BU 121 Final Exam Basic Final Exam Review...
Transcript of BU 121 Final Exam Basic Final Exam Review...
Andrew Ferraro BU 121 April/9/2013
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BU 121 Final Exam
Basic Final Exam Review Guide
NEGOTIATING
What is negotiation?
- The ongoing process through which two or more parties, whore positions are not
necessarily consistent, work in an effort to reach an agreement
“Negotiaphobia” – disease of attitude and skill deficiency
- Many people see negotiations as an act of combat or conflict
Three-Step EASY treatment Process
Engage
- Recognize you are in a negotiation and quickly review the viable strategies
Assess
- Evaluate your tendency to use each of the negotiation strategies, as well as the
tendencies of the other side
Strategize
- Select the proper strategy for this particular negotiation
You’re One Minute Drill
- Each time you begin a negotiation situation, take a minute to review the 3 steps
Thomas-Kilmann Conflict Mode Instrument
- Late in the negotiation process after legitimate strategies fully used
- When only a small gap remains on one issue
- Always directly tied to an agreement
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Thomas-Kilmann Conflict Mode Instrument
(5 Basic Negotiating strategies)
Nine of the four strategies are universally applicable or appropriate
Avoidance
- Minimal issue
o Recognize it may grow in importance
o Do it in way that demonstrates investment in relationship
- Superior option readily available elsewhere
o Objections are a sign of interests
Accommodation
- In significantly weaker bargaining position – no leverage
o Can improve leverage with knowledge
- How you accommodate is as important as when
o “this time around we would be willing to consider” and don’t make excuses
Compromising
- Late in the negotiation process after legitimate strategies fully used
- when only a small gap remains on one issue
- always directly tied to an agreement
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Competition
- opponent not inclined or capable of collaborating
o need senior players to get at true needs
- Not worth the effort
o Be careful to look for true potential of negotiation
Collaboration
- When situation present a significant opportunity with capable and willing decision-
makers on all sides
o Win-win-win
o 80/20 rule
- Requires preparation, need identification, and candor – trust
- Internal collaboration is prerequisite for external collaboration
Negotiation Strategy Matrix
Competition
Win/Lose
Collaboration
Win/Win
Avoidance
Lose/Lose
Accommodation
Lose/Win
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2 categories of collaborators
Sages
- Recognize the opportunity to cooperate, they can naturally collaborate
Dreamers
- Think they can collaborate all the time, but are not effective at it
4 Basic interaction styles – similar to DISC
- Peace of information exchange
- Focus on tasks or relationships
o Drivers (D)
o Expressives (E)
o Amiables (S)
o Analyticals (C)
Drivers Expressives
Analyticals Amiables
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Principled Negotiations
- Typical negotiations are ‘positional’
o People state their positions – what they want
o Strategy is ‘distributive’
Competing, compromising, or accommodating
Principled Negotiations
- An ‘interactive’/collaborative strategy
- Produce a wise agreement
- Efficiently
- And amicably
4 Basic Points
- Separate the people from the problem
- Focus on interests not positions
- Generate a variety of options before deciding what to do
- Insist that the result be based on objective criteria
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OPERATIONS AND SUSTAINABILITY
Services vs. Manufacturing
Both transform “raw material” into finished good
- Raw materials in person with unsatisfied need or possession that requires care
- Service is performed not produced
- Focus on process as well as outcome
o Judges on quality of work and service
- Characteristics are different
o Intangible – experience key, customized, can’t be stored
- Customer is part of process
o Extent of contract contact affects operations
Manufacturing
- Set capacity slightly ahead of demand
o In short term turn away customers or outsource at lower margins
- Seasonality – shift demand and capacity requirements by pricing
Service
- Low contact – set capacity to average demand
