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Competitive Strategy Research Paper

Competitive Strategy
Competitive Strategy

Competitive Strategy

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Competitive Strategy (Worth a Maximum of 15% of Course marks)

Discuss the major theoretical approaches to the building and sustaining of competitive strategy using the available academic literature including blue ocean strategy and other approaches. This assessment component must be based on minimum of 12 peer-reviewed academic articles. No wiki or general web sites please.

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Introduction

            A firm achieves a competitive advantage when it persistently obtains higher levels of profit than its competitors do. This explains why there are a number of theories in the strategy domain that extensively address competitive advantage in an attempt to explain how management decisions and market factors may be manipulated to result into superior economic performance. To gain competitive advantage, an organization is first expected to create superior value for consumers by pricing their commodities a bit lower than the competitors, or instead develop a unique product or service that the consumers will be willing to purchase at premium price (Daniela 2014: 523). Hence, the firm needs to create a competitive strategy that will enable it to establish a much profitable and highly sustainable position in the industry compared to competitors. This profitability is also greatly influenced by the level of attractiveness of the industry. This paper champions the thesis that competitive advantage can be gained and sustained by the use of various competitive theoretical approaches.

Blue Ocean Strategy

For many years, companies have for long engaged in head-to-head competition while searching for the sustained and profitable growth. Hence, they have struggled for competitive advantage, market shares, and differentiation. Unfortunately, with the current overcrowded industries, such head on competitions will not benefit a company in any way, but instead will lead to a bloody “red ocean” of rivals, all of whom will be fighting for the gradually shrinking pool of profits (Ng, Lau & Ismail 2014: 132). Therefore, there are minimum chances that this approach will eventually lead to profitable growth in future. This is why it has been argued that most of the future leading companies will succeed by avoiding the red oceans, and instead creating blue oceans of uncontested market space with a great promise for growth (W. Chan & Mauborgne 2005: 105). These strategic moves, also known as value innovation, create powerful improvements in value for both the firm and its consumers, thus, the rivals are rendered obsolete and this unleashes new demand.

In this strategy, the red oceans signify the various industries existing today, while the blue oceans signify the nonexistent industries, also known as the unknown market space. Hence, where in red ocean companies try to outperform their rivals by grabbing the greatest market share of the existing demand, in blue oceans companies are focusing on creating new market space, demand, and thus an opportunity for highly profitable growth (Čirjevskis, Homenko & Lačinova 2011: 201). Despite the fact that some of the blue oceans are created beyond the already present industry boundaries, a greater number are developed from within the red oceans simply by expanding these existing boundaries (W. Chan & Mauborgne 2005: 106). In blue oceans, there is simply no competition since the rules are yet to be set. The market space has vast potential that has not been explored.

Red oceans will always be an important part of the business life. However, with the supply exceeding customer demand in most industries, competition for the greatest share will no longer be sufficient enough for companies to achieve and sustain superior performance. As a result, companies need to look beyond this competition in the established industries by seizing new opportunities for growth and profits by creating blue oceans as well.

Figure 1: The Profit and Growth Consequences of Creating Blue Oceans

According to research conducted by W. Chan and Mauborgne (2005: 107) on 108 companies, they noted that 86% of the launches were line extensions while another 14% were aimed at creating new market spaces. Although these line extensions in the red oceans delivered 62% of the total revenues, they only led to 39% of the total profits (W. Chan & Mauborgne 2005: 107). Contrary to this, the 14% that were aimed at creating blue oceans resulted in 38% total revenues and a startling high amount of 61% in total profits. As is noted in figure 1, the performance benefits of creating blue oceans are clearly seen, and they outnumber the benefits of red oceans.

There are quite a number of forces that drive the rising imperative to develop Blue Oceans. Increased technological advances have substantially contributed to the improvement of industrial productivity, which have allowed suppliers to produce a wide range of products and services. Globalization is also another factor as it has led to the dismantling of trade barriers between nations. This has also contributed to information on products and services being available globally (Singh 2012: 20). While supply is on the rise due to the rise in competition, there is no evidence to proof the rise in demand as well. As such, there is an increase in commoditization of products and services, intensified price wars, and also the shrinking profit margins. “For major product and service categories, brands are generally becoming more similar, and as they are becoming more similar people increasingly select basing on price” (Qtd from W. Chan & Mauborgne 2005, p.108).

Resource Based View Strategy

A different conceptual foundation which features more on the internal firm capabilities and less on the industry structure argues that a firm’s position to achieve and sustain competitive advantage is directly linked to the firm specific resources (Laosirihongthong, Prajogo & Adebanjo 2014: 1232). This resource based theory of the firm puts great emphasis on the role of developing unique and valued know-how as well as capabilities that will be close to impossible for rivals to imitate (Madhok, Li& Priem 2010: 94). This is usually difficult and it requires the firm to select effective strategies basing on the development of resources and capabilities. The presence of multiple resources and capabilities positively contribute to the development of the highest competitive entry barriers (Hinterhuber 2013: 797).

Figure 2: Resources and Capabilities Based View of the Firm

For a firm to develop a true cost or differentiation advantage, the firm’s resources and capabilities must be valuable, rare, imperfectly imitable, and non substitutable (Newbert 2008: 745). “If a resource or capability yields the potential to enable a firm to reduce costs and/or respond to environmental opportunities and threats, it is valuable, and to the extent that a firm is able to effectively deploy such a resource or capability, it will attain a competitive advantage.” (Qtd. From Newbert 2008, p. 747 ). Judging from this statement, it is clear that the level of competitive advantage achieved by a firm will basically rely on the value of its resources and capabilities. Hence, when the resources and capabilities are of marginal value, the firm will only attain minimal competitive advantages compared to firms with greater resource and capabilities values. This theory creates an assumption that the firm is well placed to exploit its resources and capabilities. This is because competitive advantage can only be achieved once the potentially valuable resources and capabilities are deployed effectively (Costa, Cool & Dierickx 2013: 449). Hence, resources and capabilities must be deployed together so as to attain competitive advantage. To further support this, Madhok, Li and Priem (2010: 99) state that firms are also required to process raw materials to make them more useful. For this to be effective, the resources must be put in use in a group of other resources to form effective combination. This is why Costa, Cool and Dierickx (2013: 449) contend that organizations may develop rents not only through the choice of better resources than that of competitors, but also by exploiting these resources more effectively with the use of proper capabilities. “no matter how great a firm’s capabilities might be, they do not generate economic profit if the firm fails to acquire the resources whose productivity would be enhanced by its capabilities” (Qtd. From Newbert 2008, p. 748).

Competitive advantage is usually obtained when the firm achieves a cost level, exploits untapped market opportunities, and neutralizes threats that competitors would otherwise fail to accomplish (Varey 1995: 45). This, however, may be impossible to achieve if the resources and capabilities are present widely. Consequently, competitive advantage will be more likely achieved only when the exploited resources and capabilities are rare or only possessed by few firms in a small industry where perfect competition will be impossible (Srivastava, Fahey & Christensen 2001: 777). Since resources and capabilities are supposed to be explored in a combination, it means that the rareness will not be at the individual resources and capabilities, but instead at the level of resource-capability combinations (Newbert 2008: 750).  For instance, if a particular combination of resources and capabilities is common, a greater number of firms will be able to imitate the resulting strategy, hence reducing a firm’s competitive advantage. Therefore, the individual resources and capabilities need not be rare for the firm to achieve competitive advantage, but the combination is what must be rare.

Porter’s Generic Strategies

The approaches involved in this strategy are referred to as generic strategies mainly because they can be applied to products and services of all industries, and to organizations with varying sizes. Porter named the three approaches “cost leadership”, “differentiation” and “focus”. The focus strategy is then further divided into two parts; the cost focus and the differentiation focus (See figure 3).

Figure 3: Source of Competitive Advantage (Miller & Friesen 1986: 38)

Important questions for the economy are how firms compete and which strategies they choose. An improved understanding of a firm’s competitiveness is also important in that it contributes to the improvement of existing policies relating to competition and other relevant issues (‘Achieving the Superiority’ 2010: 152). This improvement will, hence, provide valuable support to the efforts meant to continuously develop markets and businesses. This understanding is also important when it comes to comparing the domestic and internal contexts by being placed to effectively assess a firm’s competitive behavior. “If firms pursue any of the three recommended generic competitive strategies they will be able to outperform competitors who do not pursue such strategies.” (Qtd. From Ormanidhi & Stringa 2008, p. 56).

From a firm’s point of view, a relevant and most important aspect of competitive environment should be the industry in which it operates in. This is where the competition takes place (Allen, Helms, Takeda & White 2007: 72). According to Porter’s analysis, these industries contain firms that create and develop close substitutes, but the competitive environment of the firm’s feature a common structure with the five competitive forces. These forces are what will determine the overall level of competitiveness and profitability of the industry (Gurǎu 2007: 369). These include; threat of new entry, intensity of the level of rivalry among the already existing firms, pressure from the presence of substitute products, bargaining power of consumers, and the bargaining power of suppliers (Gonzalez-Benito & Suárez-González 2010: 1030). Profitability- the turn on invested capital- is related negatively to the overall strength of these five forces. Therefore, the greater the joint strength of the five forces affecting industries, the lower the industry profitability (Miller & Friesen 1986: 39).

Porter’s generic strategies help a firm to analyze the industry in which it functions in, in terms of the five competitive forces, so as to note its strengths and weaknesses in relation to the actual state of competition. This is possible because if the firm realizes the effects of each of these five forces, it will be better placed to take actions so as to defend itself or grasp an opportunity to enable it to be better placed so that these forces do not affect it (Gonzalez-Benito & Suárez-González 2010: 1032). Differentiation and low cost are the two forms of strategic or competitive advantage that firms can use to position themselves effectively against the pressures of the five forces. When these strategies are applied, firms will be better placed in the industry, and this will give them an opportunity for achieving higher profitability than their competitors. To achieve competitive advantage, these strategies cannot be pursued all at the same time. Instead, they must all be considered individually.

The cost leadership strategy is mainly focused on bringing in sales and taking them away from competitors. This happens by increasing profits by lowering prices, and ensuring that the average industry price is charged for products. This is important as it brings in sales since consumers will not understand why they have to pay higher prices in other companies for a similar product. The differentiation strategy, on the other hand, ensures that products are differentiated and made more attractive than those of consumers. This is enhanced by the presence of effective research, development and innovation among many others. Lastly, the focus strategy ensures that a company focuses on a particular niche in the market. This is made effective when the firm takes the effort of understanding the market dynamics and unique needs of customers.

Bowman’s Strategy Clock

Figure 4: Bowman’s Strategy Clock

Bowman’s strategy clock is based on an argument that key variables, when it comes to positioning, include price and perceived quality both of which are major determinants of value (Varey 1995: 47). To achieve these, Bowman makes an assumption that five potentially successful routes can be followed, while three others will lead to straight failure.

Position 1: Low price/Low Value

            When the products of a company are only differentiated minimally, the company will most definitely be in this position whereby the sales are only made on price alone. The firms in this position never choose to compete here, as it features the bargaining region. Therefore, consumers have an opportunity of bargaining the prices into an amount they feel is suitable for the products they want to purchase. This is usually because consumers cannot find any differentiated value, thus they know that they possess the power to manipulate prices as a result of many competitors. Firms in this position can improve their chances of gaining and sustaining competitive advantage by cost effectively selling volume and also developing new ways of attracting more customers (Laosirihongthong, Prajogo & Adebanjo 2014: 1240). It may be impossible to achieve customer loyalty; however, one way of being ahead of other competitors in this position is by always being one step ahead by selling more products than they do. Therefore, there is hope since the products may be of low quality, but judging from the prices, customers will feel more comfortable purchasing from these companies.

Position 2: Low Price

This position can be compared to Porter’s generic strategies: low cost leader position. The companies available in this position usually struggle to lower costs and also achieve high volume to counteract the negative effects of low margins (Ormanidhi & Stringa 2008: 60). Over time, such a company using this strategy will turn out to be most powerful in the market as it will have increased its market share. This is one way of gaining and sustaining competitive advantage over other companies. In case a company’s strategy to be low cost leader fails, the result may be catastrophic to all companies in the industry but beneficial for consumers. This is because there may develop a price war situation whereby each company is trying to take control by altering prices.

Position 3: Hybrid (Moderate price/moderate differentiation)

This approach is a combination of the low cost approach, however it also emphasizes on product differentiation so as to offer consumers better value for their money. These companies also focus on volume; however, their main agenda is to build their reputation by offering good prices for equally good products. This approach enables a company to build and maintain competitive advantage as there is an assurance that the products will be of high quality, despite the fact that prices are fairly low (Costa, Cool & Dierickx 2013: 456). Hence, this company will be better placed to have more loyal consumers as items are of good quality and prices are affordable compared to what is presented to them in other companies.

Position 4: Differentiation

This is also another approach that is quite similar to Porter’s view of differentiation. It is basically emphasizing on offering differentiation so consumers would prefer certain products to others from another company. Therefore, when the high perceived value is offered, the company can either choose to increase price when there is higher margins, or keep prices lower so as to increase market share (Hinterhuber 2013: 800). This is where branding is very important, as the company’s product will always be related to higher quality than others. This strategy must be applied with care; otherwise, the company will fail as a result of running low on resources. Competitive advantage in this case will rather be achieved when there are higher profit margins, or an increased market share. This is because; the production of higher value products will need extra resources. Companies use the extra income to keep up with the change in value. Therefore, in the event that these new sources of income fail to yield results, the company will not be able to keep up. The higher the value of products compared to that of other companies, the better the competitive advantage.

Position 5: Focused Differentiation

This strategy is usually characterized by the presentation of a higher perceived value at a rather substantial premium price. The consumers who purchase in this category are basically focused on the product’s perceived value only. This means that price is not a factor for these consumers, as they have a certain kind of product value they are in search of. Companies that offer designer products are more likely to be found in this position. Bowman states that the products do not necessarily have to be of much higher value as the consumers are basically relying on their perceived value of the products. Therefore, if consumers feel like a certain brand offers high value products; they will purchase it without considering if the products indeed have more value than others. The competitive advantage for such a company will be gained and sustained by focusing on target markets and high margins (Daniela 2014: 529). This means that the company will focus on producing goods that its target market will most likely purchase. This increases the odds of having many consumers purchase expensive products. This in turn will result into high profit margins that the company will enjoy and use to sustain its position by further developing more valuable products and selling at premium prices.

Position 6: Increased price/Standard Product

            This strategy features a sudden increase in price without an equal increase in product quality. It is, however, basically a gamble as the high price may either result into positive or negative impacts on the firm. There are times when the price increase in accepted by consumers, this is probably where the previous price was very low for the products. Hence, consumers will not mind topping up the amount. However, if the product is of poor quality, and this strategy is sought, the consumers may decline the change and thus lose loyalty in the company. This, in turn, results into loss of market share that will also affect the competitive advantage of the company (Singh 2012: 26). Another disadvantage of this strategy is that it may only be applied for short term use, maybe to boost market share, but must soon be discontinued. This is because in a competitive industry, another company will soon imitate this strategy and set another premium price, thus affecting this company’s profitability.

Position 7: High Price/ Low Value

This strategy only applies in a monopoly market, whereby goods and services are only offered by a single company. There are no competitions, which is why the company can charge whatever amount it prefers since there is no risk of losing market share. If this is the only company with the goods and services, consumers will have to pay for the products whether they agree to the pricing or not. This knowledge is what gives the company an advantage to make the most of the situation as such markets never last. Soon there will be new entries, and competition will be triggered. Therefore, companies will be forced to once again focus on the value of products and the prices they offer as well.

Position 8: Low value/ Standard Price

Generally, a low product value leads to a low product price so as to attract consumers to purchase the product. Therefore, this last strategy is the worst that companies may choose to use as they may appear greedy and selfish. With this approach, failure is predicted easily. Consumers will obviously prefer to pay a standard price for better valued products, or instead a low price for low valued products.

In a competitive industry, the last three strategies will most definitely lead to failure as customers will move in search of better product offers in other companies. This positioning approach is usually not static as competitor positions will most definitely change in response to new entries, or changes in strategies as a result of market or internal company conditions.

