Strategic Planning Flashcards
What is a zero-based budget?
A budget where nothing is permitted by mere precedent – all expenses have to be justified
Very time-consuming and detail-oriented
What is a Kaizen budget?
A budget which seeks to foster continuous, progressive, steady improvement
Kaizen = Japanese for “change for the better”
What is a rolling budget?
A budget whose time horizon will periodically add one time period from the future and subtract one from the past
E.g. a budget might encompass six months, starting with January through June, then including February through July, etc.
What is a master budget?
A comprehensive budget for all of a firm’s activities
Includes summarized data from (1) operating budget, (2) financial budget, and (3) capital expenditures budget, where (1) tends to be most foundational
What is included in an operating budget?
Forecasts related to operating income:
(i) sales
(ii) inventory
(iii) cost of goods sold
(iv) selling and G&A expenses
(v) income statement
What is the role of a production budget within an operating budget?
Establishes how much to produce, given the beginning finished-goods inventory, (a) to meet the forecasted sales/demand and (b) to achieve the desired ending finished-goods inventory
What is the role of a schedule of inventory costs within an operating budget?
Includes
(a) a schedule for direct materials
(b) a schedule for direct labor costs
(c) a schedule for manufacturing overhead costs, which includes parts for VOH and FOH
What are other subsidiary budgets included within an operating budget?
(a) cost of goods sold budget
(b) budget for selling, general, & administrative expenses
(c) budgeted income statement
What is included in a financial budget?
A budget for cash flows and other finances
Also includes a budgeted balance sheet
What is included in a capital expenditures budget?
A summary of expenditures for particular capital projects
What is a flexible budget?
A budget which allocates resources based on different projected levels of production/activity
Can be initially used to project activity for many different levels of production and then, as the year goes on, can help to better pinpoint what activity ought to look like
What is responsibility accounting?
Internal accounting designed to trace costs (and other accounting elements) to particular “responsibility centers” within the business
Done to hold managers responsible for their particular areas
Includes budgeted forecasts to predict how different centers should behave
What are different kinds of responsibility centers?
(1) cost centers = managers held responsible for controllable costs
(2) revenue centers = responsible for controllable revenues
(3) profit centers = responsible for controllable costs + revenues
(4) investment centers = responsible for controllable costs, revenues, and investments (i.e. rate of return)
What is probability theory?
The use of probabilities to predict outcomes amid uncertainties
Assigns different probabilities to different events and calculates a weighted avg. outcome – the expected value
What is a probability distribution?
A graphical representation of all possible outcomes for some particular variable, each outcome being assigned a probability
Sum of the outcomes = 1
For a probability distribution, what is standard deviation (σ)?
The level of variation or dispersion within the set of values – in this case, how “spread out” the distribution is
What does it mean for two events to be independent or dependent?
Independent = the chance that one event occurs is the same regardless of whether the other occurs
Dependent = the chance that one event occurs is different if the other event occurs (or doesn’t occur)
What is joint probability?
The chance that both events will occur
What is the joint probability of two independent events?
For independent events, their joint probability is the product of each of their individual probabilities
P(AB) = P(A) x P(B)
What is the joint probability of two dependent events?
For dependent events, their joint probability includes the chance of A given B – P(A/B)
P(AB) = P(A/B) x P(B) = P(B/A) x P(A)
What is regression analysis?
A statistical process for establishing a relationship between variables based on a series of ordered pairs (or ordered triples if three variables, etc.)
What does a regression analysis measure?
Correlation (though only with probability), not causation
What is the difference between simple and multiple regression analysis?
Simple = measures relationship of one dependent variable to one independent variable
Multiple = measures relationship of one dependent variable to more than one independent variable
What is a time series?
A sequence of data points (often ordered pairs) collected over a period of time at specific intervals
What is econometrics?
Using math and statistics for the study of economics
For regression analysis, what is the coefficient of correlation (r)?
Measures how linear of a relationship two variables have
\+1 = perfect direct correlation -1 = perfect inverse correlation 0 = no correlation
For regression analysis, what is the coefficient of determination (r^2)?
Measures the degree to which the change in the dependent variable can be accounted for by change in the independent variable
Since r must be between -1 and +1, r^2 must be between 0 and 1
What is the Delphi method?
Seeking to gain information on a decision by sending out questionnaires to experts
These are sent in different “rounds,” with the responses aggregated and reported back to each expert each round, though individual responses remain anonymous
Thus this seeks out creativity (avoiding social pressure) while also seeking eventual consensus
When does the Delphi method tend to get used?
