Loan Assessment and Repayment Rates among different Agribusiness Enterprises

LOAN ASSESSMENT AMONG AGRIBUSINESS ENTERPRISE

 

      In most African nations where their way of living is mostly agricultural and fishing where individual and organizations are limited to their own knowledge and skills, their resources and capital may not be enough to handle the growing demand of customers.  The expansion of such enterprise is locked by their own limits, these groups and individuals need a highly remote assistance from the government, banks and other Non Government Organizations (NGO) to build a stronger business enterprise, for them to be able to cope up with the continuous growth that is highly needed for them to survive they will eventually resort into something like loans and government assistance.

      This has been some of the common practices in Ghana. It can become a major disadvantage for people if they are not qualified in such activities and credits for they will usually be dependent on their self even if they do not have the capacity. Their business enterprise if not taken consideration by the government or banks usually closed or bankrupt. They may not be qualified if they find out that the business do not have the potential to produce or to grow.  

      The Micro-financing agencies   All in all, the borrower who qualifies to financing should go to the following process of training and strategy to make their credits work for them, basically this is a very advantageous activity on the part of the borrower although it may be hard for the borrowers due to lack of education.

      ADB or Agricultural Development Bank have opened their finance to agricultural sector during the early 70’s but poor repayment of borrowers makes them more strict in lending to restructured their program only to qualified individuals.  Most of this financing institution would only require a minimum basic requirement depending on the ability of the borrower to pay, thus their credit limit will be based upon.       

      Farmers and agribusiness sectors tend to gain capital to informal lenders or “susu” these are people or organizations that allows the farmers an easy loan for their agricultural activities without getting to the process like the banks but most of the time they are the ones who have a bigger interest rates upon payment. They can also be neighbors or relatives that agreed to lend loans for immediate needs of farmers or agribusiness. These susu collectors can transact or compromise collection according to the farmer’s capacity to pay.

      Micro-financing loans like (GHAMFIN) Ghana Micro-financing Institutions Network. For farmers and agribusiness groups in order to borrow must form themselves at least 25 to 40 members. These groups should have their own individual responsibility to paid but they also have a group participation responsibility which means that if a certain member or individual do not have the chance to pay would mean that all members must contribute to the group in order to fulfill their organization obligation. This is called a co workers collateral. On a typical scenario which sometimes provoke an argument or a fight between members in order to pay such amount. However this micro-financing calls for cooperation among group members so that loans can easily be released upon application.

      Inventory Credit Scheme by RMFI or Rural Micro-Financing Institution of World bank for farmers who want to generate funds can use their inventories like high value crops, oil palm, cashew etc. as collateral. They use their crops in exchange for loan for security purpose since they do not have the ability to show financial statement. This process allows them to clear their debt and easily allow them for a re-loan upon completion of various crops submission to the warehouse of RMFI.

      Government Credit Programs are generated for farmers, fisherman and agribusiness livestock owner a number or ways to give loans for poverty alleviation scheme. This are politically motivated funds disburse through NGO who are the one to decide who will be qualified. The government uses a so called relief and highly distributed to enterprising individuals but the interest rate is ranging from 20 percent which is quiet fair to agribusiness. The recovery rate of payment only reaches to 60 to 70 percent annually. The credit or loan given by the government or banks may only be given to qualified organization if they have the qualification to repay the amount they receive, if they have the character and skills to incorporate the responsibility to the community. That is why it is so hard to believe that the mission of such agencies is to alleviate poverty and uplift the moral of Small and Medium Enterprise because it is not easy to borrow such loans. 

      In fairness to most financing organizations, all of them have their own unique ways and means to lend such amount. That is why we can say that the difficulty or process of acquiring loans from these groups can be entirely based upon the borrower’s accountability and honesty to pay.               

     

Sustainable Corporate Strategy: Case study exam - Ryanair

Sustainable Corporate Strategy: The Case of Ryanair

 

Introduction

In competition there is motivation in every company to improve and develop their objectives.  For an enterprise to succeed in global competition there is a continuous plan to develop new products with higher quality than its competitors.  (1993) analyzes that new product and new business development must be highly effective and efficient, however that alone won’t ensure its competitiveness.  It must be supported with a suitable culture throughout the enterprise.  It must have a group of body that supports, encourages, and promote innovation for the company to succeed in the end.

Corporate World is very classy and every move they made seems to make an impact on the life of the people. Every aspects of our everyday world have been influenced by modernization, consequences of countless business decisions.  Business activity integrated into our way of life, and culture changes in accordance to the rapid growth of “business culture”.  In other words, people are one of the main reasons why corporations and different business establishments seek to develop different strategies that will make them stand out among their competitors so as to maintain and sustain their existence.  They want to create an impression so that people will patronize their products and eventually lead them to financial success. 

This paper discusses and analyzes the sustainable corporate strategies that Ryanair adopted in order to remain competitive and the subsequent benefits it contributed to the growth of the business. 

 

Q.1) Outline contemporary views of the terms "sustainable' as it apply to large companies. On the basis of what is presented in the case, give your views as to whether Ryanair was a 'sustainable' company in early 2004?

 

Prior to the common use of the term sustainable industries, the terms sustainable economy and sustainable development were common. They coined the most broadly used definition of sustainable development as, development that meets the needs of the present without compromising the ability of future generations to meet their own needs (1996; 1997). Sustainable development demands that the search for ways of living, working and being that allow all people to guide vigorous, satisfying, and economically safe lives without destroying the environment and without endangering the potential interests others (1997). Sustainable development is an economic state where the demands placed upon the environment by people and commerce can be met without reducing the capacity of the environment to provide for future generations; is economic development that has a positive long-term social and/or environmental benefit; and meets the needs of the present without compromising the ability of future generations to meet their own needs (1994). People anxious about sustainable development recommend that meeting the needs of the future depends on how well we balance social, economic, and environmental objectives--or needs--when making decisions today. It requires an understanding that operating has consequences and that we must find inventive ways to change institutional structures and influence individual behavior. Merely it is about taking action, changing policy and practice at all levels, from the individual to the international ( 1997).

