Management Midterm Flashcards
Management
- Art of making people more effective and the science of how to do that
- Involves using resources optimally to achieve a goal
Management: Core Functions
- Vision and planning
- Organizing
- Staffing
- Leading
- Measuring
Core Functions: Vision and Planning
- Management requires a focus on the future and an ability to look beyond what took place yesterday and what is scheduled to take place tomorrow
- There is a need to mitigate risk, waste and opportunity cost
Core Functions: Organizing
-Involves collecting the required human and non-human resources, and organizing them around the plan to achieve a specific goal(s)
Core Functions: Staffing
- Involves maintaining an effective organizational structure through appropriate selection, review and development of human resources within the organizational structure
- Functions
1. Recruitment
2. Training and development
3. Compensation
4. Performance review
Core Functions: Leading
- What happens when the work begins to ensure achievement of stated goals according to the plan that has been established
- Key areas
1. Supervising
2. Motivating
3. Negotiating
4. Resolving conflict
5. Guiding and influencing behaviour in the proper direction
6. Ensuring effective communication
7. Ensuring effective collaboration
Core Functions: Measuring
- Assessing progress/outcomes against the state plan and correcting/modifying where needed
- May also involve calculating impact of undertaking to measure total returns/ensure sustainability
Management: Core Roles
- Interpersonal
- Informational
- Decision-making
Overconfidence Effect
Overestimation of one’s actual performance or over placement of performance relative to others
SMART Criteria
Setting a Goal
Specific Measurable Attainable Relevant Time-bound
Basic Strategic Planning Process
- Gather needed inputs - consider stakeholders, current customers and industry
- Set appropriate goals
- SWOT Analysis - environmental analysis (strengths, weaknesses, opportunities, threats)
- Define strategy - short and long term
Decision-Making
- Core of management
- Related back to the goal
- Profound need to deal with imperfect information, which is why strategic planning process is critical for complex and important decision making
Atychiphobia
Fear of Failure
Signs
- Reluctance to try new things/get involved in more complex projects
- Procrastination, excessive anxiety, not following through on goals
- Low self-esteem or confidence
Shame vs. Guilt vs. Regret
Shame is feeling bad about yourself
Guilt is feeling bad about something you did
Regret is feeling bad about something you did not do
Jonah Complex
Fear of Change
Lack of belief in ability to sustain progress
Ethical Challenges
- Individual vs. Professional ethics
- OCP Code of Ethics
- What can lead to erosion of ethics in decision making?
Reading: Does Management Really Work?
Yes
- Targets
- Incentives
- Monitoring
Study done to see if teaching these three principles of management could improve outcomes. Found that it did indeed improve everything.
These can even be implemented in the medical and educational world.
Reading: How Google Sold Its Engineers on Management
- Google engineers did not believe they needed managers, but rather thought that they were detrimental to their creative process
- Project Oxygen performed surveys to see what the optimal aspects of managers were and implemented those in surveys about the managers themselves. They used the feedback from the surveys based on the 8 basic management techniques in order to improve the skills of the managers. Found to improve scores on the surveys.
A good manager:
- Is a good coach
- Empowers the team and does not micromanage
- Expresses interest in and concern for team members’ success and personal well-being
- Is productive and results-oriented
- Is a good communicator - listens and shares info
- Helps with career and strategy for the team
- Has a clear vision and strategy for the team
- Has key technical skills that help him or her advise the team
Reading: Making Yourself Indispensable
- If you want to get to the top, develop skills that complement what you already do best.
