PL10 SMA 2015 Student Notes XPrint FINAL

CPA PROGRAM STRATEGIC MANAGEMENT ACCOUNTING

STUDENT SUPPORT NOTES

FOR 2015

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BPP Learning Media Ltd 2015

Sixth edition 2015 For 2015

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Introduction iii

CO

NTE

NTS

Module 1INTRODUCTION TO STRATEGIC MANAGEMENT

ACCOUNTING page 1

Module 2

CREATING ORGANISATIONAL VALUE, PART A: VALUE CREATION

page 37

Module 2 CREATING ORGANISATIONAL VALUE,

PART B: STRATEGIC MANAGEMENTpage 57

Module 3

PERFORMANCE MEASUREMENTpage 87

Module 4

TECHNIQUES FOR CREATING AND MANAGING VALUE

page 133

Module 5 PROJECT MANAGEMENT, PARTS A AND B page 167 Module 5 PROJECT MANAGEMENT, PART C page 181 Module 5 PROJECT MANAGEMENT, PARTS D, E AND F page 197

Answers to Module Learning Examples

1

Module 1

INTRODUCTION TO STRATEGIC MANAGEMENT ACCOUNTING

While the traditional role of management accounting in supporting the decisions of operational managers is still extremely important and fundamental, since 1950 the discipline has increasingly embraced both a wider, strategic role and a more sophisticated range of techniques. In this module we shall look at the development and role of strategic management accounting and management accounting systems.

PART A: THE ROLE OF MANAGEMENT ACCOUNTING

EVOLUTION OF MANAGEMENT ACCOUNTING

CAUSES OF CHANGE IN THE BUSINESS ENVIRONMENT

ROLE OF MANAGEMENT ACCOUNTANT

VALUE AND VALUE CREATION

STRATEGIC MANAGEMENT

PART B: UNDERSTANDING AND SUPPORTING MANAGEMENT

PART C: MANAGEMENT ACCOUNTING SYSTEMS

RISK MANAGEMENT

PROBLEMS WITH MA SYSTEMS

ENVIRONMENTAL MANAGEMENT ACCOUNTING SYSTEMS

OPERATIONAL MANAGEMENT SUPPORT TECHNIQUES

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1: Introduction to strategic management accounting 3

Context

In contrast to financial reporting to external users of information, strategic management accounting is about internal reporting so that managers and operational staff can make both day-to-day and strategic decisions.

Learning example 1.1

How does strategic management accounting information differ from financial reporting information?

Solution 1.1

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Context

From straightforward management accounting pre-1965, when the focus was on determining costs and controlling financial resources, the discipline has developed into strategic management accounting.

6

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Context

The contemporary business world has changed rapidly in recent times and this has had a profound effect on the evolution of SMA and on the roles of management accountants.


Consider your own organisation or one that is familiar to you. How has the organisation been affected recently by the four causes of change in the business environment, and what effect has this had on internal reporting?

Solution 1.2

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Context

As traditional management accounting has evolved into strategic management accounting, the skills required from management accountants have increased.

A matrix of required skills was provided (2004) by the International Accounting Education Standard Board (IAESB).

These required skills are linked to the ways in which management accountants help to create sustainable success for their organisation.

10

VALU

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Context

Strategic management is concerned with the creation and protection of value, in both commercial and non-commercial organisations. Strategic management accounting provides a supportive role for strategic managers, and is concerned with the provision and use of information that can be used to enhance value.


How might value be created for (a) customers of an organisation and (b) employees of an organisation?

Solution 1.3

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Context

It is important to emphasise that management and strategy are not procedures or techniques that can be rote learned. Candidates need to understand a wide range of strategic ideas and use them to produce practical solutions to practical problems.

Candidates should gain an understanding of the role of strategic management accounting as they progress through the segment. This introduction gives a basic outline.


Consider your own organisation or one that is familiar to you. What is its strategy, and how does its strategic plan seek to achieve that strategy?

Solution 1.4

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Context

This overview of the strategic management process illustrates the way that various elements involved in business strategy link together. However, it is important to note that there are alternative approaches to strategy, so the rational model should not be seen as a checklist for doing strategy.


Here are some examples of business activities. Which of the elements of strategy (analysis, planning and choice, implementation and evaluation) do they illustrate?

Review of research into the attitudes of existing customers. Consideration of a banks attitude to providing further finance.

Solution 1.5

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Context

In order for an organisation to achieve its goals and objectives, it will need to ensure that what is meant to happen actually happens. Management at the top and bottom levels of the organisation need to be strongly linked to ensure that an intended strategy is actually implemented.

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Context

The management accounting system provides information for both strategic and operational use. This covers a wide variety of areas.


Traditional management accounting and MAS have been concerned with providing information for decision making and controlling costs. It has often been criticised for not providing sufficient relevant information to management because it tends to impose general techniques as solutions in situations which demand custom-designed (directly applicable) methods and specific information.

Discuss the validity of this criticism of management accounting.

Solution 1.6

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Context

Good corporate governance requires that the organisation be aware of the nature of the different types of risk it faces, and to manage them as effectively as possible.

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Context

This section illustrates the principle that the control environment and procedures, especially accounting controls, should be sufficient to deal with the issues and risks in the business environment in which they operate.


Suggest control procedures for the following:

Business environment Control procedure (candidate to complete)

Most of the customers pay in cash

Individual inventory items are of high value

The organisations environment is unpredictable and complicated

Solution 1.7

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Context

Major problems with many MASs are their failure to provide information that addresses or solves problems. If they do, there are often issues around timeliness. Note that there is a greater level of detail seen here than in the study materials.

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Context

Commitment to sustainability means organisations need to know physical information about, for example, waste products as well as monetary information. This is the role of EMAS, so that an organisation's analysis of issues and decisions about them can be properly informed about sustainability matters.

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Context

Although management accounting has developed a great deal at the strategic management level, we should not ignore or underestimate its importance at the operational level.

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Context

Product costing depends on the classification of costs and is at the heart of day-to-day and strategic decisions.

A budget is the detailed expression of the organisation's strategy in the form of a monetary plan. Operational managers require budgets to plan activities and to take control action over time.

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Context

Especially in manufacturing environments, variance analysis can be a key way in which the management accountant provides information to support operational managers.

Note that fixed and flexible budgets and variance analysis are not covered in the study materials.

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Context

Note that interdependence of variances is not covered in the study materials.

Working capital comprises inventory, accounts receivable and cash, less accounts payable. Operational managers require timely and accurate information on levels of working capital and how efficiently they are being maintained.

