BEC-6 Flashcards
Process Management
- management approach that seeks to coordinate the functions of an organization towards CUSTOMER SATISFACTION
Activities:
Design- identification of existing processes and how they should function once improved
Modeling- introduces variables for “what-if” analysis
Execution- design changes are implemented and “key indicators of success” are developed
Monitoring- information is gathered and tracked and compared to expected
Optimization- process is continued to be refined based on new information
Dashboards
- used to monitor improvements in REAL TIME
Process Management -Other approach(memorize!)
PDCA
Plan
Do
Check
Act
Measures(“indicators”) to monitor progress
- can be financial or nonfinancial
- Gross revenue(financial)
- Nonfinancial: customer contacts, customer satisfaction , operational statistics
Selecting and implementing improvement initiatives
- key component of Process Management
-should be “rational” and not “irrational”
Crucial for implementing improvement initiatives: - must have internal leadership from senior management
-must be monitored, inspections - executive support(tone ant the top)
-internal process ownership( must have buy in from employees)
Business process re-engineering
- techniques to help organizations rethink how work is done to DRAMATICALLY IMPROVE/ RADICAL change customer satisfaction and enhance competitiveness
- process management is slow tweak vs. business process re-engineering which is radical quick
Just-in-time(JIT)
- “pull approach”
- anticipates achievement of efficiency by scheduling the deployment of resources just-in-time to meet customer needs
- Cost = down, Work in progress = down Quality = Up
- underlying concept of JIT is that inventory does NOT add value since carrying costs are high to keeping surplus inventory
Cost of Quality*
Conformance - investing on the front end to ensure standards:
Prevention costs: incurred to prevent the production of defective units
Appraisal costs: incurred to discover and remove defective parts before they are shipped to the customer or next department
Non-conformance - cost of failure of standards
Internal Failure: can cure defect before it gets to customer
External Failure: cost to cure a defect after sent to customer
Conformance and Non-conformance costs are inversely related, more prevention should equal less non-conformance costs
Total Quality management
- an organizational commitment to customer-focused performance that emphasizes both quality and continual improvement
- ongoing with no end unlike project management which has an end
Quality audits and Gap Analysis
Quality Audits - techniques in which management assesses the quality practices of the organization
Gap Analysis - determines gap or difference between “industry best” practices and current companies practices
Lean Manufacturing
- goal is to “cut the fat”, not worried about quality, all about cost reduction
- waste reduction is the focus not quality
- “Kaizen” = continuous improvement, ensures that resource usage stays within target costs
Demand flow
- manages resources using customer demand as the basis for resource allocation
- ongoing basis of demand from customers, not forecasts for sales determined at beginning of year
- just like Just-in-time
Theory of constraints
- Maximize throughput(production or output) by working around or leveraging the constraint
- turn a negative to a positive
Constraint
anything that impedes the accomplishment of an objective
Six Sigma
- the emphasis is on cost-reduction
- uses rigorous metrics
- expands on Plan, Do, Check, Act processes and is more rigorous than it
Project Management
- a Project should be a temporary undertaking with a beginning and end and intended to produce a unique service, product or result
Project Management Steps
- Authorization - must create a project charter and get permission to carry out project for the benefit of shareholders, also must describe the product or service the project must deliver
- Planning - determine all necessary activities to achieve the project objectives, continues throughout the entire project, must establish the baseline or standard for quality to assess whether this project is successful
- Implementation - assure quality by implementing the plan, make sure we deliver the project deliverables, all the activities involved in completing the work that was specified in the plans, assemble a project team and distribute the project assignments
- Monitoring - monitor and control, measure performance, identify need for any changes, control the scope of the project make sure it will have an end
- Closing - project must end, ends when the objectives have been completed.
Project Manager
- responsible for day to day management
- identify all the stakeholder expectations
- develop all project steps
- procure the project team members
- communicate the project metrics to external and internal STAKEHOLDERS and team members( not the job of steering committee)
- reports to the project sponsor
Project Members
- perform the project tasks, carry out the work
- produce the deliverables defined by the project manager
Project Sponsor
- high level executive in management, most likely from board
- responsible for getting resources and funding for project
- chairs the steering committee and reports to them not the board, the steering committee ultimately reports to the board of directors
- responsible for overall project delivery
Project Risk
- always must assume risk if want to achieve possible return
- spend money in advance to reduce possibility of worst or most sever risk(risk control)
RAM
- ” responsibility assignment matrix”
- shows all activities associated with one person and all people associated with one activity
Requirements Management Plan
- documents how requirements will be manged, analyzed, tracked and reported
Estimating Costs
Parametric estimating - “statistical relationship” to historical cost and variables
Analogous estimating - the cost of similar sized projects in the past
Work breakdown structure - “bottom up analysis”
Three-point-estimate = uses a range of cost estimates: best case, worst case, most likely
Reserve analysis = allow for uncertain cost estimations
Deliverables(memorize!)
