsourcing is
necessary to beat the competition” “published
in the year 2006 stated “Considering the cut
throat competition in almost all the businesses, it
has now become necessary for established
companies to outsource their time-consuming
and labour intensive jobs to others so that they
can concentrate more on areas of their core
competencies. This way companies would
concentrate more on marketing, expansion,
takeovers and mergers.”
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
59
Every year in the United States, companies pay
about $68 billion to other companies for key
services or products that help them focus on their
core business and delegate other functions
(Thurm, 2007). Outsourcing even a large portion
of IT may not be substantial enough to affect
firm-level financial metrics such as profitability
(Aubert et al., 2008). The impact of contractual
and relational governance mechanisms on BPO
success and report that process standardization,
contract completeness, coordination, and consensus
are directly associated with BPO success. Like Poppo
and Zenger, (2002), and Goo et al., (2009).
design has its positive and negative sides. The
research design has been considered as a
"blueprint" for research, dealing with at least four
problems: what questions to study, what data are
relevant, what data to collect, and how to analyze
the results.
Researchers not only need to know how to
develop certain indices or tests, how to calculate
the mean, Growth rate, Standard Deviation,
Coefficient of Variation and Student t test etc.
Research tools have been deployed for justifying
the result of the study, whether the result are
significant or not.
OBJECTIVES OF STUDY
The research study has the following objectives:
I) To understand the concept of outsourcing
II) To study the Meter reading and bill
distribution activity being carried out on
outsourcing
at City Circle M.P.M.K.V.
V.Co.Ltd Bhopal
III) To examine that how far Outsourcing of
MRBD helps to reduce the operating cost of
the organization.
IV) To analyse the net saving or cost effectiveness
of Outsourcing of MRBD being carried out at
City Circle M.P.M.K.V.V.Co.Ltd Bhopal
V) To give the suggestions on the basis of
findings of the study.
The sources of primary data are through
experiments,
observations,
interviews,
questionnaire, scheduling etc. The sources of
secondary data are annual reports, budgets and
any other published documents.
In this study, secondary data collected by means
of annual reports, budgets, executive business
plan etc. has been considered. Apart from these
data, the opinions, and observation of employees
in various departments of City Circle
M.P.M.K.V.V.Co.Ltd has also been considered.
The data was qualitatively and quantitatively
analyzed.
LIMITATIONS
HYPOTHESIS OF THE STUDY
The following hypothesis have been set up for
testing of the significance of the study
HO = NULL HYPOTHESIS
HO1 = There is no significant difference between
internal and outsourced MRBD for revival and
survival of the company
H O2 = There is no significant impact of
Outsourcing of MRBD on the financial
performance of the company
RESEARCH DESIGN
Research designs are concerned with turning the
research question into a testing project. The best
design depends on the research questions. Every
60
Every research has its own constraints, problems
and limitation. In this context this research study
is also having some limitations, which are given
as follows.
i) City Circle M.P.M.K.V.V.Co.Ltd Bhopal
deals with number of activities in their
business but in this study we have taken only
one activity i.e. outsourcing of MRBD.
ii) This research study is of micro nature and
based on only one selected Circle i.e. City
Circle M.P.M.K.V.V.Co.Ltd Bhopal
iii) This research study is based on the 12 years
data, which were related to the year 2000 to
2012.
iv) For the analysis of outsourcing of MRBD
under City Circle M.P.M.K.V.V.Co.Ltd
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
Bhopal, on the basis of given data and
computed data are grouped and sub
grouped.
v) The reliability of data depends on audit
which is not sufficient.
Analysis of Meter reading and bill distribution
(MRBD) under City Circle MPMKKVVCo Ltd
Bhopal.
In global economic market the business activities
do not easily survive due to cut-throat
competition in the market. Nowadays every
organization is facing problems of increasing
cost and deterioration in the quality of output.
Only those organizations are able to run their
business who are able to reduce their operating
cost. All these problems are faced by private,
semi govt. or Govt. organizations. M.P.M.K.V.V.
Co. Ltd. is also one of the Govt. undertaking
company, which is rendering the services and
supplying power to its consumers. This
organisation is running in loss since last so many
years due to several reasons. Now these
challenges are faced by almost all govt deptt. In
this light, I have taken a management technique
i.e. Outsourcing and how it will be helpful as a
cost-effective tool for survival of M.P.M.K.V.V.
