BA 02 Organizational Structure, Change Management and Project Management PDF

Page 1 of 15 FAR EASTERN UNIVERSITY INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE DEPARTMENT OF ACCOUNTANCY AND INTERNAL AUDITING AUD1207 – INTEGRATED INTERNAL AUDITING REVIEW COURSE...

Page 1 of 15 FAR EASTERN UNIVERSITY INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE DEPARTMENT OF ACCOUNTANCY AND INTERNAL AUDITING AUD1207 – INTEGRATED INTERNAL AUDITING REVIEW COURSES SECTION A - BUSINESS ACUMEN BA 02 – ORGANIZATIONAL STRUCTURE, CHANGE MANAGEMENT AND PROJECT MANAGEMENT MR. CHRISTIAN ANDREI G. UTANES, CPA, CMA, MBA units NOTE TO STUDENTS: These handouts are of property of the reviewer. Unnecessary sharing and uploading of these materials are not allowed. LEARNING OBJECTIVES Upon completion of this chapter, you should be able to 1. Define Organizational Structure (OS) 2. Identify the importance of Organizational Structure (OS) in an organization 3. Identify and understand the six (6) elements of Organizational Structure 4. Define Change Management (CM) 5. Identify the importance of Change Management (CM) in an organization 6. Identify the relationship of Internal Auditing (IA) with Change Management (CM) 7. Identify, describe and apply Kotter’s Four (4) Change Management (CM) principles 8. Identify, describe and apply Kotter’s Eight (8) step process for leading Change Management (CM) in an organization 9. Define a project and understand the importance of a project in managing an Internal Audit Engagement (IAE) 10. Enumerate and understand the Project Life Cycle 11. Understand the roles and duties of a Project Manager 12. Understand the Project Management Triangle 13. Enumerate, understand and apply the Project Management Methodologies 14. Enumerate, understand and apply the Project Management Techniques 15. Solve problems relating to PERT-CPM LECTURE NOTES BA 02.01 – ORGANIZATIONAL STRUCTURE Organizational structure (OS) is the systematic arrangement of human resources in an organization so as to achieve common business objectives. It outlines the roles and responsibilities of every member of the organization so that work and information flow seamlessly, ensuring the smooth functioning of an organization.  Page 2 of 15 An OS displays how different resources of an organization come together and align with its goals. It clearly defines the functions of employees that enable them to work harmoniously and efficiently. This reduces wastage of resources and increases productivity. The OS of a company establishes its workflow. Without a proper OS, there would be chaos in a business. Thus, a company must create a centralized or decentralized OS depending on its workflow needs. An organizational structure is the grouping of resources at different levels depending on their responsibilities, power, and position. It helps various departments in a company exchange data, coordinate, and work together to achieve business goals. A company devises an organizational structure to ensure that suitable employees with the right set of skills occupy each position in the company. The OS reveals the accountability and authority of each role. This removes any uncertainty with regard to task performance and reporting and enhances employee productivity. A company must clearly define its objectives before creating an OS. Then, group similar activities together to create departments, identify resources for each unit, and establish a hierarchy of employees based on their duties. Thus, an OS of a company: Forms the basis of employee reporting and relations Decides the post of employees in their administrative divisions Formulates a system of coordination and interdependence in an organization Establishes a well-defined workflow aimed at attaining organizational goals Every OS contains the following six essential elements: Work design: It defines the nature and job description of a particular position Administrative division: It involves the grouping of jobs into departments to facilitate the coordination of work. Deputation: It means the power conferred to each employee and department in the organization. Management ratio: It refers to the number of employees that are reporting to a supervisor  Page 3 of 15 Hierarchy: It creates various levels of authority arranged in the order of delegated powers in the organization. Centralization or decentralization: It presents the mode of operation followed in an organization. BA 02.02 – CHANGE MANAGEMENT Change management is a structured process for planning and implementing new ways of operating within an organization. Many academic disciplines have studied and developed theories about the best ways to approach change in an organization. Central to theories across disciplines is the goal of making change happen— i.e., moving an organization forward—with the full support and cooperation of everyone who’s affected by it. Change management models recognize change can’t happen within one position or department without affecting the entire organization. Theorists developed models to approach change in ways that acknowledge its effects across an organization, prepare everyone for those effects and get everyone on board for the transition. Several change management models exist, and your organization can choose which makes the most sense for you. One of the most prominent thought leaders in the field is John Kotter, a professor at Harvard Business School and founder of the management consulting firm Kotter International. Kotter’s four change principles include: 1. Select few + diverse many 2. Have to + want to 3. Head + heart 4. Management + leadership Select Few + Diverse Many Who drives change in your organization? Do decisions and directives tend to come from the same small group of managers or leaders? These are known as the “select few”—and there’s a danger to this approach to change. Everyone within an organization is affected by change. It’s the “diverse many”—the broader group of people that makes up your company—who have