Page 138 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 6: Strategic Planning for Management Control

There is no set timetable for analyzing investment proposal. Analysis is done after the Notes
receipts of proposals, as people are available. Approved projects are collected during the
year for inclusion in the capital budget. The capital budget contains the authorized capital
expenditure for the budget year and if additional amounts are approved, cash plans must
be revised.
Self Assessment

Fill in the blanks:
4. …………….. for programs are essentially either reactive or proactive.
5. A highly structured ……….. system may create the wrong atmosphere.

6.3 Analyzing Ongoing Programs

In addition to new programs, many companies have systematic ways of analyzing ongoing
programmes. Several analytical techniques can aid in the process, two such tools are value chain
analysis and activity based costing.
6.3.1 Value Chain Analysis

The value chain for any firm in any business is the linked set of value creating activities to
produce a product from basic raw materials source for component suppliers to the ultimate end-
use produce delivered into the final consumers’ hands. Each firm must be understood in the
context of the overall chain of value creating activities of which it is only a part. From a strategic
planning perspective, the value chain concept highlights three potential useful areas.
1. Linkages with suppliers: The linkages with suppliers should be managed so that both the
firm and its supplier may benefit in lowering costs, increasing value or both. This is
provided in Figure 6.3:

Figure 6.3: Profit Improvement Opportunities through Linkages with Suppliers

Supplier’s suppliers Suppliers Firm

2. Linkages with customers: As shown in Figure 6.4, customer linkages can be just as important

as supplier linkages since it becomes mutually beneficial.
Figure 6.4: Profit Improvement Opportunities through Linkages with Customers

Firm Customers Customer’s Customer

3. Process linkages within the value chain of the firm: Value chain analysis explicitly
recognizes the fact that the individual value activities within a firm are not independent
but rather are interdependent. The company might want to analyze the process linkages
within the value chain, seeking to improve their efficiency.

Notes Reducing the number of separate parts and increasing their ease of manufacture
might increase efficiency of the design portion of the value chain.

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