Co. Ltd. In this regard in this case study I have
taken outsourcing of MRBD activities of City
Circle M.P.M.K.V.V.Co.Ltd. Bhopal as my case
study. In this case study how far outsource
technique will be helpful in reducing the cost has
been analyzed.
In Bhopal City at present there are total 3,56,853
consumers on LT Side. The Work of Regular
Monthly reading of all consumers is a big task,
previously this work was carried out through
departmental employees. As per norms of the
company one person can take 1500 readings
(with distribution of bills) per month. It means
for taking regular monthly reading of 356853
consumers, Two hundred thirty eight employees
are required. The number of employees required
is very large due to which large financial burden
is being faced by the company. To take the
advantages of outsourcing The MPMKVVCL has
decided to do this job in Bhopal city circle on pilot
bases.
The chief Engineer Bhopal had issued NIT for
this work and the successful bidder in the year
2006-07 was M/s Bellary Computer & IT Solution
Pvt Ltd.,1 Cross Gandhi Nagar Bellary. The
lowest rate quoted by him was Rs. 3.33 per
consumer, this agency worked for two years upto
2007-08. In the year 2008-09 the company has
again issued an NIT and the lowest bidder for the
period 2008-09 to 2009-10 was M/s Sterling
Transformers Flat No 22,
Padmawati,
Apartment, a Kakatia Nagar, Tirupati and the
rate quoted by this form was Rs. 3.54 per
consumer.
Again the Chief engineer Bhopal has issued a
tender vide No. CE/BR/02/Pur/4811 dt.
23.06.09 for Meter reading and bill distribution
(MRBD) for the area covered under City Circle
MPMKKVVCo Ltd. Bhopal and after following
purchase procedure M/s Tera Software Ltd. of
Hyderabad was found to be the successful
bidder. The lowest rate quoted by the firm was
Rs. 4.41 per consumer for reading and
distribution of energy bill, including of all taxes.
For the successful running of this activity in
Bhopal city circle the company has given this
work with following scope.
Again the Chief engineer Bhopal has issued a
tender for the year 2011-12 and 2012-13 and
found that M/S Sharp agency Bhopal has bided
the lowest rate of Rs. 4.33 per consumer for meter
reading and distribution of energy bill.
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
61
Table 1: (MRBD Activity)
Average Annual Expenditure on Departmental MRBD Work under City Circle Bhopal
No of
Consumers
Salary
of LH
Per
MTH
No. Of
Employee
Required For
MRBD(@1500
Readings Per
Employee)
Total Cost If
MRBD Done
Departmentaly
Per MTH
Total Cost Of
Departmental
MRBD Per Yr.
Total Cost of
Departmental
MRBD Per Yr.
(In Lacs)
NOS
IN Rs.
NOS
IN Rs.
IN Rs.
Rs. (in Lacs)
2000-2001
177229
9753
118
1152343
13828115
138.28
2001-2002
214365
10133
143
1448107
17377284
173.77
2002-2003
227640
10346
152
1570109
18841308
188.41
2003-2004
235225
12750
157
1999413
23992950
239.93
2004-2005
239227
14485
159
2310135
27721625
277.22
2005-2006
246843
15120
165
2488177
29858129
298.58
2006-2007
255973
15666
171
2673382
32080584
320.81
2007-2008
272327
17881
182
3246319
38955833
389.56
2008-2009
281392
19791
188
3712686
44552233
445.52
2009-2010
296751
23296
198
4608741
55304890
553.05
2010-2011
320456
25626
214
5474585
65695018
656.95
2011-2012
340427
27420
227
6224340
74692080
746.92
2012-2013
356853
29340
238
6980045
83760536
837.61
YEAR
5266.61
SOURCE: Data collected from General Section of office of Superintending Engineer, City Circle,
MPMKVVCo Ltd., Bhopal.
Mean 405.12
Std. Deviation 219.24
Coefficient of Variation 54.12
Growth rate 505.73
Average annual Growth rate 38.90
Table 1 shows the average annual expenditure of
departmentally operated MRBD activity under
City Circle MPMKKVVCo Ltd Bhopal during the
period of study and Table 2 shows the average
annual expenditure of outsourced MRBD under
City Circle MPMKKVVCo Ltd Bhopal during the
period of study. The cost effectiveness of this
activity is depicted in the table 3.
