APM Flashcards

1
Q

SWOT Analysis

A

Internal: SW, strengths weaknesses. EG financial, people, products, marketing
External: OT. Opportunities, threats. EG Competition, political, economic

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2
Q

Porters Five Forces

A

Competitive Rivalry within industry
Threat of substitute products
Bargaining power of suppliers
Threat of new entrants
Bargaining power of customers

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3
Q

Cost leadership

A

Lowest cost product
Opposite of differentiation

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4
Q

Differentiation

A

Not price sensitive. Has some kind of luxury/customers are willing to pay more
Opposite of Cost leadership

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5
Q

BCG Matrix

A

Analyse businesses product lines
Relevant market share vs market growth rate
Stars: high high. profit conscious - bit of non accounting, grow
Question marks: low high.
Cash cows: high low - not gonna grow much so budget style for cost control to keep profits
Dogs: low low
Only the largest player can have a positive market share

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6
Q

Criticisms of the BCG model (5)

A

Average growth is difficult to define
Many very successful products would be classified as Dogs, e.g. 1 series BMW ranks behind the Audi A3
Finding market share is difficult
BCG makes no attempt to measure cash flows or profit.
Difficult to know how to deal with declining markets.

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7
Q

Ansoffs Growth Matrix

A

Which direction for the business to grow in. e.g. new product, buy suppliers/competitor
Market: existing. new
Product: existing. new
In 4 squares

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8
Q

Best in class benchmarking / functional benchmarking

A

Southwest Airlines improved aircraft maintenance, refuelling and turnaround time by studying the
processes around Nascar racing pit stops

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9
Q

Value of benchmarking (7)

A

Challenges assumptions
Helps cut costs
Improves service if lessons are learned
Helps simplify processes
Improves quality if relevant actions are taken
Changes behaviour
Helps break resistance to change by demonstrating other methods of solving problems

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10
Q

Pitfalls of benchmarking (4)

A

You get what you measure
Takes too much time and money
Getting the information may be problematic.
Benchmarking will not identify the reasons

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11
Q

Mission statements should include (4)

A

(1) Purpose: Why do we exist and who for?
(2) Strategy: How and where are we going to compete
(3) Behavioural standards: To guide the actions of employees
(4) Values: What does the organisation believe in?

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12
Q

Benefits of budgeting. PRIME

A

Planning – It forces you to look ahead and fee plan your resource requirements
Responsibility – Gives managers (budget holders) areas to oversee
Integration – This covers co-ordination and communication where different departments are forced to talk to each other.
Motivation – The budget can be used as the basis for setting targets.
Evaluation – Gives a basis for comparison of actual performance

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13
Q

BPR Engineering

A

‘The fundamental rethinking and radical redesign of business processes to achieve dramatic
improvements in critical contemporary measures of performance, e.g. cost, quality, service, speed

Add value

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14
Q

Criticisms of BPR (9)

A

Dehumanised the work place
 increased managerial control
 An excuse to downsize
 Lack of management support and thus poor acceptance in the organisation
 Exaggerated expectations regarding the potential benefits from a BPR initiative and
consequently failure to achieve the expected results
 Underestimation of the resistance to change within the organisation
 Generic “best-practice processes” do not fit specific company needs
 BPR performed as a one-off project with limited strategy alignment
 Poor project management

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15
Q

Impact of BPR on organisational performance

A

people and the processes working together
Business Process Re-engineering is the key to transforming how people work.

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16
Q

McKinsey 7-S Model

A

Premise of an organisation isn’t just structure
3 Hard S’s : Strategy, Structure, Systems. Easy to identify
4 Soft S’s: Shared values, skills, staff and style

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17
Q

Value chain analysis

A

Porter suggests that once a business has decided the basis on which it would like to compete it needs to make sure all aspects of its primary and support activities are
consistent with this.