Structure Conduct Performance Approach

Over many years, this approach has offered guidance for many scholars who wished to further develop approaches for competitive strategy (Madhok, Li & Priem 2010: 94). This approach features three major elements: first, the structure of industries that are mainly defined by concentration, market share distribution and many other characteristics; Second, the conduct of firms that usually involves their action in relation to price setting, advertisement expenditures, technology and many others; Third, the performance of firms and industries as identified by profitability measurements. These elements of structure, conduct and performance are usually bound by three main casual relationships: The effects of structure on firm conduct, the effects of structure on firm performance, and the effects of firm conduct on its performance. The most important relationship, in this case, is the one between structure of industries and firm’s performance. When it comes to considering performance, an assumption is made that the market power is positively related to profitability. Therefore, the higher the market power, the higher the profitability will also be, and vice versa. “The manufacturing industry over 1936-1940 found support for the hypothesis that profitability of firms in highly concentrated industries is larger than in less concentrated ones” (Qtd. From ‘Achieving the Superiority’ 2010, p. 160).

Various researches have been conducted on the different approaches for competitive strategy, and the SCP model always gives differing results commonly depending on heterogeneity degrees (Afuah 2013: 259). However, this finding can be more refined when the relationship between concentration and performance assumed by the SCP model would stand in homogeneous and not heterogeneous industries. Although structure was initially considered to be exogenous in this model, the most important issues relating to it can all be summed up under barriers to entry. According to Daniela (2014: 526), the factors that can be interpreted as barriers to entry include, economies of scale, differentiation advantages that products have, and the advantages of absolute cost. Therefore, although there is an assumption made on structure, it does not mean that it is an irrelevant component. Therefore, all these components must be used equally in an evaluation expected to result in competitive strategy. This is why this model has always been criticized. It is clear that the conduct of a firm and its profitability will most definitely influence market structure.

This model, therefore, can be used by firms to gain and sustain competitive advantage in that firms will know how to influence the three factors so as to result with good results on the other. Since competitive strategy is all about getting power over the other companies, by offering goods or services that they cannot easily imitate, this company may choose to adopt a conduct that will enable it to change its structure and eventually lead to improved performance. The price setting conduct can be used to gain competitive advantage in that when the best prices are offered, consumers will be attracted in high numbers (Gonzalez-Benito & Suárez-González 2010: 1039). The product must also be considered so as to ensure the consumers will not result into a great loss for the company by purchasing goods at throw away prices. Therefore, the company may decide to calculate the costs of manufacturing the product, and then sell it at minimal profits to avoid crisis. This sudden increase in consumers for the company is just part of gaining competitive advantage, and must therefore be improved for the company to sustain its competitive advantage. The sustenance can be achieved once the company is sure the consumer loyalty has been gained, and not just their one time appearance once the price has been lowered. This is because its profit margin and increased market share will be improving every day, and not rising high for a couple of weeks before dropping tremendously.

The relationships described in this model will play a major role in guiding the formation of a competitive strategy. For example, it is stated that the structure related to the performance of the firm. Therefore, when the structure of the industry is concentrated, it means that the company should be experiencing better performance. This is due to the fact that there is an opportunity for obtaining increased market share and profit margins. This information will hence be used in determine the conduct of the firm to achieve competitiveness. A concentrated market structure means that there are more consumers than companies can cater for. Therefore, a firm may decide to lower prices for a couple of months so as to increase market share. This unique opportunity will be attractive for consumers, who will henceforth shop in this company. After some time, the company may opt to increase both price and product value. This is a strategy to ensure that customers are not lost in the process of increasing profit margins. With this, the company will have gained competitive advantage, and will be better placed to act as the price setter in its industry since it will possess the largest market share.

Conclusion

In light of the discussion presented above, it is clear that there are various strategies that can enable a company to achieve and sustain competitive advantage. The five discussed in this paper are the major and most commonly used strategies. All of these strategies are focused on placing the company at a better industry position, providing customers with value at fair prices, and offering unique products to satisfy the unmet needs of consumers. They, however, achieve these through different approaches. The Blue Oceans strategy focuses on the creation of a new market space; the resource based view focuses on developing rare products that will limit competition through the possibility of substitution; and Porter’s generic strategies focuses on forces within the industry that can affect competitive advantage. Bowman’s Strategic Clock is a strategy that focuses on different directions that companies may take to achieve and maintain competitive advantage in different market situations. The SCP model, on the other hand works on relationships, and how one action may be manipulated to result to competitive advantage for the firm as a whole.

Bibliography

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Afuah, A 2013, ‘Are network effects really all about size? The role of structure and conduct’, Strategic Management Journal, 34, 3, pp. 257-273, Business Source Complete, EBSCOhost, viewed 2 November 2014.

Allen, R, Helms, M, Takeda, M, & White, C 2007, ‘Porter’s Generic Strategies: An Exploratory Study Of Their Use In Japan’, Journal Of Business Strategies, 24, 1, pp. 69-90.

Čirjevskis, A, Homenko, G, & Lačinova, V 2011, ‘How To Implement Blue Ocean Strategy (BOS) In B2b Sector’, Business, Management & Education / Verslas, Vadyba Ir Studijos, 9, 2, pp. 201-215.

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Madhok, A, Li, S, & Priem, R 2010, ‘The resource-based view revisited: Comparative firm advantage, willingness-based isolating mechanisms and competitive heterogeneity’, European Management Review, 7, 2, pp. 91-100.

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Business Mid-term Exam Available

Business Mid-term Exam
Business Mid-term Exam

Business Mid-term Exam

Order Instructions:

Mid-term Exam
Answer each question below and reference course materials to explain your answers. No independent research is expected or necessary. This exam requires 4-5 double spaced typed pages plus a cover page with your name, the date and BLE 215 and Section. Required font: Times New Roman 12 with one inch margins. Staple your pages together. You should avoid excess spacing. Folders or covers are not required. Bolding of course materials used is very helpful and recommended. Number each question using Roman Numerals and a) b), etc. for any sub-parts. There is no need to restate the questions.
When you refer to course materials, simply include the author’s name, if applicable, in parenthesis. A reference page is not required. When using Trevino, also give a page no. after her name. For example, (Trevino, p. 25). Use an assortment of text, articles, cases, films and ethics concepts to explain your answers. There are many course materials on BB that you can use in addition to the text, class notes and anything presented in class such as films. Also, you should reference your CSR team project. The questions are not cumulative, i.e. answer each one independently of the other. You may repeat class materials in each answer but also strive for some variety. You have many course resources available for use to help you answer the questions.

Question 1 (25 points)
Joseph Johnson argues in his article, Natural Law and the Fiduciary Duties of Business Managers that “simply put, stakeholder theory sounds good in social theory but will not work in practice.”
Explain his reasoning in terms of fiduciary duty, profits and stakeholders.
Do you agree or disagree?
Would Milton Friedman agree or disagree and why or why not? Would Edward Freeman agree or disagree and why or why not?
Does stakeholder theory and corporate social responsibility conflict with the fiduciary duties of management and the board of directors to maximize shareholder wealth?

Question 2 (25 points)
Steve Kelman provides a critique of the cost-benefit analysis and whether it leads to a “flawed ethical result.”

  • Do you agree or disagree with his analysis?
  • Is cost-benefit analysis sustainable?
  • What other ethics concepts may yield more sustainable results?
  • Which is most appropriate for business?

Question 3 (25 Points)
In regard to the Ford Pinto Case, apply the Hosmer Model of Moral Analysis and
assess the economic outcomes, legal requirements and ethical duties. Express the moral problem so that everyone involved will believe that their particular interests have been recognized and included.

Question 4 (25 points)
You have been hired by Multi-LimbTech, International, Inc.,(MLTI) a cutting edge designer and seller of artificial limbs. You are excited about this job since it not only pays well but the company also provides a valuable service to humanity that results in amazing scientific advances that enhance peoples’ lives. However, after several months, you discover that one of the top selling leg prosthesis has a design defect. You are told not to be concerned since the product is not regulated by the government. Another inquiry is met with no response. You learn that the company has donated $100,000 to a local medical board that endorses this product. In one country where this product is distributed, gifts are very common to secure business transactions. Use course materials as you answer the following questions:

  • Can you identify conflicts and pressures?
  • What kinds of questions should you ask?
  • What are the various stakeholder interests?
  • Is what is legal here also ethical?
  • How can this company “do good and make a profit” (synergies of ethics and earnings)?
  • Do ethical norms vary across cultures?

Note: This case is fictional and intended for classroom instruction only.

SAMPLE ANSWER

Business Mid-term Exam

Question 1

I disagree with Johnson’s argument. Stakeholder theory argues that the principle aim of a business/organization is to create optimum value for stakeholders. In order for a business/organization to be sustainable and successful, executives should uphold the interests of consumers, employees, suppliers, shareholders and communities aligned with and moving towards the same direction. In relation this, innovations to make these interests aligned is more significant than the simple approach of trading off stakeholders’ interests against each other[1]. Therefore, by focusing on the management of stakeholders, executives will manage to create optimum value for shareholders and other financiers[2]. For instance, an IT business may conduct a campaign against cybercrimes such hacking the business’ systems. When such a campaign succeeds by reducing the levels of cyber crimes, such a business shall have satisfied the interest of stakeholders such as policemen who are in charge of handling criminal issues.

In relation to the aspect of profits, upholding the interest of consumers by offering services or goods that meet their expectations can lead to the generation more customers. As a result, the business can generate more revenues, which in turn can increase its profit margins.

Fiduciary duty refers to a legal obligation to act solely in a given party’s interest. Since the stakeholder theory aims at satisfying the interests of stakeholders, this theory is in line with the fiduciary duty, which advocates for acting according to the interest of other parties. Thus, both the social corporate responsibility and stakeholder theory do not contravene the management and board of directors’ fiduciary duties to optimize shareholder’s wealth.

Milton Friedman would agree with this concept. Friedman advocated for free market. The aspect of free market implies that all players within the industry are at liberty to act according to their interests. As such, according to Friedman’s view upholding the interests of other parties or stakeholders denies a business the opportunity to act according to its interest, which is against the concept of free market that advocates for lack of interference in business activities[3]. In this scenario, stakeholders act as a hindrance to the business in terms of meeting its interests.

Edward Freeman would disagree with Johnson’s argument. Freeman was the founder of the stakeholder theory and believed that this theory could operate in social theory. Freeman believed that this concept could offer optimum value for stakeholders as it was aimed at upholding their interest.

Question 2

I agree with Steve Kelman’s assessment. Cost-benefits analysis argues that individuals should only adopt those measures whose benefits exceed their expenses/harms. In relation to this, the cost-benefit theory tends to monetize everything including human life, thereby leading to the incommensurability problem. Taking into consideration aspects of commensurability and comparability, Kelman’s critique/analysis can be considered appropriate. Kelman challenges the cost-benefit evaluation’s action of assigning or giving monetary values to commodities that are not marketable/non-marketed goods. This argument is right as issues such human life cannot be granted monetary values. The technique that is employed in surfacing the values that are assigned to nonmarketable commodities may not grasp the value that goods hold for individuals in an adequate manner.

According to Kelman, cost-benefit operates by creating equivalencies that exist between the items in questions, and the result is determined by mathematics/arithmetic. As such, the outcome obtained from such an operation may be surprising in case such outcomes are close calls or some of them are long division. Such an occurrence only serves to create confusion. The primary component of cost-benefit evaluation can be considered a consequentialist evaluation. In relation to this, cost-benefit analysis leads to a situation in which a judgment is assessment based on the benefits and costs that are associated with its consequences[4]. At the primary level, such an evaluation can include diverse goods that take into consideration human costs such as duties, rights and environmental costs. In this way, the cost-benefit analysis happens to be incompatible with the ethical frameworks as it can lead to flawed outcomes.

Cost-benefit analysis can be considered sustainable. This concept can inform opportunity cost in offers a systematic procedure for monetizing, calculating and comparing economic benefits and costs that are associated with certain processes, regulations and actions. Some other concepts that can be used as complements to cost-benefit analysis are opportunity cost, cost of intangible assets and cost of externalities. For businesses, opportunity cost happens to be the best concept.

Question 3

The Ford Pinto’s case, which involved the explosion of Ford Pinto as a result of a defective fuel system, can be addressed using the Hosmer Model/Framework for of moral assessment. In order for a party achieve an effective completion of a moral issue, such a party should ensure determine the economic consequences, legal requirements and ethical duties that are associated with a given action[5]. Taking into consideration the aspect of economic consequences, the action of Ford’s management resulted into economic gains to the company. The firm’s management acted in accordance to the principle of cost-benefit analysis in that it focused on an action whose economic gains exceeded its costs. By moving ahead to manufacture Ford Pinto vehicles, the company generated more revenues. On the other hand, the company could have not realized these economic gains in it had heeded to the engineers’ advice. Heeding to such advice meant that the company was to spend more on improving the Ford Pinto’s gas tank[6]. Such an undertaking could have led to more costs than benefits, thereby disobeying the principle of cost-benefit analysis. Ford’s management failed to adhere to the legal requirement that all vehicles that were manufactured by then (1972) to meet the 20mph test, so that by 1973 all vehicles could meet 30mph[7]. Despite the Ford Pinto failing to meet this requirement, the company’s management went ahead to manufacture these vehicles, thereby contravening he law. Ethical duty is an obligation that is owed by a party to another party within the same society. In relation to this, the Ford Company owned members of the public a duty to ensure their safety when using the company’s vehicles. The company should have ensured that their vehicles are fitted with proper gas tanks that cannot expose individuals to risks such as fire or explosions. Despite the organization’s management being notified by the firm’s engineers about the default associated with Ford Pinto, the management went ahead to the production of those cars for next six years[8]. In this manner, the company’s management failed to act in accordance to their ethical obligation.

Question 4

In this case, there are several pressures and conflicts. The first conflict involves me and the Multi-Limb Tech. In case I decide to make the public aware of the defects associated with the company’s top selling product, I risk losing my job. Besides, my action can lead to the company losing its revenues. The second conflict involves the company and the local medicinal board that endorses its products. Multi-Limb Tech is pressured to cooperate with the board or risk being defamed[9]. As such, the company has to engage in corruptive measure such as issuing bribes, which are disguised as donation to the company. The third conflict involves Multi-Limb Tech and the public. It is the ethical duty of the company to protect its patients/clients. The last conflict is between the local medicinal board and public. It is the ethical duty of this board to ensure that manufacturers deliver safe products to the public.

I would ask myself the following questions: Have I identified the issue correctly? How would I have defined the problem if I were on the other side of the fence? What is my intention in making my decision? How does my intention compare with the possible results? Whom could my judgment injure?[10]

The legal issue in this case is not ethical. The endorsement of Multi-Limb Tech’s product by the local medicinal board has a superficial appearance of being legal. However, this action is illegal as the board is aware of the default in Multi-Limb Tech’s product.

The company can act rightly and continue to make earning by informing the public about the benefits and harms of its product. In this manner, the company shall have created awareness about this product’s default[11]. Being that this product attracts many buyers, consumers that will purchase it will have acted according to their interests. Therefore, the company will not be blamed for any harm associated with its product.

[1] Carroll, Archie. “Ethical Challenges for Business in the New Millennium: Corporate Social Responsibility and Models Management Morality.” Business Ethics Quarterly 10, no.1 (2000): 34-42.

[2] Freeman, Edward. “The Politics of Stakeholder Theory: Some Future Directions.” Business Ethics Quarterly 4, no.4 (1994): 410-421.

[3] Carroll, Archie & Shabana, Kareem. “The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice.” International Journal of Management Review, (2010): 105

[4] Donaldson, Thomas, & Dunfee, Thomas. “When Ethics Travel: The Promise and Peril of Global Business Ethics.” California Management Review 41, no.4 (1999): 45-63

[5] Donaldson, Thomas. “Values in Tension: Ethics Away from Home.” Harvard Business Review, 4-12

[6] Danley, John. “Polishing Up the Pinto: Legal Liability, Moral Blame, and Risk.” Business Ethics Quarterly 15, no.2 (2005): 205-236.

[7] Becker, Paul & Bruce, Alan. “The Pinto Legacy: The Community as an Indirect Victim of Corporate Deviance.” Justice professional 12, no.3 (2000): 305

[8] Jones, Kristen & Geller, David. “Beyond the Business Case: An Ethical Perspective of Diversity Training.”Human Resource Management 52, no.1 (2013):55-74

[9] Porter, Michael & Kramer, Mark. “How to Reinvent Capitalism-and Unleash a Wave of Innovation and Grow.” Harvard Business Review, (2009): 63-79

[10] City of San Diego Office of Ethics and Integrity. “ Nash’s 12 Questions.”

