BEC 6

Question 1

List the five process management activities.

Answer 1

1. Design
2. Modeling
3. Execution
4. Monitoring
5. Optimization

Question 2

List the elements of PDCA:

Answer 2

1. Plan
2. Do
3. Check
4. Act

Question 3

List the benefits of process management

Answer 3

1. Efficiency
2. Effectiveness
3. Agility

Question 4

Define: Outsourcing

Answer 4

Contracting of services to external providers.

Ex: payroll service or a call center to provide support or back office services for a fee.

A contractual relationship exists between the business and its outsource provider.

Question 5

Define: JIT and the underlying concept of JIT

Answer 5

JIT = just-in-time

JIT management anticipates achievement of efficiency by scheduling the deployment of resources just in time to meet customer or production requirements

Underlying concept of JIT is that inventory does not add value.
Maintenance of inventory levels purely produces wasteful costs.
Reducing inventory by ensuring that resources arrive only if they are needed (just in time for use) is the idea behind JIT

Question 6

Define: demand flow

Answer 6

Manages resources using customer demand as the basis for resource allocation.

Demand flow contrasts with resource allocation based on sales forecasts or master scheduling

Question 7

Define: Theory of constraints

Answer 7

Anticipates that organizations are impeded from achieving objectives by the existence of one or more constraints.

Organization/project must be consistently operated in a manner that either works around or leverages the constraint

Question 8

What are the five steps in the theory of constraints?

Answer 8

1. Identification of the constraint
2. Exploitation of the constraint
3. Subordinate everything else to the above decisions
4. Elevate the constraint
5. Return to the first step

Question 9

What is Six Sigma?

Answer 9

Anticipates the use of rigorous metrics in the evaluation of goal achievement.

The program is a continuous quality-improvement program that requires some specialized training.
Six Sigma expands on the Plan-Do-Check-Act model of process management and logicaly anticipates methodologies to improve current processes and develop new processes.

Question 10

In Six Sigma, what is DMAIC?

Answer 10

Existing product and business process improvements (DMAIC):
1. (D)efine the problem
2. (M)easure key aspects of current process
3. (A)nalyze data
4. (I)mprove or optimize current processes
5. (C)ontrol

Question 11

In Six Sigma, what is DMADV?

Answer 11

New product or business process development (DMADV):
1. (D)efine design goals
2. (M)easure CTQ (Critical to Quality issues)
3. (A)nalyze design alternatives
4. (D)esign optimization
5. (V)erify the design

Question 12

Define: Project Management

Answer 12

Consists of five major processes carried out by a project manager tasked with balancing the needs and expectations of various stakeholders against the organization’s constraints.

The processes include authorization, planning, implementation, monitoring, and closing.

Question 13

Define: Project charter

Answer 13

Document that contains a business justification to fulfill the needs and expectations of initial stakeholders by carrying out a statement of work that will achieve the project objectives.

It formally establishes a partnership between the requesting organization and the receiving organization

Question 14

Define the roles of project members

Answer 14

They perform the project tasks

1. Carrying out the work and producing the deliverables that have been defined by the project manager. (Project members may be either individuals or organizations.)
2. Understanding the work that must be completed
   - planning out the assigned activities in more detail if needed
   - completing the work within the budget, time, and quality expectations
   - proactively communicating the status of their work to the project manager

Question 15

Identify the project sponsor and that role

Answer 15

An individual at the executive level of management who is responsible for allocating funding as well as resources to the project

Question 16

Identify the executive steering committee and its role

Answer 16

Steering committee is to a project what the board of directors is to a company

• Both groups direct, but do not manage on a daily basis.
• A group of executive level people or external organizations charged with regular oversight of a project and taking responsibility for the business issues associated with a project

Question 17

The quality of deliverables should be SMART.

Define: SMART

Answer 17

1. (S)pecific
2. (M)easurable
3. (A)ttainable
4. (R)elevant
5. (T)ime based

Question 18

Describe the impact of globalization

Answer 18

Results in deeper integration of the world’s individual national economies and makes those economies more interdependent

Question 19

What is a frequently used statistical measure for globalization?

