APM flashcards

The idea that planning is best done as a series of relatively small adjustments to past strategies rather than trying to plan radical leaps forward.

The performance hierarchy: * The organisation’s mission * Strategic plans and objectives * Tactical plans and objectives * Operational plans and objectives

Strategic control: monitors the implementation of the organisation’s strategic plans Operational control: monitors the use of existing resources and progress towards existing plans. Will not alter strategic direction

The idea that planning can be inhibiting and that you are better grabbing opportunities as they arise.

Any five of: * It forces you to look ahead * Better coordination * Better use of resources * Targets to which all can work * An opportunity to influence the future * Holds out the promise of better times in the future after initial hard work

Critical success factors (CSFs): Johnson, Scholes & Whittington: 'Those product features that are particularly valued by a group of customers, and, therefore, where the organisation must excel to outperform the competition‘ or: Where an organisation must perform well if it is to succeed.

* Internal * External * Monitoring * Building

Monitoring: used to monitor current performance Building: concentrate on what must be achieved in the future

S = specific/stated M = measurable A = achievable, agreed, accepted R = relevant (or realistic) T = time-limited

Gap analysis is the difference between what the organisation’s current plans will achieve and what the organisation is required to achieve.

Any two of: * fast decisions; * no time or money spent on planning; * not committed to one course of action (flexibility).

An environmental analysis considering the influences of: * Politics, * Economics, * Social trends, * Technological changes, * Ecological (environmental) concerns, * Laws.

* Rivalry/competition, * Threat of new entrants, * Supplier pressure, * Buyer pressure, * Threat of substitutes

Should Porter’s five forces theory be applied to all companies in the country, an industry, an individual company?

Porter’s five forces should be applied to an industry to judge industry attractiveness

The prime purpose of a mission statement is to set out the reason for the organisation’s existence. The main sections are often taken to be: purpose, position (in the market), culture, ethics and values.

Any person or other organisation affected by an organisation.

* Development, * Growth, * Maturity, * Decline.

Market growth rate and relative market share (market share/share of market leader)

Internal: for example, to previous periods or between different branches. External: to similar businesses or organisations. Can be competitive or non-competitive. Functional: to specific functions in other businesses such as cost per help-line call Generic: to different businesses and organisations.

BCG suggests that only companies with large market shares can survive in the long term so the company has to decide whether to withdraw or to invest to achieve a large market share. Note that niche or focus companies can survive with what looks like a small market share.

Some cash cows to generate lots of cash (but cash cows are heading towards market decline), and some problem children needing investment. The cash generated by the cash cows can be used to build the problem children into star products that will become the cash cows of the future.

Inbound logistics, Operations, Outbound logistics, Sales and marketing, Service.

Firm infrastructure, Human resource management, Technology development, Procurement

* Cost leadership * Differentiation * Focus.

* Structure * Systems * Strategy * Style * Staff * Skills * Shared values

* Planning * Co-ordination * Control * Authorising and delegating * Evaluation of performance * Communicating and motivating

Products (existing and current); Markets (existing and current)

Related and unrelated diversification.

Backward integration is taking over (or setting up) a supplier; Forward integration is taking over (or setting up) a customer or supply chain.

The principal budget factor limits the activity for the budget period. Normally this is the level of sales and therefore the sales budget is usually the first budget to be prepared – this then leads to the others. However, it could be (for example) a limit on the availability of raw materials that limits activity. In this case raw materials would be the principal budget factor, and this would be the first budget to be prepared.

Fixed: prepared at the expected level of activity Flexed: adjusted or scaled to that level of activity achieved. Flexible: prepared in advance at several levels of activity Rolling: always looking a set period ahead – typically one year.

Incremental: last year’s budget updated for inflation and any other known changes. ZBB: critically consider each activity on its own merits and draw up the costs and benefits of the different ways of performing it (and indeed whether or not the activity should continue). Then decide on the most effective way of performing each activity.

This is the application of the idea of Activity Based Costing to the process of budgeting, and as such has particular relevance to budgeting for fixed overheads. At the planning stage, attempts are made to identify which activities drive various overheads. Costs are spread over these cost drivers using whatever basis appears to be appropriate in the circumstances.