36

Reinforcement

Study Guide Module 1

Make sure that you attempt all the questions and activities within the Module to test your knowledge.

37

Module 2

CREATING ORGANISATIONAL VALUE, PART A: VALUE CREATION

Competitive advantage depends on the extent to which an organisation creates value for its stakeholders. Corporate governance is the responsibility of the board and is directed at fulfilling the financial, social and environmental goals of the organisation's stakeholders.The Management Accountant (MA) plays a key role in generating information for management and other stakeholders about value creating activities and value chain performance.

PART A: VALUE CREATION

ORGANISATIONS: THE TRANSACTION COST APPROACH

CORPORATE GOVERNANCE: CONFORMANCE

CORPORATE GOVERNANCE: PERFORMANCE

CORPORATE GOVERNANCE: SUSTAINABILITY

CREATING VALUE

THE ORGANISATION VALUE CHAIN

THE INDUSTRY VALUE CHAIN

MANAGEMENT ACCOUNTANTS AND VALUE ANALYSIS

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2: Creating organisational value, Part A: Value creation 39

Context

The transaction cost approach gets to the heart of why a business exists. Note that hierarchy basis and problems are not specifically covered in the study materials.

Learning example 2A.1

Can you explain how transaction costs are relevant to strategic alliances/joint ventures?

Solution 2A.1

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Context

Corporate governance affects the way an organisation is run and how its strategy is implemented. Good corporate governance enables investors to feel confident that their investment is well-managed and will not be lost as a result of bad decisions, poor management control or greed of the directors.

Corporate governance develops to keep pace with changes in organisations behaviour and the economic contexts that they operate in. This leads some countries to prefer the certainty of a system based on strict rules. Others prefer the adaptability and flexibility of codes based on principles.

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Context

The other key aspect of corporate governance that is important to Management Accountants is performance.

This is forward-looking and involves reporting information to make decisions that achieve strategic planning, risk management and sound performance measurement. It also includes consideration of the 'triple bottom line' of sustainability.

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Context

CSR links corporate governance and ethics. Management Accountants need to develop CSR systems which identify stakeholder groups

and the social and environmental requirements of these stakeholders.


To understand the increasing pressure for CSR, consider the impact that the oil spill in the Gulf of Mexico had on the reputation and share price of BP one of the founding members of the United Nations Global Compact which requires a precautionary approach to environmental risk.

Solution 2A.2

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Context

Sustainability is the focus of enterprise governance.


What aspects of CSR and sustainability might a company operating in the tobacco industry consider?

Solution 2A.3

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Context

Understanding, measuring and managing the value creation process are critical strategic management accounting activities.


A business unit generates annual revenue of $3 000 000 and has directly attributable annual costs of $1 980 000. The $10 000 000 capital invested in the business unit was diverted from another of the organisations projects where it was estimated to earn a return of 7.5% pa. how much value has the business unit created in the year?

Solution 2A.4

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Context

The organisation value chain is an essential model. It focuses on the need to create value (for the consumer) and is vital for any analysis of strategic capability. It also provides a model of the way that organisations work, and introduces the idea of processes in business strategy (covered in more detail under strategic management).

Note that the 'value system' is not specifically covered in the study materials.


Suggest one way in which each of the activities in the value chain of a manufacturing company could create value.

Solution 2A.5

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Context

The value chain approach extends outside the individual organisation to encompass others in their supply chain. Exploiting the linkages in this chain by means of collaboration can yield very good results.

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Context

The strategic importance of value chain management means Management Accountants must be familiar with the concept, and provide an organisation with information to understand and manage its value chain.

56

Reinforcement

Study Guide Module 2 Part A


57

Module 2

CREATING ORGANISATIONAL VALUE, PART B: STRATEGIC MANAGEMENT

Unless organisations can sustain competitive advantage, profitability is eroded. Strategic management comprises a set of techniques that enable an organisation to understand its capabilities and ensure best fit with its environment. Strategic management focuses on the long-term direction of the organisation and the implementation of strategies to achieve those goals.

PART B: STRATEGIC MANAGEMENT

WHAT IS STRATEGIC MANAGEMENT?

STRATEGIC ANALYSIS: VALUE ANALYSIS

STRATEGIC ANALYSIS: SWOT

INTERNAL ANALYSIS: CAPABILITIES

INTERNAL ANALYSIS: PRODUCTS

EXTERNAL ANALYSIS: INDUSTRY ANALYSIS/ FIVE FORCES

EXTERNAL ANALYSIS: PEST

STRATEGIC PLANNING: DEVELOPING A GOOD STRATEGY

STRATEGIC PLANNING: BUSINESS MODEL GENERATION

STRATEGIC PLANNING: GENERIC STRATEGIES

STRATEGY CHOICE

STRATEGY IMPLEMENTATION

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2: Creating organisational value, Part B: Strategic management 59

Context

It is important to emphasise that although tools and frameworks are used to help formulate strategy, it is inherently a creative process involving uncertainty and judgement about the future. Strategic management concerns practical processes to compare the original strategic plan to the organisations position as it evolves, and taking corrective action where necessary; even if this action involves changing the original strategy to adapt to the dynamic environment.

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Context

Organisations need to make plans and carry these out successfully to survive and do well. The left hand page outlines the rational strategic management process, which guides the setting and execution of an organisation's strategy. We saw this figure in Module 1 too, as an overview of the strategic management process as a whole.

Learning example 2B.1

Working with a partner, take turns to describe in your own words the rational strategic management model on the facing page. At this stage this is not a memory exercise but a test of your understanding. (This exercise is not as easy as it may first appear particularly if the partner who is not doing the describing actively listens and asks plenty of questions!)

Solution 2B.1

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Context

Value for the organisation is achieved through creating competitive advantage. Value analysis is concerned with identifying how value can be created within the value chain of an organisation, adding to customer value and competitive advantage.

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Context

SWOT is an approach to summarising strategic position. It offers some basic guidance on how strategy may then be developed in a sound fashion.


Analyse the basic SWOT position of an organisation you are familiar with.

Solution 2B.2

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Context

Understanding the nature of reproducible capabilities and distinctive capabilities or core competences is fundamental to any assessment of strategic capability and competitive advantage.


Suggest some examples of distinctive capabilities and core competences.

Solution 2B.3

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Context

Product life cycles and product portfolios have significant implications for business strategy and performance. To be successful, an organisation needs to continue to offer products that the customer wants to buy, even as their tastes and demands change over time.