Select measures to add value to these areas

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18
Q

Environmental: Conventional, Contingent, Relational, Reputational

A

Conventional: E.g raw materials and energy costs. Hidden in overheads
Contingent: Cleaning, end of a project life, long term so not considered
Relational: Reporting costs
Reputational: Failure costs, lost revenue etc

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19
Q

Data Silos

A

Data part of organisation can access but others cant

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20
Q

Lean Management Information Systems (MIS) - 5S’s

A

Lean = no waste in system

Structurise Sort through components and remove any that are not necessary (i.e. de-cluttering)
Systemise Arrange components to make the workflow as efficient as possible
Sanitise Keep the workplace clean, tidy and well-maintained
Standardise Develop and implement processes to sort, set in order and shine
Self-discipline Maintain regular training and audits to ensure that processes are adhered to

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21
Q

Descriptive Analytics

A

Data to state what happened. Historical data and trends.

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22
Q

Diagnostic Analytics

A

Analyse to see why events identified by descriptive Analytics occurred.

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23
Q

Black box algorithms

A

Black box algorithms are computer processes creating output and models where there is a lack of
understanding about how exactly they work. This lack of understanding can be because they are
combining variables in ways that are too complicated even for their creators to understand

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24
Q

Modified IRR

A

Modified to fix these limitations, more likely surplus cash would be reinvested into bank etc:
Multiple IRRs for cash flows which change direction
IRR assumed surplus cash reinvested in project

COMPOUND amounts (times by int) to get terminal value
Work out compound rate to get investment to terminal value

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25
Q

ROI

A

Divisional profit / divisional investment

DP: Should use profit before head office allocations, usually before interest and tax, if you are assessing the
managers’ performance. If looking at the performance of the division it may be better to include centrally allocated costs as well.
DI: TALCL, Net assets

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26
Q

Why ROI over RI

A

ROI is still preferred in the majority of businesses, largely because:
 It gives a % answer and people understand % returns such as ROCE.
 Interdivision comparisons are easier to do since ROI is a relative measure not an absolute one
like RI. This makes it simpler to compare divisions of differing sizes.
 It is not felt that dysfunctional decision making happens often enough to be a real problem.
 RI does need an estimate of cost of capital to be made

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27
Q

Why RI over ROI

A

residual income is the better method because it is linked to cost of capital and should
result in fewer dysfunctional decisions being made

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28
Q

Economic Value Added

A

NOPAT
Less capital charge (WAXX x EV of capital employed)
= EVA

How to adj figures:
Training, r&d, advertising: add to profit
Depreciation: Add acc dep to profit and deduct economic dep. Adjust diff between to on cap empl
Provisions: removed from profit. Prov BF added to capital empl
Other non cash items: Add back non cash expenses. Adj cap empl if needed
Tax Charge: tax per accounts +/- deferred tax prov + tax benefit of interest = cash tax figure
Interest: Took off already above. !!!!!Alt can start with PAT and add back int net of tax for same result.!!!!!

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29
Q

Benefits of EVA (4)

A

It is linked to cost of capital and hence will be consistent with trying to improve shareholders’ wealth. A positive EVA will coincide with increased returns to investors
NOPAT will be a closer reflection of cash flow
Adjustments reflect the economic reality of the costs and revenues rather than accounting
prudence.
It encourages longer term investment since costs such as R&D and advertising are treated as capital items and not wholly penalising current year profits.

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30
Q

Limitations of using EVA (4)

A

The measure itself does not link to future performance since it is based on historical accounts.
It involves potentially many adjustments.
Like RI it is difficult to compare divisions of differing sizes using EVA since it is an absolute
measure.
The WACC used will be in relation to the company as a whole and so may not reflect the individual risks of one division if it is used to assess divisional performance.

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31
Q

Goals of transfer pricing system (3)

A

Goal Congruence
Autonomy
Performance Evaluation

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32
Q

Dual Pricing

A

If external sales of the intermediate good are possible, for internal transfers, credit Zara with
the market price of the goods and charge (debit) Yasmin with the variable (or marginal) cost.
This can get awkward for head office admin and accounts functions

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33
Q

Two part tariff

A

TP is set at variable cost and each period a lump sum fixed fee is given to Zara as a contribution
towards its fixed costs and potential profit. The difficulty here is that you are essentially treating
Zara as a glorified cost centre and this may impact the perceived autonomy by Zara.

