3. Management of insurance businesses: planning and control Flashcards
Define Strategy
A proposal for the longer-term deployment of resources to meet
objectives against competition from rival organisations.
What is strategic planning?
A process to determine the business’s future direction and create a plan outlining long-term goals, along with strategies and policies to achieve them.
How long do strategic planning goals typically cover?
Between 3 and 10 years
What key areas does planning need to cover?
- Set objectives.
- Identify actions needed to achieve objectives.
- Create an appropriate organisational structure.
- Assign management duties and responsibilities to senior managers.
- Establish a consistent management style.
- Set budgets.
- Agree on staff incentives.
- Define sales targets.
- Plan efficient use of material resources.
- Set timetables and deadlines.
- Develop contingency plans.
What 8 point should be included in business plans?
- Set SMART objectives
- Plan the strategy to achieve them.
- List the activities needed.
- Assign responsibility for each activity.
- Set start and end dates.
- Estimate resources required.
- Calculate costs.
- Define expected results or milestones.
What are SMART objectives?
Specific
Measurable
Achievable
Relevant
Time-defined
Give 7 measurable factored used in SMART objectives.
- Sales revenue.
- Overheads and expenses.
- Staff turnover and related costs.
- Productivity and efficiency.
- Market performance compared to competitors.
- Profitability.
- Customer satisfaction surveys.
What is a control model?
A framework that helps management ensure actions align with plans and policies. It focuses on key objectives, sets targets, and creates a supportive environment without unnecessary bureaucracy. Milestones are used to track progress, measure performance, and spot deviations early.
Provide 8 control models
- Management accounting.
- Budgeting.
- Critical success factors.
- Key performance indicators.
- Key risk indicators.
- Balanced scorecards.
- Benchmarking.
- Management by objectives.
What is Management Accounting?
Model that helps managers track performance by analysing sales, expenses, and costs, and predicting future income. In insurance, it also handles regulatory reporting and the balance sheet.
What are Critical Success Factors (CSFs) ?
A key elements crucial to achieving an organisation’s mission, identified through a SWOT analysis. They often address weaknesses or external threats, like improving distribution systems to stay competitive. CSFs, like objectives, should be SMART.
What are Key Performance Indictors (KPIs) ?
Measurable points used to track whether a company is meeting its targets and objectives. Managers define these indicators during the planning stage.
What the difference between results-oriented and effort-oriented KPIs?
Results-oriented measures usually represent the ‘bottom line’, whereas effort-oriented
measures indicate the level of effectiveness being achieved.
What are Key Risk Indicators (KRIs)
The risks inherent in its business and the type and effectiveness of controls in place.
What are 5 examples of KRIs?
- IT downtime.
- Examples of fraud (internal and external).
- Complaints.
- Property loss or damage.
- Employee injury or illness.
What are balanced scorecards
Balanced scorecards identify the knowledge, skills, and systems employees need to innovate and improve internal processes. These efforts create value for customers, leading to higher shareholder value.
What 4 perspectives are used in a balanced scorecard?
- Internal perspective
- Customer perspective
- Learning and growth
- Financial perspective
What is Benchmarking?
A process that allows a company to compare its own progress with that of a comprehensive standard.
What 3 types are benchmarking are commonly used?
- Internal – Compares performance within the organisation.
- External – Compares performance with competitors.
- Functional – Compares company functions with other organisations.
What is Management by objectives (MBOs)?
A process of defining objectives within an organisation so that both management and employees agree to the objectives and understand what they need to do in order to achieve
them.
What are 6 advantage of MBOs?
- Motivation –
- Better communication
- Clear goals
- Employee commitment –
- Alignment
- Common goal
What are 6 disadvantage of MBOs?
- Employee Skepticism
- Excessive Paperwork and Meetings
- Focus on Short-Term Goals
- Lack of Subjective Goals
- Managerial Skill Gaps
- Risk of Distorted Results
What are Budgets?
Budgets are statements, in financial terms, of planned performance in the immediate future.
What is Forecasting?
Forecasting predicts future business activities to create budgets and manage cash flow. It is regularly updated based on past experience, with less certainty for longer-term forecasts.
