Business Principles (13%) Flashcards
What tailors operations to support the organizational strategy?
Management principles
Who must understand business principles in order to serve their organizations effectively?
Security Managers
What is the initial step in defining organizational structure?
Identifying essential business units needed to meet the strategy
3 Ways that management practices are largely expressed
- HR management
- Knowledge management
- Business structure
A specific description of where the business will be in the long-term
A general understanding of the business, its culture, & its future goals
Vision
A concrete specification of products or services, level of quality & other tangible aspects of the business
A communication of business functionality & operational methods
Mission
Objectives of Organizational Strategy
Specific goals the organization wants units to achieve in sales, market share, product differentiation & other relevant metrics
S.M.A.R.T
Specific Measurable Attainable Relevant Time-bound
Organizational Strategy
- Defines why the business exists
- Defines how the business will be profitable/viable
- Requires long-term view (3-5 years)
- Determined by business unit’s top leadership
- Does not focus on day-to-day operations
- Provides general direction
- Is the fundamental template for direction
- Defines & supports long-term goals
- Serves as the foundation for developing business processes that support the overall business structure required to meet the organizational strategy
4 Important themes in Organizational Management
- Lines of authority responsibility & communications should be clear & direct
- Responsibility should come with appropriate authority
- Organizational structure should consider the inter-relationships among functions, roles, and responsibilities
- Communication channels should be structured to allow effective mission accomplishment and interaction
5 Components of Managing
Planning
Organizing
Directing
Coordinating
Controlling
Business principles most important issues
HR requirements knowledge, management, corporate structure
What 4 business fundamentals need to be incorporated into security management practices?
- ROI strategies
- Metrics management
- Data capture & analysis
- Cost-benefit analysis
Why is knowledge of finance critical to security management?
Because many business decisions are based on financial outcomes
Which department generates revenue?
Profit Center
If a function doesn’t result in more revenue than is possible without it, that function should be reduced or eliminated
When should ‘generated income’ be budgeted?
In the same fiscal period as the costs necessary to produce it
A budget allocates money & provides a variance warning mechanism & fiscal uniform
Budgets are usually drawn up on a yearly or other periodic basis
What is the process where only funds for justified expenditures are provided?
Zero-based budgeting
What is the budget development process viewed as?
- Top-down
- Bottom-up
* The best approach is a combination of the 2
Top-down
Performance goals are imposed on lower management, often without their input
Bottom-up
Frontline managers set budgets based on their knowledge of operations
Management’s financial approach to determining expected ROI & managing relevant risks
Financial Strategy
The first step in establishing a financial strategy?
Identifying expected margins
What must an organization do in order to monitor execution & prevent fraud?
Implement a financial strategy & oversee with appropriate controls
GAAP
Generally Accepted Accounting Principles
What standard do many countries use and is established & maintained by the International Accounting Standards Board?
International Financial Reporting Standards (IFRS)
2 Things that financial decisions are based on
- Past performance
- Projected future performance
The basis of financial management is?
Understanding the accounting principles used in financial reports
3 Standard financial reports
- Income statement
- Balance sheet
- Statement of cash flows
Which financial report reflects revenue, expenses, & the difference between them (net income)?