Targets can assist motivation and appraisal if they are set at the right level. If they are too difficult then they will demotivate If they are too easy then managers are less likely to strive for optimal performance Ideally they should be slightly above the anticipated performance level

* It takes up a lot of management time * However well the budget is prepared, it rapidly becomes out of date and therefore of less use * It provides a framework for managers to work to and they are therefore less keen to consider innovations (that may mean overspending the budget in the short-term even if good for the long-term).

* There's a significant manual element in the task being considered. * The task must be repetitive and fairly complex. * Production must be at an early stage so that there is room for improvement. * There must be consistency in the workforce. * There must not be extensive breaks in production, or workers will ‘forget’ the skill. * Workforce is motivated and want to improve.

As cumulative output doubles, the cumulative average time per unit falls to a given percentage of the previous average time per unit.

Practical reasons for the learning effect to cease are: * When machine efficiency restricts any further improvement. * A process cannot be speeded up (eg material solidifying) * The workforce reaches its physical limits. * If there is a ‘go-slow’ agreement among the workforce. * Staff turnover

By market and by product

In a matrix structure, each employee has responsibilities to more than one superior. Eg, in project management an engineer could be responsible to the project manager and to the engineering manager.

Business process reengineering involves re-thinking and radically re-designing of the way an Organisation’s processes operate. It is not simply attempting to improve the existing way of doing things, but starting almost with a blank piece of paper and designing how best to operate the business.

Automation, rationalisation and business process engineering.

* perishability * intangibility * simulaneity * heterogeneity * no transfer of ownership

It is sometimes said that information should comply with the acronym ‘ACCURATE’.

What, typically, do these letters stand for?

Accurate, Complete, Cost-beneficial, Understandable/user-targeted, Relevant, Adaptable/authoritative, Timely, Easy to use.

MIS = management information system DSS = decision support system EIS = executive information system ERP = enterprise resource planning ES = expert system

Radio frequency identification (RFID) is the use of a wireless non-contact system that uses radio-frequency communication to transfer data from a tag attached to an object, for the purposes of identification and tracking.

Value analysis tries to reduce costs whilst still delivering the required standard of quality and reliability. The main distinction is between value added and non-value added activities. Value added activities add value to the customer’s perception of a product; non-value added activities do not add value in the eyes of the customer. Costs that do not add value to the product should be targeted for elimination.

The contingency approach to management accounting is based on the idea that there is no universally appropriate accounting system applicable to all organisations in all circumstances.

Risk exists where a decision maker has knowledge that several possible outcomes are possible – usually due to past experience. This past experience enables the decision maker to estimate the probability or the likely occurrence of each potential future outcome. Uncertainty exists where the future is unknown and where the decision maker has no past experience on which to base predictions.

Risk preference relates to attitude to risk. A risk seeker will be interested in the best possible outcome, no matter how small the change that they may occur. Someone who is risk neutral will be concerned with the most likely or ‘average’ outcome. A risk avoider makes decisions on the basis of the worst possible outcomes that may occur.

These are attitudes to uncertainty. Maximax: an optimist who expects to get the best possible outcome. Maximin: a pessimist who expects poor outcomes and seeks to limit those. Minimax regret: someone who looks backwards and often wishes a different choice had been made. Decisions are made to so as to minimise possible regrets.

Feedback control is where the outputs of a process are measured and information is then provided regarding corrective action, after the outputs have been produced.

Feedforward control is where a problem is identified and corrective action taken, before the problem occurs.

Negative feedback is where the control mechanism reduces any deviation from plans. Positive feedback seeks to increase a deviation form plan. Eg to ensure that sales increases are repeated

Profitability – how well a company performs, given its asset base Liquidity – the short term financial position of the company Gearing – the long-term financial position of the company Investors ratios – how well investors will appraise the company

Financial performance measurement depends on comparison. What are the main bases for comparison?

* With previous years for the same company * With other similar companies * With industry averages * Also, possibly, between branches or divisions of the same company

EBITDA stands for ‘earnings before interest, taxes, depreciation and amortisation’.

Earnings before interest and tax: before interest to measure the profitability before any distributions to providers and capital, and before tax because tax is not under direct control of management. EBITDA additionally considers profit before depreciation and amortisation to approximate to cash flow, as depreciation and amortisation are non-cash expenses. A major criticism of EBITDA is that it fails to consider the amounts required for fixed asset replacement.

