solare consulting (sc) august2012 case exambook cma

2013 The Society of Management Accountants of Canada. All rights reserved. / Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada.

No part of this document may be reproduced in any form without the permission of the copyright holder.

CASE EXAMINATION

Solare Consulting (SC)

AUGUST 2012

Revised May 1, 2013

August 2012 Case Examination

TABLE OF CONTENTS


Page Case Question: Backgrounder ................................................................................... 1 Additional Information ..................................................................... 16 General Comments on Performance ....................................................... 27 Steps for Approaching Business Strategy ................................................ 38 Marker Assessment Guide ....................................................................... 41 Solution Notes for Markers ....................................................................... 51 Sample Response Successful Attempt ................................................. 66 Sample Response Unsuccessful Attempt ............................................. 93


CMA Canada Page 1

August 2012

Case Examination

Backgrounder

The background information relating to the Case Examination (Backgrounder) is provided to candidates in advance of the examination date. The Backgrounder contains information about both the fictitious company and the industry involved in the case. Candidates are expected to familiarize themselves with this information in preparation for the analysis that will be required during the Case Examination.

Candidates should note that they will not be allowed to bring any written material, including the advance copy of this Backgrounder, into the examination centre. A new copy of this Backgrounder, together with Additional Information about the company and a supplement of formulae and tables, will be provided at the writing centre for the Case Examination.

Only the following models of calculators are authorized for use during the Case Examination:

1. Texas Instruments TI BA II Plus (including the professional model) 2. Hewlett Packard HP 10bII+ (or HP 10bII) 3. Sharp EL-738C (or EL-738)

Candidates are reminded that no outside research on the industry related to this case is required. Examination responses will be evaluated on the basis of the industry information provided in the Backgrounder and Additional Information.


CMA Canada Page 2

Solare Consulting (SC) Backgrounder

Overview

Solare Consulting (Solare) is a boutique management consulting firm specializing in providing advisory services in the areas of strategic planning, product development and implementation of product concepts, all in an environmentally focused manner. Like other successful consulting companies, Solare tailors its services to the needs of individual clients in order to deliver expert advice and creative solutions. Solare provides services to customers throughout Canada from offices in Titanville, Ontario, and Sprucebridge, Alberta.

The Canadian Management Consulting Industry

Organizations hire professional management consultants when they require an objective, external opinion, or when needed skills or expertise are not available in-house. Most management consulting firms specialize in one or more areas such as accounting, finance, communications, organizational restructuring, or quality and efficiency. Some specialize further into areas such as system implementation or disaster recovery management, or into specific industries such as oil and gas, or telecommunications. The larger firms tend to offer services that are more diversified.

All types of organizationsfrom large, publicly traded firms to small, private companies, non-profit groups and government agenciesemploy management consultants from time to time for various projects, with much of the demand for consulting services being highly dependent on economic conditions. Most companies choose not to hire consultants during downturns in order to minimize costs and, typically, investments in product and market development or redesign are deferred until conditions improve. On the other hand, governments and other MUSH (Municipalities, Universities, Schools and Hospitals) sector organizations tend to provide a fairly steady revenue stream for management consultants, regardless of the economic environment.

Consulting services can be categorized as follows:

1. Providing information to the client; 2. Solving the clients problem; 3. Making a diagnosis, which may involve redefining the problem; 4. Making recommendations based on the diagnosis; 5. Assisting with the implementation of the recommended actions; 6. Building consensus around, and commitment to, the corrective actions; 7. Facilitating client learning; and 8. Making permanent improvements to organizational effectiveness.


CMA Canada Page 3

Management consulting firms can vary widely in size from small entrepreneurships consisting of one individual to large, multinational companies. Some of the largest firms in the worldMcKinsey & Company, the Boston Consulting Group, Deloitte Consulting and Accenturehave thousands of employees and annual revenue in the billions of dollars.

Boutique consulting firms tend to focus on specialized knowledge in a particular industry or functional area, and vary in size from one to 200 consultants. Due to the specialized nature of their services, boutique consultants can often resolve business issues much faster than their counterparts in larger firms and, because of lower operating costs and less stringent review policies, tend to have lower fees.

Given that customer satisfaction is very important for repeat business, the way for a management consulting firm to establish and maintain a good reputation is to ensure that projects are completed on time and within budget. Smaller consulting firms use subcontractors when they are in danger of overextending themselves by taking on too many jobs. This strategy is also used when they do not have staff in a given region and local knowledge would be beneficial.

Management consultants work closely with their clients and build strong relationships with them. As a result, there is a constant threat within the industry: if employees become discontented and leave to join another consulting firm, or establish a new one, they may take previous clients with them.

The management consulting industry grew quickly in the 1980s and 1990s. Currently, the Canadian management consulting industry generates approximately $15 billion in annual revenue. Management consulting for international investors has been a growth opportunity for the larger Canadian management consulting firms. In 2010, direct foreign investment in Canada increased by $14 billion, a trend that is expected to continue.

Corporate Social Responsibility

Corporate social responsibility (CSR) is seen as the private sectors way of positively integrating the economic, social and environmental imperatives into their activities. Adopting corporate social responsibility has many benefits, including operational efficiency gains, improved risk management, enhanced employee relations, stronger relationships with communities, and improved reputation and branding.

Typical initiatives that address the environmental aspect of corporate social responsibility include improving energy efficiency, using responsible packaging and labelling, increasing recycled content, implementing responsible manufacturing techniques and reducing environmental hazards.

Since corporate social responsibility, particularly the environmental aspect, is a new concept for many companies, they tend to turn to consulting companies with an environmental understanding and expertise to help them with their efforts.


CMA Canada Page 4

Company History

Solare was founded in 2002 in Titanville, a large city in Ontario, by Tony Dirk and Anna Capellona. Passionate about protecting the environment, both founders wanted to help companies reduce waste, minimize packaging and increase their use of recyclables, believing that enough businesses would be interested in consulting solutions that combine profitability and social responsibility. In 2002, the company consisted of Tony and Anna, an office administrator and five employees.

After the recession in the early 2000s, demand for consulting services was high. Between 2002 and 2008, a time of economic growth, Solare was able to expand its workforce quickly, take on larger projects and open the Alberta office in 2006. This growth continued and the current organizational chart is in Appendix 1.

During this period, Solare gained expertise as a boutique firm and developed a reputation for providing solutions that were efficient, cost-effective and environmentally focused. The company invested substantial resources in professional development for its employees and turned away from many contract opportunities in order to stay true to its founding principle of social responsibility to the environment, its employees and the communities in which the firm operates.

However, Solares rapid growth was not without challenges. The founders were committed to a business model of low administrative and overhead costs. As a result, human resource systems were unable to keep pace with the expanding workforce, and inconsistencies developed in the way that consultants were managed and compensated. In addition, consultants were occasionally overextended, which forced the company to hire subcontractors on short notice and at great expense in order to complete projects on time.

By estimating costs accurately, making competitive bids and managing expenses, including those related to personnel, Solare was able to maintain overall profitability until the economic downturn of 2008. At that point, many of the firms clients were forced to reduce the scope of their contracts or cancel them altogether. Initially, staffing at Solare did not change, even though there was insufficient work to keep all consultants fully utilized.

Finally, in late 2009, Tony and Anna were forced to lay off staff and lend $1.5 million to the company to cope with a cash shortfall. They agreed to receive repayment over 10 years in order to avoid further financial strain (see Appendix 2).


CMA Canada Page 5

Management and Organization

Tony and Anna are co-presidents, and this arrangement has worked well for Solare over the years. Each of the founders has expertise and skills that complement those of the other. Individually, they are free to make final decisions with respect to their specific areas of responsibility, but they consult one another regularly on significant issues.

Tony has a background in strategic planning and human resource development. Prior to founding Solare, he worked for a large, international manufacturing company and was responsible for improving sales and operating profits in underperforming segments of the organization. Drawing on this experience, he has helped many Solare customers redesign divisions and corporate operations to maximize efficiency and motivate staff.

Anna has a background in marketing and product development, mainly with respect to consumer packaged goods. She began her career by managing retail divisions for a high-end department store chain and then moved into product development, working closely with suppliers and marketing staff to determine where future markets would develop. She is well regarded by many industry leaders and considered to have a keen understanding of Canadian consumers.

