The document discusses various concepts related to financial analysis and control for facilities management. It covers topics such as control concepts like present vs past and actual vs budget comparisons. It also discusses types of analysis including comparative analysis, constant dollar analysis, ratio analysis, and variance analysis. Finally, it provides examples of how comparative analysis can be done through surveys that collect standardized metrics from peer institutions.
- An account records transactions relating to a particular item and their effect in terms of debits and credits. Debits increase accounts and credits decrease accounts.
- There are three types of accounts: personal, real, and nominal. Personal accounts relate to individuals, real accounts relate to assets and liabilities, and nominal accounts relate to income and expenses.
- Management accounting provides information to managers for planning, control, and decision making purposes, whereas financial accounting provides information to external parties. Management accounting focuses on the future and internal reporting.
Manpower planning involves estimating personnel needs over time for projects and operations. It has five essential elements: analyzing current resources, reviewing employee utilization, forecasting demand and supply of employees, and developing a manpower plan. Manpower planning ensures optimum use of human resources, facilitates training and development, and helps identify and address potential shortages or surpluses to reduce costs and improve productivity.
The document discusses the competitive environment facing organizations and the importance of environmental scanning. It notes that markets are threatened by short product/design cycles, new technologies, unexpected competitors, and tactical changes by incumbents. This leads to higher uncertainty, dynamism, and hostility. Environmental scanning allows organizations to identify threats posed by trends that could undermine their position, as well as opportunities in attractive areas where they have advantages. The document also discusses analyzing an organization's internal strengths and weaknesses, as well as external opportunities and threats in the political, economic, social, technological, legal, and other factors in the macro and micro environment.
Business process reengineering (BPR) was introduced in the 1990s to fundamentally rethink and redesign business processes. It aims to make radical improvements by eliminating non-value adding activities, integrating information systems, and optimizing end-to-end processes. BPR focuses on outcomes rather than tasks and seeks to dramatically reduce costs and improve customer service. A typical BPR process involves preparing for change, analyzing the existing process, designing an improved process, implementing changes, and continuously monitoring results. When successfully implemented, BPR can lead to significant reductions in time, costs and improvements in quality.
Managerial Economics of Masters in Business Study (MBS)Deepak Dhakal
This document outlines the course contents and units for ECO 512 Managerial Economics at Tribhuvan University. The course covers topics such as introduction to managerial economics and theories of the firm, demand analysis and forecasting, production and cost analysis, pricing theory and practice, risk analysis, and market efficiency. It provides references for the course and details the contents of Unit 1 which discusses the concept of managerial economics and theories of the firm, including the profit maximization and value maximization models. The profit maximization model assumes firms aim to maximize profits by setting marginal revenue equal to marginal cost. The value maximization model assumes firms aim to maximize long-run shareholder wealth by maximizing the present value of expected future cash flows
This document discusses strategic human resource planning. It defines strategic HR planning as identifying current and future human resource needs to achieve organizational goals. The process ensures the right number of people with the right skills are in the right places at the right time to implement strategies. Factors affecting HR planning include internal factors like organizational needs, skills requirements, and workforce profiles as well as external factors like technological changes, demographics, and globalization. The document outlines the importance of setting HR objectives and developing plans to meet needs while ensuring supply meets demand.
- An account records transactions relating to a particular item and their effect in terms of debits and credits. Debits increase accounts and credits decrease accounts.
- There are three types of accounts: personal, real, and nominal. Personal accounts relate to individuals, real accounts relate to assets and liabilities, and nominal accounts relate to income and expenses.
- Management accounting provides information to managers for planning, control, and decision making purposes, whereas financial accounting provides information to external parties. Management accounting focuses on the future and internal reporting.
Manpower planning involves estimating personnel needs over time for projects and operations. It has five essential elements: analyzing current resources, reviewing employee utilization, forecasting demand and supply of employees, and developing a manpower plan. Manpower planning ensures optimum use of human resources, facilitates training and development, and helps identify and address potential shortages or surpluses to reduce costs and improve productivity.
The document discusses the competitive environment facing organizations and the importance of environmental scanning. It notes that markets are threatened by short product/design cycles, new technologies, unexpected competitors, and tactical changes by incumbents. This leads to higher uncertainty, dynamism, and hostility. Environmental scanning allows organizations to identify threats posed by trends that could undermine their position, as well as opportunities in attractive areas where they have advantages. The document also discusses analyzing an organization's internal strengths and weaknesses, as well as external opportunities and threats in the political, economic, social, technological, legal, and other factors in the macro and micro environment.
Business process reengineering (BPR) was introduced in the 1990s to fundamentally rethink and redesign business processes. It aims to make radical improvements by eliminating non-value adding activities, integrating information systems, and optimizing end-to-end processes. BPR focuses on outcomes rather than tasks and seeks to dramatically reduce costs and improve customer service. A typical BPR process involves preparing for change, analyzing the existing process, designing an improved process, implementing changes, and continuously monitoring results. When successfully implemented, BPR can lead to significant reductions in time, costs and improvements in quality.
Managerial Economics of Masters in Business Study (MBS)Deepak Dhakal
This document outlines the course contents and units for ECO 512 Managerial Economics at Tribhuvan University. The course covers topics such as introduction to managerial economics and theories of the firm, demand analysis and forecasting, production and cost analysis, pricing theory and practice, risk analysis, and market efficiency. It provides references for the course and details the contents of Unit 1 which discusses the concept of managerial economics and theories of the firm, including the profit maximization and value maximization models. The profit maximization model assumes firms aim to maximize profits by setting marginal revenue equal to marginal cost. The value maximization model assumes firms aim to maximize long-run shareholder wealth by maximizing the present value of expected future cash flows
This document discusses strategic human resource planning. It defines strategic HR planning as identifying current and future human resource needs to achieve organizational goals. The process ensures the right number of people with the right skills are in the right places at the right time to implement strategies. Factors affecting HR planning include internal factors like organizational needs, skills requirements, and workforce profiles as well as external factors like technological changes, demographics, and globalization. The document outlines the importance of setting HR objectives and developing plans to meet needs while ensuring supply meets demand.
This document provides an overview of accounting concepts for managers. It defines accounting as recording, classifying, and summarizing financial transactions and events. Accounting serves to guide and control business activities, analyze results, and provide information for decision making. It distinguishes between bookkeeping and accounting, and describes the branches of accounting. The accounting cycle and basic principles like the accounting equation and double-entry system are also summarized.
This document discusses human resource accounting and the value of human resources. It begins by asking what value human resources provide in an organization. It then provides definitions of human resource accounting as quantifying the costs and value of employees. Key points made include that human resource accounting involves identifying and reporting investments made in employees, including training costs. Models are discussed for calculating the cost of human resources as well as their future value based on earnings and age. Examples are given of calculating costs and future values. The importance of human resource accounting is that it allows for better decision making regarding training, manpower planning, and motivation of employees.
An Organization Should Approach All Tasks With The Idea That They Can Be Accomplished In A Superior Fashion
An organization capability refers to the way systems and people in the organization work together to get things done. The way leaders foster shared mindsets, orchestrate talent, encourage speed of change, collaborate across boundaries, and learn and hold each other accountable define the company's culture and leadership edge.
The firm’s ability to manage people
to gain competitive advantage.
• focuses on internal processes and systems for meeting customer needs
• creates organization-specific competencies that provide competitive advantage since they are unique
• ensures that employee skills and efforts are directed toward achieving organizational goals and strategies
A document issued by a recognized agency, and dealing with design and safety requirements relating to a specific product.
EXAMPLES
The U.S. Occupational Safety and Health Administration (051-IA) and the American National Standards Institute (ANSI).
OSHA standards are generally legally binding for an employer,
while ANSI standards are generally of an advisory nature. set industry standards with input from industry representatives and consumers.
“ Value Chain Analysis (VCA) is a process where a firm identifies its primary and support activities that add to its final product and then analysis to reduce costs or increase differentiation.”
“ Value Chain represents the internal activities a firm engages in when transforming inputs into outputs.”
Organizational Appraisal is the process of monitoring an organization’s internal environment to identify strengths and weaknesses that may influence the firms ability to achieve GOALS. It include identifying strengths and weaknesses.
A document issued by a recognized agency, and dealing with design and safety requirements relating to a specific product.
EXAMPLES
The U.S. Occupational Safety and Health Administration (051-IA) and the American National Standards Institute (ANSI).
OSHA standards are generally legally binding for an employer,
while ANSI standards are generally of an advisory nature. set industry standards with input from industry representatives and consumers.
A measurement of the quality
of an organization's policies, products, programs, strategies, etc., and their comparison with standard measurements, or similar measurements of its peers.
Introduction of Business Environment | Business Environment
In this Chapter You will get the fundamental Information about Business Environment.
Hope this slide will help you. If You feel helpful with this slide, Please do share this slide with your friends
OBJECTIVES OF CORPORATE GOVERNANCE
● To enhance long term Shareholders value
● To Protect shareholders interest
● To conduct the affairs of the company in a manner that ensure
fairness to customers, employees, investors, vendor. government
etc.
