Introduction to Business Economics

Transcription

1 Lecture Introduction to Business Economics University of Innsbruck Wirtschaftsinformatik Winterterm 2016/17 Lecturer: o.univ.-prof. Dr. Richard Hammer

2 Recommended literature for examination Führungsorientierte Betriebswirtschaftslehre 2., überarbeitete und aktualisierte Auflage Manz Verlag Wien ISBN

3 Recommended literature for examination Unternehmensplanung 9. Auflage De Gruyter / Oldenbourg Verlag München

4 Examination Mode 4 TO 6 QUESTIONS NO MULTIPLE CHOICE 4

5 Core Competencies of Management - the Management Cycle Company Organisation Corporate Planning Strategic Corporate Planning Implementation and Leadership...

6 Core Competencies of Management - The Management Cycle

7 The Basic Model by Mackenzie Creating a targeted framework Hire qualified staff Designing a target-system HR allocation Organisation Defining Things Humans Ideas Analysing Elements Planning Basic functions Management Communicating Monitoring Focussing actions towards the target targetperformance comparison Functions Activities (Fig. based on Mackenzie 1969, p. 81) 7

8 The Management Cycle Organisation Planning target x actual Implementation/Leadership Including hiring procedure Controlling Adjustments + Steering (Fig. Hammer 2012, p. 99) 8

9 The Functional and the Institutional Management Approach MANAGEMENT FUNCTIONAL Management-functions INSTITUTIONAL Management-people Management includes all functions and acts of planning, regulating and controlling in order to create a target-oriented organisation and to control a system. All People or groups empowered to give directives and delegate. (Fig. based on Dillerup/Stoi 2006, p. 7) 9

10 Selected Key Aspects of Management Top Management Strategic decisions Middle Management Organising Dispositional decisions Lower Management Executing functions (Fig. based on Schierenbeck/Wöhle 2008, p. 113) 10

11 Corporate Planning

12 Basics, Definition and Characteristics 12

13 Content 13

14 Functions 14

15 The Time Dimension of Planning 15

16 Rolling Wave Planning Planning horizon Planning cycle 1 S L 2 S L 3 S L 4 S L 5 S L S: Short-term Plan L: Long-term Plan (Fig. Hammer 2012, p. 109) 16

17 Planning Processes/Phases TOP-DOWN The top management defines strategy, policy and vision. Subordinate levels break down the plan and execute it. BOTTOM-UP Planning is done by the lowest organisational units. They transfer the sub-plans to superior and coordinating levels a master plan is created out of these sub-plans by the top management. MIXED PLANNING Combines top-down and bottom-up planning - the top management drafts conceptual plans which are given to the subordinate levels, where the plan is adapted and stated more precisely. In order to consolidate and integrate the plans they are sent back to the upper levels. 17

18 External and Internal Units Responsible for Planning Tasks TOP MANAGEMENT Vision, corporate statement, corporate policy Strategic planning Approval of master plans LINE MANAGEMENT Functional planning, are plans PLANNING DEPARTMENT Elaborating the planning system and developing the planning process Assistance for the line and the top management concerning planning Coordinating the planning process CONTROLLING DEPARTMENT Assistance concerning planning Compensating non existing planning departments PLANNING COMMITTEE, PLANNING GROUP, ETC. Permanently established Responsible for a certain planning task, e.g. preparations for the development of a strategic plan PLANNING TEAM Used for a defined period of time - similar to a project team Responsible for a certain planning task, e.g.. preparations for the development of a strategic plan EXTERNAL EXPERTS AND INSTITUTIONS Assignment of certain tasks e.g. market research Moderating the planning process (Fig. Hammer 2012, p. 113) 18

19 Planning Types Normative planning Strategic planning Operative planning 19

20 Further Types of Planning Long-term and short-term planning Overall plans and area plans Budgets, project plans, investment plans, financial plans, HR planning, etc. Business plans, master plans etc. 20

21 Strategic Corporate Planning

22 Basics, Definition and Characteristics 22

23 Product Lifecycle Introduction Growth Maturity Decline Legend Revenue Profit 1. Time of introduction 2. Maximisation of revenue 3. Possible recovery of the revenue due to e.g. product improvement 4. Initial loss (development costs) 5. Break-even point 6. Maximisation of profits 7. Re-entry in the loss area 4 increasing profit decreasing profit 7 Year (Fig. Hammer 2011, P. 126) 23

