chapter 3

Question 1

What is strategic planning in insurance businesses?

Answer 1

A: Strategic planning is the process of setting long-term business goals (3-10 years) and developing strategies and policies to achieve them while considering competition.

Question 2

What are the key areas covered in corporate strategic planning?

Answer 2

Setting objectives

Defining tasks needed to achieve them

Organisational structure

Management responsibilities

Budgeting and financial planning

Sales targets and resource allocation

Contingency planning

Question 3

What is the difference between strategy and business (operational) plans?

Answer 3

A: Strategy provides long-term direction and methods, while business plans focus on short- and medium-term execution to achieve strategic goals.

Question 4

What are SMART objectives in business planning?

Answer 4

Specific (clear and precise)
Measurable (quantifiable)
Achievable (realistic)
Relevant (aligned with goals)
Time-defined (with deadlines)

Question 5

What is the purpose of control systems in business planning?

Answer 5

A: Control systems monitor progress against objectives, ensuring business activities align with strategic goals and identifying deviations early.

Question 6

What are examples of measurable factors in business control?

Answer 6

Sales revenue
Expenses and overheads
Staff turnover
Productivity and efficiency
Market performance
Profitability
Customer satisfaction

Question 7

What is management accounting?

Answer 7

Management accounting provides financial data to track business performance, analyse costs, and predict financial trends throughout the year.

Question 8

What are critical success factors (CSFs)?

Answer 8

CSFs are key areas necessary for achieving business success, often identified through SWOT analysis (Strengths, Weaknesses, Opportunities, Threats).

Question 9

What are key risk indicators (KRIs)?

Answer 9

A: KRIs track potential risks, such as IT downtime, fraud, complaints, property loss, or employee injuries, helping management address threats proactively.

Question 10

What is the balanced scorecard (BSC)?

Answer 10

A: A strategic planning tool that evaluates an organisation’s performance from four perspectives:

Financial (e.g., revenue growth)
Customer (e.g., satisfaction levels)
Internal Processes (e.g., operational efficiency)
Learning & Growth (e.g., staff development)

Question 11

What is benchmarking?

Answer 11

A process that allows a company to compare its progress with a comprehensive standard, such as industry competitors or national averages.

Question 12

What are the three types of benchmarking?

Answer 12

A:

Internal – Compares divisions/departments within the same company.
External – Compares company performance with competitors.
Functional – Assesses functions/processes across different organizations.

Question 13

What factors ensure successful benchmarking?

Answer 13

A:

Accurate and comprehensive industry data.
Benchmarks based on industry best practices.
Flexibility to adapt benchmarks as needed.
Alignment with corporate strategies.
Strong internal audit processes.

Question 14

What are the disadvantages of MBO?

Answer 14

Employees may view it as extra work or a management ploy.
Can require excessive paperwork and meetings.
Focuses more on short-term goals.
Difficult to quantify subjective goals.
Requires skilled managers for coaching/counseling.
Risk of result distortion to meet objectives.

Question 15

What is forecasting in budgeting?

Answer 15

A: The process of predicting business activity, revenue, and income to create a budget plan.

Question 16

What is reforecasting?

Answer 16

A: The revision of budget estimates based on actual performance and environmental changes.

Question 17

Fixed Budget

Answer 17

Definition: A budget that remains unchanged despite actual performance.

Key Points:

Compares projected vs. actual figures at the end of the period.
Unrealistic due to internal/external factors affecting performance.

Question 18

Flexible Budget

Answer 18

Definition: Adjusts based on actual activity levels.

Key Points:
Example: Adjusting salary costs if they rise unexpectedly.
Based on cost behavior (fixed, variable, semi-variable costs).

Question 19

Zero-Based Budgeting (ZBB)

Answer 19

Definition: Requires managers to justify expenses from zero.

Key Points:
No automatic carryover from previous budgets.
Formal approval process required for spending.
Used in self-contained areas (e.g., research, legal services).

Question 20

What is variance analysis?

Answer 20

A: The process of comparing actual performance to budgeted figures to identify discrepancies.

Question 21

What are the two types of variance?
A:

Answer 21

Favourable variance: When actual performance exceeds the budgeted target.

Unfavourable variance: When actual performance falls short of the budgeted target.

Question 22

What are common causes of variances?

Answer 22

A:

Inadequate pricing – Premiums may be lower than expected.
Higher expenses than planned – Unexpected cost increases like utilities or training.
Random events – IT failures or other unforeseen issues.
Operating efficiency – Performance lower than anticipated (e.g., lower call handling rates).

Question 23

What is a Management Information System (MIS)?

Answer 23

A: A system that collects, processes, and organizes data to support business decision-making.

Question 24

What is knowledge management?

