ESOFT METRO CAMPUS

BUSINESS IN PRACTICE
Module Code – CI7600

By
Pradeep Alexander
MBA (Finance), MA in Financial Economics, MSc in Proj.Mgt.

Bcom.Sp.Acc.Hons, ICMA, CILT, CA-Inter, ACCA-Skill .

 Chapter - 05

Strategic Decision Making & Risk Management

Vision Statement:

A vision statement is a statement of an organization’s overarching

aspirations of what it hopes to achieve or to become. Here are some examples
of vision statements:
• Disney: To make people happy
• IKEA: To create a better everyday life for the many people
• Microsoft: Empower every person and every organization on the planet to
achieve more
• Avon: To be the company that best understands and satisfies the product,
service and self - fulfilment needs of women—globally
• Sony Corporation: To be a company that inspires and fulfils your curiosity[
Mission Statement:

Mission statement describes what the organization needs to do now to

achieve the vision.
• Life is Good: To spread the power of optimism
• Patagonia: Build the best product, cause no unnecessary harm, use business
to inspire and implement solutions to the environmental crisis
• Invisible Children: To end violence and exploitation facing our world’s
most isolated and vulnerable communities
• Honest Tea: To create and promote great-tasting, healthy, organic
beverages
• Jet Blue Airways: To inspire humanity–both in the air and on the ground
• Tesla: To accelerate the world’s transition to sustainable energy
• The vision and mission statements must support each other, but the
mission statement is more specific.
• It defines how the organization will be different from other
organizations in its industry
• Because it is more specific, the mission statement is more actionable
than the vision statement.
• The mission statement leads to strategic goals. Strategic goals are the
broad goals the organization will try to achieve.
• The mission statement allows leaders to define a coherent set of goals
that fit together to support the mission
External Opporchunities & Threats
• Economic
• Social
• Cultural
• Demographic
• Environmentnal that could significantly benefit
• Political or harm an organisation in the
• Legal Future
• Government
• Technological
• Competitive trends and events
 Internal Streanths & Weekneses
• Management
• Marketing
• Finance & Accounting Organisation’s controlable
• Production & Operations Activities that are performed
• Research & Development in well or poor
• Management Information System
 Long Term Objective

“Objectives that can be defined as specific results that an organisation

seek to achieve in pursuing its basic mission In more than one year”

Objectives should be,

Challenging
Measurable
Consistent
Reasonable
Clear
 Annual Objectives
“Annual objectives are short-term milestones that organisations must achieve
to reach long term objectives”

Annual objectives should be,

Measurable
Quantitative
Challenging
Realistic
Consistent
Prioritised

Annual objectives represent the basis of resource allocation.

 Policies

“Policies are the means by which annual objectives will be achieved”

Policies include,
Guidelines
Rules
Procedures
Decision Making
Repetitive & Recurring situations
Management for Decision Making

Functions of Management;
Ø Planning
Ø Organising
Ø Directing
Ø Staffing
Ø Controlling
Functions of Management -Planning

It is the basic function of management. It deals with chalking

out a future course of action & deciding in advance the most
appropriate course of actions for achievement of pre-determined
goals.
Functions of Management –Organizing

It is the process of bringing together physical, financial and human

resources and developing productive relationship amongst them for
achievement of organizational goals. According to Henry Fayol, “To
organize a business is to provide it with everything useful or its
functioning i.e. raw material, tools, capital and personnel’s”.
To organize a business involves determining & providing
human and non-human resources to the organizational structure.
Organizing as a process involves:
Ø Identification of activities.
Ø Classification of grouping of activities.
Ø Assignment of duties.
Ø Delegation of authority and creation of responsibility.
Ø Coordinating authority and responsibility relationships
 Functions of Management –Directing
It is that part of managerial function which actuates the organizational
methods to work efficiently for achievement of organizational purposes.
It is considered life-spark of the enterprise which sets it in motion the
action of people because planning, organizing and staffing are the mere
preparations for doing the work. Direction is that inert-personnel aspect
of management which deals directly with influencing, guiding,
supervising, motivating sub-ordinate for the achievement of
organizational goals.
Direction has following elements:

Supervision- implies overseeing the work of subordinates by their superiors.