● To Maximize shareholders value
● To build up confidence and increasing the thrust of stakeholders
● To enhance efficiency and effectiveness through fair and transparent means
● To shape the growth and the future capital market
● To Minimize securities scam
This document provides an overview of key concepts in managerial economics. It discusses how managerial economics can help evaluate choices and make good decisions. It also covers the theory of the firm, which holds that firms aim to maximize expected long-run profits within resource and social constraints. Additionally, it distinguishes between business and economic profits and explores reasons why profits may vary between firms. The document concludes by outlining the role of business in society and the structure of the textbook.
This revision presentation provides business students with an overview of the role of planning in business strategy. It highlights the key parts to the strategic planning process and considers the main business benefits of effective planning.
Difference between financial,cost and management accountingmidhun chandran
Financial accounting, cost accounting, and management accounting differ in their purpose, users, and nature of information. Financial accounting keeps records of financial transactions for external users like investors and creditors. Cost accounting analyzes expenditures to determine product costs and prices for management decision making. Management accounting assists management in policy decisions and evaluating the impact of decisions for internal users. Financial accounting provides objective, auditable information while management accounting provides more subjective information tailored to strategic needs.
This presentation is about flexible budgeting and how it helps in adjusting the necessary changes in volume of activity. It is opposite of static budget, which remains fixed or at one amount regardless of the volume of activity.
The document discusses the economic environment, defining it as the economic factors that influence business operations. It covers topics such as the components and structure of an economy, the factors that make up the economic environment, and how it is classified into micro and macro levels. The economic environment is influenced by income, employment, productivity, inflation, interest rates, exchange rates, and monetary/fiscal policies. Understanding the economic environment is important for businesses to identify opportunities and challenges and function properly within the economic system.
This document presents an analysis of the financial statements of Bharat Bags, a manufacturing company located in Nizamabad, India. It defines financial analysis and outlines the objectives of analyzing Bharat Bags' financial position and operations. The methodology section explains that the analysis will use the company's balance sheets and profit and loss statements as well as tools like ratios to interpret its financial position. Key findings include the company's current ratio showing a downward trend, indicating an inability to meet current obligations, and its sales increasing each year. Suggestions are made to improve the current ratio and reduce debt collection periods.
The document discusses conducting a human resource audit. It defines an HR audit as examining an organization's HR policies, procedures, documentation and practices. The purpose is to analyze and improve the HR functions by identifying strengths and weaknesses. It outlines the scope, steps, components, and practices that should be reviewed in an HR audit. These include staffing, compensation, training, performance management, and personnel records. The document also discusses using a SWOT analysis and providing audit feedback and recommendations to further improve the HR system.
This document provides an overview of business definitions, characteristics, objectives, and classifications. It defines business as organized economic activities aimed at producing and exchanging goods or services for profit. The main objectives of business are earning profits and creating customers. Business is classified into private sector, public sector, and joint sector. Within the private sector, the main types of business organizations are sole proprietorships, partnerships, private limited companies, cooperatives, joint Hindu families, and joint stock companies. Each of these is described in terms of their key features, pros, and cons.
Compensation plays a key role in organizations by attracting capable employees, motivating superior performance, and retaining employees over an extended period of time. It helps create a strong human resource base that enhances productivity, efficiency, and quality. A suitable compensation plan is critical for achieving the right human resource infrastructure with skilled employees in the right jobs. Compensation also plays an important role in retaining top talent, motivating employees to maintain high standards, and boosting morale to achieve goals.
A budget is a plan for projected income and expenses over a defined period. Budgeting involves formulating budgets, while budgetary control uses budgets to plan and control all aspects of production. Key elements of budgetary control include preparing budgets for each department, conducting ongoing comparisons of actual vs. budgeted performance, and taking corrective actions on variances. Budgets can be classified by time period (long-term vs. short-term), function (sales, production, etc.), or flexibility (fixed vs. flexible). Zero-based budgeting requires justifying all expenses for each new period without relying on previous budgets.
Techniques for Forecasting Human ResourcesBHOMA RAM
This document outlines 14 techniques that can be used for forecasting human resource needs, including managerial judgment, trend analysis, ratio analysis, scatter plots, computerized forecasting, work study techniques, the Delphi technique, regression analysis, econometric models, nominal group technique, HR budget and planning analysis, scenario forecasting, workforce analysis, and job analysis. Each technique is briefly described in 1-2 sentences.
This document discusses financial statement analysis, which involves reviewing a company's financial statements like the income statement, balance sheet, and cash flow statement to assess the company's financial health and performance over time and relative to other companies. Key aspects of financial analysis include evaluating profitability, solvency, liquidity, and stability using tools like ratio analysis, comparative statements, common size statements, and trend analysis. The results of financial analysis are used by various interested parties like management, investors, and creditors to evaluate financial performance, position, operating efficiency, and predict future performance.
This document provides an overview of financial statement analysis and ratio analysis. It defines key financial statements like the income statement, balance sheet, and statement of cash flows. It also explains the purpose of ratio analysis is to evaluate a firm's performance, liquidity, profitability, and financial stability by calculating and comparing various financial ratios over time and against industry benchmarks. Common ratios covered include liquidity, leverage, activity, and profitability ratios. Ratio analysis is a useful tool but requires comparing ratios to standards and accounting for company and industry differences.
The document discusses the internal and external business environment. It defines the business environment as consisting of factors beyond an individual business's control that affect its operations. The internal environment includes factors within a business's control like personnel and resources. The external environment includes forces outside its control like customers, competitors, economic conditions, socio-cultural factors, political systems, and natural resources. It also describes how businesses must understand and adapt to changes in their various environments to succeed.
This document summarizes key points from Chapter 11 on equity analysis and valuation. It discusses recasting financial statements to separate recurring from non-recurring earnings components. Earnings persistence, determinants of persistence, and their relevance for forecasting are analyzed. Earnings-based valuation is described, emphasizing the use of earnings and accounting measures to compute company value. The importance of analyzing earning power and forecasting earnings for valuation purposes is also explained. Several tools for equity analysis and techniques for recasting, adjusting, and forecasting earnings are outlined.
Read Chapter 13 from Page 216-234Based on the literature answe.docxcatheryncouper
Read Chapter 13 from Page 216-234
Based on the literature answer the followings questions (each answer is worth 1point):
1. What is a Management Control System? Mention the five steps to follow.
2. What is a standard setting process? How is this process setup?
Chapter I 3
Standard Cost and
Variance Analysis
'Tonifíhí we will uncinpt tn aiuwcr ¡hive
memphvsiral qiiestitmK: I. How did ihv imiver^e come to be?
2. Wttiit is the metmins: of life? tintt.-?. Whui ihc ItcH are staruiani costs all ahoui?"
Standard costs are widely used hy manufacturing organizations.In a survey of management accounting practices conducted inthe early 1990s, 67 percent of the respondents used standard
cost systems.' Moreover, 87 percent of the respondents employed
the same cost system for internal and external reporting.^
This chapter examines standard cost systems in a real-world set-
ting. It covers the advantages and disadvantages of standard cost sys-
316
Standard Cost and Variance Analysis 117
terns, explains the standard-setting process, and shows how to
perform variance analysis. The discussion focuses on manufacturing
entities, the primary users of standard cost systems. Nevertheless, it
also contains a section on standard costs in the service sector that
explains how service organizations can use these costs.
What Are Standard Costs?
Standard costs are predetermined costs that are usually expressed
on a per unit basis.^ They constitute a carefully formulated estimate
of what future costs should be, based on a desired level of productiv-
ity and process efficiency, and a set of assumptions about the operat-
ing environment. The set of factors that can affect standard costs was
discussed in Chapter 10 (see Figures 10-5 and 10-6).
Standard costs generally consist of three major elements: labor,
materials, and overhead. How to calculate each cost element and
perform a cost roUup was discussed in Chapter 10. These procedures
do not change under a standard cost system. However, in a standard
cost system, the management team establishes the standards of per-
formance up-front, such as the amount of labor hours required, the
expected materials usage, the process yield, and normal scrap levels.
These physical standards are priced and then added together to cal-
culate the standard cost of the product or service. Once the standard
cost has been established, it is typically not changed until the next
standard-setting cycle.
Standard Costs as a Management
Control System
Management control is the process by which managers influence
other members of the organization to implement the organizational
strategies. Figure 13-1 depicts the functions of a typical management
control system.** The organization makes plans, implements these
plans, and then has a mechanism to monitor the actual results
against the plan. A standard cost system is part ofthe management
control process. Other management control systems are budgets, per-
formance evaluations, and ...
This document provides an overview of accounting concepts for managers. It defines accounting as recording, classifying, and summarizing financial transactions and events. Accounting serves to guide and control business activities, analyze results, and provide information for decision making. It distinguishes between bookkeeping and accounting, and describes the branches of accounting. The accounting cycle and basic principles like the accounting equation and double-entry system are also summarized.
This document discusses human resource accounting and the value of human resources. It begins by asking what value human resources provide in an organization. It then provides definitions of human resource accounting as quantifying the costs and value of employees. Key points made include that human resource accounting involves identifying and reporting investments made in employees, including training costs. Models are discussed for calculating the cost of human resources as well as their future value based on earnings and age. Examples are given of calculating costs and future values. The importance of human resource accounting is that it allows for better decision making regarding training, manpower planning, and motivation of employees.