Solare maintains two offices, each overseen by a senior manager. These individuals, Suzanne Arsenault in Titanville, Ontario, and James Bayer in Sprucebridge, Alberta, are responsible for reviewing bids, managing projects and marketing. Both senior managers have worked for Solare for many years and are considered competent and effective at networking and marketing. They both feel that they manage an appropriate number of consultants and support staff.

Jin Bahamba, Senior Manager, Finance and Administration works in the Titanville office. He oversees accounting, contract management, human resources and information technology.

Solare consultants are loosely organized on a team basis depending on the industry of a given project and the type of expertise required (strategic planning, product development or implementation). Since Solare is a small firm, consultants may be assigned to more than one team at a time. On occasion, this makes scheduling a challenge and lines of reporting complicated.

In addition, Solare has developed subcontracting relationships with other independent consulting firms in a variety of cities and, in this way, has succeeded in providing services to many corporations operating across Canada. Solare consultants work together with the subcontractors on large, long-term projects, or on contracts involving overly frequent travel or travel for extended periods of time. Solare has found that these subcontracting relationships are particularly important in Quebec and the Maritimes, where local knowledge and particular language skills are beneficial.


CMA Canada Page 6

Shareholders and Board of Directors

Tony and Anna each own 1,000 shares, and a board of directors provides general strategic guidance. Over the years, the composition of the Board has changed, but the current directors are:

1. Herman Gomez, a retired professional engineer; 2. Luis Cano, a retired lawyer with experience in contract negotiations; and 3. Maria Shantz, an executive with a toy manufacturer.

The Board meets quarterly to receive information and provide recommendations on broad strategic initiatives. Tony and Anna are receptive to their Boards advice.

Mission Statement

Early in the companys development, Tony and Anna created the following mission statement:

Solare Consulting provides environmentally focused consulting services of the highest quality to our diverse Canadian clients. As a boutique consulting firm, we are focused on areas of strategic planning, product development and implementation. We believe in our outstanding team of professionals and provide them with opportunities to thrive and reach their full potential.

Every two years, Tony, Anna and the Board of Directors discuss the mission statement. They have considered adding elements, but have always concluded that this statement remains valid.

Services Provided

As Solare has grown and adapted, it has developed a reputation in the Canadian market as the preferred consulting firm to turn to for help in launching a new product, or reintroducing existing products, in a cost-effective and efficient manner using best practices for manufacturing, packaging and marketing. In addition, the firm is known for working with senior leadership teams to implement changes that support future success in the areas of management, sales and operations. Solare has achieved particularly notable results in the consumer packaged goods sector.

The co-presidents feel strongly that the success of any project depends on both the initial plan and its proper implementation. Unfortunately, Tony and Anna find that many companies who develop great plans fail to achieve success because of weak management commitment, a lack of staff training and inefficiencies in managing and monitoring the new processes. For this reason, Solare is reluctant to bid on projects that do not include plan implementation.


CMA Canada Page 7

Project Bidding

Typically, the bidding process begins when a prospective client issues a Request for Proposal (RFP). The RFP outlines the clients background, the scope (objectives) of the project, expected tasks and other relevant details. Consulting firms then prepare and submit detailed proposals that the prospective client evaluates using a variety of criteria, including the bidding companys profile, qualifications, proposed methodology, draft work schedule and fee schedule.

At Solare, in order to prepare a proposal, the appropriate senior manager and support staff gather information on the client organization, the industry and the particular project being considered. For all proposed contracts, input is solicited from the consultants who are likely to be involved in the work. Solare has a policy of not bidding on government projects, which generally have lower profit margins.

By comparing the requirements of the proposed project with those of similar completed jobs, Solare can usually develop a reliable estimate of the number of consulting hours required. A standard hourly rate plus a 25% margin is used for staff time. The standard hourly rate includes the salary paid to consultants plus employer-paid wage expenses like medical benefits and vacation pay. Travel and other expenses are estimated, marked up slightly and included to establish a final bid price. If Solare is particularly eager to become involved with the client, or if Solare has few upcoming projects, the bid price may be adjusted to a level that senior managers think will be required to win the job. Solare bids for small projects using a fixed rate, and for larger projects, either using a fixed rate or on a time-and-expenses basis.

The key considerations in any bid are the project deliverables and their dates. These details drive the number of consulting hours needed and the schedule. Deliverables can include meetings, consultations, reports, events and training sessions. Errors in defining the requirements of deliverables can result in a project exceeding its budget. Solares staff are experienced in the bidding process and rarely make a mistake on a routine project bid. However, there have been problems in the past with bidding on some larger projects.

On occasion, companies bypass the RFP bidding process and approach Solare directly for its services. This usually occurs with respect to repeat customers or urgent projects, and sometimes when a satisfied client highly recommends the firm to a prospective one.

Operations

Once a contract has been secured, the work is assigned to a consultant with experience in the industry or product area. This consultant then functions as the project leader. Several project leaders are designated when the project is particularly complex or different areas of expertise are required. Using the budget outlined in the bid, the project leader develops a work plan and then a staffing plan.


CMA Canada Page 8

Time management is extremely important for any consulting firm, since it determines the success of every project and of the company as a whole. Project leaders submit progress reports weekly, and the senior manager reviews any projects requiring attention. Progress reports include milestones achieved, percentage completed, billing details, and staffing and expense budgets.

At Solare, each senior manager has an assistant whose job is dedicated to scheduling and managing the consultants time to ensure that the company uses every consultant efficiently and that individuals do not overextend themselves. Consultants complete daily time sheets online, which are approved by the project leaders and summarized as part of the reporting process. When consultants are not on a project team, they work on internal initiatives or assist the senior managers in generating new bids. Unbillable time is costly to the company but unavoidable if there are not enough projects to keep the consultants fully utilized.

Often, projects require consultants to travel extensively and, in some locations, available accommodations are of poor quality. This is an area of contention because travel time is not compensated and consultants resent being away from home for long periods. On the other hand, location can make a project highly desirable, as can the prestige of the client or the professional opportunities presented.

With respect to the distribution of assignments, Solares policy is one of equity and fairness. Occasionally, however, some consultants feel that they are being passed over and that other individuals are enjoying favouritism.

Marketing

The consulting industry is highly competitive. To support Solares reputation and visibility in the marketplace, a significant amount of time and energy is devoted to focused marketing efforts.

The owners, senior managers and marketing staff regularly attend conferences and seminars for target industries to ensure that Solare is well known to the decision makers in those industries. In addition, the company encourages senior staff to give presentations on their areas of expertise in order to raise Solares profile. As well, the co-presidents frequently provide commentary to news outlets and industry publications on timely issues related to their own specialities. As a result, Solare is known for the current knowledge and up-to-date skills of its people.


CMA Canada Page 9

Accounting and Information Technology

Jin Bahamba and his staff work closely with the consultants in monitoring projects once work has begun. When a contract is secured, a project number is assigned by which all consulting hours and project-related expenses are tracked.

Solare uses a standard accounting package that is suitable for the firms needs. The job cost system is fairly simple but adequate, since the major expense is payroll. The accounting clerk dedicated to ensuring time sheet accuracy also tracks billable hours compared to project estimates. Although consultants are supposed to submit time sheets daily, they do not adhere to this policy, especially when they are travelling. Significant variances in hours to budget, or high numbers of unbillable hours, are brought to the attention of the project leaders and senior managers promptly.

Solare recognizes revenue on a percentage of completion basis. For projects that do not include milestones, the number of hours charged as a percentage of hours budgeted is used. This is accurate unless a project exceeds its budget with respect to billable hours (see Appendix 3).

Solare uses an integrated information technology system that connects all of its consultants whether they are in the Titanville or Sprucebridge office, or travelling. In addition, consultants are able to report their billable hours online. Some project leaders are more effective than others in taking advantage of technological tools to track their projects and team members.

Human Resources

Solare is a small organization that is responsive to the needs of both its clients and its consultants. The firm still employs many of the original staff and currently has 65 full- and part-time workers in the two offices.

Solare offers a comprehensive benefit package that includes above-average levels of paid vacation and flextime. In addition, consultants may use three paid days to volunteer in the community. Although pre-2008 benefits were better, Solare has retained its reputation as a good place to work and receives numerous applications for posted vacancies as well as many unsolicited resumes.