Ryanair continues to make risks because of increasing and overlapping cost pressures.  However, if it sticks close to its low-fare model as it has been intending to, it may continue its sustainability because true to the Walmart model, the cheapest product always wins.  Eventually being the lowest cost and lowest fair airline will attract several passengers that will compensate for rising fuel costs especially since Ryanair is good at increasing passenger seats and expanding routes. 

 

Q.2) 2002/03 was a difficult year for the world's airlines, but Ryanair "...was seen to be unique among airlines worldwide..." (p836). Describe the main corporate strategies used by Ryanair to achieve this outcome and why they were so successful when compared with other airlines.

 

            Ryanair is a No-Frills airline meaning to say, it gives customers what they want without the added costs.  By constantly saving money by making premium and attaching amounts on services that are commonly free in airlines, Ryanair is not only able to cut down a significant amount of costs, but it is also able to have increased space in its airline truly resembling a public transport such as a bus or a train on air.  In addition to increasing more seats are its regional destinations and cheaper routes and hubs.  Despite not being placed directly in the main hubs, Ryanair still accomplishes its mission of getting the customers to the intended location with no frills.  It defines Customer Service not through friendly and amiable treatment, but through the delivery of customers from one destination to another in a price that is skinned down to its essentials: punctuality, fewer cancellations, lost bags and complaints   They believe that each plane customer is not really so much concerned of the convenience as they prioritize the cheapest plane more than anything.  By only promising the basics, lessening accountabilities as well as responsibilities and by charging prices for anything beyond this (refreshments, meals, accommodations, wheelchairs etc), the airline is able to achieve this.  Somehow Ryanair is able to take advantage of the depressed airline industry by offering the best deals in a time of financial crises.  Ryanair keeps on finding ways to cut down costs in these crucial years.  For instance, it has introduced its website  in the year 2003 to cut down further on their "Staff costs, agents' commissions, and computer reservation charges" while increasing growth.

 

Q.3) The 'idea' between Ryanair and Charleroi Airport is set out on p.833 of the case. Discuss this idea from the viewpoint of the "Corporate Governance" of (i) Charleroi Airport and (ii) Ryanair.

 

Corporate governance can be defined as a system that is used in order to direct and control companies. As a matter of fact, this idea applies to all business sectors all throughout the world such as the banking institutions, financial corporations and other types of businesses such as the retailing industry.  As a term, it has come to imply good, in the non-moral as well as the moral sense. Its non-moral applications include efficient decision making, appropriate resource allocation, strategic planning, and so on. Nonetheless, in its moral sense good corporate governance has come to be seen as promoting an ethical climate that is both morally appropriate in itself, and consequentially appropriate in that ethical behavior in business is reflected in desirable commercial outcomes (2000). Thus, the links here are with due diligence, directors' duties, and the general tightening of corporate responsibility.

In particular, corporate governance refers to the examination of the control of a company as utilized by its directors. In accordance to theory, the directors of public companies are held responsible for their action by their shareholders. On the other hand, the authority of the shareholders to influence the behavior of the company directors is limited in practice and is rarely exercised. This then provides directors of considerable power to take action as they see fit. However, this is not always the case as it appears to be relatively different form that of the government in which the action of the officials is slightly restrained by certain actions of the people it governs.

 

            Ryanair has incidentally been receiving state-aid subsidy from Charleroi Airport.  The Charleroi route was one of the airline's methods in maintaining lowest fares while at the same time, Charleroi benefits on Ryanair's exposure to its route.  The EU Commission was appalled at the discounts Charleroi is giving Ryanair thus endangering the fair competition the Commission is upholding.  By removing the Charleroi route, will cancel a significant number of flights and reduce activity.  There are two sides of the argument: Fair Competition versus Charleroi airport's exposure.  Charleroi has thrived because of Ryanair and it will suffer if Ryanair should pull out. The Corporate Governance responsibility rests on the EU Commissions which must allocate resources and balance decisions that will  benefit both Ryanair and Charleroi.  It will be worse in the long run should Ryanair be given special preference and discount over other airlines despite the fact that it has been aiding Charleroi.  Eventually, Ryanair and Charleroi decided on new fees which will continue operations but not in a manner that will have state-aid subsidies which will go against the rules of Competition laid by the EU Commission. 

 

Q.4) In 2003, Ryanair acquired "BUZZ", the loss-making budget subsidiary of KLM (p.840). It then reduced BUZZ's staff from 610 to 170. Discuss what you believe Ryanair's "Corporate Social Responsibilities" might have been in the circumstances of the case.

           

            What Ryanair has performed is a form of Mass Layoff as it shed off hundreds of staff.  It is a touchy subject that must be dealt with care.  Employers in their part must not only offer explanations, but they must also express their utmost regret and at the same time, gratitude to the unfortunate worker (2002).  Layoffs should be ended with a sense of respect and justice.  Most often than not, mass layoffs are performed with a lack of consideration in the employees’ part.  This is because a mass layoff may not sound as unfortunate as it seems and employers end up appearing as “executioners”.  In order to save the company, the employees must be sacrificed in its expense.  Employees will tend to feel undervalued and be generally resentful of such a decision (2002).   Employees who have to undergo immediate displacement are most often than not, shocked and greatly dismayed especially if they would have been serving the company for decades.  To cut their employment short is also an interruption to their way of lives and a waste of training and skills.  Most likely than not, the employees will need to be retrained to be adjusted in their next employments after having spent a great deal of time with the company.  They will have to compete along with the new entries in the workforce for jobs.  Some may be lucky, but some will certainly take a long time before they can truly get back on track and adjust to the layoff which is why the company needs total involvement in order to stimulate adjustments.    For hundreds of skilled workers to be unemployed for a long time will be a loss and a dent to the economy growth as a whole.    In mass layoffs the workers are in the losing end.  The company must take upon themselves to help these displaced workers in coping with the change of employment especially if the employees served for a long time.  This case only emphasizes how layoffs are tricky situations and would require the extra efforts of the employer to truly attempt to end the lay off in a manner that is with fairness and respect.  They and their families need their own special compensation.   The gradual layoff example presented how employers should ideally confront the situation which is through a comprehensive compensation package and not merely by severance packages and career counseling.  Continuous dialogue in the part of the management themselves is essential in order to appease and support the dismayed employees.       