- High contact – set capacity at peak demand
Mass Productions vs. Mass Customization
Mass production technology
- Stable market conditions
- Efficiency vs. effectiveness
- Repetition
New economic reality
- Constant change
- Customer-driven
- Customization and innovation
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Sustainability
Measured by the Triple Bottom Line – Andy Savatz
- Profit/Environment/Society – People/Planet/Profit
- “sustainability sweet spot” – place where corporate and societal interests intersect – a
new way to measure the bottom line
Sustainable Operations
- The next industrial revolution
- Ways to weave sustainability into operations:
o Product design
“cradle to cradle” design
Biomimicry
o Product Stewardship
o Sustainability through servicing
o Sustainability of the supply chain
Cradle – to – Cradle Design
Take – make – waste model – Cradle to Grave design
- Eco-efficient – “less bad” – 3R’s Design
Eco-effective design on nature’s design principles
- “waste equals food” – Cradle to Cradle design
- Products developed for close-loop system
o Every output is safe and beneficial
o Biological or technical nutrients
- Eliminate the concept of waste
C2C developed by William McDonough and Michael Braungart – MBDC – firm started in 1995
consults and certifies C2C production
Biomimicry
- Sustainable innovation inspired by nature – “biologically inspired engineering”
- Based NOT on what we can extract from organisms and ecosystems (harvesting or
domestication), but what we can learn from them
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Product Stewardship
- The responsibility and ethical management of the health, safety, and environmental
aspects of a product throughout its total life cycle
- The concept of extended producer responsibility – accounting for the impact of a
product during use and after disposal
Sustainability through Servicing
- Increased efficiency and creation of environmentally benign products and processes
necessary but not sufficient
- Gains may eventually be counteracted by increases in consumption
- Changes business model from selling products to providing services
o Turn demand for reduced material use into a strategic opportunity
o Services more difficult to imitate – competitive advantage
- Xerox
o 1994 – became “the document company” – help companies improve efficiencies
in document-intensive business processes
Sustainability of the Supply Chain
- “a network of facilities that produce raw materials, transform them into intermediate
goods and then final products, and deliver the products to customers through a
distribution system”
- “management of raw materials and services from suppliers to manufacturers/service
provider to customers and back with improvement of the social and environmental
impacts explicitly considered”
- Outsourcing business operations doesn’t mean outsourcing responsibilities or risks in
today’s global economy – sustainable supply chain management is key to the integrity of
the brand
Timberland
- If you are going to design carbon out of a product, you have to understand every place
in the life cycle that carbon comes in
Greenwashing
- The act of misleading consumers regarding the environmental practices off a company
or the environmental benefits of a product or service
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The Six Sins
1. The sin of hidden-trade off
2. The sin of vagueness
3. The sin of fibbing
4. The sin of no proof
5. The sin of lesser of two evils
6. The sin of irrelevance
HUMAN RESOURCES AND LABOUR RELATIONS
Recruitment Objectives
Employer Branding
- Define target audience
- Develop the employee value proposition
- Communicate the brand
Selecting recruitment methods – tools
- Yield ratios
- Time lapse data
Validation of Selection Methods
Criterion validity
o Those that do well on selection method (predictor) also perform well on the job
(criterion)
Validation Process
o Administer the selection procedure to a group of people
o Correlate (compare) the results/predicted score with performance/criterion
score
o Look for valid predictors
- Predictive & Concurrent
o Difference is in who administered to and implications
Predictive
Concurrent
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Application to selection methods
- Application forms
o What can you ask?
o What is it used for?