Answer 24

A: The collection and redistribution of an organisation’s collective skills and experience for overall benefit.

Question 25

What are the ‘five Cs’ of decision-making suggested by the Industrial Society?

Answer 25

Consider – Evaluate the situation. Consult – Gather input from others. Crunch – Analyse data and options. Communicate – Share the decision. Check – Review the outcomes.

Question 26

What are examples of typical management reports?

Answer 26

A: Sales figures, staff resources, competitor activity, and financial data.

Question 27

What are the two main approaches to knowledge management in financial services?

Answer 27

Codification strategy – Storing knowledge in databases for easy access. Personalisation strategy – Sharing knowledge through direct interactions.

Question 28

What is the purpose of management accounting in an insurance company?

Answer 28

A: To provide managers with financial data on sales, expenses, and operational costs to track performance and forecast results during the financial year.

Question 29

What are critical success factors (CSFs)?

Answer 29

A: CSFs are key elements an organisation must focus on to achieve its mission, often identified through SWOT analysis.

Question 30

Give an example of a critical success factor and a related action.

Answer 30

CSF: Enhanced social media presence. Action: Hire a social media manager and create a financial plan for social media.

Question 31

What does SMART stand for in CSFs and KPIs?

Answer 31

A: Specific, Measurable, Achievable, Relevant, Time-bound.

Question 32

Q: What are Key Performance Indicators (KPIs)?

Answer 32

A: Measurable values that track whether a company is meeting its objectives.

Question 33

Q: What is the difference between results-oriented and effort-oriented KPIs?

Answer 33

A: Results-oriented KPIs focus on outcomes (e.g., revenue), while effort-oriented KPIs measure input or activity (e.g., number of calls made).

Question 34

Name two examples of results-oriented KPIs.

Answer 34

A: Sales revenue and return on investment.

Question 35

Name two examples of effort-oriented KPIs.

Answer 35

A: Number of complaints resolved, number of staff surveys completed.

Question 36

What is a Balanced Scorecard (BSC)?

Answer 36

A: A strategic planning system that aligns business activities to an organisation’s vision by measuring performance from four perspectives: financial, customer, internal, and learning & growth.

Question 37

What is benchmarking?

Answer 37

A: Comparing an organisation’s performance against internal departments, competitors, or other industries to identify improvement areas.

Question 38

What is Management by Objectives (MBO)?

Answer 38

A: A system where managers and employees agree on goals and work together to achieve them, linking individual objectives to organisational aims.

Question 39

How does MBO link to performance management?

Answer 39

A: MBO is often the foundation of employee appraisal systems, helping ensure staff performance aligns with company goals.

Question 40

What is ‘Top-down’ budgeting?

Answer 40

A: A budgeting approach where senior management sets the budget for departments, and managers are expected to implement it.

Question 41

What is ‘Bottom-up’ budgeting?

Answer 41

A: A budgeting approach where individual departments create their own budgets, which are then consolidated into a master budget by senior management.

Question 42

What is a Fixed budget?

Answer 42

A: A budget that remains unchanged throughout the period, regardless of actual performance.

Question 43

What is a Flexible budget?

Answer 43

A: A budget that adjusts based on real activity levels and changing cost behaviour.

Question 44

What is Zero-based budgeting (ZBB)?

Answer 44

A: A budgeting method where all expenses must be justified from scratch, starting with a budget of zero.

Question 45

What kind of areas is ZBB usually used for?

Answer 45

A: Self-contained areas like research, legal services, and machine maintenance.

Question 46

What is a Rolling budget?

Answer 46

A: A budget that is continuously updated by adding a new month as the current one ends, keeping a 12-month outlook.

Question 47

What is the main benefit of Rolling budgets?

Answer 47

A: They help managers continuously plan ahead and adapt to changes throughout the year.

Question 48

What is a variance in budgeting?

Answer 48

A: A variance is the difference between actual performance and what was budgeted.

Question 49

What are the two types of variance?

Answer 49

Favourable variance: When performance exceeds the budget. Unfavourable variance: When performance falls short of the budget.

Question 50

How can variances be interlinked?

Answer 50

A: A favourable variance in one area (e.g. reduced staff time) may lead to an unfavourable variance in another (e.g. reduced policy sales).

Question 51

What are four main causes of variances?

Answer 51

Inadequate pricing Higher expenses than planned Random events Operating inefficiency

Question 52

What is a Management Information System (MIS)?

Answer 52

A: A system that collects, processes, and organises data from multiple sources to help businesses make informed decisions.

Question 53

In what directions does information flow in an MIS?

