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Business > Business: Strategic Alignment of Resources > Flashcards

Business: Strategic Alignment of Resources Flashcards

1
Q

Budgets

A
  • Planning and measurement tool
  • Anticipates time and disbursement of funds
  • Identifies type and amount of work or results to be produced
  • Provides control and transparency of assets
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2
Q

Incremental budgeting is also known as

A

Line-item budgeting

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3
Q

Incremental budgeting

A
  • Traditional form of budgeting.
  • The prior budget is the basis for the next budget.
  • Prior budget is simply increased (or decreased) by a set percentage.
  • Additional funds must be requested based on need and objectives.
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4
Q

Incremental budgeting advantage

A

Less time consuming

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5
Q

Incremental budgeting disadvantage

A

Does not recognize changes in business circumstances or practices

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6
Q

Zero-based budgeting

A
  • All objectives and operations are given a priority ranking.
  • Each unit or goal is ranked, and then available funds are given in order.
  • All expenditures must be justified for each new period, and budgets start at zero.
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7
Q

Zero-based budgeting disadvantage

A

Time-intensive at first but becomes more efficient with experience

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8
Q

Zero-based budgeting advantage

A

Reduces wasteful spending practices that go unchallenged in traditional budgets

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9
Q

Activity-based budgeting

A
  • Recognizes the interrelationships among the various activities required to create value in an organization.
  • Budget is not based on dividing a set amount of money but how much it costs to perform different enterprise activities.
  • Funding may be allocated based on the strategic significance of the activities.
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10
Q

Benefits of activity-based budgeting

A
  • Gives leaders more control on spending
  • Estimates are more precise
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11
Q

Formula-based budgeting

A

The total amount of a function’s budget is apportioned to departments or activities according to defined percentages.

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12
Q

Capital costs

A
  • One time investments in physical assets (ex: buildings, land, equipment)
  • Budgeted separately from operating costs
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13
Q

HR Budget Includes

A
  • Ongoing operational costs related to HR’s essential services
  • One-time project costs planned to support HR strategy and objectives
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14
Q

First step of HR leaders in process of allocating resources to strategic activities

A
  • Compare previous/current activities and budget allocations to what is needed to support proposed organizational strategy
  • Several years of HR data with trends of expenses is helpful in defining new budget
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15
Q

Business case

A
  • Presentation to management that establishes that a specific problem exists and argues for a proposed solution.
  • Best way to solve problem: time, cost efficiency and probability of success
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16
Q

Forms of business cases

A

Written or oral

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17
Q

Components of business cases

A
  • Statement of need
  • Recommended solution
  • Risks and opportunities
  • Estimated costs
  • Time frame
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18
Q

Business case statement of need

A

The condition or change impelling the function’s action

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19
Q

Business case recommended solution

A
  • Objectives for an ideal solution are designed
  • Proposed action is described in detail to show how to meet the objectives
  • Some cases, alternative actions are described as well and why they are not recommended
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20
Q

Objectives of ideal solution

A

The desirable outcomes of an initiative

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21
Q

Business case risks and opportunities

A
  • Outcomes that could decrease the project’s chance for success,
  • Outcomes that could present new opportunities that would require action
  • Risks of doing nothing at all.
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22
Q

Business case estimated costs and time frame

A
  • The project budget should include all foreseeable elements (labor, equipment, fees, travel, and so on) plus a reserve for the unforeseeable based on the project’s risk.
  • Time frame - keep the project requirements and organization needs
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23
Q

Tips for Creating Effective Business Cases

A
  • Research your proposal carefully
  • Align your proposal with organizational strategy.
  • Get early buy-in from key decision makers and influencers.
  • Put your proposal in writing
  • Include specific metrics to evaluate its effectiveness.
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24
Q

How to research your business proposal carefully

A
  • Gather facts.
  • Investigate alternatives.
  • Consider risks.
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25
Q

How to put business proposal in writing

A
  • Explain the issue and needs.
  • Describe the solution using facts, not emotion.
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26
Q

Key financial statements to evaluation organization’s financial health

A
  • Balance sheet
  • Income statement
  • Cash flow statement
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27
Q

Understanding the financial statements help HR professionals

A
  • Understand the perspectives of internal and external stakeholders
  • Identify opportunities to improve the organization’s financial performance
  • Understand factors that may affect HR strategy
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28
Q

Balance sheet

A
  • Statement of an organization’s financial position at a specific point in time
  • Shows assets, liabilities, and shareholder equity.
  • Only transactions measurable in money are recorded.
    • Transactions without a definite monetary amount are not placed on a balance sheet.
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29
Q

Balance in balance sheet

A

Every financial transaction is an exchange, and both sides of the transaction are entered on the balance sheet to reflect assets, liabilities, or equity.