o “weighted application blank”
50 answer YES, 40 high performers = weight 80
- Interviews
o Most common but least valid
o Because of interviewers and questions asked
Degree of variance and validity of questions
o Solution:
Interviewers:
Train, use more than one, and give feedback
Questions:
o Use job analysis as guide for developing, validate, and use “patterned” questions
- Testing
- Types of interview questions
Situational
o Question type:
o General question form:
o Key assumption
Behavioural/Behaviour Description Interview (BDI)
o Question type:
o General question form:
o Key assumption
Determining Compensation
Objectives
- Attract, retain, and motivate
- External and internal equality, and incentives
Internal equality – Job Evaluation
- Develop rating system
- Use job analysis to rate jobs
- Assign pay based on relative value – “Price the Pay Structure”
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“Point Method”
- Universal factors
o Skill, Effort, Responsibility, Job conditioning
- Sub-factors – Degrees – Point values – Pay grades
Pay Equity Legislation
NOT “Equal Pay for Equal Work”
Prohibits paying different wages to employees who work the same firm in jobs that are
different but of comparable worth to the company
- Jobs of equal value paid the same regardless of gender
- Attempts to end “systematic wage discrimination”
- And eliminate portion of wage gap that can’t be explained by differences in education,
labour market experience, or seniority
Federal Government, Ontario & Quebec – both public and private sector
- Required to develop and implement plans BUT complaint based system
- In federal law or over 30 years (’77) but wage gap still exists
Labour Relations in Ontario
- Structure of labour movement
- Relationship between union and management
- Different types of unions
- Certification process
- Contract administration
- Negotiating strategy
Structure of labour Movements
Management -------------------------------- Government -----------------------------------Union
Union Structure
Local
- Collective bargaining
- Contract administration
- Grievances
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Parent
- Policy
- Legal aid
- Strike fund control
- Research
- Collective bargaining
- Final authority
Labour Congress
- Lobby with government
- Research
- Mediate disputes
Power Struggle
Union
- Threat of a strike
o Timing
- Ability to carry it out
o Strike fund
Management
- Ability to withstand a strike
o Stockpiling
o Subcontracting
o Skeleton staff
o Strike breakers
Scabs
Replacement workers
o Strike insurance
- Industry-wide lockout
- Employer association bargaining
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Types of Unions
Craft/Trade Industrial
Power Create monopoly over scare resources
Strength in numbers
Tactics U – withdraw, jobs at other sites, info picket M – Industry-
wide lockout
U – control physical access through picket M – withstand
strike
Strike Characteristics Little violent, settled quickly Potential violence, can drag on
Collective Bargaining Process
Union Certification
- Voluntary recognition
- Membership drive
o Get employees to sign union cards
File application when 40% of proposed bargaining unit
o Evidence reviewed by OLRB
o Representation vote
Within 5 days of application
Management needs to be careful of undue influence
o Can’t TIC; facts but no promises or threats
Must have 50% +1 of those who vote to be certified
Contract Negotiations
Issues
- Form of recognition/Union Security
o Voluntary check off of dues
o Rand formula/agency shop
o Union shop
o Close shop
- Duration & Renewal
- Seniority – “superseniority”
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Settlement
- If agreement – ratification vote
o Contract in effect at end of existing or “retroactive”
- If no agreement
o Conciliation – before strike/lockout is legal
Union asks OLRB for ‘No Board’ report
Strike/Lockout legal on 17th day after report is issued
o Mediation
o Arbitration
Conciliation vs. Mediation vs. Arbitration
Conciliation
- Voluntary but necessary
- Non-building
- Legalizes a strike/lockout
Mediation
- Voluntary, Non-building
- No effect on legal timing of strike/lockout; may help avert or end strike/lockout
Arbitration
- Voluntary or compulsory
- Essential services
- Blinding
- Effectively ends strike/lockout
Contract Administration
Both sides watch that the other lives up to the terms of the agreement
If not – Grievance Procedure
- Resolve conflicting interpretations of contract
- Procedure outlined in contract, but elements same…
o Statute of limitations
o Escalation to higher levels
o Time limits
o Arbitration at end
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FINANCE
Evaluating Financial Performance
Why evaluate financial performance?