Answer 19

World trade expressed as a percentage of GDP

Question 20

What is meant by shift in economic balance of power?

Answer 20

Ability of the world’s emerging nations to contend with the economies of the industrialized world for power, resources, influence, etc., is a change or shift in the economic balance of power from previous decades.

Balance of power theory holds that the states that are members of the global economy can either engage in balancing or bandwagoning behavior.
An emerging nation might side with the United States or other industrialized nations in an embargo or other economic sanction (bandwagoning) or could join with other emerging nations in ignoring the leadership of the United States (balancing).
The significance of their decision to change the impact of the embargo represents an important shift in the balance of economic power

Question 21

Name the motivations for developing international business operations

Answer 21

1. Comparative Advantage - creating economic advantage through specialization
2. Imperfect Markets - barriers to trade
3. Product Cycle - establishment of foreign subsidiaries to more efficiently capitalize on foreign demand for domestic products

Question 22

Identify three inherent risks of international business operations

Answer 22

1. Exchange rate fluctuation
2. Operating in foreign economies
3. Political risk

Question 23

Identify three categories of exchange rate exposure

Answer 23

1. Transaction risk (exposure)
2. Economic risk (exposure)
3. Translation risk (exposure)

Question 24

Name the factors influencing exchange rates

Answer 24

Trade-Related Factors:
1. Relative inflation rates
2. Relative income levels
3. Government controls

Financial Factors:
1. Relative interest rates
2. Capital flows

Question 25

Distinguish between diversifiable and non-diversifiable risk

Answer 25

(D)iversifiable Risk (U)nsystematic Risk (Non-market/firm specific) (N)on-diversifiable Risk (S)ystematic Risk (Market)

Question 26

Define a futures hedge

Answer 26

Entitles its holder to entierh purchase or sell a particular number of currency units of an identified currency for a negotiated price on a stated date

Question 27

Define money market hedge

Answer 27

Uses international money markets to plan to meet future currency requirements by either investing internationally in a manner that times investment maturities with settlement of foreign payables or borrows against foreign receivables in a manner that times the maturity of borrowings with the collection of receivables

Question 28

Name the currency option hedge used to mtigate transaction exposure to exchange rate risk for payables. Name the currency option hedge used to mitigate transaction exposure to exchange rate risk for receivables

Answer 28

Call option: Option to buy a foreign currency (for currency hedges) at a pre-negotiated price - Mitigates payable exchange rate risk Put option: Option to sell a foreign currency (for currency hedges) at a pre-negotiated price - Mitigates receivable exchange rate risk

Question 29

Name an objective of transfer pricing between foreign and domestic subsidiaries and their parent companies

Answer 29

Minimization of taxation

Question 30

What are the advantaes and disadvantages of short-term financing?

Answer 30

Advantages: - Increased liquidity - Increased profitability - Decreased financing costs Disadvantages: - Increased interest rate risk - Increased credit risk

Question 31

What are the advantages and disadvantages of long-term financing?

Answer 31

Advantages: - Decreased interest rate risk - Decreased credit risk Disadvantages: - Decreased liquidity - Decreased profitability - Increased financing costs

Question 32

Differentiate between a line of credit and a letter of credit

Answer 32

Line of credit - revolves line of credit with a bank that is for a defined term and renewable prior to or upon expiration Letter of credit - third party guarantee (usually by a bank) of obligations incurred by a company

Question 33

Compare an operating lease to a capital lease (as it pertains to a lessee)

Answer 33

In an operating lease, the lessee makes rent (expense) payments to a lessor in exchange for the use of an asset for an insignificant portion of its useful life In a capital lease, the lessee essentially acquires the assets from the lessor either in substance or in legal form

Question 34

Define a debenture and a distinguishing characteristic of a subordinated debenture

Answer 34

Debenture - unsecured obligation of the issuing company Subordinated debenture - bond issue that is unsecured and ranks behind senior creditors in a bankruptcy or liquidation scenario

Question 35

Why do creditors use debt covenants in lending agreements and how could this impact the issuer?