 

Q.5) In early 2004, Ryanair's profitability is under threat. If you were designing the first draft of a 'Balance Scorecard" management reporting system for Ryanair (to help it monitor the implementation of its strategies), what main "perspectives" and "metrics" would you suggest?

 

In order to maintain competitive edge in a manner that is low-cost, they should keep the following perspectives or metrics in mind:  The maintenance and operation in a manner that is low-cost, effective marketing schemes, development of their brand and the skillful management of their routes.  These metrics are reflective of the major operational decisions which determine how their daily management and performance should be properly decided.  Low cost operations are performed through decisions that have to do with balancing utilities which would be in favor of increasing passenger loads, flight time, and making premium the free services mentioned above.  This is basically where airlines cater to more passengers at a lower rate and is thus also known as Financial Perspective).  Marketing and Brand enhancement is responsible for providing the facelift and attractiveness and promotion of a product which it performs through its shockingly low prices and give Customers the value of their money and encouraging them to be loyal (which would be the Customer and Business Process Perspective).  Route management is the product catered to customers.  This is where the airline finds its audiences and consumers.  This is where they can choose to cater to tourists who travel for pleasure or business.  By managing their Route networks, they may determine which customer segment they should focus and have the most profits possible.  This route network may be enhanced through the increase of new hubs that will have the more customer preference and access.  Customers always look for the cheapest flight available and Ryanair providing this will certainly benefit.  By expanding Routes it is possible for Ryanair to open to new niche where there is no frontal competition.  This can also be the Innovative Perspective approach.        

 

Q.6) What is your assessment of Ryanair's launch strategy? What is Ryanair's strategic intent? What factors may have played a part in determining this strategic intent?

 

            Flight fares are always known to be overpriced.  This discourages traveling and usually leads to unnecessary expenses.  The added fees are supposed to make convenient the entire flight experience.  Ryanair intends to rebel against all of the said 'free' services.  It believes that every airline goal is to take customer from Point A to Point B with no questions asked.  Thus this is the No Frills Strategy where it cuts down on marketing costs, staff costs, airport charges, contracting out of services and fleet commonality    Ryanair itself is appalled of the high airline fares that has been dominating the Industry and boastfully asserts that traveling does not need to take so much money.  In fact the flight fares Ryanair offers cost as little as cents to none at all (excluding the taxes and other costs).  It truly serves traveling to the masses.  Coupled with its boisterous attitude led by its dynamic and arrogant CEO, , Ryanair does not only seek to reshape the airline industry but spark a campaign and revolution led by the low fare airlines as the best valued airlines while putting down the impractical overpriced airlines (by calling them as idiots among other derogatory callings).  People willingly subscribe to Ryanair's services which although inconvenient, have been proven irresistible because of the cheap airfare.   Ryanair does not focus quality but it promises to deliver which is the whole point of the transport business.  In this manner Ryanair becomes a frank, straight to the point, and a very practical alternative for airline solutions.  Customers are always looking forward to save money during flights and certainly they would not mind a business bare to its essentials especially if they will save as much as hundreds of Euros.  It is indeed a daring move which is made even more impressive because Ryanair is profitable, until the various external factors of 2004.  In a time of inflation, increasing interest rates among other costs, more and more customers would not mind risking convenience in plane travel at all.  Ryanair is made ideally for such a situation.      

 

Q.7) What are the most significant issues revealed by an assessment of Ryanair's external environment?

 

            The European Airline Industry is highly competitive and volatile thanks to the European Union Commission's desire to enhance competition between airlines.  Its ruling against State Aid would be highly disadvantageous to Ryanair and advantageous to more and more airline companies who are also joining the Budget airline trend such as easyJet, Virgin Express, bmlbaby, flybe, MyTravelLite and AerLingus.  These rival carriers will put more fuel to the fare wars.  Ryanair is one airline that makes more enemies than allies because of its aggressive nature, some of which are its own customers.  Ryanair is going to have to adjust to providing the services it has sworn not to provide without an added cost as it is pressured by issues such as the proper treatment of the disabled and the trade prospect of a trade union.  

 

Q.8) How would you assess Ryanair's resources and capabilities against its competitors? What is Ryanair's core competence?

 

            In almost anything a consumer does, whether she or he is an institutional buyer, industrial buyer or plain individuals, they will always tend to compare substitutes to find the best deals.  This is especially true in hard times where customers demand for premium service as more passengers seek less expensive travel alternatives. Ryanair has a superb cost management, free seats when the company is feeling generous, no frills in flight, and with its aggressive advertisement campaigns which take on its rivals: the overpriced airlines (when they attempt to impede Ryanair's route) and airport management or the EU Commission (when they would perform moves that would push Ryanair to charge more).

Low-cost airlines rely on a simple business design: one kind of aircraft, one class of passenger, and more seats crammed into the airplane--as well as no airport lounges, no choice of seats, no newspapers, no food, no frequent-flyer programs, no connecting flights, no refunds, and no possibility of rebooking to other airlines. Also, there are no travel agents and expensive computer reservation systems; about 90 percent of Ryanair tickets are booked over the Internet.

By keeping the logistics simple, no-frills airlines cut turnaround times on the ground and maximize revenue-generating air time by minimizing landing and ground-handling fees ( 2002).