An Organization Should Approach All Tasks With The Idea That They Can Be Accomplished In A Superior Fashion
An organization capability refers to the way systems and people in the organization work together to get things done. The way leaders foster shared mindsets, orchestrate talent, encourage speed of change, collaborate across boundaries, and learn and hold each other accountable define the company's culture and leadership edge.
The firm’s ability to manage people
to gain competitive advantage.
• focuses on internal processes and systems for meeting customer needs
• creates organization-specific competencies that provide competitive advantage since they are unique
• ensures that employee skills and efforts are directed toward achieving organizational goals and strategies
A document issued by a recognized agency, and dealing with design and safety requirements relating to a specific product.
EXAMPLES
The U.S. Occupational Safety and Health Administration (051-IA) and the American National Standards Institute (ANSI).
OSHA standards are generally legally binding for an employer,
while ANSI standards are generally of an advisory nature. set industry standards with input from industry representatives and consumers.
“ Value Chain Analysis (VCA) is a process where a firm identifies its primary and support activities that add to its final product and then analysis to reduce costs or increase differentiation.”
“ Value Chain represents the internal activities a firm engages in when transforming inputs into outputs.”
Organizational Appraisal is the process of monitoring an organization’s internal environment to identify strengths and weaknesses that may influence the firms ability to achieve GOALS. It include identifying strengths and weaknesses.
A document issued by a recognized agency, and dealing with design and safety requirements relating to a specific product.
EXAMPLES
The U.S. Occupational Safety and Health Administration (051-IA) and the American National Standards Institute (ANSI).
OSHA standards are generally legally binding for an employer,
while ANSI standards are generally of an advisory nature. set industry standards with input from industry representatives and consumers.
A measurement of the quality
of an organization's policies, products, programs, strategies, etc., and their comparison with standard measurements, or similar measurements of its peers.
Introduction of Business Environment | Business Environment
In this Chapter You will get the fundamental Information about Business Environment.
Hope this slide will help you. If You feel helpful with this slide, Please do share this slide with your friends
OBJECTIVES OF CORPORATE GOVERNANCE
● To enhance long term Shareholders value
● To Protect shareholders interest
● To conduct the affairs of the company in a manner that ensure
fairness to customers, employees, investors, vendor. government
etc.
● To Maximize shareholders value
● To build up confidence and increasing the thrust of stakeholders
● To enhance efficiency and effectiveness through fair and transparent means
● To shape the growth and the future capital market
● To Minimize securities scam
This document provides an overview of key concepts in managerial economics. It discusses how managerial economics can help evaluate choices and make good decisions. It also covers the theory of the firm, which holds that firms aim to maximize expected long-run profits within resource and social constraints. Additionally, it distinguishes between business and economic profits and explores reasons why profits may vary between firms. The document concludes by outlining the role of business in society and the structure of the textbook.
This revision presentation provides business students with an overview of the role of planning in business strategy. It highlights the key parts to the strategic planning process and considers the main business benefits of effective planning.
Difference between financial,cost and management accountingmidhun chandran
Financial accounting, cost accounting, and management accounting differ in their purpose, users, and nature of information. Financial accounting keeps records of financial transactions for external users like investors and creditors. Cost accounting analyzes expenditures to determine product costs and prices for management decision making. Management accounting assists management in policy decisions and evaluating the impact of decisions for internal users. Financial accounting provides objective, auditable information while management accounting provides more subjective information tailored to strategic needs.
This presentation is about flexible budgeting and how it helps in adjusting the necessary changes in volume of activity. It is opposite of static budget, which remains fixed or at one amount regardless of the volume of activity.
The document discusses the economic environment, defining it as the economic factors that influence business operations. It covers topics such as the components and structure of an economy, the factors that make up the economic environment, and how it is classified into micro and macro levels. The economic environment is influenced by income, employment, productivity, inflation, interest rates, exchange rates, and monetary/fiscal policies. Understanding the economic environment is important for businesses to identify opportunities and challenges and function properly within the economic system.
This document presents an analysis of the financial statements of Bharat Bags, a manufacturing company located in Nizamabad, India. It defines financial analysis and outlines the objectives of analyzing Bharat Bags' financial position and operations. The methodology section explains that the analysis will use the company's balance sheets and profit and loss statements as well as tools like ratios to interpret its financial position. Key findings include the company's current ratio showing a downward trend, indicating an inability to meet current obligations, and its sales increasing each year. Suggestions are made to improve the current ratio and reduce debt collection periods.
The document discusses conducting a human resource audit. It defines an HR audit as examining an organization's HR policies, procedures, documentation and practices. The purpose is to analyze and improve the HR functions by identifying strengths and weaknesses. It outlines the scope, steps, components, and practices that should be reviewed in an HR audit. These include staffing, compensation, training, performance management, and personnel records. The document also discusses using a SWOT analysis and providing audit feedback and recommendations to further improve the HR system.
This document provides an overview of business definitions, characteristics, objectives, and classifications. It defines business as organized economic activities aimed at producing and exchanging goods or services for profit. The main objectives of business are earning profits and creating customers. Business is classified into private sector, public sector, and joint sector. Within the private sector, the main types of business organizations are sole proprietorships, partnerships, private limited companies, cooperatives, joint Hindu families, and joint stock companies. Each of these is described in terms of their key features, pros, and cons.
Compensation plays a key role in organizations by attracting capable employees, motivating superior performance, and retaining employees over an extended period of time. It helps create a strong human resource base that enhances productivity, efficiency, and quality. A suitable compensation plan is critical for achieving the right human resource infrastructure with skilled employees in the right jobs. Compensation also plays an important role in retaining top talent, motivating employees to maintain high standards, and boosting morale to achieve goals.
A budget is a plan for projected income and expenses over a defined period. Budgeting involves formulating budgets, while budgetary control uses budgets to plan and control all aspects of production. Key elements of budgetary control include preparing budgets for each department, conducting ongoing comparisons of actual vs. budgeted performance, and taking corrective actions on variances. Budgets can be classified by time period (long-term vs. short-term), function (sales, production, etc.), or flexibility (fixed vs. flexible). Zero-based budgeting requires justifying all expenses for each new period without relying on previous budgets.
Techniques for Forecasting Human ResourcesBHOMA RAM
This document outlines 14 techniques that can be used for forecasting human resource needs, including managerial judgment, trend analysis, ratio analysis, scatter plots, computerized forecasting, work study techniques, the Delphi technique, regression analysis, econometric models, nominal group technique, HR budget and planning analysis, scenario forecasting, workforce analysis, and job analysis. Each technique is briefly described in 1-2 sentences.
This document discusses financial statement analysis, which involves reviewing a company's financial statements like the income statement, balance sheet, and cash flow statement to assess the company's financial health and performance over time and relative to other companies. Key aspects of financial analysis include evaluating profitability, solvency, liquidity, and stability using tools like ratio analysis, comparative statements, common size statements, and trend analysis. The results of financial analysis are used by various interested parties like management, investors, and creditors to evaluate financial performance, position, operating efficiency, and predict future performance.
This document provides an overview of financial statement analysis and ratio analysis. It defines key financial statements like the income statement, balance sheet, and statement of cash flows. It also explains the purpose of ratio analysis is to evaluate a firm's performance, liquidity, profitability, and financial stability by calculating and comparing various financial ratios over time and against industry benchmarks. Common ratios covered include liquidity, leverage, activity, and profitability ratios. Ratio analysis is a useful tool but requires comparing ratios to standards and accounting for company and industry differences.
The document discusses the internal and external business environment. It defines the business environment as consisting of factors beyond an individual business's control that affect its operations. The internal environment includes factors within a business's control like personnel and resources. The external environment includes forces outside its control like customers, competitors, economic conditions, socio-cultural factors, political systems, and natural resources. It also describes how businesses must understand and adapt to changes in their various environments to succeed.
This document summarizes key points from Chapter 11 on equity analysis and valuation. It discusses recasting financial statements to separate recurring from non-recurring earnings components. Earnings persistence, determinants of persistence, and their relevance for forecasting are analyzed. Earnings-based valuation is described, emphasizing the use of earnings and accounting measures to compute company value. The importance of analyzing earning power and forecasting earnings for valuation purposes is also explained. Several tools for equity analysis and techniques for recasting, adjusting, and forecasting earnings are outlined.
Read Chapter 13 from Page 216-234Based on the literature answe.docxcatheryncouper
Read Chapter 13 from Page 216-234
Based on the literature answer the followings questions (each answer is worth 1point):
1. What is a Management Control System? Mention the five steps to follow.
2. What is a standard setting process? How is this process setup?
Chapter I 3
Standard Cost and
Variance Analysis
'Tonifíhí we will uncinpt tn aiuwcr ¡hive
memphvsiral qiiestitmK: I. How did ihv imiver^e come to be?
2. Wttiit is the metmins: of life? tintt.-?. Whui ihc ItcH are staruiani costs all ahoui?"
Standard costs are widely used hy manufacturing organizations.In a survey of management accounting practices conducted inthe early 1990s, 67 percent of the respondents used standard
cost systems.' Moreover, 87 percent of the respondents employed
the same cost system for internal and external reporting.^
This chapter examines standard cost systems in a real-world set-
ting. It covers the advantages and disadvantages of standard cost sys-
316
Standard Cost and Variance Analysis 117
terns, explains the standard-setting process, and shows how to
perform variance analysis. The discussion focuses on manufacturing
entities, the primary users of standard cost systems. Nevertheless, it
also contains a section on standard costs in the service sector that
explains how service organizations can use these costs.
