Critical Success Factors
Achieving financial performance-
Meeting customer needs-
Providing quality goods and services-
Encouraging innovation and creativity-
Gaining employee commitment-
Accounting
The process of gathering, recording, classifying, summarizing, reporting, and analyzing in monetary terms, information about an organization to aid in decision-making
-
Managerial accounting○
Financial accounting○
2 main branches of accounting-
Managerial Financial
People inside Who uses People outside
C.M.A Who prepares C.A.
Specific info What General info
Segments Where Whole
Current & future When Past
Speed Why Precision
Relevant, flexible, useful How Required
Whatever form suits How G.A.A.P
G.A.A.P - C.I.C.AGenerally accepted accounting principles
Accounting
Lecture 0Thursday, December 24, 2009
11:32 PM
Lecture Notes Page 1
Generally accepted accounting principles-
Canadians institute of Chartered Accountants-
Relevancy information - predictive and feedback of performance (allows outside person to get information) value
-
Verifiability○
Representational faithfulness ( represent true facts )○
Neutrality - don't create impression that it is incorrect○
Comparability - can compare companies○
Consistency - stay consistent with approach so you can trust and rely on the information○
Reliability - investors want to rely on the information-
All public companies by law○
Check GAAP applied on consistent basis - not checking every standard○
Scope and opinion sections, qualifications
Auditor's statement○
Could be minor mistakes
There are estimates
Fairly represent how the company is doing
No material errors
Do NOT say statements are accurate○
Qualification errors are problems ○
CEO's and CFO's must certify the design and effectiveness of internal accounting controls
Section 404 of the Sarbanes-oxley Act/CSA○
Audit-
Cost figures□
Market figure - what I can sell it for□
Inventory (stock of goods)
Conservatism (use lowest number)○
Bill of sale
Cost from the past, when we bought it-- how much did it cost□
Historic cost
Can't use opinion of value
Objectivity (verify)○
Match cost to revenue -- spread cost□
Matching revenue to expenses over year
Amortization□
Fundamental principle underlying the income statement
Matching○
Concepts-
Lecture Notes Page 2
Matching revenue to expenses over year
The Statements
Statement of financial position○
Snapshot of a point in time○
"stock or status of firm's resources and claims against those resources at certain pt in time"○
XYZ Company LTD Balance Sheet as of December 31, X○
Balance sheet-
Profit and loss statement, statement of earnings○
Movies over a period of time○
"flow of revenues and the costs associated with generating those revenues for a period of time"○
XYZ Company LTD Income statement for the year ended DEC 31, X○
Balance Sheet
What the firm owns (assets) (fin'l resources)
And what the firm owes EQUITIES = Liabilities + Owners' Equity (claims against those resources)
The financial position at a given point in time-
Assets = EquitiesAssets = Liabilities + OE
Premise upon which the balance sheet is built
Ex buy car for 15000 with 5000 downSell the car for 12000 shortly after
Accounting Equation-
Income Statement-
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Lecture 0Wednesday, January 06, 2010
2:48 PM
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Key Points from Last Class
Managerial vs. Financial accounting-
GAAP (IFRA - International financial reporting standards)-
Auditor's Statement-
Cash vs. profit○
Accounting equation○
Balance sheet vs. income statement-
Sustainability
development that meets the needs of the present without compromising the ability of future generations to meet their needs
-
Dow Jones Sustainability Index-
1000 companies, 80% of global fortune 150○
More holistic image of company○
Global reporting initiative - guidelines-
3 factors that determine ROI○
Examples - companies and industries that could/do most benefit and why?○
Corporate and societal interest intersect
Social responsibility and profitability○
Virtue Rewarded-
Accounting
A = L + OE / DOUBLE ENTRY ACCOUNTING
Asset (A) cash increased $1mm○
Asset (A) inventory decreased $1mm○
Sell $1mm inventory for $1mm cash-
Asset (A) inventory increased $1mm○
Liabilities (L) increased $1mm○
Buy $1mm inventory on credit-
Asset (A) inventory decreased $1mm○
Asset (A) cash increased $1.5mm○
Owners' equity (OE) increased $.5mm○
Sell $1mm inventory for $1.5mm cash-
Assets
Cash or assets that will be converted to cash, sold or consumed within 1 year - liquid○
Cash
Marketable securities - intent is to sell them
Less allowance for doubtful accounts - (contra account)□
Accounting Receivable
Notes receivable
Inventory - lower of cost or market
Supplies
Placed in order of declining liquidity○
Current Assets-
Lecture 1Monday, January 11, 2010
2:26 PM
Lecture Notes Page 37
Inventory - lower of cost or marketSupplies
Paid 1st year's rent of $18,000 = $18,000.00 $1500 per month on Sept. 1/08Prepaid rent on Dec 31/08Received the benefit 4 months rent8 months remaining for which not yet received benefit x $1500= $12000 prepaid rent
Prepaid Expenses - benefit paid for, not yet received
Assets that have useful life expectancy > 1 Year○
Land
Buildings
Machinery & equipment
Furniture & fixtures
Trucks and automobiles
Tools
Placed in order of declining life expectancy○
At historic cost (objectivity)○
Cost amortized over life of asset, except for land (matching)○
Amortization - simple straight-line○
Estimated useful life= historic cost - salvage value
Salvage value = what you expect to sell it for
= the portion of the cost of the asset per year that is being matched to revenue AND that the asset is being reduced by to show its current 'book' value
The amount each year accumulates until the asset's 'book' value = salvage value
Purchased machinery for 160000 Jan 1/04Estimated useful life 12 yearsAssume can sell for $40000 - salvage valueAmortization per year?, accumulated amort'n Dec 31/08
($160000-40000) / 12 years = $10000 per yearX 5 years = $50000 accumulated
On Balance Sheet …
Machinery & Equipment $160 000
$110,000Less: accum. amortization $50000
Capital (fixed) Assets-
Long-term holdings of securities - intent to hold (strategic purpose)
Investments○
Legal right vs. physical existence
Patents, trademarks, copyrights etc.
Must be bought□
When one company buys another for more than the fair market value of its net tangible assets
□
Paying for intangibles not reported on statements, ie. Goodwill that has built up over time
□
Goodwill
Intangibles○
Other Assets-
Lecture Notes Page 38
Equities
= Liabilities + Owners' Equity
Do I have a liability?
What amount have you NOT paid?
Current or long-term□
When is it due?
You must have incurred expense and not yet paid for it○
Liabilities -
Lecture Notes Page 39
Key Points from Last Class
Order and valuation inventory, prepaid expenses-
Current Assets
Order and valuation - historic cost, amortization-
Capital Assets
Goodwill-
Other Assets
= Liabilities + Owners Equity
No specific order, due within one year-
Wages payablePay $10,000 is bi weekly wages for work done during the pay period, year end falls at end of one week into pay period
-
Current liability Dec 31/08How do you incur a liability for wagesTherefore $5000 wages payable
When is it due? CURRENT LIABILITY
Loan Payable$160000 loan on machinery payable over 10 years on Jan 1st of each year = $16000 year-
Current liability Dec 31/08-
How much is still owing / not been paid?-
When is it due?-
Machinery was purchased Jan 1/04-
4 x 16000 = 64000 $
Still owing 160000-64000 = 96000 $
How much is due within a year?-
= $16000 Loan PayableCurrent liability-
Example: Interest PayableInterest on loan is 15% of remaining balance owing payable at same time as principal-
Current liability Dec 31/08-
Hold money for a period of time
How do you incur a liability for interest?-
How much is owing?-
When is it due?-
Last payment was Jan 1/08 - paid $64000 by that point-
For the year of '08 held $96000 of bank's money-
Therefore interest interest at 15% = 14 400-
= $14400 interest payable-
Current Liabilities
Lecture 2Wednesday, January 13, 2010
2:27 PM
Lecture Notes Page 40
Long Term Liabilities
Due > 1 year-
Long term wages payable?-
Example : long term portion of loan payable on Dec. 31/08Paid 64000 by Dec 31/08, $16,000 currentTherefore owe $160 000 - 64000 - 16000 = $80000 loan payable
Long term interest Payable?-
Form depends on form of ownership-
Beginning O/E+investments+profits-Withdrawals Ending O/E
All have same components-
Proprietors' Equity
Paul Jones, Capital = total of all components
Partners Equity
Peter Brown, Capital
Total Partners EquitySusan Smith, Capital = total of components, split profits
Common stockPreferred stock (represent investments)
+ profits
Ending R/E -withdraws/dividends
Retained Earnings = beginning R/E
Shareholders' Equity
Owners Equity
Expense of given period was incurred to earn revenue of same period□
Matching expenses with the revenue they help to generate-
Format-
Matching-
Rent expense
1st year's rent pd. Sept. 1/08= $18 000 or $1500/monthPaid out 18000But only incurred rent for Sept - Dec '08 to generate revenues of the same year
Keys:
Income Statement
Lecture Notes Page 41
But only incurred rent for Sept - Dec '08 to generate revenues of the same year4 months x $1500 = $6000 Rent Expense
Example: Amortization Expense$10, 000 per year-
Accumulated amortization $50,000 on B/S-
But not paid out, not cash expense-
= $10,000 Amortization Expense
Wage Expense10,000 bi weekly = 260 000/yearBut 5000 incurred but not paid= 260 000 wage expense
Interest Expense96000 for year @ 15% interestBut not paid= 14 400 interest expense
Loan expense-principal payment of $16,000/yearNO SUCH EXPENSE - cost of asset already written off as amortization expenseDon't want to double count cost of assetMatching to revenue more critical, cash flow not an issue for income statement
Income statement
Cash vs ProfitSales revenue -> account receivable-
Expenses -> accounts payable-
Amortization-
Owners' equity - cash to use for business? -
If profit is not cash, then why consider cash paid when determining expenses?