Tony and Anna have always believed that consulting methods can be taught to new hires but that creativity is more difficult to find. As a result, they hire consultants with varied experience, in such areas as manufacturing, financial services, retail and technology, and with unique educational backgrounds, such as in fine arts, publishing, languages, and the physical and social sciences. In addition, because Solare is a boutique firm, Tony and Anna prefer to hire consultants with experience rather than the recent graduates generally targeted by the larger consulting firms. This makes the


CMA Canada Page 10

average salary at Solare higher. However, Tony and Anna feel that this approach is essential in order to maintain quality of service and reduce training costs.

Facilities

Solare leases office space in two cities: Titanville, Ontario, and Sprucebridge, Alberta. In each city, the office is in the downtown core and is functional for Solares purposes.

In Titanville, approximately 45 employees work in an office tower in various capacities. There are individual cubicles, meeting rooms, a lunch room, and administrative and storage space. The cubicle set-up is not popular with the consultants but has been an efficient way to manage changes in the number of consultants over time.

The Sprucebridge office is in a restored building, and the rent is high. However, the approximately 20 employees like the comfortable atmosphere and convenient location. Most of the consultants live nearby and take advantage of the many social and recreational opportunities in the neighbourhood.


CMA Canada Page 11

Appendix 1 Organizational Chart

Jin Bahamba Senior Manager

Finance and Administration

James Bayer Senior Manager

Sprucebridge

Accounting

Information Technology

Human Resources

Support Staff Support Staff

Consultants Consultants

Tony Dirk and Anna Capellona Co-presidents Board of Directors

Suzanne Arsenault Senior Manager

Titanville


CMA Canada Page 12

Appendix 2 Recent Financial Statements

Solare Consulting Income Statement

for the Years Ended June 30 (000s)

2011 2010 2009 2008 2007

Revenue $9,076 $8,953 $8,894 $10,930 $13,316

Expenses: Net chargeable expenses 10 12 9 (9) (18) Professional staff 6,802 6,781 6,950 8,542 9,301

Gross profit 2,264 2,160 1,935 2,397 4,033

Overhead expenses: Administration 941 903 1,471 1,649 1,722 Bad debt 130 132 131 125 122 Marketing 45 50 25 60 150 Amortization 38 63 125 104 130 Rent 925 925 900 900 875

Operating income 185 87 (717) (441) 1,034

Interest income (expense) (note 1) (81) (90) 5 25 Income tax (note 2) 31 (1) (215) (131) 318

Net Income $ 73 $ (2) $ (502) $ (305) $ 741 Notes: 1. Interest on shareholders loan calculated at 6%. 2. Tax calculated at 30%.


CMA Canada Page 13

Appendix 2 Recent Financial Statements (contd)

Solare Consulting Balance Sheet as at June 30

(000s)

2011 2010 2009 2008 2007 Assets

Cash and short-term investments $ 597 $ 640 $ 895 $ 117 $ 330 Net receivables 1,998 1,984 1,875 1,798 1,745 Prepaid expenses 15 16 20 4 14 Other current assets 11 16 12 6 13 Total current assets 2,621 2,656 2,802 1,925 2,102

Future income tax 316 347 346 131 Net equipment 109 142 190 306 345

Total Assets $3,046 $3,145 $3,338 $2,362 $2,447

Liabilities Accounts payable $ 429 $ 435 $ 451 $ 489 $ 349 Accrued expenses 574 590 615 599 519 Current portion of long-term debt 150 150 150 Total current liabilities 1,153 1,175 1,216 1,088 868

Total long-term debt 1,050 1,200 1,350 Total liabilities 2,203 2,375 2,566 1,088 868

Equity Common stock 1 1 1 1 1 Retained earnings 842 769 771 1,273 1,578

Total Liabilities and Equity $3,046 $3,145 $3,338 $2,362 $2,447


CMA Canada Page 14

Appendix 3 Sample Project Cost Report Client Name: XYZ Company Project Name: Rebranding Widgets Project Leader(s): A. Almos, J. Jonas Report Date: January 31, 2012

Item Budgeted Actual Variance Hours Rate Amount Hours Rate Amount

Co-president 4 250 1,000 1 250 250 750 Senior manager 3.75 200 750 2 200 400 350 Project leader 100 160 16,000 60 160 9,600 6,400 Consultants 240 100 24,000 120 100 12,000 12,000 Lodging 8,350 3,400 4,950 Air/car rental 5,000 2,200 2,800 Subcontractor Legal 1,500 1,500 Advertising Focus groups 5,000 4,000 1,000 Other Subtotal 61,600 31,850 29,750 Markup 15,400 Project total 77,000

Contract amount 77,000 Percentage completed 52% Amount billed 40,040 Billed less actual cost 8,190


CMA Canada Page 15

Appendix 4 Current SWOT Analysis

Strengths 1. Tony and Anna are very skilled and

work well together. 2. Reputation for providing efficient and

cost-effective solutions. 3. Good relationships with subcontractors.4. Expertise in environmentally focused

solutions. 5. Competent senior managers. 6. Strong presence in Canadian niche

market. 7. Focused marketing efforts. 8. Accurate budgeting process. 9. Known for the current knowledge and

up-to-date skills of its people.

Weaknesses 1. Occasional over allocation of work to

consultants. 2. Variation in compensation paid to

consultants. 3. Consultants resentment of travelling. 4. Past bidding mistakes on some large

projects. 5. Some perceived unfairness in the

assignment of projects. 6. Consultants dislike for cubicles. 7. Occasional need for expensive

subcontractors on short notice.

Opportunities 1. Growing number of international

investors requiring consulting services. 2. Increasing demand for corporate social

responsibility initiatives.

Threats 1. Fluctuations in economic conditions. 2. Highly competitive marketplace. 3. Clients following consultants who leave

the firm.


CMA Canada Page 16


Additional Information (Time Allowed: 4 hours)

Notes:

i) Candidates must not identify themselves in answering the question.

ii) All answers must be written on official answer sheets or in the approved electronic file. Work done on the question paper (Additional Information) or on the Backgrounder will NOT be marked.

iii) Included in the examination envelope is a standard supplement consisting of formulae and tables that may be useful for answering the question.

iv) Examination materials MUST NOT BE REMOVED from the examination centre, except for the Instruction Sheet to Electronic Exam Writers, if applicable. All used and unused answer sheets, the Backgrounder, the Additional Information, the supplement and, if applicable, a USB key containing the electronic answer file must be sealed in the examination envelope and submitted to the presiding officer before the candidate leaves the examination centre. Candidates writing the examination electronically must keep the Instruction Sheet to Electronic Exam Writers, which provides instructions for uploading their responses following the examination.

v) Only the following models of calculators are authorized for use on the Case Examination:

1. Texas Instruments TI BA II Plus (including the professional model) 2. Hewlett Packard HP 10bII+ (or HP 10bII) 3. Sharp EL-738C (or EL-738)


CMA Canada Page 17

Solare Consulting (SC) Additional Information

Update

2012 has been a difficult year. Remaining staff continue to be overworked, as Tony and Anna try to keep costs down, and morale is extremely low. Three good consultants recently left the firm, and the overall expertise of the remaining group of consultants is not as strong as in the past. The resumes received from individuals hoping to fill the three vacancies have been very weak.

In order to maintain revenues, Solare has accepted as many projects as possible, whether or not they align with the owners core values. Although this has helped the firm maintain profitability, revenues and cash are deteriorating (see Appendix 1). With respect to the Titanville office, the lease is up for renewal in December, but property in the downtown core is increasingly expensive and traffic is worsening.

On the positive side, Tony Dirk and Anna Capellona are still in high demand as speakers for various industry conferences. In addition, at a recent consulting event, Solare was highlighted as an example of an adaptable and well-respected firm.

From a global perspective, the fact that the economies of developed nations are not growing rapidly is expected to have a negative impact on Canadian exports, particularly natural resources. Nevertheless, the Canadian economy as a whole is expected to grow by 1.5%, and companies are expected to increase their use of consultants over the next three years. To protect the fragile Canadian economy, all levels of government are engaging consultants to find ways to encourage growth and become more efficient.

