B6 Flashcards
5 Categories of Business Process Management
- Design
- Modeling (what-if?)
- Execution (need indicators of success)
- Monitoring
- Optimization
Purpose of BPM
*coordinate the functions of an organization to increase customer satisfaction
Business Process Management Techniques & Approaches
Plan - design
Do - implement
Check - monitor
Act - continuously improve
Indicators of Success
- Gross Revenue
- Customer Contacts
- Customer Satisfaction
- Operational Statistics
Benefits of BPM
Efficiency
Effectiveness
Agility
Implications for Shared Services
- service flow disruption
2. failure demand
BPM vs. Reengineering
BPM = incremental change Reengineering = radical change
JIT
- pull approach
- reduction in # of suppliers
- benefits > cost
- inventory does not add value
- empowered employees with more skills
Quality =
product’s ability to meet or exceed customer expectations
Conformance Costs
Prevention (PREVENT)
*redesign, training
Appraisal (DETECT)
*testing, inspection
Nonconformance Costs
Internal (BEFORE)
*rework, scrap, tooling changes
External (AFTER)
*liability, lost customers, warranty costs, returned
Total Quality Principles
*please customers: quality and continuous improvement
GAP Analysis
*comparing to industry standards
Lean Manufacturing
- cut the fat
- does NOT focus on quality
- waste reduction
Kaizen
- continuous improvement
* resource usage stays within target costs
Theory of Constraints
- focus on the bottleneck
* works around or leverages the constraint
Six Sigma
- emphasis on cost reduction and quality
* rigorous metrics are used
5 Major Processes of Project Management
- Authorization
- Planning
- Implementation
- Monitoring
- Closing
*all are the role of the project manager
Authorization
- charter = permission
* statement of work = describes deliverables
Planning
= establish baseline for quality
*ACQUIRING NEEDED EQUIPMENT AND SUPPLIES GOES HERE
Implementation
- assure quality
* completing the work
Monitoring
*observe project execution and identify any problems
Closing
*ensure objectives have been completed
Project Manager
- responsible for day-to-day oversight
- CEO of the project
- communicates to the project sponsor
Project Members
*perform the project tasks
Project Sponsor
- executive level of management responsible for allocating funds
- RESPONSIBLE FOR OVERALL PROJECT DELIVERY
- communicates to the steering committee
Executive Steering Committee
- group of executive level people
* similar to a board of directors
Planning for Risk Management
Risk Assessment and Risk Control (tradeoff between risk and return for projects)
Human Resource Plan
*documents workers and hours needed for a project
Responsibility Assignment Matrix
*shows all activities associated with one person and all people associated with one activity
Project Scope
- must define deliverables
* defines work that will take place
Scope Baseline
*describes final product and scope of project
Requirements Documentation
Requirements Management Plan
*project requirements vs. how it will be evaluated and documented and analyzed
Cost Baseline
- the amount of money to be spend
* follows an S curve distribution
Ways to Estimate Costs
- parametric estimating (statistical relationship)
- analogous estimating (similar sized projects)
- work breakdown structure (bottom-up analysis)
- three point estimate (high, low, probable)
- reserve analysis
SMART Goals
S pecific M easurablee A ttinable R ealistic T ime bound
How is globalization measured?
*world trade as a % of GDP
The comparative advantage in global markets?
*specialization
What causes markets to be imperfect?
- regulations
2. physical immobility of resources
What is Global Sourcing?
*using an combination of globalization methods
Content or Value Added Limits
e. g. NAFTA
* disclose percentages of materials and labor in various products
3 Types of Economic Systems
- central planning
- market economies
- conglomerates
Multipolarity and Interdependence Types
- Functional Interdependence (worldwide organizations and tasks)
- Systemic Interdependence (global issues that affect all nations)
- Multipolarity (vs. unipolar)
Diversification Risk Types
Systematic: market risk
Unsystematic: diversifiable
Types of Financial Risk
- interest rate risk
- market risk
- credit risk
- default risk
When does the APR equal the effective rate?
