Secret Risk Management Buzzwords Revealed

Welcome to the world of risk management or what is sometimes now called enterprise risk management or ERM.

For someone looking for a reference to concepts used in the past or for the newly designated risk expert, you will see elements of enterprise risk management in some of the concepts below. You may have been part of:

  1.  Contingency planning,
  2.  A due diligence review,
  3.  An acquisition review,
  4.  A merger and acquisition review,
  5.  An operational assessment
  6.  A strategic facilitated top management session in this approach, or
  7.  Risk management.

 Using a common source for definitions from Business Dictionary, think of these concepts as:  

Acquisition planning coordinates the activities of the personnel involved in the purchase of an asset or supply to ensure its timely and cost effective acquisition.  

Contingency planning is activity undertaken to ensure proper and immediate follow-up steps will be taken by a management and employees in an emergency. Its major objectives are to ensure:

(1) containment of damage or injury to, or loss of, personnel and property, and

(2) continuity of the key operations of the organization.  

Due diligence is a measure of prudence, responsibility, and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.  

Operational assessment is an evaluation of working effectiveness and suitability of a system through test methods aimed at:

(1) identification of defects, gaps, areas of risk,

(2) measurement of the adequacy of the output, and

(3) assessment of the reliability of the operations.  

Risk management includes policies, procedures, and practices involved in identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks. A firm may use risk assumption, risk avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies) in proper management of future events.  

Often the new expert in a function has to obtain a working knowledge of the buzzwords and industry jargon as one of their first steps. If you are the new enterprise risk management expert, or risk management expert, you will see these terms regularly.

Bottom line? – Stop Profit Leaks Now. Apply this information to improve your profitability, re-engineer business models, and strengthen or gain competitive advantage in the marketplace.

Or comment on how this article could be made more useful for you.

And apply the free Fiscal Test available at http://fiscaldoctor.com/fiscaltest.html.

From the author of the forthcoming book, ‘Stick Out Your Balance Sheet & Cough: Best Practices for Long Term Business Health’.

From Gary W Patterson, http://www.FiscalDoctor.com Copyright 2009

Article Source:
http://EzineArticles.com/expert/Gary_W_Patterson/90687

Source


Overall RatingNo Rating
ProfessionalismNo Rating
Top QualityNo Rating
Great BenefitsNo Rating

Budget Criticism

Budgets are often criticized for controlling the wrong things, or for creating pervasive incentives when they are used in performance reviews. The criticism often overlooks the various benefits of budgets and the budgeting process, but that doesn’t mean that the criticisms are totally unfounded.

Budgets facilitate decision control and can be used as benchmarks to gauge performance. Specialized information is gathered from lower levels of management up to the top levels and can be used as a gauge against actual performance. Top-level management can use the assumptions made during the budgeting process as performance measures for the owners of the budget. The budgeting process in large companies is the orchestration of specialized knowledge of numerous departments.

The executive team sets goals for the upcoming year based on previous performance, and current or expected economic trends. The marketing team assembles their budget based on the marketing campaigns that will be used to meet the goals. The operations departments build their budgets based on the expected volumes resulting from the marketing campaigns. This transfers the specialized knowledge of the marketing department to the operation departments through the budget process and both departments use their specialized knowledge to build their own budgets. The executives then review the bottom up budget against the previous year’s performance.

Sometimes, the executive may request a 5-10% reduction in the budget dollar amounts offset by a corresponding increase in productivity or other cost reduction in a reverse ratchet effect. In effect ratcheting down the budget instead of ratcheting up the budget based on consistent level of productivity. The executive leaves the decision of how to achieve the productivity increase to lower levels of management that are closer to the process. These decisions are made with the knowledge of the current business environment, and should be made after careful deliberation so they don’t set unreasonable or unattainable goals that could discourage lower levels of management.

Budgets provide decision control in terms of expenses, but often companies take another step in using accounting for control by requiring actual expenditures to be sign off by higher levels of management than those that actual incur the budgeted expense. A more efficient process allows for the routine processing of budgeted expenses, while the total amount of the expense is controlled at the yearly or monthly level. If an operational manager is responsible for a process that incurs a regular expense, then they have the authority to spend the budgeted dollars used in that process. If a manager has the responsibility of processing credit card applications then their input is used to produce a budget for that expense. If the CEO has approved the budget that contains a regularly incurred expense of $120,000 per year or $10,000 per month, but if the company has a policy that requires all expenses over $7,500 to have prior CEO approval, does the CEO have to approve the monthly budgeted expense every month? It would be more efficient to approve the expense once in the budget and have the volume of the budget cost driver monitored.

Criticisms of budgets are usually are about how the budget process is used rather than a direct criticism of the budgeting process itself. The budget process does not require the budget to be used in performance evaluation. If the budget controls the wrong things, then this could indicate a problem in how the budget was created not necessarily in the budget process itself. It’s usually a criticism of inadequate cost allocation.