to adjust their processes and activities day to day to accommodate change. When the directives come from a select few, you skip the step of understanding what everyone else needs to effectively implement change. You also miss out on an opportunity to get them on board, so they’re eager to welcome change when it comes. Have To + Want To Getting the diverse many involved is your first step to moving change from something they feel they have to do to something they want to do. A workforce filled with people who feel like they have to implement changes or initiatives is a recipe for complacency. One filled with folks who want to make change is a formula for action. When the people in your organization are involved in identifying challenges and recommending improvements, they’ll understand the reasoning behind changed processes and new initiatives. They’ll be invested in improvement. They’ll be eager to take the steps needed to implement—and sustain change that moves your organization forward.  Page 4 of 15 Head + Heart You must drive decisions and directives for change from both: The head: appeals to logic, data and reason The heart: appeals to how people feel and what they desire Putting hard data behind organizational decisions is smart, but implementing change requires more. It also requires employees who are inspired by what the change will mean for their day-to-day work and the organization’s ability to fulfill its mission. This means digging a little deeper when you communicate change to your employees. You can’t just share what the change is and how you’ll implement it. You also have to explain the why behind it, the ways it’ll move the needle for the company, your customers or clients, your employees, and the mission they come into work every day to achieve. Management + Leadership Navigating change in an organization requires both management and leadership. That is, you need both the technical skills to manage projects, make a plan and oversee deliverables; and the emotional skills to communicate a vision, inspire action and empathize with concerns. Any business leader has certainly heard an earful about the differences between managing and leading — but we’re not saying one or the other is better here. To make effective change in an organization, you need the combined strengths of both management and leadership. Kotter’s eight-step process for leading change within an organization includes: 1. Create a sense of urgency. Rather than simply presenting a change that’s going to happen, present an opportunity that helps the team see the need for change and want to make it happen. 2. Build a guiding coalition. This group of early adopters from among the diverse many will help communicate needs and initiatives to guide change. 3. Form a strategic vision and initiatives. Draw a picture of what life will look like after the change. Help everyone see—and long for—the direction you’re headed, rather than focusing myopically on the steps in front of them right now. 4. Enlist volunteers. You’ll need massive buy-in across the organization to effectively implement change. Use your coalition to keep up the momentum on the sense of urgency and continue to communicate the vision. 5. Enable action by removing barriers. Learn where employees face challenges implementing a change because of structural issues like silos, poor communication or inefficient processes, and break them down to facilitate progress. 6. Generate short-term wins. Keep up the momentum and motivation by recognizing early successes on the path to change. Continue to recognize and celebrate small wins to keep everyone energized and aware of your progress. 7. Sustain acceleration. Lean into change harder after the first few small wins. Use those successes as a springboard to move forward further and faster.  Page 5 of 15 8. Institute change. Celebrate the results of successful change. How do changed processes or initiatives contribute to the organization’s overall success? How do they continue to help employees contribute to the mission they care about. BA 02.03 – PROJECT MANAGEMENT Project management is the practice of coordinating processes, tools, team members, and skills to deliver projects that meet goals and satisfy requirements. It empowers your team to complete projects by rallying them around clear objectives, increasing transparency and visibility, streamlining communication, and establishing the project scope. Projects are unique, one-time operations designed to accomplish a specific set of objectives in a limited time frame. PROJECT LIFE CYCLE The size, length, and scope of projects vary widely according to the nature and purpose of the project. Nevertheless, all projects have something in common: They go through a life cycle, which typically consists of five phases. 1. Initiating 2. Planning 3. Executing 4. Monitoring 5. Controlling Initiating This begins the process by outlining the expected costs, benefits, and risks associated with a project. It includes defining the major project goals and choosing a project manager Planning This phase provides details on deliverables, the scope of the project, the budget, the schedule and milestones, performance objectives, resources needed, a quality plan, and a plan for handling risks. The accompanying documents generated in the planning phase will be used in the executing and monitoring phases to guide activities and monitor progress. Members of the project team are chosen. Executing In this phase the actual work of the project is carried out. The project is managed as activities are completed, resources are consumed, and milestones are reached. Management involves what the Project Management Institute (www.pmi.org ) refers to as the nine management areas: project integration, scope, human resources, communications, time, risk, quality, cost, and procurement. Monitoring and Controlling This phase occurs at the same time as project execution. It involves comparing actual progress with planned progress and undertakes corrective action if needed, and monitoring any corrective action to make sure it achieves the desired effect.  