24 Product / Market Lifecycle Cash Flow Profile Cash inflow Cash outflow Cash-inflow Cash-flow Development of the product Product / Market life cycle Introduction (Fig. Hammer 2011, p. 128) 24

25 Boston Consulting Group Growth-Share Matrix 22 % 20 % Stars Questionmarks 18 % Market growth 16 % 14 % 12 % 10 % 8 % Cash Cows Poor Dogs 6 % 4 % 2 % 0 10x 4x 2x 1.5x 1x 0.5x 0.4x 0.3x 0.2x 0.1x Relative market share (Fig. based on Hedley 1997, p. 348) 25

26 G. E./McKinsey Multi Factoral Analysis Value creation Industry attractiveness 0 Low 33 Medium 67 High 100 Consumption of resources 0 Low 33 Medium 67 High 100 Invest Manage selectively Relative business strength Harvest or divest (Fig. based on Hörschgen et al. 1993, p. 140) 26

27 Business Plan - Content Executive Summary Initial strategic position Mission statement of the corporation Strategic targets Corporate strategy / Timing Organisational analysis Development and allocation of resources Financial evaluation of the strategic plan If-Then plans Budget and three- or five-year plan Strategic controlling Recommendation for the next steps (Action schedule) 27

28 Company Organisation

29 Basics, Definition and Characteristics Organisation is an instrument for carrying out plans Organising is objective-oriented and rational Organisation regulates the cooperation between people and tangible means An Organisation is an artificial structure Organising is a task of the management THE COMPANY is an organisation, has an organisation and is organised. 29

30 The Ideal Degree of Organisation Success of organising S max Optimum Too little organising Too much organising R opt Organisational degree of rationalisation (Fig. based on Kieser 1981, p. 72) 30

31 Objectives of the Company Organisation METAL-LEVEL OBJECTIVE: Contribute to fulfilling the object of the company SUB-OBJECTIVES: Increasing productivity Increasing flexibility and adaptability Increasing the security of the people associated with the organisation Increasing the maturity level of the people associated with the organisation 31

32 Sub-objectives (1) Increasing productivity Avoiding duplication of work Avoiding idle capacities and bottlenecks Distinct different areas of competencies and tasks clearly Routinisation of work procedures and information procedures Prevention and reduction of tensions and conflicts between the employees Defining behavioural expectations demanded from the employees Increasing flexibility and adaptability Increasing innovation capacities Supporting creative work with certain tools and work techniques Data acquisition concerning possible product alterations (e.g. Product development, product improvement) Gathering of information and information distribution 32

33 Sub-objectives (2) Increasing the security of the people associated with the organisation by: Shielding the job situation from uncertainty Distinctive way of dividing tasks Clear determination of means of monitoring Build up mutual trust Transparency concerning the performance assessment Increasing the level of maturity of the people associated with the organisation by: Creating organisational conditions that support the self-development of the employee concerning the job Implementing the management by delegation concept step by step Gathering information in terms of education and training possibilities for employees Creating a leeway (in decision-making) Monitoring results instead of checking the progress! 33

34 Structure of the Company VERTICAL STRUCTURING Single-line system Multiple-line system Line-and-staff organisation HORIZONTAL STRUCTURING Functional structure Divisional structure Matrix structure Project structure 34

35 Single-Line System Corporate Management Procurement Manufacture Sales Administration (Fig. based on Hammer 2012, p. 192) 35

36 Multiple-Line System Corporate Management Procurement Manufacture Sales (Fig. based on Hammer 2012, p. 193) 36

37 Line-and-Staff Organisation Corporate Management Staff position Procurement Manufacture Sales Administration Staff position (Fig. based on Hammer 2012, p. 194) 37

38 Functional Structure Corporate Management Procurement R&D Manufacture Sales Finance & accounting (Fig. based on Hammer 2012, p. 195) 38

39 Divisional Structure Corporate Management Division trucks Division automobile Division motorcycle Procurement Manufacture Sales Administration (Fig. based on Hammer 2012, p. 197) 39

40 Matrix Structure Corporate Management Procurement Manufacture Sales Marketing Administration Region A Region B (Fig. based on Hammer 2012, p. 199) 40