Format - Merchandising company
Sales-Cost of goods SoldGross Profit-operating expensesIncome from operations+/- other income/expensesNet income before taxes-taxesNet income
Gross SalesReturns & allowances-
Discounts-
Net sales-
Operating ExpensesSelling & distribution-
General & admin-
Cost of Goods Sold
Lecture Notes Page 42
Cost of Goods SoldBeginning inventory-
+Purchases *-
Cost of goods avail for sale-
-Ending inventory-
Cost of goods sold-
Gross PurchasesReturned & allowances-
Discounts-
Net purchases-
+ freight in-
Net cost of purchases-
*COMBINED PROBLEM ON EXAM ON MERCHANDISING NOT MANUFACTURING
Lecture Notes Page 43
Key points from Last Class
3 questions○
Do you owe money, how much, when is it due?○
Liabilities-
Time NOT payment
Matching concept○
Format○
Income Statements-
Combined Problem
Information included for both the income statement and the balance sheet
Deal with the information only once for both the Balance Sheet and Income statement-
Retained earnings○
Dividends payable○
Taxes payable○
Operating expense
advertising expense-
Balance, current assets
Cash-
B/S current asset
Account receivable-
B/S sh.equity
Balance sheet-
I/S cogs
Gross purchases-
b/s current asset
Marketable securities-
b/s current liability
Account payable-
I/S beg inv COFGS
Inventory, feb 1/07-
I/S end inv COGS
B/S current asset
Inventory Jan 31/08-
B/S beg, R/E sh.equity
Ret. Earnings, FEB 1/07-
I/S COGS
Purchase returns-
I/S
Net sales-
Complete the income statement first and use the net income to complete the balance sheet-
Lecture 2Wednesday, January 13, 2010
3:28 PM
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Lecture 3 CombinedMonday, January 18, 2010
3:26 PM
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($4500-500) /10 years = $400/yr-
Amortization expense $400 ○
I/S operating expense - S&D-
5 years accumulated = $2000 accum amort-
Furniture and fixtures $4500○
$2500Less: Accumulated amortization 2000○
B/S capital assets-
Lecture Notes Page 51
$4500/6 years = $750/yearPaid 04 05 06 07 = 4 years = 3000 paidOwing 1500 - B/S
Note payable $750-
Current Liability
Note payable $750-
Long term liability
Lecture Notes Page 52
$3500 x 12 = $42000.00 -
I/S operating Expense-
Payroll 33 600○
Selling and distro 80%-
Payroll 8400○
General admin 20%-
Lecture Notes Page 53
2 weeks = liability B/S
Current liabilityWages payable 1750-
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$2000 x 12 = $24000.00
I/S Operating Expense
Rent expense $21 600Selling & Distri (90%)
Rent expense $2400General & Admin (10%)
Lecture Notes Page 55
Operating expense-
Insurance expense 1350Selling and distribution (90%)
Insurance expense 150General and Admin (10%)
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750 every 6 months = 125.monthLast paid sept 1 for September - FebruaryAs of Jan. 31, 1 month remaining
B/S Current AssetPrepaid expense $125-
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B/S Other assets
Investment 6750 (75%)IntangiblesGood will 2250 (25%)-
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I/S COGS
Beginning Inventory $3000-
Less purchase returns & allowances $4000○
Gross purchases $42000-
Add freight in 1650○
Net purchases $38000-
Net cost of purchases 39650-
Cost of goods avail for sale 42650-
COGS 37650○
Less ending inventory 5000-
Lecture Notes Page 59
B/S shareholder equity - Add 40% net income to beginning retained earningsB/S current liability - Dividends payable = 60% net income-
I/S income taxes = 25% net income before taxesB/S current liability Taxes payable = 25% net income before taxes
Lecture Notes Page 60
Key Points from Last Class
Recognizing income statement vs. Balance sheet items
Recognizing categories and placement on statement
Process for handling both statements at one time
Steps to follow for each item on statements
Completing income statement before balance sheet
No marks deducted from indents, columns, or $ but affects ability to get numbers right□
Putting it together
Process○
Combined problems-
Cost-Volume Profit Analysis
Tool used for decision making-
Shows effect of changes in Costs or Volumes on Profits - CVP Analysis-
Must sell more to cover fixed costs (RISK)
But once covered - leveraged effect on profit (RETURN)
Degree to which locked into fixed operating costs○
Shows impact of operating leverage-
Where revenue = expenses or rev-exp = 0○
Also used for 'Breakeven' Analysis-
Most important concept is contribution-
Things to Know:
Constant regardless of level of production and sales○
Normal range of operating activity
Assuming operating in 'relevant range'○
Fixed costs-
Total depends on level of production and sales○
Variable Costs-
= current sales - breakeven sales○
Margin of Safety-
Approaches:
Breakeven chart-
Algebraic approach-
Contribution margin○
Contribution rate○
Contribution -
Example:
Lecture 4Wednesday, January 20, 2010
2:42 PM
Lecture Notes Page 61
Example:
Fixed Cost
Variable Cost
Total Cost
Total revenue
PROFIT
LOSS
3750
Lecture Notes Page 62
10x = 30000 + 2x
X = 3750 units
Lecture Notes Page 63
Contribution Margin Approach
What is left over after covering variable costs that contributes toward covering fixed costs?-
= Price - VCUnit contribution margin-
How many units do we have to sell at a unit contribution of (Price - VC) to cover FC?-
= FC/(Price - VC)
Easier way to determine dec'n point
Point where incremental (additional) fixed costs are covered by incremental contribution-
= (30000-10000) / ((10-2)-(10-6))= 5000 units
Contribution rate approach
Can't do it on a per unit bases, so use ratio-
What % of every sales dollar is left over after covering variable costs that contributes toward covering fixed costs?-
Contribution rate-
= 1 - VC/Sales
= FC / (1-VC/SALES)
Let x be breakeven sales
X = 30000 / (1-2000/10000)X = 30000 / 1-20%X = 30000 / .8
X = $37500
10000 + 6x - 30000 + 2x
X = 5000 units
Proof : (volume above breakeven, below decision point)At 4000 units = revenue 10 x 4000 = 40000 regardlessOld machinery = 40000 - 10000 - 24000 = 6000 incomeNew machinery = 40000 - 30000 - 8000 = 2000 income
Lecture Notes Page 64
X = $37500
At $10 per unit = 3750 units
If increasing advertising by $10000 meant that sales would increase by $30000, would you do it?-
Process: What is the additional/incremental contribution?-
Compare to the additional/incremental fixed cost-
Quantitatively○
Qualitatively○
Better off?-
$30000 x 40% cont'n rate = $12000 addt'l cont'-
Vs. $10000 increase in FC-
YES-
Contribution margin = 250-150 = 100 100/unit-
Total contribution = 100/unit x 400 units = 40000$
Contribution rate = 1- $150/$250 = 40%-
Lecture Notes Page 65
$250 - $125 = $125.00 contribution margin-
X350 units = $43750 total contribution-
Vs. $40,000 - additional contribution of $3750-
YES-
Qualitative issues-
$230 - $150 = $80.00 contribution marginX 600 units = 48000 total contribution
Vs 40000 = 8000 additional
Vs. 15000 increase in FC
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Lecture 4Wednesday, January 20, 2010
2:57 PM
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Key Points from Last Class
Importance○
Operating leverage○
Fixed costs /variable costs○
Margin of safety○
Breakeven - chart and algebraic○
C-V-P Analysis-
Contribution margin - with units -P-VC○
Contribution rate with totals - 1-vc/sales○
Concept of contribution-
Margin of safety, and interpreting that margin
When to calculate breakeven and what to do with it (could you make money)○
Decision point - when become more profitable
When incremental contribution covers incremental fix
Making a decision between two alternatives○
Quantitative - incremental contribution vs. incremental fixed
Qualitative issues
Making a decision that would affect costs and/or volumes○
Applications-
Marketing
What is marketing?
An "integrated system of activities designed to plan, price, promote and distribute, want-satisfying goods and services to present and potential customers"
-
Related to providing a want-satisfying good or service1)Used to be sell what you produce-
Now it’s produce what you can sell-
Production - sales - customer orientation-
2 keys to successful marketing:-
The Marketing ConceptCustomer orientation-
Integrated focus on customer satisfaction-
Service orientation-
Profit orientation-
Customer relationship management-
But the product must not only provide a particular benefit/satisfy a particular want or need, but it must be needed or wanted…
-
It must provide a unique benefit that the competition does not #1 KEY-
Target MarketThe group of customers to whom you wish to direct your product toward-
A group of customers whose wants and needs have not been met by the competition-
Steps to Defining Target Market:Market segmentation-
Perceptual mapping-
Preference analysis
Lecture 5Monday, January 25, 2010
2:29 PM
Lecture Notes Page 89
Preference analysis-
Market SegmentationNeed to know what groups of customers exist from which to choose a target market-
Involves splitting the market into meaningful segments to determine what groups exist-
Homogenous needs (similar needs)-
Everyone is different but they tend to similar with respect to what they want our of a product…-
Geographic - region, population size, density, climate
Demographic - age, gender, lifecycle, income, occupation, education, religion, social class
Customer type
State-of-being (who they are)-
Psychographics - personality, and lifestyle, attitudes, interests, and opinions
State-of-Mind-
Volume - usage rate, user status, readiness to buy
Sensitivity to market factors, occasions
Loyalty
Product Usage - Behaviouralistic-
Benefits sought *z-
Bases for segmentation:-
Lecture Notes Page 90
Lecture 5Monday, January 25, 2010
3:03 PM
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Key points for the Financial Advantage
Weakest advantage in the competition-
Quarterly sufficient - most do monthly○
Pre-operating and operating cash flows - sources must fund negative balance - can't carry○
Cash required to fund startup and until cash positive - what re you using it for?○
Cash is king - profit vs cash - cash budget-
90% forecast is predicting sales - realistic, supportable-
Pitfalls of forecasting - capacity - operations and marketing - specific plans, contingency -
Attendance, respect for presenters-
Key points from last class
Context - fixed costs covered?○
CVP-
Marketing concept○
#1 key - provide unique benefit○
Marketing-
Market segmentation○
Marketing
Segment on basis of benefits1.Describe using other bases2.Name them last3.