Page 6 of 15 DUTIES OF A PROJECT MANAGER The project manager has many duties. In the planning stage, the project manager must prepare a scope statement that spells out the deliverables and goals, determine required skills and resources needed, develop a schedule and budget, and develop plans for managing the scope, the schedule, the budget, and quality and risk. The project manager bears the ultimate responsibility for the success or failure of the project. He or she must be capable of working through others to accomplish the objectives of the project. The project manager is responsible for effectively managing each of the following: 1. The work, so that all of the necessary activities are accomplished in the desired sequence, and performance goals are met. 2. The human resources, so that those working on the project have direction and motivation. 3. Communications, so that everybody has the information needed to do the work. 4. Quality, so that performance objectives are realized. 5. Time, so that the project is completed on schedule. 6. Costs, so that the project is completed within budget. 7. Scope, so the project stays within the prescribed scope, and “scope creep” doesn’t occur without commensurate changes to the schedule (if needed) and the budget. PROJECT MANAGEMENT TRIANGLE (PMT)  Page 7 of 15 PROJECT MANAGEMENT METHODOLOGIES 1. Waterfall project management When you think of traditional, sequential project management, you’re picturing waterfall project management. With this method, you break your project into different phases. When one phase ends, the next one begins — there’s no overlap between them. When to use: For long projects that require a single timeline and a sequential order. Commonly used in: Construction. Building a house or structure requires a successive order. You can’t put it on a roof before you’ve poured a foundation, for example. 2. Agile Project Management (APM) Agile project management is an iterative approach and is much more flexible than waterfall project management. It’s DevOps best practice that breaks projects into chunks that are tackled in short bursts (called sprints). After each sprint, your team reevaluates the work you’re doing to make any necessary changes and ensure you’re staying on target. Scrum Scrum project management is one of the most popular Agile methodologies used by project managers. Like Agile, scrum is centered around continuous improvement. You can use a framework like scrum to help you start thinking in a more Agile way and practice building Agile principles into your everyday communication and work. When to use: For projects that aren’t yet well-defined and require a lot of adaptability. Commonly used in: Software development. This profession pioneered agile, and this approach allows developers to build higher-quality software because they’re able to test and review at regular intervals. 3. Lean Project Management (LPM) If you’ve heard of lean manufacturing, those same principles apply to lean project management. The goal of this methodology is to increase output and value while reducing waste. To use it, you’ll need to map a value stream, which is the sequence of project activities. Then, you take a magnifying glass to that stream to identify and eliminate work that doesn’t add value. This means your project process will be as streamlined, optimized, and efficient as possible. Kanban Kanban is a specific implementation of Lean project management. Project tasks are represented visually on a Kanban board, allowing team members to see the state of every piece of work at any time. When to use: For projects that need to be delivered quickly. Commonly used in: Manufacturing. When you’re producing physical goods, you want as little waste as possible to minimize spending and maximize profit. That’s why this approach is popular in manufacturing, especially in the automotive industry.  Page 8 of 15 PROJECT MANAGEMENT TECHNIQUES 1. WORK BREAKDOWN STRUCTURE (WBS) A Work breakdown structure (WBS) is a hierarchical listing of what must be done during a project. 2. GANTT CHART The Gantt chart is a popular visual tool for planning and scheduling simple projects. It enables a manager to initially schedule project activities and then to monitor progress over time by comparing planned progress to actual progress. 3. PROJECT EVALUATION REVIEW TECHNIQUE (PERT) AND CRITICAL PATH METHOD (CPM) PERT (program evaluation and review technique) and CPM (critical path method) are two of the most widely used techniques for planning and coordinating large-scale projects. By using PERT or CPM, managers can obtain 1. A graphical display of project activities. 2. An estimate of how long the project will take. 3. An indication of which activities are the most critical to timely project completion.  Page 9 of 15 4. An indication of how long any activity can be delayed without delaying the project. DEFINITION OF TERMS 1. Activities are project steps that consume resources and/or time. 2. Events are the starting and finishing of activities, designated by nodes in the activity on arrow (AOA) convention. 3. Path is a sequence of activities that leads from the starting node to the finishing node. 4. Critical path is the longest path in the network; it determines expected project duration. 5. Critical activities are activities on the critical path. 6. Slack is an allowable slippage for a path, the difference between the length of a path and the length of the critical path. CALCULATING PROJECT TIMELINES DETERMINISTIC TIME ESTIMATES If time estimates can be made with a high degree of confidence that actual times are fairly certain, we say the estimates are deterministic. It shall be noted that whatever the determined time of completion for a specific task is already the expected time. PROBABILISTIC TIME ESTIMATES If actual times are subject to variation, we say the estimates are probabilistic. Probabilistic time estimates must include an indication of the extent of probable variation.  