What are 4 advantages of budgeting?
- Unification of Effort – Budgeting aligns everyone’s activities and creates a shared purpose.
- Planning – Budgeting helps predict future needs and plan resources.
- Financial Awareness – Budgeting makes everyone aware of costs and encourages efficiency.
- Basis of Comparison – Budgeting ensures consistent measures across departments for better comparison.
What is the steps of budgeting?
Budgets are created for departments, functions, capital expenditure, and cash flow, then combined into a master budget that includes a profit and loss account and balance sheet for the organisation.
How is the Chief Executive involved in budgeting?
The chief executive sets budget guidelines, reviews past performance, discusses changes, and outlines growth plans for the next year.
How are budget committees involved in budgeting?
Budgeting committees review departmental budgets to ensure they align with the master budget, meet objectives, are realistic, and reflect financial responsibilities before adding them to the master budget.
Name 4 types of budgeting.
- Top-down
- Bottom-up
- Zero-based
- Rolling
What is top-down budgeting?
Where the owners or directors create plans for each department, which are then given to managers to implement. Can be disconnected from market realities.
What is bottom-up budgeting?
Where the department managers create their own budgets within set guidelines. These are then reviewed by higher managers and directors and included in the master budget.
What is zero-based budgeting (ZBB)?
Requires managers to justify all costs from scratch, rather than using previous budgets. Costs must be reviewed and approved by senior managers. ZBB is commonly used for specific areas like research and maintenance.
What is a rolling budget?
budgets that are updated monthly, always looking twelve months ahead. When one month ends, a new month is added to the budget.
What is the difference between fixed and flexible budgeting.
A fixed budget remains unchanged, even if performance differs, and compares projected figures to actual results.
A flexible budget adjusts based on real activity, changing costs as needed.
What is variance analysis?
An analysis of the difference between actual and budgeted performance
Names 2 kinds of variance.
- Unfavourable variance
- Favourable variance
Can variance be both unfavourable and favourable?
Yes
Give 4 possible causes of variance
- Inadequate pricing
- Higher expenses than planned
- Random events
- Operating efficiency
What are the 4 main steps in decision making?
- Understanding Why a Decision Must Be Taken
- Prior Consideration and Discussion of the Options
- Taking the Most Appropriate Decision
- Review
What are the 5 C’s of decision-making?
Consider, Consult, Commit, Communication and Check
What are the 3 levels of information?
- Strategic Information - Guides “what” and “why” decisions, focusing on goals, trends, and resources.
- Tactical Information - Explains “how” to allocate resources and manage risks.
- Operational Information - Covers daily tasks and updates on staff, contacts, and costs.
What is a Management information system (MIS)?
a system that collects data from many different sources and
then process and organise the data to help businesses make decisions.
Give 6 basic features of an MIS.
- MIS focuses on vertical information flow.
- Reports vary from detailed to broad, depending on the management level.
- MIS provides tactical information with various data subsystems.
- The control cycle requires a comparison of results to plans.
- Clear responsibilities ensure correct information flow.
- MIS supports decision-making and future planning with data and forecasts.
What is Knowledge Management?
The compilation and redistribution of an organisation’s collective
skills and experience for the benefit of the organisation as a whole.
What are the 2 main approaches to knowledge management?
codification strategy and personalisation strategy
What is a codification strategy approach to knowledge management?
Knowledge is carefully codified and stored in databases, where it
can be accessed and used easily by appropriate employees
What is a personalisation strategy approach to knowledge management?
Knowledge is closely tied to the
person who developed it and is shared mainly through direct person-to-person contacts and
structured training programmes.
What organisations tend to use a personalisation strategy?
Specialised financial services organisations
What 2 main areas does knowledge management have an impact on a organisations strategy?
- Creating value for customers: Customers benefit from reliable, proven systems.
- Operational economies: Reusing software and knowledge cuts costs and boosts efficiency.
What is change management?
The process of planning and implementing transitions in business, driven by both external and internal factors, to move from the current state to a desired future vision while addressing the needs and impact on all stakeholders.