One of the current trends is the issue of sustainability, which has been a much-discussed topic internationally, and many companies in Canada are investigating sustainability initiatives.

The following are discussions from the July 2012 meeting of Solares Board of Directors and management. A summary of the discussion follows.

Tony Dirk: The 2012 financial statements have been finalized, and Anna and I have concerns about the declining revenue and cash position.

No bank will provide the company with a line of credit at a reasonable rate because it has little in the way of fixed assets, and there have been collection issues with accounts receivable. Anna and I believe in Solare and its people and, if necessary, we are willing to inject another $300,000 as a loan to be repaid over 10 years with interest at 6%.

However, we also feel that Solare has lost its focus, and we would like to see the firm return to projects that relate to its strengths and core values. Solare needs to reaffirm its commitment to corporate social responsibility.


CMA Canada Page 18

Current cash levels are high enough to sustain existing operations but, in considering new endeavours, we need to ensure that we can generate sufficient cash to support the recommended strategy, using a 10-year time frame. After considerable analysis, Anna and I are confident that current revenues can be maintained in 2013. Given the opportunities we are about to discuss, the 2013 net income goal is $300,000 with an ending cash balance of $250,000.

James Bayer: Thats achievable. So far, Solare has done a great job of keeping overhead expenses down, but this continues to be an important issue if we want to remain competitive. However, keep in mind that there has been a substantial increase in the number of independent consultants who can charge lower fees because they have little overhead. An additional source of concern for me is that we recently completed a number of projects late, due to the limited number of staff.

EMMA Consulting

Tony Dirk: Emma Francis, owner of EMMA Consulting, is looking to retire and wants to sell her company for $4.6 million. Emma used to have a significantly sized operation, but her business slowed substantially when the recession started. She now has billings of about $1.5 million per year with clients in the natural resource industry focused on environmental sustainability initiatives. However, they only want help with strategic development.

More importantly, EMMA owns its office building, located in the western suburbs of Titanville. Purchasing EMMA and moving to this location would appeal to our staff because it would be easier for them to get to work, the building is close to amenities such as restaurants and shopping malls, and the office space is an open concept design. More details are provided in Appendix 2.

Jin Bahamba: The EMMA building isnt big enough for all of our staff as well as the existing EMMA staff. If we were to move to the EMMA building we would have to lease additional space at a cost of $100,000 per year.

Anna Capellona: Weve worked with EMMA consultants in the past and found that some of them are really exceptional individuals. It would be great to add those people to our team.

Jin Bahamba: You should be aware that EMMAs financial statements have never been audited and that Ms. Francis is reluctant to pay for an audit. Ive also done some research and found that the average multiple is six times EBITDA.

Herman Gomez: Solare is just returning to profitability, so Im not in favour of such a purchase. Theres too much risk in taking on this considerable debt.


CMA Canada Page 19

Morrison Environmental

Suzanne Arsenault: We have another substantial opportunity to discuss. Morrison Environmental is a large, multinational corporation, based in Western Canada, that supplies the mining, oil and gas industries with sophisticated equipment to measure and monitor levels of various pollutants in the environment. Morrison has a good reputation, and it would be great to be associated with this company.

Morrison wants to reorganize in a more decentralized business model in order to introduce new products to the market more quickly. The company would like to hire a consulting firm to develop the new strategy and plan, and then implement that plan in its 20 North American locations. The project would include providing the necessary training for the management and sales staff.

This would be our largest contract ever. The work covers two years and would require us to hire five staff immediately in stage one of the project, and three more in stage two.

James Bayer: Keep in mind that our consultants would not be happy about the extensive travel outside of Canada. As well, there are rumours that Morrison is slow to pay its consultants.

Anna Capellona: Undoubtedly, this large project is very appealing to many of our competitors. I think Morrison will be expecting very low bid prices.

Suzanne Arsenault: Weve never taken on a project of this size, so our RFP costing estimates arent as accurate as usual.

Also, Im not certain we could recruit the best people, given the short time frame. Traditionally, we go through an extensive recruitment and selection process to find the best staff fit for Solare. We could consider hiring local subcontractors who would be more familiar with the various regions, particularly with respect to the locations in the United States. However, this would likely add $25,000 per year to the project costs.

Whomever we hire, we need to consider the probable fate of these new staff members once the Morrison project is completed.

Tony Dirk: I would really like to secure this contract since it would provide guaranteed work for two years and could give us a chance to expand into the United States. We have compiled pertinent information in this memo (see Appendix 3).

HiTech Wireless

Tony Dirk: Recently, a former client introduced me to the owner of HiTech Wireless. This company, located in Sprucebridge, has developed a new technology to introduce to the market but needs our help to sell it. The technology reduces energy consumption by residential appliances, has had a very positive response from the companys focus groups and has finally received patent approval. Unfortunately, HiTech used up most of


CMA Canada Page 20

its funds in development and testing, and needs Solare to bring this product and future products to market. In exchange, HiTech is willing to give us 23% ownership in the company.

Maria Shantz: This potential investment is interesting, but investing in a start-up is very risky even though they have additional new technologies in development. Given that they have run out of cash, I believe they would need to borrow at least $100,000 from Solare to support operations in 2013.

Anna Capellona: This endeavour would require at least three full-time employees assigned solely to HiTech and involve some initial legal and accounting costs.

Tony Dirk: Ive made a few calls to some industry colleagues and the projections provided are reasonable (see Appendix 4). Given our network of professionals, I know we could be successful with this initiative and it could provide a steady revenue stream.

Luis Cano: I like the HiTech option. This would add diversity to Solares activities and could lead to other growth opportunities.

Jin Bahamba: We need to consider this possibility over a longer time frame than the four years outlined in the projections. The selling, general and administration, research and development, and depreciation would remain the same over 10 years. However, revenues would decrease by 20% annually from Year 5 to Year 10, as competitors enter the market space.

Anna Capellona: Youre right, and I would think that we could reduce our costs for the employees assigned to HiTech, starting in Year 5, to about $140,000 per year.

Work from Home

Suzanne Arsenault: Consultants at both our offices have requested more flexibility with work location and not be obligated to come to the office when they are not at a client location. We already have most of the necessary technological infrastructure in place, since our consultants spend a lot of time on the road. We would need to spend $80,000 to upgrade our system, but the payoff in improved morale would be huge.

Our executive and administrative staff would still need office space. To accommodate them, we could sign a new lease at the current Titanville building but in a smaller area for $350,000 per year. If we purchase EMMA, these staff members could be housed in the EMMA building quite easily.

Jin Bahamba: On the subject of leases, you should be aware that our current lease in Titanville costs $450,000 per year. When it expires on December 1, 2012, the renewal rate will be $500,000 per year. We just renewed the lease in Sprucebridge for another five years.


CMA Canada Page 21

Tony Dirk: I understand the desire to work from home, but I am against this option. It is hard for managers to work with and monitor consultants when they are not in the office and, personally, I believe that the ease and benefits of face-to-face communication would be lost with consultants working at home. I prefer that everyone work out of the office.

Maria Shantz: While I agree that we need to monitor our consultants, perhaps we just need better performance measures. This work-life balance should not be ignored, given that staff have become disenchanted with Solare.

Other Issues

James Bayer: Ive been approached by Nick Mellor, an independent consultant who would like us to hire him. He specializes in government consulting projects and is proposing that Solare use him to set up a division focused on these projects. He would like a salary of $100,000 in exchange for access to his existing public sector contacts.

Dealing with governments usually results in lower profit margins but can provide a steady revenue stream. Should I have further discussions with Mr. Mellor?

Maria Shantz: I think its worth considering, since governments always pay their bills, unlike some of our current clients.

Anna Capellona: On the issue of bill payment, our accounts receivable continues to grow, and this is really concerning me. Do we need to resort to using collection agencies? Could we ask project managers to follow up?

James Bayer: Speaking of payments, our consultants have complained that the per diem amounts havent increased in three years. To address this complaint and keep up with industry benchmarks, I would like to propose that the budget be increased by $70,000 this fiscal year.

Suzanne Arsenault: A final concern needs to be raised. Recently, a laptop belonging to one of our consultants was stolen. Valuable client information was lost because data had not been backed up, and it is possible that some material was not password protected. I am sure this is not the first time that confidential information has been lost, but consultants are reluctant to talk about the issue.

