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Explain how you would use financial appraisal techniques to make strategic investment decisions for an organisation
• explain how you would apply financial appraisal methods to analyse competing investment projects in the public and private sector
For this you need to do exactly as asked – identify a range of investment projects available in the public, and in the private sector, and show how you would apply appraisal methods – such as using an Investment Appraisal Checklist, or using the DCFF or IRR techniques – in order to decide on whether to invest or not in particular organisational projects.
• explain how you would make a justified strategic investment decision for an organisation using relevant financial information
Project / Initiative auditing and monitoring provides feedback and closes the loop in the capital investment decision-making process and can help identify deviations from current strategic investment expectations and help an organisation improve on future strategic investments. You will need to expand on this, illustrating the role of financial information in this process. Diploma in Strategic Management Unit 7: Strategic Managing Of Financial Principles and Leadership
Financial Management and Control
Here you need to select an organisation or business sector (ideally your own) and use that as the vehicle for your response. In essence, you will need to discuss the application of established forecasting and auditing tools and techniques, such as SWOT, PESTLE, in combination with an analysis of the organisation’s current and future strategic objectives, in order to optimize the chances of achieving those objectives.
• demonstrate how you would assess the sources of funds available to an organisation for a specific project
Broadly, sources of funds fall into two groups – internal funds generated by cost savings, efficiencies, and revenues and retained profits, and external funds obtained from shareholders, banks, grant agencies, long-term investments, etc. You need to list, define, and show how you would assess the availability, value and potential contribution of each of these sources for a specific project. Ideally, this project should be one that applies to your own organisation. If that is not possible - then talk with your Tutor regarding alternatives.
Demonstrate how you would participate in the budgetary process of an organisation explain how you would select appropriate budgetary targets for an organisation
• explain how you would participate in the creation of a master budget for an organisation
For this you need to focus on your current role (or if that is impracticable, then on a recent role) and describe how you, and managers and specialists at a similar level, contribute to the compilation of the Master Budget – particularly as to how you ensure that your Budget format (flexible, zero-based, programme) and your Budget requirements are in line with, and support, the organisation’s financial situation and its strategic objectives. Diploma in Strategic Management Unit 7: Strategic Managing Of Financial Principles and Leadership
Cost Reduction and ABC
Explain how you would recommend cost reduction and management processes for an organisation
• explain how you would recommend processes that could manage cost reduction in an organisation
Again focusing on your own organisation, or business sector (talk with your Tutor if this is not possible), here you need to discuss the cost reduction processes that you feel should be implemented, or reinforced. You will need to discuss processes/approaches such as zero-based budgeting, changing to programme budgeting, cost-reduction initiatives, supplier vetting, implementing KPIs, and training initiatives, and so on.
• explain how you would evaluate the potential for the use of activity-based costing
Activity Based Costing (ABC) has advantages – such as helping with future product planning, and disadvantages - such as being potentially time consuming. For this response you need to list these, ideally relating them to your own organisation, or your business sector, and give examples of where the advantages might outweigh the disadvantages.
Managing Financial Principles
Demonstrate how you would interpret financial statements for planning and decision making
• explain how you would analyse financial statements to assess the financial viability of an organisation
There are a number of methods that can be used in analysing financial statements, such as comparative statements, funds analysis, trend analysis, and ratio analysis. You will need to give examples of actual financial statements – P&L Account, Balance Sheet, Cash Flow Forecast – ideally those of your own organisation or as used in your business sector – and explain how the analysis of these helps the organisation and its stakeholders to assess the financial viability of the organisation.
• explain how you would apply financial ratios to improve the quality of financial information in an organisation’s financial statements
Here you will need to give an overview of how financial ratios are calculated and used to analyse an organisation’s financial statements in more depth and breadth – to gain more understanding of the financial health of that organisation - and then give specific examples of ratios – such as for Profitability, Liquidity, Activity, Long Term Solvency – and explain how these ratios enhance, illuminate, the financial information that has been made available.