Table 1 represents average annual expenditure
on departmentally executed MRBD Work under
City Circle MPMKKVVCo Ltd Bhopal. The
62
Annual expenditure on this activity was
calculated by assessing no of employees required
to take the metre reading and bill distribution @
1500 consumers bill per employees for example
the no of consumers in the year 2000-01 was
177229 and as per norms of the company one
person can read and distribute bill of 1500
consumers in a month thus at that time the
minimum required employees per month would
be 118 in the year 2000-01. The expenditure on
departmentally executed MRBD have shown an
increasing trend. In the year 2000-01 the total cost
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
represented an amount of Rs. 138.28 Lacs per
year and it was increased to Rs. 239.93 Lacs by the
year 2003-04 which was further increased to Rs.
277.22 Lacs in the year 2004-05. The expenditure
was continuously increasing due to increase in
the no of consumers in the City circle as well as
increase in the salary of the employee. The
expenditure increased continuously at Rs. 298.58
Lacs, Rs. 320.81 Lacs, Rs. 389.56 Lacs, Rs. 445.52
Lacs, Rs. 553.05 Lacs, Rs. 656.95 Lacs, Rs. 746.92
Lacs and Rs. 837.61 lacs respectively from 200506, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11,
2011-12 and 2012-13. The total cost of MRBD
activity carried out departmentally comes to Rs.
5266.61Lacs.
The Various statistical tools such as Mean,
standard deviation, coefficient of variation,
growth & average growth rate has been applied
so that the calculated information is in
accordance with the predefined standard of
accuracy. The Mean of the total cost of
departmentally executed MRBD activity per year
was Rs. 405.12 Lacs and its standard deviation
was Rs. 219.24. The coefficient of variation &
growth affects a figure of 54.12% & 505.73%
respectively. The average growth represents
38.90%.
Table 2: (MRBD Activity)
Average Annual Expenditure on Outsourced MRBD Work Under City Circle Bhopal
No of
Consumers
YEAR
NOS
Rates of
Total Cost of
Total Cost of
Outsourced Outsourced
Outsourced
MRBD
MRBD (In Rs.)
MRBD (In
Per
Per MTH
Rs.) Per Year
Consumer
IN Rs.
Total Cost
of MRBD
(In Lacs)
Per Yr
IN Rs.
IN Rs.
Rs. (in Lacs)
2000-2001
177229
0
0
0.00
2001-2002
214365
0
0
0.00
2002-2003
227640
0
0
0.00
2003-2004
235225
0
0
0.00
2004-2005
239227
0
0
0.00
2005-2006
246843
0
0
0.00
2006-2007
255973
3.33
852390
10228681
102.29
2007-2008
272327
3.33
906849
10882187
108.82
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
Name of
Outsourcing
Agency To
Whom
MRBD was
Outsourced
M/s Bellary
Computer &
IT Solution
Pvt Ltd
63
2008-2009
281392
3.54
996128
11953532
119.54
2009-2010
296751
3.54
1050499
12605982
126.06
2010-2011
320456
4.41
1413211
16958532
169.59
2011-2012
340427
4.33
1474049
17688587
176.89
2012-2013
356853
4.33
1545173
18542082
185.42
M/s Sterling
Transformers
M/s Tera
Software Pvt
Ltd.
M/s Sharp
agency
Bhopal
M/s Sharp
agency
Bhopal
988.60
SOURCE : Data collected from Establishment and Acct Section of SE City Circle,MPMKVVC L Bhopal.
Mean 141.23
Std. Deviation 32.28
Cefficient of Variation 22.86
Growth rate 81.28
Average annual Growth rate 11.61
The table 2 reflects the total cost of outsourced
MRBD activity per year of Bhopal city circle from
the year 2006-07 to 2012-13. The outsourcing of
this activity has been given to an outsider agency
of Bellary M/s Bellary Computer & IT Solution
Pvt Ltd for year 2006-07 and 2007-08 @ Rs. 3.33
per consumer’s metre reading and bill
distribution. After that this work has given to
M/s Sterling Transformers of Trupati @ Rs. 3.54
for the year 2008-09 and 2009-10. In the year 201011 this work has been awarded to M/s Tera
Software Ltd. of Hyderabad through open bid @
Rs. 4.41. And for the year 2011-12 and 2012-13 this
work was allotted to M/S Sharp agency Bhopal
at the lowest rate of Rs. 4.33 During these years
the total cost has represented the figures of Rs.