The capacity to innovate cost effectively may be an important capability to have.


In relation to the product life cycle suggest real life product examples for each life cycle stage.

Solution 2B.4

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Context

The five forces model is acknowledged as a valuable tool for assessing the competitive environment. It is used to help answer the core questions required for industry analysis.

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Context

The PEST framework is a useful model for identifying the major aspects of the macro-environment.

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Context

The impact business activity has on the physical environment has become a major concern. Environmental protection is a key aspect of both sustainability and corporate social responsibility (CSR).

Note: Social/environmental factors, technological factors and environmental protection are not covered in this level of depth in the study materials.

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Context

After the organisation has analysed its internal and external environment, it should start strategic planning in order to come up with a good strategy that 'ticks all the boxes'.

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Context

An organisation which wants to enter new, almost unheard-of industries or to carve out an uncontested share of an existing industry needs to both improve value and reduce costs a big challenge.

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Context

Porter (1980) believes there are three generic strategies which deliver competitive advantages for an organisation cost leadership; differentiation; and focus.


Suggest examples of businesses pursuing each generic strategy from your own experience.

Solution 2B.5

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Context

So far, this module has been concerned with the nature and characteristics of potential strategies. This section summarises the process by which organisations choose the strategy they are actually going to follow.

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Context

The best strategic plans are no good unless they are properly implemented. It is impossible to plan for every eventuality, and plans may need to be changed.

Implementation turns the rather abstract and conceptual nature of planning into a reality, involving hands-on work by individuals at all levels.


It has been suggested that control checkpoints or milestones should be established to monitor activities, in order to ascertain whether plans are being properly implemented. Can you think of any examples of activities that could be monitored on reaching such checkpoints?

Solution 2B.6

86

Reinforcement

Study Guide Module 2 Part B


87

Module 3

PERFORMANCE MEASUREMENT

'What you measure is what you get' (WYMIWYG) and 'What you don't measure you can't control' (WYDMYCC) are traditionally the justification for an organisation to measure the performance of individuals, departments/units and the organisation as a whole in meeting its objectives.

PART A: PERFORMANCE/PERFORMANCE MEASUREMENT

FINANCIAL PERFORMANCE

NON-FINANCIAL PERFORMANCE

FUNCTIONS OF PERFORMANCE MEASUREMENT

SUSTAINABILITY REPORTING

GOVERNANCE, RISK, ETHICS AND PERFORMANCE

PART B: STRATEGY AND MANAGEMENT CONTROL

LIMITATIONS OF TRADITIONAL CONTROLS

OPERATIONAL AND STRATEGIC PERFORMANCE

BALANCED SCORECARD

STRATEGY AND PERFORMANCE MEASUREMENT

PART C: DESIGNING PERFORMANCE MEASURES

IMPROVING PERFORMANCE

REWARDS

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3: Performance measurement 89

Context

Performance measurement is a fundamental role of strategic management accounting (SMA) which aims to support managers making decisions that lead to achievement of objectives.

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Context

This section sets out various ways that are used to report financial performance.

Traditional financial reporting and ratio analysis have given way to more flexible and varied ways of reporting financial performance.

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Context

Performance measurement systems should include non-financial performance measures. Unless key non-financial targets are achieved, the organisation is unlikely to achieve its financial targets.


What might be useful non-financial performance measures for:

(1) A company selling household goods to consumers online

(2) A hotel?

Solution 3.1

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Context

There are two aspects to performance measurement. One is measuring how much value has been created by the organisation. The other is measuring success in maintaining or achieving a sustainable business.


An extract from the 2012 Volkswagen Value Added Statement:

Volkswagen Group Annual Report 2012

Value added generated by the Volkswagen Group Source of funds

Source of funds in million 2012 2011

Sales revenue 192,676 159,337 Other income 24,652 13,125 Cost of materials -122,450 -104,648 Depreciation and amortization -13,135 -10,346 Other upfront expenditures -22,077 -9,759 Value added 59,666 47,709

Value added generated by the Volkswagen Group Appropriation of funds

Appropriation of funds in million 2012 % 2011 %

to shareholders (dividend) 1,639 2.8 1,406 2.9

to employees (wages, salaries, benefits) 29,503 49.5 23,854 50.0

to the state (taxes, duties) 4,322 7.2 4,525 9.5

to creditors (interest expense) 3,957 6.6 3,530 7.4

to the Company (reserves) 20,246 33.9 14,393 30.2

Value added 59,666 100.0 47,709 100.0

What does this analysis tell us?

Solution 3.2

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Context

Traditional financial reporting is reporting on historical performance, with a focus primarily on short-term financial performance.

There has been growing recognition that historical financial reporting on its own is insufficient for measuring and monitoring performance of companies.

CSR reporting, or sustainability reporting, provides information about other aspects of performance. Many ASX-listed companies publish voluntary sustainability reports annually.

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Context

There have been several problems with sustainability reports, reducing their value as meaningful measures of corporate performance. This has led to initiatives for standardisation in reporting, particularly between similar types of company.

The separation of traditional financial reporting from sustainability reporting has also been challenged, with guidelines for the combination of all aspects of performance (financial and sustainability performance) included within a single integrated report. This initiative for integrated reporting is at an early stage of development.


What aspects of performance might you expect to see in an integrated report?

Solution 3.3

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Context There is a governance aspect to performance measurement ensuring that the company operates in line with the risk appetite (risk/return trade-off) decided by the board of directors, and ensuring that risk management and control systems are effective.

There is also an ethical aspect to reporting performance. The board of directors uses external reporting to send signals to shareholders and other stakeholders, and there may be some motivation to send misleading signals through incorrect reporting.

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Context

Within a performance measurement system, the choice of key performance indicators will depend partly on the business strategy of the company (cost leadership or differentiation the focus being either cost leadership or differentiation within a market niche).

Performance measurement systems should also have several elements, from an overriding vision or mission to a system of rewards for successful achievements.

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Context

Traditional management accounting is often criticised because of its emphasis on fixed targets and budgetary control.

Alternative approaches to measuring performance include the ideas of the Beyond Budgeting movement.

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Context

A performance measurement system should include reports on both operational performance and also progress towards strategic objectives. Both aspects of reporting are needed.


Explain how attempting to improve short-term lagging indicators in the financial quadrant of the balanced scorecard may result in weaker strategic performance in the longer term.

Solution 3.4

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Performance measurement systems require some form of contextual framework. The most appropriate framework varies with the circumstances of the organisation. This section introduces candidates to the concepts of cause-and-effect reporting frameworks and cascading reporting frameworks.

