chapter 3 Flashcards
What is strategic planning in insurance businesses?
A: Strategic planning is the process of setting long-term business goals (3-10 years) and developing strategies and policies to achieve them while considering competition.
What are the key areas covered in corporate strategic planning?
Setting objectives
Defining tasks needed to achieve them
Organisational structure
Management responsibilities
Budgeting and financial planning
Sales targets and resource allocation
Contingency planning
What is the difference between strategy and business (operational) plans?
A: Strategy provides long-term direction and methods, while business plans focus on short- and medium-term execution to achieve strategic goals.
What are SMART objectives in business planning?
Specific (clear and precise)
Measurable (quantifiable)
Achievable (realistic)
Relevant (aligned with goals)
Time-defined (with deadlines)
What is the purpose of control systems in business planning?
A: Control systems monitor progress against objectives, ensuring business activities align with strategic goals and identifying deviations early.
What are examples of measurable factors in business control?
Sales revenue
Expenses and overheads
Staff turnover
Productivity and efficiency
Market performance
Profitability
Customer satisfaction
What is management accounting?
Management accounting provides financial data to track business performance, analyse costs, and predict financial trends throughout the year.
What are critical success factors (CSFs)?
CSFs are key areas necessary for achieving business success, often identified through SWOT analysis (Strengths, Weaknesses, Opportunities, Threats).
What are key risk indicators (KRIs)?
A: KRIs track potential risks, such as IT downtime, fraud, complaints, property loss, or employee injuries, helping management address threats proactively.
What is the balanced scorecard (BSC)?
A: A strategic planning tool that evaluates an organisation’s performance from four perspectives:
Financial (e.g., revenue growth)
Customer (e.g., satisfaction levels)
Internal Processes (e.g., operational efficiency)
Learning & Growth (e.g., staff development)
What is benchmarking?
A process that allows a company to compare its progress with a comprehensive standard, such as industry competitors or national averages.
What are the three types of benchmarking?
A:
Internal – Compares divisions/departments within the same company.
External – Compares company performance with competitors.
Functional – Assesses functions/processes across different organizations.
What factors ensure successful benchmarking?
A:
Accurate and comprehensive industry data.
Benchmarks based on industry best practices.
Flexibility to adapt benchmarks as needed.
Alignment with corporate strategies.
Strong internal audit processes.
What are the disadvantages of MBO?
Employees may view it as extra work or a management ploy.
Can require excessive paperwork and meetings.
Focuses more on short-term goals.
Difficult to quantify subjective goals.
Requires skilled managers for coaching/counseling.
Risk of result distortion to meet objectives.
What is forecasting in budgeting?
A: The process of predicting business activity, revenue, and income to create a budget plan.
What is reforecasting?
A: The revision of budget estimates based on actual performance and environmental changes.
Fixed Budget
Definition: A budget that remains unchanged despite actual performance.
Key Points:
Compares projected vs. actual figures at the end of the period.
Unrealistic due to internal/external factors affecting performance.
Flexible Budget
Definition: Adjusts based on actual activity levels.
Key Points:
Example: Adjusting salary costs if they rise unexpectedly.
Based on cost behavior (fixed, variable, semi-variable costs).
Zero-Based Budgeting (ZBB)
Definition: Requires managers to justify expenses from zero.
Key Points:
No automatic carryover from previous budgets.
Formal approval process required for spending.
Used in self-contained areas (e.g., research, legal services).
What is variance analysis?
A: The process of comparing actual performance to budgeted figures to identify discrepancies.
What are the two types of variance?
A:
Favourable variance: When actual performance exceeds the budgeted target.
Unfavourable variance: When actual performance falls short of the budgeted target.
What are common causes of variances?
A:
Inadequate pricing – Premiums may be lower than expected.
Higher expenses than planned – Unexpected cost increases like utilities or training.
Random events – IT failures or other unforeseen issues.
Operating efficiency – Performance lower than anticipated (e.g., lower call handling rates).
What is a Management Information System (MIS)?
A: A system that collects, processes, and organizes data to support business decision-making.
What is knowledge management?
A: The collection and redistribution of an organisation’s collective skills and experience for overall benefit.
What are the ‘five Cs’ of decision-making suggested by the Industrial Society?
Consider – Evaluate the situation.
Consult – Gather input from others.
Crunch – Analyse data and options.
Communicate – Share the decision.
Check – Review the outcomes.
What are examples of typical management reports?
A: Sales figures, staff resources, competitor activity, and financial data.
What are the two main approaches to knowledge management in financial services?
Codification strategy – Storing knowledge in databases for easy access.
Personalisation strategy – Sharing knowledge through direct interactions.