Steps:
Psychographics more difficult to measure-
Demographics vs. psychographics
Target market-
Flavor,appearance
Brightness,Fresh breath
Decay prevention
Price
ChildrenTeens,young people
Families,Parents Older men
Self-involved
Hedonistic
Sociable, Self-conscious
Active
Hypo-chondriacs
Conservative
Autonomous
Value-oriented
Lecture 6Wednesday, January 27, 20102:31 PM
Lecture Notes Page 106
Theory in Use
"Luxury Goods - Bling sting"How is a company's choice of target market affected by the pest model discussed last semester-
Perceptual Mapping & Preference Analysis
Determine which of the segments will be the target market-
By finding the biggest gap between how the customer perceives the competition meets their needs perceptual map and what they really want preference analysis
-
Steps:
Draw axes that represent the relevant dimensions by which people differentiate between product offerings1.Locate the positions of competing products on the axes/dimensions according to customer perceptions2.
Perceptual mappingLocate each segment's ideal product-
Preference analysisWhat is the target market?-
Lecture Notes Page 107
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Positioning
Finding a distinct position for your product in the customer's mind-
One that communicates that the product provides a unique benefit-
The objective is to position the product as close to the target's ideal as possible-
Consumer approach-
Competitive approach-
2 approaches-
Lecture Notes Page 109
Key Points from Last Class
Market segmentation - demographics vs. psycho graphics
Perceptual mapping and preference analysis
Positioning
Target market○
Marketing-
Alternatives○
Numbers○
Write-up○
Theory in Use…
Group Hand in Case-
"attack of the monster cinemas"-
How is the mega-plex theatre concept positioned in the entertainment market?-
Where is the highest contribution?○
#1 key
How do they make money?-
Something that they want - benefit○
That they don't feel they are getting from the competition - unique○
To be successful is to provide a unique benefit to the customer-
Do consumers want sustainable/green products?-
#2 Key
Be successful is to convince them that the product provides that unique benefit - through your product, pricing, promotion, and distribution/place decisions
-
Be consistent, don't confuse
Integrated/consistent system of activities○
Clear concise statement of product's unique benefit to ensure all decisions deliver same message
Core Benefit Proposition/CBP-
Sustainable MarketingProduct price place promotion for people, plant, profit-
Product
The creation of a good or service that provides greater value to customers than previously existed.-
New-to-world product-
New product line-
New product added to existing line-
Improved product -
Repositioned product-
Lower-priced version of existing product-
Principled design based on the laws of nature - transform the making and consumption of products into a sustainable regenerative force
□
Transform harmful activitiy vs reduce negative impact□
"cradle-to-cradle" vs "cradle-to-grave"-
6 Types of product development
Product Life Cycle.
Product Life Cycle
Sales
Time
Introduction
Growth
Maturity
Saturation
Decline
Lecture 7Monday, February 01, 2010
2:24 PM
Lecture Notes Page 110
Product Life Cycle.
Product Life Cycle
Sales
Time
Introduction
Growth
Maturity
Saturation
Decline
Introduction Growth Maturity/Saturation
Decline
Product StandardizedSmall mix
Increase shareImprove
Limited mix
Defend shareVariations
Differentiate
Maintain shareCut mix
Price Skim/Penetrate
Cover costs
Adjust to meet competition
CompetitiveAggressive
ProfitabilityLiquidation or
Increase
Promotion AwarenessHeavy
BrandCompetitive
DifferencesLoyalty
ReinforceDecrease
Place Establish network
Solidifyrelationships
Increase
Loyalty/Takeover
Drop marginal
*Slow down cycle - new uses, new users - market modification
Lecture Notes Page 111
*Slow down cycle - new uses, new users - market modification
Planned obsolelescence - fashion/style, quality, functional-
*can also speed up cycle
Planned Classification
Staples-
Impulse goods-
Emergency good-
Convenience good/service-
Homogenous-
Heterogeneous-
Shopping good/service-
Specialty good/service-
Unsought good/service-
*different markets classify products differently*important to see your product as customer does
Product Differentiation
Creation of real or perceived product differences-
How does it differ?-
Theory in Use..Massaging the message-
To prove that the product satisfies wants and needs that the competition does not - that it has a unique benefit
-
Lecture Notes Page 112
Key Points for the Marketing Advantage
Sales projections based on research and logic = educated guess you can defend-
Market potential not just #households○
#with lawns demographics likely to mow own lawn, psychographics care about benefits○
Top down forecasting…-
What you can do - capacity○
Bottom up forecasting-
Compare to breakeven - what have to do-
Assumptions to base sensitivity on○
Need milestones - if not on track, contingency plan○
Sensitivity analysis and contingency plan-
Keys - focus (relevant info), cash, consistency (integration), milestones, specifics(commit), structure (organized thoughts, visuals), KISS (easy for judges to understand)
-
Key Points from Last Class
Meet customer needs○
4Ps for 3Ps○
Sustainable Marketing-
CBP(core benefit proposition)○
#2 Key - consistency in marketing mix/4Ps-
Identification and impact on marketing mix/4Ps
Ability to affect speed of cycle
Life cycle○
Identification and implication
Product Classification○
Product differentiation○
Product-
Total Product Concept
Physical features necessary to support CBP-
Brand○
Package○
Service○
Warranty○
Delivery○
Credit○
Atmosphere○
Image reputation○
Accessibility○
Price○
Theory in Use
"massaging the message"
Total package of benefits as seen from the eyes of the consumer - "everything they evaluate before deciding to buy something"
-
Lecture 8Wednesday, February 03, 2010
2:27 PM
Lecture Notes Page 113
Third place concept.
What is a Brand?
A collection of perceptions in the mind of the consumer-
Built not only through effective communications or appealing logos - it is built through the total experience that it offers
-
Communicate CBP-
Non-recognition
Brand recognition
Brand recall
Brand preference
Brand loyalty
Move customer through stages of recognition-
Theory in use
"Massaging the Message"What does the article say about brand loyalty?-
What is the myth, what is the reality?-
"Wal-Mart - Counter Intuitive"What is Wal-Mart's Brand-
What market segments is it focusing its new branding on?-
Does this shift make sense? Why or why not?-
"don't go changing"What lessons about branding strategy can the article teach us.-
Price
Cost $5, retail price $7, retail markup = 29% ($2/$7)□
CVP analysis!□
Cost based, target profit, mark-up-
Competitive-based (achieve market share)-
Customer□
Value-based - price-led-
Support CBP□
Test pricing□
Most important-
Approaches:
Life span□
Speed of competitive entry□
Sunk costs□
Introductory pricing - "skimming" or "penetration"-
Market protection-
Illegal
Predatory pricing□
Market domination-
Market stabilization - follow the leader-
Buying a set□
Product line promotion-
Price lining
Specific Strategies
Brand Name
Lecture Notes Page 114
Pricing things at few price points□
Price lining-
Loss leader□
Must have bait or else illegal
Bait & switch□
Customer attraction (building traffic)-
Odd/even pricing□
Buy in bulk
Multiple pricing□
Above competition to project quality/image
Theory in UseMassaging the Message
Why is price leadership works a myth
Quality / premium pricing□
Image enhancement - 'psychological pricing'-
Lecture Notes Page 115
Hand in Case
Accounting-
Key Points from Last Class
Brand, brand loyalty○
Total product concept-
Approaches○
Strategy○
Promotion
Pricing-
AdvertisingAn non personal ad, long term, paid for by a identifiable sponsor, to mass audience-
Personal SellingPaid for, long term, one to one, no mass audience, extremely expensive per person but more effective.-
Sales PromotionMass audience, paid for, short term-
PublicityFree-
All 4 are integrated marketing communication / IMC
Advertising
Institutional : advertising the institution○
Product/institutional advertising-
Awareness-
Interest-
Desire-
Action-
Create AIDA○
Remind○
Communicate CBP○
Objectives-
Communication Model
Source Medium ReceiverMessage
Feedback
How other party receives
(Get sale)
Familiaritya.Spokespersonb.Pros & consc.
Increase credibility of source1.
Unique selling propositiona.Toneb.
Develop clear message2.
Must reach consumer with message intendeda.Use most effective medium3.
Lecture 9Monday, February 08, 20102:29 PM
Lecture Notes Page 116
Must reach consumer with message intendeda."the medium is the message"At the most effective CPM (cost per thousand)b.
