B6: Process and Project Mgmt, Globalization, Financial Risk Mgmt, Decisions, and Valuation

Question 1

Business Process Management (BPM)

Process Management

Answer 1

mgmt approach that seeks to coordinate the functions of an org toward an ultimate goal of continuous improvement in customer satisfaction

• customers are both internal and external
• seeks effectiveness and efficiency through promotion of innovation, flexibility, and integration w technology

Question 2

BPM Activities

Process Management

Answer 2

grouped in 5 categories:

1. Design
   - ID existing processes and conceptual design of how they should function in improved
2. Modeling
   - introduces variables to the conceptual design for what if analysis
3. Execution
   - design changes are implemented
   - key indicators of success are developed
4. Monitoring
   - info is gathered and tracked and compared to expected performance
5. Optimization
   - using the monitoring data and original design, process manager continues to refine the process from step 1

Question 3

BPM Techniques

Process Management

Answer 3

Define
- define the original process as a baseline for current process functioning or process improvement

Measure
- determine indicators that will show a change to the process

Analyze
- w various simulations or models

Improve
- improvement is selected and implemented

Control
- monitor the improvement and apply the data to the model for improvement

Process Management commonly referred to as “PDCA”

• Plan
• Do
• Check
• Act

Question 4

Measures

Process Management

Answer 4

Gross Revenue

• financial
• appropriate in sales driven orgs

Customer Contacts

• leads
• non financial
• can be used in sales driven orgs

Customer Satisfaction

• complaints
• non financial
• relationship marketing techniques

Operational Statistics

• time
• non financial
• manufacturing operations may use

Question 5

Benefits

Process Management

Answer 5

Efficiency
- fewer resources used

Effectiveness
- greater predictability

Agility
- responses to change are faster and more reliable

Question 6

Shared Services

Process Management

Answer 6

seeking out redundant services, combining them, and then sharing those services w/i a group or organization
- shared w/i an org or group of affiliates

Implications for Business Risks and Controls

• creates efficiency (+) but might..
  a) Service Flow Disruption
  b) Failure Demand

Question 7

Outsourcing

Process Management

Answer 7

contracting of services to an external provider
- contractual relationship b/w business and its service provider

can provide efficiencies (+), but risks are:

• Quality Risk: single product or service might be defective
• Quality of Service: their quality of work isnt good
• Productivity: may be reduced
• Turnover: experienced and valued staff may leave the org
• Language Skills
• Security: give outsource ppl access to sensitive info
• Qualifications of Outsourcers: credential of service providers may be flawed
• Labor Insecurity: now w new service, employees may feel like their jobs are at risk

Question 8

Offshore Operations

Process Management

Answer 8

outsourcing to an external party in a different country

most common types are:

• information technology
• business process (call centers, accounting operations, tax compliance, etc)
• software research and development
• knowledge process

Risks

• lack of controls associated w proximity
• potential language issues

Question 9

Selecting and Implementing Improvement Initiatives

Process Management

Answer 9

Selecting Improvement Initiatives, 2 Methods

1. Irrational
   - intuitive and/or emotional
2. Rational
   - structured and systematic
   - involves:
   a. Strategic Gap Analysis- external (environmental) vs internal (organizational)
   b. Review Competitive Priorities
   c. Review Production Objectives
   d. Choose Improvement Program

Implementing Improvement Initiatives

• several crucial features of successful implementation activities:
  a. Internal Leadership- senior mgmt must provide direction and commit resources to the implementation
  b. Inspections- monitor and measure
  c. Executive Support- executive mgmt must be supportive
  d. Internal Process Ownership- ppl involved w process mgmt must be committed to the need for the improvement and have the resources to carry it out (accountability)

Question 10

Business Process Reengineering (BPR)

Process Management

Answer 10

techniques to dramatically improve customer satisfaction and service, cut costs, and enhance competitiveness
- BPM seeks incremental change, BPR seeks radical changes