Required:

As Helen Tran, CMA, prepare a report for the co-presidents of Solare Consulting advising them on the actions that should be taken to address the items discussed at the meeting as well as any other organizational issues and concerns requiring their attention. Include details of your analysis, supported recommendations, pro forma statements and an action plan to implement your recommendations. In undertaking this task, you will need to take into consideration your background knowledge of the company as well as the additional information provided above.


CMA Canada Page 22

Appendix 1 Recent Financial Statements

Solare Consulting Income Statement

for the Year Ended June 30 (000s)

2012 Revenue $8,798

Expenses: Net chargeable expenses 12 Professional staff 6,599

Gross profit 2,187

Overhead expenses: Administration 944 Bad debt 128 Marketing 55 Amortization 36 Rent 925

Operating income 99

Interest income (expense) (note 1) (72) Income tax (note 2) 8

Net Income $ 19 Notes: 1. Interest on shareholders loan calculated at 6%. 2. Tax calculated at 30%.


CMA Canada Page 23

Appendix 1 Recent Financial Statements (contd)

Solare Consulting Balance Sheet as at June 30

(000s)

Assets 2012 Cash and short-term investments $ 323 Net receivables 2,084 Prepaid expenses 21 Other current assets 18 Total current assets 2,446

Future income tax 308 Net equipment 121

Total Assets $2,875

Liabilities Accounts payable $ 412 Accrued expenses 551 Current portion of long-term debt 150 Total current liabilities 1,113

Total long-term debt 900 Total liabilities 2,013

Equity Common stock 1 Retained earnings 861

Total Liabilities and Equity $2,875


CMA Canada Page 24

Appendix 2 EMMA Consulting

Unaudited Income Statement for the Year Ended June 30, 2012

(000s)

Revenue $1,522

Expenses: Professional staff 1,091

Gross profit 431

Operating Expenses: Administration 124 Building overhead 100

EBITDA 207

Depreciation 200 EBIT 7 Income tax 2

Net Income $ 5 Emma Francis would like $4.6 million for the company, including the building. The business is composed of several contracts with two years remaining. She is not interested in selling either the business or the building separately. She is willing to take payment in 5 annual instalments of $960,000. Based on market prices, the building is worth $2.9 million and the land $350,000. Solare would need to invest an additional $50,000 in order to make the building functional for all of Solares staff. After 10 years, the EMMA building and land could be sold for $4.5 million. Expenses for building overhead and administration should remain the same. However, given that EMMA spent nothing on marketing, Solare would have to add $10,000 to the budget for marketing expense. It should also be noted that Ms. Francis investigated installing solar panels on the building at a cost of $90,000 and estimated that this would produce savings of $8,000 per year in utility costs, which are part of building overhead expenses. In addition, the excess electricity generated by the solar panels could be sold to the local power authority for $6,000 per year over the 10-year useful life of the equipment. At the end of 10 years, the solar panels would have no salvage value.


CMA Canada Page 25

Appendix 3 Morrison Environmental Details from the Request for Proposal (RFP) issued by Morrison Environmental are as follows:

Type of bid: Fixed price Length of contract: 24 months

Deliverables Date Deliverable Project outline September 1, 2012 Product launch and marketing strategy October 30, 2012 Reorganization plan December 31, 2012 Training: 14 locations Training: Remaining 6 locations

During 2013 During 2014

After reviewing the RFP with several of our consultants, we estimate our expected costs (consultants, managers, administration and travel) as follows:

Likelihood 2012-13 Costs 15% $1,625,000 80% $1,650,000 5% $1,675,000

Likelihood 2013-14 Costs 30% $1,800,000 55% $1,995,000 15% $2,350,000

The fixed costs to hire, train and provide equipment to the new hires would be $50,000 in 2013 and $30,000 in 2014. We estimate that our bid should be in the $4 million to $4.2 million range in order to be competitive. Terms in the contract would call for a 50% payment in Solares 2013 fiscal year and the remaining 50% in the 2014 fiscal year.


CMA Canada Page 26

Appendix 4 HiTech Wireless Projected Income Statement (000s)

Year 1 Year 2 Year 3 Year 4 Sales $2,700 $2,750 $2,800 $2,700Selling, general and administration 270 270 270 270Research and development 460 460 460 460EBITD 1,970 2,020 2,070 1,970Depreciation 250 250 250 250Tax 464 478 491 464

Net Income $1,256 $1,292 $1,329 $1,256 Solares Investment in HiTech 1. Initial set-up costs: $30,000 2. Additional staff assigned to HiTech: $200,000 per year, reduced to $140,000 per

year in Year 5 and beyond 3. Cash injection in HiTech: $100,000 4. Target return on investment: 10% 5. Percentage ownership of HiTech: 23% 6. Annual payment to HiTech: 15% of net income paid in cash dividends on

December 31 of each year. Solares remaining 8% ownership of net income is kept in HiTechs retained earnings.


CMA Canada Page 27

August 2012 Case Examination Solare Consulting (SC)

General Comments on Performance Case Background and Required Element

The August 2012 Case Examination focuses on a private company, Solare Consulting, a boutique management consulting firm specializing in providing advisory services in the areas of strategic planning, product development and implementation of product concepts, all in an environmentally focused manner. Co-presidents, Tony Dirk and Anna Capellona, equally own Solare Consulting.

In July 2012, Tony and Anna met with management and the Board of Directors in order to address concerns about declining revenue and cash position and their desire to see the firm return to projects that relate to its strengths and core values.

In light of the weak financial results, the inability to receive a line of credit at a reasonable rate and collection issues with accounts receivable, the targets for 2013 were set at $300,000 in net income and a year-end cash balance of $250,000. Additionally, in considering new endeavours, sufficient cash flows need to be generated in order to support the recommended strategy, using a 10-year time frame.

The following alternatives were identified for consideration:

1. Purchase EMMA Consulting, whose clients are in the natural resource industry focused on environmental sustainability initiatives.

2. Bid for a two-year contract with Morrison Environmental, representing the largest contract ever for Solare and involving work all over North America.

3. Invest in a start-up company, HiTech Wireless, which has developed a new technology to reduce energy consumption. HiTech requires help to sell the technology to the market and needs to borrow at least $100,000. HiTech is willing to give Solare 23% ownership in exchange for bringing the current and any future products to market.

As Helen Tran, CMA, prepare a report for the co-presidents of Solare Consulting advising them on the actions that should be taken to address the items discussed at the meeting as well as any other organizational issues and concerns requiring their attention. Include details of your analysis, supported recommendations, pro forma statements and an action plan to implement your recommendations.


CMA Canada Page 28

General Approach and Expectations

Throughout Year 1 of the SLP, candidates have been taught to apply the Steps for Approaching Business Strategy. They have completed several practice case exams using these Steps, have received written feedback on their performance, and have revisited the approach many times during their Interactive Sessions. As a result, expectations related to candidates general approach and performance are high.

The following comments on performance highlight how each attribute aligns to the Steps for Approaching Business Strategy and provides a brief summary of the performance of better responses in relation to the assessment of the attribute.

1. QUALITATIVE ANALYSIS AND STRATEGY FORMULATION

1a) Situational Analysis Quality of Qualitative Analysis:

This attribute aligns with Step 2 of the Steps for Approaching Business Strategy. This is the step that builds the foundation for all other analyses, in order to facilitate the decision-making process in developing business strategy.

Better responses provided a comprehensive current situation analysis (i.e. identification of the mission, high level goals, measurable targets, constraints, major stakeholder preferences, key success factors, and SWOT points), with a clear delineation between owner, board and management preferences, and delineation of the external industry KSFs from the internal KSFs. As well, many relevant SWOT points applicable to the alternatives being evaluated, were provided.

Average responses provided most elements within the current situation analysis; however, generally had some minor flaws such as limited depth of analysis or miscategorization of internal and external SWOT points.

1b) Issue Analysis and Integration:

This attribute aligns with Step 4 of the Steps for Approaching Business Strategy. Integration demonstrates the ability to utilize relevant facts to develop cogent argument for or against alternatives.

Better responses provided many integrative linkages between alternatives and the situational analysis; including an effective use of many elements within the current situation rather than reliance upon only a few specific points for each alternative.