Divisionalisation is where managers of business areas are given a degree of autonomy over decision making i.e. they are given the authority to make decision without reference to senior management. In effect they are allowed to run their part of the business almost as though it were their own company.

Cost centre: manager is responsible for only costs Profit centre: manager is responsible for costs and revenues Investment centre: manager is responsible for costs, revenues and investmenr in non-current assets.

Return on investment (ROI) is defined as: controllable divisional profit expressed as a percentage of divisional investment.

Residual income (RI) is defined as: controllable divisional profit with a deduction of notional (or imputed) interest based on capital employed times cost of capital.

Capital employed x WACC. This is a notional charge for the use of capital

(Present in the proper hierarchy.) * Financial perspective * Customer perspective * Internal business perspective * Innovation and learning perspective

* Chief Executive is an autocrat * Chief Executive is also the chairman * Passive board of directors * Lack of skills balance in the board * Lack of management depth * No budgets or budgetary controls * No cash flow plans * No costing system * Poor response to change

* High gearing * Overtrading * Too much reliance on one big project

* Financial signs (such as the Z score) * Creative Accounting * Non-financial signs (e.g. low morale) * Terminal signs

Quantitative: Altman’s Z score Qualitative: Argenti’s A score

* Tunnel vision * Sub-optimisation * Myopia * Measure fixation * Misrepresentation * Gaming * Ossification

Costs of conformance: * Prevention * Appraisal Costs of non-conformance * Internal failure costs * External failure costs

Total quality management: “the continuous improvement in quality, productivity and effectiveness obtained by establishing management responsibility for processes as well as outputs. In this every process has an identified process owner and every person in an entity operates within a process and contributes to its improvement.”

DMAIC: define, measure, analyse, implement, control

Myopia: Focussing on the short-term resulting in the ignoring of the long-term

Gaming: Deliberate distortion of the measure in order to achieve some strategic advantage.

* input / output analysis: record material flows to discover what happens to the material * flow cost accounting:concentrates more on where material losses are occurring within the business * environmental activity based costing:to determine what drives/causes costs * life cycle costing:all costs are taken into account over the product’s life- including costs such as waste disposal.

* Identify what a product can be sold at (eg by comparing to competitors’ prices). * Determine the margin required * Work back to the maximum allowable cost * Seek to reduce actual production costs to the maximum allowable cost

What is the ‘rule’ for sensible transfer pricing? For intra-group transfers to occur:

Transferring out company: transfer price must be no lower than marginal cost plus lost contribution of transferring internally Transferring in company: transfer price must be the lower of net marginal revenue and the outside buy in price.

* Goal congruence * Profit for each division (motivation) * Autonomy for each division (head office specifies only the transfer price and then lets divisions make their own decisions.

Cost plus Marginal cost Market prices

List eight sources of external information for an organisation

* Competitors’ and suppliers’ catalogues and web sites * The internet (eg search engines such as Google) * Newspapers, journals, television, radio * Published accounts * The stock exchange * National and market surveys * Government and industry statistics * Discussion with customers * Government publications * Employees * Banks

The sum of the annual interest charge on the book value of the asset and the annual depreciation is constant throughout the life of the asset. The total annual charge is calculated y dividing the cost of the asset by the appropriate cumulative discount rate.

A company produces 20,000 units of Product A. The product is produced in batches of 1,000 units. The company also produces 50,000 units of Product B and this is produced in batches of 5,000 units. Total set-up costs amount to $90,000. What is the set up cost per unit of Product A and per unit of product B?Number of set ups = 20,000/1,000 + 50,000/5,000 = 30 Cost per set-up = 90,000/30 = 3,000 For one set-up 1,000 units of A are produced: set-up cost per unit = $3 For one set-up 5,000 units of B are produced: set-up cost per unit = $0.6

A data warehouse is a vast collection of historic transaction data (eg, sales by a supermarket). Data mining is searching though that looking for patterns and associations that might be helpful in increasing profits.

Draw the performance prism

Product benchmarking: comparing specific products with those produced by competitors.

Financial benchmarking: comparing financial performance with that of competitors.

Strategic benchmarking: comparing with how other companies compete (not usually industry specific).