Strategic Planning - ANS Process of defining an organization's strategy or direction & allocating resources to pursue this strategy.
Hambrick & Fredrickson Strategy Diamond (ESAVD) - ANS - Economic Logic: how returns will be obtained
- Staging: speed and sequence of moves
- Ar...
Strategic Planning - ANS Process of defining an organization's strategy or direction &
allocating resources to pursue this strategy.
Hambrick & Fredrickson Strategy Diamond (ESAVD) - ANS - Economic Logic: how returns
will be obtained
- Staging: speed and sequence of moves
- Arenas: where we will be active
- Vehicles: how we will get there
- Differentiators: how we will WIN
Capital Budgeting (EIR) (CIB) - ANS A budget for capital items:
- Equipment
- Infrastructure
- Renovation
All involved in the Capital Improvement Budget (CIB) which is distinct from the maintenance and
operating budget.
Benefits of Capital Budgeting (SAP) - ANS - Separates high-cost 'one-time' expenditures
from operating budget
- Allows planned growth and spending
- Provides focus
NFP vs. Corporations - ANS - No dividends in NFP. Goal is to provide best services to
stakeholder groups.
- Yes dividends in corporation. Goal is to maximize value for shareholders.
Capital Budget Process (simplified) (ILCIC) - ANS 1. Inventory/ audit capital assets
regularly
(What do we have?)
2. Link to strategic plan
(How does this mesh with strategy?)
3. Conduct a needs analysis
, (What do we need?)
4. Identify gaps... replace or repair
(What shape is it in?)
5. Conduct a cost analysis
(What are we looking at $?)
Capital Investments - Projects may be: (ID) - ANS Independent - acceptance of one is
unaffected by acceptance of another
Dependent - acceptance of one can be adversely impacted by the acceptance of another
Intro to decision-making: Choosing optimal capital budget
(finance-too many-internal) - ANS - Finance theory says: accept ALL projects with positive
NPV
- Too many projects could be challenging to manage
- If not enough internal cash to fund all projects: Capital rationing (increasing cost of capital).
Future Value vs. Present Value - ANS Future Value: the value of a present sum of money
at a future date.
Present Value: the value TODAY of a future amount.
CENTRAL to capital budgeting is finding NPV
Steps to assess ROI (DPE) - ANS 1. Determine initial cash outlay
2. Project future cash flows (be conservative)
3. Evaluate future cash flows (Payback, NPV)
Payback Method Considerations (TLT) - ANS - Main consideration is TIME it takes to pay
back investment.
- Doesn't specifically focus on LIFETIME utility of project.
- Doesn't consider time value of money.
Net Present Value (NPV) Method (TTH) - ANS - Takes into account time value of money.
- Provides an answer in today's $
- Finds the 'hurdle rate'
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