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summer 24 > Finance Chapter 7 > Flashcards

Finance Chapter 7 Flashcards

1
Q

Mission fulfillment

A

the extent to which an organization realizes its mission and moves
closer to its vision.

Is systematic,, cyclical, dynamic and broad-based approach

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2
Q

Mission fulfillment parts:

A
  • formulation
  • operationalizing
  • monitoring
  • execution
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3
Q

strategy

A

the process of carefully
devising and executing plans to achieve particular goals

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4
Q

Governing board

A

frequently the board of directors, managers, or trustees which delegates strategy responsibilities to the executive leadership.

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5
Q

Vision statement is a

A

forward-looking pronouncement that describes what a firm aspires to be and achieve. It is its ultimate purpose, its “why.” forward looking, inspirational and motivational, measurable and actionable

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6
Q

Mission statement

A

a mission is encompasses the company’s “what,” its broad purpose. A firm expresses its mission in a succinct, precise declaration through a mission statement.
Present oriented, stable and long lasting, could evolve over time

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7
Q

Values

A

Organizational values provide a facet within the “how” frameworks that allows all
within a firm to evaluate their decisions and actions, take pride in their institution’s work, and make commitments.
Often include explanations of the individual value components, which can be used as personal forethought and retro- spection tools as well as permission-to-play evaluations.

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8
Q

Strategic initiatives plan

A
  • Encapsulates a handful of high-level strategic initiatives (SI) at a time,
    including substrategies
  • Considers the potential operational and financial impacts of each SI
  • Evaluates SI alignment with the mission, vision, and values
  • Sets measurable, well-defined targets for tactical planning and execution,
    with specific metrics, data-gathering methods, and evaluation techniques
    described within the substrategies
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9
Q

Institutional research

A

An organizational function responsible for collecting, aggre-
gating, and interpreting internal and external data.

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10
Q

Strategic Initiatives: Broad, High level statements

A
  • Set multiyear targets for and describe how a firm progresses from the state
    of its present mission fulfillment to the state of its desired vision
  • Address long-term security, viability, scale, and sustainability issues
  • Inform annual tactical planning and budgeting
  • Fluid over time
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11
Q

SWOT Analysis

A
  • EVALUATES ORGANIZATIONAL STRENGTHS, WEAKNESSES,
    OPPORTUNITIES, AND THREATS
  • BASED ON ENVIRONMENTAL EVALUATIONS
  • Data from various sources of operational, financial, and market
    information
  • ANALYZES STRATEGIC CAPABILITIES AND COMPETITIVE POSITIONING
  • Basis for strategic initiatives
  • STRENGTHS AND WEAKNESSES: TRENDS IN THE INTERNAL
    ENVIRONMENT
  • OPPORTUNITIES AND THREATS: EXTERNAL FORCES AND FACTORS
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12
Q

Human capital

A

The economic value of an employee’s skill set; recognizes that all
employees are not equal.

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13
Q

Organizational alignment refers to

A

the degree employees subscribe to, accept, and model their employer’s mission, vision, and values.

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14
Q

Organizational alignment and outcomes

A
  • Determined through self-reflection, dialoguing, psychometric
    benchmarking, and surveys
  • Include turnover rates, productivity levels, and strength of the internal
    employment referrals
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15
Q

Role Alignment and Outcomes

A
  • Personal job match: balancing of role outcomes with technical expertise,
    natural behavioral drives, and enthusiasm toward performance of duties
  • Evaluate job satisfaction, engagement, and effectiveness
  • Safe environment for continual personal and professional development
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16
Q

DEVELOPMENTAL ALIGNMENT AND OUTCOMES

A
  • Four categories: health and wellness, company environment,
    relationships, and achievement and recognition
  • Measure deliberate development progress
  • Leads to higher levels of employee engagement and satisfaction, stable
    workforces, better business outcomes, greater profitability, better error
    detection, reduction in cost structures, and political maneuvering
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17
Q

Passion skills

A

Convergence of technical expertise and enthusiasm for performing specific duties.

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18
Q

deliberately developmental organizations (DDOs) is a company

A

organized around the idea that “organizations will best prosper when they are more
deeply aligned with people’s strongest motive, which is to grow”

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19
Q

people outcomes

A

Subset of broader organizational strategic outcomes focused on
organizational, role, and developmental alignment of employees.