[11]Porter, Michael & Kramer, Mark. “How to Reinvent Capitalism-and Unleash a Wave of Innovation and Grow.” Harvard Business Review, (2009): 63-79

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Log and Reflection Essay Paper Assignment

Log and Reflection
Log and Reflection

Log and Reflection

Order Instructions:

http://ilearn.mq.edu.au/pluginfile.php/2796734/mod_resource/content/2/Planning%20and%20reflection_2014.pdf

SAMPLE ANSWER

Log and Reflection (MUS207)

Introduction

In our lives, music serves many purposes such as a source of consolation, refreshment, and entertainment among many others. The melody is most of the time produced by various instrument accompaniments played by different people. This means that, people have a certain liking of specific instruments over others exemplified through what they specifically know to play. Guitar is one of the most frequently used musical accompaniment instruments, which is a clear indication of its popularity. This discussion provides an analysis as well as reflection on my current guitar playing abilities.

Practical plan

I developed an interest to learn guitar after meeting several people playing it on the streets. The emotions and the feelings of listening to the siren melody triggered my quest to begin training. The song they played on the guitar still lingers into my mind. They were cool and charming.  Nevertheless, despite not having prior knowledge in guitar, I used to play other instruments such as piano and flute.  I have attained grade three and seven in playing piano and flute respectively. This experience actually gave me an advantage compared to other people that have never played any instruments.  I have some grasps of music theory and this will be an added advantage to me when learning to play guitar. I love to listen to music varieties but most often I would prefer rock, jazz, and country music. These genres of music make me feel relaxed and at peace because of their smooth and sometime rocky melodies.  Therefore, combining my prowess in music and in music will go a greater mile in making master playing guitar quicker.

Motivations of people to pursue their career choices differ from one to another. My motivation to study music in this semester is to learn how to play many instruments in my life. I have an affinity to music and knowing more skills and knowledge about the area will enable me realize my quest. I also want to experience the same feeling as other people who play the instrument do.

The reason why I am studying guitar is to gain skills so that it becomes easier for me to practice on more songs on my own in future. I believe that, I will be able to understand deeply the techniques of playing the guitar so that, I can learn many songs. Even though I have no ambitions of playing in a band, if this opportunity comes, I would think about it in future.  However, my major goal is just to know and be among those people that know how to play a guitar without any assistance from anyone.

The roadmap of how I am going to Achieve these aims

To learn how to play guitar will require me to come up with a clear guideline or rather roadmap that will guide me.  I must create time to train as well as study other courses.  I will practice guitar at home every week after classes. This will enable me to revise what I have learned in class during class sessions.  I will also practice during my spare time. A number of my friends can play guitar and therefore they will train me.

Tasks and goals

  • I will set clear goals and vision based on SMART (Specific, Measurable, and Attainable. Retainable and time bound)
  • Daily practice session at home with my trainer
  • Listening to various blues and R n B band jazz music to learn more on the tunes and melodies of guitar
  • Set up a plan that will guide me towards its achievement
  • By the end of the first week, I should have gained deeper knowledge about the guitar and playing techniques

Historical, social and technical knowledge

My favorite songs are blues and most of the time, I have practiced to play guitar with this genre of songs.  When listening to blues, it requires full attention to get the message (Coelho, 2003). The instrument tones and melody are also tuned differently as the songs proceed. There are some levels that the pitch of the song goes high and again goes low and moderate.  As a guitarist, it is important that I make these adjustments to ensure that the tunes and the melody sound nice (Campbell, 2008).

Various categories of blues such as electric and delta are distinguishable by the tones of the guitar. Blues is one of the most loved music genres that traces its roots in African American communities that lived in the Deep South of US in the 19th century. The genre was derived from the spirituals, work, folk and chants from European (Govenar, 2008).

I have listened to various blues composed and sung by various artists. One of the songs I have listened to is a sub-genre of R&B named ‘Unfaithful’ by Rihanna. The song was composed by Shaffer Ne-Yo Smith and was produced by the Star Gates (Bream, 2011). The song is in Rihanna’s second album of Girl like me composed and released in 2006 (Komara, 2006). It talks about a woman who is regretting of cheating her husband. It has been received with mixed reactions from various quarters, with some criticizing it while others praising its lyrics and powerful balladry (Chappell, 2014).

Another song that I listened to was ‘one of the brightest stars’ by James Blunt. The other song that I learned on the third day was for James Blunt named “give me some love”. The song is very calm with very clear guitar lyrics (Chappell, 2014). The guitar is well adjusted and it has various tunes including, bass and soprano that blend and make the song appealing to listen to.

Through the training session, I got to learn about the many forms of blue guitars. Therefore, training guitar is an event that evolves. It is r important that one identifies specific techniques, patterns to follow, and notes to use in the specific song rhythm.  One is required to tune the guitar to an open chord before opening. The guitar is tuned to the open chord such as E major or G major and then to produce a sound, it is struck by a glass or a mental slide to change chords.

Another style that I was trained or learned during the training session was the picking style that manifests in both fretted and slide guitar styles. For emphasis of the rhythm, the guitar is thumped out in a steady manner on the bass notes on the guitar low strings. This is done simultaneously or in turns using the thumb. Finger picking on the upper strings leads to sound of chords, fills, and melodic riffs that are heard from the songs.

Slides are also used to play chords. The slides are moved from one point to another. Most of the chords in this song are composed of major and minor triads; dominant 7th chords also known as triads with the other flatted and jazz chords (Chappell, 2014). Many of these songs used blue scale in their melodies and in their composition as well as their improvised solos. Listening to these songs not only enabled me to understand the various tones and melodies but as well to set the guitar to sound in a particular way. The training was somehow complex, especially when it came to internalizing the various notes on the guitar.

The log

The practice was an awesome experience for me. The practice session took a duration of one week. All these trainings or practices were recorded in my dairy book to ensure that I remember the various events and experiences at those particular moments.  I practice in the evening after the classes and every time I have free time. I practiced to play guitar at home where my fellow colleagues that had already known how to play it joined me. On a typical evening, I practice for an hour. In most occasions, the practice commenced in the evenings at 5pm to 6pm.

On the first day, I practiced how to set a guitar to be able to produce certain melodies. Setting a guitar may seem to be an easy task, but my colleagues assisted me in the same.  Nevertheless, after around 10 minutes, I was able to make this guitar and set it correctly for use. The trainer then took me through the other keys such as G and E factors and how they were fine-tuned.  Other aspects that I was taught on this first day were on the parts of the guitar and their roles.

On the second day, I listened to one of my favorite RnBs “unfaithful’ by Rihanna. The aim of listening was to identify the way guitar was used in the song to add more spice and melody to the song. Towards the end of the music, I learned to play the guitar just the way it played in the DVD. The third day, I listened to ‘one of the brightest star’ by James Blunt. The guitar melodies in this song were clear and exciting. At the end of the session, I went through guitar practice to accumulate practical knowledge.

The fourth day, I trained/practiced the third song by James Blunt named “give me some love”, which is one of the favorite songs that had good chords. The guitar in the song is clear and thrilling.  This was one of my best days on the training; it was a day full of fans and good moments.  I also recoded some significant improvement in the way I fine-tuned and played the guitar on this specific song. I came to realize that I have the capabilities and all it takes to   become the pro I wanted. I could at least make some steps and efforts to produce an organized sound.  I came to the realization that my skills in piano played an instrumental role in my learning process at the facility.

References

. Campbell, T. (2008).Popular Music in America: And the Beat Goes on; Cengage Learning, 3rd ed..

Bream, J. (2011). “Rihanna redefines Loud”. Star Tribune (The Star Tribune Company). Retrieved December 2, 2014.

Chappell, J. (2014). How to get the blues sound. Retrieved from: http://www.dummies.com/how-to/content/how-to-get-the-blues-sound.seriesId-105965.html

Coelho, V. (2003).  The Cambridge companion to the guitar, Cambridge: Cambridge University Press.

Govenar, B. (2008). Texas Blues: The Rise of a Contemporary Sound; Texas A&M University Press.

Komara, M. (2006).  Encyclopedia of the blues; Routledge

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Understanding Financial Decision Making

Understanding Financial Decision Making
Understanding Financial Decision Making

Understanding Financial Decision Making

Understanding Financial Decision Making: Tools for Evaluation

Order Instructions:

For this paper, it comes in 7 parts and the writer must label each parts and complete a minimum of one page summary as indicated for each part. The writer must follow critically the instructions and the requirements for each part. The writer must use in text citations for each part , as each part must have a minimum of two sources or two different in text citations. The paper must have a minimum of 10 pages in total excluding any diagrams of presentations that the writer may use. Also remember that you will also have to write an executive summary at the end to conclude the paper as mentioned in the instructions.

Understanding Financial Decision Making: Tools for Evaluation

In this paper, you will examine theoretical and empirical points of view and apply the knowledge you have gained from your study and research in order to understand how financial decisions are made within a large publicly traded company that you choose as an exemplar. You will utilize financial tools to evaluate current financial data and use your calculations to justify those decisions. Approach this exercise as though you were a financial consultant who has been asked to analyze the value of the company as a potential investment. This assignment will require access to in-depth financial information, so selecting a company for which this information is easily obtainable will be most beneficial.

You will conduct a detailed analysis of the financial dealings of your selected organization. Each week you will focus on a different aspect of the company’s financial information. You will explore the monitoring capabilities of the Board of Directors and use financial tools to compare ratios with one of the firm’s competitors. You will establish an estimated growth rate and predict future dividends. In addition, you will use annual reports as a tool in capital budgeting to determine potential real options, establish a market risk premium, calculate the weighted average cost of capital, and compare the mix of debt and equity that the firm uses to an industry average. Finally, you will prepare an executive summary of the company, complete with current stock prices and a recommendation on investing in the business you select. Your paper will contain topics unique to the company chosen, but will incorporate the themes covered in each section.

The Investment Analysis and Recommendation Paper will comprise a minimum of 10 pages in APA style format. Three to five diagrams and presentation slides may be included, but they will be additional to the required length of the paper
Part one
• This week, select a publicly traded company that you wish to analyze for this paper. Submit the name to your Instructor for approval. Obtain the company’s financial statements (annual report) and the most recent proxy statement.

Using the information on the proxy statement:
• Evaluate the monitoring potential of the firm’s Board of Directors.
• Identify the strengths and weaknesses of how the board is structured, as well as any ethical concerns.
Write a 1-page summary of your findings.

Part two
• Investment Analysis and Recommendation Paper
For this part, you will assess the company you selected for your Investment Analysis and Recommendation Paper relative to its competitors in terms of financial ratios. Financial ratio reports are available on numerous Web sites (examples: Reuters, Google, Finance, Hoovers). Remember, different Web sites may use slightly different definitions.

Using income statements and balance sheets for your company AND at least one of its main competitor’s, respond to the following:
•Calculate the DuPont identity for both companies for the past three years.
•Discuss any differences and/or trends that emerge.
Write up a 1-page summary of your findings, including any calculations you made, and how you gathered your information.

Part three
Investment Analysis and Recommendation
• This part of the Investment Analysis and Recommendation Paper requires you to establish an estimated growth rate in earnings and dividends for your company. Note, in the dividend growth model, “g” is the growth rate for earnings AND dividends. You might want to check historical growth rates for the company (in terms of earnings and dividends). Also, many people rely on analyst forecasts. Be sure to justify your growth rate selection and explain how you arrived at the number. Assume your company is a constant growth stock. Use your estimated growth rate to solve for the required rate of return using the dividend discount model. After completing your calculations, respond to the following:
• Does the number you arrived at seem logical or feasible?
• Did you face any problems or issues using the dividend growth model? Does your company pay a dividend?
• Is it reasonable to assume constant growth for your company?
Write up a 1-page summary of your findings, including any calculations you made, and how you gathered your information.

Part four
• For this part, you will read the text portion of your company’s annual report. As you do so, focus on the following:
• Identify potential real options that might arrive in this firm’s business.
• Are these options industry specific or company specific?
• How would these options affect their capital budgeting process?
• Justify your answers.
Write up a 1-page summary of your findings, including any calculations you might have made, and relate how you reached your conclusion.

Part five
• For this part of your Investment Analysis and Recommendation Paper, find an estimate of beta for your company. You might consider examining/using an industry average beta, especially if the reported beta you find seems unrealistic or inappropriate. Note: You should probably check your beta across a few different sources, because sometimes they vary. Find the current interest rate (yield) for 3-month Treasury bills. Determine an appropriate market risk premium. Be sure to consider the size of your firm when estimating an appropriate premium.

After making your calculations:
• Using all this information, what is the expected return for your company using CAPM?
• In Week 3, you estimated a required rate of return using the dividend discount model. How does your CAPM number compare?
Write up a 1-page summary of your findings, including any calculations you might have made.

Part six
• For this part, your assignment is to calculate the weights (proportions) of debt and equity for your company. For equity you can use the market value of stock (number of shares times the current stock price). For debt, you can use the book value of long-term debt (from the balance sheet). While market values of debt are “better,” they are rather difficult to obtain. Estimate the required rate of return on debt for your company. The following are three possible approaches: a) You can use the credit rating provided by Standard & Poor’s or Moody’s. Use the ratings to find current yields above risk-free rates. b) Go to FINRA Market Data. This will give the yield to maturity for EACH bond. You need one measure of the cost of debt, so you will have to figure out an appropriate way to handle multiple debt issues. c) If your company does not have publicly traded debt (and/or both the previous two approaches did not work), you will need to read the footnotes to the annual report. You may be able to get their estimated borrowing rate. After gathering the information:
• Estimate your company’s weighted average cost of capital. You can use the income statement information to estimate the tax rate.
• If your company uses this in the capital budgeting process (i.e., as the discount rate in NPV and IRR), what assumptions are they making?
• Does your company face any particular difficulties in using this rate? For example, does your company have different divisions or units that might have differing levels of risk?
Write up a 1-page summary of your findings, including any calculations you might have made, and describe which method you used to find the required rate of return on debt for your company.

Part seven
• For this part you will prepare the final section of your Investment Analysis and Recommendation Paper, consisting of the capital structure choices, as well as an executive summary of your research.

You will examine the mix of debt and equity that your firm uses. After finding this information:
• Compare this to an industry average or a main competitor. What are the differences?
• Based on what you know about your selected company, do these differences seem appropriate?
• Relate your company’s capital structure choices to the appropriate capital structure theory (ies).
Also, as a component of your executive summary, obtain the current stock price for your company and use it as an additional calculation. Based upon all of your research, would you recommend investing in this company? Justify your answer.

SAMPLE ANSWER

Ford Motor Group is a multinational public company that’s based in Michigan in the USA. Its shares are traded in NYSE under the initial F. It majors in automotive production and its current Executive chairman is William C. Ford, Jr. while the CEO is Mark Fields. The current brands or models are Ford Focus, Ford Escort, Ford Cortina, Ford Sierra and Ford Capri. There are several other brands that Ford manufactures besides an array of trucks and other automobiles. The Ford Family owns 2% of the company while the employees number about 181,000. It has a market capitalization of $54.65 Billion and its shares are currently trading at $14.09 dollars with a yield of 3.5%. Ford has 9 million outstanding shares while the market prices of its shares are currently costing 14.1 which amounts to a total of $126.9 million in outstanding stock valuation.

Part One

Board of Directors

The directors of Ford Motor Group have impeccable academic backgrounds and experience that warrant their positions. The executive management of the Ford board as at the end of July 2014 was chaired by William Clay Ford Jr., the executive chairman while the CEO was Mark Fields (CEO & President). For the other members of the board see appendix D.

Monitoring Potential of the Firm’s Board of Directors

Mark Fields, the current CEO and President, was initially appointed as the America’s President of operations in the year 2012. (Adams, 2008, p. 46) The board is mostly concentrated in running the operations of the company from the head office. Almost 50% of its annual turnover is achieved in North America while the rest are from South America, Europe, Asia, pacific and Africa. The duties of each director are not included in the reports together with the salaries of other senior staff. The academic background for the senior positions office holders is not available on the 2014 proxy annual report. The performance of Ford Motor Group has not been very impressive and it was expected that it would have more financial problems in the current financial period. However, Ford has endured hard times before and it’s expected that it will come out of financial woes on its own.