A $5000/1,000,000 = $5 CPM
B $5000 / 100,000 = $50 CPM
BUTA $5000/10000 target = $500 effective CPM-
CPM-
Other factors in media selection
Local tv○
Direct mail○
Radio○
Geographic selectivity-
Specialty magazine○
Go to the place○
Target selectivity-
Websites○
Newspapers○
Flexibility/timeliness-
Tv○
Absolute cost-
Magazines○
Length of life-
Magazines○
Quality of reprod'n-
TV○
Internet○
Creative ability-
internet○
Capacity for detail-
'Green Washing'
Mislead consumers regarding the environmental practices of a company or the environmental benefits of a product or service
-
Sales Promotion
Claims based on a single attribute while ignoring others
Environmental qualifiers such as organic or etc
Like green insectide
Lecture Notes Page 117
Free samples, trial period○
Cents off coupons, cash rebates○
Extra volume for same price, bonuses○
Giveaways, contests○
Premiums○
Point of purchase displays (setting up a display in store to promote product)○
Short term incentives to induce purchase-
Support personal selling and advertising-
Support CBP-
Public relations & Publicity
Greater impact due to perceived objectivity-
Very hard to get, must be "newsworthy"-
Place
Logistical decisions costly, time consuming, and not easily changed○
Choice of location must fit with CBP○
Use of marketing intermediaries / channel of distribution
Critical decision○
Purchase is a function of desire and availability-
ManufacturerAgent
WholesalerRetailer
Customer
$4.99 - 1.50 - 1 = $2.49 to wholesaler$2.49 + 1 + 1.50 = $4.99 to consumer
(MSRP)
= lower contribution?
Demand-backward pricing-
Demand-Backward Pricing
Lecture Notes Page 118
Key Points for the Operations
Logistics, processes, flow diagram○
Space utilization○
Burn rate
Need operational capacity to meet sales projections and sales projections/funding to cover operating expenses
○
Operating expenses○
Need for conservatism, milestones, contingency planning○
Operations is about how your business works-
Do you have the right people to weather the surprises, proven competencies○
Timing of hiring○
Paying yourself(last) - where is investor's money going?○
HR is about having the right people to make it work-
10 multiple choice - distribution marketing and accounting chapters
Mark breakdown-
10 marks accounting theory
50 marks marketing
Short answers-
10 marks CVP
20 marks - 1 combined - merchandising corporation
Problems-
Accounting 35% + CVP 10% + marketing 55%-
Articles - those covered in class-
Review sheet of topics on website; more detail when exam finalized-
Key Points from Last Class
Advertising - communication model□
Sales promotion□
Publicity□
Promotion
Importance of decisions□
Price and contribution
Promotion
Implications of using marketing intermediaries□
Place
Marketing-
Midterm Exam
Place
Volume - distribution arrangements, training
Contribution -case allowances, volume discounts
Promotional allowances
Push to channel members-
Pull - promotion to customers-
Push vs. Pull
Lecture 10Wednesday, February 10, 2010
2:29 PM
Lecture Notes Page 119
Finance
Financial management is made up of:
Provides informationAccounting-
Makes decisions about the acquisition, disposition, and management of capital with the help of accounting information
Finance-
Maximize shareholder wealth-
Ultimate objective-
Viability - liquidity and stability (risk)-
Profitability-
Goals-
Risk-return tradeoff-
Finance department's responsibilities
Budgeting - disposition-
Determining financial resources required-
Financing - acquisition-
Obtaining financial resources required-
Working capital management-
Investing - management of long-term funds-
Managing the financial resources effectively-
Decisions - Balance sheet
Assets Equities
short-term Investing Financing
working capital management
- liquidity
- working capital cycle
- cash budgeting
long-term» Capital budgeting - Capital structure
- Amount and mix - stability
- Operating leverage - financial leverage
- CVP - EBIT analysis
DIVIDENDS
Decisions – Balance Sheet
Short term - cash flow forecastForecasting financial needs
3 steps-
Budgeting
Lecture Notes Page 120
Short term - cash flow forecast□
Long term□
Operating budget
Capital budget
Cash budget
Master budget□
Developing budgets to meet those needs
Deviations from budget□
Establish financial control
Advantages of Budgeting
Compels managers to plan-
Promotes communication and coordination among subunits of the organization - "systems" approach
-
By clarifying goals and providing yardstick for rating performance - source of motivation-
Establishing goals or standards against which actual performance can be measured - facilitates control
-
Negative aspects of Budgeting - Abuses
Means to reward waste and penalize thrift-
Individuals subjected to guidelines not consulted-
Evaluate device - perceived as threat-
Convenient scapegoat or lost opportunities-
Cash Budget
Management of cash flows-
Management of working capital cycle-
*Worksheet based on historical measure of amounts and timing of cash flows in working capital cycle
ex: you need to prepare a cash budget for the months of June, July and August; min. cash balance = $6,000
•
assume that sales are forecasted at $10,000, $20,000, $30,000, $15,000, $25,000, and $20,000 from April to September respectively
•
assume also that you expect to collect 30% in month of sale, 60% in month following sale, and 10% in the 2nd month after sale
•
assume that purchases are 75% of the next month’s sales•assume also that you pay for 20% of purchases in the month of purchase, and 80% in the month following
•
Worksheet
April May June July Aug. Sept.
Net Sales 10,000 20,000 30,000 15,000 25,000 20,000
Collections:
30% month of sale
60% month follow
10% 2nd month
Total Receipts
Net Purchases
75% next mth. sales 22,500 11,250 18,750 15,000
Payments:
20% month of purch.
80% month follow
Total Disbursements for Purch.
Worksheet based on historical measures of amounts and timing of cash flows in working capital cycle
Beginning Cash Balance+ ReceiptsTotal Cash Available-DisbursementsCash excess / (deficiency)Minimum cash balance desiredBorrowing Req'd / surplus or repaymentEnding Cash Balance
Lecture Notes Page 121
Worksheet
April May June July Aug. Sept.
Net Sales 10,000 20,000 30,000 15,000 25,000 20,000
Collections:
30% month of sale
60% month follow
10% 2nd month
Total Receipts
Net Purchases
75% next mth. sales 22,500 11,250 18,750 15,000
Payments:
20% month of purch.
80% month follow
Total Disbursements for Purch.
Cash Budget
June, July, August, 19XX
Beg. Cash Balance
Add: Receipts
Total Cash Available
Less: Disb. for Purch.
Selling & Admin.
Interest
Dividends
Capital Expenditures
Taxes
Total Disbursements
Cash Excess / (Deficiency)
Min. Cash Balance Desired
Borrowing Required
Surplus Cash
Ending Cash Balance
June
$ 6,000
July August
1,000
22,000 24,500 19,500
6,0003,000
18,000
20250 12750 18000
4,500
22,00028,00020,250
31,500(3,500)
$6,000
6000245003050012750
23450
7050
7050
Lecture Notes Page 122
Key points from Last Class
Demand-backward pricing□
Push vs pull promotion□
Implications of using marketing intermediaries
Place○
Marketing-
Objective, goals, tradeoff○
Budgeting - advantages, negative aspects○
Format and process of cash budget○
Keys to Cash Budget
Borrow for deficiency + minimuma)Ending balance = minimum req'db)
Deficiency1.
Surplus available to repay borrowinga)If do… ending balance >/= minimum req'db)If don't… ending balance = total excessc)
Excess > minimum2.
Borrow to = minimum req'da)End balance = minimum req'db)
Excess < minimum3.
3 Possibilities-
Finance-
EBIT Analysis
EBIT Analysis
To determine the best mix of debt and equity in the form's capital structure-
Measured by EPS…-
Objective is to maximize shareholder wealth-
Earnings per share ( of common stockholders )-
= earnings available to common stockholders
# shares of common stock= net income - preferred dividends
Lecture 11Monday, February 22, 2010
2:31 PM
Lecture Notes Page 123
– ex: ABC Company requires an additional $4 millionin external long-term financing
– earnings before interest and taxes are assumed to be $6 million next year, and ABC’s tax rate is 50%
– the existing capital structure consists of:• $5,000,000 in 10% bonds
• $3,000,000 in 6% preferred stock
• 1,000,000 shares of common stock at $10/share
• $500,000 in Retained Earnings
– ABC has 2 alternatives with which to raise the money:
• $3,000,000 in 11% bonds, and $1,000,000 in 7% preferred stock
• $2,000,000 in 8% preferred stock, and $2,000,000 in common stock at $10/share
– Need to know the effect that each element of the
capital structure has on EPS…
• Debt
– Interest
= $ debt x % interest rate
• Preferred stock
– Preferred dividends
=$ preferred stock x % dividend rate
• Common stock
– # shares
= $ common stock / price
Earnings Before Interest and Taxes - EBITInterest-
Earnings Before Taxes - EBTTaxes-
Net Income = EATPreferred Dividends-
Earnings Available to Common Stockholder/ # shares of Common Stock
Earnings Per Share - EPS
Lecture Notes Page 124
– Need to know the effect that each element of the
capital structure has on EPS…
• Debt
– Interest
= $ debt x % interest rate
• Preferred stock
– Preferred dividends
=$ preferred stock x % dividend rate
• Common stock
– # shares
= $ common stock / price
– Existing…
• $5 000 000 bonds x 10% = $500,000 interest
• 3000000 preferred stock x 6% = 180 000 dividend
• 1 000 000 shares of common stock
– Alternative #1…
• 3 000 000 bonds x 11% = 330 000 interest
• 1 000 000 preferred stock x 7% = 70 000 dividend
– Alternative #2…
• 2 000 000 preferred stock x 8% = 160 000 dividend
• 2 000 000 common stock /$10 = 200 000 shares
common
ABC Company
EBIT Analysis (000‟s)
Existing Alternative
Structure #1 #2
EBIT $6000 6000 6000
- Interest 500 830 500
EBT 5500 5170 5500
- Taxes 2750 2585 2750
EAT 2750 2585 2750
- Pref. Dividends 180 250 340
Earnings Avail. C/S 2570 2335 2410
/ # shares of C/S 1000 1000 1200
EPS 2.57/sh 2.34 2.01
All Numbers in First Row must be Same!!
