There has been a lot of talk lately regarding the deficit faced by the Social Insurance Organization and the impact that such a deficit will have on the pensions of hard working Bahrainis looking to retire in the near future. Ironically, much of the focus has been directed towards the efficiency of the SIO’s investments and the returns it has received. In a Defined Benefit plan, such as the one provided by the SIO, investments are really aimed towards providing the annual pension salary increases rather than securing the pension salary itself. The bulk of the pension salaries that are paid are financed from the contributions of current employees. Therefore, in the midst of so much hearsay, this article aims to clarify what the issue is and where to go from here in simple language away from all the actuarial jargon.
It is difficult to pinpoint a single reason for the deficit faced by the SIO as it is basically another example of Murphy’s Law. However, to be fair, the SIO was never designed with sustainability in mind. It is a government backed pension plan with very generous benefits that tread a fine line between pension payments and welfare support. For example, pension payments do not necessarily stop after the pensioner passes away in case he has dependents that are minors, full time students, or unmarried daughters. That said, we can still identify a few reasons why we have reached such a stage of deficit.
Reason 1: Bahrainis’ Life Expectancy Increased
Life expectancy is an important variable in any pension plan calculation. It provides an estimate of how long pensions will have to be paid for each pensioner after he retires. Life expectancy for Bahrainis has increased over the past 20 years from 72 to 78. While this might be great news for Bahrainis, it is not so good for the SIO’s pension plan.
Reason 2: Early Retirement
Retiring before the normal retirement age (60 years) was an option originally introduced to allow injured employees to retire with reasonable benefits. However, this option has been pursued by many employees who found value in retiring early despite the relatively lower pension that they will be receiving. Moreover, due to the slowdown in the economic conditions following the drop in the prices of oil, many companies found themselves forced to undergo employee downsizing which in turn forced employees into early retirement.
Reason 3: Naturalization
As part of their newly acquired rights, naturalized Bahrainis where able to enrol themselves in the SIO’s pension plan with full benefits by paying a fee. In some cases, these naturalized Bahrainis were only a couple of years away from retirement and therefore paid a fee that is nowhere near the contributions that they should have paid and shies in comparison with the benefits that they will be receiving.
Reason 4: Low Investment Returns
The main income of any pension plan is the contributions of its participants. Investment returns are secondary and actually aim to bridge the gap generated by inflation over the years. That said, the SIO could have been more creative with its investments and followed the example of Hong Kong where the pension fund acts more like a retail bank.
Reason 5: High Operational Costs
It costs 1.2 million dinars a month to keep the SIO operational. This is approximately the contributions received from 9,145 participants. Although this is not a significant figure when compared to the size of the deficit being faced, there is still a lot that can be done to become more efficient.
Conclusion
Poor funding positions, insufficient contributions, expensive benefits and increasing economic and demographic pressures mean that the current pension scheme is unsustainable. Pension benefits are generous and contributions have been set years ago without actuarial consideration.
Next week, we are going to critically review the remedies being discussed by Bahrain’s Parliament and Shura Council. We are also going to propose new options that have not been considered yet. So make sure to check out our next post “Bahrain’s Social Insurance – Part 2: How Do We Get Out of This Mess?”
Written by:
Munther Al-Arayedh, MBA, CPA
Hamid Abdulla, Associate of the Society of Actuaries
Is an exercise that helps a company make decisions to maximize their profits by comparing the additional benefits and the additional costs generated by increasing their output of the same activity.
It measures the increase/decrease in revenue for producing and selling one more unit of item.
Where TR= Total Revenue
It measures the increase/decrease in total cost of producing one more unit of an item.
The formula used to calculate marginal cost is as follow:
Where TC= Total Cost and Q= Quantity.
It occurs when Marginal revenue = Marginal costs. Any points after ‘Profit Maximization’, will cause the prices to rise and gradually diminish the profit (Marginal Loss).
Note: a company should always target to increase its profits, not its revenue.
When an increase occurs in relation to Fixed cost, the:
ATC
MC always interconnect with ATC & AVC at their lowest points for the short run.
Why companies do these Analysis:
The Business Model or Canvas, as it is also known, is a tool that helps starting a proper business.
It was developed by the Swiss Alex Osterwalder to facilitate the complete understanding of a business. Thus, the model aims to describe all the elements and phases that make up an enterprise, providing the integration of the organization.
According to the tool’s creator, the core components of a venture are: customer segments, value proposition, distribution channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.
Based on a framework with organized blocks, as shown in the figure below, the Business Model provides the visualization of the main functions of an organization, thus enabling entrepreneurs to reflect on each function of the company to discover what needs to be done in order to win customers and increase the results of the venture.
By providing a complete view of the organization’s processes, the Business Model enables us to innovate by establishing a unique value proposition for the enterprise. The main benefit of the model is its simplicity and rapid implementation. With a pen, some post-its and a good table, the entrepreneur will be able to work with a creative methodology for business improvement. He should answer the following questions:
To take advantage of the tool, the entrepreneur needs to know that each of these blocks is related to the others and that the adjustments in each phase can be made at any time, as many times as necessary, so that it is possible to perceive the business as a whole.
Therefore, this is the way to discover how to differentiate, win customers, reduce costs and earn revenue.
Implementation
To implement the Business Model, simply follow the nine steps explained below:
How will the Business Model help me to make more profit?
The entrepreneur must remember that innovation is the key to success. The Canvas Model enables the entrepreneur to introduce strategic innovations that will increase the company’s competitiveness. The Business Model is thus a way of improving the company’s management processes, which necessarily leads to better results, including financial results.
We receive a lot of enquiries asking about Business Process Reengineering (BPR), what is it, what is it used for, its benefits, and when or why a company should require such a service. We hope that this article summarizes BPR and its benefits.