Page 10 of 15 The probabilistic approach involves three time estimates for each activity instead of one: 1. Optimistic time: The length of time required under optimum conditions; represented by to. 2. Pessimistic time: The length of time required under the worst conditions; represented by tp. 3. Most likely time: The most probable amount of time required; represented by tm. The expected time of an activity, t e , is a weighted average of the three time estimates: Slack Time (ST) = Late Start (LS) - Early Start (ES) OR Slack Time (ST) = Late Finish (LF) - Early Finish (EF)  Page 11 of 15 MULTIPLE CHOICE QUESTIONS ORGANIZATIONAL STRUCTURE 1. Which of the following is one of the six elements of an organizational structure? a. Work design b. Administrative feasibility c. Decentralized profits d. Humanity 2. Which of the following is TRUE relating to Organizational Structure? a. Organizational structure (OS) is the systematic arrangement of tangible resources in an organization to achieve common business objectives. b. An OS displays how different resources of an organization come together and align with its goals. c. An organizational structure is the grouping of resources at the same functional levels depending on their responsibilities, power, and position. It helps various departments in a company exchange data, coordinate, and work together to achieve business goals d. It creates various levels of responsibility arranged in the order of delegated powers in the organization. 3. Which of the following is TRUE relating to Organizational Structure? a. An organization must adopt a fixed organizational structure b. An organization, once it adopted its organizational structure shall be liable to submit such to the Securities and Exchange Commission (SEC). c. An organizational structure shows a linear relationship between rank-and-file employees only d. A company must clearly define its objectives before creating an OS. Then, group similar activities together to create departments, identify resources for each unit, and establish a hierarchy of employees based on their duties. 4. It refers to the number of employees that are reporting to a supervisor a. Work Design b. Decentralized Profits c. Management ratio d. Humanity 5. It means the power conferred to each employee and department in the organization. a. Deputation b. Administrative division c. Management ratio d. Humanity CHANGE MANAGEMENT 6. The MAMSHIE TAYLOR is implementing a change management system for the launch of its products. MAMSHIE TAYLOR is looking at rehiring organizational managers to bring in a fresh start for the organization. What change principle is demonstrated in this scenario? a. Management + Leadership b. Select few + Diverse many c. Have to + want to d. Head + Heart  Page 12 of 15 7. Which of the following is NOT a key guide in leading change in an organization? a. Create a sense of urgency b. Building emotional intelligence c. Sustain acceleration d. Generate short-term wins 8. Which of the following is FALSE relating to Change Management? a. Change management is an inefficient process for planning and implementing new ways of operating within an organization. b. When using one’s head in change management, such appeals to logic, data and reason c. When using one’s heart in change management, such appeals to how people feel and what they desire d. Change management may only take place in a specific department and may not collectively affect an organization 9. Which of the following is NOT part of Kotter’s four change principles? a. Select few + diverse many b. Must have to + want to c. Head + heart d. Management + leadership 10. Which of the following is NOT part of Kotter’s eight-step process for leading change within an organization? a. Create a sense of urgency b. Enlist volunteers c. Generate short-term wins d. Fear change 11. The management of BACK TO DECEMBER COMPANY contracted a mental health advocate speaker to conduct a breakout session regarding break-ups. Normally, broken hearted employees avail of this service request. Here, the employee will be given a chance to relapse, reminisce and recall the past. The counselor shall offer emotional help. What change principle is demonstrated in this scenario? a. Management + Leadership b. Select few + Diverse many c. Have to + want to d. Head + Heart 12. FIFTEEN INCORPORATED’s management is conducting an annual salary review starting 2024. In the past, employees are compensated based on the Consumer Price Index (CPI), but for the current year, FIFTEEN’s management decided to adopt a compensation policy aligned with other market players in the industry where it belongs to. What change principle is demonstrated in this scenario? a. Management + Leadership b. Select few + Diverse many c. Have to + want to d. Head + Heart  Page 13 of 15 13. WHITE HORSE LIMITED’s management is on the ruckus and several key policy makers are leaving the organization. In WHITE HORSE’s effort in eliminating further havoc in the organization, it pirated various Managing Directors across its industry who are experts in their fields by offering a competitive salary package. In a span of 4 months, WHITE HORSE was able to obtain a good top management team and responsibilities are dispersed across the organization. What change principle is demonstrated in this scenario? a. Management + Leadership b. Select few + Diverse many c. Have to + want to d. Head + Heart 14. THE MAN is planning to conduct a medical mission in the lone province of Batanes. THE MAN published an announcement seeking for various health allied professionals who can participate in this endeavor. Which key guide in leading change in an organization is being demonstrated? a. Create a sense of urgency b. Sustain acceleration c. Enlist volunteers d. Generate short-term wins 15. ENCHANTED INC is operating in a diverse environment. ENCHANTED is providing key incentives to its employees and rewarding them