41 Lean Organisation Intention and Characteristics A lean organisation is committed to its customers and tries to minimize the traditional organisational structure in order to create a slim and neat organisation, which is fast in adaption and adjustment and easier to manage. To create a lean organisation, certain measures have to be implemented: Reduction of hierarchical levels Only as much positions as necessary Optimal filling of vacancies Competitive costs of the organisation 41

42 Implementation and Leadership

43 Definition and Characteristics The employee is concerned with and affected by the implementation. DISTINCTION BETWEEN: Employee-focused leadership Task-focused leadership TASKS OF LEADERSHIP: Information Communication Delegation 43

44 Aspects of Authority Institutional and formal authority Legal basis Organisation of the company Social rules Sources of authority Professional authority Professional knowledge Leadership capability Personal authority Taking care of employees Integrity Assertiveness (Fig. based on Thommen 2009, p. 969) 44

45 Situational Leadership Theory Effective style of leadership (F1 to F4) High F 3 F 2 Supportive behaviour Participating Selling Style of leadership of the manager Delegating Telling Low F 4 F 1 Low Directive behaviour High Medium Low D 4 D 3 D 2 D 1 High Individual development level (Fig. based on Hersey/Blanchard 1992, S. 92) 45

46 Management Techniques Management by approaches Principles for solving the delegation problem Target-oriented and result-oriented principles Management by Exception Management by Objectives Management by Decision Rules Management by Results Management by Delegation (Fig. based on Hammer 2012, p. 222) 46

47 Control and Controlling

48 Definition and Characteristics The last task in the circular flow of management. Planning without monitoring and control is useless. It is necessary to assess the effectiveness of action steps taken by the management in order to reach the objectives of the corporate goal. Following tasks: Target/Actual comparison Performance evaluation Variance analysis Reporting Are requirements for: Adjustments Steering Kinds of control Operational control Strategic control + Controlling 48

49 Controlling (=Managerial Accounting) and Leadership

50 Controlling Definition Controlling does not only mean control and monitoring, it is concerned with providing information in order to meet and reach the objectives - mainly the profit objective - of the corporation by guiding and regulating the in-company procedures. 50

51 What does Controlling mean? Set objectives Controlling as circular flow and steady process of learning Take countermeasures Action planning Variance analysis Target/Actual comparison 51

52 Basic Functions of Controlling Controlling and monitoring function Planning function Coordination function Information function Communication function Functions of a Controller Planning function Supervising function Reporting function Accounting and tax function 52

53 Controlling in Terms of Control The Controller is a supportive and advisory part of the management. He provides the management with data and information relevant for planning and making decisions and is focusing his work on contributing to the planning process. 53

54 Controlling A Functional View Controlling Documentation and acquisition of data Planning function Control and steering function Monitoring function 1. Documenting the efficiency of accounting 2. Creating an accounting framework that fits the purpose of the company (e.g.: Profit-Centers) 3. Installing informative accounting procedures within the firm 4. Acquisition of date for special cases (intercompany comparison, investment analysis, ) 1. Developing target-oriented master plans 2. Advising function during the definition of targets 3. Coordinating various sub-plans 4. Monitoring external trends and effects 5. Mind bottlenecks, think forwardlooking 1. Monitoring planning targets 2. Variance analysis and taking necessary countermeasures 3. Stimulus for innovation 4. Continuous reporting 5. Analysing figures in order to support the decision making process 1. Monitoring plans, their practicability and feasibility 2. Target monitoring 3. Target/Actual comparison 4. Analysing results 5. General activities (such as creating bench marks). All together it means creating a variety of instruments that are concerned with acquiring and processing data in order to ensure the realisation of the company-goals. Economical conscience of the corporation (Fig. based on Horváth 2001, p. 105) 54

55 Controller Job Description (Example) Preparing periodic financial statements, including budgets, cash flows, variance analysis and commentaries. Providing a support service by working with all departments and the management team to help make financial decisions. Informing about key strategic decisions and formulating business strategies. Advising on the consequences of business decisions. Interpreting and communicating financial data. Monitoring and evaluating financial information systems and suggesting improvements where needed. 55

56 Controlling Tools Different kinds of budgeting Indicators and indicator systems Break-Even-Analysis 56

57 Business Indicators Business indicators Indicators Indicator systems Basic indicators Financial ratio Traditional indicator systems Value drivers (Fig. Hammer 2012, p. 246) 57