Lower costs and higher seat-load factors permit no-frills carriers to offer fares 50 to 70 percent lower than those of the incumbents. This approach attracts price-sensitive and flexible travelers, even those who don't find the lack of convenience and flexibility the slightest bit appealing.  Another strength is the CEO's brash, no compromise attitude that truly drives the company because a low-cost and low-fare airline would really need a leader who will be daring enough to pedal the company towards profitability despite the circumstances.  By his outrageous and oftentimes risky moves, he is able to attract attention and promotion to its favor.  Customers cannot resist Ryanair despite the lack of convenience because the seats are sometimes virtually free (or totally free) with the airline making money of the premium services such as food and drinks aboard.  It gives customers what they want in a fee that will only pay for the travel which is what airlines are supposed to do primarily.  The lowest cost airfare is always sure to win the competition even in the direst, most intense circumstances. 

 

Q.9) What do you think of Ryanair's strategies? What suggestions would you make to Michael O'Leary to improve Ryanair's chances of future success?

 

To repeat: The lowest cost airfare is always sure to win the competition even in the direst, most intense circumstances.  This is a significant strength of Ryanair.  With its impressive cost management and outlook to increase more passenger seats and expand routes, Ryanair may come off just fine after the 2004 crises.  Ryanair knows how to anticipate difficult times due to increasing fuel prices and rivals and set their goal.  Bearing these segments and economics in mind, Ryanair must select routes carefully to generate enough traffic to fill the larger aircraft they use.

Profitable markets must also have a large leisure-and private-travel component--the mainstay of the customer base of most low-cost carriers. A majority of these carriers follow the same basic rules, but with some differences in approach. Ryanair, which is as cheap as it gets, operates routes from London Stansted to many secondary airports--for example, to Carcassonne and Biarritz, in southern France, and to Pisa and Verona, in Italy. Low airport fees help keep the carrier's costs 65 percent below those of a typical scheduled airline. Ryanair can thus offer cheap fares and still make a profit if more than 55 percent of its seats are occupied.  Thus it must proceed its goal in expanding to more little known routes and increasing more passengers in their planes while offering more premium services that the customers will end up purchasing for a more convenient flight.

 

 

Budgetary Control System

Budgetary Control System

Plans, performance and corrective action need to be expressed in some common, quantitative form, the most obvious one being financial in nature. A financial budget provides the means to set out the parameters of a chosen course of action, the guidelines against which to compare actual performance and the basis upon which to modify the initial plan if necessary. A budget thus provides the means to report on the performance of all aspects of an organization’s activity on a regular basis which in turn allows the systematic review of all areas of activity (1992). The information which it provides allows line management to make the decisions which are necessary to realize the objectives set for them by their senior management. It is in this way that management accounting provides the necessary financial information for managers faced with the task of decision-making, planning and control ( 1992).

 

The identification of management accounting with the development and operation of effective budgetary control systems may initially appear to portray only one, albeit a major, aspect of this branch of accounting. In most texts equal attention is paid to product and variable costing and invariably the study of budgeting is shared with standard costing and variance analysis. Then there are the more advanced topics: opportunity costing, performance measurement, transfer pricing and those associated with the information economics approach to decision-making. Research too has traditionally covered a much wider range of topics. But in the last analysis most texts begin by stressing the significance of management accounting for decision-making, planning and control, thereby emphasizing the management control/budgetary control linkage, explicitly or otherwise ( 1992). In the sphere of practice, management accountancy and the development, implementation and operation of budgetary control systems have traditionally been synonymous for many of those involved. It is also the connection which provides part of the explanation of why a growing number of management accounting researchers have become increasingly interested in sociological ideas during the past decade (1992). 

 

In regulating the amount of expenditure spent in the public relations department of a public utility company, a budgetary control system cam be used.  The budgetary control system of the public utility company contains two parts. The first part contains the resources of funds. The company gets its funds from the allocation of the government. It also gathers funds by having its own stocks from private companies.  The second part contains the expenses of the company. The expenses of the company involve the different payments done on rents and the different salaries of the personnel. The total expenditure of the company is $200.000.00 and the total number of staff is 20. It is anticipated that the amount of expenditure spent by the Public Relations department is roughly proportional to the turnover of the company. This means that a                                                                                                                                                                                                                                                                                as the company earns additional expenses it is forced to have opportunity in making the best use of the turnover.

Importance of budgeting

Like any other client group, businesses must pay market interest rates to raise funds. However, in contrast to other client groups, large corporations are less likely to face limits on the amounts of funds they can raise. Large businesses can usually raise funds quite readily so long as they can show financiers that proposed expenditure plans are likely to prove profitable. Nevertheless, even large firms may find fund raising difficult if they are entering new lines of business and financiers are not fully familiar with their proposed projects (1998). The time periods needed for financiers to become familiar with new types of business can be relatively long and during that time funds may be either expensive or limited when viewed from the perspective of the business trying to raise the funds. Different sources and different terms of borrowing can sometimes serve as substitutes (1998).

 

In such cases, especially if long term borrowing rates are also judged to be high, management may use internal financing with the hope of later raising external funds on more favorable terms. In other instances a project may be deferred in the hope that subsequently external financing will be available at lower effective rates (1998).  The public utility company has to make use of different kinds of fund raising techniques if it wants to sustain its longevity in its industry, if the public relations department doesn’t want to generate its own income it must ensure that it will maintain a precise expenditure and it has to make sure that the budget will be strictly followed.

 

 

Transparency as a Factor in Effective Leadership in Contemporary African Leaders :Survey Questionnaire

Transparency as a Factor in Effective Leadership

in Contemporary African Leaders

 

Survey Questionnaire

 

Instructions: Please place a check mark on your preferred answer for all the items.

