Technical Articles

Question 1

Briefly explain the Strategic Planning Process?

Answer 1

Strategic Planning Process

1. Strategic Analysis (Capabilities/Position)
2. Where do we want to go? (Company Mission and Objectives)
3. Constraints exist on our resources? Strengths, Weaknesses of 6M’s
4. key threats from the external environment? Pestel, Porter Diamond, 5 Forces, Product and Business Life cycle.
5. Strategic Choices
6. On what basis do we decide to compete?
7. Which direction should we choose?
8. How are we going to achieve the chosen direction?
9. Strategic implementation
10. Resource management.
11. Organisational structure.
12. Management of change.

Question 2

Briefly explain the Strategic analysis stage of the Strategic Planning Process?

Answer 2

Strategic Analysis (Capabilities/Position)

• Where do we want to go? (Company Mission and Objectives)
  
  • Influenced by Shareholders or Public Sponsor
• What constraints exist on our resources? (Strengths and Weaknesses of company)
  
  • 6 M’s
  • Money – Availability, Gearing
  • Machinery – Technology and threat of obsolescence, maintenance,
  • Manpower – Price, Capability, performance, management structure
  • Markets - (BCG Matrix) Strength of current Product
  • Materials – Favourable access, future reliability, rarity
  • Make-up – Company structure and Culture supports growth
• What are the key threats from the external environment? (Opportunities and threats)
  
  • Pestel
  • Porters Diamond
  • Porters Five Forces
  • Business Life Cycle
  • Product Life Cycle

Question 3

Briefly explain the Strategic Choice of the Strategic Planning Process?

Answer 3

Strategic Choices

1. On what basis do we decide to compete?
   
   • Porters Basis Differentiation
2. Which direction should we choose?
   
   • ​Ansoff’s Growth vector (Products vs Market Mix)
     
     • Do nothing
     • Withdraw
     • Market Penetration
     • Market Development
     • Product Development
     • Diversification
3. How are we going to achieve the chosen direction? (SAF Model)
   
   • Suitability – Strategic Fit with objectives, strengths, culture
   • Acceptability – Shareholder, staff, customers, suppliers, wider public and media
   • Feasibility – is strategy possible does company control
     
     • Financial resources
     • Management skills
     • Staff
     • F.E.S.T. – Financial, Environmental, Social, Technological

Question 4

Briefly Explain Strategic implementation (Strategy in Action)

Answer 4

Strategic implementation

1. Resource management.
   
   • (6M’S) Boston
2. Organisational structure.
   
   • Centralisation and Decentralisation
3. Management of change.
   
   • Process redesign
   • Project Management
   • D.I.C.C.E
   • Unfreeze, Change and Refreeze

Question 5

Briefly Explain the different faces of the Coso Cube and the purpose of the framework?

Answer 5

COSO’s enterprise risk management (ERM) model has been established as a model that can be used in different environments worldwide.

Aims of the framework“provide thought leadership through the development of comprehensive frameworks and guidance on enterprise risk management, internal control and fraud deterrence designed to improve organisational performance and governance and to reduce the extent of fraud in organisations.’

Illustrated in the form of a cube, intending to illustrate the links between

The Top Objectives:

• Strategic
• Operational
• Reporting
• Compliance

Front, 8 components which represent what is needed to achieve the objectives.

1. Internal Environment
2. Objective Setting
3. Event Identification
4. Risk Assessment
5. Risk Response
6. Control Activities
7. Information & Communication
8. Monitoring

The third dimension represents the organisation’s units,

• Entity Level
• Division
• Business unit
• Subsidiary.

Question 6

Briefly explain the 8 components of COSO cube?

Answer 6

Internal (Control) environment

• The tone of the organisation, influencing risk appetite, attitudes towards risk management and ethical values. Ultimately, the company’s tone is set by the board.
• It may be undermined by a failure of management in divisions, Mechanisms to control line management may not be sufficient or may not be operate

Objective setting

• The board should set objectives that support the organisation’s mission, and consistent with risk appetite. It needs to be aware of the risks arising if different objectives are pursued.
• Entrepreneurial risks are risks that arise from carrying out business activities
• Risk tolerance – the acceptable variation around individual objectives – should be aligned with risk appetite.

Event identification

• The organisation must identify internal and external events that affect the achievement of its objectives.
• Organisations should have a process for event identification for one-off and gradual increase of risks in important areas, which should feedback to strategy setting.
• The distinction between strategic and operational risks is also important here.
• There may be a culture of no-one expecting anything to go wrong.

Risk assessment

• The likelihood and impact of risks are assessed, as a basis for determining how to manage them, managers also need to consider how individual risks interrelate.
• stresses the importance of employing a combination of qualitative and quantitative risk assessment methodologies. As well as assessing inherent risk levels, also assess residual risks left after risk management actions.

Risk response

• Management selects appropriate actions to align risks with risk tolerance and risk appetite.
• This stage can be seen in terms of the four main responses – reduce, accept, transfer or avoid. However risks may end up being treated in individually, stresses the importance of taking a portfolio view of risk.
• The risk responses chosen must be realistic.
• Part of the risk response stage will be designing a sound system of internal controls. suggests that a mix of controls will be appropriate, including prevention and detection and manual and automated controls.

Control activities

• Policies and procedures should operate to ensure that risk responses are effective.
• The guidance states: ‘It is not merely about policy manuals, systems and forms but people at every level of an organisation that impact on internal control.’
• Human element is so important, many of the reasons why controls fail is because of problems with how managers and staff utilise controls.
• Stresses the importance of segregation of duties, to reduce the possibility of a single person to act fraudulently and to increase the possibility of errors being found.
• Stresses the need for controls to be performed across all levels of the organisation, at different stages within business processes and over the technology environment.

Information and communication

• Information systems should ensure that data is identified, captured and communicated in a format and timeframe that enables managers to carry out their duties.
• The information provided to management needs to be relevant and of appropriate quality. It also must cover all the objectives shown on the top of the cube.
• As with other controls, a failure to take provision of information and communication seriously can have adverse consequences.

Monitoring

• The management system should be monitored and modified if necessary.
• At board level, the Turnbull guidance on the scope of regular and annual review of risk management has been very important.
• unmonitored controls tend to deteriorate over time. drawing a distinction between regular review (ongoing monitoring) and periodic review (separate evaluation).
• stresses the importance of feedback and action. Weaknesses should be reported, assessed and their root causes corrected.

Question 7

What are some of the criticisms of COSO CUBE

Answer 7

• It starts at the wrong place. It begins with the internal and not the external environment. Critics claim that it does not reflect sufficiently the impact of the competitive environment, regulation and external stakeholders on risk appetite and management and culture.
• An excessive focus on internal factors, for which the model has been criticised, could result in a concentration on operational risks and a failure to analyse strategic dangers sufficiently.
• encouraging an over-simplified approach to risk assessment. It’s claimed that it encourages an approach that views the materialisation of risk as a single outcome. This outcome could be an expected outcome, or it could be a worst-case result. Many risks will have a range of possible outcomes if they materialise risk assessment needs to consider this range.
• The ERM has been criticised for discussing risks primarily in terms of events, particularly sudden events with major consequences. Critics claim that the guidance insufficiently emphasises slow changes that can give rise to important risks – for example, changes in internal culture or market sentiment