58 A Selection of Controlling Indicators (1) Materials management Stock to sales ratio = Stock Ø Sales Inventory turnover = Cost of goods used Ø Inventory Personnel management Sickness absence ratio = Lost working days due to sickness Number of work days x 100 Labour turnover rate = Employees that left Ø Number of employees x 100 Revenue per employee = Revenue Number of employees Sales Market share Passing on of costs Revenue = x 100 = Total market revenue Increase in price Increase in costs x

59 A Selection of Controlling Indicators (2) Investments ROI Net profit + interest on borrowed capital = x 100 equity + debt EVA = NOPAT costs of capital Financing Manufacturing management Equity ratio Dynamic leverage ratio Reject rate = = equity equity + debt debt x 100 x 100 Cash Flow reject = x 100 manufacturing volume Contribution margin = Revenue Variable costs 59

60 Break-Even-Analysis Sales/ Costs Profit Sales Total costs Loss Variable costs BEP s Fixed costs v Volume (Fig. Hammer 2012, p. 253) 60

61 The Cash Flow and its Corporate Importance The cash flow is a tool to measure the difference between liquid assets at the beginning and at the end of an accounting period. Contrary to the income statement only transaction directly impacting liquid assets are included in the cash flow calculation. Hence the cash flow is used to determine: The internal financing within the company, The profit situation of the company. Which revenues and expenses are excluded from the calculation depends on the parameter analysed. 61

62 Cash Flow Calculation (1) How the cash flow is calculated: Net profit + Non-cash expenses - Non-cash revenue CASH FLOW I The cash flow I shows the added value during the last base period. 62

63 Cash Flow Calculation (2) If the cash flow is used as an indicator for internal financing, it has to be adapted in order to show the correct amount of liquid assets. Cash-Flow I - Personal drawings + Private investments CASH FLOW II 63

64 Cash Flow Example EXPENSES Affecting expenses Affecting revenues REVENUES Material costs ,- Revenue ,- Wages and salaries ,- Interest revenue ,- Interest expenses ,- Non-cash expenses Non-cash revenues Inventory reduction ,- Capitalised service ,- Amortisation and Depreciation ,- Appreciation 8.000,- Pension book reserves ,- Profit , , ,- 64

65 Cash Flow Solution Net profit + Non-cash expenses - Non-cash revenue = Cash Flow , , , ,- 65

66 Core Areas of Business Economics - Operational Areas

67 Core Areas of Business Economics Corporate Management Materials management Marketing and distributive trade Manufacturing management Operational areas of the company in the narrower sense Financial management incl. investment budgeting Human resource management Accounting (Fig. based on Hammer 2012, p. 255) 67

68 Operational areas of the company MATERIALS MANAGEMENT MANUFACTURING MANAGEMENT MARKETING AND DISTRIBUTIVE TRADE 68

69 Functions and Tasks of the Materials Management Materials management Procurement Management Distribution Materialdisposition Purchase- Marketing Purchase Material inspection Regional warehouses Execution External transport Material 1 Material 2. Storage Inventory Management Internal transport (Fig. Hammer 2012, p. 257) 69

70 Methods and Models of the Materials Management Models of material requirement: Deterministic Stochastic Methods of material categorisation: ABC analysis XYZ analysis Optimisation models for order size and point-in-time Models for selecting suppliers Indicator systems 70

71 ABC Analysis Percentage of total value B-goods C-goods 20 A-goods Percentage of total items (Fig. Hammer 2012, p. 260) 71

72 Economic order quantity Costs Tolerance range C Total C S C O X opt Order quantity (Fig. Hammer 2012, p. 261) 72

73 Strategic Approaches of the Materials Management Just-in-Time The capital commitment is lower due to a massive reduction of the level of stock. All materials needed are delivered when and where they are needed. Hence the processing time and the sourcing-strategies have to be optimised. Global Sourcing The best supplier is chosen from a broad range of international suppliers. Thus the globally different advantages in competition of the suppliers can be exploited for the advantage of the company. Single Sourcing Only one supply source covers the demand of the company. This kind of procurement leads to a intense flow of information. Different products can be specified and developed in close cooperation. In addition the usage of economies of scale is possible more likely. Outsourcing The company is focusing on its core competencies. Often services (e.g. IT Services) are outsourced, because external contractors are able to provide the service at the same quality for a lower price. Supply Chain Management (SCM) The whole supply chain (starting witch the supplier, ending at the end customer) is integrated into one system. All flows of information and goods are controlled and monitored from a central unit. Total Quality Management (TQM) Electronic Procurement Quality checks are made at every level of Manufacturing in order to increase the customer satisfaction. As many procurement processes (e.g. lists of inventory) as possible are fully automated. (Fig. Hammer 2012, p. 264 et seq.) 73