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20
Q

Talent optimization and people outcomes must be

A
  • integrated into mission effectiveness and strategic initiatives
    plans
  • Position culture as a central business strategy
  • Direct relationship between realizing human potential and
    organizational potential
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21
Q

Strategy operationalizing

A

organization must operationalize or translate into executable tasks
This leads to tactical planning and budgeting

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22
Q

Tactics are the

A

planned activities undertaken to accomplish the stated substrategies.
* Carry target completion deadlines
* Assigned an “owner”
* Provide financial expenditures amount and timing

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23
Q

Tactical maps present

A

the tactics to be performed by units, departments, teams, and individual employees within an organization.
* Link day-to-day work functions to the strategic initiative and mission
effectiveness plans
* Translate findings from environmental evaluations, SWOT analyses,
people outcomes, and strategic initiatives into actionable items (tactics)

24
Q

Budgeting

A
  • Annual financial planning process
  • Runs concurrent with and supports tactical planning
  • Budgets
  • Operating
  • Capital
  • $1,000 or more financial outlay per item (varies from organization to organization)
25
Q

Strategy Execution and Monitoring:
Incentives and Accountabilities
GAINS, PROFIT, SHARING

A
  • Geared toward accomplishing strategic outcomes
  • Based on achievement of individual, unit, department, and firm-wide
    operational, financial, and strategic results
  • Part of employees’ total compensation
  • Implemented to attract, retain, and reward employees, promote cohesion and
    teamwork
  • Must include safeguards to prevent any cheating or gaming
26
Q

Consultants

A

Provides expertise and experience in one or more focus areas.

27
Q

Incentive compensation

A

A variety of approaches for motivating employees; does not
need to be monetary to be effective, as long as perceived to carry meaningful value.

28
Q

NON-FINACIAL INCENTIVES

A
  • Must be perceived to carry meaningful value for each affected individual
  • Organization-wide achievement recognition programs
  • Satisfy employees’ innate esteem needs and contribute to their elevation to self-
    actualizing
  • Could range from daily “values spotlights” to annual award ceremonies
29
Q

DELIBERATELY DEVELOPMENTAL APPROACH

A
  • Ongoing two-way dialogue between the employee and the manger,
    grounded in self-reflection
  • Evaluates organizational, role, and developmental alignment
  • Produces constantly evolving individualized development, or
    “elevation” plans
  • Include personal, educational, and professional development
    components
  • Promote better alignment
30
Q

SELF-GOVERNANCE MODEL

A
  • Grounded in human motivation theory: promotes employee choices,
    driven to address deficiency and growth needs
  • Recognizes that most managers do not have the requisite knowledge
    and skills to be effective in behavioral modification
  • Require separation between technical and behavioral management
31
Q

Monitoring and Close-the-loop Tools: PERSONAL DASHBOARD

A
  • widely used tools for intradepartmental communication and
    alignment monitoring.
  • Visual snapshot of the status of tactics, projects, key performance indicators, and
    development goals
  • Accomplishments
  • Color-coded status indicators
  • Known issues with mitigation plans
  • Developmental opportunities
32
Q

Snapshot Reviews

A
  • an effective approach for keeping the KPI as well as strategic initiatives continually visible throughout the institution and for driving performance to reach goals.
  • Create visibility into the status of key performance indicators and strategic initiatives
  • Drive performance and facilitate cross-functional discussions
33
Q

Tactical Reviews and Progress Reports

A
  • Quarterly status update of tactics execution
  • Offer explanations for any variances to plan
34
Q

internal rate of return (IRR)

A
  • Measures return on investment (ROI)
  • Expressed in percentages
35
Q

Cash inflow is

A

positive amount

36
Q

Cash outflow

A

is a negative amount

37
Q

Present value

A

Adjusted for the timing and risk, the current monetary worth of a
future cash flow or an asset.

38
Q

Net Present Value

A

Present value of predicted future revenues minus present
value of predicted future payments.

39
Q

future value

A

The worth of a cash flow or an investment at a specified point in the
future.

40
Q

opportunity cost of capital,

A

The magnitude of the best-return investment alternative
of the same risk.

41
Q

Capital projects consist of

A

multiple cash flows: initial and subsequent investment outflows, revenues generated or costs avoided as a result of a project, and expenses associated with operating a new venture created by the project.

42
Q

Sunk costs

A

The resources previously expended on a project or investment that should
be disregarded when evaluating the net present value.