Only for very complex decisions and as a last resort
What is the purpose of scorecards?
They provide a measure of business performance in both financial and non-financial terms
Thus they can surpass financial statements, which are designed for external users and can be limited that way – but scorecards are also therefore based more on individual judgment
How specific should scorecards intend to be?
Very general – they should include only a few points focused on meeting company objectives, as designed for the intended audience
What is a balanced scorecard?
A scorecard that generally analyzes four key areas:
(1) learning & growth/innovation
(2) business processes
(3) customers
(4) finance
What are the first three (of five) costs which can be part of a product quality control program?
(1) prevention costs – costs to prohibit the production of defective products
(2) appraisal costs – costs to evaluate whether products are defective
(3) interior failure costs – costs incurred for defective products that are discovered before being sent to customers (e.g. reworking costs)
What are the last two (of five) costs which can be part of a product quality control program?
(4) exterior failure costs – costs incurred for defective products that are discovered AFTER being sent to customers
(5) opportunity costs – the costs of forgone sales or unhappy customers due to defective products; includes the costs of factory capacity that had to be used for reworking products rather than making new ones
(5) is not as commonly included in quality control programs as (1) - (4)
What is process value analysis (PVA)?
Evaluates whether each part in the production process adds value, i.e. whether each part adds something that pleases the customer
Done to eliminate unnecessary expenses
As regards process value analysis (PVA), what are push systems and pull systems?
Push systems are motivated by forecasted demand, thus “pushed” from early stages to later
Pull systems are motivated by actual demand, thus “pulled” by each department as it needs to meet the customer demand
What is a just-in-time (JIT) system?
A system which seeks to eliminate (or drastically reduce) inventory costs by producing goods only as they are needed for customers – each stage finishes its processes “just in time” for the next stage, all the way till the customer receives the product
Often the result of PVA
What are different kinds of inventory tracking systems?
(1) sequential costing
(2) backflush costing
What is sequential costing?
Tracking inventory as it moves through the manufacturing process, assigning costs to different processes as they physically occur
Also called synchronous costing
What is backflush costing?
Assigning costs to inventory only when it reaches the end of the process, then “flushing back” the costs retroactively and assigning them to previous processes using standard costs
Often used for JIT systems
Also called delayed costing or endpoint costing
What are the advantages and disadvantages of backflush costing over sequential costing?
Backflush costing is simpler and less expensive than sequential costing, as it does not have to record any WIP inventory
Yet it is not necessarily GAAP and it can preclude an audit trail
What are different factors of product quality?
(i) performance
(ii) durability
(iii) aesthetics
(iv) conformance to standards
(v) reputation/perceived quality
(vi) ease of repair
(vii) additional features
What are referred to as “best practices”?
The practices/processes of successful companies, mostly in making necessary and routine processes extremely efficient
What are best practices concerning overall work organization?
(i) being results-based rather than task-based
(ii) structuring work so a single individual or team can complete it, avoiding the inefficiencies that come with transferring tasks to others
(iii) working concurrently rather than sequentially, when multiple tasks are needed done
What are best practices concerning data capture?
(i) having integrated data systems so that data needs to be inputted only once
(ii) having accessible data systems so it is available on demand
What are best practices concerning controls?
Identifying errors in data input, using automated technology and sampling
What is backflush costing?
Assigning costs to inventory only when it reaches the end of the process, then “flushing back” the costs retroactively and assigning them to previous processes using standard costs
Often used for JIT systems
Also called delayed costing or endpoint costing
What is benchmarking?
Quantifying some standard, almost always in relation to the actual practice of some other organization
What are different factors of product quality?
(i) performance
(ii) durability
(iii) aesthetics
(iv) conformance to standards
(v) reputation/perceived quality
(vi) ease of repair
(vii) additional features
What are referred to as “best practices”?
The practices/processes of successful companies, mostly in making necessary and routine processes extremely efficient
What is strategic management?
Planning out a business’s operations for the long run, often done by rare and momentous decisions
It is more externally oriented, and generally includes four elements: (1) environmental analysis/scanning, (2) strategy development, (3) strategy implementation, and (4) evaluation and control
What are best practices concerning data capture?
(i) having integrated data systems so that data needs to be inputted only once
(ii) having accessible data systems so it is available on demand
What are best practices concerning controls?
(i) avoiding all defects in data on original entry
(ii) using sampling to detect errors
What are best practices concerning geographical location?