with cash grants when its employee hits the target sales for the quarter. Which key guide in leading change in an organization is being demonstrated? a. Create a sense of urgency b. Sustain acceleration c. Enlist volunteers d. Generate short-term wins PROJECT MANAGEMENT 16. ___________________ is an iterative approach and is much more flexible than waterfall project management. a. Agile project management b. Kanban c. Waterfall project management d. Kaizen 17. Which of the following is/are true? a. Project management is the practice of coordinating processes, tools, team members, and skills to deliver projects that meet goals and satisfy requirements. b. Capacity management is a structured process for planning and implementing new ways of operating within an organization. c. Operational structure (OS) is the systematic arrangement of human resources in an organization so as to achieve common business objectives. d. All of the Above  Page 14 of 15 18. Which comes THIRD in a project life cycle? a. Initiating b. Planning c. Executing d. Monitoring e. Controlling 19. Which is NOT part of the project management triangle? a. Cost b. Schedule c. Performance Objectives d. Quality 20. MOSBIUS DESIGNS was tasked to build a building for the GOLIATH NATIONAL BANK. MOSBIUS DESIGNS planned the blueprint of the structure and implements the construction upon approval of the client. Which project management methodology is appropriate for the scenario? a. Waterfall project management b. Agile project management c. Lean project management d. Kaizen 21. YELLOW UMBRELLA is engaged in a project of constructing a railroad project. It is expected that YELLOW UMBRELLA can finish the project within 345 days at the earliest, 548 days under worst case scenarios and 489 days at the reasonable timeframe. What is the expected time of completion of the project? a. 489 days b. 461 days c. 548 days d. 475 days 22. Which of the following is the longest path in a project? a. Network b. Path c. Critical Path d. Slack Time 23. FARHAMPTON INDUSTRIES can complete a project in 15 days as its earliest time of completion. If FARHAMPTON can complete the project in 25 days without incurring delays, what is the slack time? a. 15 days b. 10 days c. 25 days d. 20 days 24. MCLARENS PUB wants to plot certain tasks to identify the proper tasks to be prioritized. Which project management technique should MCLARENS use? a. PERT-CPM b. WBS c. Gantt Chart d. Any of the above  Page 15 of 15 25. Which of the following is TRUE relating to Project Management? a. Projects are unique, one-time operations designed to accomplish a specific set of objectives in a limited time frame. b. The project manager bears the ultimate responsibility for the success or failure of the project c. It shall be noted that whatever the determined time of completion for a specific task is already the expected time. d. All of the above GOODLUCK, FEUture CIAs! ---END--- “Many of life’s failures are people who did not realize how close they were to success when they gave up” – THOMAS A. EDISON  Page 1 of 19 FAR EASTERN UNIVERSITY INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE DEPARTMENT OF ACCOUNTANCY AND INTERNAL AUDITING AUD1207 – INTEGRATED INTERNAL AUDITING REVIEW COURSES SECTION A - BUSINESS ACUMEN BA 01 – STRATEGIC MANAGEMENT MR. CHRISTIAN ANDREI G. UTANES, CPA, CMA, MBA units NOTE TO STUDENTS: These handouts are of property of the reviewer. Unnecessary sharing and uploading of these materials are not allowed. LEARNING OBJECTIVES Upon completion of this chapter, you should be able to: 1. Understand the nature of Business Acumen 2. Understand the relationship of Business Acumen and the success in an organization 3. Understand the terms in Business Acumen 4. Explain Strategic Planning 5. Understand the various Strategic Planning Strategies 6. Apply the various Strategic Planning Strategies in various business cases. LECTURE NOTES BA 01-1 NATURE OF BUSINESS ACUMEN Business Acumen means possessing the knowledge, abilities and skills (KASs) to succeed in the business field. The goal of the IIA for CIAs in Business Acumen consists of: 1. Obtain deep understanding in company’s visions and missions 2. Develop business strategies and goal 3. Understanding inner workings of core business functions 4. Applying IT and general technology 5. Solving business problems and aid in making business decisions Strategies show a big picture of the company and explain how senior management works on developing and executing strategies. Strategies must be linked to a company’s vision and mission and are then on translated to goals and objectives which shall be the basis for corporate strategy.  Page 2 of 19 Mission reflects management’s values and beliefs. Vision is a statement that explains what a company wants to become and what it hopes to achieve. In understanding the company’s mission and vision, let us take for example the case of Jollibee Foods Corporation (JFC). Below is the Corporate Vision of Jollibee. As Jollibee in its vision has demonstrated its clear aspiration to be one of the Top 5 Restaurant Companies in the world, hence, its efforts and strategies shall translate into action towards achieving this goal. Jollibee will then strive to place emphasis on better quality services to its customers. This is now manifested on Jollibee’s Mission, to serve great-tasting food, bringing joy of eating to everyone. The mission above was crafted from JFC’s corporate values as listed below. JFC hopes that the application of their mission is then passed down and will be a clear demonstration of these values.  