BEC Lecture 6 Flashcards
List the five business process management activities.
- Design
- Modeling
- Execution
- Monitoring
- Optimization
List the elements of PDCA.
- Plan
- Do
- Check
- Act
List the benefits of process management.
- Efficiency
- Effectiveness
- Agility
Define outsourcing.
Outsourcing is generally defined as the contracting of services to external providers. Examples include a payroll service of even a call center to provide support or back office services for a fee. A contractual relationship exists between the business and its outsource provider.
Describe business process reengineering (BPR) and explain how it is different from business process management (BPM).
BPR represents techniques used by an organization to help rethink how work should be done to significantly improve customer satisfaction and service, reduce operating costs, and enhance competitiveness.
BPR seeks radical change, while BPM seeks incremental change.
Define JIT and the underlying concept of JIT.
Just-in-time (JIT) management anticipates achievement of efficiency by scheduling the deployment of resources just in time to meet customer or production requirements.
The underlying concept of JIT is that inventory does not add value. The maintenance of inventory levels purely produces wasteful costs. Reducing inventory by ensuring that resources arrive only if they are needed (just in time for use) is the idea behind JIT.
Differentiate between conformance costs and nonconformance costs as it pertains to achieving quality standards.
The costs associated with maintaining existing quality standards are termed conformance costs and include both prevention and appraisal costs.
The costs associated with correcting nonconformance with existing quality standards are called nonconformance costs, and include both internal failure and external failure costs.
Define TQM.
Total quality management (TQM) represents an organization’s commitment to a customer-focused performance that emphasizes both quality and continuous improvement.
Define Kaizen.
Kaizen is a term for continuous improvement efforts that improve the efficiency and effectiveness of organizations through greater operational control. Kaizen occurs during the manufacturing stage.
Define demand flow.
Demand flow manages resources using customer demand as the basis for resource allocation. Demand flow contracts with resource allocations based on sales forecasts or master scheduling.
Define theory of constraints.
Theory of constraints anticipates that organizations are impeded from achieving objectives by the existence of one or more constraints. The organization or project must be consistently operated in a matter that either works around or leverages the constraint.
What are the five steps in the theory of constraints?
- Identification of the constraint.
- Exploitation of the constraint.
- Subordinate everything else to the above decisions.
- Elevate the constraint.
- Return to the first step.
What is Six Sigma?
Six Sigma anticipates the use of rigorous metrics in the evaluation of goal achievement. Six Sigma expands on the Plan-Do-Check-Act model of process management and logically anticipates methodologies to improve current processes and develop new processes.
In Six Sigma, what is DMAIC?
Existing product and business process improvements (DMAIC):
- Define the problem
- Measure key aspects of current process
- Analyze data
- Improve or optimize current processes
- Control
In Six Sigma, what is DMADV?
New product or business process development (DMADV):
- Define design goals
- Measure CTQ (Critical to Quality issues)
- Analyze design alternatives
- Design optimization
- Verify the design
Define project management.
Project management consists of five major processes carried out by a project manager tasked with balancing the needs and expectations of various stakeholders against the organization’s constraints. The processes include initiating, planning, executing, monitoring and controlling, and closing.
Define project charter.
A project charter is a document that contains a business justification to fulfill the needs and expectations of initial stakeholders by carrying out a statement of work that will achieve the project objectives.
Define the roles of project members.
Project members perform the project tasks, and their roles generally include:
- Carrying out the work and producing the deliverables that have been defined by the project manager.
- Understanding the work that must be completed; planning out the assigned activities in more detail if needed; completing the work within the budget, time, and quality expectations; and proactively communicating the status of their work to the project manager.
Identify the project sponsor and that role.
An individual or group, that is internal or external to the project’s organization, who is responsible for allocating funding as well as resources to the project.
Identify the executive steering committee and its role.
A group of executive level people or external organizations charged with regular oversight of a project and taking responsibility for the business issues associated with a project. Although the steering committee provides direction, it does not manage the project on a daily basis.
What is a scope baseline?
A scope baseline is the formal, written, approved statement of the project scope and work breakdown structure (WBS), outlining both the end product (product scope) and the project scope.
Name the seven quality control (7QC) tools used to solve quality related problems pertaining to project quality management.
- Flowcharts
- Check sheets
- Cause-and-effect diagrams
- Histograms
- Pareto diagrams
- Scatter diagrams
- Control charts
Describe the impact of globalization.
Globalization results in deeper integration of the world’s individual national economies and makes those economies more interdependent.
What is a frequently used statistical measure of globalization?
World trade expressed as a percentage of GDP.
List four primary factors that drive globalization.
- Improvements in transportation
- Technological advancements
- Deregulation of international financial markets
- Organization/operational options for international business
What is meant by shift in economic balance of power?
The ability of the world’s emerging nations to contend with the economies of the industrialized world for power, resources, influence, etc., is a change or shift in the economic balance of power from previous decades where the U.S. dominated as the lone superpower. Although the United States’ absolute strength is not likely to decline, its relative power is expected to decline.
List the motivations for developing international business operations.
