Strategic Planning Flashcards
What are conformance vs. nonconformance costs?
Prevention and appraisal are conformance to quality costs.
Internal and external failure are nonconformance costs
What are Balanced Scorecards perspectives?
By performance measures:
- Financial (profitability, ROI)
- Customer (surveys)
- Internal Strategy (strategic, averages, measuring cost times, promote innovation within firm)
- Learning and Growth (innovation)
A basic assumption of ABC is…
Products or services require the performance of activities
What is a master budget and what major budgets does it summarize?
A static budget for the company as a whole.
Operating- IS
Financial- capital budget, cash, BS
Explain static budgets
Analyze conditions for a specific level of activity (what would labor cost be if level of sales were x)
Do not change
Production Budget
Budgeted sales (in units) \+ desired EI = total needs - BI = Number of units to be produced
Order budgets be prepared in…
- Sales budget
- Production budget
- DM purchases budget
- Cash disbursements budget
- Budgeted FS
Expected value
Various values are multiplied by the probability of that outcome occurring and adding the amounts together
List Quality Control programs
- Prevention costs
- Appraisal- costs of discovering which units don’t confirm to spec
- Internal Failure- nonconforming product discovered before shipment and reworked
- External Failure- nonconforming product discovered after shipment, rework of returned product
Prepare Operating Budget
Prepare sales forecast
Prepare desired end Inventory
Prepare production budget based on sales forecast (units to produce=desired EI+budgeted sales units-BI)
Prepare inventory costs based on production level
Prepare CGS budget
Prepare SGA
Prepare IS budget
Calculate annual purchases
CGS
+ EI
- BI
= Annual purchases
Balanced Scorecards commonly include…
Strategic objectives- statement of firms goals
Performance measures- yardstick to track if goals are met
Baseline performance- how well firm is doing under performance measure
Targets- the goal being sought
Strategic initiatives- changes firm will take to achieve objectives
Reward to Risk ratio
Mean return/SD
Coefficient of Correlation
R - measures the degree of linearity in the relationship between dependent and independent
- Only vary between +1 and -1 (think hedging for -1)
Coefficient of Determination
R^2 - square root of coefficient of correlation.
Lies between 0 and 1, closer to 1 gives higher level of assurance that independent (cost driver) accounts for most of the variability in dependent (total cost)
Regression Analysis
- Estimates the relationship between a dependent variable (TC) and one or more independent variables (DL hours, etc) from a set of actual observations
- Probable, not causal relationships
- Simple= 1 cost driver, Multiple= many cost drivers
List Forecasting Tools
- Probability theory
- Regression
- Coefficient of Correlation
- Coefficient of Determination
- Delphi Method
Delphi Method
- Collecting data from experts through questionnaires to minimize groupthink and bias
- Requires judgment (Delphi is opinion)
4 components of Strategic Management
- Environmental scanning (SWOT)
- Strategy development
- Strategy implementation
- Evaluation
Trigger
Strategy development when organization questions its actions and course bc of a triggering event
Environmental Scanning component of Strategic Management
The monitoring, evaluation of info regarding external and internal environment to identify Strategic Factors (impact future performance): SWOT analysis
SWOT Analysis
- List internal Strengths and Weaknesses
- List external Opportunities and Threats
SO>strategies use S to take advantage of O
ST>strategies use S to circumvent T
WO>strategies that overcome W to take advantage of O
WT>strategies that minimize W to circumvent T
Strategy Development component of Strategic Management
- LT plans to take advantage of O and manage T depending on S and W
- Develop a mission, objectives (quantifiable results with deadlines), strategies (plans to achieve the mission/objectives), and policies (guidelines for implementation and decision making)
- Corporate/business/functional strategy
Kaizen Budget
Incorporates continuous improvement goals
Stability Strategy (under Corporate Strategy)
- Pause/proceed with caution- incremental change until situation is resolved
- No change- no obvious T or O
- Profit strategy- support profits during declining sales by limiting ST discretionary expenses, treat problems as temporary to not alarm stakeholders
Portfolio Strategy
Multiple product lines/businesses are managed depending on various stages of product life cycle. Analyze assets like a portfolio
Parenting Strategy
A Corporate Strategy that builds synergies among divisions within corporation, allocate resources, and share unit functions to take advantage of economies of scale
Functional Strategy
Focusing on distinctive competency to maintain competitive advantage, adds value, and can be transferred to new products.
** If copied by competition, no longer DC, eventually becomes standard requirement
List the Competitive Strategies within Business Strategies of Strategy Development
- Cost leadership- low cost, broad market, EOS, low prices are barrier to entry
- Differentiation- better quality in broad market, buyer loyalty serves as barrier to entry
- Cost focus- low cost in a narrow market, streamline operations
- Differentiation focus- superior value in terms of quality in a narrow market
Strategy Implementation component of Strategic Management
Establish programs, budgets, and procedures
- Programs are actions to implement strategy
- Budgets are based on the programs
- Procedures are steps to perform a task within a program
Organizational Life Cycle
Similar to product/industry life cycle but these stages are not sequential and can change structures:
Birth> niche strat, simple structure
Growth>hor and vert growth, divisional structure
Maturity>concentrate strat, decentralized structure
Decline>profit then retrench, remnants of former
Termination> bank, no structure
Evaluation and Control component of Strategic Management
Monitor performance, corrective actions, feedback from eval and control impacts future SWOT, strategy development, and implementation
What is the expected monetary value of risk event?
Equal to its probability % multiplied by its expected cost if the risk occurs
Responsibility Accounting
- System recognizes decision centers (responsibility centers)
- Trace costs (or revenues, A/L) to managers responsible
- Only held responsible for controllable costs that are directly influenced by manager within time period
- Cost, revenue, profit, investment centers
Name 3 strategies of Strategy Development
- Corporate
- Business
- Functional
List Corporate Strategies within the Strategy Development
Growth Stability Retrenchment Portfolio Parenting
List the broad Performance Measures of an organization
- Entity-wide- nature/content, balanced scorecards
- Quality control- cost categories, cost mngmt, inventory tracking (backflush)
- Best practices- organization, data capture, integration, etc
- Benchmarking- internal vs. external