Page 3 of 19 Goals are developed from vision and mission. A goal is a statement of general, broad, long-term target, aim and intent. It is a desired future state that the organization aims to reach. Tactical Goals include both specific, broad, medium term measurable results in terms of clear outcomes expected of individual decisions, departments and business units that support strategic goals. EXAMPLES: 1. To add 1,000 branches across the Philippines 2. To be included in the Top 1,000 Corporations in the Philippines Operational Goals include very specific, very detailed (narrow) and low-level measurable results of individual work groups. Operational Goals are usually SHORT-TERM in nature and are revised periodically EXAMPLES: 1. To be able to generate 15% additional sales 2. To be able to reduce employee turnover by 50%  Page 4 of 19 Plans are blueprints specifying the resources, schedules and actions needed to achieve goals. Plans are turned into actions and then turned into results. Actions are systematic and structured steps, tasks or activities required to achieve the defined plans. Actions will produce results that management is expecting. Budgets are the planned monetary resources available for a specific activity or action. Budgets are usually devised in accordance with the company policy and are revised according to past results and actions. BA 01-2: STRATEGIC PLANNING Strategic Planning is a process through which business leaders map out their vision for their organization’s growth and how they’re going to get there. There are various strategic planning tactics or strategies applied in real-life business situations such as: 1. Porter’s Five (5) Forces Model 2. Porter’s Generic Strategies 3. Value Chain Analysis (VCA) 4. Boston Consulting Group Growth-Share Matrix (BCG) 5. Continuous Improvement (Kaizen Approach) 6. Benchmarking 7. Just-In Time (JIT) Inventory System A.) PORTER’S FIVE (5) FORCES MODEL Michael Porter's five-force strategic analysis model, introduced in a 1979 article published in the Harvard Business Review, remains a fundamental tool for strategic analysts plotting the competitive landscape of an industry. The model guides businesses in determining the intensity of competition and potential profitability within their market, helping them better understand where power lies in their sector.  Page 5 of 19 1. COMPETITIVE RIVALRY Several factors contribute to the intensity of competitive rivalry in an industry: ▪ The number of competitors ▪ Industry Growth ▪ Similarities in what’s offered ▪ Exit barriers ▪ Fixed costs 2. THREAT OF NEW ENTRANTS Here are factors in measuring how much new entrants threaten an industry: ▪ Economies of scale ▪ Product differentiation ▪ Capital requirements ▪ Access to distribution channels ▪ Regulations 3. BARGAINING POWER OF SUPPLIERS When the power of suppliers in an industry is high, this raises costs or otherwise limits the resources a firm need. Here are some factors used to measure the supplier power of an industry: ▪ The number of suppliers ▪ Uniqueness ▪ Industry importance 4. BARGAINING POWER OF CUSTOMERS When customers have more strength, they can exert pressure on businesses to provide better products or services at lower prices. This force intensifies under certain conditions: ▪ The number of buyers ▪ Purchase size ▪ Price sensitivity ▪ Informed buyers 5. THREAT OF SUBSTITUTES When customers can find substitutes for a sector's services, that's a major threat to the companies in that industry. Here are some ways that this threat can be magnified: ▪ Relative price performance ▪ Customer willingness to go elsewhere  Page 6 of 19 ▪ The sense that products are similar ▪ Availability of close substitutes B.) MICHAEL PORTER’S GENERIC STRATEGIES A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. 1. Cost Leadership In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantages are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. A low-cost producer must find and exploit all sources of cost advantage. if a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry, provided it can command prices at or near the industry average.  Page 7 of 19 2. Differentiation In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price. 3. Focus The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others. The focus strategy has two variants. (a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser's target segment and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behavior in some segments, while differentiation focus exploits the special needs of buyers in certain segments. C.) VALUE CHAIN ANALYSIS A value chain is a series of consecutive steps that go into the creation of a finished product, from its initial design to its arrival at a customer’s door. The chain identifies each step in the process at which value is added, including the sourcing, manufacturing, and marketing stages of its production.  Page 8 of 19 A company conducts a value chain analysis by evaluating the detailed procedures involved in each step of its business. The purpose of a value chain analysis is to increase production efficiency so that a company can deliver maximum value for the least possible cost. The Value Chain (VC) is divided into two (2) categories, namely Primary Activities and Support or Secondary Activities 1. Primary Activities Primary activities consist of five components, all essential for adding value and creating competitive advantages: 1. Inbound logistics include functions like receiving, warehousing, and managing inventory. 2. Operations include procedures for converting raw materials into a finished product 3. Outbound logistics include activities to distribute a final product to a consumer 4. Marketing and sales include strategies to enhance visibility and target appropriate customers—such as advertising, promotion, and pricing. 5. Service includes programs to maintain products and enhance the consumer experience—like customer service, maintenance, repair, refund, and exchange. 2. Secondary or Support Activities The role of support activities is to help make the primary activities more efficient. When you increase the efficiency of any of the four support activities, it benefits at least one of the five primary activities. These support activities are generally denoted as overhead costs on a company’s income statement: 1. Procurement concerns how a company obtains raw materials. 