What Are Standard Costs?
Standard costs are predetermined costs that are usually expressed
on a per unit basis.^ They constitute a carefully formulated estimate
of what future costs should be, based on a desired level of productiv-
ity and process efficiency, and a set of assumptions about the operat-
ing environment. The set of factors that can affect standard costs was
discussed in Chapter 10 (see Figures 10-5 and 10-6).
Standard costs generally consist of three major elements: labor,
materials, and overhead. How to calculate each cost element and
perform a cost roUup was discussed in Chapter 10. These procedures
do not change under a standard cost system. However, in a standard
cost system, the management team establishes the standards of per-
formance up-front, such as the amount of labor hours required, the
expected materials usage, the process yield, and normal scrap levels.
These physical standards are priced and then added together to cal-
culate the standard cost of the product or service. Once the standard
cost has been established, it is typically not changed until the next
standard-setting cycle.
Standard Costs as a Management
Control System
Management control is the process by which managers influence
other members of the organization to implement the organizational
strategies. Figure 13-1 depicts the functions of a typical management
control system.** The organization makes plans, implements these
plans, and then has a mechanism to monitor the actual results
against the plan. A standard cost system is part ofthe management
control process. Other management control systems are budgets, per-
formance evaluations, and ...
This document contains discussion questions about planning, control, short and long-range planning, strategic planning, accountability, the controller's role, the cost department's role, and the need for cost information in various departments. It defines planning as developing actions and measurements to achieve objectives, and control as ensuring resources are efficiently and effectively used to carry out plans. Short-range plans cover quarters or years while long-range plans span 3-5 years. Strategic plans may cover shorter or longer periods than long-range plans. The cost department issues cost reports and prepares cost studies to aid planning and decision making.
This summary provides the key points from the document in 3 sentences:
The document discusses how accounting data can be used to measure productivity and support strategic decision making through developing cost and profitability data to identify most profitable products and market segments. It also examines how productivity measurement systems can be improved by synthesizing information from standard cost accounting systems and economic approaches to better motivate and evaluate productivity improvements. The document presents a framework for measuring productivity through variances that separate the impacts on profits from changes in sales activity, prices, and productivity.
The document discusses best practices for assessing forecasting process performance. Traditionally, performance was assessed based on cost and accuracy, but a better approach integrates three dimensions: rolling forecasts that allow flexibility, consistency through bottom-up involvement of budget owners, and modeling focused on key drivers rather than excessive detail. Assessing the forecasting process helps organizations improve their capability to adapt to changing business conditions.
Controlling techniques presented include budgetary control, control through costing, break-even analysis, responsibility accounting, internal audit, PERT/CPM, financial ratio analysis, value added analysis, management audit, and human resource accounting. Budgetary control involves comparing actual performance to budgeted figures to calculate variances. Control through costing monitors costs through cost standards and classifications. Break-even analysis establishes the relationship between production quantity, costs, profits and sales price. Responsibility accounting assigns responsibility for costs and performance to responsibility centers.
1. The chapter discusses key concepts related to overhead costs including the need for overhead controls, distinguishing between fixed and variable costs, and cost allocation methods. Traditional cost allocation systems assign indirect costs to cost objects using overhead rates, but these rates can be inaccurate.
2. A better approach is activity-based costing (ABC), which assigns costs to activities and then traces those costs to products based on consumption of the activities. This provides more accurate product costing than uniform overhead rates.
3. The controller is responsible for developing overhead budgets and standards, ensuring account classifications support cost control and product costing, and working with other departments to implement ABC if used. Proper overhead analysis and reporting helps management make informed decisions
Management accounting provides financial and non-financial information to managers for decision making. It involves partnering with management in strategic planning, performance management, and financial reporting to help implement organizational strategy. Management accounting draws information from accounting and non-accounting sources to provide quantitative and qualitative data for management planning and control. It covers areas like financial accounting, cost accounting, statistical methods, operations research, taxation, and organization and methods.
Analytical procedures and two basic audit approaches - systems based approach and direct substantive testing - are commonly used in audits. Analytical procedures involve analyzing financial ratios and trends to identify unexpected fluctuations. The systems based approach relies on evaluating internal controls, while direct substantive testing gathers evidence through examining transactions without relying on controls. Both approaches use procedures like analytical reviews, sampling, confirmations, and documentation to gather evidence and assess audit risk. The level of substantive testing required depends on the risks identified and whether controls can be relied upon.
How to Succeed on this Assignment!!!1.Follow the outline and use.docxwellesleyterresa
How to Succeed on this Assignment!!!
1.Follow the outline and use the headings I’ve provided below.
2.Select a simple psychological attribute such as happiness, well being, gratitude, hope, resiliency, goodness, etc.
3.Use a Likert Scale, as this is the most common type of scale used for psychological test construction
4.Review the Adult Hope Scale and web site information I provide below as a means to help you think about how to create your scale and what elements are considered when creating a test instrument.
5.As long as you cite the source and provide a reference I am OK with you using an existing Likert based scale as a model. The only exception is to not use the Adult Hope Scale or the web site information I provided.
Example of Adult Hope Scale and web site information
I’ve attached the Adult Hope scale below. Here is the link to a web site that discusses the psychological attribute of hope and how a test is constructed.
http://positivepsychology.org.uk/hope-theory-snyder-adult-scale/Links to an external site.
Outline and Headings for Test Construction Assignment
Note: All of the required elements that you will be graded on are included in the outline. Also the use of APA headings is an essential part of organizing a paper.
Title Page
Psychological Attribute & Likert Scale
1.Discuss the psychological attribute, skill, trait, or attitude you are interested in measuring.
2.Describe how you went about creating the test, and how you decided on the types of test items to include.
3.Present the 10-item psychological test based on a Likert scale
Analysis of Strengths and Weaknesses of Test
1.Provide an assessment of the strengths and weaknesses of the test created based on question content and type of scale used.
Guidelines for Using Test
1.Include a basic guideline that could be provided to someone interested in creating a psychological test, including the basic steps and considerations in the process of creating a basic test instrument
Reference Page
The assignment is at least 3 pages long plus an APA title and reference pages.
Error to Avoid: Letting the text you construct take up more than 1 page. Not addressing each of the written elements of the assignment.
6 Cost Estimation and Cost-Volume-Profit Relationships
Olga_Anourina/iStock/Thinkstock
Learning Objectives
After studying Chapter 6, you will be able to:
• Understand the significance of cost behavior to decision making and control.
• Identify the interacting elements of cost-volume-profit analysis.
• Explain the break-even equation and its underlying assumptions.
• Calculate the effect on profits of changes in selling prices, variable costs, or fixed costs.
• Calculate operating leverage, determine its effects on changes in profit, and understand how margin of
safety relates to operating leverage.
• Find break-even points and volumes that attain desired profit levels when multiple products are sold in
combination.
• Obtain cost functions by account analys ...
The document discusses the process of controlling in an organization. It defines controlling as monitoring, comparing, and correcting work performance and results. There are three main steps to controlling: 1) measuring actual performance, 2) comparing actual performance to standards, and 3) taking managerial actions to address any deviations. Controlling applies to both employee performance and machinery/operations. It is important for effective planning in an organization.
Required ResourceTextSchneider, A. (2017). Managerial Accounti.docxaudeleypearl
Required Resource
Text
Schneider, A. (2017). Managerial Accounting: Decision making for the service and manufacturing sectors (2nd ed.) [Electronic version]. Retrieved from https://content.ashford.edu/
· Chapter 5: Joint Cost Allocation and Variable Costing
· Chapter 8: Cost Control Through Standard Costs
Recommended Resource
Multimedia
Crosson, S. (2007). PVA ABC JIT – 4 ABC example (Links to an external site.) [Video File]. Retrieved from http://www.youtube.com/watch?v=eyH4l3VvOCU
Discussion 1 Allocating Joint Costs
Describe the three methods used to allocate joint costs. What are the advantages/disadvantages of each allocation method? Which method would you recommend? Why? Support your position with evidence from the text or external sources. Your initial post should be 200-250 words.
Guided Response: Review several of your classmates’ postings. Respond to at least two of your classmates by asking a question to challenge their recommended allocation method. Support your question and/or comments with evidence from the text or external sources.
Discussion 2 Variable/Absorption Costing
As you read in Chapter 8, there are arguments (for and against) variable costing and absorption costing. Select one of these costing methods and explore the various arguments. Determine whether you are “for” or “against” this selected method. Provide evidence from the text to support your position. Your initial post should be 200-250 words.
Guided Response: Review several of your classmates’ postings. Respond to at least two of your classmates who explored a different costing method than your own by stating whether you agree or disagree with their position. Be sure to include cited support/examples to clarify your point of view.
LearningObjectives
After studying Chapter 8, you will be able to:
Explain the signi�icance of pro�it analysis for an organization.
Describe the major characteristics and conditions of a standard cost system.