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Context

The balanced scorecard is the best known multidimensional model, and it looks at financial and non-financial measures under four headings: customer perspective; financial perspective; internal process perspective; and learning and growth perspective.


What might be the key measures in the balanced scorecard for a supermarket chain?

Solution 3.5

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Context

Kaplan and Norton (2001) developed the concept of strategy mapping from the balanced scorecard.

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Context Although the balanced scorecard provides a useful framework for developing multidimensional performance measures, organisations may still face some potential problems when applying it.

Note that the topic Words of warning is not covered in such depth in the study materials.


Rummidge Botanical Gardens are a not-for-profit organisation. The gardens are based in a leafy suburb in the university city of Rummidge. The gardens consist of about 20 acres of formal and informal gardens, hothouses, a restaurant and conference centre, a cafe and a gift shop. It also houses a large collection of plants that is sometimes used by universities and commercial organisations for research purposes.

Rummidge Botanical Gardens is funded through:

An admission charge to the gardens; A grant from the local authority; Profits from the restaurant, conference centre, cafe and gift shop; Charges to universities and commercial organisations. What measures might be appropriate for each perspective of the balanced scorecard?

Solution 3.6

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Context

Performance management should include measures for measuring and monitoring performance against strategic objectives. In practice, this can be difficult.

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Context

A decision has to be made about what performance measures should be used within a measurement and reporting system. The performance measures that are used should be linked to the critical success factors for achieving the organisations goals and objectives.

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Context

Performance targets should be selected carefully, and should possess certain characteristics or qualities.

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Context

Benchmarking uses data from comparators inside and outside the organisation to identify best practice and thereby improve performance.


Set out the stages that would be required in a benchmarking exercise.

Solution 3.7

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Context

Measures of performance are usually (1) targets for achievement, (2) measures of trends over time or (3) comparisons of achievements against a benchmark.

However, any performance measurement system risks encouraging dysfunctional behaviour by managers.

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Context

In this section we look at one of the key behavioural aspects of performance measurement the link to rewards.


Think of a reward scheme for an organisation that you either work for or know well. How effective are these schemes?

Do chief executives in major companies justify the rewards they are paid?

Solution 3.8

132

Reinforcement



Candidates should review Appendix 3.1 of the study materials which outlines the case study of Western Water (WW) including examples of how WW develops its performance measures using a balanced scorecard linked to strategy through the strategy mapping process. This process is cascaded down through the organisation to enable strategy to be implemented. WW reports its performance in financial and non-financial terms and emphasises long-term sustainability.

133

Module 4

TECHNIQUES FOR CREATING AND MANAGING VALUE

A variety of concepts and tools exist which can assist in improving the performance of an organisation's value chain. The Management Accountant plays a key role in providing information about internal value chain activities, suppliers and customers which allows management to identify opportunities for redesigning or fine-tuning activities to maintain the competitive position.

PART A: ACTIVITY-BASED COSTING (ABC)

PART B: STRATEGIC REVENUE AND COST MANAGEMENT

ACTIVITY-BASED MANAGEMENT (ABM)

BUSINESS PROCESS MANAGEMENT (BPM)

SOCIAL AND ENVIRONMENTAL VALUE CHAIN ANALYSIS

PART C: UPSTREAM ACTIVITIES: SUPPLIER MANAGEMENT

TOTAL QUALITY MANAGEMENT (TQM)

OUTSOURCING AND OFFSHORING

CUSTOMER PROFITABILITY ANALYSIS (CPA)

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4: Techniques for creating and managing value 135

Context

Activity-based costing (ABC) recognises that many important categories of overheads are not simply driven by volume and therefore using one absorption rate does not give a realistic allocation of costs.

Increasingly in a modern environment overheads tend to be large and overhead activities are complex and unrelated to production activity (direct labour hours or machine hours). There is a variety of different cost drivers for overheads. In such circumstances ABC provides a more rigorous allocation of overheads to give a more realistic unit cost estimate.

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Context

Implementing ABC can be broken down into a number of distinct steps.


The following information is available for Dresden plc, which produces three products:

A B C Output (units) 20,000 25,000 2,000 $/unit $/unit $/unit Sales price 20 20 20 Direct material cost 5 10 10 Labour hours/unit 2 1 1 Wages paid at $5/hr

Other information is as follows:

Total production overheads are $190 000 $ Machining 55,000 Quality control and set-up costs 90,000 Receiving 30,000 Packing U 15 000 190 000 Cost driver data A B C Labour hours/unit 2 1 1 Machine hours/unit 2 2 2 No. of production runs 10 13 2 No. of component receipts 10 10 2 No. of customer orders 20 20 20

Required

Using ABC, show the cost and gross profit per unit for each product during the period.

138



Solution 4.1

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Context

The cost and complexity, and therefore the lack of take up, of traditional ABC by organisations has led to a revision of the model, called time-driven activity based costing (TDABC).


Dresden plc's receiving overheads for its production facility are $30 000, of this, $5 000 relates to non-receiving costs such as staff training and meetings. Each standard delivery takes 1 hour of receiving time, and each complex delivery takes 2 hours. Total receiving time available in the period is 200 hours. Product A entails 4 standard receipts and 6 complex receipts. Production is 20 000 unit of Product A.

Calculate:

(a) the capacity cost rate for receiving, (b) the cost of each standard and complex delivery and (c) the receiving cost to be allocated to Product A

Solution 4.2

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Context

Strategic revenue management is concerned with developing strategies to optimise revenue.

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Context Strategic cost management techniques such as life cycle costing, target costing and Kaizen costing provide opportunities for achieving cost reduction in a modern manufacturing environment.


Discuss the implications of life cycle costing for mobile phones and nuclear power plants.

Solution 4.3

Learning example 4.4 Target costing may be used in both the manufacturing and service sectors. How might a cost gap be eliminated if target costing was used to price the lecture in which you are currently sitting?

Solution 4.4

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Context

One of the traditional responsibilities of the management accountant is to provide cost information. Indeed, in many organisations the management accountant was called the cost accountant. Activity-based management is concerned with using information on the costs of activities to improve efficiency and eliminate certain activities that do not add value to customers, as well as improving design and developing better relationships with customers.


Outline the benefits of ABM.

Solution 4.5


Outline the problems of ABM.

Solution 4.6

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)


Context

Business processes may be changed to improve the way an organisation functions, in order to help it achieve its business objectives.


How could the ideas behind Porter's value chain be useful in a BPM project?