74 Functions an Tasks of the Manufacturing Management Planning - Product development/design - Long and short manufacturing planning Organising - Managerial structure - process design, quality management Implementation/Execution - Staff employment - manufacturing control Controlling - Controlling (Fig. Hammer 2012, p. 266) 74

75 Short-, Medium-, and Long-Term Manufacturing Planning Problem and decision areas Take in account Long-term manufacturing planning - Width - Depth - Quantity Medium-term manufacturing planning - Width - Depth - Quantity - Make or buy decision - Product / market strategy - Strategic goals - Degree of diversification - Financing needs - Risks - manufacturing capacities / bottle necks - Labour requirements - manufacturing costs - Stage of industrial application Short-term manufacturing planning - manufacturing batch - manufacturing schedule - Capacity plan - manufacturing control - Sales budget - manufacturing budget - Customer requirements (Fig. Hammer 2012, p. 268) 75

76 Manufacturing Techniques Manufacturing techniques Correlating the amount of the single products Correlating the products in terms of quantity and type Assignment of workplaces Degree of division of labour and assignment of tasks Technical facilities Equipping the organisation with appropriate facilities (Fig. based on Luger/Geisbüsch/Neumann 1999, p. 121) 76

77 Functions and Tasks of the Marketing and Distributive Trade Information procurement concerning marketing Sales planning Market segmentation Determination of the marketing mix. 77

78 Information Needs Concerning Marketing and Distributive Trade Information needs concerning sales planning External Information Internal Information Market Competition Other circumstances and trends Materials management Manufacturing management Marketing General corporate planning (Fig. Hammer 2012, p. 273) 78

79 Market Segmentation An Example Family members Less than More than Earnings (Fig. Hammer 2012, p. 276) 79

80 The Marketing Mix Market - Competition PRODUCT STRATEGY PRICING STRATEGY Customer DISTRIBUTION STRATEGY COMMUNICATION STRATEGY (Fig. Hammer 2012, p. 277) 80

81 Methods and Models of the Marketing and Distributive Trade Methods of market research and information procurement Methods of sales planning Methods of the market segmentation The marketing policy 81

82 Financial Management

83 Basics INVESTMENT: Allocation of funds FINANCING: Sources of funds Needed for the creation of capital FINANCIAL MANAGEMENT INCLUDES: Capital procurement Usage of the capital and the capital commitment for certain tasks Reflux of capital 83

84 Correlation between Capital, Assets, Financing and Investments Static figures Financing Investment Capital Assets Definancing Disinvestment Procedures (Fig. based on Thommen 2009, p. 570) 84

85 Problems Related to Investments IMPORTANCE AND SIGNIFICANCE OF INVESTMENTS: Investments do have a strategic nature: Preservation and development of the competitive situation Investments trigger long term effects: E.g. capital commitment, interest on borrowed capital Investments are associated with a variety of risks: Market risks, financing risks, technical risks Wrong decisions cause opportunity costs. Investment projects affect all kinds of different units within the company. 85

86 Structure of Different Kinds of Investments Investments Real investment Financial investment Immaterial investment Permanent assets Shares Know How Current assets Financing Brand Rights (Fig. Hammer 2012, p. 286) 86

87 Problems Related to Financing IMPORTANCE AND SIGNIFICANCE OF FINANCING: Main goal of financing: Creating a financial equilibrium Short term aspect liquidity Long term aspect profitability Strategic significance: Financing affects the company s capital structure, hence its creditworthiness and its stability 87

88 Types of Financing Types of Financing External financing Internal financing Equity financing (e.g. issue of shares) Debt financing (e.g. loans) Subsidy Out of the working capital - Retained earnings - Provision - Amortisation Capital restructuring - e.g. selling fixed or current assets (Fig. based on Lechner/Egger/Schauer 2008, p. 227 f) 88

89 Methods and Models of the Investment Budgeting Investment calculation Static investment calculation Cost comparison method Profit comparison method Average return analysis Dynamic investment calculation Net present value Internal rate of return Equivalent annual cost Amortisation calculation MAPI - Method (Fig. Hammer 2012, p. 293) 89

90 Methods and Models of the Financial Management Application of funds statement Performance analysis Financial analysis Mind the financing rules!