102.29 Lacs, Rs. 108.82 Lacs, Rs. 119.54 Lacs, Rs.
126.06 Lacs and Rs. 169.59 Lacs, Rs. 176.89 Lacs
and Rs. 185.42 Lacs for the year 2006-07 to 201213respectively.
The various statistical tools such as Mean,
standard deviation, coefficient of variation,
growth & average growth has been applied for
the analysis of significant data. The outsourced
MRBD activity reflects a Mean of Rs. 141.23 Lacs.
The standard deviation was Rs. 32.28 Lacs and
Coefficient of variation reflects a figure of
22.86%. The growth of outsourced MRBD
activity has been representing a figure of 81.28%
& its average growth was 11.61%.
Table 3: (MRBD) Cost Effectiveness of MRBD Work Under City Circle Bhopal
No of
Consumers
Total Cost of
Departmental
MRBD Per
Yr.
Total Cost of
Departmental
MRBD Per
Yr.
Total Cost
of
Outsourced
MRBD Per
Yr.
NOS
IN Rs.
IN LAC Rs.
IN Rs.
YEAR
2000-2001
64
Total Cost
of
Outsourced
MRBD Per
Yr.
Cost
Effctiveness
(Net
Saving)
Rs. (in Lacs) Rs. (in Lacs)
177229
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
2001-2002
214365
2002-2003
227640
2003-2004
235225
2004-2005
239227
2005-2006
246843
2006-2007
255973
32080584
320.81
10228681
102.29
218.52
2007-2008
272327
38955833
389.56
10882187
108.82
280.74
2008-2009
281392
44552233
445.52
11953532
119.54
325.99
2009-2010
296751
55304890
553.05
12605982
126.06
426.99
2010-2011
320456
59826696
656.95
13612968
169.59
487.36
2011-2012
340427
74692080
746.92
17688587
176.89
570.03
2012-2013
356853
83760536
837.61
18542082
185.42
652.18
2961.82
SOURCE: Data collected from Establishment and Account Section of SE City Circle,
MPMKVVCo Ltd, Bhopal
Mean 423.12
Std. Deviation 146.27
Cefficient of Variation 34.57
Growth rate 198.46
Average annual Growth Rate 28.35
Table 3 has highlighted the cost effectiveness of
MRBD work under City Circle MPMKKVVCo
Ltd Bhopal between total cost of departmental
MRBD per year and the total cost of outsourced
MRBD per year. In both the cases, the cost had
shown an increasing trend from 2006-07 to 201213. But it clearly shows that there was a huge
difference in the total cost of departmental
MRBD per year and total cost of outsourced
MRBD per year. In the year 2006-07 the
departmental MRBD per year had shown the
amount of expenditure of Rs. 320.81 Lacs but the
outsourced MRBD in this year had shown an
amount of Rs. 102.29 Lacs. The cost effectiveness
in this year was Rs. 218.52 Lacs. In the year 200708 the departmental MRBD per year had shown
an expenditure of Rs. 389.56 Lacs while the
outsourced MRBD had shown an expenditure of
only Rs. 108.82 Lacs which shows a difference of
Rs. 280.74 Lacs. In the year 2008-09 the cost
effectiveness between the departmental MRBD
and the outsourced MRBD had shown an
amount of Rs. 325.99 Lacs. In the year 2009-10 the
departmental MRBD had represented a huge
amount of Rs. 553.05 Lacs as compared to Rs.
126.06 Lacs of outsourced MRBD showing a cost
effectiveness of Rs. 426.99 Lacs. The last year also
followed the same trend where the total cost had
shown a figure of Rs. 656.95 Lacs when
performed by the department which was far
greater than the outsourced work performed by
M/S Terasoft company representing a figure of
Rs. 169.58 Lacs which shows a difference of Rs.
487.36 Lacs. Similarly for the year 2011-12 and
2012-13 the net saving is Rs. 570.03 Lacs and Rs.
652.18 Lacs respectively
The Various statistical tools such as Mean,
standard deviation, coefficient of variation,
growth & average growth has been applied for
the analysis of significant data. The Mean of cost
effectiveness of MRBD represents a figure of Rs.
