| Ref. No. | IIMC-CRC-2014-04 |
| Authors |
|
| Length | 25 pages + teaching note. |
| Data Source | Secondary research. |
| Setting | Raj Shekar has just taken over as the Chairman of the Railway Board, the apex governingbody of Indian Railways. The Prime Minister, who also happens to be the Railway Minister, has asked the Chairman to reduce the operating ratio from current levels of 90% to the international benchmark level of 70%. The Chairman calls a meeting with all the Board Members to explore ways and means of achieving this. The entire case revolves around the discussions of the Chairman and members of the Railway Board on the various options available according to data available until the financial year 2011‐12. Though a number of strategies are discussed in the meeting, the meeting ends without any consensus since one or other member has reservations regarding the efficacy of every strategy discussed. The Chairman must take a call after analyzing the pros and cons of each strategy. |
| Abstract | The case focuses on evaluating the various turn around strategies available to the Indian Railways to improve its profit margin or operating ratio in railway industry parlance. Though Indian Railways is a government body, it is required to function as a commercial enterprise. It receives no budgetary support for its revenue expenses. It does receive some budgetary support for its capital expenditure, but has to pay dividends on the capital received until perpetuity. However, it does not have the freedom to decide on the pricing of transport products, the remuneration of its employees or close down services on un-remunerative sections of the network. It has to contend with powerful employee unions and demands of the populace and industry for more services and higher levels of service. This case is a typical illustration of demands made on public sector organizations operating in developing countries. The lessons derived from this case could well be applied to private sector enterprises operating in highly competitive environments, where the market forces decide the pricing. The case is intended for use in courses on costing and strategic management. The case could also be used for demonstrating the inherent problems of managing a public sector enterprise in a democratic country in a public systems course or searching for evidences of Leibenstein's X inefficiency concept in monopolies in an economics course. |
| Keywords | Costing; Financial analysis; Net present value; Operating ratio; Public sector; Railways, Sensitivity analysis; Strategic management; Turnaround management. |