Understand the information contained in a standard cost sheet.
Compute materials price and usage variances, and identify potential causes of such variances.
Compute labor rate and ef�iciency variances, and identify potential causes of such variances.
Explain the major considerations that are the basis of standard costs for overhead and compute
budget variances and capacity variances for overhead.
Explain why the capacity variance is related only to �ixed overhead costs.
Understand issues relating to variance investigation and disposal of variances.
8 Cost Control Through Standard Costs
nd3000/iStock/Thinkstock
Explain how standard costs can be used in various different settings.
Describe ethical considerations relating to standards and variances.
WhereDoIStartWithStandardCosts?
Jean-Claude Recca, President of Rue de Lorraine, a chain of fast-food restaurants in central France, just
returned from a reunion of his INSEAD graduating class. During the day of activities in the Riviera, he talked
with several o ...
EFFECTIVE BUDGETING & FORECASTING IN HEALTHCARE By Dr.Mahboob Khan MHA,Phd Healthcare consultant
Much has been written about the impact that healthcare industry reform is having on hospitals and health systems. And with the challenge of reduced reimbursements looming, Finance teams understand that realizing the bottom- line benefits of cost containment and process improvement initiatives is becoming a business imperative. However, as organizations critically evaluate their financial management capabilities, many realize they have ineffective approaches designed around antiquated tools that aren’t up to the task.
Financial analysis refers to business assessment in terms of stability, viability, profitability, and other important financial and non-financial factors. It is done through several different techniques, ratios, and charts, with the purpose of transforming static numbers from or in financial statements, to an added value for decision-makers. Usually, the analyzed information and the analysis results are presented frequently as a report or as a dashboard.
A dashboard (or data visualization) is used to present all indicators at once to help owners, investors, or managers make efficient decisions by identifying specific actions that should be taken to reach future targets or goals.
This document discusses controlling as a management function that involves ensuring employee performance aligns with organizational standards through monitoring, comparing, and correcting actions. It describes controlling as both a corrective and foreseeing activity. The document outlines objectives to discuss the nature of controlling, link planning to controlling, and distinguish control methods and systems. It provides definitions for terms like standard and discusses the importance of management control for areas like working capital. The document also describes the typical control process of establishing standards, measuring performance, comparing to standards, and taking corrective action. It discusses accounting tools like the balance sheet, income statement, and cash flow statement that are used for organizational performance control and financial analysis. Finally, it covers quantitative and non-quantitative control
financial management project- ratio analysisyogita varma
This document is a project report submitted by Miss Yogita Savarmal Varma to the University of Mumbai for an M.Com degree. The report analyzes the financial ratios of Idea Cellular Ltd for the academic year 2016-2017 under the guidance of Prof. Karim. The report includes a declaration by the student, acknowledgements, a table of contents, an introduction to financial management and ratio analysis, an introduction to Idea Cellular Ltd, financial statements of Idea Cellular Ltd, calculations of various financial ratios, and a conclusion.
Cost accounting systems should be a strategic partner in meeting your performance objectives. To do so requires maintenance and tuning - tasks that seem to have been forgotten. You've already made the investment in your cost accounting systems. Why would you not choose to utilize this important tool to its fullest advantage?
The document discusses the concepts of planning and control in organizational management. It states that control is necessary for organizations to efficiently utilize scarce resources and ensure purposeful employee behavior. Control involves evaluating performance against plans and taking corrective actions when needed. Planning provides the standards and goals that control measures and ensures compliance with. There is a reciprocal relationship between planning and control as they inform and rely on each other.
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Independent Study - College of Wooster Research (2023-2024) FDI, Culture, Glo...AntoniaOwensDetwiler
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
2. Elemental Economics - Mineral demand.pdfNeal Brewster
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In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
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Financial analysis and control final
1. FINANCIAL ANALYSIS AND CONTROL
TABLE OF CONTENTS
TOPIC
PAGE
NAME
NUMBER
INTRODUCTION
CONTROL AND ANALYSIS CONCEPTS
CONTROL
PRESENT-VERSUS-PAST COMPARISON
ACTUAL-VERSUS-BUDGET COMPARISON
TYPES OF ANALYSIS
COMPARATIVE ANALYSIS
CONSTANT-DOLLAR ANALYSIS
PERFORMANCE ANALYSIS
RATIO ANALYSIS
VARIANCE ANALYSIS
EXCEPTION ANALYSIS
CONCEPTS IN FINANCE
TIME VALUE OF MONEY
RISK AND RETURN
FINANCIAL PLANNING AND CONTROL
BREAK-EVEN ANALYSIS
FINANCIAL FORECASTING
DEBT FINANCING
BOND EVALUATION
CAPITAL BUDGETING TECHNIQUES
PAYBACK METHOD
NET PRESENT VALUE
INTERNAL RATE OF RETURN
THIRD-PARTY FINANCING
PRODUCTIVITY MEASUREMENTS
ACTIVITY-BASED MANAGEMENT
BENCHMARKING
REFERENCES
* Rejaul Islam * FINANCIAL ANALYSIS AND CONTROL*
1-2
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3
3–4
4
4–5
5–6
6
6
7
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8
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8
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10 - 11
11
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17 - 18
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2. FINANCIAL ANALYSIS AND CONTROL
INTRODUCTION
Since the 17th century, organizations have used financial and nonfinancial information to
direct managerial decisions. Until the 1950s, financial accounting information was primarily
used to control the work of individuals and production units. However, in the 1950s,
businesses started using this information not only to control work but also to plan the extent
of financing of the enterprises as a whole. Therefore, when financial accounting information
is used for controlling people and financial planning, it is referred to as management
accounting.
Management accounting reports are built around the information needs of managers, who
must define specific objectives of the enterprise. Different institutions have different
objectives, and management accounting focuses on the financial dimensions of how and why
institutional objectives are achieved. Unlike audited financial reports, managerial financial
reports are more subjective and less rigid in form. The form or content may vary and can
include graphs or charts to supplement the statements. Moreover, these reports can
encompass nonfinancial elements such as the size and quality of enrollment, faculty size, the
condition of physical facilities, and the scope of administrative staff.
Nearly all facilities management problems involve alternatives, and resolution of these
problems requires consideration and comparison of the costs of alternatives. What levels of
electric power should be purchased and produced? Should a heating or power plant be
converted to a different type of fuel? Should building cooling systems be converted to a
central chiller plant with a chilled water distribution system? There are alternatives when
replacing building components and equipment such as absorption chillers, compressors,
components of a steam distribution system, roofs, and roof drainage systems. The choice
among alternatives often is not simple; machines and structures generally are part of a
complex plant, and this complexity creates difficulties when determining the effects of
alternatives. Many alternatives embody subsidiary alternatives.
Satisfaction of the engineer's sense of technical perfection is not normally the most
economical alternative; imperfect alternatives are sometimes the most economical.
In most cases, the costs to be compared are not immediate costs but long-term costs. Initial
cost, operating and maintenance costs, life expectancy, and replacement cost all must be
considered.
The time value of money is a factor and should always be considered. A business manager
who is not technically trained must rely on the facilities manager for advice as to the
differences among technical alternatives. Facilities management must translate the
* Rejaul Islam * FINANCIAL ANALYSIS AND CONTROL*
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3. FINANCIAL ANALYSIS AND CONTROL
differences among alternatives into money terms, both for internal decision making and to
justify requests to higher authorities for funds.
This chapter addresses the basic financial principles and methods with which facilities
professionals must be familiar in order to participate competently and effectively in college
and university financial management. As mentioned earlier, managerial accounting involves
planning analysis and control for financial decision making. These topics will be discussed
briefly.
CONTROL AND ANALYSIS CONCEPTS
Control is so closely interlinked with planning that the two are virtually inseparable. Planning
is the process of deciding what needs to be done and anticipating the steps needed to produce
the desired outcome. Control involves implementing the planning decision, comparing actual
results with what was planned, and taking corrective action if there is an unacceptable
deviation. This close relationship is illustrated by the planning and control cycle, which
continues until goals are achieved:
a. Goals are set.
b. Steps to achieve the goals are chosen.
c. Actual performance occurs, either according to plan or with variation.
d. Performance is monitored through feedback mechanisms.
e. Adjustments are made to goals, plans, or actions.
f. Additional feedback is received.
g. Additional adjustment takes place.
CONTROL
To control, it is necessary to have a way of measuring performance and a standard to which
that performance will be compared. The cost accounting system, when properly structured,
provides a means of measuring cost performance. The standards for comparison can take
many forms. The two most common comparisons are present versus past and actual versus
budget.
PRESENT-VERSUS-PAST COMPARISON
Even the most rudimentary accounting systems permit a comparison of present to past costs
for the same time period. If conditions are generally the same and the account breakdown is
sufficiently detailed, this can be an effective control method. Even in the presence of other,
* Rejaul Islam * FINANCIAL ANALYSIS AND CONTROL*
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4. FINANCIAL ANALYSIS AND CONTROL
more sophisticated techniques, a present-versus-past comparison is usually useful. Its
usefulness is enhanced if trend lines are established that depict performance over a series of
time periods.