Concepts

1. Fresh Start: mgmt wipes the slate clean and reassess from the ground up
   - reengineering uses benchmarking and best practices to evaluate success
2. Current Status: reengineering is not as popular as when it was introduced in mid 1990s
   - criticized for overaggressive downsizing
   - benefits not as anticipated

Question 11

Performance Improvement

Answer 11

seek to provide the highest-quality goods and services in the most efficient and effective manner possible

Question 12

Just-in-Time (JIT)
Performance Improvement

Process Management

Answer 12

scheduling the deployment of resources just-in-time to meet customer or production requirements

Inventory Does Not Add Value

• produces wasteful costs
• underlying concept

Benefits

• reduce costs, improve quality
• schedule w demand (pull process)
• necessary coordination and team approach w suppliers
• efficient flow of goods b/w warehouse and production
• reduced set up time
• greater efficiency in use of employees (bc not working in warehouse for inventory)

Question 13

Quality
Performance Improvement

Process Management

Answer 13

“APIE” (appraisal, prevention, internal, external)
- product’s ability to meet or exceed customer expectations

1. Costs of Quality
   - conformance w quality standards and
   - correcting nonconformance w quality standards
   - “prevention and cure”
2. Conformance Costs
   a) Prevention Costs
   - prevent production of defective units
   b) Appraisal Costs
   - discover and remove defective parts before they are shipped to customer or next department
3. Nonconformance Costs
   - difficult to compute bc most are in the form of opportunity costs
   a) Internal Failure
   - cure a defect before product is sent to customer
   - appraisal is more within the process, internal is more like right before putting it in the box
   b) External Failure
   - cure a defect discovered after product is sent to customer

Question 14

Quality Control Principles- Total Quality Mgmt (TQM)
Performance Improvement

Process Management

Answer 14

represents an organization commitment to customer focused performance that emphasizes both quality and continuous improvement

7 critical factors:

1. Customer Focus
   - each function of the corp exists to satisfy the customer
   - external customer: ultimate consumer
   - internal customer: each link in the value chain
2. Continuous Improvement
   - quality is not just the goal’ it is embedded in the process
3. Workforce Involvement- Quality Circles
   - team approaches and worker input to process development and improvement
4. Top Mgmt Support- Delegation and Empowerment
   - top mgmt must actively describe and demonstrate support for the quality mission of the org
5. Objective Measures
   - measures of quality must be unambiguous, clearly communicated, and consistently reported
6. Timely Recognition
   - acknowledgment of TQM achievements
7. Ongoing Training
   - should occur on recurring basis to ensure workforce understands and is involved

Question 15

Quality Audits and Gap Analysis
Performance Improvement

Process Management

Answer 15

Quality Audits

• mgmt assesses quality practices of the org
• identifies strengths and weaknesses
• like an internal audit

Gap Analysis

• determines the gap or difference b/w industry best practices and current practices of the org
• produces target areas for improvement

Question 16

Lean Manufacturing
Performance Improvement

Process Management

Answer 16

requires use of only those resources required to meet the requirements of customers
- seeks to invest resources only in value-added activities

Waste Reduction
- not quality focus, focus on reduction and efficiency

Kaizen

• continuous improvement efforts that improve the efficiency and effectiveness of organizations through greater operational control
• ensure that resource usage stays w/i target costs
• occurs during mfg stage

Activity-Based Management

• activity based costing (ABC) and ABM are highly compatible w process improvements and total quality mgmt (TQM)
• highlight the costs of activities
• makes identification of cost of quality and value-added activities more obvious
• ABC and ABM programs are more likely to have the info they need to implement a TQM program
• B6-12

Question 17

Demand Flow
Performance Improvement

Process Management

Answer 17

manages resources using customer demand as basis for resource allocation

• in contrast w resource allocation based on sales forecasts or master scheduling
• akin to JIT that focus on the efficient coordination of demand for goods in production with the supply of goods in production
• kanban systems, which visually coordinate demand requirements on the manufacturing floor w supplier, are techniques used to coordinate demand flow
• designed to maximize efficiencies and reduce waste
• one piece flow manufacturing environments, in which components move progressively from production function to production function, benefit from demand flow ideas

