Chapter 3

Question 1

What is meant by strategic planning?

Answer 1

Strategic planning is a process whereby the future direction of the business entity is decided upon and a statement (the plan) is developed detailing long-term goals together with a definition of the strategies and policies, which will ensure achievement of those goals. The goals focus primarily on creating competitive advantage for and adding value to the business.

Question 2

How long are strategic goals planned?

Answer 2

Such goals typically cover periods of between three and ten years, depending upon the
nature of the industry. Life and pensions businesses require long-term planning, as well as
industries such as oil exploration and production.

Question 3

What is a tactial plan?

Answer 3

The tactical plan will include medium-term policies (often one to three years) designed to implement some of the key elements of the strategy; for example, developing new insurance products, recruitment or downsizing of staff or investing in services.

Question 4

What is an operational plan?

Answer 4

The next level of plan is the operational plan which covers routine day-to-day matters (usually focusing on the current year) and is concerned with ensuring that the strategic goals and objectives are met, for example, in meeting service levels, cost and revenue targets.

Question 5

How should a business plan be implemented?

Answer 5

• The objectives of the plan (which must be SMART – specific, measurable, achievable, relevant and time defined).
• The strategy for achieving those objectives.
• The specific activities which will be undertaken.
• Allocation of specific responsibility for carrying out each activity.
• The dates for starting and finishing each activity (i.e. ‘time defined’).
• The specific estimated resource requirement for the period of implementation.
• The expected cost of the activities.
• The expected results (sometimes called milestones) on completion of the activity.

Question 6

What factors can be measured?

Answer 6

• Sales revenue
• Overheads and expenses
• Turnover of staff and cost implications
• Productivity and efficiency
• Market performance against competition
• Profitability
• Customer satisfaction

Question 7

What is management accounting?

Answer 7

The practice of management accounting is based on the concept that information should be made available to managers to enable them to track progress of the financial performance of
the business throughout the financial year.

Question 8

What is a critical success factor?

Answer 8

In defining its objectives, an organisation may have identified certain factors that are critical to realising its mission either by exploiting opportunities or by fending off the dangers posed by external threats and internal weaknesses. These factors are known as critical success factors (CSFs) and are usually derived from a ‘SWOT’ analysis (strengths, weaknesses, opportunities and threats).

Question 9

What is a key performance indicator?

Answer 9

Key performance indicators (KPIs) are expressions that mirror the measurable objectives

Question 10

How can KPI’s be seperated?

Answer 10

• Results
• Effort

Question 11

What does a result orientated performance measure look like?

Answer 11

• Sales volumes
• Rates of return
• market share
• Asset growth

Question 12

What does effort orientated performance measure look like?

Answer 12

• Number of potential customers contacted.
• Number of complaints actioned within a planned time frame.
• Actions taken to improve staff relations, such as staff surveys and their
  response rates.
• Active pursuing of debtors.

Question 13

What is a key risk indicator?

Answer 13

A firm will have carried out an exercise to gather information on the risks inherent in its business and the type and effectiveness of controls in place. At regular intervals, such as
monthly board meetings, managers and directors review any changes to the status of risks
and controls. These could cover:
* IT downtime.
* Examples of fraud (internal and external).
* Complaints.
* Property loss or damage.
* Employee injury or illness.

Question 14

What is a balance scorecard?

Answer 14

Briefly summarised, balanced scorecards identify the knowledge, skills and systems (learning and growth) that employees will need in order to innovate and build the right
strategic capabilities and efficiencies (the internal processes) that deliver specific value to the marketplace (the customers), which will eventually lead to higher shareholder value (the
financials).

Question 15

What is benchmarking?

Answer 15

Benchmarking is a process that allows a company to compare its own progress with that of a comprehensive standard.

Question 16

What are the three types of benchmarking?

Answer 16

• Internal
• External
• Functional

Question 17

How do you ensure benchmarking is accurate?

Answer 17

• Accurate information
• Based on base practice
• Flexible and easily amended
• Relate to corporate strategy and plans
• Sound internal audit processes in place

Question 18

What is management by objectives?

Answer 18

MBO is a process of defining objectives within an organisation so that both management and employees agree to the objectives and understand what they need to do in order to achieve
them.

Question 19

What are the advantages of MBO?

Answer 19

• Motivation
• Better communication and coordination
• Clarity
• Linked to objectives
• A common goal

Question 20

What are the disadvantages of MBO?

Answer 20

• Perceived management ploy
• Considerable paperwork and meetings
• Short-term goals
• Does not leave any ground for subjective goals
• Sufficiently skilled in interpersonal interaction
• Prone to distort results

Question 21

What is forecasting?

Answer 21

The method by which budgets are put together by directors and senior managers

Question 22

What does forecasting include?

Answer 22

• levels and types of business that will be transacted;
• the turnover the business produces; and
• income, such as investment returns.

Question 23

What are the advantages of budgeting?

Answer 23

• Unification of effort between all employees within an organisation
• Proper planning
• Financial awareness
• Basis of comparison

Question 24

How is a successful budgeting plan implemented?

Answer 24

• Step by step approach
• Guidelines from the CEO
• Consultation and preparation
• Review by a budget committee
• Communication
• Monitoring

Question 25

What is ‘top-down’ budgeting?

Answer 25

The owners or directors
decide on the individual plans for each department and function and these plans are given to the individual managers to implement. While this approach is easy to operate it may become remote from the realities of the marketplace.

Question 26

What is ‘bottom up’ budgeting?

Answer 26

The ‘bottom-up’ approach to budget setting is the more common one. Individual department managers construct their own budgets, within set guidelines. These are then passed up to
the managers and directors, who incorporate the individual budgets into the organisation’s master budget.

Question 27

What is the difference between a fixed and a flexible budget?

Answer 27

• A fixed budget is not changed once it has been established, regardless of any alterations in the organisation’s performance in reality.
• A flexible budget is changed in accordance with the organisation’s real activity levels over time.

Question 28

What is zero-based budgeting?

Answer 28

The ZBB method relies on managers to justify their expenditure from a fresh standpoint. Rather than looking at the amount of expenditure, which was budgeted for an item in the
previous budget period, ZBB requires managers to start a position of having nothing in their budget for the item in question. Any amount that the manager subsequently decides they need for that item must be justified and this justification will have to go through a formal challenge process.

Question 29

What is a rolling budget?

Answer 29

Rolling budgets are budgets that constantly look forward.

Question 30

What is variance analysis?

Answer 30

A variance is the difference between actual and budgeted performance and must be expected unless the budget equates exactly to what has been budgeted, which is in reality unlikely due to factors both internal and external to the business.

Question 31

What causes varience?

Answer 31

• Inadequate pricing
• Higher expenses than planned
• Random events
• Operating efficiency

Question 32

How can variance help to improve budgeting?

Answer 32

Variance analysis will show the differences between the budget and the actual expense or income. Once the reasons for the difference (or variance) are understood, this will help inform the management when planning future budgets and improve the accuracy of the budget.

Question 33

What are the four main steps in decision making?

Answer 33

• Understanding why
• Prior consideration and discussion of options
• Taking the most appropriate action
• Review

Question 34

What types of information do managers need?

Answer 34

• Strategic information - Senior management
• Tactical information - Middle management
• Operational information - Front line managers

Question 35

What is a management information system?

Answer 35

A management information system, or MIS, collects data from many different sources and
then process is and organises the data to help businesses make decisions.