Income statement Also indicates profitability but not overall financial health - the balance sheet aids in that assessment
Categories of Expenses
- Cost of goods sold
- Sales & marketing
- Administration (operating) costs
- Interest
- Taxes
EBITDA
Earnings Before Interest Taxes Depreciation Amortization
Summarizes an organization’s investing and financing and provides insight into the asset & liability mix & how it relates to shareholder equity
Balance Sheet
Liabilities (L) + Shareholder Equity (SE) =
Assets
Anything a company owns or has title to that may provide a future economic benefit
Assets
An organization’s financial commitments
Liabilities
Amount of ownership allocated to shareholders derived from retained earnings, net income, & dividend payout
Shareholder Equity
The amount of net income reinvested in an organization
Retained Earnings
Provides insight into how cash inflows and outflows affect an organization
Cashflow Statement
Amount of cash generated/consumed by operations based on net income and changes in liabilities
Net Operating Cash Flow
Amount of cash generated/consumed by investing or selling/acquiring buildings or property
Net Investing Cash Flows
Cash generated from financing
Financial Cash Flow
Amounts the organization owes
Accounts Payable
Amount of interest payable on loans
I
Interest Payable
Amounts owed for leases
Leases
Amounts of principal paid
Current Long-term Debt
Amounts owed on a loan or equity financing
Long-term Debt
Assets & liabilities that can be converted quickly
Current Accounts
Analysis of profit margins, returns, and earnings
Profitability Ratio
Revenue (R) - Cost of goods sold (CGS) - general & Admin costs (GAC) / Revenue (R) =
Gross Profit Margin
Measures profit-based strictly on sales & east of goods sold; provides insight into the efficiency of manufacturing a product
Gross Profit Margin
EBITDA / Revenue =
Operating Margin
Demonstrates the company’s overall operating efficiency in producing & selling a product
Operating Margin
Net income / Revenue =
Net Profit Margin
Measures net profit after all expenses included
Net Profit Margin
Net income / total assets =
Return on Assets (ROA)
Demonstrates the organization’s ability to generate income based on its assets, independent of any financing it measures how well a company makes a profit on assets it already owns
Return on Assets (ROA)
Net income / Shareholder equity =
Return on Investment (ROI)
Indicates how well a company uses financial assets to generate income: measures a company’s effectiveness of using loans to generate a profit
Return on Investment (ROI)
Net income / Total shares =
Earnings Per Share (EPS)
Represents how much income (or less) is generated per share of the organization
Earnings Per Share (EPS)
P/E / EPS =
Price to Earnings
Relates a company’s share price to its EPS & is useful in determining whether an organization is fairly valued. It can also be used to value private shares if an investor is thinking of purchasing an interest in a private organization
Price to Earnings
The general benchwork for publicly traded P/E values is around
17
Borrowing capital to purchase assets that can increase revenue
Leveraging
Focus on the ability to cover expenses & operating costs in the near and long-term
Risk Ratios
Examines the company’s ability to cover short-term obligations
Current Ratio
If the current ratio is greater than 1 the company has the ability to cover all its current liabilities with its current assets
(Cash + securities + A/R) / current liabilities =
Quick Ratio
Measures the ability to cover current liabilities with current assets, also known as the acid test
Quick Ratio
Provides a more accurate picture of an organization’s ability to cover bills for the current reporting period
Total liabilities / shareholder equity =
Debt-to-equity Ratio
Provides a long-term perspective in understanding a company’s financial health by analyzing how a company funds its growth & operations
Debt-to-equity Ratio
Ratios above 1 demonstrate a company is highly leveraged and is financing itself with outside loans & funding
Robust growth or recession
Macroeconomic Environment
(AL + R) / CSP = AL - Avoided loss R - Recoveries made CSP - Loss of security program including personnel administrative & capital
ROI
A standard profitability ratio that measures how much net income is earned for each dollar invested
ROI Also called Return on Equity (ROE)
Employers create an atmosphere that fosters honesty or dishonesty by the way they conduct business
Business principles & executive behavior are more influential on ethical behavior than individual conscience
5 things that employee ethics are most often determined by
- Organizational climate
- Role of “significant others” such as executives superiors & peers
- Availability of resources
- Corporate culture regarding social linkage & corporate governance
- Intellectual underpinnings of the business system
Instilling a reaffirming ethics as a core organizational value is a process, not a one-time event
An ethics program provides the guidance & structure for compliance
The code of ethics program may be separate or combined
Three questions comprise the test for ethical conduct
- Is it legal?
- Is it balanced?
- How will it make me feel about myself?
Explains or describes ethical events
Descriptive ethics
Examines ethical concepts to achieve a deeper understanding of meaning and justification
Analytical Ethics
Most relevant to business actively applies ethical concepts in specific situations
Applied Ethics
What the 5 core foundational values of business ethics
- Respect
- Honesty
- Fairness
- Compassion
- Responsibility
Makes specific judgments about right & wrong and prescribed behaviors as ethical in the context of the activity Makes claims about what should be done, and what may not be done
Applied Ethics
On what 3 levels are business ethics applied?
- Individual employee
- The organization
- Society
3 key reasons business people make unethical choices?
- Convenience
- Winning
- Relativism
What are two aspects of ethics?