Strengths and Weaknesses of Board Structure

The major strengths of the Ford Motor Group board are the wide experience and skills the director’s posses. The executive chairman has been a director since 1988 and has also been the vice president at the commercial truck center before his recent promotion. He has also been the chair of the finance committee and the chairman of eBay Inc. The other board members are also equally skilled and experienced in automobile industry.

The board has also professional structures that vet all the qualifications of the directors before they are appointed. The nominating and governance committee scrutinizes all the background information on all the nominees before their names are forwarded to the board.

The major weaknesses of the board are the lack of clearly defined organization structures that spell out the role of each director and the hierarchy of the functions of their offices and their occupants. The structures are not clear and maybe they have their own system of operations but the structures have to be clearly drawn and the functions of each department clearly defined and addressed. (Corporate Ford Website)

Ethical Concerns

The other ethical issues that may arise is that some directors like Gerald L. Shaheen who may have served as the president of the Caterpillar Inc before he retired may be having the connections with the group hence his interests may also be linked to the company. H e should be allowed to serve the interests of one company only.

The other issue is that the company has some former politicians in the board like the former governor Jon M. Huntsman Jr. It reflects a little unprofessionalism to include some politicians in the board and who may have had different policies that may have been unpopular with some people hence it can influence the performance of the company negatively.

Part Two

Competitive Financial Ratio Comparison

Ratio analysis provides a diagnostic tool that identifies the areas prone to create problems for the company and evaluates the opportunities within the company and its competitors. The ratios of Ford Motor Group provide a relatively positive view of the company. Appendix C provides all the comparisons and ratio summaries for Ford and GM.

The net assets turnover for Ford Motor Group decreased by 2.5% in the year 2013 as compared to a 50% increase in the year 2012. GM registered a decrease of 13% in its net assets turnover in the year 2013 while in the year 2012 it experienced an increase of 6.5%. (Vance, 2003, p. 19)

DuPont Identity

The following is the Dopont model breakdown for Ford and GM. The profit margin for Ford amounted to 13% of sales for both 2013 and 2012. The return on Equity was 27% in 2013 while in2012 it was 36%. The profit margin on sales for GM amounted to 12% in 2013 while in 2012 it was 7%. The ROE for GM amounted to 13% and 17% respectively for the years 2013 and 2012 respectively. The return on assets amounted to 3 and 4% respectively. The earnings per share for Ford in 2013 and 2012 were 1.54 and 1.48 respectively while the dividends per share amounted to 0.4 and 0.2 respectively. Both companies are heavily leveraged and Ford is the one that has the highest concentration of debt compared to GM.

The interest expenses for Ford increased by 16.3% in 2013 while in 2012 it had decreased by 12.7%. The interest expense for Ford in the year 2013 and 2012 were 829 million and 713 million respectively. GM interest expenses decreased by 31.7% in 2013 while in 2012 the expenses decreased by 9.4%. The interest expenses for 2013 and 2012 were 334 Million and 489 Million respectively.

The net assets turnover for Ford’s decreased by 2.5% in the year 2013 as compared to the 50% increase in the year 2012. GM registered a decrease of 13% in its net assets turnover in the year 2013 while in the year 2012 it experienced an increase of 6.5%. The dividend per share for Ford in 2013 and 2012 was 0.4 and 0.2 respectively. (See appendix E) This represented a return of 22% to the shareholders in 2013 while in 2012 it was 23%. (Luenberger, 1997)

Financial Data of Ford Motor Group

The financial performance of Ford Motor Group seems to be better than General Motors for the years 2013, 2012 and 2011. (See table 1

Table 1

Ford  (Billions) Year 2013 Year 2012 Year 2011
Net income 7.15 5.67B 20.21
Revenue 146.92 195.06 135.61
Assets 202.03 189.41 178.35
Equity 26.38 15.95 15.03
 

GM     (Billions)

  

Year 2013

  

Year 2012

  

Year 2011
Net income 5.35 6.19 9.19
Revenue 155.43 152.26 150.28
Assets 166.34 149.42 144.60
Equity 42.61 36.24 38.12

Differences or Trends

The equity multipliers for Ford are higher than those of GM which means that Ford is more levered than GM. (See table 2) and Appendix C for GM.

Table 2

DuPont Analysis

 

ROE

 

  

Profit Margin

 

 Asset Turnover Equity Multiplier

 
Ford Year 2013 0.07 0.72 0.75 7.66

The ratios of Ford Motor Group for ROE and Profit margins are better than those of GM. (See Table 1 & 2 above) The equity multiplier for Ford Motor group is 7.66%.  However, the asset turnover for GM is higher than Ford. (See Appendix C) The net assets turnover for Ford’s decreased by 2.5% in the year 2013 as compared to a 50% increase in the year 2012. GM registered a decrease of 13% in its net assets turnover in the year 2013 while in the year 2012 it experienced an increase of 6.5%. The current ratios for Ford Motor group for 2013, 2012 and 2012 were 2.11, 2.32 and 2.26 respectively compared to Gm’s 1.31, 1.3 and 1.22 for the same period respectively. The quick ratios for Ford Motor group for the same period were 1.98, 2.18 and 2.15 compared to GM’s 1.08, 1.02 and 0.95 respectively. Ford Motor Group seems to have higher and better liquidity ratios than GM. The financial stability of Ford Motor Group is more promising that GM’s. The other competitive ratios are attached on the appendix.

Part Three

The information was gathered from the Yahoo’s business finance websites

Dividend Growth Model

The dividend growth model is also known as the Gordon Model. The dividend growth model is a concept that determines the value of stock or a business firm. It utilizes the dividend yield as an investment strategy. Companies with reasonable payouts ratios and profitable dividend yields are considered safe investment. The following are the calculations for obtaining the Dividend Growth model;

Table 3

Growth Rate for Ford Motor Group

Analysis Formula % Year  2013
ROE Net income/ Equity 0.27 %
Retention ratio 1 – (cash dividends/ net income) 0.78 %
Growth rate in earnings (g) Retention ratio x ROE 0.21 %

For the formula used to calculate the ratios above see appendix E.

The Financial Information and Important Growth Trends for Ford Motor Group for 2013

Ford Motor Group 2013
ROE Net Income/Equity 0.27
Retention Ratio 1-(cash dividends/net income) 0.78
Growth rate in earnings Retention rate X ROE 0.21
Dividend Discount Model Return rate R = Dividend /price of stock + g 0.24
Price of Stock Dividend/Return Rate R – Growth Rate g 14.07

 Issues with Using the Growth Model

The growth model is only an indicator and it cannot guarantee the performance of the company in future.  However, it can be used to construct the investment portfolio of a business firm. The dividend earnings growth model for Ford has been calculated on average per year. There are financial periods where the dividend pay rate and amounts are similar hence the growth trend is not reliable as the average is very low. The general average however is 0.212%.

Reasonableness of Constant Growth

The growth rate number is logical as it reflects the general performance on the ground. The major problems with the calculation are the constant figures payable as dividends reflects a constant growth trend and the calculations reflect a zero growth trend. The company pays dividend as shown in the table above. It would be fair assume a constant growth trend for Ford Company.

Part Four

Annual Report

Potential Real Options

The potential real option analysis (ROV) refers to the valuation techniques that are applied in capital budgeting. To undertake some business initiatives or activities such as expansion or investment in capital projects or even abandon some projects is the objective of real call or even put option. Real options are different from the finance options as they are not traded on the securities and the option holders can also influence the real value of the options projects.

Stock Options for Employee compensation for the year 2013

Fair value per stock option 2013 2012 2011
5.03 5.88 8.48
Assumptions made
Annualized Dividend yield 3% 2% –
Expected volatility 52.20% 53.80% 53.20%
Risk free interest rate 1.50% 1.60% 3.20%
Expected stock option (yrs) 7.7 7.2 7.1
Company stock options as at December 31 2013 (millions)
Outstanding options Exercisable options
Shares weighted av life yrs weighted av Exc price Shares weighted av life yrs
Range Prices available in $
1.96 -2.84 15.5 5.2 2.16 15.5 2.16
5.11 – 8.58 23.2 3.1 7.29 23.2 7.29
10.11 – 12.98 29.1 5.3 12.58 19.1 12.56
13.07 – 16.64 11.3 2.8 13.86 9.8 13.71
Total stock options 79.1 67.6

Real options are also known as stock valuations. Several options in investment valuation and analysis depend on the objective of the project. The following is an example of employee stock valuation.

These options are company specific and they are payable on the range of prices available and the average years the employee has spent in the company. The share prices are weighted as shown on the table above. (Garrison, Noreen & Brewer, 2009, p. 65) The stock options would have to be provided for as their prices are usually provided for employees only and not for the general investors.

Capital Budgeting Process

The options would have to be provided for when budgeting for capital projects. All projects with average returns that are less than the weighted average cost of capital should be rejected as the cost of capital would be more the profits of the project.

Part Five

Beta

Beta is used in business finance a means of measuring the investment portfolio risk. A beta of 2 means that for every 1% change in the benchmarks value, the value of a given portfolio changes by 2%. The beta for Ford is 0.88%.

Expected Return – CAPM

The beta for Ford Motor Group according to yahoo business finance is 0.88%.  The current risk free market rate is 0.03%. The rate of risk premium is the amount that the expected asset’s rate of return is extra or exceeds the market risk free rate of interests.  The risk premium for trading companies is the company stocks or their expected rate of return less the risk free rate of return.

Capm = rf + β (rm -rf)
rf = risk free rate 3.00%
β = Beta 0.88
rm = return on the market 10.00%
Capm = 9.16%

The average historical equity premium is 6.9%, so 7% is an estimate for the risk premium (Ross, Westerfield & Jaffe, 2013).

The average Capm rate is equal to 6.52% as calculated in the excel formula which is attached. The expected return for Ford Motor Group is 7%. Using the model, the rate of return is 6.52%.

The cost of equity using the capital asset pricing model = Risk Free Rate + Beta * Market Risk Premium = 3+0.88*3= 11.64 (French, 2003, p. 65)

Ford has outstanding shares numbering 3.88 Billion while the market prices of its shares were costing 14.07 which amounts to a total of $54.59 Billion. (Black, Jensen and Scholes, 1972)

The Capital Asset Pricing theory suggests that the cost of capital depends largely on how the asset was initially. The cost of the debt capital, the cost of the equity capital and the weighted average of the two depending on the debt and equity financing represents the actual cost of capital.

Dividend Growth Model versus CAPM

The CAPM is 0.916% compared to the 0.21 %. The differences are not so high but the most logical one is CAPM which is about 1%. However the general trend for the Ford Motor Group has been retrogressive trend at around -0.3. (Appendix B)

Part Six

Debt and Equity

Equity

According to Modigliani and Miller (1958, p. 260) the cost of equity capital is mostly determined by the asset’s cost of capital and not the other way round.

Ford has outstanding shares numbering 3.88 Billion (see table 5) while the market prices of its shares were costing 14.07 which amounts to a total of $54.59 Billion. The Capital Asset Pricing theory suggests that the cost of capital depends largely on how the asset was initially financed (Bierman & Smiddt, 1966). The cost of the debt capital, the cost of the equity capital and the weighted average of the two depending on the debt and equity financing represents the actual cost of capital. (Black, Jensen and Scholes, 1972, p.80)

Table 5

Ford’s Market Value of Equity

Company name Year 2013
Shares outstanding 3.88B
Price as of 14.07 per share

Market value of equity

 54.59B

26.83B
CAPM                    6.52%

 The rate of Capital Asset Pricing model for Ford Motor Group is 6.52%.

Debt

Interest payments that are payable by lenders are all deductible from the ones or a company’s taxable income while the payments to shareholders as dividends are not. Most tax systems encourage the companies to use debt financing instead of equity. (Black, Jensen and Scholes, 1972, p.118) The higher the interest rates the higher the incentive.  The interest expenses for Ford increased by 16.3% in 2013 while in 2012 it had decreased by 12.7%. The interest expense for Ford in the year 2013 and 2012 were 829 million and 713 million respectively. GM interest expenses decreased by 31.7% in 2013 while in 2012 the expenses decreased by 9.4%. The interest expenses for 2013 and 2012 were 334 Million and 489 Million respectively. (Bodie, Kane, Marcus, 2008, p. 303)

The capital structure for Ford is mostly made up of borrowed money. In 2013, the long-term debts amounted to $114, 688 million while in 2012 and 2011 the debts amounted to 105, 058 and 99488 respectively. The total stockholder equity amounts to $26,383 Million and $15,947 million for the same period. Ford Company is highly levered and it needs to cut down on borrowing. General Motor’s long term debts amounted to $6573 Million and $3424 Million for the year 2013 and 2012 while the total stockholders equity amounted to $42,607, $36,244 and $38120 for the years 2013, 2012 and 2011. Gm is relatively levered. (Markowitz, 1959, p. 78)

The credit ratings for Ford currently are CCC+ from S & P performance of CC in 2012. Ford managed to pay its 9.9 Billion debts in the year 2014 and it helped to boost its credit rankings. Ford credit rankings place it in front of GM and Chrysler and they are currently fitting hard to avoid bankruptcy petition. (Luenberger, 1997, p. 48)

Table 6

Cost of Debt for Ford Motor Group for the year 2013

Company name 2013
Long term debt

Current Portion of Debt

Total Debt

 114.69B

–

114.69B
Cost of Debt % 7%
Tax Rate 40
The cost of debt for Ford Motor Group is 7%, a rate which is fairly affordable. Given the current ratio of 2.11 Ford can comfortably afford to pay its debts.

Table 7

Calculations for Weighted Average Cost of Capital for Ford Motor Group

Ford Value $ %
Equity (Rs)  26.38B  18.7
Debt (Rb) 114.69 81.3
Total Value 141.07 100Rs

The formula for calculating the weighted average cost of capital is:

Ford Value %
Equity(Rs) 26.38 0.87
Debt(Rb) 114.69 0.13
Total Value 141.07 1
Rwacc 3.98%

The WACC for Ford Motor Group is 3.98% which reflects a favorable position compared to its cost of debt which is 7%. (See Table 6 & 7 above)

Capital Budgeting Assumptions

The major assumptions are that the tax rate is 40%. Following the losses incurred by ford in its foreign branches no taxes were chargeable in 2013.

Competitive Review of Debt and Equity Mix

The average weighted cost of capital is higher for Ford than GM. In 2013, the WACC for Ford has a WACC of 3.98% while for GM it was 3.16%. Ford Motor Group seems to have slightly more debts compared to GM.

Competitive Review

GM Value %
Equity(Rs) 42.61 0.87
Debt(Rb) 6.57 0.13
Total Value 49.18 1
Rwacc 3.16%

 Part Seven

Capital Structure Theories

According to Modigliani and Miller (1958, p. 261) the cost of equity capital is mostly determined by the asset’s cost of capital and not the other way round.

Ford has outstanding shares numbering 3.88 Billion while the market prices of its shares were costing 14.07 which amounts to a total of $54.59 Billion. The Capital Asset Pricing theory suggests that the cost of capital depends largely on how the asset was initially financed (Bierman & Smidt, 1966, p. 300). The cost of the debt capital, the cost of the equity capital and the weighted average of the two depending on the debt and equity financing represents the actual cost of capital. (Black, Jensen and Scholes, 1972, p. 120)

Some theories of the Capital assets pricing model, have been applied in relation to heterogeneous beliefs and risk free lending rate elimination (Black, 1997, p. 444).