Solution 4.7


What do you think are the major pitfalls for managers attempting to introduce business process management into their organisations?

Solution 4.8

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Context

As cTo Tntroversy over global warming continues, and big business adopts green targets, the issues raised here are likely to become increasingly important.


It may be advantageous for an organisation to show its concern for the environment. In what ways might an organisation benefit from green practices and policies?

Solution 4.9

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Context Viewing suppliers as business partners instead of being a cost to be minimised affords opportunities for cost reduction and value enhancement through collaboration.


What would you consider when selecting a supplier?

Solution 4.10

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Context

Supply chain management is an externally-focused technique, whereby members of the supply chain collaborate to provide value to the customer. Savings are shared between the partners in the chain.


Suggest ways in which supply chain management can provide the advantages of added value, increased customer satisfaction, increased sales prices and reduction in waste and efficiency.

Solution 4.11


Discuss any examples of improvements to supply chain management of which you have experience.

Solution 4.12

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M)


Context

Total Quality Management (TQM) focuses on the entire organisation rather than just one part of it. It is a process of continually improving quality of products, services and processes with the emphasis on preventing defects or failures rather than trying to do something about them after they have occurred.

Note that total quality management is not covered in this level of depth in the study materials.


One of the basic tenets of TQM is 'get it right first time'. Do you think variance reporting would be a help or a hindrance in this respect? Give reasons for your answer.

Solution 4.13


If Total Quality Management (TQM) is introduced into an organisation, would you expect each of the following costs, in the long term to increase or decrease?

(a) Cost of prevention

(b) Cost of appraisal

(c) Cost of internal failure

(d) Cost of external failure

(e) Total costs of quality

Solution 4.14

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Context

Outsourcing and offshoring are additional examples of externally-orientated strategic management accounting techniques.

160

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PA)


Context

Customer profitability analysis (CPA) is linked with ABC, which can be used to build up customer specific costs in a similar manner to cost pools. It is used to identify the most profitable customer groups.

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PA)


Context ABC can assist in customer profitability analysis (CPA) by focusing attention on customer groups which are not profitable and areas where cost reduction measures should be undertaken.

Note that the customer life cycle is not explicitly covered in the study materials.

Learning example 4.15 Cap Co makes high-tech electronic components. Customers place orders online or by phone, and then Cap Co delivers the components to its customers. Cap Co has just carried out a customer account profitability analysis and has identified various customer groups that are less profitable than others. However, Cap Co is reluctant to stop selling to the less profitable customer groups altogether and would prefer to increase their profitability.

How could Cap Co increase the profitability of the less profitable customer groups?

Solution 4.15


DING is an IT consultancy that provides IT advice to a range of clients. DING classifies its customers into four main categories. D I N G Sales value ($000s) 1 000 3 000 850 1 200

DING employs ten full-time IT specialists who each deliver 1 500 chargeable hours per year and who are paid $60 000 per year.

DING has estimated its other costs as follows: Costs $'000 Telephone support 1 000 After-sales service 1 500 Client meetings U 280 U 2 780

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DING has reviewed its existing client database and determined the following four average profiles of typical clients: D I N G Total 000's 000's 000's 000's 000's Number of telephone queries 20 480 50 250 800 Number of visits 3 21 4 8 36 Number of meetings 70 90 20 100 280 Chargeable hours 4 6 2 3 15

Previously DING used a single cost rate of $200 per hour for both in-house profit reporting and quotations for new contracts.

Required (a) Prepare calculations to show the profit attributed to each customer group using the current

system of attributing costs. (b) Prepare calculations to show the profit attributed to each customer group using an activity-

based system of attributing costs. (c) Discuss the differences between the costs attributed using ABC and those attributed by the

current system, and advise whether the change to the ABC system should be adopted.

Solution 4.16

166

Reinforcement



167

Module 5

PROJECT MANAGEMENT, PARTS A AND B

This module considers the different stages of project management and the different types of organisational structure that can be adopted for projects and project teams.

PART A: PROJECT MANAGEMENT DEFINED

PROJECTS AND PROJECT MANAGEMENT

STEPS IN PROJECT MANAGEMENT

ORGANISATIONAL STRUCTURES

MANAGING INTERNATIONAL PROJECTS

PART B: ROLES IN PROJECT MANAGEMENT

PROJECT MANAGEMENT ROLES

PROJECT TEAM

168

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5: Project Management, Parts A and B 169

Context

Project management is an important aspect of strategic implementation (strategy into action).

This section sets the scene for more detailed consideration of techniques and applications.


Discuss any project of which you have knowledge that failed to meet its objectives for time, cost and quality.

Solution 5A.1

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Context

The concept of the project life cycle (steps) is particularly useful when it comes to larger projects, because it breaks the project into manageable parts. This makes it easier to allocate resources, and to manage them.


Suggest ways in which project management could be used in the analysis of strategic position. What advantage might this approach have?

Solution 5A.2

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Context

Structure of project will depend on its requirements or purpose.


Provide a real life example of each type of project structure.

Solution 5A.3

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Context

Increased globalisation means that many organisations undertake international projects.

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Context

A project manager has to understand how to balance the factors of scope, resources, time and risk to ensure the project's desired result is achieved.


Is there a standard style of management that is appropriate for managing projects?

Solution 5B.4


Discuss any personal experience you may have of project or other temporary teams that did not work together effectively.

Solution 5B.5

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Context Selecting the right team is critical to the success of a project.

Note that the topic building a project team is not covered to this degree of depth in the study materials.


Compare and contrast the task force and matrix approaches to project teams.

Solution 5B.6

180

Reinforcement

Study Guide Module 5 Parts A and B


181

Module 5

PROJECT MANAGEMENT, PART C

Project selection requires the analysis of four areas: strategic fit, stakeholders, risk and financial projections. A variety of analytical techniques exist to help the management accountant complete these tasks.

PART C: MANAGEMENT ACCOUNTANTS ROLE IN PROJECT SELECTION

THE BUSINESS CASE

STRATEGIC ANALYSIS/FIT

STAKEHOLDER IDENTIFICATION AND ASSESSMENT

RISK ASSESSMENT

FINANCIAL ANALYSIS

182

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5: Project Management, Part C 183

Context

Preparing a business case for a project is essential otherwise organisations drift into ill-defined projects based on vague hope and an even vaguer budget.

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Context

Project management in its widest sense is fundamental to much of strategy.

Note Breakthrough projects are not covered in the study materials.

