3. Management of insurance businesses: planning and control

Question 1

Define Strategy

Answer 1

A proposal for the longer-term deployment of resources to meet
objectives against competition from rival organisations.

Question 2

What is strategic planning?

Answer 2

A process for setting a business’s future direction and developing a plan with:
- Long-term goals
- strategies
- Policies.

Question 3

How long do strategic planning goals typically cover?

Answer 3

Between 3 and 10 years

Question 4

What key areas does planning need to cover?

Answer 4

1. Set objectives.
2. Identify actions needed to achieve objectives.
3. Create an appropriate organisational structure.
4. Assign management duties and responsibilities to senior managers.
5. Establish a consistent management style.
6. Set budgets.
7. Agree on staff incentives.
8. Define sales targets.
9. Plan efficient use of material resources.
10. Set timetables and deadlines.
11. Develop contingency plans.

Question 5

What 8 point should be included in business plans?

Answer 5

1. Set SMART objectives
2. Plan the strategy to achieve them.
3. List the activities needed.
4. Assign responsibility for each activity.
5. Set start and end dates.
6. Estimate resources required.
7. Calculate costs.
8. Define expected results or milestones.

Question 6

What are SMART objectives?

Answer 6

Specific
Measurable
Achievable
Relevant
Time-defined

Question 7

Give 7 measurable factored used in SMART objectives.

Answer 7

1. Sales revenue.
2. Overheads and expenses.
3. Staff turnover and related costs.
4. Productivity and efficiency.
5. Market performance compared to competitors.
6. Profitability.
7. Customer satisfaction surveys.

Question 8

What is a control model?

Answer 8

A framework that focusing on:
- Key goals
- Setting targets
- Using milestones to track progress
- Spot issues.

Question 9

Provide 8 control models

Answer 9

1. Management accounting.
2. Budgeting.
3. Critical success factors.
4. Key performance indicators.
5. Key risk indicators.
6. Balanced scorecards.
7. Benchmarking.
8. Management by objectives.

Question 10

What is Management Accounting?

Answer 10

Helps managers:

• Track performance,
• Analyse finances,
• Predict income,
• In insurance, manage regulatory reporting and the balance sheet.

Question 11

What are Critical Success Factors (CSFs) ?

Answer 11

A key elements crucial to achieving an organisation’s mission.

Question 12

What are Key Performance Indictors (KPIs) ?

Answer 12

Measurable points used to track whether a company is meeting its targets and objectives.

Question 13

What the difference between results-oriented and effort-oriented KPIs?

Answer 13

Results-oriented measures usually represent the ‘bottom line’, whereas effort-oriented
measures indicate the level of effectiveness being achieved.

Question 14

What are Key Risk Indicators (KRIs)

Answer 14

The risks inherent in its business

Question 15

What are 5 examples of KRIs?

Answer 15

1. IT downtime.
2. Examples of fraud
3. Complaints.
4. Property loss or damage.
5. Employee injury or illness.

Question 16

What are balanced scorecards

Answer 16

Balanced scorecards identify the knowledge, skills, and systems employees need to innovate and improve internal processes.

Question 17

What 4 perspectives are used in a balanced scorecard?

Answer 17

1. Internal perspective
2. Customer perspective
3. Learning and growth
4. Financial perspective

Question 18

What is Benchmarking?

Answer 18

A process that allows a company to compare its own progress with that of a comprehensive standard.

Question 19

What 3 types are benchmarking are commonly used?

Answer 19

1. Internal – Compares performance within the organisation.
2. External – Compares performance with competitors.
3. Functional – Compares company functions with other organisations.

Question 20

What is Management by objectives (MBOs)?

Answer 20

Defining objectives within an organisation so management and employees agree on them and understand how to achieve them.

Question 21

What are 6 advantage of MBOs?

Answer 21

1. Motivation –
2. Better communication
3. Clear goals
4. Employee commitment –
5. Alignment
6. Common goal

Question 22

What are 6 disadvantage of MBOs?

Answer 22

1. Employee Skepticism
2. Excessive Paperwork and Meetings
3. Focus on Short-Term Goals
4. Lack of Subjective Goals
5. Managerial Skill Gaps
6. Risk of Distorted Results

Question 23

What are Budgets?

Answer 23

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

Question 24

What is Forecasting?

Answer 24

Forecasting predicts future business activities to create budgets and manage cash flow. It is regularly updated based on past experience, with less certainty for longer-term forecasts.

Question 25

What are 4 advantages of budgeting?