If Given anything other then EBIT work backward through existing structure and project through all alternatives
Lecture Notes Page 125
ABC Company
EBIT Analysis (000‟s)
Existing Alternative
Structure #1 #2
EBIT $6000 6000 6000
- Interest 500 830 500
EBT 5500 5170 5500
- Taxes 2750 2585 2750
EAT 2750 2585 2750
- Pref. Dividends 180 250 340
Earnings Avail. C/S 2570 2335 2410
/ # shares of C/S 1000 1000 1200
EPS 2.57/sh 2.34 2.01
Choose the option which results in the highest EPS while realizing that there is always a tradeoff between risk and return
-
RISK - comes from leverage... what happens when you have more debt than equity in your capital structure
-
Should be able to determine the degree of leverage-
(5 000 000 + 3 000 000) debt(3 000 000 + 1 000 000) pref + 10 000 000 common + 500 000 retained earnings
= 8 000 000 / 14 500 000 = 0.55:1 AVERAGE
Calculate interest coverage ratio…-
6 000 000 / 830 000 = 7.2x
Decision
It has least dilutive impact on EPS-
While having acceptable risk as measured by the interest coverage ratio-
Maximizing shareholder wealth-
While balancing risk and return-
Therefore :-
Choose alternative #1 because-
– XYZ needs an additional $8,000,000 in external long-term financing. It’s EBT next year are projected to by $4,000,000, and it’s tax rate is 50%.
– XYZ’s existing financial structure consists of• $15,000 in current liabilities
• $1,000,000 in 10% bonds
• $150,000 in preferred stock at a 5% dividend rate
• $2,100,000 in common stock at $15/share
• $750,000 in retained earnings
– XYZ has three alternatives with which to raise the financing:
1 $6,000,000 in 12% bonds + $2,000,000 in pref. stock at 7%
2 $2,000,000 in 9% bonds + $4,000,000 in pref. stock at 6% + $2,000,000 in common stock at $20/share
3 $5,000,000 in common stock at $16/share + $3,000,000 in 11% bonds
– Choose alternative #1, leverage 1.4:1, int. cov.5x
Practice Question
All Numbers in First Row must be Same!!
If Given anything other then EBIT work backward through existing structure and project through all alternatives
Lecture Notes Page 126
– XYZ needs an additional $8,000,000 in external long-term financing. It’s EBT next year are projected to by $4,000,000, and it’s tax rate is 50%.
– XYZ’s existing financial structure consists of• $15,000 in current liabilities
• $1,000,000 in 10% bonds
• $150,000 in preferred stock at a 5% dividend rate
• $2,100,000 in common stock at $15/share
• $750,000 in retained earnings
– XYZ has three alternatives with which to raise the financing:
1 $6,000,000 in 12% bonds + $2,000,000 in pref. stock at 7%
2 $2,000,000 in 9% bonds + $4,000,000 in pref. stock at 6% + $2,000,000 in common stock at $20/share
3 $5,000,000 in common stock at $16/share + $3,000,000 in 11% bonds
– Choose alternative #1, leverage 1.4:1, int. cov.5x
Practice Question
Int. cov. 5x
Lecture Notes Page 127
Friday February 26th 6:00pm - 9:30pm
Look at slides.
MidtermWednesday, February 24, 2010
2:43 PM
Lecture Notes Page 128
Key Points from Last Class
Keys - finding EBIT, adding in present financing○
Maximize shareholder wealth - "least dilutive impact"
Measure risk - interest coverage ratio - looking for "acceptable" risk => 3x□
Balance risk and return
Decision criteria and justification○
EBIT Analysis-
Ratio Analysis
Analyzing accounting information to help make better decisions - about other firms, or about our firm by outsiders
○
Analysis the results of those decisions○
Ratio analysis is a tool used for:-
A ratio is a mathematical comparison using information from the financial statements-
It detects crude trends/overall problems that require further investigation-
Ratio Analysis - 3 Steps
Ability to meet short term debts and obligations
Liquidity-
Ability to meet long term debts and obligations
Stability-
Profitability-
Rate of change
Growth-
Value of stock is holding, shareholders are happy?
Marketability-
To assess overall financial well-being, look at all 5 types of ratios: 1.
Same ratio of other firms in industry-
Industry average-
General rules, not accurate, starting point
'rule of thumb'-
Same ratio for series of past years in same company-
Another ratio-
Compare the ratio to something else2.
Pull apart the numerator and denominator into component parts to see where problem lies3.
Liquidity
Measure a company's ability to meet its current/short-term obligations - short-term viability-
Assess the adequacy of a firm's working capital management-
Assess whether net working capital provides a sufficient cushion to meet current debts as they come due.
-
Net working Capital
= current assets -current liabilities
Objective?-
What is sufficient? - depends on:-
Speed of working capital cycle-
Knowledge of / ability to predict WCC-
Lecture 12Monday, March 01, 2010
2:29 PM
Lecture Notes Page 129
Faster the cycle, less net working capital.
Current Ratio
= Current assets / current liabilities'Rule of thumb' > 2:1 for risk, < 4:1 (risk too low, too low return)-
Suggests that NWC should be at least as large as current liabilities-
CA(2) - CL(1) = NWC(1) = CL-
Acid Test /Quick Ratio
Current liabilities= current assets - (inventories + supplies + prepaids)
'rule of thumb' > 1:1-
Receivable Ratios
Average collection period1.
Annual (credit) sales= avg. (closing) accounts receivable x 365 days
2% discount in 10 days, or full in 30 days○
Compare to credit terms ex : 2/10, net 30 vs. 59 days-
Check industry terms, discount, penalty, credit granting procedures-
Adds up in a year○
Why so important to take advantage of discount?-
Accounts Receivable Turnover2.
How many times do we collect our accounts receivable
= annual (credit) sales / avg. closing A/R
Risky
If it's slow○
Not getting interest
Limit market
If it's too fast○
Tradeoff?-
Inventory Turnover3.
= cost of goods sold / average inventory
OR sales /average inventory
Tradeoff? - need to achieve a balance - not too slow, not too fast.
Lecture Notes Page 130
No inventory left and others go to another company
Risk○
Tradeoff? - need to achieve a balance - not too slow, not too fast.-
Theory in Use…
"Raiding a company's Hidden Cash"What are the short and long term benefits of operating without a net working capital balance?-
What is the key to operating without net working capital-
Stability
Long term viability○
Measure company's ability to meet its long-term obligations by measuring the relationship between components of a firm's capital structure
-
Shows results of financing decisions-
Debt to Equity or Debt to Net Worth
= total debt / shareholders' equity (net worth)
= current liabilities + long term liabilities
Common stock + pref. stock + retained earnings
'rule of thumb' for industrial firm <1:1-
Firm using other money to make money
As long as does not risk viability
Earn a better return using equity
Does not dilute their interest
Shareholders are fine with debt○
Investors/shareholders?-
Leverage
= long-term debt / sh. Equity (net worth)
Measures the degree to which a company has locked itself into fixed financial costs-
Implies that a given change in sales will result in a greater change in profit-
'rule of thumb' < .5:1 low-
.5 : 1 - 1: 1 average>1 : 1 high
Long term debt is a cheapest source of capital because interest is tax deductible, dividends are not, therefore higher return
○
Advantage-
Higher long term debt means higher interest payments which are a legal obligation whereas dividends are not, therefore a greater risk of insolvency
○
• ex: presently each firm has $1,000,000 in common
stock outstanding, and each needs to finance an
additional $1,000,000…
A B
10% bonds equity with
10% div.
EBIT 1 000 000 1 000 000
-interest 100 000 0
EBT 900 000 1 000 000
- taxes @ 50% 450 000 500 000
EAT 450 000 500 000
Disadvantage-
Lecture Notes Page 131
• ex: presently each firm has $1,000,000 in common
stock outstanding, and each needs to finance an
additional $1,000,000…
A B
10% bonds equity with
10% div.