 

 

 

Strongly Disagree

Disagree

Agree

Strongly Agree

Political Transparency

 

 

 

 

1. Government leaders should embody the value of trustworthiness.

 

 

 

 

2. Government leaders should embody the value of honesty.

 

 

 

 

3. Government leaders should practice openness in their political affairs.

 

 

 

 

4. Government leaders should embody the value of responsibility.

 

 

 

 

5. Government leaders should embody the value of accountability to their constituents.

 

 

 

 

Legal Transparency

 

 

 

 

1. Laws providing for stakeholders’ access to relevant and accurate information are important in governance.

 

 

 

 

2. Laws on freedom of information are important to governance.

 

 

 

 

3. Laws providing remedies for the infringement of freedom of information are important in governance.

 

 

 

 

4. Laws prohibiting corruption in all its forms are important in governance.

 

 

 

 

5. Laws providing penalties for the different forms of corruption are important in governance.

 

 

 

 

Economic Transparency

 

 

 

 

1. Terms and conditions of contracts with private entities should be made accessible to the public.

 

 

 

 

2. Justifications for engaging in contracts with private entities should be made accessible to the public.

 

 

 

 

3. Terms and conditions of bilateral or multilateral contracts should be made accessible to the public.

 

 

 

 

4. Justification for engaging in contracts with international public entities should be made accessible to the public.

 

 

 

 

5. Information on economic policies and programs should be made accessible to stakeholders.

 

 

 

 

Fiscal Transparency

 

 

 

 

1. The annual budget of the government should be presented to the public.

 

 

 

 

2. Justifications for the annual budget should also be presented to the public.

 

 

 

 

3. Government officials have to make annual reports for their expenditures of their respective budget allocations.

 

 

 

 

4. Reports on expenditures of government officials should be made accessible to the public.

 

 

 

 

5.  Results of the annual audit should be presented to the public.

 

 

 

 

Information Transparency

 

 

 

 

1. Information on government affairs should be made available to stakeholders.

 

 

 

 

2. Channels of accessing information such as print, audio-visual, or online media should be improved.

 

 

 

 

3. The flow of updated information should be increased.

 

 

 

 

4. The scope of information accessible to stakeholders should be expanded.

 

 

 

 

5. The accuracy of information made accessible to stakeholders should be ensured.

 

 

 

 

 

 

 

 

2. Advantages and Disadvantages of Transparency

 

Advantages of Transparency

Disadvantages of Transparency

1. Directly observing the actions of government representatives makes it easier for the people to hold their leaders accountable.

Direct observers can end up unduly complicating and meddling in political affairs.

2. Public deliberations can support the building of consensus on preferred policies.

Involvement of the public in decision-making could complicate the decision-making process when individual interests are raised.

3. Public information facilitates the relationship building of the government with its constituents.

Public information could have an opposite effect depending upon the type of information and the extent that information is perceived by the public.

4. Openness determines the actions of representative in favour of or against the popular opinion.

Openness could also constrain representatives from fulfilling their duties especially when they stand against the popular opinion.

5. Public information could support the facilitation of radical decisions and reforms with representatives communicating their justifications for these decisions.

 

The accuracy of information presented to the public can suffer when representatives resort to misinformation to seek public acceptance of radical decisions.

6. Public deliberation enhances the quality of decision-making by facilitating consensus building.

Publicity could also adversely affect the quality of decision-making when representatives are prevented from expressing true opinions.

7. Transparency could enhance the reputation of a government and its leaders.

Transparency could also destroy the public reputation of a government and its leaders that could negatively affect a government’s following.

8. The benefits of transparency are achieved in forms of government inclined towards popular will.  

Dependent on the form of government.

9. The advantages of transparency are achieved by government divisions organised in the context of balance of power to prevent abuse.

Dependent on the balance of power.

10. Achieving the objectives of transparency occurs under political structures intended to build strong relationships between the government and its constituents.

Dependent on the effectiveness of the political structure.

11. Transparency works when supported by legislations and justice system.

Transparency involves costs.

12. Transparency can facilitate political reforms.

Transparency is capable of being abused for personal or political gains.

 

 

 

 

Managing Finance

Introduction

Within an organization, there lie the techniques, strategies, and processes being implemented by the people. Supposedly, the organization originated in the concept wherein the essential and key people are collected and working together in order to achieve one common goal. Due to the influence of globalization and its two faces: opportunity and challenges, the organization can be plagued with variety of issues. In the attempt of the organization to create a well founded plan for their future success, there are many areas that need to be considered.

For over the years, different business analysts and researchers draw an interest in different aspect of organization. Namely organizational structure, organizational changes and challenges, long-term and short-term plans, roles and responsibilities of the people, corporate culture, organizational behavior, and many others. All of the idea comprised within the context of organizational research promotes the difference academic areas such as the psychology in human resource management, accountancy for accounting/audit department, finance management for finance department, etc. In addition, all of the concept drawn within the organization are supported with the theories and is currently applied among the successful organization and be part of their practice. Because of the broad discussion towards the organization, the study is attempting to summarize or, rather, give an overview with the common topics, issues, or ideas, within the organization. The aim to describe the different important areas in organization was generated through the underlying principle regarding the success in businesses – either domestically or foreign, or both business environment.      

Question 1

“Irrespective of the size and type of organization, it is essential that strong interrelationships exist between organizational objectives, long term plans and performance measures if the organization is to be successful”.

As said earlier, the organization is the collection of people bearing with skills, knowledge, and if possible, experience. The invisible bind that holds the people together is through the formulation of certain objectives. Most of the organizational objectives are increasing the profit, quick pace on the return of investment, exploitation of the natural resources and the exploration of other options, development opportunities in the products and services, etc. On the other hand, the machines, materials, investments, and other natural resources are placed under the management and control. The roles and responsibilities of people are also emphasized and it is started through the proper selection of personnel. The increase in the performance of the employees are thereby, supported by proper handling and management. All of the strategies and techniques applied are essential of overall management in an organization. And the management within the organization are implemented in various industries.

Most of the organizations are formed by the individuals who are well oriented in the environment of their business as well as acknowledging the characters of the individuals. Moreover, the firms are often founded by the members of family and holding most of the top positions. In order to drive the business towards its success, the management there should be a strong interrelationship in between the organizational objectives, long-term plans and performance measures. The strong relationships within the organization provide conformance and compliance in all the aspect settled inside the departments or even in the entire organization. Relationships or the links can be manifested in the values and ethics; policies, procedures and processes; application of security and controls; fiscal management; risk management; and quality assurance (Barrett, 2002).