Average responses provided some integration between alternatives and situational analysis points; whereas weaker responses provided few clear integration linkages within the analysis, generally due to limited depth of qualitative analysis within the analysis of alternatives and issues.


CMA Canada Page 29

1c) Implementation/Action Plan:

This attribute aligns with Step 6 of the Steps for Approaching Business Strategy. This step clearly articulates both the strategic and operational tasks that are required to execute the recommendations, including plans to address risks previously identified in the analysis of the recommended alternative (i.e. mitigation of cons).

Better responses separated strategic implementation tasks from the operational implementation tasks in the action plan. As well, all tasks were supported with the following:

1. What must be accomplished; 2. Who will be responsible for the task; 3. When the task will start and finish; and 4. The costs associated with the task, whether directly related to the alternative, or

additional incidental costs specific to the task.

Additionally, better responses provided specific plans to mitigate risks and cons related to the recommended alternatives.

Average and weaker responses provided an implementation plan with limited depth and generally did not address risks related to the recommendations.

2. APPLICATION OF QUANTITATIVE TOOLS

2a) Financial and Performance Analysis of Solare:

This attribute aligns with Step 2 of the Steps for Approaching Business Strategy. The current financial assessment evaluates both the internal (e.g. ratios, horizontal/vertical analysis) and external (e.g. benchmarking to Emma Consulting) financial environments for the current situation.

Better responses calculated and interpreted the most relevant ratios for three to four years, provided some vertical and horizontal analysis to assess internal efficiency, quantified the targets and benchmarked Solares profit ratios to Emma Consulting.

Average responses calculated and interpreted relevant ratios for three to four years only.

Weaker responses did not include the most current year within the current financial assessment, provided vague interpretation, or emphasized irrelevant ratios.

2b) Quantitative Decision Analysis of Strategic Alternatives:

This attribute aligns with Step 4 of the Steps for Approaching Business Strategy. This step focuses on providing quantitative analysis for major alternatives. The type of quantitative analysis required is generally determined by:


CMA Canada Page 30

1. The decision criteria (e.g. target net income, target cash flows, target ratio, etc.); 2. The type of alternative (e.g. capital investment, acquisition, profitability, etc.).

Better responses considered the main decision criteria (income and cash targets) throughout the analyses of the alternatives. Sensitivity analyses were appropriately applied to two of the alternatives (i.e. alternatives where inputs were available). Additionally, present value tools were applied where appropriate.

Average responses considered the income and cash targets for some of the alternatives, considered sensitivity, and attempted to evaluate the required rate of return for a specific alternative.

Weaker responses did not assess income or cash flows; instead they focused on NPV analysis, which was not overly relevant for the majority of alternatives. For example, applying a net present value to the Morrison Environmental alternative is not relevant because there is no capital investment.

Summary of the Alternatives

EMMA Consulting Alternative

Better responses provided analysis that included:

1. Profitability analysis in order to test the net income target for 2013, as well as longer term profitability;

2. Cash flow analysis in order to test the 2013 cash balance target; 3. Sensitivity and financing analyses in order to determine the ability to acquire

Emma Consulting with or without other options (e.g. with or without solar panels, with the work from home alternative);

4. Valuation of the business in order to determine the overall attractiveness of the asking price.

Morrison Environmental Contract Bid Alternative

This alternative was a profitability analysis, which required using expected value calculations in order to determine the expected costs. Better responses:

1. Clearly understood that this was a basic business transaction and that the net income was equal to cash flow;

2. Applied sensitivity analysis by varying the amount of the bid.

HiTech Wireless Alternative

This alternative was an investment opportunity that required utilization of present value techniques in order to evaluate the 10% return on investment target, in addition to testing the income and cash targets.


CMA Canada Page 31

Better responses analyzed the investment opportunity over 10 years and utilized the intricate inputs (e.g. 23% ownership; 15% of net income paid in cash dividends; changes to on-going revenues and costs) in order to assess the return on investment.

Work from Home Alternative

This alternative was a basic profitability analysis, which could be analyzed on its own or in conjunction with the Emma Consulting alternative. Better responses evaluated the impact to the income and cash targets.

2c) Other Quantitative Tools:

This attribute aligns with Steps 5 and 7 of the Steps for Approaching Business Strategy. These steps include assessing feasibility of alternatives (i.e. assessing the financing required versus financing available) and developing forecasts for the final recommendations.

Better responses evaluated financing capability for each alternative and for final recommendations and provided a forecast for the final recommendations for both net income and cash for more than one year. Better responses also calculated the value of Emma Consulting.

Average responses evaluated financing for the final recommendations and provided a forecast for net income or cash for 2013; however, the forecasts sometimes had minor errors (e.g. omitting operational changes).

Weaker responses did not provide a forecast or analyze financing; or, the analysis had major errors.

Summary of Other Quantitative Tools

Financing

Better responses provided analysis of financing required and available for each alternative and for the recommendations as a whole.

The more important alternative for evaluating financing is in the acquisition of Emma Consulting alternative because the current cash capability of Solare is such that the payments ($960,000/year for 5 years) cannot be easily facilitated without in-depth analysis. The Morrison Environmental Contract alternative is additional business and requires little in the way of financing; while the HiTech Wireless investment requires some financing, but the amount required is not significant and could be financed within the current situation.


CMA Canada Page 32

Pro Forma/Financial Forecast

Better responses provided a financial forecast for the net income and cash balance for 2013 and a cash flow pro forma for 10 years. Additionally, the following adjustments were included in the forecasts:

1. Solares operations, including operational changes, such as the increase in the lease or changes related to interest on shareholder loans;

2. Inclusion of the recommended alternatives; 3. Any other operational changes required in light of the recommendations.

Emma Valuation

Better responses calculated the value of Emma Consulting based on the average multiple being six times EBITDA (per case facts) and the book values for land and the building.

Average responses considered the value of Emma by simply comparing the asking price to the book values for land and the building (i.e. calculating goodwill).

Weaker responses did not assess the value of Emma.

3. APPLICATION OF QUALITATIVE FUNCTIONAL CONCEPTS

This Component aligns with Steps 4, 5, and 6 of the Steps for Approaching Business Strategy. These steps include analysis of minor issues within the analysis of alternatives (e.g. using a current issue or risk as a pro or a con within the analyses of the alternatives), or analysis done separately (e.g. within the discussion of operational issues or within the implementation plan).

3a) Strategic Management, Risk Management, Governance, Environmental and Ethical Issues:

The better responses used many internal and external risks (i.e. internal risks and external threats) within the analysis of the alternatives; and, provided resolutions related to operational issues or mitigation strategies for internal and external risks in order to implement the recommended alternative(s) and other outstanding issues requiring attention.

Average responses considered one or two internal and external risks within the analysis of the alternatives; and, attempted to analyze and provide resolutions for operational issues or mitigation strategies for two to three internal and external risks in order to implement the recommended alternative(s) and other outstanding issues requiring attention.


CMA Canada Page 33

Weaker responses generally did not consider internal and external risks within the analysis of the alternatives; or, provided limited or no analysis or resolutions for minor issues.

3b) Performance Management, Performance Measurement, Financial Management and Financial Accounting Issues:

The better responses used many performance and financial management issues within the analysis of the alternatives; and, provided analysis and resolutions for operational and implementation issues.

Average responses considered two or three performance and financial management issues within the analysis of the alternatives; and, attempted to analyze and provide two to three resolutions for operational issues or implementation issues.

Weaker responses generally did not consider relevant performance or financial management issues within the analysis of the alternatives; or, provided limited or no analysis or resolutions for minor issues.

4. APPLICATION OF A SYSTEMATIC APPROACH FOR ISSUE ANALYSIS

4a) Issue Identification and Prioritization:

This attribute aligns with Step 3 of the Steps for Approaching Business Strategy. This step includes identification and prioritization of the main issues, the strategic alternatives, and other operational issues.

Better responses analyzed the major and minor alternatives (i.e. Emma Consulting, Morrison Environmental; HiTech Wireless; Work from Home; Government Contracts) and analyzed six or more minor issues.

Average responses analyzed the major alternatives (Emma Consulting; Morrison Environmental; HiTech Wireless); one of the two minor alternatives and three to five minor issues.