EBIT 1 000 000 1 000 000
-interest 100 000 0
EBT 900 000 1 000 000
- taxes @ 50% 450 000 500 000
EAT 450 000 500 000
Interest cost 100 000 - tax savings 50 000
= real interest 50000 / 1000000 debt= 5%, not 10% -- lowest cost of capital
A 15% return - 5% cost = 10% overall-
B 15% return - 10% cost = 5% overall-
If return on capital is 15%
But what about B's greater net profit?Additional equity : SHARED
Summary
Low leverage :-
Lowest risk but higher cost of capital= lower return
Higher risk but lower cost of capital= higher return
High leverage-
Lecture Notes Page 132
Keys Points for The Plan/Presentation/Pitch
Cater to reader - embedded images vs appendix○
Get someone to read it - make sure they understand○
Contingency shows ability to be flexible○
PLAN-
Over-communicate what and why
Communicate your vision
Be passionate
They need to believe in idea, potential, and you○
Be confident○
Present what is important - exec summary as guide, high level financials○
Rehearse○
Script, memorize, practice, know○
Work on flow - transitions between speakers○
Beginning - wow factor - remember you in a 'professional' way○
Attire suitable to idea○
Have slides ready with details not included in presentation
Don't BS
Know your plan - Q&A○
PRESENTATION-
Pain statement 0 problem trying to solve○
Gain/value proposition - how does your idea solve it○
Why yours is best way○
How easy/fast will it be to get to market○
How much do you need and what will they get○
Tell them your idea again - SELL it○
Succinct, easy to understand, appeal to their greed *WIFM), irrefutable - don't leave them with more questions than answers
○
Key Points from Last Class
Ratio Analysis - steps, comparisons-
Sufficient level of net working capital
Working capital cycle and effect on NWC
Risk vs. Return
Ratios for measuring management of WCC and interpretation
Liquidity concepts-
Advantages/disadvantages of debt and equity
Ratios for measuring and interpretation
Stability concepts-
Interest Coverage Ratio
PITCH-
= EBIT / Annual Interest-
Helps assess the risk inherent in being highly levered-
'rule of thumb' for industrial firm > 3x, but should look at long-run trend in earnings, and variability in earnings
-
Lecture 13Monday, March 01, 2010
2:53 PM
Lecture Notes Page 133
Profitability
Gross Profit Margin (GPM)-
= gross profit / sales (net)
Net Profit Margin (NPM)-
= net profit / sales
Check components of income statement-
ROI-
= net income / shareholder's equity (net worth)Most important profitability ratio for investor-
– ex:
A B
Sales 10 000 000 10 000 000
Net Income 500 000 1 000 000
NPM 5% 10%
Sh. Equity 1 000 000 5 000 000
ROI 50% 20%
Growth
Measures the rate of growth of any balance sheet or income statement account-
Past yr's "----"= present yr's "----" - past yr's "----"
Marketability
Earnings per Share (EPS)-
# shares of common stock= Earnings available for common stockholders
# shares of common stock= net income - preferred stock dividends
Calculate fully diluted if P/S convertible-
Lecture Notes Page 134
Price /earnings Ratio
EPS
Helps gauge stock value and growth prospects-
If high P/E ratio - why would people bit up price relative to earnings available?-
Low price/earnings not growing, high payout-
= market price / share
Yield
Price/share ( your investment )= dividends/share
Payout
EPS
Relationship to P/E ratio?-
= dividends /share
Lecture Notes Page 135
Key Points from Last Class
Risk of leverage - interest coverage ratio○
Stability -
Margin vs ROI○
Profitability-
EPS - fully diluted○
Price/earnings vs payout○
Importance of dividend decision○
Operations
Service vs manufacturing
Production vs. Operations-
Processes used
Types of operations-
Responsible & decisions-
Trends- sustainable operations-
Modern tools & techniques-
Quality control-
Service vs. Manufacturing
Focus on performance-
How to make□
Manufacturing
How it tastes□
Are facilities clean?□
Service
Focus on process and outcome-
Intangibility
Unlimited customization for service□
Customization
Can't store a service□
Unstorability
Focus on service characteristics-
Focus on customer-service link-
Focus on service quality-
Types of OperationsClassified by processes used
Transforming a raw material□
Chemical
Fabrication
Assembly
Transport
Clerical
Services take person and make them happy□
Transformation 'technology'-
Marketability-
Lecture 14Monday, March 08, 2010
2:36 PM
Lecture Notes Page 136
Clerical
Material build into product (synthetic)□
Analytic (breaking down a product to retrieve product) like a gas□
Analytic vs. Synthetic System-
Either high or low□
Responsibilities
3 major foundational concerns:
Form and function (trade off)
Match voice of customer to voice of engineer◊
Standardization◊
Prototyping◊
Techniques
CAD (COMPUTER ASSISTED DESIGN)◊
CAM (COMPUTER ASSISTED MANUFACTURING)◊
Must be communication with each other◊
Technologies
Research and development
Examples
Waiting lines-
Assembly lines-
Minimize sitting◊
Inventory systems-
Decisions
Make or buy-
B/E (break even)-
Optimal operating levels-
Quality management-
Tools/Techniques
Flowcharts-
Simulation (process prototype)-
ERP - Enterprise resource planning-
TQM - total quality management-
Product Design-
Supply Chain Management
Seamless from raw material to giving to customer-
Trends - Sustainable Operations
The next industrial revolution-
Eco-effectiveness : "cradle to cradle" design-
Vs. eco-efficiency : "cradle to grave" systems-
Biomimicry-
Product stewardship-
Sustainability through servicing
Extent of customer contact-
Lecture Notes Page 137
Sustainability through servicing-
Sustainability of the supply chain-
Cradle-to-Cradle Design
Intelligent design can eliminate the concept of waste-
Recycle into similar material◊
Biological and technical nutrients-
Products developed for closed loop systems-
Based on nature's design principles - "waste equals food"-
Eco-effective vs eco-efficient design-
C2C can certify C2C products
Biomimicry
Sustainable innovation inspired by nature -- "biologically inspired engineering"-
Based not on what we can extract from organisms and ecosystems, but what we can learn from them.
-
Product Stewardship
The responsible and ethical management of the health, safety, and environmental aspects of a product throughout its total life cycle
-
The concept of extended producer responsibility - accounting for the impact of a product during use and after disposal
-
Sustainability through Servicing
Increased efficiency and creation of environmentally benign product and processes necessary but not sufficient
-
Gains may eventually be countered by increases in consumption-
Turn demand for reduced material use into a strategic opportunity-
Services more difficult to imitate - competitive advantages-
Change business model from selling products to providing services-
Products becoming commoditized-
1994 -" the document company " - help companies improve efficiencies in document intensive business processes
-
Increase productivity and reduce costs - better customer relationships - not likely to change suppliers , other product opportunities, attract new customers
-
Xerox-
Sustainability of the Supply Chain
Management of raw materials and services from suppliers to manufacturer/service provider to customer and back with improvement of the social and environmental impacts explicitly considered
-
Outsourcing business operations doesn't mean outsourcing responsibilities or risks in today's global economy - sustainable supply chain management is key to the integrity of the brand.
-
Lecture Notes Page 138
Key Points from Last Class
Service vs manufacturing○
Type of operations○
Responsibilities○
Cradle to cradle design
Biomimicry
Product stewardship
Sustainability through servicing
Sustainability of the supply chain
Trends - sustainability○
Operations-
Sustainability of Supply Chain
Wal-Mart
Pilot program with suppliers of seven common items - to measure and reduce the amount of energy used in making and distributing them
-
Home Depot
Gives marketing and store display preference to EcoOptions line of environmentally friendly products and favours suppliers that come up with new categories of green products
-
Starbucks
Sources primarily regions in west Africa that rely on forms of child labour - invested in rural communities
○
Before it launched a new line containing cocoa-
Timberland
Organic materials
Decisions
Cost implications - rent, land○
Close to labour pool○
Convenience is service based○
Location - cost, proximity, convenience-
Assembly-line/product - design layout based on product○
Process - focus on processes for unique products○
Modular/cellular - sequence of creation○
Fixed position - production cannot move, yacht, plane, go to product to produce○
Lay out-
Don't want to add capacity later
Don't want to outsource
Don't want to lose customer
Just above demand ○
Depends on how much contact
Capacity at peak demand for high contact
Capacity at average demand for mid contact
For services○
Capacity - goods/high & low contact services-
Lecture 15Monday, March 08, 2010
3:39 PM
Lecture Notes Page 139
Capacity at average demand for mid contact
Add value○
bottleneck
Speed up service "fail" points○
Limit human discretion to increase consistency○
Worker interaction with customers○
Method-
Appointments, reservations -- service○
Scheduling-
Materials management - design, material flows, and inventory○
Process control - worker training, just in time, quality○
Modern Production Techniques
Mass production technology vs. new economy-
Change vs. stable market conditions-
Customer-driven - effectiveness vs efficiency-
Customization and innovation vs repetition-
Theory In Use
"the customized, digitized, have it your way economy"-
What is mass-customization and what makes it possible?-
What implications does this 'new economy' have on a company's marketing and financing-
Economic order quantity (EOQ)-
MRPII information fed into processes-
Materials requirement planning (MRP)/MRPII-
Everyone being linked in one computer system; every area in supply chain-
Enterprise resource planning (ERP)-
Materials come in just in time-
Just in time inventory control (JIT)-
Using equipment that can adapt to changing needs-
Flexible manufacturing-
Manufacturing as little waste as possible-
Lean manufacturing-
Replacing humans-
Robotics-
Effective and efficient, combination-
Mass customization-
Want two to work together-
CAD/CAM-
Computer integrated manufacturing, combo of above-
CIM-
Quality Control
Produce quality at efficient level to be productive-
Productivity- quality connection-
Focus on quality of everything we do-
Edwards DemingW.
Total quality Management (TQM)-
Don't wait until your finished to check
Check sampling
Checking statistics
Monitor own quality every step
Statistical Process Control-
Control-
Lecture Notes Page 140
Monitor own quality every step
Extension of stat, getting workers together and asking for opinion
Quality circles-
Use firm of highest quality and compare
Benchmarking-
Certifies company that quality is good
Levels playing field
Required to do business worldwide
ISO-
Six sigma-
Lecture Notes Page 141
Key Points from Last Class
Sustainability of the supply chain-
Location, layout, capacity○
Methods, scheduling, control○
Decisions-
Modern techniques○
Mass production vs new economy-
Productivity-quality connection○
TQM, statistical process control, quality circles, benchmarking, ISO certification○
Theory in Use:
Harley Davidson-
What happened at Harley-Davidson that pushed it to the bring of bankruptcy-
What operational principles/techniques did Harley-Davidson use to turn itself around?-
Quality control-
Human Resources
Responsibilities
Forecasting human resource needs/planning-
Recruiting potential candidates-
Selecting the best available-
Training and developing-
Performance = ability x motivation
Encouraging high performance-
Performance evaluation-
Compensation-
Union/management relations-
Sustainability and HR
Accenture - 60% rated ethical mgmt as important factor in job search□
Globescan - 68% disagreed that salary is more important than a company's social and environmental reputation when deciding where to work, and 53% said very likely would not apply for job at company that was socially irresponsible
□
KPMG – among workers who feel their bosses lack integrity only 20% would recommend workplace vs 80% who believed company had strong ethics would
□
Recruiting and retaining top talent
3 critical challenges facing HR professionals-
To respond to emerging demands of stakeholders
Sustainability fosters innovative approaches and informs the way people think and act
Enhancing critical competencies - training-
GlobeScan –80% of people felt greater motivation and loyalty the more socially responsible their employers became
MORI – 70% of staff who were committed to the values of the company said their productivity had increased
Incentives must be aligned with goals of sustainable development
“Does Sustainability Change the
Talent Equation?” MIT Sloan Management Review Fall „09
• Annual Sustainability Initiative Survey – collaboration
between MIT Sloan Management Review and the Boston
Consulting Group (BCG)
– When a company takes up sustainability, how does people
management change?