Principle 1
- Of entrepreneurial finance: real human, and financial capital must be ‘rented’ from
owners
Principle 5
- Of entrepreneurial finance: a venture’s financial objective is to increase value
Different analytical measures are important to different users at different stages
Analytical Measures
Development and start up issues:
- How quickly the venture uses cash – cash burn rate
- The venture’s ability to meet short-term financial obligation (pay bills) – liquidity
- The length of the operating/working capital cycle – conversion period
Additional Survival Issues
- The ventures potential to employ and repay debt – leverage
- The ventures ability to provide a return on investment capital – profitability and
efficiency
Financial Ratios
- Liquidity – ability to meet short term obligations
- Conversion period – time to convert an asset into cash (affects liquidity)
- Leverage – implications relating to the use of debt
- Profitability and efficiency
Analytical Techniques
- Industry comparable analysis – compare against average
- Cross-sectional analysis – compare to specific firms
- Trend analysis – compare over time
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Cash Burn Rates & Liquidity
Cash Burn Rate
- How quickly a venture ‘burns through’/uses cash
- Determine weeks of cash remaining
Cash Build Rate
- How quickly a venture builds cash through collections on sales
Liquidity
- The ability of the venture to maintain a build rate high enough to meet its obligations as
they come due
Measuring Burn and Build Rates
Cash Burn = the cash a venture expends on its operating and financing expenses and its
investments in assets
- Cash Burn
o = Cash Operating Expenses + Interest + taxes
o + Increase in inventories
o – changes in payables and accruals
o + Capital Expenditures
- Cash Build = what the venture receives on its sales
o Cash build
o = Net sales – Increase in Receivables
- Net Cash Burn – when cash burn exceeds cash build
- Monthly Burn Rate
o Monthly cash burn rate
o – monthly cash build rate
o = monthly net cash burn rate
- Burn and Build Rates can also be determined using the Cash Flow Statement
o Cash flow from operating activities and investing activities
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Liquidity
- Compares assets that can be quickly converted to cash with liabilities that represent
near-term needs for cash
- Addresses long-term trends
- Deals with working capital management issues
Conversion Period Ratios
- Measures the average time in days required for non-cash current assets and selected
current liabilities to create or demand cash
o The faster assets can be converted into cash, the greater the liquidity (other
things being equal)
Operating Cycle
- Measures the time it takes to purchase raw materials, assemble a product, book the
sale, and collect on it
Measuring Conversion Times
- The number of days of operation that must be externally finances
- Should be close to 0 as possible
Leverage
- Considers how the firm acquired external financing (to support the longer C3)
- Measures the extent to which the firm has used debt and its ability to meet its debt
obligations
- What is the benefit of using debt vs. equity?
o Interest vs. dividends
o Risk/return trade off
o Control vs. legal resource
Profitability and Efficiency
- Measure how efficiently a venture controls it expenses and uses its assets
- Accounting-based measures of profitability are a standard starting point for examining
venture value
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Operating and Financial Leverage
Pros Cons
Operating - higher upfront fixed costs = lower margin at first but over time VC goes down and contribution goes up - amplified returns after fixed costs have been covered
- high fixed costs that cannot be covered - amplified losses
Financial - firms like debt because they have more control over their company - paying interest is cheaper than dividends; higher return -tax deductibility lowers taxes
- must always pay interest - if you go with equity financing you have less control - lower return if using equity - too much debt can bring down returns
Cost-Volume-Profit Analysis
- Tool used for decision making
- Shows effect of changes in Costs or Volumes on Profits – CVP Analysis
- Shows impact of Operating Leverage
o Degree to which locked into fixed operating costs
Must sell more to cover fixed costs (RISK)
But once covered – leverage effect on profit (RETURN)
- Also used for ‘Breakeven’ Analysis
o Where Revenues = Expenses OR Rev-Exp=0
- Most important concept is contribution
Recap
- Assess risk in decision when doing something new
o Breakeven – above become profitable
When fixed costs covered by contribution from sales = FC / contribution
per unit or & margin
- Decide when to change strategy – start new approach
o Determine decision point – above become more profitable
When incremental fixed costs cover incremental contribution
- Make decisions that affect cost and/or volume – fine tuning a strategy
o Positive impact on profit
Total incremental contribution > incremental fixed and negligible
negative qualitative impact
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Things to Know
Fixed costs
- Constant regardless of level of production and sales
- Assuming operating ‘relevant range’
o Normal range of operating activity
Variable costs
- Total depends on level of production and sales
Decision Point
- Point where incremental (additional) fixed costs are covered by the incremental
contribution
Applications
Assume
- ABC Company currently sells 400 units of a product at $250/unit and the variable costs
are $150/unit
o Contribution per unit = $250 - $150 = $100/unit
o Total $ contribution = $100/unit x 400 units = $40,000
o Contribution margin = 1 - $150/$250 = 40%
Good Luck!! – Andrew Ferraro
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