2. Technological development is used at a firm’s research and development (R&D) stage—like designing and developing manufacturing techniques and automating processes. 3. Human resources (HR) management involves hiring and retaining employees who will fulfill the firm’s business strategy and help design, market, and sell the product. 4. Infrastructure includes company systems and the composition of its management teams such as planning, accounting, finance, and quality control. D.) BOSTON CONSULTING GROUP (BCG) GROWTH-SHARE MATRIX The Boston Consulting Group (BCG) growth share matrix is a planning tool that uses graphical representations of a company’s products and services to help the company decide what it should keep, invest more money in, or sell. The company’s offerings are plotted in a four-square matrix. The y axis represents the rate of market growth, and the x axis represents market share. The BCG growth share matrix was introduced by the Boston Consulting Group in 1970. The BCG growth share matrix is divided into 4 matrices – Dogs (Pets), Cash Cows, Rising Stars or Question Marks.  Page 9 of 19 1. Dogs (or Pets) A company is considered a dog and should be sold, liquidated, or repositioned if its product has a low market share and is at a low growth rate. Dogs are found in the lower right quadrant of the grid. Dogs don’t generate much cash for the company because they have a low market share and little to no growth. They can turn out to be cash traps, tying up company funds for long periods, so they’re prime candidates for divestiture. 2. Cash Cows Products that are in low-growth areas but for which the company has a relatively large market share are considered cash cows. The company should milk the cash cow for as long as it can. Cash cows are seen in the lower left quadrant. They’re typically leading products in mature markets. These products often generate returns that are higher than the market’s growth rate. They sustain themselves from a cash flow perspective. These products should be taken advantage of for as long as possible. The value of cash cows can be easily calculated because their cash flow patterns are highly predictable. Low-growth, high-share cash cows should be milked for cash to reinvest in high-growth, high-share stars with high future potential.  Page 10 of 19 3. Stars Products that are in high-growth markets and that make up a sizable portion of that market are considered stars and should be invested in. Stars appear in the upper left quadrant. Stars generate high income but also consume large amounts of company cash. A star eventually becomes a cash cow when the market’s overall growth rate declines if it can remain a market leader. 4. Question Marks Questionable opportunities are those in high-growth rate markets but in which the company doesn’t maintain a large market share. Question marks or problem children appear in the upper right portion of the grid. Question marks typically grow fast but consume large amounts of company resources. Products in this quadrant should be analyzed frequently and closely to see if they’re worth maintaining. E. CONTINUOUS IMPROVEMENT (KAIZEN APPROACH) CONTINUOUS IMPROVEMENT is the constant effort to eliminate waste, reduce response time, simplify the design of both products and processes, improve quality and enhance customer service. Continuous improvement can be made in two ways: A. Kaizen B. Business Process Reengineering (BPR) 1) KAIZEN is the Japanese term for “Continuous Improvement” Kaizen is the gradual process of reducing costs during the manufacturing phase of an existing product through small and continual improvements rather than through radical “big-time” changes. The Toyota Production System (TPS) is a real-life example of a Kaizen strategy.  Page 11 of 19 Lean Management System (LMS), on the other hand, is also known as “Waster Management” which seeks to reduce production inefficiencies, reworks, unwanted business situations and damaged company reputation. An LMS is evaluated on a yearly basis and is considered a key part in the manufacturing success of an organization. An example of a company who performs LMS effectively is Walmart. 2) BUSINESS PROCESS REENGINEERING (BPR) involves redesigning the business process to reduce costs and eliminate inefficiencies and opportunities for errors. BPR is also called as “Radical Improvement” Common features of BPR include: ✓ Radical, quick, significant and drastic approach to improvement ✓ Business process is diagrammed in detail, analyzed and completely redesigned ✓ Simplification of business process ✓ Elimination of non-value-added activities. F. BENCHMARKING BENCHMARKING is the process of getting the “best practices” in the industry and applying such best practices to day-to-day business operations. This involves three steps: 1) Identifying critical success factors 2) Studying the best practices of other firms based on identified success factors 3) Implementing needed improvements to match or beat the performance of other firms. G. JUST-IN-TIME (JIT) SYSTEMS JUST-IN-TIME (JIT) is a “demand-pull” system where inventories are purchased/produced only as needed for production/sale, reduced to the minimum level and, in some cases, reduced to zero (i.e., elimination of non-value-added costs).  Page 12 of 19 JIT can be classified into two categories: ✓ JIT Purchasing - raw materials are received just in time for production; goods for sale are received just in time for delivery or sale. ✓ JIT Manufacturing – manufactured materials are completed just in time for production; products are completed just in time for delivery. It shall be noted that a company who implements a JIT system shall invest a huge sum of resources in order to implement the system effectively and efficiently. Lastly, a good relationship with the supplier is a must in the successful implementation of a JIT system. Companies who implement a JIT system are known in default to have an edge against companies who are implementing the traditional inventory system. Below are some comparisons between a company who implements a JIT system and a company who is a non-JIT adopted.  