Question 18

Theory of Constraints (TOC)
Performance Improvement

Process Management

Answer 18

states that orgs are impeded from achieving objectives by the existence of one or more constraints

• either works around or leverages the constraints
• • concerned w maximizing throughput by identifying and alleviating constraints

Contraints

a) Internal Constraints: when market demands more than the system can produce
b) External Constraints: when system produces more than the market requires

5 Steps

1. Identification of the Constraint
   - use of process charts or interviews IDs constraint that produces suboptimal performance
2. Exploitation of the Constraint
   - planning around the constraint uses capacity that is potentially wasted
3. Subordinate Everything Else to the Above Decisions
   - mgmt directs its efforts to improving the constraint
4. Elevate the Constraint
   - add capacity to overcome the constraint
5. Return to the First Step
   - reexamine the process to optimize the results

Buffer

• managers add buffers before and after each constraint to ensure that enough resources to accommodate the constraint exist
• buffers eliminate the effect of the constraint on work flow

Question 19

Six Sigma
Performance Improvement

Process Management

Answer 19

anticipates the use of rigorous metrics in the evaluation of goal achievement

• a continuous quality-improvement program that requires specialized training
• expands on the PDCA model and outlines methods to improve current processes and develop new processes

1. Existing Product and Business Process Improvements “DMAIC”
   - Define the Problem
   - Measure Key Aspects of the Current Process
   - Analyze Data
   - Improve or Optimize Current Processes
   - Control
2. New Product or Business Process Development “DMADV”
   - Define Design Goals
   - Measure CTQ (critical to quality issues): features that provide value to the customer and the production capabilities that are available
   - Analyze Design Alternatives
   - Design : use modeling techniques
   - Verify the Design: implement and test

Question 20

Operations Management

Project Management

Answer 20

ongoing production of goods and services and ensuring that a company’s operations function efficiently by using optimal resources necessary to meet the sales demand of its customers

Question 21

Project

Project Management

Answer 21

temporary undertaking intended to produce a unique service, product, or result

• has a definite beginning and end
• project is terminated when: objective has been achieved, determined obj cant be met, or when mgmt determines completion is no longer necessary

Question 22

Project Management

Project Management

Answer 22

consists of 5 major processes carried out by a project manager tasked w balancing the needs and expectations of various stakeholders against the organizations constraints

1. Initiating
2. Planning
3. Executing
4. Monitoring and controlling
5. Closing

Question 23

Initiating
Step 1

Project Management

Answer 23

project scope is defined, project is authorized, and the initial financial resources are committed
- project charter is a document that contains a business justification to fulfill the needs of initial stakeholders by carrying out a statement of work that will achieve the project objectives

• stakeholders: positively or negatively affected by the project
• statement of work: describes the product or services the project must deliver at completion

Question 24

Planning
Step 2

Project Management

Answer 24

involves all activities necessary to further detail the scope of the project, refine the project objectives, and define the course of action required to attain the project objectives
- ongoing process, could be altered

includes

• initial project mgmt plan
• define stakeholders’ requirements
• define scope of the project
• breakdown small, manageable tasks
• present activities in an activity list: order activities must be performed
• sequence the activities: dependent activities and independent
• estimate the activity resources
• duration of activities
• schedule of activities based on availability of resources, the event sequence, and amt of time to complete
• estimate costs of activities to develop a budget
• • define what a quality outcome is or define the standard of quality
• identify project roles, responsibilities, skills, and reporting relationships
• identify needs of stakeholders and develop a communication approach
• risk management
• develop options if risks manifest
• acquire the needed equipment and supplies

Question 25

Executing
Step 3

Project Management

Answer 25

activities associated w completing the work that has been specified in the project plan and producing the deliverables