• make recommendations on the strategic portfolio of an organisation based on its financial information
For this you should focus on, ideally, your own organisation, or a typical organisation in your business sector, and discuss how an organisation should reshape its product/services strategic portfolio, based on the current situation and visible trends that are apparent from its current financial information and financial and performance forecasts.
Importance of costing information
In the context of internal operational activity, the effective management of Costs is highly important, which is why it is at the heart of Management Accounting. You will need to expand on this, defining and discussing the role of Costs, and techniques such as Marginal, Absorption, and Full Costing. Then you will need to relate the management of costs to the pricing strategy of an organisation, explaining the impact, the influence, it has.
Ideally for your own organisation, or those in your business sector (talk with your Tutor if this is not possible) here you will need to design and present an outline costing system (comprising some of the elements discussed in your response above), that is appropriate for the selected organisation or sector-specific organisations. Bear in mind that the Costing System must be supportive of the Cost/Pricing Strategy (such as a Cost Leadership strategy) of the selected organisation or sector.
• propose improvements to the costing and pricing systems used by an organisation
Again, ideally focusing on your own organisation or those in your business sector (talk with your Tutor if this is not possible), propose improvements to the current Costing and Pricing systems. Bear in mind that the improvements will need to avoid creating internal conflicts, and should, by default, contribute positively to the organisations’ strategic objectives.
Evolution of Management Accounting
1. Management accounting as a function has evolved over the decades from being simply a costing mechanism to becoming a strategic management function. This evolution has witnessed various changes in approaches, many of which were considered during the following lectures:
a. Performance to the limit
b. Managing the chain
From inventory to infrastructure
Using these discussions as the basis for your analysis, research further and critically consider the evolution of the strategic management accounting function, and suggest, with both academic and practical support, whether the changes in approach have been effective or not
This is a hypothetical case
General Motors is known to trade with Vence Ltd, which is a UK based company providing customised business products, such as tablets, together with support facilities for the same. The company has a series of suppliers who supply the finished products which are then, through their own operations, tailored to suit each customer’s needs. Once each customer receives their products they also have an option to utilise the support services of Vence Ltd to ensure smooth implementation and operation of the products.
1. Using the information above, prepare a customer profitability statement for the next accounting period, clearly showing:
a. The profit per customer group for the year
b. The profit per customer within each customer group for the year
c. The profit to sales ratio per customer group for the year
2. Using the information above, having analysed the budgeted information (as shown in the question) and the further information obtained from your answer to part a, evaluate with appropriate rationale, which of the customer groups, if any, should be discontinued. Consider also how the services offered should be stream-lined to minimise the cost burden to the company, whilst still maintaining customer satisfaction.
Financial Analysis of General Motors
Using the Annual Report and Accounts of General Motors AG:
(available at: http://www.gm.com/company/investors/stockholder-information.html)
(a) Evaluate the performance of General Motors in the following areas, using ratio analysis:
- Working capital efficiency
- Long term financial structure
- Investors’ perspective
You should summarise your findings and make particular reference to the interests of the different stakeholders of the company.
i) You may use earlier years’ financial accounts to supplement your analysis if you wish to be specific with certain trends that you have identified.
ii) In addition you could also consider the performance of General Motors in comparison with its peer group of competitors.
Purpose of Costing System
What are the purposes of costing system?
Activity based costing
Question 4 (11 marks)
H2O Irrigation Continuing Case Study
Direct labour or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities of many manufacturing processes. Many companies use activity-based costing (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship in its applied overhead costs.
H2O Irrigation looked into ABC as a method of costing because of the variety of items it produces and the many different activities in which it is involved. The activities listed below are a sample of possible cost pools for H2O Irrigation.
Question 4 Requirements:
i. Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for H2O Irrigation.
H2O IRRIGATION CORPORATION
Activity Cost Pools
Expected Use of Cost Drivers per Activity
Machining (all machine use)
Number of orders
Cost per design
Number of sales calls
The results of ABC can provide a more accurate picture of costs. Discuss the value of H2O Irrigation using this system to determine overhead costs.
(b) How might using ABC affect decision making at H2O Irrigation?
Total marks question 4: 11
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