Revision Areas Flashcards
Project Managment: Project Initiation Document (PID)
Key elements to be included
The PID is the main output of the initiation stage of the project life-cycle. This is produced for two main reasons:
- To secure the authorisation of the project.
- To act as a base document against which project progress and changes can be assessed.
Key elements P.329:
- Purpose statement
- Why the project is being undertaken.
- Scope statement: The boundaries outlining the major activities in order to prevent “scope creep”.
- Deliverables
- Cost and Time estimates
- Objectives
- Stakeholders
- Chain of command.
Risk and Uncertainty: Methods of measuring and mitigating risk
Tara
Sensitivity analysis
- Changing a single variable or group of variables to see the impact on the NPV.
TARA [measure Likelihood and Impact]
- Low/Low Accept - High/Low Reduce [Bad reviews] - Low/High Transfer [Insurance] - High/High Avoid
Stress testing
- What if an element goes wrong, what would happen to the project?
Contingency planning
- If one major supplier goes down, have we got a back up plan in place and already made sure they would be able to meet our demand?
- Abandonment options if the project fails.
Simulation
- Can provide probabilities of situations occurring.
Shorter payback targets
- If risk is tied to our liquidity position, we could use a shorter payback period to ease liquidity issues.
Increased discount rates
- For higher risk projects because if our shareholders see us taking on riskier projects they will want a higher return on their investment which would increase the equity cost of capital/WACC/Discount rate.
Project Management: Project Feasibility Report
What are the key elements - T.E.E.S
- Technical - Can it be done?
- is the technology available and tried and tested?
- Is the technology suitable to satisfy the objective of the project?
- Social
- Does it fit with current operations?
- Consider any social issues within a group or office (introducing a computerised system)
- The effect of projects or products on workers, employment or the environment.
- project fits with business goals.
- Does it fit with current operations?
- Ecological (Environmental) - how does it affect the environment?
- Effect on local communities and that impact on company image.
- Pollution caused.
- Economic - Is it worth it?
- The project must provide benefit to the organisation, this is assessed through a cost-benefit analysis.
- this would include using investment appraisal techniques such as payback period, and discounted cash flow approaches such as NPV and IRR.
- Costs would include:
- Capital Costs: new assets, installation and maintenance.
- Revenue costs: Repairs, consumables.
Balanced Scorecard
What are the four perspectives?
Customers
- To achieve our vision how should we appear to our customers?
- Customer feedback
- Customer retention (b2b and b2c)
- click through rate
Financial
- Standard financial ratio targets.
- control of costs
- Revenue gains
- Budget management performance
- Level of discounts offered compared to revenue.
Internal Processes
- Advertising: efficiency of producing advertising campaign from inception to delivery.
- Response time to customer queries
- Demand planning, resource planning.
Learning and Growth
- Engagement with consumers: utilising new social media platforms to establish the organisations online presence.
- Onboarding new customer accounts (b2b)
- (B2B) Training account managers with relationship management, negotiation skills, using new software.
Value chain analysis (P2 ch3) [Porter]
Porters value chain analysis
5 Primary activities: > Inbound logistics > Operations > Outbound Logistics > Marketing and Sales > Service
4 Support activities:
> Firm infrastructure:
»_space; currently a function structure but could become divisional structure when exploring new product lines.
> Human Resources
> Technology Development
> Procurement
Business Risks (P2 p.491) - What is meant by business risks, identify the 7 types of risks and be able to apply any of the key areas to the case.
Business risks are those the business faces due to the nature of their operations and produces. for instance Piping are reliant on a small range of products.
The key categories are :
Strategic risks:
> The risk that business strategies will fail, (acquisitions, product launches)
Product risks:
> Failure of new product launches, loss of interest in existing products.
Commodity price risk:
> Rise in commodity prices (oil)
Product reputation risk:
> Risk of change in products reputation or image.
Operational risk:
> Business operations may be inefficient or business processes may fail.
Contractual inadequacy risk:
> terms of a contract do not fully cover a business against all potential outcomes.
Fraud and malfeasance risk:
> risk of being exposed to fraud or actions of employees resulting in an offence or crime.
What are the costs of quality?
Conformance and Non-conformance
Conformance costs:
Appraisal and prevention costs
Non-conformance
Internal and external failure costs
Responsibility Centers
- What are the measures of performance?
