1.Strategy Identify (if applicable): Mission (implied) Stakeholder preferences Organizational Targets (Sales, ROI, GM, Net Income, etc) Constraints (covenants, etc) Key Success Factors and Key Risks SWOT: Strengths & Weaknesses (internal ONLY) Opportunities & Threats (external ONLY) No need to call it out as a SWOT analysis Stick to relevant points

2. Strategy Financial Analysis Recent financial performance (ratios, trends) Financial Position (Liquidity, Solvency) Analysis of Alternatives Qualitative Analysis (Pros and Cons) Link back to SWOT and targets/constraints Mitigate/avoid key risks and threats Quantitative Analysis Investment decision Product decision Available financing 3. Strategy Recommendation Make sure you have one and its clear Again: Linkages If you have a target/constraint, is it met? Implementation Dont go crazy but its usually good to have a few points Balanced Scorecard is always useful in gauging success Forecast If you have targets or constraints, always good to show forecast 4. Investment Decision - NPV NPV is used to evaluate investments Very useful in cases where you have: Large initial investment Future cash inflows/outflows Duration of several years Less useful when: Highly risky forecasts Very short term (1-2 years) Must use cash basis (exclude noncash items) and ignorefinancing costs (already considered in discount rate) 5. Example: NPV Initial Year 1 Initial InvestmentYear 2Year 3Year 4Year 5Year 15(7,600)Working Capital(400)(800)(1,150)Profit (Loss) Before Taxes(400)(800)(600)(386)(670)6151,9752,9206,580540540Depreciation540540540540Income Tax (excl CCA)21145(400)(870)Finance Costs640640640640640650(159)1555951,4852,3034,921Net Cash FlowNet Present ValueNet Present Value:(7,600)6,6406,640(1,197)(2,464) 6. Balanced Scorecard Performance management tool Track execution of activities and monitorconsequences Strategy execution tool Translate mission/vision into objectives Measure performance vs. objectives Can be used for incentive-based pay 7. Balanced Scorecard 4 Perspectives Financial Financial performance (e.g. Gross Margin, Net Income, ROI, ROE) How can we show our strategy is succeeding financially? Customer Nonfinancial measures of customer satisfaction (retention, market share, customer surveys) How can we show were delivering to customers the value they expect? 8. Balanced Scorecard 4 Perspectives Internal Business Processes Operating effectiveness & efficiency (including financial measures) such as variances, defects, on-time delivery What processes must we excel at to deliver value to our customers? Learning and Growth Measures of employee satisfaction, training and advancement What action must the company take to prepare the people and organization for the future? 9. Balanced Scorecard Components Strategic objectives: Goals, KSFs, Key Risks Performance measures: Quantitative metrics to tracksuccess in achieving objectives Baseline performance: Current level of performance Target: New level of performance being sought Initiatives: Enablers to help achieve targets 10. Transfer Pricing Price at which goods or services are charged betweenLOBs/BUs/Departments Objective is to achieve goal congruency (i.e. consistentwith organizational goals) Market Value (best) Standard Cost (cost center to profit center) Negotiated Amount Cost + profit Actual cost 11. Product Cost Flows Direct Materials Direct Labour Manufacturing OH Cost of Goods Manufactured Finished Goods Inventory 12. Product Cost Flows Beginning WIP + Direct Materials + Direct Labour + Manufacturing OH (Ending WIP)Beginning Finished Goods + Cost of Goods Manufactured (Ending Finished Goods)Cost of Goods ManufacturedCost of Goods SoldPeriod Costs: Expenses in current period 13. Cost Volume Profit (CVP) Single Product Unit BreakevenTotal FC Unit CM$ BreakevenTotal FC CM %Multiple ProductsUnit Breakeven PointTotal FC (Total CM/Total Unit Sales)$ Breakeven PointTotal FC (Total CM/Total $ Sales) 14. Spoilage and Scrap Normal spoilage Added to cost of good units Abnormal spoilage Period cost Proceeds from sale of scrap Reduce Cost of Goods Sold Additional Income Reduce Overhead 15. Job Costing Costing system that tracks costs at a job level Used when units are expensive and costs can be traced to individual job DM, DL and MOH are tracked to a job via WIP Charged to Finished Goods upon completion Charged to COGS upon sale 16. Process Costing Inexpensive units for which individual costs cannot beidentified Average cost per equivalent unit produced during the period Average cost used to transfer from WIP to FG & COGS 17. Activity-Based Costing Allocation of indirect costs based on causal activities Attempts to identify direct link between cost and cost object (ie Cost Driver) Results in better allocation using multiple activity rates Reduces cross-subsidization 18. Activity-Based CostingCostsActivitiesProducts 19. Overview of ABC Identifies activities required to produce product or service Direct costs can be directly allocated to products Indirect costs more difficult to assign Minimizes costs related to non-value adding activities Determines the costs of the activities Allocates cost to cost objects based on the objects consumption of activities 20. Allocation of OH to Cost Pools Payroll taxes Machine maintenance1,000Direct Labour500Purchasing Dept labour4,000Fringe benefits2,000Purchasing dept supply250Equipment depreciationMachine Hours750Electricity1,250Unemployment Insurance1,500# of Purchase Orders 21. Allocation of OH to Cost Pools Payroll taxes Machine maintenance1,000 500Purchasing Dept labour4,000Fringe benefits2,000Direct Labour $4,500Purchasing dept supply250Equipment depreciationMachine Hours $2,500750Electricity1,250Unemployment Insurance1,500# of Purchase Orders $4,250 22. Calculation of OH rates Assuming: 1,000 Direct Labour hours 250 Machine hours 100 Purchase Orders ABC Rates: 4,500/1000 = $4.50 per Direct Labour Hour 2,500/250 = $10 per Machine Hour 4,250/100 = $42.50 per Purchase Order 23. Establishing an ABC system Determine main activities performed Determine best cost driver for each activity Determine cost of each activity Determine rate per unit of activity Assign costs to products based on consumption of activity 24. Standard Costs & Variance Analysis Material & Labour Price Variance (AP-SP) x AQ Efficiency Variance SP X (AQ SQ) Yield variance + Mix variance Yield variance (Total AQ Total SQ) x BAPPU Mix variance (Actual Mix % - Std Mix %) x Total AQ x (Std PPU BAPPU) 25. Standard Costs & Variance Analysis Variable Overhead Overhead Spending Variance (SR AR) x AU AU Actual units of allocation base Overhead Efficiency Variance (SH AH) x SR 26. Standard Costs & Variance Analysis Fixed Overhead Overhead Spending Variance Budgeted FOH - Actual FOH Production Volume Variance Applied FOH Budgeted FOH 27. Revenue Variances Snapshot 28. Revenue Sales Price Variance AQ X (AP SP) Sales Volume Variance (AQ BQ) X Individual CPU Sales Quantity Variance (AQ BQ) X BACPU Sales Mix variance (ASM% - BSM%) X Total AQ x (Budg Ind CPU BACPU) 29. Revenue Variances Snapshot 30. Revenue Sales Volume variance Sales Quantity Variance + Sales Mix Variance Market Size Variance (Act Size Budg Size) X Budg Share X BACPU Market Share Variance (Act Share Budg Share) x Act Size - BACPU Sales Mix variance (ASM% - BSM%) X Total AQ x (Budg Ind CPU BACPU) 31. Short-term decision-making Special Order If idle capacity exists, taker order if Incremental CM Incremental FC > 0 If no idle capacity, take order if Incremental CM Incremental FC Opp Cost > 0 Add or drop product If incremental CM Incremental FC > 0, add product If lost CM FC savings < 0, drop product