Control Mechanisms and Performance Measurement Standards of PGB Essay Sample free essay sample

Control mechanisms and public presentation measuring criterionsa ) Control mechanismsControl mechanisms can be defined as optical. mechanical. or electronic systems that are used in order to pull off and command variables in a desirable manner. The maps of control mechanisms by and large can be categorized into planning. taking. forming and commanding. Control mechanisms play an of import function in every organisation particularly in heightening the predictability of an organisation. In PGB. acceptance of Corporate Financial Policy ( CFP ) has been approved by Board with the chief intent of pull offing fiscal hazard exposures of PGB which includes liquidness hazard. foreign exchange hazard. and counterparty hazard. The diagram above is demoing that the in PGB. Risk Management Department ( RMD ) is required to describe updates on a regular basis to the PGB Management Committee ( MC ) and it will be farther transferred to Board Audit Committee ( BAC ) in the signifier of the quarterly Enterprise Risk Report ( ERR ) . In ERR. it chiefly includes the overall PGB’s hazard profile and position of hazard extenuation execution. Furthermore. PGB INTERISK system will enter all the updates such as hazard extenuation actions. unexpected hazard events and hazard evaluation from its concern. During this long procedure. we do happen many hints in internal control statement of PGB one-year study 2011 that PGB relies on many control mechanisms in its hazard direction to extenuate its fiscal hazard. As the gas processing and gas transmittal are the nucleus concern of PGB. PGB is covering with many long term undertakings such as Kimanis power works undertaking which is expected to be completed in the terminal of this twelvemonth or early of following twelvemonth and development of the LNG regasification works in Melaka. Hence. sophisticated and proper control mechanisms for PGB are really of import in guaranting that the undertakings are on path as expected without any liquidness jobs. Undertaking Risk Management ( PrisMa ) system can be considered as a critical control mechanism in PGB to guarantee efficient coverage and monitoring. It recorded all the utile information sing to the undertaking hazard direction like lessons learnt. independent reappraisals and hazard appraisals. In this PrisMa. undertaking directors are needed to update the position of their undertakings implemented and describe them to their several caput of division. After that. all the studies updated will be transferred to General Manager of the Technical and Facilities Development Division ( GM. TFDD ) every month. By making this. PGB able to measure the advancement of its undertakings and take immediate actions in order to cut down the hazard exposures involved. Undertaking hazard direction of PGB is closely related to its liquidness hazard direction because equal hard currency and hard currency equivalents are needed to cover the regular disbursals of the undertakings in long term. However. PGB is less likely to confront any liquidness jobs in its undertaking hazard direction as it is keeping sufficient hard currency and liquid marketable assets with aid from Project Risk Management ( PrisMa ) system. Furthermore. PGB’s hazard direction section ( RMD ) has besides developed in-house Growth Risk Matrix in back uping the determination devising in new concern ventures. In this Growth Risk Matrix. the hazard appraisals of new concern ventures will be listed in tabular array in order to gauge the possible inauspicious effects will be incurred. Besides. control mechanisms besides have been found in the recognition direction of PGB which is called as Petronas’s Credit Risk Rating System. The aims and maps of this system are to analyze the recognition worthiness of all the PGB’s external clients and assign recognition evaluation for them. Besides. information in the system will be updated every twelvemonth based on the latest fiscal place of its external clients. Therefore. PGB can detect the marks of fiscal hurt of its external clients at earlier phase and holding readying on such state of affairs and therefore cut down its recognition hazard involved. Besides. recog nition hazard study will be generated by PGB RMD on a monthly footing and it is wholly independent analysis with the Petronas’s Credit Risk Rating System. In the study. Credit Value at Risk ( CVaR ) . a measuring of possible loss from customers’s delinquent balances. will be compared with Credit Risk Tolerance bound ( CRTL ) in order to guarantee that CVaR is greater than CRTL. Unfortunately. PGB is till inefficient in its debitor direction with the increasing entire receivables past due more than 90 yearss from March 2011 to December 2012 as discussed earlier. Hence. PGB should develop a more specific control mechanism in debitor aggregation direction in order to cut down its recognition hazard. In pull offing counterparty hazard. Contractor Risk Assessment ( CoRA ) is an inevitable procedure to measure and measure the making of the contractor. PGB’s Project Supply Chain Management ( PSCM ) Department and PETRONAS Group Shared Material and Services Organization ( SMSO ) will carry on proficient and evaluation appraisal before award the contract to the contractor. As mentioned earlier. derived functions have been used by PGB in pull offing its foreign exchange hazard. PGB is come ining into Currency Exchange Agreement ( CEA ) . which is an embedded derivative contract with its parent company in order to fudge against the foreign