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18 Cards in this Set

  • Front
  • Back
Strategic planning
- the process of deciding on an organization’s major programs (e.g., product lines, R&D) and the approximate resources devoted to them
Capital investments
- capital investment decisions are a product of strategic planning

- require substantial monetary commitments and should generate long-term profits
replacements and minor improvements
- replacements of existing long-lived assets that wear out or become obsolete

- managers should investigate alternatives for replacing the asset and consider cost, efficiency, and time
due to excess demand or to serve new customers in current markets
strategic moves
- expansion to move into new markets geographically or with new products/services

- due to increased risk, top management may access market studies, outside consultants, industry experts, etc.

- can result from changes in market condition, from product innovations, or from organizational planning activities
Due diligence
-a legal term for the appropriate steps in an investigation
legal repercussions
environmental issues)
public relations issues
employee relations
-managers should also consider non-quantifiable benefits from experience gained
The role of audits
-interim audits can reveal problems and provide information for future decisions
Ethical issues
- top managers should be wary of misstated information used to make the investment decision, misstated results, and should consider the ethics of the project
Financial information for making investment decisions
o from: (1) financial records (if historical information from similar past decisions exists), (2) operating personnel (e.g., production activities and costs) and marketing personnel (e.g., competition and demand),
(3) publicly-available industry data and competitor analysis (e.g., company and industry web sites, corporate financial statements)
Discounted cash flow analysis
-consider the timing of cash flows because of the time value of money

-the discount rate should be the cost of capital, adjusted to reflect uncertainty or risk

-high-tech projects may be rejected because greater uncertainty makes the discount rate high or because the payback period is too long

- also consider the non-quantifiable factors (e.g., flexibility in the production process, shorter cycle times, reduced lead times, increased product quality)
Sensitivity analysis
-consider outcomes from changing assumptions

-consider a worst-case scenario, a best-case scenario, and scenarios in between these outcomes
Real option value – ROV
- helps to assess the impact of external factors, especially potential competition, in project evaluation

- assess scenarios for the costs and benefits of continuing with the project versus abandoning it at certain points in the future
Capital investment decisions in non-profit and government organizations
-analysis is required not to make a profit but because capital is generally limited
A budget
a detailed plan used:

1.For planning

2.To facilitate communication and coordination among managers and departments

3.For performance evaluation
Short-range budgets
cover a month, quarter, or year
Rolling (or revolving or continuous) budgets
are continuously updated
The master budget
is a comprehensive set of budgets covering all phases of an organization’s operations.

- is the main output of a budget system

- is comprised of many separate, interdependent budgets
i)The sales budget
projected sales in units x price = projected sales revenue

- may be shown by month or quarter