Weaker responses did not analyze all the major alternatives or did not provide sufficient analysis for minor issues.

4b) Analysis of Issues and Alternatives:

This attribute aligns with Steps 2 and 4 of the Steps for Approaching Business Strategy. These steps include analyses of the alternatives, which encompass qualitative and quantitative analysis, while taking into consideration the analysis of the current situation.

Better responses provided excellent breadth, depth and balance of analysis in order to assess both the major qualitative impacts and quantitative impacts for the alternatives. As well, they used a global view within qualitative analysis (e.g. considered the mission,


CMA Canada Page 34

targets, preferences, key success factors, strengths, weaknesses, opportunities and threats).

Average responses provided some depth of qualitative and quantitative analysis for most of the alternatives; however, the global view was generally weaker (e.g. all elements of the current situation were not incorporated into the analyses).

Weak responses provided limited qualitative analysis and limited quantitative analysis.

Summary of Major and Minor Alternatives

Major Alternatives

Emma Consulting

Qualitative impacts:

1. Emma has exceptional consultants, which would address the current issue related to the expertise at Solare being not as strong as it was in the past;

2. Emmas building is in the suburbs, which would address the increasing rent and traffic in the downtown core (where Solare currently operates);

3. Emma is focused on environmental sustainability initiatives, which would take advantage of the fact that many companies in Canada are investigating sustainability initiatives.

Quantitative impacts:

1. Testing the income target; 2. Testing the cash flow target; 3. Assessing the ability to finance the transaction; 4. Evaluating the overall profitability.

Morrison Environmental Contract


1. Morrison Environmental pays slowly; therefore this alternative would negatively affect the already problematic slow collection of accounts receivable;

2. This alternative would require travel, and currently many consultants resent travelling;

3. Co-president (Tony Dirk) is in favour of this alternative.


1. Testing the income target; 2. Testing the cash flow target; 3. Applying sensitivity in order to determine what bid price Solare should use; 4. Evaluating the profitability of the contract over the two year period.


CMA Canada Page 35

HiTech Wireless


1. Discussing that the investment in a manufacturing company is a departure from boutique consulting;

2. Considering that the project requires three skilled consultants and currently Solare has limited staff and has received weak resumes for replacing the three consultant vacancies;

3. Co-president (Anna Capellona) has knowledge and expertise in bringing new products to market.


1. Testing the income target; 2. Testing the cash flow target; 3. Evaluating the profitability and target rate of return over a ten year period.

Minor Alternatives

Work from Home


1. Considering that this may improve the current low staff morale; 2. Considering that this would address consultants dislike for cubicles.


1. Testing income target; 2. Testing the cash flow target.

Government Contracts


1. Considering that this alternative is against Solares policy to not do government contracts;

2. Government contracts are plentiful even in slow economic times, thereby mitigating the risk of fluctuations in economic conditions;

3. The government pays promptly, thereby improving the current slow collection of accounts receivable;

4. All levels of government are engaging consultants to find ways to encourage growth and become more efficient.


CMA Canada Page 36

Minor Issues

Better responses analyzed five to eight minor issues in adequate depth.

Average responses analyzed three to five issues; or, provided limited depth of analysis.

Weak responses did not analyze any issues; or, analyzed a few issues but with limited depth of analysis.

4c) Relevancy: Use of Case Facts and Assumptions:

This attribute aligns with Steps 2, 3, 4, 5, 6, and 7 of the Steps for Approaching Business Strategy.

Better responses provided a clear understanding of the current situation and utilized this information throughout the analyses (e.g. assessed the impact to the 2013 targets within the analysis of each alternative). The proper inputs and assumptions were used throughout the decision-making process, and the proper quantitative tools were applied in order to analyze the alternatives and issues.

Average responses utilized a sufficient amount of qualitative and quantitative case facts in order to address the alternatives and issues. They generally included adequate analysis for the major alternatives and some analysis for the minor issues.

Weak responses generally failed to recognize the important targets within the analyses and often did not integrate the current situation within the analyses of alternatives or address current operational issues.

5. RECOMMENDATIONS AND CONCLUSIONS (JUDGMENT/LEADERSHIP)

This attribute aligns with Steps 2, 4, and 5 of the Steps for Approaching Business Strategy. These steps support robust recommendations (i.e. recommendations that are well articulated, well supported, logical, and feasible).

Better responses provided definitive recommendations for the alternatives accepted and for those alternatives rejected. The recommendations were supported both qualitatively and quantitatively, and the main decision criteria were effectively addressed (e.g. alignment to the mission, the targets, the constraints, stakeholder preferences, KSFs, and financial capacity).

Average responses addressed the net income and cash flow targets as well as financing ability.

Weaker reports were not well supported. For example, the targets were not considered, important qualitative points were not considered, or, the recommendations were not financially feasible or were not consistent with the supporting analysis.


CMA Canada Page 37

6. PROFESSIONALISM AND COMMUNICATION

6a) Report Format and Organization:

This attribute aligns with Step 8 of the Steps for Approaching Business Strategy.

Better responses provided a professional report with the proper format and organization.

Average reports provided an adequate format; however, some weaknesses were generally present, such as:

1. Headings and subheadings not used effectively; 2. Poor sequence (e.g. recommendations for minor issues or an implementation

plan was provided before the recommendations were made for the major alternatives);

3. The executive summary, introduction or conclusion had minor faults.

Weaker reports omitted some components (e.g. executive summary, introduction, conclusion); and/or, contained many other formatting problems (e.g. organization, sequence, ineffective headings).

6b) Professional Tone, Tact, Language, Style and Flow:

This attribute aligns with Step 8 of the Steps for Approaching Business Strategy.

Better reports demonstrated good use of language and grammar and overall style and flow.

Average reports demonstrated an adequate use of language; however, generally contained some weaknesses, such as:

1. Clarity problems (e.g. analysis points were not always clear and concise); 2. Problems with flow (e.g. not effectively integrating the financial information

seamlessly into the flow of the narrative); 3. Audit trails (e.g. the source of quantitative inputs was not always clear in the

calculations within the financial analyses).

Weak reports had many problems with language and grammar as well as other weaknesses (e.g. clarity, flow, audit trails).


CMA Canada Page 38

Steps for Approaching Business Strategy 1. Overview Quickly read through the information to develop an understanding of the following:

a) Organization on which the case is based; b) Industry in which it operates; c) Major issues and specific opportunities/alternatives that need to be addressed; d) Information included in the exhibits (e.g. quantitative data, organizational charts,

etc.); e) Role that you are required to assume; f) Actions that you are required to perform; and g) Audience of your report (e.g. senior management, board of directors).

2. Situational Analysis

Read through the case in detail and begin developing a situational analysis. As you read, highlight or make notes on key information that will be used in developing a framework or planning structure for your analysis. For example, use a system such as code letters and words in the margins, to categorize the information (e.g. S for strength, KSF for key success factor, TX for tax rate, MI for major issue, O for external opportunity, etc.), or categorize and document the information directly in the response. Within the situational analysis, be sure to do the following:

a) Identify the stated or implied mission, vision, strategic direction, and strategic

goals. b) Determine the key stakeholders needs and/or preferences. c) Determine whether there are any constraints that require consideration or targets

that must be met. d) Scan the organizations internal and external environments, and identify the

strengths, weaknesses, general opportunities, and threats (SWOT). Include an assessment of the organizations current financial situation. Some tools that will help in identifying SWOT points include Porters Five Forces and PESTE, as well as analyses of ratios, trends, profitability, target customers, target markets, variances, etc. In a time-limited situation such as the Case Examination, if the information provided includes a high-level SWOT, it is not necessary to repeat these points or audit them. Focus on identifying new SWOT points based on information not previously available and the results of the financial assessment.

e) Within the SWOT analysis, identify the competitive advantages and the key success factors (KSFs) for the organization and/or industry (i.e. the critical opportunities and strengths of the organization that must be maintained or enhanced in any suggested recommendations). Also identify the key risks (i.e. the critical weaknesses and threats that must be eliminated or mitigated).