- More important to be uniquely outstanding in a few things vs. being good at many things
Building Strengths
- Identify strengths
- Choose one to focus on
- Choose a complementary behaviour to enhance
- Develop it in a linear way
5 Important Leadership Competencies
- Character
- Personal Capability
- Getting Results
- Interpersonal Skills
- Leading Change
Reading: Perceived Importance of Pharmacy Management Skills
- Questionnaire asking pharmacy managers in Canada, Tennessee and Arizona to rate importance of management skills and rate their own skills levels in these
- Found that most agreed on the important aspects of management based on 7 categories
1. Practice foundation skills (MOST IMPORTANT)
2. Leadership
3. Planning
4. Marketing
5. Securing resources
6. Implementation
7. Monitoring
Reading: The Big Lie of Strategic Planning
Comfort Traps
1. Strategic Planning
-Is not strategy, but rather based on affordability
-Steps: Vision/mission statement, list of incentives to reach goal, conversion of incentives into financials
2. Cost-Based Thinking
-Cost planning is NOT revenue planning because cost is based on company choices and revenue is based on customers
3. Self-Referential Strategy Frameworks
-Deliberate vs. Emergent Strategies; Resource based view
+all are knowable and controllable, which is not taking enough change
Escaping the Traps
- Keep strategy statement simple
- Where to play, how to win - Strategy is not about perfection
- Making bets! - Make the logic explicit
- Document in order to refer to later and make changes as necessary
Reading: Art of Decision Making
-Know the different tools and choose them accordingly
Tools
- Conventional Capital-Budgeting Tools
- Quantitative Multiple Scenario Tools
- Qualitative Scenario Analysis
- Case-Based Decision Analysis
- Information Aggregation Tools
Questions to Ask
- Do I know what it will take to succeed?
- Can I predict the range of possible outcomes?
- Do I need to aggregate information?
Reading: Ethical Breakdowns
-Companies are trying to be ethical, but this gets lost sometimes due to cognitive bias and blind managers to unethical behaviour
5 Barriers to Ethical Organization
- Ill-Conceived Goals - We set goals and incentives to promote a desired behaviour, but they encourage a negative one (ex. maximizing billable hours)
- REMEDY: Brainstorm unintended consequences when devising goals and incentives. Consider alternative goals that may be more important to reward. - Motivated Blindness - We overlook the unethical behaviour of others when it’s in our interest to remain ignorant (ex. baseball officials failed to notice they’d created conditions to encourage steroid use)
- REMEDY: Root out conflict of interest. Simply being aware of them does not necessarily reduce their negative effect on decision making. - Indirect Blindness - We hold others less accountable for unethical behaviour when it’s carried out through third parties (ex. drug company deflects attention from price increase by selling rights to another company)
- REMEDY: When handing off or outsourcing work, ask whether the assignment might invite unethical behaviour and take ownership of the implications - The Slippery Slope - We are less able to see other’s unethical behaviour when it develops gradually (ex. auditors may be more likely to accept a client’s questionable financial statement if infractions have accrued over time)
- REMEDY: Be alert for even trivial ethical infractions and address them immediately. Investigate whether a change in behaviour has occurred. - Overvaluing Outcomes - We give a pass to unethical behaviour if the outcome is good (ex. researcher whose fraudulent trial saves lives)
- REMEDY: Examine both the good and bad decisions for their ethical implications. Reward solid decision processes, not just good outcomes.
Fundamentals of Human Resource Management
CYCLE
- Workforce Planning
- Job Design
- Recruitment and Candidate Selection
- Training and Development
- Compensation
- Performance Management
Human Resources: Legal Considerations
- What can you ask in an interview?
- Compensation
- Termination and discipline
- Leaves of absence and disability
- Duties to accomodate
- Harassment
- Privacy
Reading: People Before Strategy
Problem: CEOs consistently rank human capital as a top challenge, but they typically undervalue their chief human resources officer and view HR as less important than other functions
Solution: CHRO must become a true strategic partner to CEO
Approach: CEO must rewrite the CHROs job description and create a core decision-making body comprising the CEO, CFO and CHRO
Reading: Today’s Personality Tests Raise the Bar for Job Seekers
Personality tests are helpful to weed out people. It may take a little longer to find someone, but it is better in the long run. It is associated with lower turnover and allowed for more accurate selection of who best fits the job.
