Conceptual Frame Work of SFM

7/31/2019 Conceptual Frame Work of SFM

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CONCEPTUAL FRAMEWORK OF SFM

SREEKANTH



OUT LINE•

ROI• VALUE CHAIN ANALYSIS• VLAUE CHAIN AND INVESTMENT•

STRATEGIC BUSINESS UNITS• RESPONSIBILITY ACCOUNTING• COST BENEFIT ANALYSIS(CBA)



OUT LINE•

LIFE CYCLE COSTING• ACTIVITY BASED COSTING(ABC)

AND OBJECTIVE BASED

COSTING(OBC)• ECONOMIC VALUE ADDED• OWNERS VALUE ADDED (OVA)•

ADVANTAGES OF OVA OVER EVA• COST OF CAPITAL FOR AN

ENTERPRISE AND FOR A GROUP OF

ENTERPRISES UNDER SINGLEOWNERSHIP



ROI



MINIMUM ACHIEVABLEROIINGREDIENGT OF

OPERATING ROI

INDIAAS A CASE

(APPROX VALUE)

ENGLANDAS A CASE

(APPORX VALUE)

Cost of Findsemployed or Rate of

Inflation, whicheveris higher

15%(cost of funds)

7%(cost of funds)

+ Rate of RealIncome

7.5% 3.5%

+ Rate of Growth 5.5% 2.5%

Minimum AchievableOperating ROI

28% 13%



RATE OF RETURN IN OWNERSROI

OWNERS ENTIRE BUSINESS PORTFOLIO

BUSINESS I BUSINESS II BUSINESS III

High ROI business (70%

efforts & time of owners)

Average ROI business(20% efforts & time of

owners)

Low ROI (10% efforts &

time of owners)

HIGH RISK AVERAGE RISK LOW RISK

Core competencies of theowners and highentrepreneurial skills

Extended competence of the owners and semi-automated business

processes

Depending on otherscompetence & automaticbusiness process

Owners retain the mostindispensable portions of

business value chain

Owners depend onpartners for indispensable

portions of business valuechain

Owners totally depend forvalue chain, on biggerpartners in networking



VALUE CHAIN ANALYSISPROFIT

TOTAL

COST

VALUE ADDITION

EXTRA VALUEADDITIONTHROUGHTFORWARDINTEGRATION

ADMINISTRATIVESUPPORT

PROCESSING

(MOH)

THE SUPPLIERSAND VENDORS

PRODUCT P P D

COST OF

FUNDSSUBCONTRACTORS

INHOUSEMATETIALSUPPLY ( BACK WARDINTEGRATION



RESPONSIBILITY ACCOUNTING

CO

STCENTER

PROFIT

CENTER

INVESTMEN

TCENTER

R E S P O N S I B I L I

T Y



RESPONSIBILITY

ACCOUNTING

COSTPARAM

ETERS

COST ANDPROFIT

PARAMETE

COST PROFIT

ANDINVESTMENTPARAMETERS



IMPLEMENTATION OF RA•

The degree of empowerment should notbe disproportionate to the degree of accountability

•

The nationality of the profit to be madeand the transfer price between tworesponsibility center may be left to agenuine competition inside theorganization.

• The parameters to apprise theperformance of the responsibility centers

should be based on realistic, flexible and



•

The application of ROI to thecenters should ultimatelysupport the owners wealthmaximization.

• The arrangement of aresposibility center should beflexible and should create anadequate scope fororganizational restructuringfor expansion through vertical

or horizontal approaches.

IMPLEMENTATION OF RA



•

Sophistication in theinformaton system andtransparency in theaccounting and appraisals arepre - requisites

IMPLEMENTATION OF RA



Cost Benefit Analysis•

A cost benefit analysis is done todetermine how well, or how poorly, aplanned action will turn out. Althougha cost benefit analysis can be used foralmost anything, it is most commonlydone on financial questions. Since thecost benefit analysis relies on theaddition of positive factors and thesubtraction of negative ones todetermine a net result, it is also known

as running the numbers.

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Conceptual Frame Work of SFM