CASE: New Jersey Insurance Company
New Jersey Insurance Company has a problem with controlling the expenses of its law division. The law division consist of 7 sections, which operate in different ways. Now we’ll concentrate only in two of them, the individual loan section and the corporate loan section. The differences in their ways to operate make it more difficult compare and control their performance.
Instead of making loans directly to individual borrowers the individual loan section purchases package of loans that are batched together from companies like FHA and VA. The investment division has a major impact on the work of the individual loan section. The investment division establishes the terms of the loans and it also determines whether or not the property to be mortgaged and the mortgagor were acceptable to NJIC for a mortgage loan. The individual loan section also have a lot more employees, but most of them don’t have formal law degree. The company trains up examiners that do the routine work in the section.
The way of working in the corporate loan section is totally different. The loans are larger and they are made directly to a borrower. But there are some similarities as well. The investment division determines the loan terms also in the corporate loan section. But the main difference seems to be that the corporate loan section can use outside counsels.
Mr. Somersby controls these to two sections comparing the actual performance to the budgeted one. That means that the section heads have to make forecasts of the future. The manager of individual loan section estimates the amount of money that the investment division would have available for individual loans and the need for other activities. Mr. Somersby put these budgets of different sections together and then the division’s budget is sent to the budget committee. The committee then compares the actual performance to the budgeted performance of the division
I think there are many...