• assure quality
• B6-17

Question 26

Monitoring and Controlling
Step 4

Project Management

Answer 26

procedures to observe a project execution so that potential problems can be identified in a timely manner and corrective action can be taken to ensure the completion of the project

includes

• reviewing where the project is against the baseline defined in the plan
• actual vs plan comparisons
• status reports
• identify the need for any changes
• verify the scope
• control the scope
• control the schedule
• control the costs: use budget
• control procurement
• perform quality control
• distribute performance information
• implement a risk response plan
• manage vendor relationships

Question 27

Closing
Step 5

Project Management

Answer 27

verifies that all defined project phases are complete, closes the project, and closes all procurement relationships
- project mgmt process summarized by statement: an authorized project plan is initiated, executed, monitored, and controlled, and eventually ends when the objectives have been completed

Question 28

Project Manager

Project Management

Answer 28

responsible for project administration on a day-to-day basis

• achieve project objectives while balancing project constraints of budget, time, and resources
• ID and manage internal and external stakeholder expectations
• develop the project plan, implementing, monitoring and control, and closing the project
• ID and procure the project team members, resolve conflicts, and provide feedback
• break the project down into smaller manageable tasks and assign/delegate them
• communicate project metrics to stakeholders and team members

Question 29

Project Members

Project Management

Answer 29

perform the project tasks

Question 30

Project Sponsor

Project Management

Answer 30

responsible for providing resources and support to the project as well as enabling the success of the project

• responsible for overall project delivery
• supports project manager
• chair the steering committee
• champion the project to upper mgmt
• remove obstacles
• sign off and approve
• review the project
• interface b/w org and project
• communicate project needs to steering committee

Question 31

Executive Steering Committee

Project Management

Answer 31

is to a project what the BoD is to a company

• direct but do not manage
• group of executive lvl ppl or external orgs that oversee the project
• represent all significant areas of participation

includes
- B6-20

Question 32

Project Risk

Project Management

Answer 32

uncertain condition or event that could have negative (or +) effect on one or several project objectives
- distinction b/w individual project risks and overall project risk

Planning for Risk Mgmt

a) Risk Assessment
- anticipate everything that could go wrong
- specify how those uncertainties can affect the performance
- prioritize risks that must be eliminated completely (severe risk), regular mgmt attention to significant risks, and risks immaterial to project
b) Risk Control
- spend money in advance to mitigate or prevent most severe risks
- plan for emergencies
- track effects of identified risk in a risk register

Inputs Used for Planning for Risk

• risk mgmt plan
• cost mgmt plan
• schedule mgmt plan
• risk register
• environmental factors
• organizational process assets: learn from previous projects

Question 33

Human Resources (Communication) Management

Project Management

Answer 33

HR plan: staff to work on the project, assign each team member responsibility for tasks, acquire staff both internally and externally, and develop team members by providing feedback and guidance so team collaborates effectively

Influence on the HR Plan

• org culture
• existing staff lvls
• conditions of the market
• establishing communication channels
• industry regulation/current laws
• sources of additional staff

Tools to Enhance Communication and Success in HR Plan

• hierarchical charts
• a matrix
• text-oriented narrative description
• staffing mgmt plan
• training and team building
• recognition and rewards

Conflict Resolution Strategies

• retreat from conflict
• focus on areas of agreement and ignore areas of disagreement
• compromise
• win-lose solution by leveraging authority
• solve the problem w discussion

Plan for Things to Go Wrong and Identify an Appropriate Response

Question 34

Scope

Project Management

Answer 34

the challenge in managing scope is to include all he work required to complete a project and nothing else

Scope Mgmt

• product scope must define the attributes of the product, service, or result
• project scope defines work that must take place to produce the product, service, or result defined in the product scope
• scope baseline: formal written approval of the project scope and work breakdown structure (WBS), outlining both the end product (product scope) and the project scope