- Ability to discern right from wrong Commitment to do what is right, good & proper
- A statement of values (aka mission statement) is the cornerstone of the ethics program
* A statement of values (aka mission statement) is the cornerstone of the ethics program
The original ASIS code of ethics was focused on security practitioners dedicated to the national defense
Later broadened to include detailed examples of the behaviors that constitute ethical conduct
Currently combines a statement of ethics with a code of conduct and is “normative” (stating what is expected)
Staffing
Internal recommendations are the best way to recruit
What should the interviewer examine during the interviewing process
- Candidate’s objective capabilities
- Candidate’s subjective fit with the team (sometimes more important)
Who is the job requirements analysis made by
the hiring manager and by other team members & organizational leaders
What does a job requirement’s analysis produce?
Requirements narrow enough to be accurate but broad enough to include many good candidates
* Staffing decisions are measured against a detailed job requirements analysis
What 2 things does a job requirements analysis address?
- Direct requirements the candidate must meet to function in the position
- Indirect requirements which are less specific
Direct requirements the candidate must meet to function in the position
- Certifications
- Education level
- Years of experience
- Previous job responsibilities
- Knowledge of computer applications
Indirect requirements which are less specific
- Leadership ability
- Ability to multi-task
- Organizational skills
- Communication skills
What are 4 sets of mental preferences?
- “sensing” or “intuition” perception
- Thinking” or “feeling” judgment
- “Extroversion” or “introversion”
- “sensing” or “intuition” life management orientation
What does not provide certain answers - just possible strengths & weaknesses?
Personality Inventory
Big 5 Model of Personality
- Surgency
- Agreeableness
- Adjustment
- Conscientiousness
- Openness to experience
What type of personality better adapts to monotonous tasks?
Introverted personality
3 Criteria for a performance appraisal
- Task performance
- Overall behavior on the job
- Positive & negative traits that relate to the officer’s performance
Minimum frequency for performance appraisals?
- Formal performance appraisals - annual
- Informal performance appraisals - biannual
Behavioral science is important in assets protection for three key reasons
- Many security risks are the result of human threats & behavioral science can yield insights into human threat sources
- Security management requires effective interaction with other people especially in communication skills
- An effective security manager must have the trust of staff & the ability to delegate to them the responsibility & authority to act within their functional area
Peter Drucker
Management should be guided by 2 principles
- Who’s the customer
- Quality: conformance to customer requirements
Douglas McGregor
Theory X: workers are lazy, lack creative ambition, must be goaded, require constant supervision, are only motivated by fear personified in the hard-driving authoritarian manager
Douglas McGregor
Theory Y: Workers are naturally motivated, want to work hard, are thoughtful, eager to perform well, are willing to be guided & taught
Theory Y
Workers are capable of assuming greater response & seek it in the proper work environment
Workers are able to exercise self-direction motivation, ingenuity & creativity
Represents involvement contribution & commitment by all workers
Theory Y
Programs based on Theory Y are more successful than those based on Theory X
Chris Argyris’ Behavioral Theory
- Traditional organizational principles structures & procedures are incompatible with the mental health of employees
- Task specialization, the chain of command, unity of direction, tight budgets & controls are calculated to make subordinate passive & submissive with the direction of their own work
- Workers became apathetic, they engage in defense mechanisms, or just fight the system
Fredrick Herzberg
Motivation-Hygiene Theory: two-dimensional model involving hygiene (maintenance factors) & satisfiers (motivators)
Abraham Maslow
Hierarchy of Needs: behavior is driven by basic needs at different levels
Warren Bennis
Behavioral Theory: Attempts to avoid human relations vs. scientific management & employee satisfaction vs. organizational requirements
Code of Hammurabi
- 6th King of the Amorite Dynasty of Old Baylon
- Best known for its retributive provisions “eye for an eye”
- Regulated commerce & required craftsmen to teach their skills to a younger person
- This system of apprenticeships ensured that adequate numbers of craftsmen were maintained
Education + Training + Guided Experience =
Development
Private police in the US: findings & recommendations for the US Department of Justice, 1972
- “Rand Report”
- Contended security officers, were uneducated, poorly paid, aging males
- Based on a very small research sample
Private Security & Police in America 1985
- “Hallcrest Report 1”
- Found inadequate employee selection & training standards
The number or proportion of employees exposed to training?