exchange hazard between Yen and Ringgit Malaysia. In order to find how efficiency is PGB in pull offing its fiscal hazard. its rival. Shell Refining Company ( Shell ) will be used once more for comparing intent. In FYE 2011. both companies did non incur any critical losingss resulted from failings of internal control. For Shell. all the updates of company hazard profile. hazard reaction and actions taken. confidences are all documented in the Risk Register and Assurance Plan. However. specific control mechanisms can non be found in internal control statement of Shell. Shell is following a more traditional method in pull offing its fiscal and other hazard. On the other manus. PGB is evidently better in its hazard direction by holding different specific control mechanism to pull off different fiscal hazard involved. For case. Petronas’s Credit Risk Rating System is specially designed information system to pull off its recognition hazard. It indicates that the control mechanisms or information system of PGB in hazard direction is stronger and more efficient than Shell. Hence. it allows PGB to be more decisive and faster in doing a right determination when covering with fiscal hazard. B ) Performance measuring criterions Cardinal Performance Indicators ( KPI ) or Cardinal Success Indicators ( KSI ) helps an organisation to specify and mensurate advancement toward organisational ends. Besides. a KPI is besides can reflect the critical success factors of an organisation. PGB’s administration process has been introduced the administration of Health. Safety and Environment ( HSE ) as Cardinal Performance Indicators ( KPIs ) . They will be assessed based on the public presentation of their several businesses’ Fatal Accident Rate ( FAR ) . Lost Time Injury Frequency ( LTIF ) . Major Loss of Primary Containment ( LOPC ) incidents and major fires. The inclusion of these KPIs will assist drive betterments in PETRONAS’ procedure safety and capableness public presentation. For PGB. safety plays a really of import function as a cardinal forces country for the oil and gas industry since the accident happened in 2010 – Gulf of Mexico. They are committed to the highest safety and wellness criterions through the restructuring of Group Health. Safety and Environment Division ( GHSED ) to enable their Business Unit of measurements to hold greater answerability. They try to fastening and reexamining the procedures and processs in order to guarantee the hazards posed to people and the environment are minimized. and extenuating steps can be fleetly employed in the event of an incident. As good. the chief intent of GHSED is to heightening HSE public presentation in sequence to extinguish concern hazards and exposure and maintain consistence in the execution of HSE criterions and demands. As the specific KPI in PGB is limited. we decided to utilize other public presentation measuring criterions such as portion monetary value. hard currency flow and fiscal ratios to mensurate the public presentation of PGB. Share Price As mentioned in the one-year study. PGB is peculiarly attention about the shareholders’ involvement. Shareholders’ nonsubjective decidedly is increasing their wealth. In order to accomplish this aim. fiscal public presentation of the company is decidedly being the critical portion. This indicates that the PGB’s portions monetary value is the contemplation of the company’s fiscal public presentation in the perceptual experience of the stockholders. Hence. the absolute criterion of public presentation measuring is the portion monetary value. PGB used KLCI as the benchmark for this index. We could see this hint from the page 81 in one-year study. A better portions monetary value public presentation than KLCI would bespeak a better fiscal public presentation of the company. The ability to surpass KLCI is the testimony of investor assurance in PGB’s fiscal strength. operational public presentation and growing potency. Hence. portion monetary value could supply some steps on how is the company’s fiscal public presentation. During the period 1st Apr 2011 to 31st Dec 2011. PGB’s portion monetary value appreciated by 32 % while KLCI decreased by 1 % in the same period. Why portion monetary value increased? There are many replies. but most of the replies related to the PGB’s fiscal public presentation and future chance. As the cardinal analyst would utilize fiscal records of PGB to measure the PGB’s portions. the fiscal public presentation decidedly reflected in the portion monetary value. That’s why portion monetary value is the chief index. Cash Flow from Operating. Investing. and Financing Activities In one-year study page 168. it’s demoing the PGB’s direction made their segments’ public presentation appraisal based on operating net income or loss in amalgamate fiscal statement. This shows that PGB values their operating net income and uses it as public presentation index. However. operating net income might non reflect the liquidness public presentation such as debitor direction ; it would non be a good public presentation index. Cash flow would be a better index compared to net net income. The hard currency flow derived from the net net income and takes into history the liquidness direction consequence. The fluctuation of hard currency flow from twelvemonth to twelvemonth decidedly is the consequence of the company’s fiscal public presentation particularly in the liquidness public presentation. It besides reflects the consequence of PGB’s capital construction and working capital attack. Therefore. comparing every twelvemonth hard currency flow could supply the fiscal public presentation of PGB. For case. the twelvemonth to twelvemonth hard currency flow from funding activities could reflect how the alteration in funding cost was. This related to the PGB’s capital construction and provides indicant on the capital construction public presentation. Therefore. hard currency flow from these 3 activities can be the fiscal public presentation index. Financial Ratio In order to accomplish a better public presentation measurement criterion. we will utilize the mean ROE. ROTA and P/E ratio within the industry. The tabular array below is demoing the fiscal public presentation of all companies in the industry of oil and gas-refining and distribution. company| Market capital ( RM in 1000000s ) | ROE ( % ) | ROTA ( % ) | P/E ( times ) | PETGAS| 20. 