34
Q

Drawbcks of using financial performance indicators (8)

A

Historic rather than forward-looking
 Only really consider the needs of shareholders
 Do not look at qualitative factors
 Tend to create short-term focus
 Measuring financial results e.g. ROCE does not actually help to improve them
 Affected by accounting policies
 Subject to manipulation
 Often several ways to calculate

35
Q

Benefits of using non financial perf indicators (5)

A

1 More forward looking
(2) Allow a longer-term view to be taken
(3) Consider a wider variety of stakeholders
(4) Can be assessed more rapidly and corrective action taken sooner
(5) Less scope for manipulation so less tendency for short-termism

36
Q

Kaizen

A

Kaizen involves continuous improvement through small incremental steps. It is a long-term approach to quality improvement
With Kaizen the overall aim is to keep on improving and updating standards with a view to cut out waste and improves processes on a sustainable basis.

37
Q

Quality Assurance

A

Quality assurance is a more contemporary, proactive approach. Rather than inspection of goods, it focuses on the
processes in the system and aims to produce zero defects in the first place.

38
Q

Quality management systems should be structured around 8 principles:

A

(1) Process driven
(2) Systems approach
(3) Effective leadership
(4) Factual decision making
(5) Wide participation
(6) Continuous improvement
(7) Customer focus
8 Mutually beneficial

39
Q

Benefits of quality management system

A

 Improved and consistent quality of outputs;
 Improved staff commitment as a result of greater pride in work;
 Better customer relations (less complaints);
 Greater turnover.

40
Q

Six Sigma - Near perfection.

A

Cut defects and raise quality

D - Define problem/opportunity
M - Measure the current state of performance and set appropriate targets. Maybe formulate why at this point
A - Analyse the reasons for short-falls You are trying to look for the key root causes of the problems.
I - Improve the process to close any short-fall and improve performance.
C - Control and monitor results.

A - think of loads. I - use most beneficial from A. C - if doesnt work go back to C

41
Q

Benefits of six sigma (7)

A

Cost reduction
 Productivity improvement
 Market share growth
 Customer retention
 Cycle time reduction
 Defect reduction
 Culture change…..

42
Q

Six Sigma requirements (4)

A

Board level and senior manager buy in to the process
Understanding of what customers requirement are
Staff who have been trained and educated in the process
Clear focus on what the CSF’s for the organisation are

43
Q

Balanced Scorecard

A

Customer focused. Provides mechanism to link KPI’s to CSF’s.

Financial. Customer. Internal Business Processes. Innovation & Learning.

44
Q

Building block model

A

Performance measurement in service businesses

Dimensions - Downstream results/upstream determinants.
Standards - Targets set for dimensions measured
Rewards - Motivators

45
Q

Performance Pyramid

A

This model views organisation as interdependent levels, supporting each other but each with its own concerns

External effectiveness on left
Internal effectiveness on right

46
Q

Operational / strategic ABM

A

Operational ABM – ‘doing things right’ using ABC information to improve efficiency.
Strategic ABM – ‘doing the right things’ using ABC information to decide which products to develop.
The information may also be used in customer profitability analysis to focus more on the ones who are
more profitable for us.

47
Q

Enterprise resource planning system (ERPS)

A

an integrated computer-based system used to
manage internal and external resources, including tangible assets, financial resources, materials,
and human resources. It integrates the various business functions into one system and is usually
undertaken centrally by information management specialists. It should cause a substantial
reduction in the gathering and processing of routine information. Managers can directly access
relevant information rather than having to rely on management accountants.