Learning Contact
Designing & developing a security training program is a 3-pronged group effort
- Protection managers must guide & initiate the process & play a role in instruction
- One or more staff members should be developed as designated training directors, coordinator or officers
- Some external resource will almost certainly be needed
What is the acquisition of the knowledge, skills & abilities directly related to job performance
Training
What is the foundation of training?
Education
What must be guided or directed by education & training
Experience
The determination of how a company trains its security department is based on how it views the protection of:
- It’s people
- It’s property
- It’s information assets
What is essential to a professional protection force concerned with terrorism, espionage, workplace safety, and maintaining positive relations with the various publics that an organization deals with including customers, employees, vendors, police, emergency medical personnel, HAZMAT teams, etc…
Affective Learning
What is often caused by both training & supervisory breakdowns?
Performance Deficiencies
Mandatory training should be avoided
- Contradicts Malcolm Knowles’ “principles of andragogy” Adults are self-directed & will take responsibility for their own learning needs
- Undermines credibility of the entire training program in eyes of the recipient
- Management may lose credibility
- Training requirements as minimum standards do not ensure professional competence
Frog Syndrome
Managers decide to train all subordinates personally, jump into it & then when workload hits home, jump back out, leaving it uncompleted
Management’s failure to train security officers can result in complaints from labor unions of plaintiffs in a legal claim of negligence
- Training should be documented
- Rosters of attendees & class activities should be kept
- Tests should be signed by instructors & employees
- Centralized databases should be maintained
- OJT checklists & employee elevation should document training given
An instructor purports to be certified on a topic but has no background to teach a class
Certified Trainer Syndrome
3 Learning Domains
- Cognitive (knowledge-based)
- Affective (attitudinal or perceptual)
- Psychomotor (physical skills)
HR Training Methods
- Lectures
- Case study
- Job Aids
- Mentors
- In the security environment, mentoring works best
A formal undertaking between two parties - the insurer & the insured - under which the insurer agrees to indemnify or compensate the insured for specified losses from specified reasons
Insurance
Insurance is no replacement for security
Compared to insurance, protection techniques like risk reduction & risk spreading are preferable for several reasons
Insurance is often divided into two general categories
- Property: Covers damage & loss of physical assets
- Liability: Covers employee risks, losses affecting the public, etc…
The cause of a possible loss
Perils.
Exclusions
- Provisions that suspend coverage under certain conditions
- Vacancy clause: suspends coverage while a property stands vacant beyond a specified period
- In fidelity coverage, it is customary to exclude any person the insured knows to have committed any fraud or dishonest act in the insured’s service or otherwise
A frequent technique to extend coverage to another is to have the other designated as a named insured int he policy
- named insureds: however, are subject to the same policy conditions as the original insured
- In some cases, this may not achieve the security objective of the additional named insured
Indemnification & Liability Insurance
It is possible to eliminate exclusions by adding endorsements - sometimes called “riders”
Generally, losses may be classified as:
- Direct loss, such as the physical loss of or damage to the object concerned
- Loss of use, such as reduction of net income, due to loss of use of the damaged or destroyed object
- Extra - expense losses, such as the costs of defending a liability suit & paying a judgment
A loss that occurred during the period of the policy would be covered, no matter when the occurrence was discovered, even after the policy expired
Occurrence Loss
Tail cover:
Retrospective coverage of events that occurred during a prior policy period but are raised during the tail period
Surety Bonds
Guarantee the credit or performance of a contract
Fidelity Bonds
Protect against employee dishonesty
EPLI
Employees Practices Liability Insurance
EPLI covers defense costs, judgments, and settlements but may not cover punitive damages, fines or penalties
Smaller firms and organizations may form risk retention groups (RRG)
Risk Retention Groups - overall, the RRG is a viable alternative to high premiums & the difficulty of obtaining special coverage
May be based on either the tort theory of negligence or the contract theory of breach of warranty
Product Liability
Since it’s easier to prove breach of warranty, most claims are based on a breach of an express warranty or an implied warranty
Business interruption & extra expense endorsements cover what?
Other expenses incurred to keep a product on the market regardless of cost or for a bank to function regardless of expense