Because of the strong relationship being built in the organization, there is an establishment of corporate governance that aligns the objectives along with the practices involved. The framework of the relationship pertains to the idea that the long term plans of the organizations can be achieved if there are appropriate performance measures. The connection of the elements towards success should accommodate each other and move towards the operation of the organization. In addition, the enforced interrelationship of management strategies with the organizational performance and performance measures can quicken the pace in reaching the corporate goals or long-term plans (Chan, 2003). It is because; the three concepts open the opportunity ahead, draw the responsibilities, and ensure the accountability and can be the essential ingredient behind the corporate culture.

In the emphasis on the performance measures, that usually lies in the human capital and can be the key component towards the success. From the past organizational researches it is often describe as the driver that aligns the objectives and corporate vision. The factors that contribute with this idea are the aspects including the reliability, accuracy, timing, and ability of people to adopt in changes and face challenges. The performance is the most critical part in achieving one certain goal because of the implications of operational efficiency. The performance targets can important to be settled to create the actual performance. The support given by the organizational objectives and long-term plans increases the chances towards success (Henning, Theron, & Spangenberg, 2004).  Targets can be also considered as the long-term plan of the organization, and if possible, all of the performance measurements can be crafted meant to satisfy all the organizational goals. One of the most common tasks that an individual should posses is the ability to discover the weakness and then, improve and find the other potentials. The focus of the organization in monitoring the practices towards the performance of the organizations is an effective way to achieve the objectives. Such measures brought out the management are mirrored in their leadership, directing, and controlling. 

There is an empirical ground of idea that the creation of organizational objectives is the results of the long-term plan and organizational goals. Often, the objectives resembles as the requirement of the organization. And in using the applicable performance, there arrives the management and control. In every department, it is recognizable that the managers have the ability to lead and direct the people, because of the objectives set before them. The acknowledgement of an individual regarding his position in the organization as well as the roles and responsibilities tailing in his position is an effective solution in achieving the goals. When all the performances result according to what is planned and stipulated in the objectives, the quality of work can be generated.

In finance management, the assurance that there is a quality on the output of work such as in auditing, then the organization can say that the people complied unto what is indicated in the overall organizational goals. The quality in the performance means that there is an assurance of performance measurement. The essence of effective performance, however, is another indication of performance management. Therefore, the auditing practices in the finance department can adopt and afterwards, increase the level of interest in corporate governance for it has a focus on the accountability and sustaining the practice in work (Barrett, 2002).

The situations and the improvement in the systems and operational procedures can deliberately affect the performance measures in the organization. The idea of accountability, in the finance management supports the idea in operating with efficiently and effectively. It could be a basic strategy and be an ideal performance management if the organizational theories can be implemented and delivers a continuous practice. In general, the transformation of the organization towards the success can be a critical point in any organization, especially when the organization has issues and recently involved in organizational turmoil. The interrelationship of the performance measurements in the financial department along with the influence from organizational objectives and motivation coming from the long term plans has the ability to work together such in control and operate is proven to have the impact in delivering the success and continuous growth (Chan, 2003).

Question 2

Internal and External Stakeholders and the Financial Information they use

Organization is an environment where both mind and body synchronized in working. It is fuelled with full of expectations and the access in a good information is believed to be a great foundation in leadership, effective management, and control. The performance measurements being applied in the workplace might be ambitious but because of the target, the entire organization can agree in terms of their focus such as in catering the services and development. The obligation of the information is to ensure that all the decisions that can be generated and can change the position of the organization have a strong basis. For an instance, the audit in finance department presents the capability of the department in providing the assistance because of the effective financial management. In return, the information that the department can provide includes the various opinions, recommendations and opportunities that are made available for all the stakeholders. More than figures, the report are entitled to deliver the adequate and meaningful interpretation, approaches, and judgement towards the information. Stakeholders, who have the right to see the financial report, hence, can craft a sound decision that is clear, unbiased, and transparent (Barrett, 2002). 

Stakeholders and the Analysis

In evaluating the organizational performance, the stakeholders or the people who can create an influence on the business need a strong basis such as the use of the financial information. Stakeholder’s concepts and approaches in the organization can be described as a systematic tool that can define steps and being utilized by the organization. The design of the information enables the stakeholders to evaluate and understand the position of the organization according to the specific activity the organization is engaged and its current environment. Based from the information, there is a creation of a decision that potentially changes the path of the organization including the policies in order to satisfy the organizational objectives.

The analysis of the stakeholders is more on the systematic process because it is equipped with the range of methodologies. This includes the analysis on the stakeholders’ interests, positions, interrelations, networks, and as well as influence. Generating the knowledge can be the most appropriate description on the role of stakeholders of the organization in which both people and organization understand the behaviour and intentions of the business in the market. Having identified the internal and external stakeholders will help the business to uncover the appropriate changes that should be included in the overall organizational activities. Therefore, it is an advantage for the organization to recognize the stakeholders as well as the perceptions they create towards the organization.

Internal Stakeholders

The internal stakeholders are the CEO, managers, and executives who are present in the everyday operation of the organization and thereby, can judge the performance of the organization. In the idea of an efficient and effective operation that is being implemented in the organization, the term accountability can be emerged. The use of the balanced scorecards is an effective way in transforming the organization. A balanced scoreboard is an effective solution in all the managers and executive to track and improve the corporate performance through the use of the key business indicators such as the financial aspect, internal process and operation, customer analysis, and growth of the industry; being offered and then, recorded and be available for their review. The power of the balanced scoreboard creates an impact in visualizing the future success and helping the people in highlighting the essential key areas towards the performance management of the organization (Chan, 2003). In addition, the presentation of the status and trend in the market are good set of indicators which can provide a quick overview on the performance and define the benchmarks. Because of the growing uncertainties in the market, the balanced scoreboards are effective in guiding the organizations on their corporate goals. The method of reporting that were utilized by the executive and managers help them to analyze the operational activities that are needs to improve, maintain, and eliminate. All of the activities involved in decision in the operating activities are ensured to be aligned according to the organizational objectives covering the overall strategy. Aside from the balanced scoreboards, the internal stakeholders can also assess the capital market that is obtained in financial intermediaries and is utilized by most of the large organization which described as the most dominant sources of finances that supports the development aims of the business (Megginson & Boutchkova, 2000).On the other hand, the efficiency market hypothesis (EMH) that is related in the equity of the traders and investors, tells the idea regarding the stocks in the market and dictating the movement that the investors should do to beat the market (Brigham & Gapenski, 1997).

