Chapter 3 - planning and control

Question 1

What is strategy?

Answer 1

longer-term deployment of resources to meet objectives against competition from rival organisations.

Question 2

What is strategic planning?

Answer 2

Set by the board
what and why - where we want to be
long term - 3 to 10 years
generally kept internal but may be shared with the market
Sets vision and direction

Question 3

What is needed to implement a strategic plan?

Answer 3

Operational or business plan to realize short-term and medium-term objectives.

Question 4

What is management accounting?

Answer 4

Enables managers to track the progress of the financial performance of sales levels, expense ratios, staff costs, raw materials costs, property management costs and other operational costs throughout the financial year.

Question 5

What does management accounting show?

Answer 5

The analysis will show recent historical
development and serve as a mechanism for predicting income and costs for the remainder of the financial year.

Question 6

What controls are available to management to enable them to monitor the achievement of business plans?

Answer 6

• management accounting;
• budgeting;
• critical success factors;
• key performance indicators;
• key risk indicators;
• balanced scorecards;
• benchmarking; and
• management by objectives.

Question 7

What are critical success factors used for?

Answer 7

Critical for success in the business - can use SWOT, can be financial or nonfinancial

Question 8

What is a balanced scorecard?

Answer 8

A strategic planning and management system used
to align business activities to the vision statement of an organisation.’

Question 9

What are the four perspectives used in balanced scorecards?

Answer 9

Internal
customer
learning and growth
financial

Question 10

What do balanced score cards identify?

Answer 10

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 11

What is a key risk indicator?

Answer 11

Where information has been gathered on the risks in the
business and the type and effectiveness of controls in place.

Question 12

What is benchmarking?

Answer 12

Benchmarking is a process that allows a company to compare its own progress with that of a comprehensive standard. (examples, company growth against growth of the economy)

Allows measure of performance against other competitors or leading companies.

Question 13

Examples of a key risk indicator?

Answer 13

• IT downtime.
• Examples of fraud (internal and external).
• Complaints.
• Property loss or damage.
• Employee injury or illness.

Question 14

To use balanced scorecards what must an organization know and understand?

Answer 14

• mission statement;
• strategic plan/vision.

Question 15

What are the three types of benchmarking?

Answer 15

• Internal – these compare the performances of divisions and departments within the same organisation.
• External – these contrast the company’s overall performance with competing firms, e.g.
  profitability, rate of return on capital employed, growth, market share.
• Functional – this covers an assessment of the company’s main functions and processes
  and compares them against the same functions and processes in other organisations but not necessarily competitors.

Question 16

What is management by objectives?

Answer 16

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 17

Advantages of MBO?

Answer 17

• Motivation
• Better communication and coordination
• Clarity of goals using the SMART methodology.
• Employees tend to have a higher commitment to objectives
• Managers can ensure that objectives of the employees are linked to the organisation’sobjectives.
• A common goal for the whole organisation

Question 18

Disadvantages of MBO?

Answer 18

• Employees may believe that MBO is another management ploy to ensure subordinates
  work harder and become more dedicated and involved.
• There is the potential for considerable paperwork and/or meetings.
• The emphasis is more on short-term goals.
• It does not leave any ground for subjective goals as these may be difficult to quantify and
  even more difficult to evaluate.
• Managers may not be sufficiently skilled in interpersonal interaction, such as coaching
  and counseling, which is extensively required.
• Managers and employees who are wholly focused on objectives might be prone to distort
  results to achieve their individual short-term goals.

Question 19

What is a budget?

Answer 19

Budgets are statements, in financial terms, of planned performance in the immediate future.

Question 20

What is an important aspect of budgeting?

Answer 20

Is that they highlight any variances between the predicted
and the actual, so enabling managers to control or react in the light of the new circumstances.

Question 21

What is forecasting?

Answer 21

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

Question 22

What is top-down budgeting?

Answer 22

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.

Question 23

What is Bottom-up budgeting?

Answer 23

Individual department managers construct their own budgets.
These are then passed up to the managers and directors, who incorporate the individual budgets into the organisation’s master budget.

Question 24

What is zero-based budgeting?

Answer 24

Relies on managers to justify their expenditure from a fresh standpoint.

Question 25

What is a rolling budget?

Answer 25

Rolling budgets are budgets that constantly look forward. With a conventional twelve-month budget, monthly figures might be produced prior to a future budget period, such as from January to December.

Question 26

What is variance analysis?

Answer 26

A variance is the difference between actual and budgeted performance.

Question 27

What is an unfavorable variance?

Answer 27

is when budgets are not met

Question 28

What is a favorable variance?

Answer 28

is when budgets are exceeded

Question 29

What are the causes of variance?

Answer 29

Inadequate pricing
higher expences than planned.
Random events
Operating efficiency.

Question 30

What are the four main steps in decision-making?

Answer 30

Understanding why a decision must be taken
Prior consideration and discussion of the options
Taking the most appropriate decision
Review

Question 31

What are the 5 c’s of decision-making?

Answer 31

Consider, consult, crunch, communicate and check

Question 32

What are the three levels of information in a business?

Answer 32

Strategic
tactical
operational

Question 33

What are tactical plans

Answer 33

set by senior management
how we will achieve key elements
medium-term 1 to 3 years
feeds of the strategic plan

Question 34

What is an operation plan?

Answer 34

Set at a department level
Day-to-day operations
short term - 1 to 12 months

Question 35

What is knowledge management?

Answer 35

the compilation and redistribution of an organisation’s collective
skills and experience for the benefit of the organisation as a whole

Question 36

What are the two main approaches to managing knowledge?

Answer 36

codification strategy.
personalisation strategy.

Question 37

What is the codification strategy?

Answer 37

knowledge is carefully codified and stored in databases, where it
can be accessed and used easily by appropriate employees.

Question 38

What is personalisation strategy?

Answer 38

technology is used to help people
communicate knowledge to others, rather than to store it

Question 39

How can variance analysis help to improve budgeting?

Answer 39

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 40

Describe three techniques that can be used to monitor progress against a business plan.

Answer 40

• management accounting;
• budgeting;
• critical success factors;
• key performance indicators;
• key risk indicators;
• balanced scorecards;
• benchmarking;
• management by objectives.

Question 41

What are the aims of a budget committee?

Answer 41

• conform to the policies of the master budget;
• show how departmental objectives are going to be achieved;
• recognise any constraints under which the department is working;
• are realistic; and
• reflect the financial responsibilities of the department concerned

Question 42

In management information terms, what is strategic information used for?

Answer 42

Strategic information is used by senior managers to plan the objectives of their
organisation and to assess whether the objectives are being met in practice.

Question 43

Explain the key differences between a project and a change management program.

Answer 43

Distinct from a project, considered to be a finite piece of work, a change program
seeks to implement changes in real-time. It therefore needs planning skills to deliver
the change and importantly handle all stakeholders who are affected by change.

Question 44

Identify and explain the two main approaches to managing knowledge in financial services organisations.

Answer 44

Codification
personalisation