Article Source:
http://EzineArticles.com/expert/William_Ryder/1187897

Source


Overall RatingNo Rating
ProfessionalismNo Rating
Top QualityNo Rating
Great BenefitsNo Rating

The Importance of Business Financial Analysis and Management

Planning and Control are the two most important ingredients to a Successful Business. A Business Plan takes most of the guess work out of Business Strategy and Control through solid Financial analysis. Financial Data provides a way to gauge where you are in your Strategic Plan, telling you where changes in your Plan are necessary. Because of this, Financial Data Analysis and Management are vitally important to running a successful business.

It is extremely important to have a suitable Accounting System installed throughout your business so data acquisition is easy. You cannot manage your Business for Profitability without a good Accounting System. My CPA has a bookkeeper who comes out to the business to help install the Accounting System and show us how to work it. All of this is done with the guidance of the CPA but at a fraction of the cost. A good Bookkeeper is invaluable in helping capture Financial Data. Having an established working Accounting System in place will minimize the fees a CPA charges to analyze your tax liability and prepare your tax returns.

An Accounting System is typically built around the following key Financial Management tools:

– Income Statement (Profit & Loss Statement)

– Cash Flow Statement

– Balance Sheet

– Budget

– Breakeven Analysis

By having a Financial Management system in place, you can easily identify early warning signs or spot particularly profitable areas. Not having a system in place to analyze and organize Financial Data makes it impossible to effectively manage, grow and control a business. It makes it impossible to gauge the success (or lack there-of) of your Planning and Strategy. Moreover, used incorrectly, inaccurate Financial Data can be disastrous for a company’s livelihood.

An Accounting and Financial Management System is only as useful as it is used systematically throughout an entire business. It is extremely important to implement the system into the very fabric of the business and be used systematically. The Accounting System is a reflection of the health, or lack thereof, of a business and from which business decisions are made. Make sure to set it up right, train your people on it and most importantly, use it!

Two principal objectives of any business are to be Profitable and have Cash Flow to pay obligations. The Income Statement and Cash Flow Statement figure prominently in this area. The Income Statement represents how well a Company is operating, and the Cash Flow Statement shows how well a business is managing its Cash. Profit or Loss on one side and Liquidity on the other.

The trick is to find a good balance between Profits and Liquidity, which when not well planned for, can be very difficult to maintain. Fast Growth with high profits can drain the liquidity of a business, so being Profitable is no guarantee you’ll stay in business. The role of the existing and projected Cash Flow and Income Statement is to help you identify problems areas so you can effectively plan for them, such as raising more capital, infusing more equity or obtaining finance. Moreover these two statements help you identify areas which can be better controlled and managed, forestalling the need of additional capital and funding.

The Breakeven Analysis is based on the Cash Flow and Profit & Loss Statement. The Breakeven Statement and Chart is extremely important because it shows the revenue volume from sales that are required to precisely balance the sum of your fixed and variable expenses. The Breakeven Analysis can be extremely helpful when:

– Setting Product and Service Price Levels

– Deciding whether to purchase or lease equipment / building

– Figuring out profit projections based on various sales levels

– Determining if new employees are required

– Planning ahead for finance / capital required in the future

– Making Strategic Objectives more tangible and achievable

– Measuring your Company’s progress toward Profit goals

The Balance Sheet records the past effects of company decisions (or lack thereof) and projects the affect of future Plans. The Balance Sheet is a record of the company’s Liquidity and Owner’s Equity. These variables are directly affected by the Income and Cash Flow statements. The Balance Sheet is the often overlooked Financial but it has a lot of utility:

– Shows the effect of past decisions

– Keeps track of a Company Cash Liquidity Position

– Records the level of Owner’s Equity

– Quickly shows the condition of the business

A Budget Analysis compares a Company’s Actual Performance to Projected Performance on a monthly, quarterly and annual basis. The Budget is a great tool to guard against excessive, unmitigated expenses and is closely tied to the Strategic Objectives the company has set. Analyzing the Income Statement and Cash Flow Statement projections against Actual Performance is an excellent control tool, which can quickly address problems before they become too severe. Little oversights and mistakes in a Company’s Projections spread over time can have a disastrous affect. The Budget Analysis is your guard against that.

Working together, the Income Statement, Cash Flow Statement, Balance Sheet, Breakeven Analysis and Budget Analysis provide a complete picture of a company’s Current Operations, Liquidity, Past Operations and Future Viability. Working through an interactive Accounting System can be a very useful tool in determining future business scenarios and analyzing past mistakes. Understanding the financial implications of your Financial Decisions can mean the difference between your company’s success and failure. Probably the most important financial is your Cash Flow Statement but understanding all of these financials and how they work together is the key to a company’s success. Projections are based on assumptions – make sure these are well thought out and as realistic as possible.

Frank Goley is a business consultant and business coach, and he works for ABC Business Consulting. He is an expert in developing, writing and implementing business plans, funding plans, marketing plans, strategic plans and business turnaround plans. Frank is author of The Comprehensive Business Plan Workbook – A Step by Step Guide to Effective Business Planning, and he writes the Business Success Strategies Blog.