Business Process Reengineering has become synonymous with upgrading a company’s IT infrastructure, however, in its essence, the process aims towards increasing efficiency and eliminating losses. Whether a new IT system is implemented or not is a byproduct of the process.
Business Process Reengineering (BPR) is the analysis and redesign of core business processes to achieve substantial improvements in performance, productivity, efficiency and quality. A business process refers to a set of interlinked tasks or activities performed to achieve a specified outcome.
To put it simply, Business Process Reengineering aims to change the way an individual performs a task such that better results are accomplished. The purpose of Business Process Reengineering is to redesign the workflows in order to dramatically improve customer satisfaction levels, achieve higher levels of efficiency and productivity, and eliminate losses in time, effort, and cash.
Thus, Business Process Reengineering Projects concentrate on obtaining quantum gains in terms of cost, time, output, quality, efficiency and responsiveness towards customers. Also, it emphasizes on simplifying and streamlining business processes by eliminating unnecessary or time-consuming business activities and speeding up the workflow by making use of high-tech systems.
BPR projects are considered to be an aggressive change in the company’s procedures. It is therefore governed by a set of steps and milestones that have to be reached in order to minimize the risk of unwanted business interruptions. These steps can be summarized as follows:
Step 1: Define objectives and framework
Step 2: Identify customer needs
Step 3: Study the exciting business process
Step 4: Formulate a redesign business plan
Step 5: Implement the redesign plan
At their essence, logos are made to identify. Using images, icons, marks or symbols, logos identify companies or products in the most basic way, so that when someone views a logo, they can link it with the brand it represents.
Nowadays, with so many logos in existence, it’s not hard to find examples of great or inferior logos in use. What makes the difference? What makes a logo work well? And more importantly, what can your organization do to ensure its logo represents you effectively?
Here are the main seven characteristics of a great logo.
A great logo sets itself apart.
In today’s cluttered marketplace, finding a way to stand out amongst the competition can seem challenging, but the idea here is to be different than your competitors. Without a distinct logo design, you may find potential clients and customers having a hard time recognizing your brand, confuse you with another company and most importantly, end up going to a competitor rather than choosing your products or services.
A great logo is streamlined.
Because the logo should be easily recognizable, it should be simple – a lightning-fast way for users to notice and remember your brand. A complicated logo will not only be difficult to reproduce and maintain, but it will also fail to engage audience. The logo is the ultimate ‘elevator’ pitch to your potential clients and business partners. You don’t have time to recite your entire business plan in an elevator pitch, and the same concept applies to corporate logo design.
A great logo is designed for various applications.
A great logo can be printed in different sizes, across different mediums, and in different applications without losing its power. Graphics must be versatile enough that they can be used in many different mediums. A good logo must work well on the web, on a letterhead, in printed ads and even in videos. What looks great in a site banner might not work on a brochure or vice versa.
A great logo considers the industry but also doesn’t need to be obvious.
An effective logo should be appropriate, but that doesn’t mean it has to be as obvious as you might expect. McDonald’s could have gone with a juicy burger next to the name, but instead they took the first initial ‘M’ and created an icon that was both simple and visually pleasing to look at as an asymmetrical element. Whether you follow the example of McDonald’s or its competitor Burger King, who puts a hamburger in the middle of their logo design, your logo needs to be appropriate to your brand.
A great logo aims for longevity and is not trendy.
Trends come and go, and when you’re talking about changing a pair of jeans or buying a new dress, that’s fine, but where your brand identity is concerned, longevity is key.
A great logo is designed for its intended audience.
As with any business endeavor, understanding your audience is key. Whatever was the targeted industry, the logo needs to be able to connect with the people it is marketing to. The important thing a logo needs to do is to speak to the targeted audience. If you run a children’s toy store, it’s not crucial to have an image of a toy in your logo or to have the word ‘toys’ in there either. What is more important is to use a color scheme or font that is childlike and appeals to kids.
A great logo leaves an impression and is unforgettable.
A great logo will remain memorable enough that a person who has only seen the logo once should still be able to recall it enough to describe the logo to someone else. This is not the easiest of qualities to impart, but it is certainly a high ranking one.
H.A. Consultancies has been helping clients all over Bahrain, Oman, Saudi Arabia, and the UAE in developing their brand identities and marketing strategies. For help on designing the best logo for your business, feel free to contact us on [email protected] or contact any of our offices.
The feasibility study is the important step in any software development process. This is because it makes analysis of different aspects like cost required for developing and executing the system, the time required for each phase of the system and so on. If these important factors are not analyzed, then definitely it would have impact on the organization and the development and the system would be a total failure. This step is a very important step in a software development life cycle process.
In the software development life cycle after making an analysis in the system requirement the next step is to make analysis of the software requirement. In other words, feasibility study is also called as software requirement analysis. In this phase development team must make communication with customers and make analysis of their requirement and analyze the system.
By making analysis this way it would be possible to make a report of an identified area of a problem. By making a detailed analysis in this area, a detailed document or report is prepared in this phase which has details like project plan or schedule of the project, the cost estimated for developing and executing the system, target dates for each phase of delivery of system developed and so on. This phase is the basis of software development process; since further steps taken in software development life cycle would be based on the analysis made in this phase therefore, careful analysis must be made in this phase.
Though the feasibility study cannot be focused on a single area, some of the areas or analysis made in feasibility study is given below. But all the steps given below would not be followed by all system developers. The feasibility study varies based on the system that would be developed.
Advantages of making Feasibility study:
There are many advantages of making feasibility study some of which are summarized below:
Thus, before developing a product or software it is an essential step that one does feasibility study in some or all the areas mentioned which would help in developing and maintaining the software efficiently and effectively within budgeted costs.