Reading: Why CHROs Make Great CEOs
-Good skillz
Time Value of Money
- Money today is worth more than the same amount in the future
- Due to inflation
Present and Future Values
-Depend on discount rate (rate of return)
FV = PV(1+k)^t PV = FV/(1+k)^t
Inflation
- Decline in purchasing power of money
- Nominal Rate of Return: What they are telling you your return is; 2% interest
- Real Rate of Return: What you are actually getting; 2% interest, 3% inflation, actual rate of return is -1%
Compound Interest with Annuity
FV = PMT(1+k)*((1+k)^t - 1)/k)
PMT: annuity payment per period
k: rate of return
t: number of periods
Types of Income
- Earnings/Interest Income
- Dividend Income
- Capital Gains
Types of Income: Earnings/Interest Income
- Related to salary and investments that are interest bearing such as Bonds and GICs
- High tax structure makes them less attractive outside of tax sheltered accounts like RRSPs/TFSAs because real after tax returns in non-registered portfolios can be thin
Types of Income: Dividend Income
- Distribution to stakeholders of some portion of the corporation’s earning after it has paid tax on them
- Eligible: Publicly traded
- Non-eligible: Privately held companies
Types of Income: Capital Gains
- Profit that results from investments into capital asset that exceeds purchase price
- Tax free examples: principle residence, first $900,000 sale of shares in privately held company that qualifies
Marginal Tax System
- You pay tax based on the very next dollar of earnings you have
- The more you make, the more you are taxed
Risk vs. Reward
- Financial risk: Chance an investment’s actual return will be different than expected
- Risk-free rate: Rate of return on an asset with virtually no default risk
- Major Financial Risks
1. Interest rate
2. Inflation
3. Currency
4. Liquidity
5. Default
6. Political
Internal Rate of Return
- Used to calculate the possible rate of return on a project to see if it makes sense to proceed
- Based on assessing cash flows related to project
- Calculation on the positive cash flows (cash returns down the road) from negative cash flows (upfront investments made in he short-term) where the net PV (NPV) off all cash flows discounted back to today are 0
- Higher IRR, better outcome
Financial Statement
- Used to assess financial position, performance, and change in position
- Common applications: business/strategic, investment and loan decisions
- Accrual based
Types
- Balance Sheet
- Income Statement
- Cash Flow Statement
Financial Statements: Balance Sheet
Statement of Financial Position
Snapshot of the financial position of a company as of a specific date
ASSETS = LIABILITIES + OWNER’S EQUITY
Current vs. Fixed Assets
- Current: Within next 12 months
- Fixed: Shelf-life longer than 12 months
Current vs. Long-Term Liabilities
Financial Statements: Income Statement
P&L
Shows revenues during a given period and all of the expenses that were incurred during that period to earn the revenue
REVENUE - EXPENSESE = PROFIT (NET INCOME)
Top Line: Revenue growing
Bottom Line: Profitability/Net income
Financial Statement: Cash Flow Statement
Cash flow from
- Operations
- Investing activities
- Financial activities
Pro Forma Financials
- Financials for projects as part of building a business plan within the structure of an existing business
- Involves projections
- Based on assumptions and forecasts
- Order
1. Balance Sheet
2. Income Sheet
3. Cash Flow
Financial Ratio Analysis
Allows you to take the information from financial statements and interpret it practically
- Liquidity Ratios
- Financial Leverage Ratios
- Profitability Ratios
- Efficiency Ratios
Liquidity Ratios
Measure ability to pay off obligations
CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES
QUICK RATIO = (CA-INVENTORY-PREPAID EXPENSES)/CL
aka acid test
Financial Leverage Ratios
Quantify ability to pay off long-term debt
DEBT TO ASSET RATIO = TOTAL LIABILITIES/TOTAL ASSETS
DEBT TO EQUITY RATIO = TOTAL LIABILITES/TOTAL EQUITY
Profitability Ratios
Measure use of assets and expense control to generate appropriate return
PROFIT MARGIN = NET INCOME/SALES
OPERATING CASH FLOW MARGIN = CASH FLOW FROM OPERATIONS/SALES
RETURN ON ASSETS = NET INCOME/AVG TOTAL ASSETS
RETURN ON EQUITY = NET INCOME/OWNER’S EQUITY
Efficiency Ratios
Determines how effectively a firm is using its resources
INVENTORY TURNOVER = SALES/INVENTORY
RECEIVABLE TURNOVER = SALES/ACCOUNTS RECEIVABLE
Budgeting
- Planning out of expenditures with an eye on managing cash flow
- Consider short term (up to 1 year) and long term (up to 3 years)
- Order: Income, balance and then cash flow
Sources of Capital
- Banks/financial institutions
- Angel investors
- Venture capital
- Public markets
- Government programs
- Vendors
- Customers
- FFF (friends, families, fools)
- Leases