Summary

Ford Motor Group financial performance seems to be improving as in the year 2013  it had a Gross Profit 7.9%  as opposed to 2012 when it decreased by 5% from the previous year. The GP for General Motors on the other hand increased by 70% in the year 2013 while in the year 2012 it decreased by 43%. The net profit for Ford for the same period increased 26% in 2013 while in 2012 it decreased by 72%. GM registered a 13.7 % reduction in 2013 while in 2012 it registered a further reduction of 32.7%. The total shareholder’s equity for Ford increased by 65.5% in 2013 while in 2012 it increased by 6%. General Motor’s shareholders equity increased by 17.6% in 2013 while in 2012 it decreased by 4.9%. In 2012 Ford Motor Group reduced its total liabilities by almost 70% while GM increased its total liabilities by 15.6% in 2013. The sales revenue for Ford increased by 10% in 2013 while GM sales for the same period increased by 2.1%. Ford total sales revenues increased from $133,559 million in 2012 to $146,917 million in 2013. GM sales for the same period were 152256 million and 155427 million from the same period respectively. The interest expenses for Ford increased by 16.3% in 2013 while in 2012 it had decreased by 12.7%, GM interest expense decreased by 31.7% in 2013 while in 2012 it decreased by 9.4%. (Bodie, Kane, Marcus, 2008, p. 303)

The ratios for Ford also indicate that the liquidity ratios are above average for all the years for Ford Motor Group. The current ratios were 2.11, 2.32, 2.26 for the years 2013, 2012 and 2011. The quick ratios also indicated a positive trend. The Times interest earned for the year 2013 for Ford were 9.45, 11.83 and 11.63 for the years 2013, 2012 and 2013.  The interest cover for the same period indicated the same results like Times interest earned. (Drucker, 1999, p. 155)

The ford Family owns 2% of the company while the employees number about 181,000. It has a market capitalization of $54.65 Billion and its shares are currently trading at $14.09 dollars with a yield of 3.5%. (Ross, Westerfield & Jaffe, 2013, p. 175) The net asset turnover for Ford decreased by 2.5% in the year 2013 as compared to a 50% increase in the year 2012. GM registered a decrease of 13% in its net assets turnover in the year 2013 while in the year 2012 it experienced an increase of 6.5%. The dividend per share for Ford in 2013 and 2012 was 0.4 and 0.2 respectively. This represented a return of 22% to the shareholders in 2013 while in 2012 it was 23%.

Ford Motor Group has a great potential to return to great profitability and also be able to pay off all its outstanding debts. The Current ratios and the quick acid test ratios indicate that Ford Motor Group has a stable liquidity and with the right leadership it would be able to make more profits like the earlier years. Given all these factors I would definitely invest my money in Ford Motor Group but I would be cautious besides I would also be requiring a plan on how the management of the company would be proposing to settle the huge loans that it owes several financiers. Ford may be earning some profits but it has a lot of debts that are four or five times its total equity. The classification of shares as common shares and also class B shares that have unequal voting rights is also some disquietedness among the shareholders.

Reference

Adams, S. (2008) Fundamentals of business economics. Financial Management (UK), 46–48.

Bierman, H. and Smidt. S. (1966).The Capital Budgeting Decision—Economic Analysis and Financing of Investment Projects. New York, NY: Macmillan Company. 300-55

Black, F. (1997) Capital Market Equilibrium with Restricted Borrowing, Journal of Business, July, 45:3, 444–55.

Black, F., Jensen, M.C. and Scholes, M. (1972) “The Capital Asset Pricing Model: Some Empirical Tests,” in Studies in the Theory of Capital Markets. Michael C. Jensen, ed. New York, NY: Praeger, 79–121.

Bodie, Z., Kane, A., Marcus, A. J. (2008). Investments (7th International Ed.) Boston: McGraw-Hill. 303.

Drucker, F. (1999) Management Challenges of the 21st Century. New York, NY: Harper Business. 150 – 55

Ford Motor Company Annual Report (2013) Delivering Profitable Growth for All, www. corporate ford.com

Fama, E. F, French, K. R (2004). “The Capital Asset Pricing Model: Theory and Evidence”. Journal of Economic Perspectives 18 (3): 25–46.

French, C. W. (2003). “The Treynor Capital Asset Pricing Model” Journal of Investment Management 1 (2): 60–72.

Garrison, R., Noreen, W. & Brewer, P. (2009) Managerial Accounting, New York, NY: McGraw-Hill Irwin. 65 -70

Gordon, M. J. (1962). The Investment, Financing, and Valuation of the Corporation. Homewood, IL: R. D. Irwin.

General Motors Company Annual Report (2013) www. corporate gm.com

Khan, M. (1993) Theory & Problems in Financial Management, New York, NY: McGraw Hill

Luenberger, D. (1997). Investment Science, Oxford University Press, Oxford: 48 – 75.

Markowitz, H. (1959) Portfolio Selection: Efficient Diversifications of Investments. Cowles Foundation Monograph No. 16. New York, NY: John Wiley & Sons, Inc. pp. 77 – 91.

Modigliani, F. and Miller, M. (1958) “The Cost of Capital, Corporation Finance, and the Theory of Investment,” American Economic Review, June, 48:3, 261–97.

Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013) Corporate finance (10th Ed.) New York, NY: McGraw-Hill Irwin. 175.

Vance, D. (2003) financial analysis and decision making: tools and techniques to solve financial problems and make effective business decisions. New York, NY: McGraw-Hill.

Appendix A

The Historical Share Prices for Ford Motor Group

Date Shares
2013 Low High Average  % Trend
1-Sep 16.21 17.35 16.78
8-Sep 17.1 17.68 17.39 3.63528
15-Sep 17.3 17.7 17.5 0.632547
22-Sep 16.69 17.34 17.015 -2.77143
6-Oct 16.35 17.12 16.735 -1.64561
13-Oct 16.92 17.55 17.235 2.98775
20-Oct 17.39 18.02 17.705 2.727009
27-Oct 16.76 17.72 17.24 -2.62638
4-Nov 16.55 17.2 16.875 -2.11717
11-Nov 16.64 17.2 16.92 0.266667
18-Nov 16.82 17.18 17 0.472813
2-Dec 16.42 17.2 16.81 -1.11765
9-Dec 16.2 16.79 16.495 -1.87388
16-Dec 15.17 16.99 16.08 -2.51591
23-Dec 15.1 15.5 15.3 -4.85075
30-Dec 15.25 15.64 15.445 0.947712
2014
6-Jan 15.35 16.11 15.73 1.845257
13-Jan 16.08 16.78 16.43 4.450095
20-Jan 15.78 16.68 16.23 -1.21729
27-Jan 14.9 16.01 15.455 -4.77511
3-Feb 14.4 15.13 14.765 -4.46457
10-Feb 14.78 15.36 15.07 2.065696
24-Feb 15.07 15.46 15.265 1.293962
3-Mar 15.03 15.83 15.43 1.080904
16-Mar 15.16 15.74 15.45 0.129618
30-Mar 15.48 16.49 15.985 3.462783
6-Apr 15.59 16.17 15.88 -0.65687
20-Apr 15.71 16.44 16.075 1.22796
27-Apr 15.75 16.2 15.975 -0.62208
4-May 15.43 15.95 15.69 -1.78404
11-May 15.55 15.9 15.725 0.223072
25-May 16.05 16.56 16.305 3.688394
8-Jun 16.5 17.12 16.81 3.097209
15-Jun 16.38 16.87 16.625 -1.10054
22-Jun 16.68 17.29 16.985 2.165414
29-Jun 17.07 17.4 17.235 1.471887
6-Jul 17.05 17.49 17.27 0.203075
20-Jul 17.51 18.12 17.815 3.155761
27-Jul 16.72 17.85 17.285 -2.97502
3-Aug 16.74 17.14 16.94 -1.99595
10-Aug 17.11 17.49 17.3 2.125148
17-Aug 17.51 17.52 17.515 1.242775
24-Aug 17.19 17.49 17.34 -0.99914
31-Aug 16.94 17.87 17.405 0.374856
7-Sep 16.5 16.87 16.685 -4.13674
14-Sep 16.16 16.77 16.465 -1.31855
28-Aug 14.44 16.4 15.42 -6.3468
5-Oct 13.52 14.7 14.11 -8.49546
12-Oct 13.26 14.25 13.755 -2.51595
19-Oct 13.65 14.49 14.07 2.290076
-15.6592
Trend -0.31957

Source: www. Yahoo business Finance

Appendix B

The Financial Ratios of Ford Motor Group

Ford Motor Group 2013 2012 2011
Current Ratio Total Current Assets/Total current liabilities 2.11 2.32 2.26
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 1.98 2.18 2.15
Receivable turnover Annual credit sales/average receivables
Inventory Turnover Cost of goods sold/Average inventory 17.00 17.51 19.87
Asset turnover Sales/Average total assets 0.75 0.73 0.76
Dividend yield Div per Share / Current Share price 0.03 0.01
Dividend cover EPS/ Dividend per Share 3.70 7.40
Net assets turnover Net assets / total sales 1.24 1.27 0.85
Times interest earned EBIT/Annual Interest Expense 9.45 11.83 11.63
Debt to total Asset Debt/Assets 0.57 1.03 0.56
Book value per share 9.17 9.17 9.17
Interest cover EBIT/Annual Interest Expense 9.45 11.83 11.63
Profit margin on sale GP/sales 0.13 0.13 0.14
R.R return on assets EAT/Total  Assets 0.04 0.03 0.11
R.R com stock equity Profit after taxes/Shareholders equity 0.27 0.36 1.35
Earnings per share Profit after taxes-pref div)/No. of comm O/S 1.54 1.48
Payout Ratio cash dividends/income 0.00 0.00 0.00
ROE Return On Equity (ROE) 0.27 0.36 1.35
ROA Return on average Assets 0.04 0.03 0.11

 Source: (Ford Motor Group Annual Report, 2013)

Appendix C

The Financial Ratios for General Motors

GM 2013 2012 2011
Current Ratio Total Current Assets/Total current liabilities 1.31 1.30 1.22
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 1.08 1.02 0.95
Receivable turnover Annual credit sales/average receivables
Inventory Turnover Cost of goods sold/Average inventory 9.56 9.74 9.16
Asset turnover Sales/Average total assets 0.93 1.02 1.04
Dividend yield Div per Share / Current Share price
Dividend cover EPS/ Dividend per Share
Net assets turnover Net assets / total sales 0.27 0.24 0.25
Times interest earned EBIT/Annual Interest Expense 23.33 -57.68 17.99
Debt to total Asset Debt/Assets 0.04 0.02 0.02
Book value per share
Interest cover EBIT/Annual Interest Expense 23.33 -57.68 17.99
Profit margin on sale GP/sales 0.12 0.07 0.13
R.R return on assets EAT/Total  Assets 0.03 0.04 0.06
R.R com stock equity Profit after taxes/Shareholders equity 0.13 0.17 0.24
Earnings per share Profit after taxes-pref div)/No. of comm O/S 2.92
Payout Ratio cash dividends/income
ROE Return On Equity (ROE) 0.13 0.17 0.24
ROA Return on average Assets 0.03 0.04 0.06

Source: General Motors Annual Report.

The data was obtained from the annual reports but the calculations were done using excel while applying the formulas shown on the tables.

Appendix D

Members of the Ford Motor Group Executive Board

Richard A. Gephardt, Ellen Marram, Stephen Butler, Kimberly Casiano, Edsel Ford, Homer Neal, Antony F. Earley, James P. Hackett, John L. Thornton, Gerald L. Shaheeen, James H. Hance, Jr., William W. Helman John C. Lechieter, James H. Hance and Jon M. Huntsman.

(Ford Annual Report, 2013, p.7)

Appendix E

The formula for calculating the Return on Equity (ROE) for Ford Motor Group

The formula for calculating the Dividend Discount Model for Ford Motor Group

Dividend Discount Model (DDM) =

Financial Data for Ford Motor Group

Ford Motor Group (Billions) Year 2013
Net income $ 7.16
Equity $26.38
Total dividends paid $1.57
Outstanding shares 3.88
Earnings per share (EPS) $1.82 (dollars)
Dividends paid per share $0.4 (dollars)
Stock price as of 2/11/2014 $14.07

Source: Ford Group Annual Report for 2013

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Human Factor in an Accident Assignment

Human Factor in an Accident
Human Factor in an Accident

Human Factor in an Accident

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Human Factor in an Accident

“Human factors refer to environmental, organizational and job factors, as well as human and individual characteristics, which influence behavior at work in a way that can affect health and safety” (Health and Safety Executive, 2014). This definition includes three interrelated aspects that must be considered: the occupation, the employee, and the company.

The ’human factors’ to which employees and customers are subject sometimes lead to unintended errors of task management and professional judgment. They may also not deliver their practical skills at the trained level every time. The context for these errors may be simple lapses in the behavior of well-informed professionals or it may follow from an underlying failure to appreciate the full range of behavioral influences or their potential consequences. Errors may sometimes be intentional violations of varying degrees of severity and for varying motives. The organizational framework within which people function may not always be conducive to achieving the best from them – procedures may be inappropriate or ineffective (SKY Brary, 2014).

Case Study: Fokker-100 of Iran Air in January 5th 1998.

Iran Air Flight 378, a Fokker 100, departed Urmia (Orumiyeh) Airport (OMH) at 18:41 on a domestic flight to Tehran-Mehrabad Airport (THR). The flight was descending towards Tehran when the crew decided to divert to Isfahan. This was because the weather conditions at Tehran were not suitable for a landing on runway 29. Visibility was poor in snow and sleet and there was a 20-knot tailwind.

The flight positioned for an approach to runway 26 at Isfahan.  There was fog in the area and the airplane descended until it landed a dry riverbed, some 8 km short of the runway.

Figure 1: Initially intended route map

Figure 2: Image of the plane after accident. Visibility is still low

Undisclosed Report

Captain A and first officer B were assigned to do the flight 378 from Tehran to Orumieh on January 5th 1998. Both crewmembers were new on this type of plane and it was their first experience on new generation of glass cockpit. Captain A had 60 hours and first officer B had only 20 hours of flight on the type. On assessment, Captain A’s record showed that he had failed during his training in the past and been grounded for quite some time and first officer B record showed that he had insufficient hours of experience on the jet.

Approaching Orumieh, they experienced a problem on the captain’s screen that shows navigation data. The captain’s navigation display intermittently switched to its default mode by itself. On the ground Orumieh engineer were advised and he fixed the problem by resetting the respective computer. Approaching Tehran the sun had already set and crew noticed the bad weather had reduced visibility and there was light snow with slippery runway. The captain of the airplane that had just landed in before them was Captain A’s instructor who passed him in the simulator test and let him come back to work again. He advised that the runway condition is poor and very slippery.

During approach, the crew noticed that several airplanes were diverting to the alternate airport Isfahan. They decided to discontinue the approach and go to Isfahan. The crew had difficulty setting up the computers of the aircraft for new destination. Closing to the alternate destination, they experienced significant pressure as the airport was very busy and they were short of fuel, the captain’s navigation display went to its default mode again that shows only basic data. Prior to final approach, they committed themselves to land, as there would be no fuel to make a go around and come back again.

On the short final approach course, the distance to runway on the captain’s display switched from eight to two miles, and the captain who was flying the aircraft became confused and nasty, and dived the plane to the ground in anticipation of not losing the runway in the last seconds, resulting to missing the minimum altitude at which a visual clue to the runaway must be obtained. At last, in total confusion, while looking for the runway, the first officer, to avoid hitting the ground, pulled the plane up and increased the power, but the main wheels of the aircraft touched the ground and the aircraft skidded on the cold and icy desert for about one mile before stopping around five miles short of runway. All 104 passengers and 9 crew members survived.

Figure 3: Hind view of the aircraft

Types of Errors and Violations

The causes of accidents in the workplace can be divided into three distinct factors: unsafe acts, unsafe conditions or a combination of both. Scientific research has shown more than 90% of workplace accidents, injuries or illnesses are linked to human factors.

Effective Human Performance is fundamental to operational safety in aviation. The majority of undesired outcomes can be attributed to the people who occupy the aviation system. They may especially occur in relation to the interface between people and complex procedures and equipment, which exist to support the safe and efficient completion of their duties.

Errors that contributed to the above accident can be classified as:

  • Knowledge based error:

Both crews were unable to show the minimum standard of knowledge to set the flight management computer to guide the aircraft to the alternate due to poor training and lack of knowledge. Both of them had difficulty to interpret the default mode of navigation display, which was the basic mode of the flight showing only the necessary information to land the aircraft safely.

The crews were unaware of auto tuning of navigational aids, which is automatically changed from one to another in certain conditions, that’s why the distance to runway suddenly changed from 8 to 2 miles. Standard operating procedure clearly states to tune the appropriate navigational aid to avoid auto-change during approach preparation.

  • Skill base error:

Pilots usually go down from minimum safe altitude towards the runway three miles prior to runway where the final approach fix is located and visual contact with the runway is established. The Captain suddenly noticed that it’s only two miles to the runway, and as a habit of landing at this stage of the flight went down without required visual clue.

  • Violations and Rule based error

The first violation happened approaching Tehran and the Captain decided to go to alternate without checking with the tower. Preceding aircraft report was just an advisory, the airport was officially open, and decision to divert was affected and influenced by the instructor who landed in front of them and in the silence of first officer. Another unjustified violation happened before reaching the alternate destination when the aircraft went suddenly below minimum safe altitude without any visual contact to the runway.