CMA Canada Page 39

3. Identification of Major Strategic Issues and Alternatives

a) Identify the major strategic issues that need to be addressed (e.g. specific business opportunities that should be considered, critical weaknesses and threats that must be eliminated or mitigated if the organization is going to be successful) and list them in order of importance.

b) Identify the alternatives for addressing the major strategic issues.

4. Analysis of Alternatives for Addressing the Major Strategic Issues

Analyze each strategic alternative both quantitatively and qualitatively, identify the pros and cons, and consider both internal and external factors (i.e. provide a balanced analysis). Demonstrate integrative thinking by considering the cause and effect relationships among the various factors, issues, and alternatives. Within the analyses, be sure to do the following: a) Deal with ambiguous or uncertain information by making reasonable

assumptions based on case facts, applying decision analysis under uncertainty concepts and tools, or performing sensitivity analysis. Clearly state and, if necessary, justify all assumptions made.

b) In the quantitative analyses, apply appropriate functional competency tools and concepts to analyze the relevant information (e.g. profitability analysis, net present value, return on investment, etc.). Interpret the results of all calculations.

c) In the qualitative analyses, provide a balanced discussion of the pros and cons of each alternative using case facts and the results of the quantitative analyses.

d) Identify (usually as a con) any specific risks associated with each alternative. e) Make specific references to the points made in the provided SWOT (in the Case

Examination) and the situational analysis performed in step 2 (e.g. discuss how the alternative uses the strengths, takes advantage of the opportunities, mitigates or eliminates the weaknesses and threats, meets the imposed constraints, etc.).

f) Consider each alternative from the points of view of the various stakeholders, and how it aligns with the organizations mission, vision, goals, and/or strategic direction. As well, consider the effects of one alternative on another, or on other issues.

5. Recommendations

a) Rank each alternative in terms of important criteria (e.g. goals, important constraints, key success factors, specific targets, profitability, key stakeholders preferences, how easily the cons can be resolved, etc.). Consider whether the alternative sufficiently addresses the major strategic issues, is aligned with the organizations overriding objective, is a good fit with the internal and external environments, and makes good economic sense.

b) Clearly state your recommendation(s) for resolving the major strategic issues. Briefly support your choice of alternative(s) based on the most important criteria.

c) Ensure that your recommendations collectively form a cohesive package that is feasible and viable. Provide proof in the report that the necessary aggregate


CMA Canada Page 40

resources (e.g. physical capacity, financing) either are available or can be readily acquired, that constraints are not breached, and that specific targets are met.

6. Implementation Plan

Create a plan for implementing the recommended strategies for resolving the major issues. In developing the implementation plan, be sure to do the following: a) Identify and analyze the implementation issues, such as those concerning

change management, acquiring the required resources (financial and human), and resolving the cons previously identified in step 4 for the recommended strategies.

b) Address the operational and other minor issues (e.g. ethical, internal control). Discuss how solving these problems can affect the implementation of the major recommendations, and/or how they affect other minor issues and weaknesses.

c) Make clear and actionable recommendations pertaining to the implementation issues and minor issues.

d) Provide an action plan to implement the strategic and operational recommendations that clearly defines each action, who is responsible, the critical due dates, and the resources required.

7. Financial Forecast

Prepare an appropriate financial forecast (e.g. projected net income, projected return on investment, projected cash flow, pro forma financial statements, etc.) taking into consideration the financial implications of the strategic, implementation, and operational recommendations made and stating all assumptions. Outline in the body of the report the expected future financial outcomes as a result of implementing the recommendations. Most of the calculations for this step should already have been completed in addressing steps 4, 5 and 6.

8. Written Report

Present your answer in a professional manner using a formal report format consisting of the following components in the following order: cover page, one-page executive summary that represents the report in short (i.e. summarizes all the major and most important minor issues and recommendations), table of contents (not required for the Case Examination), introduction, body (including analyses, recommendations, implementation plan, action plan), conclusion, appendices/exhibits, and references/bibliography (not required for the Case Examination). Present the contents of the report in a well-written manner that reflects an appropriate tone for the receivers of the report. Present the quantitative analyses in appendices, exhibits or tables, and reference them in the body of the report. Provide labels and audit trails for all calculations. Provide the details of the situational analysis (e.g. SWOT, ratios, benchmarking, etc.) in appendices, and summarize the highlights of the most important factors and issues in the body of the report.


CMA Canada Page 41

August 2012 Case Examination Solare Consulting (SC)

Marker Assessment Guide Markers use a scale of 0 to 10 in assessing the components, according to the following guidelines:

General Assessment Number Scale AEAbove Expectations 9, 10 MEMeets Expectations 6, 7, 8 BEBelow Expectations 1, 2, 3, 4, 5 NANot Addressed 0

Markers must mark each of the attributes globally. Judgment must be used in assessing the competencies exhibited in the candidates response and in assigning a mark for each attribute. Guidelines for weighting the various attributes are indicated throughout the assessment guide. Note: In addressing any of the issues, indicating that the issue needs to be resolved or further investigated is not credited for analyzing and resolving the issue. 1. QUALITATIVE ANALYSIS AND STRATEGY FORMULATION a) Situational Analysis Quality of Qualitative Analysis

The analysis of SCs current situation is appropriate for the strategic alternatives and operational issues being addressed (qualitative analysis is of good quality, depth and breadth, and is relevant). It includes internal and external scans (i.e. SWOT) and other relevant data not provided in the high-level SWOT in the Backgrounder (i.e. SCs goals/targets, stakeholders preferences, constraint, industry KSFs and new SWOT points). AE = Good quality makes sense and includes the main relevant qualitative points. ME = Reasonable quality includes relevant qualitative data, but may contain some

minor errors (i.e. some irrelevant data are included, some relevant data are excluded, some relevant data are categorized incorrectly).

BE = The quality of the situational analysis is not appropriate. NA = No attempt to scan the environment or analyze the current situation.

b) Issue Analysis and Integration Integration is demonstrated to a reasonable degree. The analyses of the strategic alternatives, minor issues and implementation issues use a reasonable scope of the SWOT points provided in the Backgrounder and the data gathered in the situational analysis (i.e. use a variety of SWOT points, not just the same points repeatedly). Examples of integrative thinking include the following (among others):


CMA Canada Page 42

1. Considering the cause and effect relationships between SWOT items and strategic alternatives.

2. Considering the implications of one issue or alternative on another. 3. Indicating how the recommended strategy takes advantage of strengths and

opportunities while mitigating weaknesses and/or avoiding threats. 4. Considering whether the alternatives meet the goal, constraint, industry KSF and

key stakeholders preferences. The specific items from the situational analysis that are being considered are specified clearly and explicitly. The points being made clearly indicate the cause and effect relationships, and are logical and consistent with case facts. AE = Good scope and quality of integration (12 or more) clear and distinct

integrative points in the analysis of the major alternatives and issues). ME = Reasonable scope and quality of integration (7 to 11 clear and distinct

integrative points in the analysis). BE = Unacceptable scope and quality of integration (fewer than seven integrative

points). NA = No integration attempted.

c) Implementation/Action Plan Overall Quality The recommended implementation/action plan: 1. Identifies tasks, matches the tasks to the appropriate individuals, provides

realistic timelines for completing these tasks, and considers the monetary implications (i.e. an action plan that indicates what, who, when and costs);

2. Aligns the organizations resources and success factors to accomplish the recommended strategy;

3. Overcomes the cons of the recommended strategies without causing new problems or conflicts, addresses the minor issues and recommends actions to resolve the minor issues; and

4. Considers organizational implications (e.g. change management (employee integration, communication), performance measures, per diem changes, other operational issues, etc.).

AE = Good implementation/action plan includes a reasonable action plan and

addresses seven or more implementation or minor issues (overcoming cons and other implementation and/or minor issues).

ME = Reasonable implementation/action plan includes an action plan and one other attribute, and addresses four to six relevant issues (overcoming cons and other implementation and/or minor issues). May have some minor problems.

BE = Implementation/action plan is not reasonable (too brief, serious problems). NA = No attempt to provide an implementation/action plan.


CMA Canada Page 43

2. APPLICATION OF QUANTITATIVE TOOLS a) Financial and Performance Analysis:

Appropriate methods of analysis are applied correctly in evaluating performance and financial risk of SC (e.g. current financial assessment). Appropriate application

solare consulting (sc) august2012 case exambook cma

Documents