961. 879| 12. 769| 10. 286| 32. 970| SHELL| 2760. 000| NIL| NIL| NIL|GASMSIA| 3299. 880| 11. 539| 5. 634| NIL|PETDAG| 20961. 879| 13. 750| 7. 770| 31. 780|ESSO| 893. 700| 17. 377| 6. 056| 5. 830|PENERGY| 315. 315| 1. 023| 0. 435| 91. 880|Average| | 13. 859| 7. 437| 23. 53| Beginning: OSK database based on the latest fiscal statements of the several companies Note1 ) SHELL will be excluded in ciphering all mean figures because the information is non available due the loss made in last FYE. 2 ) The ROE and ROTA of PENERGY which are highly low and P/E which is highly high in the industry will non be included to forestall the industry norm figures mislead by merely one company. 3 ) GASMSIA will be excluded in ciphering mean P/E ratio because the net incomes of its first FYE is still unknown since it has merely listed in the Bursa Malaysia. Return on Equity ( ROE ) Tax return on Equity = Net Income / Total EquityTax return on equity ( ROE ) measures a company’s profitableness by uncovering how good the company generated income by utilizing stockholders part. As company’s chief aim is to maximise stockholders equity. ROE provides an insight towards company’s net incomes derived from each dollar of investor equity. In the industry. ROE of PGB. 12. 769 % is somewhat lower than the mean ROE which is 13. 859 % . The chief ground is due to PGB rely to a great extent in equity funding instead than debt funding which explained earlier in its support direction. Hence. all the net incomes will be distributed out for a immense sum of equity which will take to a lower ROE of PGB. Hence. if the PGB able to raise financess from external adoptions which is lower cost in nature instead than equity. it would take to a lower cost of capital of PGB and therefore heighten the fiscal public presentation of PGB. Return on Total Assets ( ROTA ) Tax return on entire plus = Net Income / Total Net AssetROTA can be treated as an index of how efficaciously a company is using its entire net assets to bring forth returns before it pays its contractual duties. In industry. ROTA of PGB which is 10. 286 % is higher than the mean ROTA which is7. 437 % and it is besides the highest within its industry. It indicates that PGB is the most efficient company in bring forthing returns based on its entire net assets within the industry. The chief ground likely is due to its all clip high turnover of RM3. 525 million in FYE 2011. Price per Earnings Ratio ( P/E ) P/E Ratio = Price per Share/ Earnings per ShareP/E ratio is the most common method in valuing a company used by the investors and fiscal analyst. P/E is besides referred as the â€Å"price multiple† . as it bespeaking by how much investors are willing to pay per dollar of net incomes. Basically. the higher the P/E. the higher growing of return investor expected from the company for each dollar they invested. The P/E ratio of PGB which is 32. 970 times is higher than the mean industry P/E ratio which is 23. 53 times. It merely means that investors willing to pay 32. 97 times for every RM earned by PGB. Besides. a higher than mean P/E ratio besides indicates that investors are anticipating PGB able to execute better than other companies in the hereafter. Net incomes per Share ( EPS ) EPS = ( Net income – Preferred Dividend ) / No. of Share Outstanding The comparing of EPS within the oil and gas-refining and distribution industry is non available in OSK database. However. EPS is one of the of import indexs in mensurating a company’s fiscal public presentation. Hence. we will compare the EPS of PGB with the Shell from FYE 2009 to 2011. PGB| SHELL| 2011| 2011| 2010| 2009| 2011| 2010| 2009|54. 6 cents| 72. 7 cents| 47. 6 cents | 46. 9 cents | -41. 9 cents | 35. 5 cents | 96. 6 cents | By and large. the higher the EPS ratio. the better company public presentation compared to old period. From the tabular array above showed that EPS of PGB has increased year-on-year from FYE 2009 to FYE 2011. This could be largely due to the better direction of their operating costs. decreased by 15. 0 % from RM2. 043. 5 million in FYE 2010 to RM1. 737. 8 million in FYE 2011. The reduced of RM305. 7 million was due to cut down of 23. 7 % for operating cost incurred for the throughput services. On the other manus. SHELL’s EPS has decrease year-on-year and generate 41. 9 loss per RM1 unit of portion ( sen ) in FYE 2011. This may chiefly due to additions in the planetary petroleum monetary values following supply restriction as a consequence of the Japan energy crisis and middle-east geopolitical tensenesss. caused an increased in cost of gross revenues by 11 % year-on-year from RM10. 2 billion in FYE 2010 to RM11. 3 billion in FYE 2011. [ 2 ] . Kamarul Yunus. N2012. ‘Petronas Gas fired up on power plants’ potential’ . Business Times. May 16. viewed on 20th 2012.