- How should each responsibility centers performance be evaluated?
Budgetary Control - flexing budgets
- What the costs and revenue would be expected to be at different activity levels, this is then comparable to the actual activity level for planning and operational variance analysis.
- Controllable and Non-controllable costs
> It is key to ensure that managers are only assessed against the costs they can control. i.e. not allocated overheads.
- Budgetary control and responsibility accounting are linked, meaning that the budgets helps to define the managers responsibilities and scope of authority to make decisions. This also helps to ensure that no areas of the organisation remain “grey” where no responsibility has been assigned.
Non-financial Performance Indicators
- Competitiveness (sales growth by product, size of customer base, market share)
- Activity Level (#units sold, labor/machine hours worked, overdue debts collected)
- Productivity (manufac costs/unit, capacity utilisation labour and facilities, avg setting up time production runs)
- Quality of service (Internal/external failure rate, new accounts lost/gained, repeat orders received)
- Customer satisfaction (Avg time to respond, complaints, good feedback, review websites)
- Quality of staff experience (Turnover rate, absences, training completion rates, job satisfaction scores, qualification levels of new recruits)
- Innovation (# new products bought to market, proportion of sales for new products, lead time bringing new products to market)
The Balanced Scorecard
- Financial
- Customer
- Internal processes
- Learning & Growth
Benchmarking
- Internal- regionalised company may benchmark performance between regions.
- Competitive - benchmark against most successful competitors. Reverse engineering a product to gain information about its internal design and function.
- Functional - Comparisons are made with a similar business function (such as selling, order handling) not necessarily a direct competitor.
- Strategic - Aimed at reaching decisions for strategic action and organisational change. Companies may agree to share performance metrics to an independent third party such as a trade organisation who calculates average performance figures for the industry as a whole from the data supplied. Each participant in the scheme is then provided with the averages for which to evaluate their own performance.
- Customer - Attempts to compare corporate performance with customer expectations.
Financial Ratios (F2 Ch19)
- Ratio analysis in respect of performance, positions, adaptability and prospects
- Interpretation of ratios
- Limitations o the data and the ratios themselves.
The impact on financial ratios will depend in part on the PRICE-ELASTICITY OF DEMAND. (no elasticity = higher prices/revenues, elasticity = consider pricing strategies to stimulate demand)
!! ROCE is the most important accounting ratio relating to performance and that will be affected by pricing in terms of impact on total contribution. The higher the capital employed and therefore profit, the higher the ROCE.
Profitability - Gross profit Margin - ROCE >Op prof / Cap Employed x 100 > Consider the possibility that assets could be new and not efficient yet, increase the Cap Employed and reducing the ROCE. - Sales Revenue Change > Consider how the price elasticity of demand would effect volumes and therefore revenue. - Asset Turnover
Liquidity
- Current/Quick Ratio
> if Price stimulates demand = increase in receivables and therefore higher current/quick ratio.
- Working Capital Days
> High prices lead to slow moving stock/wastage.
> Higher inventory days would push current ratio up.
Investor
- Gearing
> From supplier perspective a customer with high gearing would be at more risk of defaulting on their debt and we could lose out if the company goes under.
- Interest Cover
Note:
Look at the ratio’s inclusively to assess the health of the organisation. For example:
High payables days + High gearing + Low current ratio + High sales growth = could indicate overtrading (not enough long term capital to sustain the level of trading i.e. Under capitalised).
F2 Ch 3 - 17
Accounting treatments:
[Aug’21 Var 6 Task 2]
-
Recognition of revenues and profits of a new long-term sales contract. [Feb’21 Var 4 Task 3]
- An example of a sales contract for piping under these circumstances could include: exclusivity deal with retailer (airline, hotel) or white labelling for retailers, selling tea blending training courses.
Accounting for Intangible Assets (F2)
- Accounting treatments for research expenditure and development expenditure.
[PIRATE] Profitable expectation Intention to use or sell Resources available Ability to use or sell Technically feasible Expenditure measures
Pipings intangibles
- Patents
- Purchased Goodwill
Accounting treatments
- Research
> Not capitalised, expensed.
> Patents specifically: Can be capitalised, then amortized over UEL and assessed for impairment (could be impaired if no longer useful, i.e. foil packaging external failure).