The chief difficulty with using past performance as a standard is that there is no indication of
what performance should have been. Historical data could represent excellent or poor
performance. Unless past conditions are known, a standard may be adopted that contains
inefficiency and extraordinary costs. Although present-versus-past comparisons should not be
dismissed entirely, they must be used with extreme caution and skepticism. They are most
valuable when used in conjunction with other indicators.
ACTUAL-VERSUS-BUDGET COMPARISON
Comparison of actual costs to budget is perhaps the most important technique available to the
facilities manager. It is generally superior to comparisons against past performance because
of the characteristics of budgets in general and the unique role they play in nonprofit
organizations.
When properly prepared, budgets represent the plan, stated in monetary terms, that has been
formulated to meet the objectives of the organization. As such, they force the manager to
anticipate changes.
In nonprofit organizations, budgets play an even more important role in management control.
In such organizations, control is generally viewed to be more difficult because of the absence
of profit as an objective, as a criterion for appraising alternative courses of action, and as a
measure of performance. This shifts the focus from profits to plans and budgets and makes
the budget the principal means of overall control.
When budgets are used, cost control will be much more effective if the cost accounting
system is designed to be consistent with the budget, and vice versa. Unless the two are stated
in the same terms and structured similarly, there is no way of determining whether spending
occurred according to the budget plan. This does not mean that a budget should be set for
each detail account, but it does mean that there should be accounts in the cost accounting
system that match each line item in the budget so that a direct comparison can be made.
TYPES OF ANALYSIS
There are many different types of analysis that can be performed to get better insight into the
effect of management on the institution's financial performance. The most common ones are
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5. FINANCIAL ANALYSIS AND CONTROL
comparative analysis, constant dollar analysis, performance analysis, ratio analysis, variance
analysis, and exception analysis.
COMPARATIVE ANALYSIS
Comparative analysis involves comparing specific internally stipulated objectives against
those of other similar institutions. However, because of the inconsistency of inter institutional
data the validity of this technique is questionable. Most managers are interested in how their
operations compare with those at other universities, or with the average of those at other
universities, and seek performance measures common to all facilities. For example, the time
required to run 100 ft. of electrical conduit can be measured on an absolute basis. The task
should take the same amount of time anywhere, assuming that workers of equal ability do the
job and similar conditions exist.
However, few absolute measures exist against which actual performance can be compared.
Most measurements are relative to past performance, are in index or ratio form, and are most
meaningfully analyzed using trend lines and charts.
Every two years, APPA: The Association of Higher Education Facilities Officers surveys its
members and publishes the results in its Comparative Costs and Staffing Report for College
and University Facilities. The information reported by each participating institution includes
the following:
a. Full-time equivalent (FTE) student enrollment
b. Total gross square footage of all buildings
c. Gross square footage maintained in facilities budget
d. Ground acreage
e. Administrative cost per gross square foot
f. FTE administrators
g. Engineering cost per gross square foot
h. FTE engineering personnel
i. Maintenance cost per gross square foot
j. FTE maintenance employees
k. Custodial cost per gross square foot
l. FTE custodial personnel
m. Landscape and grounds cost per gross square foot
n. FTE landscape and grounds personnel
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6. FINANCIAL ANALYSIS AND CONTROL
The report presents this information in a format that permits comparisons. Managers can
compare their institution's performance to that of institutions of similar size, type, and
educational purpose.
Other information, although not nearly as comprehensive as APPA's report, is published
periodically in various trade journals. For example, American School & University magazine
annually publishes maintenance and operations cost survey, with costs analyzed as follows:
a. Custodial salaries, stated in dollars per student and per square foot
b. Maintenance salaries, stated in dollars per student and per square foot
c. Heat, other utilities, and other costs, stated in dollars and per square foot
d. Average custodial and maintenance salaries
e. Square feet per custodian
The above data are presented for each of ten regions of the United States, including Alaska
and Hawaii. At best, published indicators can serve only as a guide. Large differences are
often noticeable, even among similar organizations. These wide variations reflect the
differences not only in costs but also in methods of accounting for costs. For this reason,
caution is required in using such comparative data.
A better approach to comparative analysis is benchmarking, which is discussed later in this
chapter.
CONSTANT-DOLLAR ANALYSIS
This analysis is a primary concern for institutions and indicates the impact of inflation on the
institution's budget. These are several sources that can be used for comparison; an example is
the Higher Education Price Index, from which an institution-specific cost index can be
developed.
PERFORMANCE ANALYSIS
This analysis seeks to establish standards other than budgets against which to measure and
compare actual performance. These standards are frequently nonmonetary and are intended to
complement, not replace, budgets. In many cases these standards provide the detail on which
budgets are built.
Performance standards may be generated internally, or they may come from outside sources.
Both are useful. Internal standards usually relate to the budget in some way or to an
individual department's unique goals and objectives. Examples of internal standards are the
following:
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7. FINANCIAL ANALYSIS AND CONTROL
a. A 20-day backlog of work should be maintained at all times.
b. Actual job costs should be within 10 percent of the estimates.
c. Actual labor performance should be from 95 to 105 percent of standard labor.
d. Energy use should not exceed 100,000 Btus per square foot per year.
RATIO ANALYSIS
This constitutes trending ratios of key financial indicators over time to determine their
stability or instability over time. Following are some examples of these ratios:
a. Current asset/current liability
b. Long-term asset/long-term liability
c. Fund balances/debt
d. Fund balances/types of expenditures and mandatory transfer
e. Credit worthiness ratios
f. Return-on-investment ratios
VARIANCE ANALYSIS
Deviation from a standard is known as variance. The standard can be historical data,
comparable data from another university, or any other predetermined yardstick.
For cost control, it is of little use to know only the dollar amount of the variance, especially if
many factors are at work to influence cost. To take effective action, it is necessary to break
down the total difference into its individual elements using variance analysis.
There are basically two types of variance: price and quantity. Several other variances can be
developed for specialized purposes, but each one is ultimately traceable to variations in price,
variations in quantity used, or a combination of the two.
Any cost can be stated in terms of price and quantity, as follows:
Cost = Price x Quantity
If two costs are involved, one can be considered the standard and the other, the actual. The
difference between them represents the variance. From this come the basic definitions of
price and quantity variances:
Price variance VP = the difference between actual price (PA) and standard price (P S)
multiplied by the actual quantity (QA):
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Quantity variance VQ = the difference between actual quantity (Q A) and standard quantity
(QS) multiplied by the standard price (PS):
EXCEPTION ANALYSIS
A cost control system operated on the exception principle is one in which management's
attention is focused on the relatively small number of items for which actual performance is
significantly different from the standard. This principle acknowledges that management time
is a scarce resource that should be applied to problems that have the greatest impact on the
organization. The relatively large number of minor variances from standard are either ignored
or left to become the priority concern of a lower level manager in the responsibility
accounting hierarchy.
Management by exception is implicitly based on "Pareto's Law". Vilfredo Pareto (18481923), an Italian economist and sociologist, first proposed the theory that in any type of
activity, a small percentage of forces will influence a large percentage of results. This is also
known as the 80-20 rule: 80 percent of any result is controlled by 20 percent of that which is
producing the result.
Management by exception focuses on the 20 percent of the deviations from standard that
account for 80 percent of the problems.
CONCEPTS IN FINANCE
Analysis and interpretation of accounting information necessitates basic knowledge of
finance. The key concepts needed for decision making are briefly discussed in this section.
TIME VALUE OF MONEY
Where a choice is made between alternatives that involve different receipts and
disbursements, it is essential that interest be considered. Economy studies in facilities
management generally involve decisions between such alternatives. When a facilities
manager is evaluating alternative solutions to a problem, the dollar values must be made
comparable. This requires computations of interest.
Interest may be defined as money paid for the use of borrowed money. The rate of interest is
the ratio between the interest payable at the end of a period of time, usually a year or less, and
the money owed at the beginning of the period. If $8 interest is paid annually on a debt of
$100, the interest rate is $8/$100, or 8 percent per annum. Simple interest refers to interest
that is paid each year of the loan period. Interest that each year is based on the total amount
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9. FINANCIAL ANALYSIS AND CONTROL
owed at the end of the previous year, an amount that includes the original principal and
accumulated interest, is called compound interest. Compound interest is the general practice
of the business world; simple interest usually applies to loans for periods of a year or less.
RISK AND RETURN
It is impossible to project future economic developments with certainty. Risk is defined as the
probability of the occurrence of an unfavorable outcome. There are two types of risk:
systematic and unsystematic. Systematic risk is variability of outcome owing to causes that
simultaneously affect the general market, such as economic, political, or social changes,
international conflicts, and securities markets. Unsystematic risk is variability of outcome
unique to a firm or an industry, such as labor strikes, management errors, new inventions,
advertising campaigns, shifts in consumer tastes, and new government regulations.
The four major sources of systematic risk are as follows:
a. Operating risk, caused by variations in operating earnings before interest and taxes
(such as fluctuations in ratio of fixed cost to variable cost).
b. Financial risk, caused by variations in earnings per share owing to use of leverage in
the capital structure.
c. Market risk, caused by external elements that affect the economy in general and that
impact earnings.
d. Purchasing power risk, mainly caused by inflation that reduces the purchasing power
of savings or invested wealth.