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Context

Keeping stakeholders informed and involved in a project and keeping them happy is one of the project managers key tasks.

Learning example 5C.1

List the stakeholders in a large childcare charity which is undertaking a project to relocate one of its children's homes.

Solution 5C.1

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Context

All projects carry an element of risk, and it is important that a clearer understanding of what the project delivers against the business strategy is developed.


Identify two ways in which project risk can be classified.

Solution 5C.2

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Context

A number of techniques exist to evaluate projects. In long-term projects, discounted cash flow (DCF) methods (such as Net Present Value) are superior as they account for the time value of money.


Day Mode Inc is considering a major investment project which will involve the creation of a chain of shops. The following cash flows are expected.

Time (year) 0 1 2 3 4 $000 $000 $000 $000 $000 Land and Buildings 8 125 Fittings and Equipment 1 750 Gross Turnover 4 500 6 250 7 000 7 500 Direct Costs 1 875 2 750 3 750 4 000 Marketing 425 625 500 500 Office Overheads 312 312 312 312

(a) 60 per cent of office overhead is an allocation of head office operating costs. (b) The cost of land and buildings includes $200 000 which has been spent on surveyors fees. (c) Day Mode Inc expects to be able to sell the chain at the end of year 4 for $10 000 000.

Day Mode Inc is paying corporate tax at 30 per cent and is expected to do so for the foreseeable future. Tax is paid one year in arrears.

The company will claim capital allowances on fittings and equipment at 25 per cent on a reducing balance basis. Capital allowances are not available on land and buildings.

Estimated resale proceeds of $250 000 for the fittings and equipment have been included in the total figure of $10 000 000 given above.

Day Mode Inc expects the working capital requirements to be 15 per cent of turnover during each of the four years of the investment program.

Day Modes real cost of capital is 7.7 per cent per annum.

Inflation at 4 per cent per annum has been ignored in the above information. This inflation will not apply to the resale value of the business which is given in nominal terms.

Required

Calculate the NPV for Day Modes proposed investment.

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Solution 5C.3

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Context

A variety of other techniques can contribute to an initial financial analysis of a project.


Two mutually exclusive projects with different project lives have been calculated as having NPVs as follows:

Project A (4 years) $300 000

Project B (3 years) $250 000

The discount rate for both projects is 8%.

Which project should be chosen?

Solution 5C.4

196

Reinforcement

Study Guide Module 5 Part C


197

Module 5

PROJECT MANAGEMENT PARTS D, E AND F

Management accountants play a key role in supporting the project manager through the project planning phase, and are central to the process of project monitoring and control. Management accountants may add value through writing the project completion report and supporting other knowledge management activities.

PART D: MANAGEMENT ACCOUNTANTS ROLE IN PROJECT PLANNING

PROJECT SCHEDULING: GANTT CHARTS

PROJECT SCHEDULING: PERT

PROJECT SCHEDULING: CRITICAL PATH METHOD

PROJECT BUDGETING

PART E: MANAGEMENT ACCOUNTANTS ROLE IN PROJECT MONITORING AND CONTROL

MONITORING PROGRESS AND COSTS

RISK MANAGEMENT AND STAKEHOLDER MANAGEMENT

PART F: MANAGEMENT ACCOUNTANTS ROLE IN PROJECT COMPLETION AND REVIEW

PROJECT COMPLETION AND REVIEW

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Module 5: Project Management, Parts D, E and F 199

Context

Gantt charts are a fairly basic project management tool, and they do not show the interrelationship between the various activities in the project as clearly as a network diagram.

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Context

In the context of project management tools, network analysis is more useful than some of the others.

Learning example 5D.1

Explain briefly what the critical path is in relation to a project.

Solution 5D.1

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Context

This continues our consideration of critical path analysis, showing an alternative presentation.

Learning example 5D.2 Time estimate in days

Activity Preceding activity Optimistic Most likely Pessimistic

1 Remove kitchen 4 7 10 2 Remove toilet block 1 5 10 15 3 Excavate floor for new slab 2 5 15 19 4 Remove mezzanine 2 4 6 14 5 Repair mezzanine 4 6 10 20 6 Lay new slab 3 1 2 9 7 Build toilets 6 5 10 21 8 Fit out toilets 7 9 18 21 9 Build kitchen 6 20 30 46 10 Fit out kitchen 9 5 7 15

(a) Construct the PERT network for the project using the AOA approach (b) Determine the expected completion times for all project activities. (c) Determine the projects critical path.

Solution 5D.2

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Context

CPM plus crashing may help shorten the project and improve cash flows and returns.

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Context Larger, more complex projects will require a dedicated team to plan activities, monitor progress, produce reports and record changes. Much of this activity is fairly routine and can be automated.

Note that the topics 'improving estimates' and 'influences on cost' are not covered in the study materials.

Learning example 5D.3

Project management software may be used for a number of purposes. Which of the following is not one of those purposes?

A Estimating B Troubleshooting C Monitoring D Reporting

Solution 5D.3

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Context As project activities take place, progress is monitored against set deliverable dates and cost budgets.

Learning example 5E.4

Think of an example where project quality may need to be prioritised over time and cost.

Solution 5E.4

Learning example 5E.5

If the project progress report shows that actual progress is slower than planned, how could this 'slippage' be addressed?

Solution 5E.5

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Context

The three critical aspects of project performance are cost, completion and quality.

The earned value method is a method for reporting progress on a project in terms of both cost and time, comparing actual costs and progress with expected costs and progress.

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Requires regular communication.


Context

All projects must be carefully controlled if they are to achieve their objectives. Risk management should be a continuing process, starting at the planning stage and continuing until project delivery is complete, in order to take account of changing risk patterns.

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Context All projects come to an end, but they dont just stop. A project manager must examine often formally whether the objectives have been met.

Note that post-completion audit is not specifically covered in the study materials.

Learning example 5F.6

Why should the completion report be documented? Isnt this just unnecessary bureaucracy?

Solution 5F.6

216

Reinforcement

Study Guide Module 5 Parts D, E and F


1

ANSWERS TO MODULE LEARNING EXAMPLES

ANSWERS TO MODULE LEARNING EXAMPLES

Answers to Module Learning Examples 3

Module 1

Solution 1.1

Financial reporting information is often historical in nature. SMA includes historical information, but also consists of forward-looking information such as forecasts and plans.

Financial information consists largely of quantitative information, although there is also qualitative financial information in financial reports. SMA provides both qualitative and quantitative information, and also information of a non-financial nature as well as financial information.