  • Organizational Gap:

The scheduling department didn’t have clear rules and regulations regarding new crew flying together. Normally scheduling should not put two inexperienced crew together, the requirement is minimum of 150 hours on almost all airlines

Recommendations

Over the past 20 years, a lot has been learnt about the origins of human failure. We can now challenge the commonly held belief that incidents and accidents are the result of a ‘human error’ by a worker in the ‘front line’. Attributing incidents to ‘human error’ has often been seen as a sufficient explanation in itself and something, which is beyond the control of managers. This view is no longer acceptable to society as a whole. Organizations must recognize that they need to consider human factors as a distinct element that must be recognized, assessed and managed effectively in order to control risks

We all make errors irrespective of how much training and experience we possess or how motivated we are to do the right thing. Failures are more serious for jobs where the consequences of errors are not protected. However, errors can occur in all tasks, not just those that are called safety-critical (Health and Safety Executive, 1999).

Thinking about potential human factor problems and planning ahead is more effective than waiting for incidents to occur and then trying to fix them after the event. Statistics have shown that companies that have correctly implemented and maintained an effective behavioral safety program have seen accident rates fall by between 40% and 70% (STS Solutions, 2014). This is a relatively high degree of significance. Ultimately, the goal is to minimize errors, and the consequences of those that remain, using either the monitoring or crosschecking of colleagues or technical solutions (SKY Brary, 2014).

The above accident shows the necessity of implementing a safety culture in all departments of an organization along with the training department. All departments and employees must strictly follow the Standard Operating Procedures, Checklists and CRM as well as retrain and debrief as necessary. Attending Human Factors seminars regularly and promoting no punishment reporting cultures are among safety nets that an organization could consider preventing any accidents.

Conclusion

It is no longer acceptable to attribute all accidents to human error. Instead, researchers have identified a better culprit that gives accidents a chance of avoidance. Human factors comprise a majority of all accidents. They should, therefore, be carefully managed to ensure that employees, their clients and the instruments of trade are safer. Every company should create a mechanism for managing human factors and follow up on it to ensure safety is guaranteed. The case study of Fokker-100 of Iran Air, which had an accident on January 5, 1998, is a good example of how human factors can influence the chances of an accident. As shown in that case, most of the human factors can at least be minimally controlled.

References

Health and Safety Executive, 2014, ‘Human factors/ergonomics – Introduction to human factors.’ [online] Available at: http://www.hse.gov.uk/humanfactors/introduction.htm [Accessed 30 Oct. 2014].

Health and Safety Executive, 1999, ‘Reducing error and influencing behaviour.’ 2nd ed . Richmond. [online] Available at: http://www.hseni.gov.uk/hsg_48_reducing_error_and_influencing_behaviour.pdf [Accessed 30 Oct. 2014].

SKY Brary, 2014, ‘Human Factors/Human Performance.’ [online] Available at: http://www.skybrary.aero/index.php/Portal:Human_Factors [Accessed 30 Oct. 2014].

STS Solutions, 2014, ‘How do human factors lead to accidents, injuries and illnesses in the workplace?.’ [online] Available at: http://www.sts-solutions.com/news-blog/how-do-human-factors-lead-to-accidents-injuries-and-illnesses-in-the-workplace [Accessed 30 Oct. 2014].

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Holding onto Old Strategies and Manufacturing Techniques

Holding onto Old Strategies and Manufacturing Techniques
Holding onto Old Strategies and     Manufacturing Techniques

Eastman Kodak: Holding onto Old Strategies and Manufacturing Techniques – Research Proposal

Order Instructions:

THE ORDER IS DUE ON SATURDAY

LSI Assignment Guidelines

Developing a willingness and ability to engage in self-reflection is a critical leadership skill that is not easily learned yet which reaps many rewards. The LSI enables you to examine your own unique way of thinking and how it influences your behavior.

Your Assignment:

Complete (on your own) the LSI according to the procedure outlined here, so that you end up with your “Life Styles Circumplex” profile: 12 “personal thinking style” scores, one score for each section of the circumplex.

Write a 3–5 page paper examining and explaining your LSI results. There are more details in the table below.

LSI Style Interpretations: Go to the LSI1 Results page, find your circumplex profile, and click on the circumplex “slice” of one of the styles. The site will bring you to a customized interpretation of the style you clicked on. Click on each of the 12 “slices” to see all of the customized style description pages.

How to Use the Inventory

Click here to go to the Life Styles Inventory (LSI) exercise.

Follow the instructions given on the LSI Website.

The content of your LSI paper must include a copy of your LSI results (circumplex and chart) and the following written sections:

Section

Points

Description

Title page Title of your applied research paper, your name, e-mail address, course number and title, instructor, and date.
Personal Thinking Styles 25
Identify your primary and backup thinking styles: What are your “primary” (highest percentile score) and “backup” (second highest percentile) personal thinking styles as shown in your circumplex? Discuss how your primary and backup personal styles are manifested in your life and work (see the LSI Self Development Guide online). Using the style interpretations in the LSI Guide, describe the styles and give your perceptions about the results. Do you agree or disagree with them and why?

Identify your limiting style: Identify and illustrate one style you think might be working against you to reduce your overall effectiveness. Name the style you have chosen, make a few remarks about why you are choosing this style as limiting your professional effectiveness in organizations.

Select one behavior associated with this style that you think you would like to change and the difference it will make. Be sure to support your interpretation with examples, etc.

LSI Style Interpretations: Go to the LSI1 Results page, find your circumplex profile, and click on the circumplex “slice” of one of the styles. The site will bring you to a customized interpretation of the style you clicked on. Click on each of the 12 “slices” to see all of the customized style description pages.

Impact on Management Style 35
What impact do your personal styles have on your management style? Explore and assess the impact of your personal styles on your effectiveness as a manager in terms of the four functions of management:

a. Planning;

b. Organizing;

c. Leading; and

d. Controlling.

If you are currently not a manager, assume you are and predict your effectiveness as such.

Genesis of Personal Style 35 Critically evaluate and explain on how you developed the personal styles that were revealed in your LSI. What role, for example, did family relationships, school, organizational memberships, culture, etc. have in shaping your personal style?
Conclusion and Reflection 25
Think about your LSI results and your responses to the above questions. Summarize any concluding comments. Close your paper with a statement of at least one question or goal you hope your work in MGMT591 will help you to address and comment with a few sentences to describe the value of this exercise to your personal and professional development.

Please note: The LSI Self-Development Guide is integrated into the LSI1 Participant account, and is available after you complete the LSI Survey and have access to your results. In-depth and personalized style descriptions can be found by clicking on the style “slices” of the circumplex. For example, if you would like to learn more about the Humanistic-Encouraging style (Style 1), you simply click on the circumplex “slice” for that style. The same goes for the other 11 styles.

You can find the Challenge of Change and the Self-Improvement Plan information by using two of the additional links that become available in you LSI online account after the survey is complete. These links are “The Challenge of Change” and “Your Self-Improvement Plan.” Good luck with the exercise!

LSI Grading Rubric:

WRITTEN LSI PAPER RUBRIC

Criteria

Failed to Meet Minimum Standards

Met Minimum Standards
(60% = 72 pts) D

Satisfactory
(70% = 84 pts) C

Good
(80 % = 96 pts) B

Superior
(90% = 108 pts) A

Part I: Personal Thinking Styles
(25 Points)

Results not apparent
0
Mentions style names; does not describe; does not evaluate
17.0 Defines styles; reflects barely adequate information to acquaint the reader with the style’s application
19.5 Contains a focus and provides sufficient detail to set the stage for the analysis but may not support evaluative statements
22.0 Defines styles; validates results; supports impressions; complete information
25.0

Part II: Impact On Management Style
(35 Points) No managerial impact apparent
0 Gives examples of behaviors, but does not relate them to the managment functions or the personal styles
21.5 Mentions the management functions with examples or relates to the personal styles, but not both
24.5 Loosely connects management functions and styles; uses vague examples or examples lacking depth of application
28.0 Shows clear connection between styles and their impact on the management styles; uses specific examples
35.0
Part III: Genesis of Personal Styles
(35 Points) None provided
0 Too shallow; insufficient depth; provides only one example to support development
21.5 Provides a review of 2–3 supporting experiences; does not relate them to style development
24.5 Loosely connects personal experiences to style results; uses vague examples lacking depth of application
28.0 Gives a clear and focused analysis; uses several specific examples; directly relates experiences to how styles were formed
35.0
Part IV: Conclusion and Reflection
(25 Points) No reflective statement or summary offered
0 Perfunctory effort at drawing lessons from the assignment
17.0 One key lesson; no other insights offered
19.5 Good faith effort in discussing the lessons from the assignment; some insights are included
22.0 Well presented insights on how the assignment influenced personal, academic, and professional development; includes statement regarding MGMT591
25.0

THE SURVEY IS ATTACHED

SAMPLE ANSWER

Holding onto Old Strategies and Manufacturing Techniques

Eastman Kodak: Holding onto Old Strategies and Manufacturing Techniques – Research Proposal

Eastman Kodak is U.S. based technology company, whose main focus is the imaging solutions for individuals and businesses. Its headquarter is in Rochester, New York, and was founded in 1888 by George Eastman. It deals in a range of products under the same line of imaging solutions, including functional printing, packaging, professional imaging services, and graphic communications. Kodak is a leading player in the imaging industry, with other able competitors such as Fujifilm as well as a score of other firms. While its track record is commendable, Kodak is criticized for being slow in adopting new  technological changes. More so, its current CEO is being faulted for not ably addressing the basic internal problem of the company: having an organizational behavior that is bent on old manufacturing techniques, as well as maintaining high operational costs. In this case, I am acting in the capacity of the Organization’s consultant.

The main problem that Eastman Kodak has been facing for years is the organizational culture that refuses to embrace current manufacturing techniques, so that it does not compete ably in the international market, which is flooded with technological gadgets. In the contemporary world, technology has driven the production processes of companies to another level, and all entities are subscribing to this change. However, Kodak has kept hold of most of its old manufacturing techniques, and has not implemented the new changes that have so far emerged. It is projected that since the technology market is one which is fast-developing, a company that does not conform to the current manufacturing and management techniques is sure to be left behind, and receive a considerable drop in its market share.  Thus, the research question for this scenario is: what is the impact of a poor organizational behavior on performance?: A case study of Eastman Kodak.

Eastman Kodak, as has been previously mentioned, was once a market leader in the imaging industry that steered clear of considerable competition. However, with the emergence of new methods of manufacturing, the company has not be able to act swiftly to completely integrate those new techniques. This is a problem that can see the company into total ruins, owing to the rate at which new technology is being introduced each day. Basically, the company has a poor organizational behavior, where it holds on to the outdated styles and techniques, instead of installing new ones. As a consultant, I plan to create an extensive awareness about the importance of the new technologies. Additionally, I plan to identify key layers in the market, and study what they are using. This way, I will provide a realistic suggestion to the company’s management, so that the identified techniques can be implemented. This will initiate a change process, which is expected to begin with the awareness campaign, followed by a recommendation of needed technological advancements, and then organizing the procedure or installation and implementation.

The TOC (Total cost of ownership) that my topic is related to is return on information technology. This TOC is relevant in that the company (Kodak), needs to adopt technology in almost all its processes.  As a consultant, this TCO will be helpful in determining the current customer needs, and tailor goods that meet the require taste and preference.

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Personal Worldview and Research Mindset in Business

Personal Worldview and Research Mindset in Business
Personal Worldview and Research Mindset in Business

Personal Worldview and Research Mindset in Business

Personal worldview and research mindset in business

Order Instructions:

Your Personal Worldview and Your Research Mindset

Have you ever heard the expression that someone is “right-brained” or “left-brained”? This notion implies that there are multiple ways of viewing the world or of perceiving reality. How you perceive the world may influence your thinking and perspective in ways that go beyond the obvious. For a researcher, it is critical to recognize one’s worldview and the perspectives that derive from it. One means of doing this is to conduct a personal inventory.

Refer to the handout “Your Personal Worldview Worksheet.” After you have completed the worksheet, post a statement by Day 3 explaining your worldview to your colleagues and Instructor. Follow the worksheet’s instructions for drafting your personal statement, and consider how your worldview aligns with the worldviews described in this week’s readings from the course text, Research Design: Qualitative, Quantitative, and Mixed Methods Approaches. Be sure to incorporate ideas and concepts from the readings about practitioner and professional doctorates as well. Your entire statement should be 2 to 3 paragraphs long, or range between 400–600 words.

Material A
Linking Theory to Your Business Problem Statement

DDBA 8427 Applied Research Methods – Qualitative and Quantitative
Linking Theory to Your Business Problem Statement

Review the Discussion and Application instructions for this week in the online classroom. This handout will guide you through the process of applying a quantitative, qualitative, and mixed methods approach to your Problem Statement.

If you do not already have one, begin by creating a template for an APA-formatted paper. Review the APA Publication Manual and note the sections pertaining to the required cover page, abstract, introduction, text of the paper, conclusion, and references. Also note the elements related to running heads and page headers. You may wish to save this template for future papers.

Each of the numbered sections below corresponds to a section within the main text of your paper; remember that an abstract and introduction will precede this section and that a conclusion will follow it. Follow the order presented, and organize your responses to the questions so that your writing has a logical flow. Incorporate references to the course text and any other sources that you deem appropriate. Keep in mind that direct quotations should be somewhat limited, as should instances of paraphrasing. The majority of your paper should reflect your own thoughts and only rely upon outside resources for structure, reinforcement, and validation.

I. Phenomenon for Research – State the phenomenon that you intend to research in broad terms. Examples: interactions between managers and staff; impact of mission statements on financial decisions; strategic aspects of an organizational unit; disparities between national and international planning in a given endeavor.

II. Your Problem Statement – Introduce your Problem Statement and illustrate its linkage to the phenomenon. If you need to revise your Problem Statement from DDBA 8160: Business Strategy and Innovation at this time, you may do so.

III. Your Problem Statement in a Worldview – Refer to Table 1.1 in your course text (Creswell, p. 6). Select three research tendencies, each from one of the four worldviews listed. Write a 1- to 3-sentence statement for each worldview that conceptualizes the phenomenon and your Problem Statement within that view. You may first need to do some brief research on concise definitions of the worldviews listed. Example:

The question of how closely financial decisions and organizational missions are aligned in small enterprises needs further investigation (phenomenon). It is theorized that financial decision makers in small manufacturing firms align their financial decisions with organizational missions less than 10% of the time, as measured by an investigation of the financial decisions of a sample population (problem statement). This is a Theory Vertification study under the category of a Postpositivist worldview.

IV. Alignment of Research Methods – Match each of your statements to a method. You should have one quantitative approach, one qualitative, and one mixed method. For each statement, list the method and outline how you might conduct the study within the paradigm of that research approach. This is meant to be a preliminary and general sketch of a potential approach; you will likely expand on and expound upon it with greater precision and clarity by the end of the course. Example:

In order to conduct a mixed methods study of the alignment of financial decisions to organizational mission in small manufacturing firms, this study will collect internal and external financial statements from a random sample of 200 manufacturers with fewer than 200 employees. The financial data will be correlated to the organizational missions. Random chief financial officers will be selected for surveys and structured interviews. The financial data and compiled responses will be compared to paint a picture of the degree of alignment between financial decisions and organizational missions. It is posited that the statistical relationship between the dependent and independent variables will be reinforced by the surveys and structured interview findings.

A. Quantitative Approach
B. Qualitative Approach
C. Mixed Methods Approach

In your conclusion, summarize your proposed approaches, and discuss their similarities and differences. Be sure to include 3–5 questions for further consideration or areas for colleague and Instructor input and suggestions. Review your paper for APA formatting, and be sure that it contains all of the required elements. Then, return to the online classroom for posting and peer review (Discussion area), and for submission instructions (Application area).

References

Creswell, J. W. (2009). Research design: Qualitative, quantitative, and mixed methods approaches (3rd ed.). Thousand Oaks, CA: Sage.

Material# B
Your Personal Worldview Worksheet

DDBA 8427 Applied Research Methods – Qualitative and Quantitative
Your Personal Worldview Worksheet

Record your answers to the following questions. You will synthesize your answers into a complete statement at the end, so feel free to include limited personal information in the chart below. You should exclude anything personal or confidential that you wish to keep from the synthesized statement at the end, however. The chart below is for your own reference and is meant to be shared with colleagues or your Instructor.