91 Human Resource Management (HRM)

92 Functions and Tasks of the Human Resource Management General human resource management Human resource planning Recruitment Staff employment Human resource compensation Human resource development Human resource administration Human resource controlling 92

93 Functions and Tasks in Detail (1) GENERAL HUMAN RESOURCE MANAGEMENT The corporate management has to develop guidelines on employment. Defining tasks, competences, responsibilities and subordinate and superordinate levels in order to establish a distinct framework. The style of leadership and the leadership behaviour are crucial for the effectiveness of the personnel management. HUMAN RESOURCE PLANNING Stating the goals of the HRM more precisely by developing strategic and operative goals, strategies and actions. Determining the staff requirements in terms of quality and quantity. Planning: Recruitment, Training and development Labour costs personnel layoff / staff reduction 93

94 Functions and Tasks in Detail (2) RECRUITMENT: Internal Recruitment: + cost savings, less problems due to integration in the new firm, opportunity for career advancement - No additional professional qualifications or ideas External Recruitment: + Additional professional qualifications or ideas, no preference of an individual within the company - Increased procurement costs, internal employees possibly get demotivated Focusing the following: job advertisement fits the vacancy Acquiring applications, searching applicants Choosing the appropriate applicant STAFF EMPLOYMENT: Introduction and adjustment to a new job Assignment of workforces to specific workplaces Adapting the work and the working conditions 94

95 Functions and Tasks in Detail (3) HUMAN RESOURCE COMPENSATION includes: Creating monetary incentives Creating non-monetary incentives Type of payment Considering motivational approaches Goal of the human resource compensation: performance-linked payments Contribute to the employee satisfaction Improving motivation 95

96 Functions and Tasks in Detail (4) HUMAN RESOURCE DEVELOPMENT includes all actions taken in order to evolve each employees individual development level: Training and development Career management Goals of the human resource development: Company-related: implementing employee development strategy which is suitable for a dynamic market and competition Individual-related: exercise managerial responsibility HUMAN RESOURCE ADMINISTRATION includes: Keeping record of the head count Salary and wages accounting and payment Administrating all actions taken in the field of HRM 96

97 Functions and Tasks in Detail (5) HUMAN RESOURCE CONTROLLING Ongoing evaluation concerning efficiency and effectiveness in terms of strategy and actions taken by the HRM. Generating and implementing necessary control information. GENERAL IMPORTANCE OF HRM Increasing strategic importance: Mainly in economic sectors with a high amount of labour costs The increasing economic globalisation also affects the labour market Employees as competitive factor hence the satisfaction of employee wants becomes part of the HRM 97

98 Methods and Models of the Human Resource Management (1) Determining the staff requirements: Gross / net Quantitative/ qualitative Selection of personnel: Evaluating and sorting the applications job interviews, tests, Assessment centers Final job interviews Hiring / negative answer Making the job more attractive and demanding through: Job enlargement Job enrichment Job rotation 98

99 Methods and Models of the Human Resource Management (2) Performance-enhancing measures: Monetary incentives: Time wage, performance-linked payment Profit sharing, optional employee benefits Non-monetary incentives: training and development, career advancement, working time regulation, vacation policy Maslow's hierarchy of needs, Herzberg s two-factor theory Human resource controlling: HR accounting and budgeting (input models) HR effectiveness analysis (output models) Cost-benefit analysis (input / output models) 99

100 Accounting

101 Problems and Tasks related to Accounting Accounting means: gathering, processing, documenting, recording and passing on information related to the corporate procedures and operations mainly flows of money, goods and services. 101

102 Areas of Accounting Accounting Internal accounting External accounting Corporate accounting Accounting for planning and control Financial accounting Cost accounting Manufacturing planning Balance sheet Results accounting Business statistics Sales planning Investment planning Financing planning Profit and loss statement Annual financial statement - Balance sheet - Profit and loss statement - Annual management report (Fig. Hammer 2012, p. 314) 102