(i) technologically integrating different locations so that information/communication is easily transferred
(ii) having geographically dispersed locations, in order to benefit customers
What is benchmarking?
Setting goals for the business to reach, almost always in terms of achievements actually reached by other businesses
What is the difference between real-value-added processes, business-value-added processes, and no-value-added processes?
(1) real = refers to processes that add value for the customer
(2) business = refers to processes that add value by being conducive to the business’s existence, e.g. regulatory compliance
(3) no = refers to processes that add neither real nor business value
What is a process map?
Maps out the processes of a business in order to identify problem areas (e.g. bottlenecks, multiple data entries) and provide solutions
What is strategic management?
Planning out a business’s operations for the long run
It is more externally oriented, and generally includes four elements: (1) environmental analysis, (2) strategy development, (3) strategy implementation, and (4) evaluation and control
What are some evolving stages of strategic management?
(1) basic financial planning
(2) forecast-based planning
(3) strategic planning/externally oriented planning
(4) strategic management
How does the cycle of ever-increasing competition generally work?
Firms providing a good can compete on its cost and quality until, eventually, many firms can provide the good at high quality and low cost
-at this point entry barriers are raised that prevent new firms from joining the market (e.g. economies of scale), and companies tend to merge
There also can be new markets to move into, and the development of new products as old ones die out
What is forecast-based planning?
(i) involves three- to five-year plans
(ii) more environmental info is acquired
What is strategic planning?
Planning assumed less by lower-level managers and more by higher-level managers engaged in formal top-down planning
How does strategic management compare to the earlier evolving stages leading up to it?
(i) involves the higher-level centralization of planning
(ii) combines the external focus of some earlier stages, but does not neglect lower-level input (as strategic planning can) – and so is more integrative than top-down
(iii) develops reactions to various scenarios, rather than just forecasting what will happen
(iv) unlike other stages, engages in planning year-round, rather than setting aside normal operations momentarily for planning
In what two components can a business’s external environment can be distinguished?
(1) societal environment – economic, cultural, political, and technological factors (e.g. environmentalism, cell phone technology, etc.)
(2) task environment – more related to the industry (e.g. competitors, labor unions, customers, lenders)
What is hypercompetition?
A state of affairs where businesses must constantly improve their competitive advantage, since such advantages can sometimes last only for months
As regards strategy development, what is a mission?
The purpose for the company as a whole
Included in a mission statement, or (if geared towards the future) a vision statement
As regards strategy development, what are objectives?
Desired achievements that can be generated from a company’s mission, and usually given with specific deadlines
Sometimes distinguished between goals (unquantified, open-ended) and objectives (quantified, with a deadline)
What is environmental scanning?
Evaluating a firm’s internal and external environment to identify strategic factors
Strategic factors = things affecting the business’s future performance that aren’t within management control in the short term
Which tool is commonly utilized for environmental scanning?
SWOT analysis
Analyzes strengths, weaknesses, opportunities, and threats – the first two being internal, the last two being external
What does a SWOT analysis matrix usually look like?
Similar to a Punnett square, a SWOT matrix aligns strengths/weaknesses on one side (e.g. the top) and opportunities/threats on another (e.g. the left), such that four cells in the middle are the intersections of S & O, S & T, W & O, or W & T
These middle cells explain how a company’s strengths will respond to opportunities, how its strengths will respond to threats, and the same thing for its weaknesses
In what two components can a business’s external environment can be distinguished?
(1) societal environment – economic, cultural, political, and technological factors (e.g. environmentalism, cell phone technology, etc.)
(2) task environment – more related to the industry (e.g. competitors, labor unions, customers, lenders)
How does strategy development emerge from the environmental scanning phase?
It involves the formulation of strategies to use strengths and minimize weaknesses in the face of opportunities and threats
Specifically, involves the formulation of (i) a mission, (ii) objectives, (iii) strategies, and (iv) policies
As regards strategy development, what is a mission?
An overall purpose for the business as a whole, encapsulated in a mission statement
If particularly future-oriented, can be called a vision statement
How does strategy development emerge from the environmental scanning phase?
It involves the formulation of strategies to use strengths and minimize weaknesses in the face of opportunities and threats
Specifically, involves the formulation of (i) a mission, (ii) objectives, (iii) strategies, and (iv) policies
What are stability strategies?
Various strategies to ensure stability in given situations
(i) the company might want to leave untouched a steady stream of profit from a stable position in the market
(ii) there might be instability given some big change, such as rapid growth, which requires a period of very careful and methodical changes
(iii) declining sales might be stabilized by reducing short-term expenditures to keep the company at its same position
As regards strategy development, what are objectives?