423.12 Lacs & its standard deviation represents
Rs. 146.27 Lacs. The coefficient of variation
shows 34.57% and its growth shows 198.46%. The
average growth of cost effectiveness has
represented a figure of 28.35%.
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
65
Testing of Hypothesis
In this study I have taken null Hypothesis which
are testing the significance of the study.
H0 There is no significance difference between
internal and outsourced MRBD activity for
revival and survival of the company.
This hypothesis have been analysed through
taking the case study of MRBD outsourced in
City Circle M.P.M.K.V.V.Co.Ltd Bhopal.
Outsourcing of MRBD of City Circle
M.P.M.K.V.V.Co.Ltd Bhopal. The research tool
has been applied for analyzing the significance
value of the hypothesis at the level of 5% of the
Student t-test whether hypothesis is accepted or
rejected.
(x1 - x2 )
n1n2
t = ––––––––
–––––––––
S
(n1 -n2 )
The value of combined standard deviation is
calculated by the following formula.
? (x1-x1) ? (x2-x2)
S = = ––––––––––––––––
n1+n2-2
Case study:
Outsourcing of MRBD of City Circle
M.
P.
M.
K.
V.
V.
Co.
Ltd Bhopal.
t = 3.52
t0.05 =2.09
Since calculated value of t=3.52 which is higher
than the critical value of t0.05 which was 2.
09,the
null hypothesis stands rejected. Hence there is
significance difference in this activity for
departmental cost and outsourced cost. Internal
cost is higher than the outsourced cost, thus its
cleared that outsourced of this activity will be
helpful for cost effectiveness and also better for
revival and survival of vehicle activity of City
Circle M.
P.
M.
K.
V.
V.
Co.
Ltd Bhopal.
66
FINDINGS AND SUGGESTIONS
After detailed analysis and discussion of this
study, it was found that, the MRBD outsourced
activity of city circle M.P.M.K.V.V.Co. Ltd.
Bhopal has enormous cost effectiveness ie the
cost of running MRBD internally is very high as
compared to the cost of outsourced MRBD in a
study period for 2000-2001 to 2012-13 which
shows that the outsourcing of this activity is boon
to the organisation
In the beginning of the study period the net
swing or cost effectiveness was Rs. 280.74 lacs
which goes on increasing till 2012-2013 to the
tune of Rs. 652.18 lacs..and In the complete
period of study 2000-01 to 2012-2013, the total
saving through outsourcing comes to Rs. 2961.82
lacs. Thus M.P.M.K.V.V. Co. Ltd. has saved Rs.
29.61 Cr by outsourcing of only one activity ie
MRBD. The various suggestions are
1. As the MRBD is a non-core to the
M.P.M.K.V.V. Co. Ltd. and it is found to be
very cost effective on outsourced, hence it
should be continued on outsource.
2. The staff spared from this job may be
assigned some revenue earning jobs like cross
checking of meter reading, Arrear Recovery,
organizing camps to release new connections
etc.
3. The numbers of consumers are increasing
every year in city circle Bhopal which
requires more number of persons to be
engaged to do the MRBD works thus it would
be costlier, hence this activity should be
continue to be outsourced..
4. The M.P.M.K.V.V. Co. Ltd. should also
continue the practice of outsourcing of MRBD
in future and extend it to all the jurisdiction of
company.
5. The company should increase outsourcing of
other activities also as it is very beneficial to
the company.
7. The company M.P.M.K.V.V. Co. Ltd. may
extend outsourcing to other circles in its
jurisdiction to reap the maximum benefits
from it. Employees who will be freed due to
outsourcing of these activities can be
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
assigned other departmental work like
revenue recovery work.
8. Keeping in view the net saving through
MRBD outsourcing, it is suggested that the
company should outsourced other non core
activities like security service, receipt and
dispatch service of each office, maintenance
of transformer and lines, replacement of
faulty equipments with new one, payrolls etc.
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Weblinks
•
•
•
•
•
•
www.outsource2india.com
www.deloitte.com
www.fiveoclockclub.com/article/2005/2005-5-outsourcing.pdf
www.boston-enet.org/newsletter/spring99-4.htm
www.reason.or/apr2004/outsourcing.pdf
www.accenture.com
Journal of IMS Group | Volume 10 No. 2 | July - December 2013
67