It is the act of watching & directing work & workers.
Motivation- means inspiring, stimulating or encouraging the sub-ordinates
with zeal to work. Positive, negative, monetary, non-monetary incentives may
be used for this purpose.
Leadership- may be defined as a process by which manager guides and
influences the work of subordinates in desired direction.
Communications- is the process of passing information, experience, opinion
etc from one person to another. It is a bridge of understanding.
Functions of Management –Staffing
It is the function of manning the organization structure and keeping it
manned. Staffing has assumed greater importance in the recent years due
to advancement of technology, increase in size of business, complexity of
human behaviour etc. The main purpose o staffing is to put right man on
right job i.e. square pegs in square holes and round pegs in round holes.
According to Kootz & O’Donell, “Managerial function of staffing
involves manning the organization structure through proper and effective
selection, appraisal & development of personnel to fill the roles designed
un the structure”.
Staffing involves:
Ø Manpower planning
Ø Recruitment, Selection & Placement.
Ø Training & Development
Ø Remuneration
Ø Performance appraisal
Ø Promotions & Transfer.
Functions of Management –Controlling
It implies measurement of accomplishment against the standards and
correction of deviation if any to ensure achievement of organizational
goals. The purpose of controlling is to ensure that everything occurs in
conformities with the standards. An efficient system of control helps to
predict deviations before they actually occur. According to Theo Haimann,
“Controlling is the process of checking whether or not proper progress is
being made towards the objectives and goals and acting if necessary, to
correct any deviation
”. According to Koontz & O’Donell “Controlling is the measurement &
correction of performance activities of subordinates in order to make sure
that the enterprise objectives and plans desired to obtain them as being
accomplished”.
Therefore controlling has following steps:

Ø Establishment of standard performance.

Ø Measurement of actual performance.
Ø Comparison of actual performance with the standards and finding out
deviation if any.
Ø Corrective action.
Stages of Strategic Management

Strategy formulation

Strategy Implementation

Strategy evaluation
Ø Strategy formulation
• Develop Vision & Mission statement
• Performance Internal Audit
• Performance External Audit
• Eshtablish long term objectives
• Generate, Evaluate & select strategies

Ø Strategy Implementation
• Implementation of strategies
• Management issues

Ø Strategy Evaluation
• Measure and Evaluate performance
Decision Making
Strategic Decisions in Organisation,

Ø Vision Vs Mission
Ø Long Term Decision Vs Short Term Decisions

Long Term- More Than One Year (Investments on fixes

assets through capital budgeting)

Short Term- Less than one year (Annual Budgets,

Policies & Procedures)
Decision Making
Integration Strategies:
Ø Forward Intergration-The company gains control of the business
activities that are ahead in the value chain.
Ø Backward Intergration-The company gains control of the business
activities that were behind in their value chain.
Ø Horizontal Intergration- When a company wishes to grow
through horizontal integration, its primary goal is to acquire a similar
company in the same industry
Decision Making
Intensive Strategies:
Ø Market Penatration- A market penetration strategy seeks to increase
market share for present products or service in present makets through
greater marketing efforts.

Ø Market Development- Introducing present productor service into new

geographicaal areas.
Decision Making

Diversification Strategies:
Ø Related Diversification- occurs when a firm moves into a new industry
that has important similarities with the firm’s existing industry or
industriespresent product or service

Ø Unrelated Diversification- occurs when a firm enters an industry that lacks

any important similarities with the firm’s existing industry or industries
Decision Making
Defencive Strategies:
Ø Retrenchment- Retrenchment occurs when an organisation regroups
through cost and asset reduction to reverse declining sales and profits

Ø Diversiture- Selling a division or part of an organisation is called

divesiture

Ø Liquidation- Liquidation Selling all of company assets and winding up of

operataion.
Decision Making
Information’s for decision making
Ø Quantitative Vs Qualitative
Ø Financial Vs Non Financial Information
Ø Through Feasibility Study & The Report –
Operational feasibility
Marketing feasibility
Economic feasibility
Social feasibility
Financial feasibilities
Decision Making
Ø Internal users – Shareholders, Directors, Management, Employees.