• Talent recruitment and retention rises
• Employee engagement and
productivity improves
• Employee expectations rise
Creating incentives for exceptional performance-
Lecture 16Monday, March 15, 20102:28 PM
Lecture Notes Page 142
“Does Sustainability Change the
Talent Equation?” MIT Sloan Management Review Fall „09
• Annual Sustainability Initiative Survey – collaboration
between MIT Sloan Management Review and the Boston
Consulting Group (BCG)
– When a company takes up sustainability, how does people
management change?
• Talent recruitment and retention rises
• Employee engagement and
productivity improves
• Employee expectations rise
Planning
Describes the job□
Job description
Specifies characteristics of worker to do job well□
Job specification
1st need to do a job analysis-
Numbers and skills□
Goals
Internal and external environment□
Project future demand
Forecasting/Planning - Stapes :-
Currently, then how will this change?□
Inventory of numbers and skills
Adjust for future - retirement, turnover, promotions and training
Project future supply-
Shortages and surpluses in numbers of skills
Determine net needs / "gap"-
Develop plan…-
Evaluate and make changes-
Absenteeism - develop plan - soft vs hard
Caring and concerned about reason□
Soft approach
Deals with the surface□
No fault approach□
Hard approach
Contingency-
Human Resource Plan-
Increase efficiency
Overtime
Training and transfers
Use resources better□
Change plans
Subcontract - "out sourcing"
Capital vs. people
Decrease requirements□
hire□
Shortage options-
Surplus
Choice :Size-
Lead time-
duration-
Lecture Notes Page 143
Surplus
Layoff - Firing
Layoff is not permanent, firing is layoff permanently-
Labour not always cutting workforce-
Downsize-
Cutting to what you want to achieve-
Rightsize-
Allow people share jobs-
Job sharing-
Recruitment
Sources :
Doesn't work for entry level positions-
Doesn't work for top top positions-
Works if you're stable-
From within - cheap, fast, good for morale-
Recommend someone good (pre-selection)□
Tell what's bad about the job (pre-conditioning) know reality of job□
Pre-conditioning, pre-selection-
Word of mouth-
Public vs. private - "headhunters"-
Employment agencies-
College/university recruitment-
Trade union / professional association-
Advertisements-
Professional contacts-
Unsolicited applications-
Approaches
Don't have to continually go through the process-
Realistic approach -
Selection
Must 1st consider 3 factors in designing selection procedures-
Human Rights Legislation
Employment equity-
Validity
Predict success/performance-
Reliability
Predicts success consistently -
Choice :Budget-
Lead time-
Type of job-
Lecture Notes Page 144
Key Points from Last Class
Recruitment, retention, and training
Engagement, productivity, and incentives
Expectations
How sustainability affects HR○
Responsibilities of HR department-
Job analysis - what it is, importance-
Steps, contingency - absenteeism - hard vs. soft approaches○
Downsize vs rightsize
Layoffs, hiring freeze
Job sharing
Handling shortages and surpluses - application ○
H/R Planning-
Sources, application○
Recruitment-
Selection
Administer the selection procedure to a group of people and correlate (compare) the results/predictor scores with performance/criterion scores
Look for valid predictors
Given procedure to applicants
Hire them, then watch how they work, assess
Lengthily and then make correlation
More accurate results
Predictive□
Taking current employees and comparing performance
Quicker
Results tainted by experience
Concurrent□
Best approach is to do both□
Lecture 17
Audio recording started: 1:16 PM Wednesday, March 17, 2010
Theory in Use…
"New face of work" and "diversity Works"What does the employment equity act require of employers-
Why should employers not covered by the act still strive for employment equity-
Education and experience►
"bonafide qualifications"►
Actual ability not assumptions►
What can you ask?◊
Screen for job specifications►
What is it used for?◊
50 answer YES, 40 high performers = weight 80►
"weighted application blank"◊
Application forms
Interviews
Methods :-
Difference is in who administered to and implications :
Predictive and Concurrent-
Validation Process - criterion validity-
Lecture 17Wednesday, March 17, 2010
1:00 PM
Lecture Notes Page 145
Most common but least valid◊
First impression
Early bias►
Negative influence►
Hypothesize►
Match to ideal►
Some characteristics overshadow everything
Halo effect►
Rate everyone average
Rate everyone easy
Rate everyone low
Central tendency /leniency / strictness►
Following earlier performance could be better or worse
Rating depending on order►
Because of interviewers and questions asked◊
Degree of variance and validity of questions◊
Solution :
Train interviewers-
Use more than one-
Give feedback-
Interviewers :
Use job analysis as guide for developing questions-
Validate questions-
Use "patterned" questions-
Questions :
Interviews
Pen and paper or job sample►
"assessment centres"►
Ability/aptitude◊
Measuring for a personality trait (construct)-
Is construct related to performance-
Construct validity►
Psychologist projects your personality from your response
–
Projective-
Yourself–
Self-report-
Types - self-report and projective►
Use more for placement and career counseling-
Interest inventories►
Personality◊
Compensation
Attraction - external equity►
Retention - internal equity►
Motivation - provide incentives►
Three objectives-
Wage survey establishes base rate►
Applicants must understand adjustments-
Adjust in regards to economy, nature of company and industry, and nature of job
►
External equity-
Evaluating the job to assign pay-
Job evaluation►
Job analysis-
Develop list of factors to rate jobs on-
Rate jobs *
Job evaluation steps►
Internal equity-
Testing
Lecture Notes Page 146
Rate jobs *-
"price the pay structure"–
Assign pay based on relative value-
"Point Method"Universal factors1.Factors universally applicable-
Skill, effort, responsibility, job conditions-
Subfactors, 3. degrees, 4. point values, 5. pay grades2.What factors relevant used to reward pay-
Specific to company-
3.-
Define different amounts of subfactors-
4.-
Score each subfactor-
Done by employees as well-
5.-
Add point scores, ranges = paygrades-
1st 2nd 3rd 4th 5th
Factor Degree Degree Degree Degree Degree
Skill
Knowledge 14 28 42 56 70
Experience 22 44 66 88 110
Initiative and Ingenuity 14 28 42 56 70
Effort
Physical Demand 10 20 30 40 50
Mental Demand 5 10 15 20 25
Responsibility
Equipment or process 5 10 15 20 25
Material or product 5 10 15 20 25
Safety of Others 5 10 15 20 25
Work of Others 5 10 15 20 25
Job Conditions
Working Conditions 10 20 30 40 50
Hazards 5 10 15 20 25
Score Range Grade
139 and under 12
140-161 11
162-183 10…
…316-337 3
338-359 2
• Pricing the Pay Structure...
Pay
Rates
Pay Grades / Job Evaluation Points
Pay Equity Legislation
Not "equal pay for equal work"-
Prohibits paying different wages to employees who work for the same firm and who work in jobs that are different but of comparable worth to company
-
Ends wage discrimination in jobs where there are few men with which to make comparisons for equal pay
-
Federal government, ontario, quebec - both public and private sector
#1 Universal Factors #3 degrees defined
#2 subfactors #4 Point values
#5 Pay grades
Trend Line
Range
leave him
Increase pay
Lecture Notes Page 147
Required to develop and implement plans but complaint based system
In federal law for over 30 years '77 but wage gap still exists
Federal government, ontario, quebec - both public and private sector-
"systemic wage discrimination" -established compensation practices that tend to unconsciously favour and reward work done by male workers
Eliminate portion of wage gap that can't be explained by differences in education, labour marker experience, or seniority.
Ensure paid same for jobs of equal value regardless of gender-
Lecture Notes Page 148
Key Points from Last Class
Selection
Methods - issues, solutions
Compensation
External equity
job evaluation process-
Pay equity legislation-
Internal equity
Audio recording started: 1:17 PM Monday, March 22, 2010
Lecture 18
Labour Relations in Ontario
Structure of labour movement-
Relationship between union and management-
Different types of unions-
Certification process-
Negotiations - strategy and process-
Contract administration-
Primary/ Secondary Stakeholders - UNIONS
Secondary-
If you don't have a union
Primary-
If you do have a union
Management - represent rights of owners○
Union - represents rights of employees○
Ontario labour relations act-
Only federal if your job cross into another province□
Canada labour code-
Government - Formulate rules○
Tripartite System-
AFL-CIO
U.S. Headquarters
Canadian Branches
of Internationals
Regional Offices
CLC or CFL
Provincial Federations
of Labour
Local Labour
Councils
Local Unions
National Unions
Regional Offices
Lecture 18Monday, March 22, 2010
12:57 PM
Lecture Notes Page 149
AFL-CIO
U.S. Headquarters
Canadian Branches
of Internationals
Regional Offices
CLC or CFL
Provincial Federations
of Labour
Local Labour
Councils
Local Unions
National Unions
Regional Offices
Set policies○
Help legal matters○
Help strike fund○
Help bargaining○
Parent - let locals do their own thing, they have authority and final say, help with financial trouble-
Local - day to day, contract bargained, grievances handled, branches of union-
Labour congress - association of many unions - promote interest of unions, lobbies with government, settle parent disputes
-
AFL = American federation of labourCIO = Congress of industrial organizationsCLC = Canadian labour congressCFL = Canadian Federation of Labour
Union vs. Management
Union
Peak season-
Timing○
Threat of a strike-
Strike fund○
Ability to carry it out-
Management
Stockpiling○
Subcontracting ○
Management does work-
Skeleton staff○
"scabs"-
Replacement workers-
"strikebreakers"○
Strike insurance○
Ability to withstand a strike-
__________________________________Industry wide lockouts-
Imbalance in size○
Small employers band together to bargain as a group with a large employer○
Employer assoc'n bargaining-
Lecture Notes Page 150
Craft vs. Industrial Unions
Craft - same skillWorkers with same skill-
Also called trade/labour unions-
Limit access, limit apprenticeship
Because of sequential nature of work, if one trade is gone, nothing is done.