Return is defined as benefit received from incurring a certain cost. It is intuitively obvious
that a financial venture is attractive only when the benefit is greater than the cost. Rate of
return is defined as follows:
When capital is invested in any financial venture, the rate of return must be high enough to
compensate for systematic and unsystematic risks in addition to the pure interest rate.
Therefore,
Where
rp= Pure interest rate due solely to the use of money, about 2 to 2.25 percent
ri = Interest rate risk, resulting from variations in the present rate
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10. FINANCIAL ANALYSIS AND CONTROL
rb = Business risk associated with an individual firm as a result of the business cycle,
technological change, availability of materials, etc.
rf = Financial risk
rpp = Purchasing power, which accounts for inflation
rt = Tax-related issues
Risk and return are closely tied together; one cannot be calculated without the other. If the
rate of return increases, so will the risk, and vice versa.
FINANCIAL PLANNING AND CONTROL
BREAK-EVEN ANALYSIS
A major task for every manager is to choose financial alternatives. The motivation behind
analyzing various alternatives is to utilize the funds available for getting a particular job done
in the most cost-effective manner. Some typical problems are as follows:
a. Whether to contract certain services, such as elevator maintenance, or to use in-house
crews
b. Whether to buy certain equipment that will make maintenance more productive
c. Whether to generate utilities or buy from a utility company
d. Whether to purchase computers and other equipment or lease from a third party
e. How frequently and in what quantities stock items should be ordered
A technique that can be used in making such decisions is called break-even analysis. One
methodology, which can be illustrated with the last item in the preceding list, is commonly
referred to as the economic order quantity (EOQ).
There are many costs associated with maintaining an inventory, such as carrying costs,
ordering costs, and stock out costs. Carrying costs refer to the cost of capital tie-up in
inventory, storage costs, insurance, depreciation, and obsolescence costs. Ordering costs refer
to the cost of placing an order (including production setup costs, if appropriate), shipping and
handling costs, and loss of quantity discount savings. Stocks out costs include added
expenses that might be incurred because of loss of good will. The idea is to minimize the total
cost as shown below:
Where
TC = Total cost
Q = Quantity to be ordered
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11. FINANCIAL ANALYSIS AND CONTROL
C1 = Annual holding cost per unit
D = Annual demand for the part
Co = Cost of placing an order
To minimize total cost, take the first derivative of TC with respect to Q and put it equal to
zero.
Where Q* is equal to the economic order quantity.
FINANCIAL FORECASTING
One of the important uses of financial ratios is in financial forecasting. The objective is to
determine how changing external factors will affect the financial health of the institution. For
example, most institutional funding is enrollment driven. When enrollment decreases,
campuses that have a higher ratio of fixed operation cost to total cost will be hurt; similarly,
when federal funds for research drop, campuses that have a higher ratio of research revenue
to total revenue will suffer.
The key to financial forecasting is the ability to project factors for a period of five years or
more with a reasonable degree of accuracy. This will determine whether the changes in these
factors are linear, curvilinear, cyclic, or simply a result of temporary fluctuations of
conditions beyond management's control. Statistical methods can provide better insight in
this case. Some of the most common tools are scatter diagrams and regression techniques. For
more information, please refer to John Pringle's Essentials of Managerial Finance.
DEBT FINANCING
Debt financing is becoming a viable method of financing a capital project. There are two
types of debt financing: short-term and long-term. The essential factors in selecting a source
for short-term debt financing are the effective cost of credit, the availability of credit, and the
influence of a particular credit on the availability and cost of other sources. The decision to
finance an asset using short-term or long-term debt is made by hedging principal, which
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means that permanent assets should be financed with long-term debt, and temporary
investments should be financed with short-term debt. Therefore, the most common form of
debt financing encountered by a facilities manager is long-term debt, and the most common
form of long-term debt is bond financing.
BOND EVALUATION
A bond is a long-term promissory note issued by the federal government, a state or local
government, or an individual firm. It usually is issued for a period of more than ten years in
denominations of $1,000. The par value of a bond is the face value appearing on the note to
be redeemed by the bondholder at maturity. The market value of the bond varies with the
market interest rate. When the interest rate increases, the market value of bonds drops below
par, and vice versa. The bond's selling price is quoted as a percentage of par value. For
instance, if a bond is selling at $650, this means the market price is $650, but at maturity the
bondholder will receive $1,000.
The coupon interest rate indicates the percentage of the par value to be paid to the bondholder
on an annual basis. For example, if the coupon interest rate of a bond is 11 percent, it means
the bondholder receives $110 annually, regardless of market interest rates. Bond interest
usually is paid semiannually. Therefore, it can be deduced that when the coupon interest rate
is more than the market interest rate, the market value of the bond will be more than par
value, and vice versa.
Bond rating is a debt quality measurement of a firm based on both subjective and objective
assessments of the relative degree of risk associated with the timely payments required by the
obligation. The role of debt-rating agencies is to assist those responsible for primary debt
issues in setting the price and fixed rate of return. The quality assessment often is expressed
as a number or a letter and is based on a scale that expresses the highest quality to the lowest
quality relative to prior quality assessments of the rater. The analysis is based on a review of
financial ratios and a comprehensive analysis of the issue, including the issuer's industry.
The first formal bond rating was begun by John Moody in 1909. Presently, two other
agencies rate bonds in addition to Moody's: Standard & Poor's and Fitch Investor Services.
Standard & Poor's rating system starts with a AAA rating as the highest assigned, followed
by AA, A, BBB, BB, B, CCC, CC, C, and D. The AAA rating is given to bonds with the least
amount of risk, and the D rating to ones in default. Therefore, AAA bonds normally have the
lowest yield because of the relatively low level of risk associated with them and, of course,
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13. FINANCIAL ANALYSIS AND CONTROL
the opposite is true for D-rated bonds. The other two types of ratings are basically similar to
Standard & Poor's.
CAPITAL BUDGETING TECHNIQUES
Capital budgeting deals with the planning and investment of a fixed asset when the
expenditure and expected return extend beyond one year. Capital budgeting is an important
function of plant management, because today's decisions will have an impact for many years
to come, and reversing or modifying decisions will be costly. Moreover, in most of these
situations the size of the investment requires careful analysis. There are a number of different
techniques to use in comparing various project alternatives. Descriptions of the most common
ones, such as payback method, net present value, internal rate of return, and third-party
financing, follow.
PAYBACK METHOD
This method determines the number of years over which the initial capital outlay will be
recovered. A project is accepted if the payback period is less than or equal to a predetermined
desired period. The advantage of the payback method is its simplicity. It also emphasizes the
early years' cash flow, which is more certain than that of later years. The drawback of the
payback method is that it does not take into account the time value of money. In addition,
revenues beyond payback years are not considered. Despite these serious shortcomings,
however, this method usually is used as a prescreening technique.
NET PRESENT VALUE
Net present value (NPV) is the accumulation of the future contribution of the project profit to
the firm, minus the initial capital outlay. It is important to note that every year's profit is
discounted using the present value technique. The rate of return usually is set by the
institution as the opportunity cost of capital. In formula expression, the NPV is given by:
Where
r = Discount rate
n = Expected useful life of the project
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14. FINANCIAL ANALYSIS AND CONTROL
Rt= Net revenue (income minus expenses) for year t
Io = Initial capital outlay
For a project to be investigated further the NPV must be larger than zero; if it is below zero, it
will be rejected. When various project options are compared, the one with the highest NPV is
the most attractive. This is a much better technique for analyzing capital budgeting options
than the payback method for the reasons mentioned earlier, but there also are some potential
problems associated with NPV.
First, the discount rate has a significant role, not only in providing a go/no-go solution but
also in comparing various investment options, especially if different options have diverse
income streams.
In other words, the method discriminates heavily against options that provide larger revenues
in later years versus first years. This intuitively makes sense, because the returns in the first
years are more certain than returns in later years. To illustrate this, assume two investment
options, A and B, have the same NPV at a discount rate of 10 percent. Option A has a
uniform revenue stream during the project life, whereas Option B has small revenues in the
first year but gradually increases toward the end of the project. If the discount rate is changed
to 12 percent, Option A will be more attractive than B. Conversely, if the discount rate is
dropped to 8 percent, Option B wills be more attractive.
Second, the NPV technique assumes that any cash flow created by the project can be invested
almost instantaneously at the discounted rate. In reality, this is hardly the case. Therefore, the
resulting NPV might be a bit skewed; but even with these shortcomings NPV is preferred to
the payback method in capital budgeting.
INTERNAL RATE OF RETURN
This is a variation of the NPV method in which a discount rate on the project is calculated
using an NPV of zero. If the calculated discount rate is equal to or greater than the
institution's discount rate, the project is accepted; otherwise, it is rejected. If different options
are compared, the project with the highest internal rate of return (IRR) is favored. The IRR is
given by the following formula:
Where
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15. FINANCIAL ANALYSIS AND CONTROL
n = Expected useful life of the project
Rt = Net revenues for year t
Io= Initial capital outlay
IRR = IRR for the project
Although IRR is a better technique than NPV, it is more difficult to calculate the result. That
is why many use the NPV technique.