Desired achievements that can be generated from a company’s mission, and usually given with specific deadlines
Sometimes distinguished between goals (unquantified, open-ended) and objectives (quantified, with a deadline)
What is a hierarchy of strategies?
A nested series of strategies, where the higher-tiered ones explain how the company plans to achieve its objectives and mission, and where the lower-tiered ones go into more detail
What are corporate strategies?
Strategies for issues regarding the corporation as a whole
What are some different kinds of corporate strategies?
(1) growth strategies
(2) stability strategies
(3) retrenchment strategies
(4) portfolio strategies
(5) parenting strategies
What are growth strategies?
Strategies focused on growing product lines – either in the same industry (concentration) or in others (diversification)
As regards growth strategies, what are different ways to achieve concentration and diversification?
Concentration – through vertical growth (fulfilling the function of a previous supplier or distributor) or horizontal growth (increasing market share)
Diversification – through concentric growth (expanding into a related industry) or conglomerate growth (expanding into an unrelated one)
As regards growth strategies, what is synergy?
The idea that businesses in related industries can be more profitable than either of them individually
What are some different types of cooperative business strategies?
(i) joint ventures
(ii) licensing arrangements
(iii) collusion (which is illegal)
What are stability strategies?
Various strategies seeking to keep the business stable in different circumstances:
(i) continuing as normal if sales and growth are healthy
(ii) cutting back short-term expenses if in a period of temporary deficits or reduced sales
(iii) being very cautious if experiencing other big changes (e.g. enormous growth)
What are retrenchment strategies?
Strategies to reduce a company’s size or complexity in order to reduce expenses and regain its footing in the market
What are some different retrenchment strategies?
(i) the company makes itself dependent on a big customer in order to reduce expenses (e.g. marketing) and ensure stability
(ii) the company sells a product line or exiting an industry altogether
(iii) the company seeks relief through bankruptcy
What are portfolio strategies?
Strategies where a company’s product lines or businesses are treated like assets in a portfolio
The potential for future cash flows from different product lines depends largely upon the stage of the product life cycle they’re in
What are different ways a business can be structured?
(1) simple structure – entrepreneurial, only works for small firms
(2) functional structure – involves several managers with particular functions, rather than a single head
(3) divisional structure – decentralized, different divisions have different product lines; can be inflexible/slow to action
(4) advanced – can be either matrix or network
What are the five stages of the organizational life cycle?
(1) birth
(2) growth
(3) maturity
(4) decline
(5) termination
Structure and business strategies change as these stages develop
-moreover, this order is not identical for all businesses: some stages can be skipped, some cycles can be restarted, etc.
What are the four types of competitive business strategies?
(1) cost leadership – aiming for low costs in a broad market
(2) differentiation – aiming for qualitative superiority in a broad market
(3) cost focus – aiming for low costs in a narrow/niche market
(4) differentiation focus – aiming for qualitative superiority in a narrow/niche market
Among competitive strategies, what are differentiation and low-cost strategies more likely to achieve?
Differentiation strategies are more likely to achieve higher profits
Low-cost strategies are more likely to achieve a greater market share
What are some examples of cooperative business strategies?
(i) joint ventures
(ii) licensing arrangements
(iii) collusion – which is illegal
What are functional strategies?
Another category within the hierarchy of strategies that is focused particularly on creating a competitive advantage, developing a “core competency” of the business
As regards marketing, what is the difference between a push strategy and a pull strategy?
Push = aims to place products in many suppliers’ hands so that customers will inevitably become aware of the product
Pull = aims to make the customers aware of the product, which will then lead to suppliers demanding it
As regards product pricing, what is the difference between skimming and penetration pricing?
Skimming = starting with a high price, gradually lowering it as pressure to lower it increases (e.g. fewer customers willing to buy it; competitors develop similar products)
Penetration = starting with a low price, gaining a large market share and gradually increasing the price
How do strategies get implemented in a company?
Via programs, with procedures being the sequences to carry out a program, and budgets being developed for the funding of the program
What is goal displacement?
Displacing objectives (which can be vague or hard to quantify) with specific procedures for the attainment of those objectives
What is suboptimization?
When a subdivision’s performance is optimized at the expense of the business’s well-being
What are some characteristics of a good system of controls?
(i) supports strategy
(ii) obtains the minimum required info
(iii) timely & reliable
(iv) identifies exceptions
(v) emphasizes rewards rather than punishments