-
Competitive Advantage
Creating economic advantage through specializations -
Imperfect Markets
Work around resource or legal barriers to trade -
Product Cycle
Establishment of foreign subsidiaries to more efficiently capitalize on foreign demand for domestic products
What methods are used by multinational firms to conduct international business?
- International trade
- Licensing
- Franchising
- Joint ventures
- Direct foreign investment (purchasing a foreign company or starting up a foreign subsidiary)
- Global sourcing (synchronizing all levels of production, R&D, and marketing on an international basis)
Identify three inherent risks of international business operations.
- Exchange rate fluctuation
- Operating in foreign economies
- Political risk
Identify three categories of exchange rate risks.
- Transaction risk (exposure)
- Economic risk (exposure)
- Translation risk (exposure)
Name the factors influencing exchange rates.
Trade-Related Factors
- Relative inflation rates
- Relative income levels
- Government controls
Financial Factors
- Relative interest rates
- Capital flows
Distinguish between diversifiable and nondiversifiable risk.
DUNS
**Diversifiable Risk** Unsystematic Risk (Nonmarket/firm specific)
**Nondiversifiable Risk** Systematic Risk (Market)
Describe the various types of investment risks.
- Interest rate risk:* Change in the value of a security due to changes in interest rates.
- Market risk:* Fluctuations in the value of a security or firm due to market exposure; this risk is nondiversifiable.
- Credit risk:* Represents the inability to secure financing on favorable terms due to the firm’s poor credit history/ratings.
- Default risk:* The risk that the debtor will not pay interest or principal on a timely basis.
- Liquidity risk:* The risk that a security cannot be sold on a timely basis or that a sale will require the need to make material price concessions.
Compare and contrast transaction exposure, economic exposure, and transaction exposure.
- Transaction exposure* is the potential that an entity could experience economic loss or gain upon settlement of individual transactions as a result of changes in exchange rates.
- Economic exposure* is the potential that the present value of an entity’s cash flows could increase or decrease due to changes in exchange rates.
- Translation exposure* is the risk that an entity’s assets, liabilities, equity, or income will change as a result of changes in exchange rates.
How is a futures hedge transaction used to mitigate exchange rate risk on accounts payable or accounts receivables applications?
A future hedge contract is used to buy a foreign currency at a specific price and time (when the accounts payable is due) in order to mitigate the risk of a weakening domestic currency.
How does a money market hedge work?
A money market hedge used international money markets to plan to meet future currency requirements by either investing internationally in a manner that matches investment maturities with settlement in foreign payables or borrows against foreign receivables in a manner that matches the maturity of borrowings with the collection of receivables.
Name the currency option hedge used to mitigate transaction exposure to exchange rate risk for payables.
Name the currency option hedge used to mitigate transaction exposure to exchange rate risk for receivables.
Call option: Option to buy foreign currency (for currency hedges) at a pre-negotiated price; mitigates payable exchange rate risk.
Put option: Option to sell a foreign currency (for currency hedges) at a pre-negotiated price; mitigates receivable exchange rate risk.
What is selective hedging and how does it differ from cross-hedging?
- Selective hedging* is a process of reducing the uncertainty of the value of a transaction or position by entering into an offsetting derivative transaction.
- Cross-hedging* involves hedging one derivative instrument’s risk with a different instrument by taking another position in a related derivatives contract.
Name the primary objective of transfer pricing between foreign and domestic subsidiaries and their parent companies.
Minimization of taxation.
What are the advantages and disadvantages of short-term financing?
Advantages
- Increased liquidity
- Increased profitability
- Decreased financing costs
Disadvantages
- Increased interest rate risk
- Decreased capital availability
What are the advantages and disadvantages of long-term financing?
Advantages
- Decreased interest rate risk
- Increased capital availability
Disadvantages
- Decreased liquidity
- Decreased profitability
- Increased financing costs
Differentiate between a line of credit and a letter of credit.
A line of credit is a revolving loan with a bank that is for a defined term and renewable prior to or upon expiration.
A letter of credit is a third party guarantee (usually by a bank) of obligations incurred by a company. A letter of credit is a type of external credit enhancement (whereas a line of credit is not).
Compare an operating lease to a capital lease (as it pertains to the leasee).
In an operating lease, the leasee makes rent (expense) payments to a lessor in exchange for the use of an asset for an insignificant portion of its useful life. An operating lease is a form of off-balance sheet financing.
In a capital lease, the lessee essentially acquires the assets from the lessor either in substance or in legal form with the asset and liability recorded on the lessee’s balance sheet.
Define a debenture and a distinguishing characteristic of a subordinated debenture.
A debenture is an unsecured obligation of the issuing company.
A subordinated debenture is a bond issue that is unsecured and ranks behind senior creditors in a bankruptcy or liquidation scenario.
Why do creditors use debt covenants in lending agreements and how could this impact the issuer?
Debt covenants are stipulated in lending agreements to protect the creditors’ interests by limiting or prohibiting certain actions of the debtors that may be harmful to the creditors’ interests (i.e., issuing more debt).
