robert uberman, financial management, ka im frycza modrzewskiego 9

Robert Uberman, Financial Management, KA im Frycza ModrzewskiegoRobert Uberman, Financial Management, KA im Frycza Modrzewskiego

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Session Nine TopicsSession Nine Topics

Responsibility CentersResponsibility Centers Fundamental Income Statement analysisFundamental Income Statement analysis Budgeting and control tools and processesBudgeting and control tools and processes Other performance measurement conceptsOther performance measurement concepts


Responsibility centresResponsibility centres

Cost centresCost centres cost onlycost only

Revenue centresRevenue centres revenues (usually combined with some costs)revenues (usually combined with some costs)

Profit centresProfit centres revenues and costs but no capital revenues and costs but no capital

expendituresexpenditures Investment centresInvestment centres

all three: rev., costs, and CAPEX all three: rev., costs, and CAPEX measured by ROI, NPV, EVA(Residual Income)measured by ROI, NPV, EVA(Residual Income)


CVP analysis CVP analysis

Cost structures - variability:Cost structures - variability: fixed costsfixed costs variable costsvariable costs other types:other types:

semi variablesemi variable stepped costsstepped costs


B(reak) E(ven) P(oint) analysisB(reak) E(ven) P(oint) analysis

BEP formulaBEP formula

BEP as a measure of companies’ risk exposureBEP as a measure of companies’ risk exposure

unittsVariableunitSales

tsFixedVolumeBEP

/cos/

cos


BEP BEP conceptconcept

-20 000

-

20 000

40 000

60 000

80 000

100 000

120 000

2 000 1 500 1 000 500

Sales revenues Total costs EBIT

-60 000

-40 000

-20 000

-

20 000

40 000

60 000

80 000

100 000

120 000

2 000 1 500 1 000 500

Sales revenues Total costs EBIT

Company A, likely: FMCGretail

Company B, likely: metalindustry, mining


Contribution conceptContribution concept

Contribution = Revenues - Variable costsContribution = Revenues - Variable costs Contribution – ways of presenting:Contribution – ways of presenting:

Value/unit or per toneValue/unit or per tone % of sales revenues% of sales revenues

Named CVP = Cost Volume Profit AnalysesNamed CVP = Cost Volume Profit Analyses


BEP and pricing decisionsBEP and pricing decisions

Full absorption vs variable costingFull absorption vs variable costing Pressure on pricePressure on price Allocation of fixed costsAllocation of fixed costs Opportunity costs – limited resources issueOpportunity costs – limited resources issue – – fixed fixed

costs as representation of limited resourcescosts as representation of limited resources


Pricing – most widely used Pricing – most widely used methodsmethods

Cost + methodCost + method Mark-up vs MarginMark-up vs Margin


Variance analysis in the control Variance analysis in the control processprocess

Volume and price varianceVolume and price variance Budgeted amount = Budgeted amount =

budgeted price * budgeted quantitybudgeted price * budgeted quantity Actual amount = Actual amount =

actual price * actual quantityactual price * actual quantity Variances’ treeVariances’ tree


Variance analysis in the control Variance analysis in the control processprocess – practical issues – practical issues

Huge number of calculations:Huge number of calculations: 1500 products* 3-4 major costs 1500 products* 3-4 major costs

components*time framecomponents*time frame Delay in time – actual data available Delay in time – actual data available

when decisions are takenwhen decisions are taken Dynamic environmentDynamic environment Benchmarking issue


Value creation measuresValue creation measures

ROCEROCE Return = Net profitReturn = Net profit Capital Employed = Equity + Debt = Net Working Capital Employed = Equity + Debt = Net Working

Capital + Fixed Assets Capital + Fixed Assets EVA (RI)EVA (RI)

EVA = Net profit - Capital ChargeEVA = Net profit - Capital Charge Capital Charge = CE * cost of capitalCapital Charge = CE * cost of capital


Investment measuresInvestment measures

Hurdle rate as a cut-off pointHurdle rate as a cut-off point Shell to find 4 billions USD as ‘lazy assets’ Shell to find 4 billions USD as ‘lazy assets’

- underperforming with ROCE less than - underperforming with ROCE less than 13-15% 13-15% (FT.com., 22 December 2003)(FT.com., 22 December 2003)


Budgeting and ControlBudgeting and Control

Budget as the key tool in any controlling Budget as the key tool in any controlling processprocess

Budget vs planBudget vs plan Levels of budgeting: Levels of budgeting:

strategicstrategic operationaloperational managerial managerial


Budgeting - purpose + general Budgeting - purpose + general remarksremarks

Resource allocationResource allocation Congruence with strategyCongruence with strategy

Master budget vs. operating budgetsMaster budget vs. operating budgets Monetary budgeting vs budgeting in natural units Monetary budgeting vs budgeting in natural units


Budgeting - typical structureBudgeting - typical structure

RevenuesRevenues

Variable costsVariable costs Fixed costsFixed costs

= OPEX= OPEX

Other Investment costsOther Investment costs Capital Expenditures (CAPEX)Capital Expenditures (CAPEX)


Balance Scorecard as a non-Balance Scorecard as a non-financial performance measurefinancial performance measure

Customer PerspectiveCustomer Perspective Business Processes PerspectiveBusiness Processes Perspective Organisational learning (Development) Organisational learning (Development)

PerspectivePerspective Financial Perspective (RI)Financial Perspective (RI)


Budgeting - typical processesBudgeting - typical processes

Top -down (authoritarian)Top -down (authoritarian)

Bottom upBottom up participationparticipation consultationconsultation

Role of K(ey) P(erformance) I(ndicators)Role of K(ey) P(erformance) I(ndicators)


Budgeting – Budgeting – KPI of NetiaKPI of Netia

Arkusz programu Microsoft Excel

robert uberman, financial management, ka im frycza modrzewskiego 9

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