43
Q

Free cash flow (FCF)

A
  • FCF = net operating margin after tax + depreciation – incremental
    working capital – capital expenditures
  • FCF is cash that a firm has available to distribute to its debt and equity
    holders
  • Depreciation is a noncash expense
44
Q

WACC (WEIGHTED AVERAGE COST OF CAPITAL)

A
  • Represents opportunity costs for both debt and equity holders and the
    firm’s target debt–equity ratio
45
Q

In a one period case, PV=

A

FV /(1+r)

46
Q

Investment Decisions Based on NPV

A
  • INVEST IF NPV > 0; IF MORE THEN ONE CHOICE, PICK THE HIGHEST NPV
    PROJECT
  • CONSIDERS TIME VALUE OF MONEY (TVM)
  • DEPENDS ONLY ON FORECASTED CASH FLOWS AND THE APPROPRIATE
    DISCOUNT RATE
  • MEASURED IN TODAY’S $$
  • Has an immediate impact on a share price (enterprise value)
  • ALLOWS TO EASILY SELECT MORE VALUABLE PROJECTS AND COMPARE
    DIVISIONS
  • ANY VALUATION METHOD PRODUCING INVESTMENT DECISION RESULTS
    THAT DIFFER FROM NPV IS WRONG
  • Use with caution
47
Q

NPV Considerations/ Forecasting:

A
  • disregard sunk costs
  • cash flow projections and discount rates should be used on the after-tax basis
  • all
    organization-wide financial effects of projects should be estimated and taken into
    account.
  • only incremental, or additional,
    cash-based projections should be considered.
  • existing overhead costs should not be allocated to the new projects.
  • opportunity cost of the project
    must be evaluated. In other words, the question of what the company would be giving
    up by investing its resources in a given project must be answered.
48
Q

3-F Framework for Projects Evaluation: FINANCES /ROI

A
  • Many financial modeling tools exist
  • Need evidence-based pro-forma financial statements and capital expenditures projections
  • NPV and IRR calculations determine ROI
49
Q

3-F Framework for Projects Evaluation: FIT

A
  • Every prospective project and investment should be evaluated for fit with the strategic
    outcomes and broad organizational frameworks
  • Some positive financial return projects may be rejected due to lack of alignment
  • Allows companies to focus scarce resources on living the mission and realizing the vision
50
Q

3-F Framework for Projects Evaluation: Feasibility

A
  • Financial and human resources availability
  • Market viability
  • Opportunity cost
51
Q

Capital Budgeting Process

A
  • LED BY THE CHIEF FINANCIAL OFFICER (CFO)
  • BUDGETS DERIVED FROM STRATEGIC INITIATIVES, SUBSTRATEGIES,
    TACTICS, ENVIRONMENTAL EVALUATIONS, AND SWOT ANALYSES
  • SHOULD BE SUPPORTED BY ALL 3-F ELEMENTS
  • SERVES AS THE BASIS FOR SETTING SOME OF THE KEY
    PERFORMANCE INDICATORS
  • TIE EXPENDITURES TO THE MISSION EFFECTIVENESS AND STRATEGIC
    INITIATIVES PLANS AND TACTICAL MAPS
  • BUDGETS APPROVED BY THE GOVERNING BOARD
52
Q
  1. Evaluate your organization’s mission, vision, and values statements and determine
    how well they match the current state of affairs. How well do they describe what
    your organization is, does, and aspires to be? How is the organization doing in
    aligning with its stated pillars? How well is the organization aware of its individual
    contributors’ organizational alignment to these strategic pillars?
A
53
Q
  1. Based on your organization’s stated mission devise several mission effectiveness
    outcomes (KPIs), and cascade these through your organization down to the
    individual contributors’ roles.
A
54
Q
  1. Develop three people outcomes as well as related substrategies and tactics to
    improve your organization’s focus on alignment. Complete the tactical map
    template. Prepare an argument in support of your outcomes, substrategies, and
    tactics to be presented to the strategy committee.
A
55
Q
  1. Using the data in Tables 7.4 and 7.5, calculate the total year-end bonus amount for a
    nurse manager who earns $100,000 annually, has a 10% bonus target, meets the
    individual financial contributions, and completes their assigned tactics, but fails to
    meet some of the individual and unit operational goals, and works in a hospital that
    has met all of its strategic, operational, and financial goals, achieved 115% of the
    projected EBITDA, and uses the “all-or-nothing” approach to the incentive
    compensation criteria. Assume that the maximum aggregate bonus amount is set
    high enough for all to receive the entire individually calculated bonus amounts.
A
56
Q
  1. Prepare a full 3-F framework for a project of your choosing. Base your assumptions
    on research and trends, and use Excel for financial modeling. Prepare a presentation
    for the board of trustees or group of investors. Good luck and have fun!
A

summer 24 (17 decks)

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