Answer 35

Debt covenants are stipulated in lending agreements ot protect the creditors' interests by limiting or prohibiting certain actions of the debtors that may be harmful to the creditors' interests (i.e., issuing more debt) Debt covenants are disadvantageous to the issuer as they may restrict certain management activities (i.e., selling assets)

Question 36

List the major valuation methods

Answer 36

- Discounted Cash Flow (DCF) - Price Multiples - Price Earnings (P/E) - PEG (Price/Earnings per unit of growth) - Price Sales (Price/Sales)

Question 37

List the behavioral issues that potentially distort decisions

Answer 37

- Assuming stereotyped characterizations are accurate - Adjusting from presumed baselines - Using intuition rather than analysis - Excessive optimism - Confirmation bias or using only data that supports conclusions - Overconfidence - Illusion of control

Question 38

What decision context or environment is considered the most distracting?

Answer 38

Losses are considered the most distracting backdrop for decisions (far more distracting than gains)

Question 39

What is the implication of an "Aversion to a sure loss"?

Answer 39

Manager's fears of accepting a known or guaranteed loss may actually increase losses as projects are continued and losses are sustained longer than appropriate in hopes that the project will become profitable

Question 40

How does the International Professional Practices Framework define Internal Auditing?

Answer 40

1. Internal auditing is an independent and objective assurance and consulting activity designed to add value and improve an organization's operations 2. Internal auditing adds value and helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of the following: a. Risk management b. Control c. Governance processes

Question 41

Describe the attributes standards of the International Standards for the Practice of Internal Auditing

Answer 41

Attribute standards address issues related to auditor independence, technical proficiency, and professional care

Question 42

Describe the performance standards of the International Standards for the Practice of Internal Auditing

Answer 42

Performance standards address planning and supervision of the engagement, documentation of evidence or basis for conclusions, and generic reporting requirements

Question 43

Describe the implementation standards of the International Standards for the Practice of Internal Auditing

Answer 43

Implementation standards are embedded within the attribute and reporting standards to address the requirements of implementing both assurance and consulting activities

Question 44

Identify and describe the four elements of the Code of Ethics adopted by the International Standards for the Practice of Internal Auditing

Answer 44

1. Integrity - internal auditors are to perform work with honesty, diligence, and responsibility, observing both law and organization objectives 2. Objectivity - internal auditors exhibit professional objectivity in gathering, evaluating, and communicating information and should not participate in relationships that represent conflicts of interest 3. Confidentiality - internal audits do not disclose information without appropriate authority or use information for personal gain 4. Competency - internal auditors apply the knowledge, skills, and experience needed in the performance of internal auditing services

Question 45

Attribute Standards are defined by what four major headings?

Answer 45

1. Purpose, Authority, and Responsibility 2. Independence and Objectivity 3. Proficiency and Due Professional Care 4. Quality Assurance and Improvement Program

Question 46

Performance Standards are defined by what seven major headings?

Answer 46

1. Managing the Internal Audit Activity 2. Nature of Work 3. Engagement Planning 4. Performing the Engagement 5. Communicating Results 6. Monitoring Progress 7. Management's Acceptance of Risk

Question 47

What are the two primary features of managing the internal audit activity?

Answer 47

1. Effective Management - characterized by ensuring that activities are contemplated by the internal audit charter and that activities conform to the definition of internal audit, the Standards and the Code of Ethics 2. Added value - characterized by objective and relevant assurance and contributions to the effectiveness and efficiency of governance, risk management, and control processes

Question 48

What major features of an internal audit engagement must be documented as part of planning?

Answer 48

- Engagement objectives - Engagement scope - Engagement resource allocation - Engagement work program

Question 49

In performing an engagement, the internal auditor must identify information that meet which four criteria?

Answer 49

- Sufficiency - Reliable - Relevant - Useful

Question 50

Communication of the results of an internal audit engagement must generally include what elements?

Answer 50

1. Engagement objectives 2. Engagement scope 3. Conclusions 4. Recommendations 5. Action plans

Question 51

List and define the three parties involved in assurance services provided by an internal audit engagement

Answer 51

1. Auditee - person or group directly involved with the entity, operation, function, process, system, or other subject matter 2. Internal auditor - person or group making the assessment 3. User (sponsor) - person or group using the assessment