2. The Structure and Shape of the Finance Function Flashcards
What 3 things should the structure of the finance function facilitate?
- Control and coordination of resources
- Efficiency of production
- Innovation
What 7 things might influence the structure of the organisation as a whole?
- Organisation size
- Organisation type
- Organisational culture
- Wider culture of the organisations environment
- Role played by technology
- Degree of specialisation
- Consideration for environmental impact
What is the name of Mintzberg’s organisational form diagram?
An organigram
What are the 5 components of Mintzberg’s organigram?
- Strategic Apex - source of direction e.g. board
- Middle line - convert decisions in to tasks and procedures
- Operating core - provide the organisations outputs
- Technostructure - design the work, advise the operating core
- Support staff - support the operating core
What do the strategic apex seek to do?
Control
What do the middle line seek to have?
Autonomy
What do the operating core seek to have?
Autonomy and mutual working
What do the technostructure seek to do?
Standardise through procedures and checking e.g. quality control, compliance
What do support staff seek to have?
Recognition that their work is vital
Which element of the organigram is most important in a Simple or Entrepreneurial structure?
The strategic apex
Which element of the organigram is most important in a Divisional structure?
The middle line
Which element of the organigram is most important in a Professional Bureaucracy?
The operating core
Which element of the organigram is most important in a Machine Bureaucracy?
The technostructure
Which element of the organigram is most important in an Adhocracy (Functional structure)?
The support staff
What are the advantages of centralisation? (4)
- Experienced people with an overview make decisions
- Policies are consistent
- Quick decisions can be made
- Procedures can be standardised, leading to economies of scale
What are the dis-advantages of centralisation? (2)
- Reduces input of day to day experts
2. Demoralises branch managers
What are the advantages of decentralisation? (4)
- Reduces stress of senior managers
- Empowers local managers
- Better knowledge of local conditions
- Groom middle management to take up higher positions
What are the dis-advantages of decentralisation? (2)
- Reduction in uniformity - may unsettle customers
2. Lack of big picture view
What is the scalar chain?
The number of layers of management from the top to the bottom
What is span of control?
The number of direct reports controlled by a manager
What are the attributes of a tall organisation? (long scalar chain)
- More managers, with narrower spans of control
- Can suffer from too many managers (expensive, decisions are slow)
- Good opportunities for promotion
- Less time spent on staff management
What are the attributes of a flat organisation? (short scalar chain)
- Few managers, with wide span of control
- Quick decision making
- More susceptible to fraud or error
What is an open system?
One which is connected to and interacts with its environment, with both controllable and uncontrollable inputs and so predictable and unpredictable outputs.
What is a closed system?
One which is isolated from and independent of its environment
How do most organisations operate as systems?
As open systems
What is a key example of an open system within an organisation?
A public relations department
What is a key example of a closed system within an organisation?
An R&D department
What is an organisations boundary-of-control?
The limit of its direct jurisdiction
What is an organisations boundary-of-identity?
The view of outsiders looking into the organisation
Where in the boundaries of control and identity would an outsourced call centre sit?
- Inside the boundary of identity
- Outside the boundary of control
What is a jobless structure?
When an organisation replaces permanent jobs with externalised work arrangements such as casual, temporary and fixed-term contract worker arrangements.
What is the aim of a jobless stucture?
To increase flexibility
What are the common attributes of an entrepreneurial structure?
- New or small organisation
- One person controls everything
- Little specialisation or formalisation
- Founder has the power/creates culture
- Informal work arrangement
- Reacts quickly to change
What are the common attributes of a functional structure?
- Traditionally based on specialised functions
- Emphasis on roles rather than individuals
- Bureaucratic and slow in decision making
What are the common attributes of a matrix structure?
- Organised around projects
- Horizontal communication between individuals rather than upwards through departments
- Built on flexibility and dual authority
- Functional versatility
What are the common attributes of a divisional structure?
- Largely autonomous divisions with own subculture
- Central HQ limited but can retain some central finance or legal functions
What are the common attributes of a geographical structure?
An organisation is divided up by geographical region with divisions and departments under the regional umbrellas
What are the common attributes of a product structure?
An organisation is divided up by different product categories
What is a virtual organisation?
A collection of small organisations who present as a larger one
What is the shape of the traditional hierarchical finance function?
A triangle - large number of less qualified people towards the lower end, and CFO at the top
What is the role of the financial accounting function?
Bookkeeping and reporting formally on past financial performance - narrating the value creation story and providing useful information to external stakeholders
What is the role of the management accounting function?