*when pay is annual
Effective Annual Interest Rate Formula
= (1 + (i/p))^p -1
i = stated interest rate p = compounding periods per year
Compound Interest Formula
= P0 x (1 + i)^n
Nominal Rate of Return =
risk free rate + inflation rate
Types of Risk Premiums
- maturity risk
- purchasing power/inflation
- liquidity risk (short-term sale of asset)
- default risk
Risk Exposure Categories
- Transaction Exposure (g/l on specific transaction; NET THEM)
- Economic Exposure (increase/decrease of cash flows)
- Translation Exposure (MUST BE CONSOLIDATED SUBSIDIARY; balance sheet items change)
Identifying Net Transaction Exposure
- net the total impact
* effective and selective hedging
Futures Hedges
*usually used for smaller transactions
Risks with Net Transaction Exposure
- A/R: P goes down; sell
* A/P: P goes up; buy
Forward Hedge
- private and larger transactions
* uses a contract
Money Market Hedge
*international money market to plan to meet future currency requirements
Currency Option Hedges
- if FC increases, buy a call option
* if FC decreases, buy a put option
Other Techniques for Transaction Exposure Mitigation
- LT forward contracts
- Currency Swaps
- Parallel Loan (you buy back your own currency eventually)
Alternative Hedging Techniques
- Leading and Lagging - favorable exchange rates using subsidiaries
- Cross-Hedging - hedging a hedge
- Currency DIVERSIFICATION
Managing Economic Risk and Translation Exposure
*depends on which line item (revenue or expense) are denominated in which currency
- want sales when FC increases
- want costs when FC decreases
Transfer Pricing
- minimize tax liability in certain jurisdiction
* reduce revenues and increase expenses
Strong vs. Weak Cash Position
Strong: pay other subsidiaries in advance
Weak: pay richer subsidiaries after obligations were incurred as a means of preserving cash
Short-term vs. Long-term Financing
Short-term = lower cost, higher profits, higher risk Long-term = higher cost, lower profits, lower risk
Short-Term Financing Factors
- rates are lower
- higher liquidity
- increased conversion in operating cycle, therefore higher profits
- interest rate risk
- credit risk
Long-Term Financing Factors
- higher rates
- decreased interest rate risk
- decreased credit risk
- lower profitability
- decreased liquidity
Working Capital Financing
*spontaneous financing of current assets with trade accounts payable and accrued liabilities
Letter of Credit
*third-party guarantee (usually required by a vendor
Line of Credit
*renewable; represents a loan, not a guarantee
Leasing Options
- operating lease
* capital lease
What is the effect of issuing new debt?
*it decreases the company’s credit worthiness
Debentures vs. Bonds
Debentures = unsecured Bonds = secured
Income Bonds
*pay interest only upon achievement of some income level
Junk Bond
*unsecured, high risk, high return
Debentures and Bonds vs. Equity Financing
Debentures and Bonds: decrease credit worthiness, increase EPS
Equity: increase credit worthiness, decrease EPS
Degrees of ownership interest ________ as rights to income decrease
*increase
Preferred Stock is also known as a
hybrid security
Debt Covenants
- protect value of debt by protecting credit rating of debtor
- debtor agree to secure a lower cost of borrowing for a new loan
Violation of Debt Covenants
- technical default
* negotiate
Financial Valuation of Perpetuities s
P = D/R
D = dividend R = required return
Dividend Discount Model
P(t) = (D(t+1)) / (R -G)
R = required rate G = growth D(t+1) = dividend in next period
Price-Earnings Ratio for Forecasts
P0 = E1 x (P0/E1)
E = future EPS P0 = price today
*sometimes the P/E ratio will just be given
PEG Ratio
PEG = (P/E/G)
G = % x 100
P = PEG x E x G
Price-to-Sales Ratio
*used for start-ups
P/S(1)
P = price today S(1) = sales in one year
Price-to-Cash-Flow Ratio
= P/CF(1)
Behavioral Biases
Excessive Optimism
Confirmation Bias
Overconfidence
Illusion of Control
Impact of Loss Aversion
- Losses are more distracting than gains (riskier behavior to regain losses)
- managers are generally averse to sure losses (escalation of commitment)
Code of Ethics for Internal Auditing
Integrity
Objectivity
Confidentiality
Competency
Three General Standards for Internal Auditing
- Attribute standards
- Performance standards
- Implementation standards
How often should the chief internal auditor report the organizational independence of the audit team?
*annually
How often should external assessments of internal auditors be performed?
*at least once every five years
Internal Audit Performance Standards
- managing the internal audit activity
- nature of work
- engagement planning
- performing the engagement
- communicating results
- monitoring progress
- management’s acceptance of risk
Internal Audit Engagement Planning & Objectives
- objectives must be established for each engagement
* must reflect a preliminary risk assessment
Internal Audit - Performing the Engagement
- identifying information
- analysis
- evaluation
- documenting
Management’s Acceptance of Risk - Internal Auditor Responsibilities
- report to management
* report to board only if management’s response is inadequate
Parties Involved in Assurance vs. Consulting Services
Assurance: auditee, internal auditor, user (sponsor)
Consulting: internal auditor, user (sponsor)
Internal Auditing can be described as a
*disciplined and systematic approach