48
Q

TQM (Perfect)

A

Prevention of errors before they occur
 Elimination of waste
 Right first time
 Full participation of all employees
 Everybody’s concern
 Continuous improvement needed - Kaizen
 Teamwork

50
Q

Operational gearing

A

contribution / PBIT
Business risk how fluctuations in sales volume might lead to falling profits as fixed costs are not covered

51
Q

ET - Performance Measurement/Report

A

Split mission/strategy up and explain how it meets that
“The current report has a number of strengths and weaknesses. These will be discussed according to whether the report:  measures performance towards the overall aims of the company; is useful for decision making ) and  is well-presented.” USE THIS
“The basic role of the performance report is to allow the board to see if the mission is being achieved along with the subsidiary aims and strategically important initiatives set by the senior management”
Grouped or prioritised order
Balanced view: NFI/FI, strategic info not operational, external/internal
Mention planning and control

52
Q

ET - Big Data

A

Volume, velocity and variety. RELATE TO SCENARIO.

53
Q

ET - Performance Hierarchy

A

S – Long periods. Overall mission. Competitors/markets. Plan rather than control.
T – Short term, detailed objectives, quarter/year. Resources from department etc. ST planning, control operations of business. Internally generated.
O – Day to day, hit targets set by T. Detailed. Regular, daily/weekly. Control not plan.

54
Q

ET - BPR

A

Definition: “involves rethinking how a process is undertaken at a fundamental level and is based on the radical redesign of business processes to achieve dramatic improvements” aca WHY do we do things etc
Explain how BPR would help/hinder EACH element of the mission/strategy
BIG changes – remove staff?
Is there cost saving, is it BIG so BPR?

55
Q

ET - Bonuses

A

Clarity, controllability, motivation – LINK THOROUGHLY to question
Establish who the customer is

56
Q

ET - ABB Budgeting

A

Understand what drives costs and control them. Help identify CSFs as looks at whole activity. Changes in business?
Time and resources. Resistance from staff.

57
Q

ET - ABM/ABC

A

Overheads into cost pools and identifies cost driver for more accurate calcs. Better control of costs. Value and non value adding.
Choosing which products to make. Good for big overheads (not standardised).
Review of costs, prices and designs.
Customer profitability analysis.
Learn adv and disadv

58
Q

ET - EMA

A

Learn what each means
Explain why its important to be aware of these costs, use examples
Introduction of what it is. Are the costs currently identified. Take steps to control costs.
can help identify: risks, csfs, investment decisions
Main techniques often used in EMA: NPV, ABC and lifecycle costing
Need better info systems. Managers appraised from these budgets

59
Q

ET - BCG

A

Growth in SECTOR
Market share
Relative Market Share : companies market share / mkt share leader
How each section needs to be managed. Cost control, entrepreneurial. Metrics for each

60
Q

ET - Lean Systems

A

Structurise - Sort: introducing order where possible, removing clutter/unnecessary compontents
Systemise - Simplify: Arrange components for efficiency, organising so easy to use
Sanitise: Tidy, easy to find, safe
Standardise: finding the best way of undertaking a process or task, and applying it !consistently!
Self Discipline – Motivation, training

61
Q

ET - Six Sigma

A

DMAIC.
D – Really explain this. 4 points. THE OBJECTIVE IS. What customers expect
M – Why reasons could occur. 6 marks.
A – Root cause, more info? 2
I – Implement. How. 3
C – Review, go back if needed. 3.
Only choose measures which can be significantly improved, so within control? Or that will add value

62
Q

ET - Information requirements

A

What the info needs to show and why
What amount of info does each level need
Costs/resources needed to improve
Time of info
ACCURATECL. Accuracy, complete, cost, understandable, relevant, adaptable, timely. Easy, contain key points, links to higher level data. LEARN THIS AND USE IN Q.
Only available to right people, confidentiality

63
Q

ET - Target costing

A

Current costing method, is it approp?
Explain target costing
Determining the market price
Calc target cost using required profit margin. Using external
Estimating total costs. Accurate, experience
Reducing cost gap. What’s not of value to the customer.

64
Q

ET - Kaizen

A

Usually with target costing
Explain. Small incremental steps over a long period.
Culture change encourage employees. Traditional methods see employees as cause of high cost/waste, opposite to Kaizen.