Debt convenants are disadvantageous to the issuer (the debtor) as they may restrict certain management activities (i.e., selling assets).
What is the primary assumption of the Gordon growth dividend discount model and how it is calculated?
The primary assumption of the Gordon growth DDM is that a stock will pay future dividends that grow at a constant rate through perpetuity.
Pt = D(t+1) / (R - G)
Where:
- Pt = Current price (price at point “t”)
- D(t+1) = Dividend one year after period “t”
- R = Required return
- G = (Sustainable) growth rate
Explain how price multiples are used in valuation and list four price multiple used for stock valuation.
A price multiple represents a ratio of a stock’s market price to another measure of fundamental value on a per share basis. Investors use price multiples to determine the intrinsic value of stock and ultimately to decide whether the stock is undervalued, fairly values, or undervalued. Commonly used price multiples include:
- Price-to-earnings (P/E) ratio
- Price-to-sales ratio
- Price-to-cash flow ratio
- Price-to-book ratio
Explain how discounted cash flow analysis is used in valuation and list several DCF absolute models used.
Discounted cash flow analysis attempts to determine the intrinsic (true) value of a stock by determining the present value of its expected future cash flows. Once the DCF stock price is determined, it is compared to the stock’s market value to determine if it is undervalued, fairly valued, or overvalued. Absolute DCF models used for valuation include:
- Dividend discount model (DDM)
- Free cash flow to the firm (FCFF)
- Free cash flow to equity (FCFE)
- Redisual Income (RI)
List the behavioral issues that potentially distort decisions.
- Assuming stereotyped characterizations are accurate
- Adjusting from presumed baselines
- Using intuition rather than analysis
- Excessive optimism
- Confirmations bias or using only data that supports conclusions
- Overconfidence
- Illusion of control
What decision context or environment is considered the most distracting?
Losses are considered the most distracting backdrop for decisions (far more distracting than gains).
What is the implication of an “aversion to a sure loss”?
A manager’s fear of accepting a known or guaranteed loss may actually increase as projects are continued and losses are sustained longer than appropriate in hopes that the project will become profitable.
How does the International Professional Practices Framework define Internal Auditing?
- Internal auditing is an independent and objective assurance and consulting activity designed to add value and improve an organization’s operations.
- Internal auditing adds value and helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of the following:
- Risk management
- Control
- Governance processes
Describe the attributes standards of the International Standards for the Practice of Internal Auditing.
Attribute standards are general standards regarding engagement definition, auditor independence and objectivity, auditor proficiency and professional care, and quality assurance.
Describe the performance standards of the International Standards for the Practice of Internal Auditing.
Performance standards are field work standards that address planning and supervision of the engagement, defining engagement scope, and documenting work in a manner that supports conclusions.
Describe the implementation standards of the International Standards for the Practice of Internal Auditing.
Implementation standards are embedded within the attribute and reporting standards to address the requirements of implementing both assurance and consulting activities.
Identify and describe the four elements of the Code of Ethics adopted by the International Standards for the Practice of Internal Auditing
-
Integrity
Internal auditors are to perform work with honesty, diligence, and responsibility, observing both law and organizational objectives. -
Objectivity
Internal auditors exhibit professional objectivity in gathering, evaluating, and communicating information and should not participate in relationships that represent conflicts of interest. -
Confidentiality
Internal auditors do not disclose information without appropriate authority or use information for personal gain. -
Competency
Internal auditors apply the knowledge, skills, and experience needed in the performance of internal auditing services.
Attribute Standards are defined by what four major headings?
- Purpose, Authority and Responsbility
- Independence and Objectivity
- Proficiency and Due Professional Care
- Quality Assurance and Improvement Program
Performance Standards are defined by what seven major headings?
- Managing the Internal Audit Activity
- Nature of Work
- Engagement Planning
- Performing the Engagement
- Communicating Results
- Monitoring Progress
- Management’s Acceptance of Risk
What are the two primary features of managing the internal audit activity?
-
Effective Management
Effective management is characterized by ensuring that activities are contemplated by the internal audit charter and the activities conform to the definition of internal audit, the Standards and the Code of Ethics. -
Added Value
Added value is characterized by objective and relevant assurance and contributions to the effectiveness and efficiency of governance, risk management, and control processes.
What major features of an internal audit engagement must be documented as part of planning?
- Engagement objectives
- Engagement scope
- Engagement resource allocation
- Engagement work program
Communication of the results of an internal audit engagement must generally include what elements?
Communications must include the following:
- Engagement objectives
- Engagement scope
- Conclusions
- Recommendations
- Action plans
List and define the three parties involved in assurance services provided by an internal audit engagement.
-
Auditee
The person or group directly involved with the entity, operation, function, process, system or other subject matter. -
Internal Auditor
The person or group making the assessment. -
User (Sponsor)
The person or group using the assessment.
List and define the two parties involved in consulting services provided by an internal audit engagement.
-
Internal Auditor
The person or group offering the advice. -
User (Sponsor)
The person or group seeking the receiving the advice.