Project Scope Mgmt Process

• make scope mgmt plan
• collect and document project requirements
• define the scope
• create a work breakdown structure
• validate the scope
• monitor and control

Relevant Documents

• Requirements Documentation: written doc describing project requirements from all stakeholders
• Requirements Mgmt Plan: documents how requirements will be analyzed, documented, and managed, tracked, and reported
• also describes how changes will be approved and processed

Question 35

Time Management

Project Management

Answer 35

plays a critical role in completing a project w/i time constraints outlined in the project budget and to potentially avoid cost overruns

Question 36

Cost Management

Project Management

Answer 36

Cost Baseline
- cumulative amt of money that is expected to be spent on a project

Project Funding Requirements
- specify the total funding requirements and periodic funding requirements based on the cost baseline

Project Cost Mgmt Process

• planning for cost mgmt
• estimating the costs necessary for the project
• determining the budget
• controlling project costs

Cost Estimation Methods

• Judgement: mgrs consider a combo of historical info and cost of materials and labor
• Parametric Estimating: relies on statistical relationship b/w historical cost and other variables
• Analogous Estimating: cost of similar sized previous project used to approximate cost
• Work Breakdown Structure Estimation (WBS): bottom-up analysis bc each activity is estimated and then costs of each are aggregated
• Three Point Estimates: cost estimates based on most-likely assumption
  a) optimistic assumption: reflects best case scenario
  b) pessimistic assumption: reflects worst-case scenario
• Reserve Analysis: monetary padding to allow for uncertain cost estimations
• Project Mgmt Software
• Vendor Bid Analysis: assumes vendor will bid on the work and a contract will be awarded
• Earned Value Mgmt
  a) Planned Value (PV): money the project should be worth at a particular point in the schedule
  b) Earned Value (EV): physical work that has been completed to date
  c) Actual Cost (AC): actual cost to date
  d) Estimate at Completion (EAC): estimated total cost at completion
  e) Cost Performance Index (ECI) = EV/AC: if CPI < 1, project is over budget

Question 37

Quality Management

Project Management

Answer 37

activities and processes performed on an ongoing basis to ensure the quality of everything pertaining to a project will meet the needs or requirement for which the project was designed

Plan Quality Mgmt

Perform Quality Assurance

Control Quality

B6-26

Question 38

Globalization
Impact of Globalization on Companies

Globalization and Local Economies

Answer 38

distribution of industrial and service activities across a number of nations

• produces deeper integration of the world’s individual national economies and makes them more interdependent*
• measured by world trade as a % of GDP*; the greater, the greater degree of globalization

Factors that Drive Globalization*

• increased efficiencies in transportation
• technological advancements and knowledge-based products
• deregulation of international financial markets
• operational options for international business

Globalization Promotes Specialization
- specialization that leverages comparative advantage

Globalization Imparts Responsibilities of World Citizenship

• corporations have an implied duty to:
• act responsibly regarding environmental issues
• promote political stability and cooperation among nations

Question 39

Motivations for International Business Operations
Impact of Globalization on Companies

Globalization and Local Economies

Answer 39

to achieve shareholder value

1. Comparative Advantage
   - used to max the value of their efforts and resources
   - bermuda focuses on tourism and importing stuff
2. Imperfect Markets
   - ability to trade freely is often limited by physical immobility of the resource or regulatory barriers
   - in order to retrieve more resources, companies must trade outside their borders
3. Product Cycle
   - initial development of the product to meet needs in the domestic markets
   - meet foreign demand to maintain efficient use of capacity

Question 40

Methods of Conducting International Business Operations
Impact of Globalization on Companies

Globalization and Local Economies

Answer 40

1. International Trade
   - exporting/importing products or services
2. Licensing
   - provide right to use processes or technologies in exchange for a fee
3. Franchising
   - provides training and related service delivery resources in exchange for a fee
4. Joint Ventures
   - takes advantage of comparative advantage of one or both of the participants in marketing or delivering a product
5. Direct Foreign Investments (DFI)
   - purchasing a foreign company as a subsidiary or starting a subsidiary operation in a foreign country
6. Global Sourcing
   - synchronization of all lvls of product manufacturing
   - frequently implemente d through a range of organizational and business arrangements