Questions Responses
Think about your educational experiences. How do you learn best?
Think about your information-gathering and investigation skills. How do you search out answers to questions (e.g., about your health or as an informed consumer)?
Think about your interpersonal communication skills. How do you attempt to influence the behavior of others (e.g., through persuasion or interpersonal negotiation)?
Think about your problem-solving skills. How do you approach challenges (personal or professional)?
Think about your self-identity. Describe your personal background and experiences, including your cultural background and experiences.
Think about your professional persona. Describe your professional background and experiences (education, work, etc).
Think about your self-identity and its relationship to your professional practice. How do you think your personal, cultural, and professional experiences have influenced your personal beliefs, values, and worldview? How have they influenced your professional interests and the way in which you will approach and conduct research?
Think about how you would present yourself to others in an executive summary or “elevator pitch” (wherein you only have the time that it takes to ride an elevator to present an idea to the person riding with you). Based on the above information, summarize how you see the world in 3–5 sentences.

Based on this exercise, compose a statement reflecting your worldview for the benefit of your colleagues and Instructor. The first part of your statement will include the last segment from the table above, edited to remove any personal information you do not wish to share. The second part will explain how your worldview aligns with the worldviews described in the course text, Research Design: Qualitative, Quantitative, and Mixed Methods Approaches. Your entire statement should be comprised of 2 paragraphs and range between 400–600 words.

Please be advice of the message from my professor: Thanks My feedback to you and the class is to avoid the use of Creswell.

Creswell will not be seen cited in this class, I do not take off points the first week on this matter so, you are good for now. However, ensure you are using your APA manual as you make your reference, this is where most of the point deduction will take place as I take this piece very seriously.

SAMPLE ANSWER

Personal Worldview and Research Mindset in Business

Environment has influenced my way or perception of the world. Those who I interact with, my teachers and strangers, have had so much impact in my life.  My guiding factor is ethics, which always directs my decisions in all aspects of my life.

Material A
Linking Theory to your Business Problem Statement
I. Phenomenon for Research – State the phenomenon that you intend to research in broad terms. The effects of Human Resource Management Practices in an Organization
II. Your Problem Statement –

The typical Human Resource Management practices are staff recruitment and selection, training and development, and compensation and Performance appraisal. These practices have been found to be linked to the level of organizational performance. However, how these factors affect organizational performance varies from one organization to another. Indeed, the literature reviewed indicates that there is no uniformly acceptable standard on Human Resource Management Practices effect on organizational performance (Abeysekera, 2007).

III. Your Problem Statement in a Worldview –

When making  a decision on training organizational needs, one needs to first know what kind of training and mode will add value to the organization, thus, on job or off job training. Only off-the-job training improves performance. Effective training not only equips employees with most of the knowledge and skills required to accomplish jobs, but it also helps achieve overall organizational objectives by contributing to the satisfaction and productivity of the employees.

Employee compensation packages are a prerequisite for companies that want to attract and retain high –caliber, skilled staff. Proper management of compensation is a good source of employee motivation and a good source to measure organization performance. A well designed compensation plan gives an organization a competitive advantage, it helps to attract the best job candidates, motivates them to perform to their maximum potential, and retain them for long.

Performance appraisal also influences other HRMP such as recruitment and selection, training and development, compensation and employee relation, and retention. As performance appraisal leads to pay raise, promotion, and training, it is assumed that better performance appraisal can have impact on organizational performance. Performance appraisal means evaluating an employee’s current and/or past performance relative to his or her performance standards (Jike, 2003).

  1. Alignment of Research Methods –

The study will utilize descriptive research design, which aims to establish how the independent variable relates with performance variables. This being a case study, the target population will be 215 permanent employees. Random sampling method will be used to select respondent of sample size representing 39% of the population. Primary data will be collected through self- administered questionnaire. Data will be analyzed using two levels of analysis: descriptive statistics describing frequency distribution, mean and standard deviation; regression analysis, which was used to establish the strength of the relationship between Human Resource Management practices and Performance. The result of the study was expected to show the effect of the independent variable studied on dependent variables (Bergh  & Ketchen, 2009).

Conclusion

Reliability is the degree of consistency with which an instrument measures the attributes for which it is designed. One type of questionnaire will be administered to the identified sample.  Ten employees will be identified representing the strata’s for pilot test of the questionnaire. This will give the researcher an opportunity to identify flaws in understanding whether questions and directions are clear to the subject. The main reason for testing the questionnaire is to ensure that it fits as an instrument in the primary data collection process. Data collection bias will be minimized by use of a trained research assistant who will administer the questionnaires, and standardized conditions such as exhibit of similar personal attributes to all respondents. The subjects will be requested not to write their names on the questionnaire to ensure confidentiality

The research questions are:

  1. What are the effects of staff recruitment practice on CRF performance?
  2. How does training and development affect CRF performance?
  3. How does compensation affect staff performance at CRF?
  4. What are the effects of staff performance appraisal practices to CRF performance?
  5. How does HRMP affect Employee outcome?
  6. Does the joint effect of HRMP and employee outcome affect CRF performance

References

Abeysekera, R. (2007) The impact of Human Resource Management Practices on marketing executive turnover of companies in Sri Lanka. Contemporary Management Research 3 (3).

Bergh, D. D., & Ketchen, D. J. (2009). Research methodology in strategy and management. Bingley: Emerald Group Publishing Limited.

Jike, V. (2003). Organizational behavior and negative attitudes in Nigeria’s Public  employment sector. The Empirical Nexus. Abuja Manage Review 1:4

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ERP systems Assignment Help Available

ERP systems
ERP systems

ERP systems

ERP systems Assignment

Order Instructions:

Read “Realizing Benefits ERP” article and discuss advantages and disadvantages of ERP systems
Write a summary of the ERP benefits.

SAMPLE ANSWER

ERP systems

ERP systems are associated with many pros and cons. Much of the benefits are realized when different firms with different strategic objectives realize these benefits from the adoption of ERP systems. One of the benefits of ERP systems is improved financial performance immediately after implementation of ERP models. ERP systems are known to bring about operational efficiency and productivity through automated transactions and better decision-making. Another benefit is that ERP system improve market performance through improved customer service (Bradford & North Carolina State University, 2010). This is affected by the use of operational support and inter-organizational systems and add-on software for decision support (that is, advanced planning and scheduling (APS) systems such as i2) and market information (that is, customer relationship management). The infrastructural capabilities of ERP improves a firm’s operational efficiency  ERP system reduce operational uncertainty by providing coordination, visibility and easy information sharing where there is interdependence among business units.

ERP systems can also reduce equivocality through business process standardization that aids to ensure information is presented in a consistent manner. Easy access to integrated, precise and valid business data leads to better operational planning and decision support. Integration of all these processes enables a company to have a competitive advantage over rival firms. This is because ERP system enable a company to have monopoly of the other firms in production of good and services (Bradford & North Carolina State University, 2010). More importantly, ERP systems are praised to bring about abnormal stock returns to firms. However, some critics to ERP systems have pointed out the system is harmful. They argue that the only experience in abnormal stock return is less significantly felt with manufacturing firms, but not with ERP adopters. Many adopters of ERP systems have no positive return on investment (ROI).

Reference

Bradford, M., & North Carolina State University. (2010). Modern ERP: Select, implement & use today’s advanced business systems. Raleigh, NC: North Carolina State University, College of Management.

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Starting a business enterprise Assignment

Starting a business enterprise
Starting a business enterprise

Starting a business enterprise

Order Instructions:

Word Limit: 2,000 words (with 10% plus or minus leeway)

Percentage of marks awarded for module: This assignment is worth 50% of the total marks for the module

Constructive critical analysis, introduction, conclusion •Relevant, accurate content, demonstrating research, as required by the assessment task.
•Coherent and clear discussion of the different forms of business
•Clear comparison between financial and management accounting
•Critical discussion of the different sources of finance 70%

Referencing Style •Full in-text referencing using the Harvard citation style.
•Structured reference list or bibliography using the Harvard referencing method 10%
Content, style, relevance, originality Clear demonstration of rigorous research from recognised authoritative sources. Audience focus; report format   10%

Introduction, conclusion and recommendation •Coherent and concise  introduction, conclusion and clear recommendations
10%

Assignment Task:
Mr and Mrs Swanson are thinking of starting a business enterprise. They have saved up some money from their 20 years in employment and have decided to produce and sell biscuits and chocolates. They expect this to be a lifelong investment with a plan for rapid growth and expansion.
They know that there are different forms of businesses, each with its own benefits and limitations, but are unsure of the best one to adopt. They also require the aid of an in-house accountant to help with their day-to-day management decisions, but also unsure if a management accountant would be preferable to a financial accountant.
Since this is a lifelong investment, with plans for expansion, they would also like to know the sources of finance available to them. They have come to your accounting practice for advice and guidance on these issues.
As an accountant, you are required to write a report to Mr and Mrs Swanson explaining the issues below:
• Explain the different forms of business units (sole proprietorship, partnership, limited company) available, highlighting the benefits and limitations of each (20 marks)

•Explain financial accounting and management accounting, highlighting the differences between the two strands of accounting (20 marks)

•Explain the sources of finance available to a business owner, making distinctions between internal and external sources, short-term and long-term sources, equity and debt (30 marks)

•Style, layout, format and relevance  (5 marks)

•Introduction, conclusion and Recommendation (15 marks)

•Referencing – Harvard Style (10 marks)

Total marks for assignment: 100

Please inform your writer to completely adhere to instructions on how the report should be. Also, every content of report must conform to UK including Referencing because I am not study in America University.

The following shows the Marking Scheme:
Introduction     5%
Sole Proprietorship    5%
Partnerships    5%
Private Limited Company  5%
Public Limited Company    5%
Financial Accountant      10%
Management Accountant     10%
Internal vs External source of finance   10%
Short Term vs Long Term Finance        10%
Debt vs Equity                          10%
conclusion and Recommendation            10%
Style, Layout,format relevance            5%
Referencing                               10%
Total                                    100%

Percentage of marks awarded for module: This assignment is worth 50% of the total marks for the module
Assessment criteria Explanatory comments on  the assessment criteria   Maximum marks for each section
Constructive critical analysis, introduction, conclusion • Relevant, accurate content, demonstrating research, as required by the assessment task.
• Coherent and clear discussion of the different forms of business
• Clear comparison between financial and management accounting
• Critical discussion of the different sources of finance 70%
Referencing Style • Full in-text referencing using the Harvard citation style.
• Structured reference list or bibliography using the Harvard referencing method 10%
Content, style, relevance, originality Clear demonstration of rigorous research from recognised authoritative sources. Audience focus; report format   10%

Introduction, conclusion and recommendation • Coherent and concise  introduction, conclusion and clear recommendations
10%

SAMPLE ANSWER

Starting a business enterprise

Table of Contents

Executive summary. 2

Introduction. 4

Starting a Business. 4

Main Branches of accounting. 7

Sources of Finance. 9

Conclusion and Recommendation. 11

References. 13

Executive summary

Mr. and Mrs. Swanson could incorporate a Sole Proprietorship, a Partnership, a Private Limited Liability Company or a Public Limited Liability Company as a business vehicle to implement their business idea of producing and selling biscuits and chocolates. Each of these types of business entities has their benefits and disadvantages.  For example a sole proprietorship will give the two entrepreneurs a lot of control over the affairs of their business and will enable them to make faster business decisions. On the flipside the liability of the enterprise extends to their personal property.  If the couple decides to incorporate either a Private Limited Liability Company or a Public Limited Liability Company they will be required to prepare at certain time periods financial statements in line with Company Act of the country. These include Income Statement, Balance Sheet, Cash flow statement, statements of changes in equity and notes to the financial statements in line with International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Standards (GAAP). The documents are prepared in line with financial accounting requirements and are for external use. The couple could also prepare management accounts to aid them or their managers in planning, organizing, directing and controlling the operational activities of the company. Management accounts are however not mandatory documents by law unlike financial accounting documents. The couple has various sources from which they could get finances to implement their business idea. They could approach angel investors for equity financing, a bank for a loan, friends, relatives etc. for equity financing or loans. Each source has its benefits and disadvantages.

Introduction

            Mr. and Mrs. Swanson are intending to go into the business of producing and selling biscuits and chocolates. They could undertake the business by incorporating various forms of business entities namely; Sole Proprietorship, Partnership, Private Limited Liability Company or Public Limited Liability Company. Each business entity type has benefits and drawbacks. It is the duty of the couple to decide in light of these drawbacks highlighted in this document which would be the most ideal type of business entity to undertake the business venture(BULL, NELSON and FISHER 2009). If the couple decides to incorporate a Private Limited Liability Company or a Public Limited Liability Company they will be required to abide by IFRS or GAAP guidelines as the company law and thus prepare annual reports using financial accounting practices. There are various sources of finance that the couple can use to raise funds.  To implement the business idea, the couple could approach a lending institution for a loan or a line of credit. They could approach a venture capital fund, an angel investor, a friend, relative or resort to internal sources like selling private property to raise equity funds to implement the business idea (BULL, NELSON and FISHER 2009).

Starting a Business

In every sector of an economy of any country in the world, business entities are registered   either as sole proprietors, partnerships, private limited liability companies or public limited liability companies. Mr. and Mrs. Swanson will have to choose whether to register their business in any of these forms. The main differences between these three types of business configurations relates to ownership structure, legal requirements and financing structure decisions among others (BULL, NELSON and FISHER 2009). The term “sole proprietorship” is somewhat misleading as the word “sole” might be interpreted to imply that only one individual is involved in the business.  The reality is that a sole trader could have more than one person involved in it. In a sole proprietorship the main requirement is that only one individual is required to own a business entity.  The person who owns the entity would be the main source of finance and is expected to be actively involved in its management (MASLIANKOA and MAISTRENKOA 2012).  The main drawback is that sole proprietorship entities normally operate on an informal basis in that the private matters of the owner become part of the issues impacting on the business. For instance if the owner is sick the business stalls until he/she recovers.  If the business is folded up, the creditors could auction the owner’s property that is unrelated to the entity to recover their money.  There is no separation between the assets of the owner and those of the entity.  The main benefit of this type of business is that decision making is done much faster than in other types of entities. The owners will have total control over the affairs of the company. Accounting information in a sole proprietorship is relatively straightforward and there is no specific piece of legislation that governs accounting arrangements (KIRTZKHALIA 2012).

Mr. and Mrs. Swanson could also undertake the business as a partnership. The only difference between a partnership and a sole proprietorship is that there is more than one owner in a partnership.  It is important for partners in a partnership to agree among themselves the amount of financial resources each will contribute into the business venture before they start. It is also important for the partners to agree on the job responsibilities that each will bear and how many hours each will work (KIRTZKHALIA 2012). Partners must also agree on how they will share profits and losses at the end of each financial year. In many jurisdictions there are laws that govern partnerships. A partnership deed is normally signed to govern the agreements in some countries which are witnessed by an attorney (MASLIANKOA and MAISTRENKOA 2012).  The main advantages of a partnership are that the partners are able to raise more capital than in a sole proprietorship and they share ideas on how to effectively manage the business thus making better decisions. The main disadvantage of this type of partnership is that liability for the partnership’s debts is shouldered by the partners as individuals. In the event of dissolution, creditors can auction personal assets of each partner to recover their money.    The next business entity is a Private Limited Liability Company (BULL, NELSON and FISHER 2009).         The main advantage of these types of entities is that they have a separate legal personality from their owners.  These types protect owners from personal bankruptcy unlike in sole proprietorship or partnership discussed in the foregoing. The owners’ liability is only up to the agreed contribution paid at the start of the company and they are not obliged to add more funds in future if the company runs into financial problems. The main disadvantage is that the owners will be required to prepare financial statements in line with IFRS or GAAP depending on the standards used in the country. The entity will be subject to the company laws and will have to be governed in line with these laws. The level of control will be lower and decisions will not be made as fast as in previous types (MASLIANKOA and MAISTRENKOA 2012).