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30
Q

Asset formula

A

Assets = Liabilities + Equity

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31
Q

Equity formula

A

Equity = Assets – Liabilities

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32
Q

Assets

A
  • Financial, physical, and sometimes intangible properties an organization owns.
  • Can also include accounts receivable
33
Q

Accounts receivable

A

Money an organization’s customers owe the organization.

34
Q

Liabilities

A

Organization’s debts and other financial obligations.

35
Q

Accounts payable

A

Money an organization owes its vendors and suppliers.

36
Q

Equity

A

Amount of owners’ or shareholders’ portion of a busines

37
Q

Stockholder equity

A

Value of all stock held by investors

38
Q

Income statement

A

Revenues, expenses, and profits for a specified period of time, for example, quarterly or annually.

39
Q

Income statement is also known as

A

Profit and loss statement (P&L)

40
Q

Net income formula

A

Net income = Revenues – Expenses

41
Q

Key metrics from income statement

A
  • Gross profit margin
  • Net profit margin
42
Q

Gross profit margin

A

Compares gross profit with sales

43
Q

Gross profit margin formula

A

Gross profit margin = Gross profit ÷ Net sales

44
Q

Net profit margin

A
  • Net income is what a business has after paying interest and taxes
  • Available for reinvestment or distribution to owners and stockholders
45
Q

Net profit margin formula

A

Net profit margin = Net income ÷ Net sales

46
Q

Some expenses are never cash outflows

A

Are only accounting items and some expenses may be paid in cash in this period and partly in the next period

47
Q

Owner withdraws

A
  • Not an operating expense
  • Are a distribution out of net income
48
Q

Cash flow statement

A
  • Statement of an organization’s ability to meet its current and short-term obligations
  • Show
    • Incoming and outgoing cash
    • Cash reserves in operations, investments, and financing
49
Q

Three areas of cash flow statment

A
  • Operations
  • Investing
  • Financing
50
Q

The balance, trends, and relationships in the areas of the cash flow statement

A

Usually interpreted by outside financial experts (banks or investors) as signs of sound or weak management

51
Q

Negative cash flow in operations could indicate

A

Sales are too low and/or cost of production is too high for the organization to stay in business

52
Q

Positive cash flow operations could indicate

A

The ability to repay debt and meet expenses

53
Q

Negative cash flow in investing could show

A

Organization is not continuing to invest in itself to develop new skills or products

54
Q

Cash flow in financing

A

Shows if the organization is relying too much on borrowing

55
Q

Financial ratios

A
  • Compares two values
  • Results is useful measure compared to benchmarks of financial performance
56
Q

Argument against excessive use of financial measures

A

They can overemphasize the importance of short-term results

57
Q

Current ratio

A
  • Liquidity ratio that indicates level of working capital.
  • Creditors prefer a higher current ratio.
58
Q

Debt to asset ratio

A

Leverage ratio reflecting the amount of exposure to risk from debt that an organization has assumed.

59
Q

Debt to asset ratio number greater than 1

A

Organization has more debt than assets

60
Q

Accounts receivable turnover

A

Activity ratio that measures the efficiency of debt collection

61
Q

Debt to equity ratio

A
  • Leverage ratio reflecting how an organization is funding its growth.
  • Varies by industry and strategy type.
62
Q

Accounts receivable turnover rate meaning

A
  • A higher ratio is preferable
  • Ratio that is too high could indicate excessively tight credit policies that could hurt sales.
63
Q

Gross margin

A

Profitability ratio showing the percentage of total sales revenue after incurring the direct costs of producing goods and services sold.

64
Q

Gross margin meaning

A

The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.

65
Q

Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin

A

Profitability ratio often used as measure of management performance.

66
Q

Profit margin

A

Profitability after all expenses have been deducted, expressed as a percentage of revenue (sales).

67
Q

Earnings per share (EPS)

A

Profitability ratio used by equity holders as a standard expression of earnings.

68
Q

Price to earnings (P/E)

A

Market value ratio that indicates market confidence in the organization’s ability to maintain or increase earnings.

69
Q

Current ratio

A
70
Q

Debt to asset ratio formula

A
71
Q

Debt to equity ratio

A
72
Q

Accounts receivable turnover

A
73
Q

Gross margin

A
74
Q

Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin formula

A
75
Q

Profit margin formula

A
76
Q

Return on investment (ROI) fomula

A
77
Q

Earnings per share (EPS) formula

A
78
Q

Price to earnings (P/E) formula

A

Business (3 decks)

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