Question 41

Relevant Factors of Globalization
Impact of Globalization on Companies

Globalization and Local Economies

Answer 41

1. Political and Legal Influences
2. Potential for Asset Expropriation
3. Taxes and Tariffs
   - mitigation of risk is typically handled through transfer pricing
4. Limitations on Asset Ownership or Joint Venture Participation
5. Content or Value Added Limits
   - govs may provide tariff reductions to companies whose imports include specified percentages of material and laboor in their products
6. Foreign Trade Zones
   - zones in which tariffs are waived until the goods leave the zone
7. Economic Systems
   a) Centrally Planned Economies
   - factors of production are owned by the gov and subject to restrictions
   b) Market Economies
   - factors of production are owned by individuals
   - most industrialized economies
   c) Conglomerates
   - self-sustaining entities that could not exist in the US (fully integrated financing, manufacturing, and supplying orgs would likely violate antitrust laws)
8. Culture
   a) Individualism vs Collectivism
   b) Uncertainty Avoidance
   c) ST vs LT Orientation
   d) Acceptance of Leadership Hierarchy
   e) Technology and Infrastructure

Question 42

Inherent Risks of International Business Operations
Impact of Globalization on Companies

Globalization and Local Economies

Answer 42

1. Exchange Rate Fluctuation
   - transaction risk
   - economic risk
   - translation risk
2. Foreign Economies
   - risk of functioning w/i the general health or weakness of a particular economy
   a) Foreign Demand
   - income of customer
   - purchasing power of currency
   b) Interest Rates
   c) Inflation
   d) Exchange Rates
3. Political Risk
   - effects on economy of politics in that country like war, etc

Question 43

Complications of Global Sourcing
Impact of Globalization on Companies

Globalization and Local Economies

Answer 43

1. Global Sourcing Anticipates Multiple Sources for Materials
   - different parts of process may be done in diff countries and have to take into account things happening in all countries
2. Global Sourcing Anticipates Multiple Exchange Rates

Question 44

International Accounting Practices
Impact of Globalization on Companies

Globalization and Local Economies

Answer 44

IFRS vs GAAP vs wtv else that country may use

- differences impact financial reporting transparencies

Question 45

Shifts in Economic Balance of Power

Globalization and Local Economies

Answer 45

used to be unipolar: US dominant now multipolar: US, EU, BRIC (brazil, russia, india, and china) shifted power
- due to expansion of other countries economies

Functional Interdependence

• the participation of nations in worldwide institutions
• United Nations, World Trade Organization, International Monetary Fund

Systematic Interdependence

• acknowledges that all members of the global community share the planet Earth
• climate or safety (like nuclear proliferation) affects all nations

Multipolarity
- acknowledgement of interdependence of nations and cooperation among nations consistent w shifts in balance of power

Dynamics of Balance of Power

1. Developed vs Emerging
   - developed nations gr regarded as world’s largest industrial economies
   - emerging nations gr regarded as countries not included on list of developed nations led by BRIC
2. Trade Deficits
   - developed nations have gr produced trade deficits bc more imports than exports (disadvantages)
   - emerging nations gr have trade surpluses as exports > imports (advantage)
3. Balance of Power
   - emerging nations (notably China) have maintained an artificially low valuation of their currencies relative to developed nations, keeping their gods cheap and effectively finances richer countries/developed

Definitions
- B6-34

Question 46

7 quality control (7QC) tools

Answer 46

used to solve quality related problems pertaining to project quality management

1. flowcharts
2. check sheets
3. cause and effect diagrams
4. histograms
5. pareto diagrams
6. scatter diagrams
7. control charts

Question 47

statistical quality control is categorized as

Answer 47

appraisal cost