Lastly, the couple could incorporate a Public Limited Liability Company to implement their business ideas.  This type will have a separate existence from its owners. Companies are either limited by shares or by guarantees. The term “limited liability” means that owners are allowed to finance their company up to a certain agreed amount of money.  After the owners have contributed the agreed amount of money they cannot contribute any more funds even if the company lands into financial difficulties. To incorporate a Public Limited Liability Company the owners will have to register as a Private Limited Liability Company and then trade for a number of years before they can sell shares in the company to the public through the stock exchange. The benefits of incorporating a Public Limited Liability Company are many. First, the liability of the owners is up to the amount they have contributed and not more. In the event the company is to be liquidated, the creditors cannot sell the personal assets of the owners (BULL, NELSON and FISHER 2009).   The owners of the company can also approach financial institutions or sell shares to the public in an initial public share offer through the stock exchange to get additional equity and debt funding since limited liability companies are subject to more public scrutiny which improves their credit rating. The main disadvantage is that owners cede control to management who may not have the same passion for the business. The management usually pursues short term interest to the detriment of long term sustainability of the company which is to the detriment of the owners. This is what is called the agency problem. The owners will have less control over the affairs of the business and decisions will be made much slowly and will be subject to public scrutiny (MASLIANKOA and MAISTRENKOA 2012).

Main Branches of accounting

            The main branches of accounting that Mr. and Mrs. Swanson will have to understand and probably use depending on the type of business entity they choose to incorporate are financial accounting and management accounting. Management accounting is concerned with analyzing and providing information on cost to the management of a company to aid them in planning, organizing, directing, controlling and evaluating the operations of the company and making better decisions.  It is basically accounting information prepared for managers and employees within an organization (BIRNBERG 2011). It is the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of accounting information that can be used by the management of a company to carry out their normal duties of planning, organizing, directing, controlling and evaluating of the business activities to ensure the organization achieves its strategic objectives (HASTE 2009).  Management accounting is concerned with providing information to managers for use in planning, controlling and making better decisions to achieve business objectives. Management accounting is basically designed to provide information to people inside an organization i.e. managers and employees (BROCCARDO 2014).

Financial accounting on the other hand is concerned with providing information to people outside an organization and includes stockholders, creditors, government, investors, bankers, suppliers, customers etc. The information that management accounting provides enables an organization to be managed effectively whereas the information provided by financial accounting enables stakeholders to judge the past performance of an organization and make better decisions on how to engage in future (LEAUBY and WENTZEL 2012).  Financial accounting provides information that is used by external parties such as bankers, creditors and other stakeholders whereas management accounting provides information that is used by managers and employees in an organization to better perform on their jobs. Financial accounting provides information that covers the entire organization whereas management accounting provides information on smaller business units or individual departments, in addition to information on the entire company. Financial accounting focuses on the history of a company whereas management accounting focuses on the future and present state of the company (JESSWEIN 2011).

Financial accounting is supposed to be in a given format that ensures comparability with similar organizations in the industry whereas management accounting has no specific format and is in line with the information requirements of the management of a company. Management accounting information assists the management to plan, record and control activities whereas financial accounting assists stakeholders, bankers, suppliers among others in making investment decisions and for credit analysis. The information provided by financial accounting is quantitative and monetary whereas the information provided by management accounting is both quantitative and qualitative that is both monetary and also non-monetary in nature (MASLIANKOA and MAISTRENKOA 2012).  Financial accounting reporting is done at predetermined times in a year like annually or semi-annually whereas management accounting reports could be produced daily, weekly or monthly depending on the needs and directives  of the management of a company.  Financial accounting reports are mandatory for limited liability companies as per the company laws in a country whereas there is no legal requirement for companies to produce management accounting information.  A company can decide not to prepare management accounting information and it will not be breaking any law in the country (HASTE 2009).  Financial accounting is done in line with stipulated accounting standards which could be International Financial Reporting Standards or Generally Accepted Accounting Procedures whereas management accounting information is prepared according to the directions of the management of a company. The main objective of financial accounting is to disclose the end results in a trading period and depict the financial condition of a company at a given date normally at the end of the financial year. Management accounting on the other hand has the objective of providing information to management that will help them make better decisions to achieve the objectives of the organization (HASTE 2009).

Sources of Finance

            To implement the business idea, Mr. and Mrs. Swanson will have to identify several sources of finance.  This is because new businesses need start-up capital to invest in long term assets and use as working capital to start operations.  There are many sources of finance to a business entity that it can utilize. These sources could be internal or external to the business entity.  Internal sources of finance basically refer to finance generated from inside a company whereas external sources of finance refers to finance generated from outside sources of a company. There are many internal sources of finance available for a company to utilize (MASLIANKOA and MAISTRENKOA 2012). The company can negotiate for a longer credit period with its suppliers. In this case the company will take longer to pay for goods supplied than before. For instance if it was paying its suppliers in 15 days from the date they supply goods and services it can negotiate to pay after 30 days. This will increase the amount of funds available to carry out business activities.

Alternatively a company can improve its debt collection methods to ensure it collects its debts sooner than before (BYRD, ROSS and GLACKIN 2013).   For instance, if it was collecting its debts in 30 days it can reduce the debt collection days to 15.  This method increases the amount of cash available for trading and enhances the bottom line which increases equity and is a long term source of finance.  A company can also sell some of its assets such as land to raise capital or lease it to rent payers (LUTTER 2013).  There are instances where a company has non-strategic assets such as underutilized land or land it does not use at all. This asset can be sold or leased out to generate cash for trading or to acquire strategic assets. Another internal source of finance is by ploughing back profits into the business instead of paying dividends to shareholders.   This can be done in full or partially and of course with the permission of the shareholders. This is a long term source of finance since the company could retain part of the profits as retained earnings at the end of each year. These earnings increase the equity component in the balance sheet (LUTTER 2013).

External sources of finance include approaching banks for debt finance in form of loans, overdrafts, trade finance, or lines of credit. Loans from banks are normally short term sources of finance but if the company can arrange for lines of credit instead of an overdraft then it can enjoy long term sources of finance to finance its operations.  This is debt financing and the company will be required to pay regular interest to the bank.  If a company is a limited liability company it could raise share capital from capital markets through an initial public share offer. This is equity funding and is a long term source of finance.  The company will be required to pay dividends at the end of a given year (CHANDRA and FEALEY 2009).  In subsequent years the company can offer rights issues which basically is a way of raising more equity finance from the existing shareholders by offering them more shares. Other external sources of finance include bank overdrafts, raising money from friends or family members. These methods on whether the funds are short term or long term, debt or equity mainly depend on the arrangement with providers of these funds. A company can also approach angel investors who tend to provide long term finance in form of an equity stake in the company. There are also venture capital funds that the company can approach to get equity financing mainly in exchange for a stake in the company (BYRD, ROSS and GLACKIN 2013).

Conclusion and Recommendation

From the foregoing, Mr. and Mrs. Swanson will have to incorporate a business entity to implement their business idea. The decision on the type of business entity that they will incorporate will be influenced by among other factors the amount of control they will want to have over the business affairs, the amount of liability they will need to shoulder, the level of scrutiny on the affairs of the business they will be willing to allow and the amount of capital they want to raise among other determinants (KIRTZKHALIA 2012). The couple will have to understand the main branches of accounting and its impact on their operations. Private Limited Liability entities and Public Limited Liability Companies must use financial accounting to prepare annual reports for eternal stakeholders. This is a requirement by the authorities. Failure to do that could lead to legal action being taken on the company with dire consequences. There are many sources of finance that the company could resort to raise funds.  Start-up finances are mainly in forms of either debt or equity. Each form has a bearing on the future cash flows of the company. It is the duty of the two to decide which form to resort to

References

BIRNBERG, J.G.,(2011). Robert N. Anthony: A Pioneering Thinker in Management

Accounting. Accounting Horizons, 25(3), pp. 593-602.

BROCCARDO, L.,( 2014). Management Accounting System in Italian Smes: Some Evidences

and Implications1. Advances in Management and Applied Economics, 4(4), pp. 1-16.

BULL, N., NELSON, S. and FISHER, R., (2009). CHARACTERISTICS OF BUSINESS

OWNERSHIP: OVERVIEW FOR PASS-THROUGH ENTITIES AND EVIDENCE ON S CORPORATE OWNERSHIP FROM LINKED DATA*. Washington: National Tax Association.

BYRD, K., ROSS, L.W. and GLACKIN, C.E.W., (2013). A Preliminary Causal Analysis of

Small Business Access to Credit during Economic Expansion and Contraction. Journal of Applied Finance and Banking, 3(5), pp. 77-84.

CHANDRA, A. and FEALEY, T., (2009). BUSINESS INCUBATION IN THE UNITED

STATES, CHINA AND BRAZIL: A COMPARISON OF ROLE OF GOVERNMENT, INCUBATOR FUNDING AND FINANCIAL SERVICES. International Journal of Entrepreneurship, 13, pp. 67-86.

HASTE, D., (2009). MANAGEMENT ACCOUNTING -FINANCIAL STRATEGY. Financial  Management, , pp. 54-55.

JESSWEIN, K.,( 2011). PENGUIN MANUFACTURING: UNSEEN LINKS BETWEEN MANAGERIAL ACCOUNTING, GAAP, AND CREDIT ANALYSIS. Arden: Jordan Whitney Enterprises, Inc.

LEAUBY, B.A. and WENTZEL, K., (2012). Linking Management Accounting and Finance: Assessing Student Perceptions. Management Accounting Quarterly, 13(2), pp. 14-20.

LUTTER, D.J., (2013). Understanding Funding Sources. Bank News, 113(7), pp. 12-14.

MASLIANKOA, P.P. and MAISTRENKOA, A.S., (2012). A system of entities for enterprise business models. Cybernetics and Systems Analysis, 48(1), pp. 99-107.

N.KIRTZKHALIA, (2012), May 08. Number of registered in Georgia business entities increases by 11.2 percent in April. McClatchy – Tribune Business News.

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Interpreting Cost-Benefit Analyses 

Interpreting Cost-Benefit Analyses 
Interpreting Cost-Benefit Analyses

Interpreting Cost-Benefit Analyses

Application: Interpreting Cost-Benefit Analyses

Order Instructions:

Application: Interpreting Cost-Benefit Analyses
Cost-benefit analyses are designed to do just what their name implies—weigh the costs and benefits of a program or policy. This is important because, in a world of finite resources, people want to make sure that funds are allocated to programs that are as financially efficient as possible, thereby maximizing the impact of each dollar. As mentioned in this week’s Discussion, cost-benefit analysis is a type of program evaluation. To use this type of analysis, researchers weigh costs and benefits in economic terms, in other words, analysts must determine what the costs and benefits of a program or policy are (i.e., the variables) and assign monetary values to these variables. It sounds easy enough but can sometimes be complicated when non-economic costs and benefits (e.g., enhanced neighborhood beauty, psychological damage caused by a crime, or job satisfaction) must be assigned a monetary value. It is important to note that cost-benefit analysis differs from cost-effectiveness analysis in that the latter compares program costs to program outcomes.

For this Application Assignment, you evaluate the cost-benefit analysis of the program presented in the article, “A Cost-Benefit Study of a Breaking the Cycle Program for Juveniles.” As you examine the study, locate the key variables and consider the findings. Then consider whether you would continue or discontinue the program, based on the evidence presented in the study. As you formulate your answer, think about the advantages and disadvantages of continuing or canceling the program and the potential consequences for the affected community.
The assignment (2–3 pages):
• Describe the key variables within the study and provide a summary of the analysis.
• Explain whether you would continue or discontinue the program, based on the evidence provided in the analysis, and why.
• Finally, explain potential consequences of your decision for the affected community.
Support your Application Assignment with specific references to all resources used in its preparation. You are to provide a reference list for all resources, including those in the Learning Resources for this course

Will attach other files.

SAMPLE ANSWER

Description of the key variables within the study and a summary of the analysis
The case study is on the cost benefit analysis of a Juvenile Breaking the Cycle (JBTC) program in Oregon, in the United States of America. The JBTC program was initiated to provide the juvenile justice monitoring system; monitoring and coordinated treatment to youth  who were adjudged to be at high risk of using banned substances such as marijuana  and who stood the highest risk of recidivism. The key variables within the study were the case management costs which included employee benefits and administrative overheads, court costs, treatment costs and detention costs. The study involved comparing the JBTC group with a comparison group (Cowell, Lattimore & Krebs, 2010).

The study found that the average group in JBTC program, between intake and 6 months, incurred approximately $230 more costs per youth than the costs per youth in the average group in the comparison group. Costs per youth in the JBTC group in the period of 6 to 12 months rose to approximately $1,000 as compared to the similar period of 6 to 12 months in the comparison group. This implied that tax payers will have to pay more to fund the JBTC program at face value (Cowell, Lattimore & Krebs, 2010). However a further examination of juvenile justice costs showed that after intake, additional public costs on the majority of the unadjusted mean costs would diminish as youth progressed in the second year of the JBTC program. The additional juvenile justice costs in the 6-to-12 month period were found to be more by $434 per youth for the final 6 month period of the JBTC program. This difference fell to $52 which implies that the cost difference across would have greatly reduced in the second year after intake if juvenile justice costs were to continue to drive total costs of the program(Cowell, Lattimore & Krebs, 2010).

A decision on whether to continue or discontinue the program based on the evidence provided

            Based on the analysis above, it would appear that the program should be discontinued due to the fact that the costs  incurred by taxpayers in running the JBTC program in the first year was much higher than what was incurred by the average group in the comparison group. The analysis found that in the period between intake and 6 months the costs were more by $230 per youth and rose to $1,000 per youth in the period between 6 months to 12 months as compared to what was incurred by the average group in the comparison group (Cowell, Lattimore & Krebs, 2010).  However after analyzing other factors it would be a prudent use of public funds if the program was allowed to continue.  The study found that the juvenile justice costs, on the additional public costs on the majority of the unadjusted mean costs, would diminish as youth progressed in the second year of the JBTC program. The study did not include some crucial costs that would have affected the outcome of the cost- benefits study objectively such as probation costs, tax payer supported costs, etc. These costs might have altered the findings of the study (Cowell, Lattimore & Krebs, 2010).

The selection of the JBTC youth was drawn from youth who were at high risk of getting involved in substance abuse and at  high risk of recidivism as opposed to the youth in the comparison group whose selection criteria is not disclosed. This explains why the costs of the JBTC program are higher since these youth would ordinarily have used substances and hence incurred higher costs even if they were in the comparison group (Cowell, Lattimore & Krebs, 2010). The two groups had dissimilar characteristics and should not have been compared at all. Data on costs incurred in the second year was also unavailable even though initial examination showed that these costs would be similar to what would be incurred by the comparison group.  The study should be done for about four years to objectively determine its cost- benefit analysis and make a decision whether to continue or discontinue the program.  With the rates of youth, drug and substance abuse, crime and arrests growing each year in the United States as shown in the study, it would be prudent to not only continue the program but expand it to include even more deserving youth (Yeh, 2010; Zedlewski,2009).

The potential consequences of the decision for the affected community

            The decision to continue the program would initially incur the community substantial amounts of money for each youth joining the program in the first year which would be a burden to tax payers at face value.  However, in the second year the costs would be much less and the benefits much more. The potential benefits of the program are however much greater in the long run.  The JBTC program would address the problem of substance abuse and recidivism without which the youth would carry this behavior into adulthood (Cowell, Lattimore & Krebs, 2010). These adults would thereafter create dysfunctional families leading to high incidences of divorce, child abuse, suicides and crime.  The costs at this stage in the lives of these youth would run into millions of dollars to manage. Youths who go through this program at this early stage in their lives would be remodeled to go back to school or put more attention to their studies and pursue a career which would eventually produce productive citizens for the benefit of the community. The program would contribute in a reduction in crime and substance abuse which is a menace to the community and keeps investors away from investing in the community (Braga, Kennedy, Waring & Piehl, 2001).

References

Braga, A. A., Kennedy, D. M., Waring, E. J., & Piehl, A. (2001). Problem-oriented policing,         deterrence, and youth violence: An evaluation of Boston’s Operation Ceasefire. Journal of Research in Crime and Delinquency, 38(3), 195–225.

Cowell, A. J., Lattimore, P. K., & Krebs, C. P. (2010). A cost-benefit study of a breaking the cycle program for juveniles. Journal of Research in Crime and Delinquency, 47(2),241–262.

Yeh, S. S. (2010). Cost-benefit analysis of reducing crime through electronic monitoring of parolees and probationers.  Journal of Criminal Justice, 38(5), 1090–1096.

Zedlewski, E. (2009). Conducting cost benefit analyses in criminal justice evaluations: Do we dare?   European Journal on Criminal Policy and Research, 15(4), 355–364.

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