Answer 53

A: Horizontally and vertically, but MIS mainly focuses on vertical flow between managers/team leaders and team members. Upward Flow – From operational levels (e.g., frontline staff) to middle and senior management. This includes reports on performance, issues, and routine activities that inform decision-making at higher levels. Downward Flow – From senior management to operational staff. This includes strategic decisions, policies, goals, and procedures that need to be implemented by the workforce. Horizontal Flow – Between departments or functional units at the same hierarchical level. This enables coordination and collaboration across functions like underwriting, claims, finance, and customer service.

Question 54

What types of reports does an MIS generate?

Answer 54

Detailed reports for low-level managers (small areas) Broader reports for top-level managers (overall control)

Question 55

What is the purpose of the strategic planning process in an insurance organisation?

Answer 55

A: To address long-term goals and set short-term (1 year) and long-term (3–10 years) plans, which are put into action through operational plans.

Question 56

What business areas are covered in the strategic planning process?

Answer 56

A: Setting objectives, organisational structure, resourcing, budgeting, and marketing.

Question 57

What tool is often used to monitor SMART objectives?

Answer 57

A: Balanced scorecard or benchmarking.

Question 58

What are the ‘Five Cs’ of decision-making according to the Industrial Society?

Answer 58

A: Consider, Consult, Crunch, Communicate, and Check.

Question 59

What are the two main approaches to knowledge management?

Answer 59

A: Codification strategy and Personalisation strategy. Codification Strategy Focuses on documenting knowledge in a structured, accessible format (e.g., manuals, databases). Knowledge is stored and accessed from a centralized source. Personalization Strategy Focuses on sharing knowledge through personal interactions (e.g., mentoring, collaboration). Relies on individual expertise and social networks. Key Difference: Codification makes knowledge reusable in a structured way. Personalization transfers knowledge through direct communication.

Question 60

What is knowledge management?

Answer 60

A: The process of compiling and sharing an organisation’s collective skills and experience.

Question 61

Describe three types of key risk indicator (KRI):

Answer 61

KRIs help track potential risks in an organisation. Three types are: Operational Risk Indicators: e.g. system downtime or service disruption. Compliance Risk Indicators: e.g. number of regulatory breaches or customer complaints. Financial Risk Indicators: e.g. significant budget variances or cash flow issues.

Question 62

What are the aims of a budget committee?

Answer 62

Review and approve departmental budgets to align with company strategy. Monitor spending and financial performance against the budget. Evaluate and adjust budgets as business needs or external conditions change.

Question 63

In management information terms, what is strategic information used for?

Answer 63

Strategic information supports long-term planning and direction-setting at senior management level. It's used to: Develop business strategy. Identify trends and opportunities. Respond to external challenges (e.g. economic shifts, regulation).

Question 64

Explain the key differences between a project and a change management programme:

Answer 64

Project- - Has a specific goal, timeframe, and deliverables. - Often IT, product, or system-based. - Led by a project manager. Change Management Programme- - Aims to embed long-term behavioural and cultural changes. - Focuses on people, communication, and organisational structure. - Often overseen by HR or transformation teams.

Question 65

Identify and explain the two main approaches to managing knowledge in financial services organisations:

Answer 65

Codification Strategy: Stores knowledge in databases, documents, or manuals. Useful for routine, repeatable tasks (e.g. underwriting guidelines). Personalisation Strategy: Focuses on sharing knowledge through human interaction (e.g. mentoring or team collaboration). Useful when solving complex or unique problems.

Question 66

Tactical information is used by a company to plan its resources, which include: a. money only. b. time, money and people. c. time and money only. d. people and money only.

Answer 66

b. time, money and people.

Question 67

An insurer would use forecasting as a part of its budgeting process to: a. quantify future levels of profitability. b. identify the differences between planned and actual income and expenditure. c. establish the level of risk associated with delivering the business plan. d. plan its future need for capital resources.

Answer 67

d. plan its future need for capital resources.

Question 68

A business plan should have objectives that are SMART. What does the A stand for when referring to SMART objectives? a. Analysis. b. Accurate. c. Achievable. d. Assessment.

Answer 68

c. Achievable.

Question 69

Within this business, action is only taken where variations to budget are outside plus or minus 3% of target. What is this approach called? a. Top-down budgeting. b. Management by exception. c. Flexible budgeting. d. Management by objectives.

Answer 69

b. Management by exception.

Question 70

Under variance analysis, what is LEAST likely to be the cause of a variance? a. Inadequate pricing. b. Failure to meet operational efficiencies. c. Cost increases in line with inflation. d. Random events.

Answer 70

c. Cost increases in line with inflation.

Question 71

When preparing budgets for a family-owned insurance broker, what factor is the management team LEAST likely to take into account? a. Reinsurance costs. b. Brokerage and fee income. c. Salary costs. d. IT costs.

Answer 71

a. Reinsurance costs.