103 External Accounting External accounting includes mainly three parts: The FINANCIAL ACCOUNTING consistently documents all transactions made. Its figures provide a basis for the internal accounting. The BALANCE SHEET is usually made annually as a result of the financial accounting. It provides information concerning the sources and applications of funds. The PROFIT AND LOSS STATEMENT provides information concerning the revenues and expenses during a certain period of time. (Cf. Wöhe 2002, S. 825) 103

104 Internal Accounting Internal accounting includes mainly: Cost and results accounting, which is based on the financial accounting Budgetary accounting Business statistics 104

105 Types of Balance Sheets Balance Sheets Internal balance sheets External balance sheets Special purpose balance sheet Annual Balance sheet e.g. in case of Mergers and Acquisitions Balance sheet Tax balance sheet (Fig. Hammer 2012, p. 316) 105

106 Structure of a Balance Sheet Structure of a balance sheet Asset side Liability side (Liability and equity) Fixed assets Equity Current assets accrued liabilities Accruals Liability Deferrals (Fig. Hammer 2012, S. 316) 106

107 Costs and Results Accounting Includes: Cost-type accounting Cost-centre accounting Cost-unit accounting Short-term income statement 107

108 Cost-Type Accounting The cost-type accounting is the starting point of the costs and results Accounting. TASKS The overall costs transferred from the financial accounting are divided into overhead costs and individual costs. These costs are classified in order to allocate them to the different cost-centres in the next step. 108

109 Cost-Centre Accounting (1) Based on the results of the cost-type accounting the costs are allocated to the cost centres. Cost-centre: Area of the company where costs accrue. There are different kinds of how to define and classify cost-centres: Spatially divided areas, e.g. assembling shop, warehouse Operational areas, e.g. procurement, manufacturing, sales Areas of responsibility, e.g. administration, general management Accounting aspects indirect and direct cost-centres TASKS Source specific apportion of the overhead costs to the cost-centres Describing the internal performance allocation Calculation of the required rate of interest Profitability accounting for each department 109

110 Cost-Centre Accounting (2) DIRECT COST-CENTRE Direct cost-centres are directly connected to the goods and services produced for the market. Their output is part of the manufacturing process. In a machine factory direct cost-centres could be e.g.: sales and distribution, welding shop, grinding shop. INDIRECT COST-CENTRE The services and products provided by indirect cost-centres are only for the internal use. E.g.: energy supply, service station, IT services, internal transport. 110

111 Cost-Unit Accounting The costs are distributed to the according cost-units either directly as individual costs or indirectly as overhead costs as a result of the cost-centre accounting. COST-UNIT: GOAL: A cost-unit (= a service or product) has to bear the costs it caused. Calculating the cost of manufacturing of the costunits. 111

112 The Correlation between Cost-Type Accounting, Cost-Centre Accounting and Cost-Unit Accounting Cost-type accounting Overall costs divided into overhead costs and individual costs Overhead costs Cost-centre accounting Direct cost centre Indirect cost centre Individual costs Cost-unit accounting Overall costs structured by cost-types. (Fig. Hammer 2012, p. 320) 112

113 Planned Cost Accounting Planned cost accounting Inflexible planned cost accounting Flexible planned cost accounting No distinction between fixed and variable Business overhead costs Distinction between fixed and variable Business overhead costs Full cost accounting or direct cost accounting (Fig. Hammer 2012, S. 322) 113

114 The Internal Information and Control System Information and control system Charts and figures Verbal information Statistics Accounting Reports Involving all areas of the company Cost-type accounting asset accounts, profit and loss accounts, Cost accounting Cost-centre accounting Cost-unit accounting Short-term income statement Annual financial statement Balance sheet Profit and loss -statement Annual management report Further information Individual verbal information Development of numbers Figures Target / Actual comparison efficiency analysis: Variance analysis Development of absolute deviations/numbers Figures showing the profit situation: Liquidity Pattern of finance Assets and liabilities structure Discussions (Fig. based on Luger 1998, p. 248) 114

115 Classic Accounting and Activity-Based Accounting Approach Classic cost accounting Activity-based accounting Cost-types Cost-types Cost-centres Cost-centres Sub-processes Main-processes Cost-units (products) Cost-units (products) (Fig. Hammer 2012, p. 324) 115

116 Target Costing Target profit Immediate need of cost reduction Further need of cost reduction Target price Allowable Costs Drifting Costs Target Costs (Fig. Hammer 2012, p. 325) 116