Providing managers with useful information about costs, forecasts of costs and of revenues, as well as creation of budgets
What is the role of the treasury function?
In charge of cash flow management:
- Calculate tax payments and put into place plans to minimise tax liabilities
- Evaluating and identifying the most suitable sources of finance
- Managing interest rate and foreign currency risk
- Management of working capital, ensuring enough liquid funds
What is the role of the internal audit function?
Report on management of:
- Efficiency of operations
- Reliability of financial reporting
- Deterring and investigating fraud
- Safeguarding assets
- Commenting on compliance
Who does the internal audit department report to?
The audit committee - NOT the FD
Internal audit provides assurance that…
- Internal controls are adequate to mitigate risk
- Governance processes are effective and efficient
What do internal controls aim to ensure?
- Efficient and effective operations
- Compliance with laws and regulations
- Sound information production
- Elimination of fraud and abuse
What are the 8 features of an effective internal control system?
Organisation (structure/ reporting lines) Authorisation Personnel (robust recruitment and training) Segregation of duties Physical (locks and passwords etc) Arithmetic Supervision Management (vigilant review)
What is an internal check?
The check on day to day transactions whereby the work of one person is proved independently or is complementary to the work of another; the objective being the prevention or early detection of errors or fraud
What is an internal financial control?
Any action taken by management to enhance the likelihood that established objectives and goals will be achieved - planning, organising and directing by management
What percentage of tasks do experts calculate can be automated?
30% of tasks in 60% of professions
In recent years, what shape has the finance function become in many organisations?
Diamond
What key change has automation brought to the role of the finance function?
Become more actively involved in business operations, adopting a commercial and action-orientated approach whilst bringing financial expertise to the management process.
Whereas the role of finance used to be very much stewardship, what has automation lead to it becoming?
Focused on growth strategies and providing greater support for operational managers
Under which approach are the finance department treated as a commodity?
The market-oriented approach
What affect is automation having on the information to impact framework?
Squeezing ‘assemble’ and ‘analyse’, and putting more emphasis on ‘advise’ and ‘apply’
What are the four levels of the diamond shaped finance function with reference to the information to impact framework?
- Top level (Acumen)
- Strategic business partnering (Advise/Apply)
- Digital centres of excellence (Analyse)
- Smart finance factories (Assemble)
What is a shared service centre?
A separate business unit created within a company to deliver a specific service across the company
- Operate like a separate business
- View other departments as customers
- Aim to gain efficiencies through continuous improvement and utilisation of technology
- Focus on value creation
What are factors for the organisation to consider when off or near shoring?
- Time zones
- Cultural issues
- Language barriers
- Control
- Standards
- Communication
- Travel
What are the advantages of outsourcing? (4)
- More independent
- Likely to have a pool of qualified accountants available
- Specialists in the service they are providing
- Cheaper - less recruitment, no down time or training
What are the disadvantages of outsourcing? (4)
- Additional control complications
- Loss of function as a training ground
- Loss of control
- Inflexible decision
What is a Service Level Agreement?
A document detailing the relationship with the outsource partner in order to reduce some of the disadvantages of outsourcing
What are the key features of an SLA? (6)
- Services levels expected
- Exit route
- Timescale of contract
- Software ownership and use conditions
- Employment issues
- Fee
What transaction costs might be involved when outsourcing an activity?
- Finding and selecting a provider
- Monitoring the quality of service
What is business process re-engingeering?
The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical performance measures (cost, quality, service and speed)
What are the responsibilities of the FP&A team?
Variance analysis and project projections
What are the responsibilities of the PMO team?
Support internal decision making and providing investment appraisal (NPVs, IRRs)
What are the 4 elements of ‘partnering for value’?
- Providing reliable and relevant information
- Be flexible
- Reporting at speed
- Run efficiently
What is the calculation for the Earnings Per Share ratio?
Profit (after tax, less preference dividends) / Weighted average number of ordinary shares in issue
What is the calculation for the Price Earnings ratio?
Share Price / Earnings Per Share
What is the calculation for the Dividend Yield percentage?
Dividend per share / Current share price x 100
What is the calculation for the Financial Gearring percentage?
Long term debt / shareholders’ funds x 100
What is the calculation for the Gross Margin percentage?
Gross Profit / revenue x 100
What is the calculation for the Current ratio?
Current assets / current liabilities x 100
What is the calculation for the Quick ratio?
Current assets less inventories / current liabilities x 100
