Chapter 3 Flashcards
Strategy
A proposal for the longer-term deployment of resources to meet objectives against competition from rival organisations
Strategic Planning
A process whereby the future direction of the business entity is agree and a statement is developed detailing long-term goals
Implementation of a Strategic Plan
- setting objectives
- creating organisational structure
- allocating duties
- setting budgets
- planning resource use
Corporate Planning
Key areas include
- setting objectives
- identifying necessary actions
- creating organisational structure
- staff incentives
Business Plans
Should include SMART objectives, strategy for achieving objectives, responsibility allocation, cost estimates and estimated results
Control Systems
Track whether original objectives and expected results are achieved using SMART objectives
Control Models
Include management accounting, budgeting, critical success factors, KPIs and benchmarking
Management Accounting
Involves providing information to managers to track financial performance throughout the year
Critical Success Factors
Factors critical to realising an organisation’s mission
CSFs need to be SMART
Key Performance Indicators
KPIs are quantifiable points that show whether a company is reaching it’s targets and objectives
Key risk Indicators
Metrics used to monitor risks inherent in a business and the effectiveness of controls
Balanced Scorecards
A strategic planning and management system used to align business activities to the vision statement of an organisation
Perspectives of Balanced Scorecards
- Learning and growth
- Internal processes
- Customer perspective
- Financial perspective
Benchmarking
A process that allows a company to compare it’s progress with a comprehensive standard
It includes:
- internal
- external
- functional benchmarking
Management by Objectives (MBO)
A process of defining objectives within an organisation so that both management and employees agree to the objectives
Advantages of MBO
- increased motivation
- better communication
- clarity of goals
- higher commitment to objectives
- alignment of organisational objectives
Disadvantages of MBO
- potential for paperwork
- emphasis on short term goals
- difficulty in quantifying subjective goals
- risk of distorting results to achieve short-term goals
Budget
A budget is a statement of planned performance in the immediate future, typically broken down on a monthly basis
Budgeting in Organisational Control
Budgeting is not only a plan but also a target and tool for managers to exercise organisation control
Variance Analysis
Involves identifying and explaining significant differences between predicted and actual financial outcomes
Forecasting in Budgeting
Forecasting involves predicting levels and types of business, turnover and income
Reforecasting
Adjusts the budget plan based on actual experience or changes in the business environment
Advantages of Budgeting
- unification of effort
- encouraging planning
- increasing financial awareness
- providing a basis for comparison
Budgeting Process
Creating budgets which are then incorporated into the master budget.
Includes steps like:
- issuing guidelines
- consultation
- preparation
- review
- communication
- monitoring
Chief Executive in Budgeting Process
Issues general guidelines for the master budget, including performance commentary, explanations of differences and views on expected changes
Budget Committee Review
Reviews departmental budgets to ensure they conform to master budget policies, show how objectives will be achieved
Top-Down Budgeting
Owners or directors decide on the individual plans for each department and function, which are then given to managers to implement
Bottom-Up Budgeting
Individual department managers construct their own budgets within set guidelines, which are then incorporated into the organisation’s master budget
Fixed vs Flexible Budgets
A fixed budget remains unchanged regardless of actual performance, while a flexible budget adjusts according to the organisation’s real activity levels over time
Zero-Based Budgeting (ZBB)
ZBB requires managers to justify their expenditure from scratch, starting with nothing in their budget for an item
Rolling Budgets
Constantly looks forward by adding a new month at the end of the twelve-month period as each month ends
Variance Analysis
Identifies and explains differences between actual and budgeted performance
Causes of Variance
- inadequate pricing
- higher expenses
- random events
- operation efficiency
Decision Making Main Steps
- Understanding why a decision must be taken
- Prior consideration and discussion of the options
- Taking the most appropriate decision
- Review
Five C’s of Decision Making
- Consider
- Consult
- Commit
- Communicate
- Check
Essential Management Information
- available resources
- level of productivity
- achievement of objectives
- financial data for recruitment
- sales data
- property market information
Strategic Information
Refers to the “what” and “why” the business chooses to do something
Tactical Information
Helps identify “how” to accomplish strategic objectives
Operational Information
Relates to day-to-day operations and is used by front-line managers to ensure specific tasks are planned and carried out properly
Management Information Systems (MIS)
Collects data from various sources, processes, and organises it to help business make decisions
Dissemination of Information
- communicating information clearly
- tailoring communication to recipients
- ensuring confidential information does not pre-empt action
- initially giving information at meetings for open discussion
- informing employees about planned changes that may affect them
Codification Strategy
Involves carefully codifying and storing knowledge in databases, making it easily accessible and usable by appropriate employees
Personalisation Strategy
Involves sharing knowledge through direct person-to-person contracts and structured training programs
Knowledge Management Technology
- online learning platforms
- document management systems
- simulation tools
- learning management systems
Challenged of Knowledge Management Technology
Challenges include control, security and ownership of shared knowledge
Knowledge vs Information Management
Information management organises data
Knowledge management uses that data to make decisions and innovate
Change Management
It’s the process of managing and implementing changes in a business
Drivers of Change
Changes can be caused by competition, cost pressures, new management, growth opportunities, merges and new technology
Change Management Process
It involves planning, handling stakeholders, and moving from the current state to a future vision