Statutory financial reporting is regulated as to content. SMA reporting can contain whatever information is considered appropriate.

Financial reporting is generally based on internal information/data sources. SMA information is based on external information as well as internal information sources.

Solution 1.2

Obviously the answer to this question will depend on the organisation chosen.

However, it is likely to have been affected by one or more of the causes listed. The key point is to identify how that might have influenced how internal reporting is carried out in the organisation.

Solution 1.3

Customer value creation. Ability to enjoy the benefits from products or services of the organisation, purchased at a price that is no higher than the value of the benefits enjoyed.

Employee value creation. Continuing security of employment. Fair pay and satisfactory working conditions in return for the efforts provided and results achieved.

Solution 1.4

Obviously the answer to this question will depend on the organisation chosen.

However, the strategy and strategic plan should seek to address certain key issues:

What do we (the organisation) do? Who do we do it for? How can we do better than the competition (or avoid it)?

Solution 1.5

Both of the examples have been carefully worded so that they describe a higher-level management process that could be part of any of the elements.

Each is applicable to strategic analysis. Each could be an input into strategic planning and choice, which is a complex process

involving the consideration of a wide range of influences, possibilities, advantages and disadvantages. Should we offer new products or look to serve new markets?

Each could also be part of a response to a problem of implementation, such as sales resistance, rising costs, or increased risk.

4

Solution 1.6

Focus on past

The challenge facing management accountants is one of providing more relevant information for decision making, but traditional management accounting systems may not always do this. Management accounting information is often biased towards the past rather than the future, and management accounting systems do not always detect strategic issues.

Inward focus

Decision making is a forward and outward looking process, and management accounting information has been too inward looking.

Internal provision

The majority of management accounting information is devised for internal consumption. Strategic management involves looking at the external environment, however, and strategy is pursued in relation to competitors. Competitor actions need to be understood and quantified to be able to devise appropriate responses.

Simplistic techniques

Some management accounting techniques such as variance analysis are seen as too simplistic and largely irrelevant for decision making in today's business. Modern business is embracing new ways of working, including outsourcing, and there is constant pressure to improve quality and service and reduce costs. Some techniques such as activity-based costing have been developed which are designed to take specific business processes and cost drivers into account when measuring profitability and performance. Techniques such as customer profitability analysis attempt to replace general analysis with specific information.

Solution 1.7 Business environment Control procedure (candidate to complete)

Most of the customers pay in cash Regular reconciliations Separate cashier to handle money Close observation of staff

Individual inventory items are of high value

Ensure good physical security Inventory only issued to authorised signatories Close control to avoid over-ordering

The organisations environment is unpredictable and complicated

Detailed monitoring of PESTEL factors, competition, customers and suppliers

Ensure resources maintain flexible and agile response potential with regular training


Module 2

Solution 2A.1

Strategic alliances/joint ventures create collaboration which helps organisations reduce transaction costs by sharing information and providing access to broader markets and resources than they would normally get if they were operating independently.

Solution 2A.2

The impact has been profound. The oil spill and BP's reaction to it ultimately resulted in a fall in the company's share price, the resignation of senior management and direct comment from the US President on the company's behaviour.

Solution 2A.3

These are some of the points candidates could have considered:

Providing information about the health risks of smoking. Marketing policy. Responding to pressure groups and lobbying. Preventing young people smoking. Developing 'safer' products (for example, low tar products). Supply chain (for example, providing a fair price for leaf suppliers). Human rights and child labour (in production and supply chain in developing countries).

Solution 2A.4 $'000 Value of benefits obtained revenue 3 000 Less: Direct costs (1 980) Less: Cost of capital used (10 000 7.5%) (750) Value created = 270

Solution 2A.5

Here are some examples. There are many more.

Inbound logistics: Storing inputs properly to avoid damage and deterioration.

Operations: Producing goods of consistent high quality.

Outbound logistics: Avoiding stockouts so that customer orders can be filled.

Marketing and sales: Obtaining feedback on what customers consider important.

After sales service: Providing prompt and effective installation of equipment.

Procurement: Obtaining quality supplies at best prices to keep costs down.

Technology development: Introducing more efficient production methods.

Human resource management: Hiring appropriately skilled staff.

6

Solution 2B.1

This Learning Example requires a personalised answer and therefore there is no formal solution.

Solution 2B.2

The solution will obviously depend on the organisation chosen. But make sure strengths and weaknesses are internal factors, and opportunities and threats are external factors.

Solution 2B.3

De Beers: diamonds. French power companies: nuclear power. Petrobras (Brazil) and Brazilian motor vehicle manufacturers: ethanol fuel technology. Google: the Google search engine. Microsoft: Windows operating system and applications suite (although this asset is fading

now, in the face of competition from open-source equivalents).

Solution 2B.4

Introduction: Virgin Galactic sub-orbital spaceflight (actually still in development but nearing introduction);

Growth: the smartphone product class, formerly dominated by the BlackBerry, which has been overtaken by Apples iPhone and a range of products from other manufacturers; High definition (HD ready) televisions.

Maturity: the internal combustion-driven saloon car has been a mature product class for decades it may be approaching the end of this phase as pressure to limit fuel consumption grows; Microsoft Office product suite;

Decline: compact disc as a medium for music.; printed newspapers (as web versions grow); travel agent services (with the growth of web-based booking).

Solution 2B.5

Major global examples include the following:

Cost leadership Walmart

Differentiation BMW

Differentiation focus Breitling watches

Cost focus Kwik-fit Tyres

Solution 2B.6

The following are possible issues to be checked:

(a) Deadlines have we met them, and are we likely to meet future deadlines? (b) Targets have we missed any? Are we in danger of missing any? (c) Have we sufficient resources to complete the project? (d) Will the market plan be achieved; in other words, are we producing enough?


Module 3

Solution 3.1 Online retailer Hotel

Number of visits to web site % room occupancy (analysed by months, days of the week, seasons of the year)

Ratio of sales orders to web site visits Types of customer (% business, % tourist etc)

% of sales orders not met from inventory On-time service completion (eg room cleaning)

Delivery times Complaints: numbers, as a % of guests

% of items returned

Solution 3.2

Candidates may make many comments, including:

Value added to shareholders (who also own company reserves) has increased. Effective tax rates have decreased. This is a sensitive issue globally. Interest costs may reflect lower base interest rates generally. Although employee appropriations have fallen in percentage terms, many of such costs are

fixed, and the higher volumes has benefitted the workforce in absolute terms.