65
Q

ET - Transfer Pricing

A

Goal congruence, autonomy, performance evaluation. – use as headings
Setting clear, understandable prices.
Pros and cons of each.

66
Q

ET - Customer Ratings

A

Subjectivity – products, time etc.. explain! Usually will go for middle option
Data – hard to interpret if scores are high & low. Doesn’t show why.. explain!
Complete Data – when is the score taken? E.g. at till, people who didn’t buy.
Trends – explain a little. Seasonal?

67
Q

ET - Balanced Scorecard

A

Link to CSFs and strategy. Not just easiest measures
Will they drive performance?
Financial and Non Financial? NF looks forward
Conflicting measures
Collecting and interpreting data – expertise, staff, subjectivity, information systems

68
Q

ET - Risk

A

Speak about shareholders. %s. Debt Providers.
Long/short term
Maximax, maximin, minimax regret

69
Q

ET - Measuring performance in joint ventures

A

Objectives of each, explain these. Timescales. Perf metrics
Different risk appetites. Management styles. Share info/knowledge. Trust. Quality

70
Q

ET - Benchmarking

A

Is data in date, misleading inaccurate, business model the same, country economy/currency
Do the measures relate to CSF, objectives, how they could be better.
Learn the order on how to do this

71
Q

ET - EVA

A

Links to SH wealth. Simple as positive = good, no need to compare. Encourages future investment – long term view. Consistent with NPV which is popular.
Time consuming, poorly understood by managers so ineffective. Based on prev info.
Avoids accounting estimates. Cant be compared as it’s an absolute measure.
WACC includes assumptions.
Only investment centres
PAT plus interest less of tax

72
Q

ET - Performance Pyramid

A

Definition. Each level different, O T S. Left external effectiveness, right internal efficiency.
How each level links using measurements suggested.

73
Q

7 steps of benchmarking

A

Step 1: Set objectives and decide areas to benchmark.
Step 2: Identify key performance drivers and indicators.
Step 3: Select organisations for benchmark comparison.
Step 4: Measure performance of all organisations in the benchmarking exercise.
Step 5: Compare performance.
Step 6: Specify improvement projects
Step 7: Implement and monitor improvements

74
Q

EMA 4 Cost Types

A

Conventional costs – raw materials and energy costs along with the cost of wastage through
inefficiency/regulatory fines. These can often be hidden in overheads and therefore not focused on.
Contingent costs – cost of cleaning up industrial sites (often large but arise at the end of a project’s life).
Relational costs – production of environmental reports, PR costs.
Reputational costs – costs of failing to address environmental issues (e.g. lost customer goodwill)

75
Q

3 E’s

A

Economy - Input resources at lowest cost but still good
Efficiency - Inputs - outputs
Effectiveness - How outputs reach goals/csfs/kpis

76
Q

League Tables

A

Positive impact on behaviour - areas of best practice
Different places diff economies etc
Motivation clarity controllability
Factors in table may be different from mission

77
Q

JIT

A

1/2 Suppliers, strong relationships, them willing to align with JIT too
Good qual materials, regular reviews of if supplier is working
Production - quality not quantity. change in staff, flexibility, skills, layout of factory

78
Q

Value based management approach

A

Company valued on discounted future cash flows
Focus on drivers of value, ie revenue, margins, capex etc
Inc cash flow or reduce COC through ST and O decisions
EVA aligns with this
Objective around value drivers - targets set - responsibilities given out - staff given targets

79
Q

Downstream results - upstream determinants

A

Financial/profit - competitiveness

Flexibility - Innovation - Resource Utlisation - Excellence/Quality

80
Q

MIRR on spreadsheet

A

MIRR(values, finance_rate, reinvest_rate)

81
Q

market price transferring disadvantage

A

no external market
selling division at full capacity etc
adj market price for bad debt, admin etc - may not give info for these costs, time
market price temporary

82
Q

Management styles

A

budget constrained
profit conscious
non accounting