Article Source:
http://EzineArticles.com/expert/Frank_Goley/497870

Source


Overall RatingNo Rating
ProfessionalismNo Rating
Top QualityNo Rating
Great BenefitsNo Rating

The Importance of Business Financial Analysis and Management

Planning and Control are the two most important ingredients to a Successful Business. A Business Plan takes most of the guess work out of Business Strategy and Control through solid Financial analysis. Financial Data provides a way to gauge where you are in your Strategic Plan, telling you where changes in your Plan are necessary. Because of this, Financial Data Analysis and Management are vitally important to running a successful business.

It is extremely important to have a suitable Accounting System installed throughout your business so data acquisition is easy. You cannot manage your Business for Profitability without a good Accounting System. My CPA has a bookkeeper who comes out to the business to help install the Accounting System and show us how to work it. All of this is done with the guidance of the CPA but at a fraction of the cost. A good Bookkeeper is invaluable in helping capture Financial Data. Having an established working Accounting System in place will minimize the fees a CPA charges to analyze your tax liability and prepare your tax returns.

An Accounting System is typically built around the following key Financial Management tools:

– Income Statement (Profit & Loss Statement)

– Cash Flow Statement

– Balance Sheet

– Budget

– Breakeven Analysis

By having a Financial Management system in place, you can easily identify early warning signs or spot particularly profitable areas. Not having a system in place to analyze and organize Financial Data makes it impossible to effectively manage, grow and control a business. It makes it impossible to gauge the success (or lack there-of) of your Planning and Strategy. Moreover, used incorrectly, inaccurate Financial Data can be disastrous for a company’s livelihood.

An Accounting and Financial Management System is only as useful as it is used systematically throughout an entire business. It is extremely important to implement the system into the very fabric of the business and be used systematically. The Accounting System is a reflection of the health, or lack thereof, of a business and from which business decisions are made. Make sure to set it up right, train your people on it and most importantly, use it!

Two principal objectives of any business are to be Profitable and have Cash Flow to pay obligations. The Income Statement and Cash Flow Statement figure prominently in this area. The Income Statement represents how well a Company is operating, and the Cash Flow Statement shows how well a business is managing its Cash. Profit or Loss on one side and Liquidity on the other.

The trick is to find a good balance between Profits and Liquidity, which when not well planned for, can be very difficult to maintain. Fast Growth with high profits can drain the liquidity of a business, so being Profitable is no guarantee you’ll stay in business. The role of the existing and projected Cash Flow and Income Statement is to help you identify problems areas so you can effectively plan for them, such as raising more capital, infusing more equity or obtaining finance. Moreover these two statements help you identify areas which can be better controlled and managed, forestalling the need of additional capital and funding.

The Breakeven Analysis is based on the Cash Flow and Profit & Loss Statement. The Breakeven Statement and Chart is extremely important because it shows the revenue volume from sales that are required to precisely balance the sum of your fixed and variable expenses. The Breakeven Analysis can be extremely helpful when:

– Setting Product and Service Price Levels

– Deciding whether to purchase or lease equipment / building

– Figuring out profit projections based on various sales levels

– Determining if new employees are required

– Planning ahead for finance / capital required in the future

– Making Strategic Objectives more tangible and achievable

– Measuring your Company’s progress toward Profit goals

The Balance Sheet records the past effects of company decisions (or lack thereof) and projects the affect of future Plans. The Balance Sheet is a record of the company’s Liquidity and Owner’s Equity. These variables are directly affected by the Income and Cash Flow statements. The Balance Sheet is the often overlooked Financial but it has a lot of utility:

– Shows the effect of past decisions

– Keeps track of a Company Cash Liquidity Position

– Records the level of Owner’s Equity

– Quickly shows the condition of the business

A Budget Analysis compares a Company’s Actual Performance to Projected Performance on a monthly, quarterly and annual basis. The Budget is a great tool to guard against excessive, unmitigated expenses and is closely tied to the Strategic Objectives the company has set. Analyzing the Income Statement and Cash Flow Statement projections against Actual Performance is an excellent control tool, which can quickly address problems before they become too severe. Little oversights and mistakes in a Company’s Projections spread over time can have a disastrous affect. The Budget Analysis is your guard against that.

Working together, the Income Statement, Cash Flow Statement, Balance Sheet, Breakeven Analysis and Budget Analysis provide a complete picture of a company’s Current Operations, Liquidity, Past Operations and Future Viability. Working through an interactive Accounting System can be a very useful tool in determining future business scenarios and analyzing past mistakes. Understanding the financial implications of your Financial Decisions can mean the difference between your company’s success and failure. Probably the most important financial is your Cash Flow Statement but understanding all of these financials and how they work together is the key to a company’s success. Projections are based on assumptions – make sure these are well thought out and as realistic as possible.

Frank Goley is a business consultant and business coach, and he works for ABC Business Consulting. He is an expert in developing, writing and implementing business plans, funding plans, marketing plans, strategic plans and business turnaround plans. Frank is author of The Comprehensive Business Plan Workbook – A Step by Step Guide to Effective Business Planning, and he writes the Business Success Strategies Blog.

Article Source:
http://EzineArticles.com/expert/Frank_Goley/497870

Source


Overall RatingNo Rating
ProfessionalismNo Rating
Top QualityNo Rating
Great BenefitsNo Rating