- Development
> Can be capitalised if certain criteria are met [PIRATE]
> > expected to be PROFITABLE
> > INTEND to to use or sell the item
> > have the RESOURCES to complete the project.
> > the entity has the ABILITY to use or sell the item
> > the project is TECHNICALLY feasible.
> >the EXPENDITURE can be reliably measured.
Risks and uncertainty examples of upside risk
Upside risk?
Goodwill (F2 Chapter 11)
How to find the fair value of categories of assets. Tangibles: > Bespoke equipment > Property > Office equipment
Intangibles:
> Software licences
Working Capital
> Receivables
Goodwill is the difference between what we pay for the company and the fair value of its net assets. It comes from the value of the intangibles such as expert staff and reputation in addition to the right to decide how the organisation operates.
Key points:
-The fair value of the assets isn’t necessarily the SFP value.
> For instance bespoke equipment doesn’t have a market value and therefore in order to assess a fair value we could get a quote for a similar machine and estimate a fair depreciation value for an overall fair value.
> Property could valued by an expert or more than one and the average taken to determine current market value.
Office Equipment
> There is an active office equipment market so we could value the assets via new price less depreciation or second hand prices.
Intangibles:
> Software licences - The cost is amortised over the licence life so once you know the cost and duration of the licence you can simply calculate the amount of the original cost that remains.
Working Capital:
> Check aged receivables for debts unlikely to be paid.
>Bank - check the bank account reconciliations are complete and the bank balance is correct.
Transfer pricing
- Internal competition and trading
- Transfer pricing when markets do and do not exist
- Types of transfer prices
- Behavioural effects of transfer pricing
- Profitability effects of transfer pricing
Only really a concern when one party is a profit centre/investment centre.
The overall goal of transfer pricing is Goal Congruence meaning that the company as a whole benefits, (i.e. it is cheaper to create and transfer internally than buy externally).
Types of Transfer prices
- Opportunity Cost - Depends on whether spare capacity is available.
> When spare capacity it is marginal cost
> When no spare capacity it is Marginal Cost plus Shadow Price (Opportunity cost of lost sales) i.e. market price.
- Dual Pricing
> Each participant would pay/receive different costs and the difference being accounted for. - 2-Part Tariff, Fixed and Marginal costs.
>
Behavioral Effects
- It is important to remember that profit centre managers will also be assess on their revenue so they will want to charge a high price and pay a low price.
- Transfer pricing should discourage dysfunctional behavior i.e. purchasing materials/services externally that can be created internally.
6 capitals of Integrated Reporting. (F2 Ch 18) - Adv/Disadv - Fundamentals F I S H Ma N
What is it?
> An annual report of which the primary purpose is to explain to providers of financial capital how an entity creates value over time.
> Demonstrates linkages between an organisation’s strategy, governance and financial performance; and the social, environmental and economic context within which the entity operates.
> Not a replacement for financial statements.
Fundamental concepts for IR
> Value creation for the organisation and for others
»_space;
> The value creation process
>
Financial
> The funds available for use in the production of goods or the provision of services.
> Can be obtained through financing such as debt, equity, grants or generated through operations or investments.
Intellectual
> Organisational, Knowledge-based intangibles
> IP, Patents, Copyrights, Software, rights and licences.
> Organisational capital such as tacit knowledge, systems, procedures and protocols.
Social & Relationship
>The institutions and the relationships within and between communities, groups of stakeholders and other networks. the ability to share information to enhance individual and collective well-being.
> Shared norms, common values and behaviors.
Human capital
> Peoples competencies, capabilities and experience.
> Alignment with and support for an organisation’s governance framework, risk management approach and ethical values
> Ability to understand, develop and implement and organisation’s strategy.
> Loyalties and motivations for improving processes, goods and services, including their ability to lead, manage and collaborate.
Manufactured Capital
> Manufactured physical objects (distinct from natural physical objects) that are available to an organisation for use in the production of goods or the provision or services:
> Buildings, equipment, infrastructure [roads, ports, bridges, waste and water treatment]
> Objects that contribute to the production process rather than being the actual output.
Natural Capital
> all renewable and non-renewable environmental resources and processes that provide goods or services that support the past, current or future prosperity of an organisation.
> air, water, land, minerals, forests.
> bio-diversity and eco-system health.
> Consider those factors that absorb neutralise or recycles wastes and process - e.g. climate regulation, climate change CO2 emission.