Ø External users - Customers, Suppliers, Banks, Governments.

Risk Management

Risk management is the process of identifying, assessing and

controlling threats to an organization's capital and earnings.
 Types of Risk

Systematic Risk – The overall impact of the market

Unsystematic Risk – Asset-specific or company-specific uncertainty
Political/Regulatory Risk – The impact of political decisions and changes in
regulation
Financial Risk – The capital structure of a company (degree of financial
leverage or debt burden)
Interest Rate Risk – The impact of changing interest rates
Country Risk – Uncertainties that are specific to a country
Social Risk – The impact of changes in social norms, movements, and unrest
 Types of Risk

Environmental Risk – Uncertainty about environmental liabilities or the

impact of changes in the environment
Operational Risk – Uncertainty about a company’s operations, including its
supply chain and the delivery of its products or services
Management Risk – The impact that the decisions of a management team
have on a company
Legal Risk – Uncertainty related to lawsuits or the freedom to operate
Competition – The degree of competition in an industry and the impact
choices of competitors will have on a company
Risk Management Process
Financial Risk
Types of Financial Risk
Market Risk:

This type of risk arises due to the movement in prices of financial instrument.
Market risk can be classified as Directional Risk and Non-Directional Risk.
Directional risk is caused due to movement in stock price, interest rates and
more. Non-Directional risk, on the other hand, can be volatility risks.
Types of Financial Risk
Credit Risk:

This type of risk arises when one fails to fulfil their obligations towards their
counterparties. Credit risk can be classified into Sovereign Risk and
Settlement Risk. Sovereign risk usually arises due to difficult foreign
exchange policies. Settlement risk, on the other hand, arises when one party
makes the payment while the other party fails to fulfil the obligations.
Types of Financial Risk
Liquidity Risk:

This type of risk arises out of an inability to execute transactions. Liquidity risk
can be classified into Asset Liquidity Risk and Funding Liquidity Risk. Asset
Liquidity risk arises either due to insufficient buyers or insufficient sellers
against sell orders and buys orders respectively.
Types of Financial Risk
Operational Risk:

This type of risk arises out of operational failures such as mismanagement or technical
failures. Operational risk can be classified into Fraud Risk and Model Risk. Fraud risk arises
due to the lack of controls and Model risk arises due to incorrect model application.

Legal Risk:

This type of financial risk arises out of legal constraints such as lawsuits. Whenever a
company needs to face financial losses out of legal proceedings, it is a legal risk.
References
Ø Benedict, A and Elliott, B. (2008). Financial accounting: an introduction. Australia: Persons
Education.
Ø Horngren, H, Best, B. and Willett, F. (2006). Financial accounting. Australia: Pearson Education.
Ø Augustine, B, and Elliott, B. (2001). Practice accounting. USA: Prentice Hall.
Ø Frank, W. and Sangster A. (1999). Business accounting 1. 8th ed. London: Pitman Publishing.
Ø Wood, F. and Sangster, A. (1999). Business accounting 11. 7th ed. London. Pitman Publishing.
Ø The Institute of Chartered Accountants, IFRS, IAS (Accounting Standards Books)
Ø Drury, C (2007). Management and cost accounting. India: Thomson Learning.
Ø Horngren, C. T, Sundem, G. L and Stratton, W. O. (2010). Introduction to management accounting.
New Delhi: Prentice Hall.
Ø Kaplan, R.S. (1987). Relevance lost: the rise and fall of management accounting. USA: Harvard
University Press.
Ø Philips Kottler, Marketing Management.
Thank you