Internal stakeholders are rendering the effective performance; therefore, it is a great challenge for the managers to drive the performance towards growth. The CEO and other executives are solely responsible in terms of the authority. And for recent years, the CEO’s role in the organization adopted other managerial practice because of the seniority they gained, most especially in the experiences and higher knowledge and skills that they possesses. In accordance to this, the increase in the capacity of the CEO’s in serving the organization are almost align with the duties and responsibilities of the Boards of Directors. The facilitation of the organizational ideas are therefore, passed through the creation of organizational goals and enhancing the quality of the performance (Barrett, 2002).

External Stakeholders

As a counterpart of the internal stakeholder, the external stakeholders or otherwise called shareholders includes the employees, customers, suppliers, journalists, and the government. All the individuals that are working outside the organization yet being affected by the existence of the organization are called external stakeholders. Meaning, the individuals doesn’t need to invest in the organization to carry the “stake” because being a consumer creates a great impact in the success of the organization. The information can be obtained from the disclosure of the performance of the organization such as the financial (interim and annual reports), through viewing the information in comparison with the other related organization, through addressing the behavior of the market as well as the entire stakeholders; sustainability performance report; through the distribution channels, meetings, press conferences, and other channels for communication, Internet, legal Websites. In addition, because of the interest of the entire organization in achieving the trust form the public, the Shareholder Value Analysis became the key objective of the organization to increase the value of the shareholders and this is through recognizing the specific measurements like the economic value. Shareholders can also view this kind of approach and measure the appeal of the organization in the market (White, Vanc, & Stafford, 2008).    

 

Question 3

“The internal financial information an organization provides to its managers for planning, controlling and monitoring purposes is subject to the same accounting concepts and conventions that apply to the published annual reports and accounts”. To what extent is the comment true? Illustrate your answer with examples.   

The responsibilities of the managers can be broad but should include the underlying principles in order to create a significant improvement in the working environment. All of the organizations display the ethical standards and practices which deal from the top-to-bottom of the organization. To manage all of the resources effectively and efficiently and with the accordance of the organizational objectives, the managers should recognize the importance of the governance. Through the use of the financial information, the managers can determine the level of the business relationships among its suppliers, distributors, and other partners. It is so true that the accounting concepts and principles can give the comprehensive review on the financial position of the organization. And with that, the managers can create sound decisions. However, the internal financial information deals with an in-depth analysis, not more on figures and discuss the related information from the range of products, services, and operational activities. In such the internal financial information provides the transparency in all the areas of organization. In this sense, there is an increase in the financial returns because being transparent in reporting, unbiased, and avoiding the manipulation resembles the ability of the entire organization to create the competitive advantage and protection on company assets.     

Generally, the financial reports are fashioned in favor of the organization which may leave some blind spots in the overall sustainability of the organization. Some of the organization is reluctant to provide the internal financial report because of the unfavorable indicators regarding the organization. In contrast to this, the internal financial information is bound to reveal everything – whether good or bad. The hint that the organization might be engaged in a wrong path is the incomplete disclosure of information and it might indicate the poor performance of the organizational activities. The essence of disclosing all of the information is a result of the sustainable performance of the organization (Bedard & Jackson, 2003). The essence of disclosing the information is to prove that there is an improvement in the organization regarding the application of the strategies and systems. In fact, the influence of the growing uncertainties in the market and business environment should be also examined and be included in the comprehensive report. This is for the reason that the regulatory requirements in the society create a great impact in the organization, most especially in foreign countries.

Internal financial information can be the internal audit. Internal financial information can be only assess through the application of the internal auditing which the financial management can describe as an independent area, objective, and assures that the design of the consultation is for the organization and its related operation. With the strong founded practice and auditing activity, the financial reporting can be evaluated according to the organizational objectives because of the systematic and disciplined approach. The audit also includes the essence of risk management, control, and corporate governance in the overall process. Financial manager is the one who is responsible in the establishment and maintenance of the practice in the internal controls of the organization. The continuous process of the internal auditing is focused on the exposing the risk areas that are under the operation, financial and operational information, safeguarding the organizational assets, assurance on the compliance with the laws and regulations, and directing the organization towards the accomplishment of the goals and associated objectives. Financial managers can work along with the internal auditors because most of the internal investigations will be taken from the accounts of the financial managers and the accountants, since they are the people who are responsible in handling the financial issues in the organization. It is recommended that there should be improvements in the internal controls from the top of the management to maintain the integrity in the corporate world while at the same time, targeting the operational improvement (Quality Assurance Bureau, 2007).

As a contrast to the internal controls, the weak implementation of the financial management and control only invites the opportunity in committing fraud. The fraudulent act is the most negative action that may arise among the individuals. In the essence of corporate governance, the signs and overall existence of the frauds can be minimized until eliminated. It is not important that a policy in being established, what necessary is to act according to the settled policy, have an effective leadership, and provide appropriate commitment. In terms of the adoption of sound management and stringent control in the financial aspects, there will be a clear intention in promoting the corporate governance and facilitation of the processes and procedures according to the organizational goals and objectives.  Effective implementation of control reflects in the management’s attitude and commitment in ensuring that the business will receive the interests and there exist the term accountability (Barrett, 2002).