Create monopoly over scarce resource (skill) + ○
Power-
U- Withdraw, jobs at other sites, info. Picket○
Only thing they can do.
M - industry-wide lockout○
Tactics-
Little violence○
Resolved quickly○
Strike characteristics-
Industrial Same industry/company-
Can be replaced, but makes it difficult to replace
Strength in numbers○
Power-
Get angry people there to intimidate
U - control physical access through picket line○
M - withstand strike○
Tactics-
Can be violent○
Can be very long○
Collective Bargaining Process Union Certification
To gain the right to bargain for a group of employees, the union must first demonstrate to OLRB that the employees want the union as their exclusive bargaining agent
-
Voluntary recognition1.
Organizing/membership drive□
Certification hearing□
Certification Process
Certification process - through OLRB-
Signed union card
Gather proof that the employees want the union-
SPY, PROMISE, INTERROGATE, THREATEN = BAD.
Management must not interfere - undue influence - SPIT-
Organizing/Membership drive
Desires of U and M
Desire not to split into too many bargaining units
Splitting office and production workers
Removing management from group
Nature of work, conditions of employment, and skills◊
"community of interest" of workers
"appropriate" bargaining unit-
Certification Hearing
Certification Hearing
Strike characteristics-
Lecture Notes Page 151
List of names to management
Management has 2 days to challenge names
"appropriate" bargaining unit ---
Determine if union has support of bargaining unit-
#signed union cards# in bargaining unit
< 40% application dismissed
Within 5 days of mgmt checking list
> 40% representation vote
Certification Hearing
Lecture Notes Page 152
Key points from Last Class
OLRA vs. Canada Labour Code-
Identifying them, relationship between them, and roles
3 levels○
Structure of labour movement-
Sources of power○
Union/management power struggle-
Membership - power source - tactics used - strike characteristics○
Craft vs. industrial unions-
Membership drive - undue influence○
Certification hearing - bargaining unit, representation vote○
Lecture 19
Audio recording started: 1:25 PM Wednesday, March 24, 2010
Contract Negotiations
Union certification-
• true „winner‟
• greater „power‟
Mgmt.‟s
Initial
Offer
Union‟s
Initial
Demands
Range of Acceptable
Outcomes
Mgmt. won? Union won?
resistance points
Argue position○
Soft vs. hard○
Standard strategy - 'positional' bargaining-
Limited resources
Win/lose
Distributive○
Cooperative, mutual
Work together
Integrative○
Distributivevs. Integrative bargaining-
Developed at the Harvard Negotiation Project○
Produces a wise agreement
Efficiently
Improves/doesn't damage relationshipAnd amicably
Criteria for judging negotiation○
Principled negotiations-
Lecture 19Wednesday, March 24, 2010
1:20 PM
Lecture Notes Page 153
Improves/doesn't damage relationship□
"Principled Negotiation"
Attacking the problem together
Separate the people from the problem Amicable-
Focus on underlying interests
Interest is why you want what you want
Focus on interests, not positions WISE-
Generate a variety of options before deciding what to do WISE-
Insist that the result be based on some objective criteria WISE-
= EFFICIENT
4 basic points
Concern
for My
Interests
Concern for Their Interests
HIGH
HIGHLOW
Competing/Forcing
Hard Positional
AvoidingAccommodating
Soft Positional
Collaborating
Principled/Integrative
Compromising
Distributive
Forcing Accommodating Compromising Avoiding Collaborating
Issue
Importancehigh low medium low high
Relationship
Importancelow high medium low high
Relative Power high low equal-high equal-high low-high
Time
Constraintsmed-high med-high low med-high low
Negotiating Strategy
- based on situational considerations
Stages of Negotiations
Typically management would present proposal first-
Set agenda and take control-
Not be wise if you don't know what union wants-
Take reactive if you don't know and wait…-
If you're reactive you don't set tone; get sense where other side is at-
Reactive vs. proactive approach
Explain nature of proposal and necessity for acceptance vs. detailed justification
Opening statements-
WIN/LOSE
LOSE/WIN
WIN A LITTLE/LOSE A LITTLE
LOSE/LOSE
WIN/WIN
Lecture Notes Page 154
If you're reactive you don't set tone; get sense where other side is atExplain nature of proposal and necessity for acceptance vs. detailed justification
Offer counterproposals
Present detailed information to support or refute proposals - identifies range
Do this integrative way-
Tradeoffs - concessions
Middle stage-
Take proposal back to bargaining unit-
Weigh costs and gains of proposed settlement relative to costs of no settlement
Contract Negotiations
Final stage-
Not available in Ontario
Union has no security
Have to collect their own dues
No assistance
No security in terms of management
(open shop)-
Everyone in union gets dues taken off paycheck by management
Voluntary Check-off of Dues-
Everyone in bargaining unit pays dues get it taken off pay check
Rand Formula /Agency Shop-
Status quo
Keep membership at certain size, if you join you stay a member, you quit, you lose job.
(maintenance of membership)-
After a period of time you have to join
Only if you are permanent you have to join
Union Shop-
Have to be a union member
Automatic
Not legal in USA
Closed shop-
Form of recognition / union security
Duration and Renewal
Contract for at least 1 year (3 year more normal)-
If both agree-
Renegotiate anything-
Seniority - "superseniority"-
Every union vote for someone as a union rep.-
"superseniority" applies to union rep. and treated as if they are there longest.-
Issues-
Least to most secure
Lecture Notes Page 155
10 multiple choice-
Chapter 8,9,11,12,14, and 20 as indicated on course outline - material not covered in class-
Less emphasis on finance
Finance, operations, HR and labour relations○
60 marks short answer-
3 questions - cash budget, EBIT analysis, ratios - statements and formula sheet attached○
30 marks problems-
More detailed breakdown and review Wednesday-
Key Points from Last Class
Resistance points, range of acceptable outcomes○
Situational considerations
Positional/distributive vs principled/integrative bargaining○
Negotiation strategy-
Stages in negotiations-
Union security○
Superseniority ○
Issues in negotiations-
Union Security
Clause 1. (same as present agreement) Each month the company will deduce from the pay cheque of each employee in the bargaining unit, whether a member of the union or not, an amount equivalent to monthly Union duesas specified in the Union Constitution and will promptly transmit such deductions to the secretary-treasurer of the union
Clause 2 : The company agrees that all employees who are or who become members of the Union shall remain dues-paying members as a condition of continuing employment.
Contract Negotiations
Settlement
Contract in effect at end of existing or "retroactive"□
If employees want to ratify the contract (permanent)
if agreement - ratification vote-
Conciliation - before strike/lockout
Mediation
Arbitration
If no agreement …-
Potential costs of a strike-
Conciliation Process
Audio recording started: 1:22 PM Monday, March 29, 2010
FINAL EXAM
Conciliation Officer
- 14 days maximum
Report
“No Board Report”
- strike cannot be averted
Conciliation Board
- strike could be averted
- 30 days maximum
14 day „cooling off‟ period
strike/lockout legal
on 17th day
Report
7 day „cooling off‟ period
strike/lockout legal
on 10th day
If you are not in legal strike position - wildcat strike.
Meditation
Paid for by government
Strip both teams down to 1 representative and make suggestion and hopefully they settle
2 days for mailing
Government saying you should not strike. 9 days
Strikers ask for these
2 days to mail report
Lecture 20Monday, March 29, 20101:06 PM
Lecture Notes Page 156
Meditation
After conciliation process exhausted-
No effect on legal timing of strike-
Voluntary - cost borne equally-
Like conciliation officer or board, can only make suggestions-
Arbitration
Voluntary - critical both sides agree to it.-
Compulsory for essential services ("interests" arbitration) or if gov't intervenes-
Here decision gets made
Decision final and binding-
Final offer - total package selection
Compromise□
Final offer - issue by issue selection
Conventional arbitration
3 types-
Voluntary/CompulsoryBinding/Non-BindingEffect on Strike
Conciliation
Mediation
Arbitration VoluntaryIf Government forces itFor essential
Voluntary
Voluntary
Binding
Legal strike position
Ends the strike
Contract Administration
Both sides watch that the other lives up to the terms of the agreement-
Resolve conflicting interpretations of contract○
Statute of limitations
Escalation to higher levels
Time limits
Culminates in "rights" arbitration□
Arbitration at end
Procedure outlined in contract, but elements same…○
If not… Grievance Procedure-
Next Class
Final exam reviewStudy guide on course website-
Remember to do yourPresentation peer evaluations-
TA evaluations-
Lecture Notes Page 157