- the product or service the project must deliver
Quality of deliverables = SMART
Specific Measure Attainable Relevant Time Based
Measuring Globalization
World trade as a percentage of GDP - the greater the percentage the greater the globalization
Globalization promotes specialization( i.e competitive advantage)
- countries that produce certain products better than others can focus on them and import others instead of trying to produce everything
Imperfect Markets
- resource markets
- the ability to trade freely between markets is often limited by the physical immobility of the resource(if want to go to a beach a living in detroit can’t import it) or regulatory barriers
Asset expropriation
Due to globalization risk that some nations my seize a company’s assets in their country
NAFTA
- sometimes tariff reductions by government for labor or resources imported for business
- also known as “sourcing requirements”, by limiting amount of imported labor and resources country may allow tax break
Market Economies
- industrialized economies where the factors of production are owned by individuals not the gov’t like Japan and USA
Multipolar vs. Unipolar
Multipolar is when the economic power begins to be spread to more countries, as opposed to unipower when there is one superpower economic power
Functional interdependence vs. Systemic interdependence
functional - participation of nations to address certain issues
systemic - the global issues themselves
BRIC
emerging nations: Brazil, Russia, India and China
- exports tend to exceed imports
Developed nations
typically imports exceed exports
Diversifiable risk vs. Nondiversifiable risk
Diversifiable risk - unique risk that can be eliminated through diversification such as strikes, regulatory issues or loss of a key account
Nondiversifiable risk - cannot be eliminated through diversification, also know as market risk or systematic risk and is attributable to market factors that affect all firms.( i.e War, inflation)
Types of Risk
Interest rate risk- As interest rates go up the value of certain fixed income investments go down
Market Risk - risk inherent in a certain economy
Credit risk - impacts borrowers, a company’s inability to secure financing and if they do find it it will be at a very high rate - correlated with the supply of capital
Default risk - the risk that a company will not be able to pay back your principal or interest
Interest rates(periodic)
Stated interest rate = rate shown in the agreement(don’t need to calculate anything)
Effective periodic interest rate = interest paid for that period* / net proceeds of the loan(loan amt - fees associated)
*principal x periodic rate
Annual percentage rate = Effective periodic interest rate x the number of compounding periods OR Annual interest paid / Net proceeds
Effective ANNUAL percentage Rate
= (1 + Effective periodic rate) ^(number of compounding periods - 1)
Simple interest
- total interest over the life of the loan , amount represented by interest paid ONLY on the original amount or principal
= principal x annual rate x # of years
Compound interest
= principal x (1 + rate) ^number of years
Required rate of return
is calculated by adding the risk premiums to the nominal risk free rate:
Real Risk Free + Inflation = Nominal Risk free
Futures hedge
- standard amounts, usually for smaller transactions
- if you think currency will go up by a futures contract, if you think a currency will go down SELL a futures contract
Forward Hedge
- similar to futures
- generally for large transactions
- a private contract
Money market hedge
- a way to hedge risk when you have payables by investing it in a foreign market
Currency option hedges
- using options to hedge your risk
- buy a call option if you believe the value of the foreign currency is going to go up and buy a PUT option if you believe the value of the foreign currency is going to go down
Transfer pricing
- goal is to reduce taxable income when using foreign currency translations
- when not using transfer pricing goal is to show increased revenue and decreased expenses by using restructuring using foreign currency translations
Short-term financing(borrowing)
- rates tend to be lower and generally mature within a year and presume greater liquidity for an organization as it pays of its debt as it becomes due
Advantages: -increased liquidity, rates tend to be lower
Disadvantages: -interest rates may increase and since the org did not lock in a long term rate borrowing future money could be more expensive
-increased credit risk may make making future deals more difficult when could have at one point borrowed more money for a longer period of time
Long-term financing(borrowing)
- liability will mature beyond a year, rates tend to be higher
Advantages: -decreased interest rate risk that interest rates may go up next year, decreased credit risk that the org will have a harder time borrowing in the future
Disadvantages: -decreased profitability since there are increase financing costs as long term rates for interest are more expensive
- decreased liquidity bc it commits the org to a long term amount of debt and they must always have cash on hand to pay off the loans
Working Capital financing
- the spontaneous financing of “current assets”(like inventory) which are funded by current liabilities so that the two become due at the same time
Line of credit
- a loan from a bank that is generally renewable if needed
Debenture vs. Subordinated Debentures
- bonds tend to be secured, debentures do not and are therefore more risky
- subordinated debentures are even riskier since they rank behind senior creditors in the event of issuer liquidation
Income Bonds
- pay interest dependent on the revenue of the company
Junk Bonds
-tend to have the highest risk and also highest return, frequently used to raise capital for acquisitions and leveraged buyouts
Equity financing
- raising capital through issuance of stock
- dividends are variable costs with no maturity for all stocks even preferred stocks( the board decides when to issue dividends)
Preferred stock
- a “hybrid security” like a mixture of debt and equity
- return on the stock is fixed but not legally required, dividends are declared at the discretion of the board
- may require the company to have cumulative dividends “in arrears”
- preferred stock usually do not have voting rights
Debt covenant*
- company is prohibited certain actions like issuing more debt, paying dividends or disposing of certain assets in order to protect the investors
- companies also do this so that they can pay LOWER interest rates on their bonds
Today’s Value
= Present value of future cash flows
Present Value of a Perpetuity
Price = Dividend / Required rate of return
Assumptions:
- must know the dividend and it will NEVER change
- must specify the required rate of return