The utilization of the internal financial information emphasizes, explores, and strengthens the financial manager’s responsibilities within the organization. To use the funds according to the objectives of the organization and the related plans remains the heart of the financial manager’s task. In accordance to this, the financial manager has five specific activities that are part of the maximization of the value of the firm. First is the forecasting and planning, and with the use of the internal financial information there is an accuracy in performing this task. Second is to manage and facilitate the major investment and financing decisions, such as determining the optimal sales that can be achieved in the invested project. Third is to coordinate and control through interacting with the people within the organization like the executives to ensure that the plans are followed accordingly. Fourth is to deal with the financial markets or the capital markets to ensure that there are enough funds to support the on-going project. And fifth is to assess and manage the risks. All businesses has their risks depending on the type of environment that they are involved but it is important that the business can play safe even if there is a threat coming from different elements (Brigham & Gapenski, (1997).

Question 4

“Each of the four main methods of investment appraisal (Accounting Rate of Return, Payback, Net Present Value and Internal Rate of Return) is as relevant and appropriate as the others when making investment decisions”. Discuss and critically evaluate this statement, illustrating your answer with some numerical examples.

The basic investment appraisal techniques that every financial manager should be aware of are the computation of the Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period (PP), and the Accounting Rate of Return (ARR). In the application of theses methods, the decision can be made because of the strong ground of basis. However, there are rules that need to determine in order to use the chose of method. The type of decisions may also varied but there are only two options available – accept or reject – the project.

When the finance manager is bound to deliver a comprehensive answer regarding the project, he must be aware on the conditions towards its ongoing completions. If there are long-term projects, one must look on the consistency of the corporate plan. The essence is that, all the funds will be wasted if there is a sudden change in the organization whether in structure, leadership, plans, and goals - all will be affected in the changes. A financial manager must consider the cash inflows in the project. All of the funds should exceed on the estimated outflows or expenses and create an appropriate technique in capital budgeting. This will emphasize the true ability of the finance manager in forecasting.     

Below is the example that can mirror the ability of the finance manager in creating a sound decision between the two projects. The situation is that, the manager should make a choice between the projects with the given assumption of 15% annual cost of capital and estimated net annual cash flows (University of London External System).    

     Project                                        Time Periods (Years)

 

0

1

2

3

4

Total

A

(25, 000)

5, 000

12, 500

12, 500

12, 500

$17, 500

B

(10, 000)

5, 000

10, 000

(1, 000)

-

$4, 000

 

Next are the four methods in investment appraisal according to their set of rules.

 

NPV

IRR (%)

Payback

(Years) ARR (%)

A

4, 166*

22

2.6

35*

B

1, 251

24*

1.5*

26.7

 

NPV Approach

The projects A and B will have an NPV of 4166 and 1251 respectively. According to the decision rule of NPV, the finance manager should select the investment gaining the higher NPV regardless of the size of the original investment. In this case, the Project A is the preferred option (University of London External System). The rationale for the method NPV is described to be straightforward which is why NPV is the most utilized method in the financial management and give signals to the management regarding the decision. An NPV of zero signifies that the project’s cash flows are exactly sufficient to repay the invested capital and to provide the required rate of return on that capital. If a project has a positive NPV, then its cash flows are generating more than the required return, and since the return is fixed, the extra return accrues solely to the firm’s stakeholders (Brigham, & Gapenski, 1997).  

Payback, ARR, and IRR Approaches

This suggests that B is a good project because there is a shorter payback period. Payback period is the expected number of years in which the investment can recover the original investment. This is also considered as the first formal method in evaluating the capital budgeting projects. The concept that lies in this method is the idea of “the shorter the payback, the better” (Brigham & Gapenski, 1997). In ARR approach, the Project A is the preferred project because of the higher rate. Meanwhile the IRR chose the project B. Since all of the results are in contrasts in each other, the NPV is once again emphasized.

In the practicality, the finance managers are advised to master the capital budgeting process and provide the post audit procedure and compare with the actual results with the predictions for the chosen project. In addition, there is a great chance that there are discoveries on certain areas that needs to be improved such as the operations (University of London External System). 

Conclusion

Eventually, both internal and external stakeholders must have the information that they need to make better decisions and the information should be in quality, reliable, relevant, and credible. 

References:

Barrett, P., (2002) Expectation and Perception of Better Practice Corporate Governance in the Public Sector from an Audit Perspective [Online] Australian National Audit Office Available at:  http://www.anao.gov.au/uploads/documents/Expectation_Perception_Better_Practice_Corporate_Governance_in_the_Public_Sector_from_an_Audit_Perspective1.pdf [Accessed 24 June 2010].

Bedard, J., & Jackson, C., (2003) Information Systems Risk Factors, Risk Assessments, and Audit Planning Decisions [Online] Available at: http://aaahq.org/audit/midyear/03midyear/papers/Systems%20Risk%20Factors%20and%20Audit%20Planning%2009-18.pdf [Accessed 24June 2010].

Brigham, E., & Gapenski, L., (1997) Financial Management: Theory and Practice. The Dryden Press, 8th Ed. 

Chan, Y.L., (2003) The Benefits of Balance, CMA Management 76(9) [Online] Performance Measurement and Management Literature Review Available at: http://www.idea.gov.uk/idk/aio/306291 [Accessed 24 June 2010].

Henning, R., Theron, C., & Spangenberg, H., (2004) The Internal Structure of the Unit Performance Construct as Measured by the Performance Index (PI), SA Journal of Industrial Psychology, [Online] 30 (2) Available at: http://www.sajip.co.za/index.php/sajip/article/view/153/149 [Accessed 24 June 2010].

Megginson, W., & Boutchkova, M., (2000) The Impact of Privatization on Capital Market Development and Individual Share Ownership [Online] Federation of international Stock Exchange Available at: http://www.oecd.org/dataoecd/11/39/2668393.pdf [Accessed 24 June 2010]

Quality Assurance Bureau, (2007) Internal Control Guide [Online] Office of the Comptroller Available at: http://www.mass.gov/Aosc/docs/business_functions/bf_int_cntrls/Internal_Control_Guide_Volume_I.pdf [Accessed 24 June 2010].

University of London External System. Chapter2: Basic Investment Appraisal Methods, Finance Management [Online] Available at: http://www.londonexternal.ac.uk/current_students/programme_resources/lse/lse_pdf/further_units/fin_man/59_ch_02.pdf [Accessed 24 June 2010].