Solution 3.3

Financial performance. Strategic objectives and progress towards these. Risks and risk management. Sustainability performance (environmental, social). Employment information; remuneration. Corporate governance information. Independent assurance/audit.

Solution 3.4

The customer and financial quadrants of the balanced scorecard are generally seen as containing many 'lagging' indicators. These are performance measures that reflect short-term operational activity, such as customer acquisition and net margin, which lags behind the bigger strategic decisions that take a longer term view. Measures in the 'leading' quadrants of learning and innovation, and business processes, look at investing in people and processes with a view to generating benefits that may be some way down the line. In other words, positive leading performance measures reflect the likely success of the organisations future strategy, while positive lagging performance measures reflect the past success of the organisations short-term operations. There is often a temptation to focus on reporting better short-term financial indicators, such as net margin, by cutting immediate costs rather than on improving longer-term indicators, such as cycle times of processes, by investing in training and proper maintenance of non-current assets. While cutting training and development expenditure and 'economising' on repairs and maintenance of machinery may generate reduced operational costs and increased profits in the short-term, the effect will be felt in the longer term in that the organisations cycle times will not have been improved and it may start to lose market as a result.

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Solution 3.5

Here are some suggestions, although they are by no means the only possible answers:

Financial perspective: Stable income (or growth); growth in new products/markets; share price; dividend growth

Customer perspective: Customer choice; value for money; convenience; repeat business

Internal process perspective: Marketing/customer loyalty; inventory management; speed through checkouts

Learning and growth perspective (extending the brand): New products as a percentage of turnover; new markets as a percentage of turnover; number of new brands launched; staff training expenditure

Interestingly, some supermarkets do use versions of the balanced scorecard in real life, customised to each particular business.

Solution 3.6

A huge range of measures may be appropriate here. Examples may include:

Financial perspective cash flow, profitability, liquidity.

Customer perspective repeat visitors, customer satisfaction surveys.

Business process perspective wastage in cafes, unit costs of plants.

Innovation and learning perspective number of new exhibits per year, new plants introduced.

Solution 3.7

1 Decide what to benchmark

2 Identify benchmarking partners and sources

3 Study the processes in your own organisation and gather information

4 Obtain benchmarking data

5 Analyse the information and understand it relative to the benchmark

6 Learn and implement changes where necessary

Solution 3.8

This Learning Example requires a personalised answer and therefore there is no formal solution. There is a strong body of opinion that believes that top executives receive excessive rewards because they get the benefits of the efforts of the people who work for them.


Module 4

Solution 4.1

Workings: recovery rates

(1) Machine cost hour machineper $0.5851000 4000 50000 40

000 $55

(2) QC & set-up run productionper 600 $3 2 13 10

000 $90

(3) Receiving receipt componentper 363.64 $1 21010

000 $30

(4) Packing ordercustomer per $250202020

000 $15

A B C Total $ $ $ $ Machining costs 23 404 29 255 2 341 55 000 Quality control & set-up 36 000 46 800 7 200 90 000 Receiving 13 636 13 636 2 728 30 000 Packing U 5 000 U 5 000 U 5 000 U 15 000 Total overhead costs 78 040 94 691 17 269 190 000

Units produced 20 000 25 000 2 000

Overhead cost/unit $3.90 $3.79 $8.63

A B C $/unit $/unit $/unit Direct materials cost 5.00 10.00 10.00 Direct labour cost 10.00 5.00 5.00 Production overhead cost U 3.90 U 3.79 U 8.63 18.90 18.79 23.63 Sales price U 20.00U U 20.00 U 20.00 Gross profit/unit 1.10 1.21 (3.63)

Solution 4.2

(a) CCR = capacity available Total

cost resource Total

= hours 200

000 $5 000$30

= $125

(b) Standard delivery cost= $125

Complex delivery cost = $125 2 = $250

(c) Product A receiving cost $

4 standard receipts @ $125 500 6 complex receipts @ $250 U1 500 U U2 000

Receiving cost per unit of Product A $0.10000 20000 $2

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Solution 4.3 Mobile phone Nuclear power plant

Short life cycle Very long life cycle

High costs at the start due to product development, marketing

High costs at the start due to building and equipment costs

During growth stage, cost per phone falls dramatically due to economies of scale

During growth stage, cost per unit of electricity falls dramatically due to economies of scale

At maturity stage, main cost will be variable costs

At maturity stage, main cost will be variable costs

At decline stage, sales volumes fall At decline stage, very large decommissioning costs

Solution 4.4

Options available to reduce costs:

(1) Training staff in more efficient techniques. In the extreme a lecturer could have two classes simultaneously and talk to one, while the other class watched video presentations or did questions.

(2) Using cheaper staff (or simply paying existing staff less!).

(3) Acquiring a new, more efficient technology. Perhaps using web casts.

(4) Cutting out non-value added activities. This might be hard to do for a lecturer but an example may be social time with students.

Solution 4.5

Improved quality. Increased customer satisfaction. Lower costs. Therefore increased profitability.

Solution 4.6

The amount of time setting up the system. The associated costs of setting up the system. Organisational and behavioural consequences.

Solution 4.7

BPM seeks to give an organisation an improved understanding of how their processes operate, so that they can be redesigned with a view to creating and delivering better customer value.

The idea of looking at how processes operate across an organisation to achieve value for the customer draws directly on Porter's idea of an organisation as a set of value-creating activities.

Solution 4.8

(a) BPM is an all or nothing proposition. It is therefore expensive and risky, requiring major expenditure on consultancy, investment in IT systems and disruption. It is not worth doing unless benefits are going to exceed costs.

(b) Implementation is difficult, as organisations fail to think through what they are trying to achieve, and the process becomes captured by departmental interest groups.


(c) Managers take a departmental view rather than the view of the business as a whole.

(d) BPM becomes associated only with across the board cost cutting rather than a fundamental re-evaluation of the business. Managers will fight very hard to avoid any threats to their position.

(e) Management consultants responsible for the ideas often fail to come up with realistic strategies for implementation. Managers are therefore left with a BPM formula that they may not fully understand and have to implement it in a hostile work environment.

Solution 4.9

Short-term savings through waste minimisation. Potentially lower cost of capital because investors and lenders demand a lower risk premium. A saving of energy and environmental taxes. Longer product life cycles as environmental legislation may force early replacement of non-

green products.

No risk of pressure group action that may damage the reputation of the organisation. Consumers may be willing to pay a higher price for the product. There may be a larger pool of employees willing to work f

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PL10 SMA 2015 Student Notes XPrint FINAL