Answer 25

1. Unification of Effort – Budgeting aligns everyone’s activities and creates a shared purpose. 2. Planning – Budgeting helps predict future needs and plan resources. 3. Financial Awareness – Budgeting makes everyone aware of costs and encourages efficiency. 4. Basis of Comparison – Budgeting ensures consistent measures across departments for better comparison.

Question 26

What is the steps of budgeting?

Answer 26

Budgets are created for departments, functions, capital expenditure, and cash flow, then combined into a master budget that includes a profit and loss account and balance sheet for the organisation.

Question 27

How is the Chief Executive involved in budgeting?

Answer 27

The chief executive sets budget guidelines, reviews past performance, discusses changes, and outlines growth plans for the next year.

Question 28

How are budget committees involved in budgeting?

Answer 28

Budgeting committees review departmental budgets to ensure they align with the master budget, meet objectives, are realistic, and reflect financial responsibilities before adding them to the master budget.

Question 29

Name 4 types of budgeting.

Answer 29

1. Top-down 2. Bottom-up 3. Zero-based 4. Rolling

Question 30

What is top-down budgeting?

Answer 30

Where the owners or directors create plans for each department, which are then given to managers to implement. Can be disconnected from market realities.

Question 31

What is bottom-up budgeting?

Answer 31

Where the department managers create their own budgets within set guidelines. These are then reviewed by higher managers and directors and included in the master budget.

Question 32

What is zero-based budgeting (ZBB)?

Answer 32

Requires managers to justify all costs from scratch, rather than using previous budgets. Costs must be reviewed and approved by senior managers. ZBB is commonly used for specific areas like research and maintenance.

Question 33

What is a rolling budget?

Answer 33

budgets that are updated monthly, always looking twelve months ahead. When one month ends, a new month is added to the budget.

Question 34

What is the difference between fixed and flexible budgeting.

Answer 34

A fixed budget remains unchanged, even if performance differs, and compares projected figures to actual results. A flexible budget adjusts based on real activity, changing costs as needed.

Question 35

What is variance analysis?

Answer 35

An analysis of the difference between actual and budgeted performance

Question 36

Names 2 kinds of variance.

Answer 36

1. Unfavourable variance 2. Favourable variance

Question 37

Can variance be both unfavourable and favourable?

Answer 37

Yes

Question 38

Give 4 possible causes of variance

Answer 38

1. Inadequate pricing 2. Higher expenses than planned 3. Random events 4. Operating efficiency

Question 39

What are the 4 main steps in decision making?

Answer 39

1. Understanding Why a Decision Must Be Taken 2. Prior Consideration and Discussion of the Options 3. Taking the Most Appropriate Decision 4. Review

Question 40

What are the 5 C's of decision-making?

Answer 40

Consider, Consult, Commit, Communication and Check

Question 41

What are the 3 levels of information?

Answer 41

1. Strategic Information - Guides "what" and "why" decisions, focusing on goals, trends, and resources. 2. Tactical Information - Explains "how" to allocate resources and manage risks. 3. Operational Information - Covers daily tasks and updates on staff, contacts, and costs.

Question 42

What is a Management information system (MIS)?

Answer 42

a system that collects data from many different sources and then process and organise the data to help businesses make decisions.

Question 43

Give 6 basic features of an MIS.

Answer 43

1. MIS focuses on vertical information flow. 2. Reports vary from detailed to broad, depending on the management level. 3. MIS provides tactical information with various data subsystems. 4. The control cycle requires a comparison of results to plans. 5. Clear responsibilities ensure correct information flow. 6. MIS supports decision-making and future planning with data and forecasts.

Question 44

What is Knowledge Management?

Answer 44

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

Question 45

What are the 2 main approaches to knowledge management?

Answer 45

codification strategy and personalisation strategy

Question 46

What is a codification strategy approach to knowledge management?

Answer 46

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

Question 47

What is a personalisation strategy approach to knowledge management?

Answer 47

Knowledge is closely tied to the person who developed it and is shared mainly through direct person-to-person contacts and structured training programmes.

Question 48

What organisations tend to use a personalisation strategy?

Answer 48

Specialised financial services organisations

Question 49

What 2 main areas does knowledge management have an impact on a organisations strategy?

Answer 49

1. Creating value for customers: Customers benefit from reliable, proven systems. 2. Operational economies: Reusing software and knowledge cuts costs and boosts efficiency.

Question 50

What is change management?

Answer 50

The process of planning and implementing transitions in business, driven by both external and internal factors, to move from the current state to a desired future vision while addressing the needs and impact on all stakeholders.