THIRD-PARTY FINANCING
There are many occasions when lack of funding prevents many desired capital projects from
being accomplished. Since the mid-1980s, third-party financing has become a viable option
for funding certain types of capital outlay projects, mostly in the areas of central utilities and
energy projects.
Third-party financing also has been applied in central plant projects other than or combined
with cogeneration. There have been cases in which a campus has leased its existing chillers
and boilers to a third party and entered into a contract to provide a certain quantity of steam
and chilled water at predetermined costs. The third party in turn has expanded the plant,
adding new chillers and boilers to meet the projected load, recovering its investment through
guaranteed buy-back contracts for unit cost and quantity. In this scenario, the campus has
transferred its responsibility to produce steam, chilled water, and/or electricity to the third
party. The campus does not have to be concerned about financing any equipment upgrades or
labor problems associated with running the central plant; but in losing control of the central
plant, its operational flexibility also is limited.
In such situations, it is paramount that the facilities manager have major input in writing the
contract between the third party and the university.
Third-party financing for energy projects has occurred mostly in the area of installing more
energy-efficient hardware, such as new lamps, variable-frequency drives, or energy
management systems. Independent financing companies as well as equipment vendors have
provided this service. In such a project, the third-party financier performs a preliminary audit.
If the project appears to be financially attractive, the financier will fund the purchase and
installation of the hardware; the savings or cost avoidance resulting from the project will then
be shared between the third party and the host institution.
One of the biggest problems experienced in such projects is determining the savings
attributed to the modification. For instance, if installing an energy management system will
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16. FINANCIAL ANALYSIS AND CONTROL
reduce the heating cost for a building by so many million British thermal units (MMBTU)
from the baseline year, what happens if there is an extremely severe or a mild winter, or if
changes occur in building occupancy?
Sharing the savings between the third party and the host institution, although simple in
theory, can become involved in actual practice.
In summary, third-party financing has offered another potential savings mechanism. It must
be understood that because the third party is assuming the risk and funding the project, it will
want to be compensated for that risk. Generally speaking, third-party financing is less
attractive for nonprofit institutions, as the tax implications usually are moot. However, for
institutions that have limited capital funding for the needed levels, it can be a viable funding
mechanism.
PRODUCTIVITY MEASUREMENTS
Since the 1970s, with the popularity of continuous improvement and quality improvement
practices, management accounting has come under a lot of scrutiny. Many believe that after
World War II, accounting information displayed a distorted picture about many businesses,
and this distorted picture is viewed as one of the causes of declining competitiveness and
profitability in many American enterprises. Traditional cost management systems focus on
controlling cost by means of cost-based budgets, standards, variances, and measurements
established at the departmental level. They do not provide the analytical tools needed to
identify areas where administrative and support processes can be more cost-effective. In
short, traditional management accounting is often not connected to the company's goals and
objectives. It usually proves to be inflexible, emphasizes short-term considerations, and has
an affinity for suboptimal solutions.
Moreover, it fails to eliminate the root cause of inefficiencies and non-value-added activities
in the organizations.
Currently, it is widely recognized that the world for which traditional management
accounting was designed is rapidly disappearing. Today, management accounting is focused
on processes and activities cost and performance measurements for quality attributes such as
customer satisfaction, reliability, cycle time, flexibility, and productivity. Therefore, the key
elements of this approach are continual involvement in management-level activities and an
understanding of the critical success factors in the business-namely, customer markets,
technology, and the nature of services provided. These needs triggered the developments of
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activity-based costing (ABC) in the late 1970s, followed by activity-based management
(ABM). ABC was originally used to determine the cost of products and services. However,
ABM expanded the ABC concept and began to serve as the accounting system for the
continuous improvement of institutions.
ACTIVITY-BASED MANAGEMENT
ABM is based on the assertion that in most organizations, productivity and cost are too
complex to know or control by referring to management accounting reports. Instead,
institutions must track costs in relation to the activities performed. Conventional costing
assumes that products/services cause cost. In contrast, ABM assumes that activities cause
cost, and cost items create the demand for activities. In other words, activities consume
resources, and products/services consume activities. This means the tracing and assigning of
costs to products/services must be decoupled and computed in two stages. In other words,
ABM indicates the not-so-salient difference between usage of resources and spending on
resources. Spending on resources refers to the funds expended on total available capacity,
whereas usage refers to only the portion of that resource utilized. So, if usage of resources is
cut without reducing spending on labor and overhead, there will not be any change in the
bottom line. This concept is particularly important in the current environment, where the
overhead cost for most services consists of an ever-increasing percentage of the total cost.
Thus, the traditional overhead allocation system does not provide the insights needed to
reduce overall cost for productivity improvements.
The ABM approach cuts across different functional areas depending on specific processes.
As shown in figure 1, the approach is two-dimensional, with a process view and a cost
assignment view. The cost assignment view determines the resources consumed by activities
by means of resource drivers. The process view provides information on how the series of
activities is linked to perform a specific goal. The cost drivers consist of factors that
determine the workload and effort that determines the activity. The performance measures
should be derived from the institutional vision and the organization's enduring objectives. An
excellent model, proposed by Robert S. Kaplan and David P. Norton, calls for developing a
"balanced score card" approach. Kaplan assigns the following four dimensions to the
institutional objectives with specific measure:
1. Financial perspective: "If we succeed, how will we look to our stakeholders?"
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18. FINANCIAL ANALYSIS AND CONTROL
2. Customer perspective: "To achieve our vision, how must we look to our customers?"
Internal perspective: "To satisfy our customers, what management processes must we excel
at?"
3. Organizational learning: "To achieve our vision, how must our organization learn and
improve?"
Figure1. Cost Assignment and Process Views
Every activity in the process is a customer of another activity and in turn has its own
customers. In other words, all activities are part of a customer chain and work together to
provide value to the outside customer.
After activities have been defined, the next phase of ABM is to do a value analysis for every
activity. The purpose of this step is to determine whether value is being added in every step,
for which the value is being added, and whether this value is something for which the
customer is willing to pay. In higher education, rather than using a binary "value-added/nonvalue-added" label for every activity, a more appropriate approach is dividing the activities
into four categories: essential, incremental, sustaining, and waste.
a. Essential activities are those that add value for both internal and external customers.
Thus, institutions would like to maximize their efforts and resources for these
activities.
b. Incremental activities provide value only to the supplier, with no stated requirement
from the customer. Institutions need to assess whether such activities are truly
necessary.
c. Sustaining activities are performed in response to internal and external regulations,
institutional policies that add no value to the internal/external customer. Institutions
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must evaluate the basis for the requirements and minimize the level of effort applied
here.
d. Waste activities are performed because of an insufficient or outdated process. These
activities should be eliminated entirely.
It is important to recognize that when using ABM, we are not interested in attaining the same
level of precision used in financial reports. The accuracy level should be reasonable for
decision-making purposes. The core processes in organizations normally fall into three areas:
human processes, information processes, and material processes.
Another valuable tool that can assist in continuous process improvement is benchmarking.
This determines what kind of gap exists between an institution's performance level and that
of other organizations.
BENCHMARKING
There is an old maxim that states, everything is relative, in reality, everything is relative to an
absolute frame of reference. The technique of comparing activities, practices, and procedures
against a frame of reference is benchmarking. Simply put, benchmarking means seeking out
the best procedures and practices in use at other firms‚ even if these firms are an institution's
competitors‚ and developing a strategy for matching them in the future. It provides an
external point of reference to evaluate the quality and cost of activities, and it assists an
organization in identifying opportunities for improvement. Benchmarking attempts to assess
how an organization is doing compared with others. Who is best in the industry, and how can
an institution adopt what they do?
There are four types of benchmarking for an institution.
a. Internal benchmarking. This entails analyzing internal practices within an institution
to identify best practices within the institution and measuring the baselines.
b. Industry benchmarking. In this form of benchmarking, general trends across an
industry are used for comparison purposes (e.g., APPA's Strategic Assessment Model,
National Association of College and University Business Officers' [NACUBO]
Benchmarking Survey for Higher Education).
c. Competitive benchmarking. This involves comparing targeted data with a few selected
peers and competitors.
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d. Best in class. In this, the most comprehensive benchmarking process, multiple
industries are observed to search for new and innovative approaches. The most critical
step in benchmarking is identifying the processes that must be benchmarked.
Managers should not try to benchmark everything but instead should benchmark only core
processes and functions of the highest strategic importance. It should be recognized that
benchmarking is only a means and not an end in itself. As improvement opportunities are
identified, managers must seek the root cause of the issues and reengineer the process to
improve productivity. Because the journey in continuous improvement is a never-ending
process, the task of benchmarking is never complete. The target strived for is always moving
forward.
REFERENCES
a. Pringle, John. Essentials of Managerial Finance. Glenview, Illinois: Scott, Foresman
&
b. Company, 1984.
c. Brimson, James A. Activity-Based Management for Service Organizations,
Government Entities and Nonprofit. New York: Wiley, 1994.
d. Lewis, Ronald J. Activity-Based Models for Cost Management Systems. Westport,
Connecticut: Quorum Books.
e. McFarland, Walter B. Concepts for Management Accounting. New York: National
Association of Accountants.
f. Wiersema, William H. Activity-Based Management: Today's Powerful New Tool for
Controlling Cost and Creating Profits.
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