Page 13 of 19 MULTIPLE CHOICE QUESTIONS 1. Which of the following is NOT an objective of the IIA for Business Acumen? a. Obtain a deep understanding of the company’s visions. strategies and missions b. Develop business strategies and goals c. Understanding inner workings of core business functions d. Applying IT and general technology 2. Which of the following is/are TRUE? Statement 1: Mission reflects management’s values and beliefs. Statement 2: Vision is a statement that explains what a company wants to become and what is hopes to achieve. a. Only Statement 1 is correct b. Only Statement 2 is correct c. Both statements are correct d. Both statements are incorrect 3. A __________ is a statement of general, broad, long-term target, aim and intent. a. Goal b. Strategy c. Plan d. Vision 4. Tactical Goals include both __________ broad, medium term measurable results in terms of clear outcomes expected of individual decisions, departments and business units that support strategic goals. a. General b. Curated c. Specific d. Standard 5. _______________ include very specific, very detailed (narrow) and low-level measurable results of individual work groups. a. Tactical Goal b. Strategic Goal c. Operational Goal d. Oriental Goal 6. Which of the following is a fundamental tool for strategic analysts plotting the competitive landscape of an industry? a. Porter’s Five Forces Model b. BCG Growth Share Matrix c. Value Chain d. Continuous improvement 7. Which of the following is NOT part of Porter’s Generic Strategies? a. Cost Leadership b. Differentiation c. Matrix d. Niche 8. The VERSACE EROS INC. develops a state-of-the-art product that uses various techniques and cutting-edge technology in the manufacture of its perfumes. It sells thousands of products in the market and achieves consistent market share growth. VERSACE EROS implements what strategy?  Page 14 of 19 a. Cost Leadership b. Differentiation c. Matrix d. Niche 9. LACOSTE BLANC implements a “Just-Do-It” methodology to eliminate waste and improve operations. Data for 2023 reveled that LACOSTE BLANC’s rework percentage is 12% and significantly declined to 3% in 2024. LACOST LE BLANC implemented what strategy? a. Cost Leadership b. JIT production c. Lean Management System d. Kaizen 10. NAUTICA VOYAGE refurbished its operations in 2024 with the hope to calibrate operations. Certain processes were changed in a span of 3 months and mass layoffs and resizing was done to improve operations. In a span of 23 months, NAUTICA VOYAGE’s sales boosted thrice as compared to 2022. NAUTICA VOYAGE implemented what strategy? a. Business Process Re-engineering b. Benchmarking c. JIT d. Value Chain 11. LACOSTE STYLE AND PLAY is offers products to customers that ensures safety and quality. LACOSTE is fast when it comes to answering customer feedback and complaints including reworks. What support activity in the value chain is being described? a. Inbound Logistics b. Outbound Logistics c. Customer Service d. Marketing 12. BLEU DE CHANEL COMPANY is currently evaluating various investment strategies. In its analysis, an investment in the lone province of Davenport is posed as an attractive investment location. Upon further analysis, the province generates low cash flow but it is an attractive investment destination with booming growth. BLEU DE CHANEL is looking at an investment that is in the _________ quadrant of the BCG Growth Share Matrix? a. Dogs b. Cash Cows c. Stars d. Question Marks 13. DIOR SAUVAGE INCORPORATED launched a promotional program in 2025 for the release of the “DIOR ELIXIR”. DIOR ELIXIR contains fragrance notes attractive to women of all ages. However, market competition is tough in the fragrance industry. Its main competitor, VERACE EROS FLAME implements a lean manufacturing system that lowers down production costs.  Page 15 of 19 DIOR ELIXIR adopted such methodology and tweaked minimal items for implementation and launched the product as – “DIOR ELIXIR BOLD”. 14 months after the launch of DIOR ELIXIR BOLD, it dominated the fragrance market. Which force on the 5 Porter’s Model was hurdeled by DIOR ELIXIR? a. Bargaining power of suppliers b. Bargaining power of customers c. Threat of Substitutes d. Intensity of Competition 14. It is the Japanese term for “Continuous Improvement” a. Kaizen b. Keiretsu c. Chebol d. Bini 15. This is a strategy wherein the company exerted efforts to fast-pace the changes within the organization. a. Kaizen b. Business Process Re-engineering (BPR) c. Benchmarking d. JIT system 16. Which of the following is/are TRUE? Statement 1: Actions are systematic and structured steps, tasks or activities required to achieve the defined plans. Statement 2: Budgets are turned into actions and then turned to results. a. Only Statement 1 is true b. Only Statement 2 is true c. Both Statements are correct d. Both Statements are incorrect 17. PRADA LUNA OCEAN FRESH aims to increase regional sales by 15% in 2025. This is an example of _____________ a. Tactical Goal b. Strategic Goal c. Operational Goal d. Oriental Goal 18. Which of the following is/are TRUE? Statement 1: Plans are systematic and structured steps, tasks or activities required to achieve the defined plans. Statement 2: Budgets are turned into actions and then turned to results. a. Only Statement 1 is true b. Only Statement 2 is true c. Both Statements are correct d. Both Statements are incorrect 19. Which of the following is/are TRUE? Statement 1: Plans are blueprints specifying the resources, schedules and actions needed to achieve goals. Statement 2: Budgets are the planned monetary resources available for a specific activity or action.  Page 16 of 19 Statement 3: Goals are primarily divided into two – Tactical Goals and operational Goals Statement 4: When McDonalds forecasts a sales budget for the next three months to achieve a 3% increase in the sales for McFlurry after a promotional campaign is an example of a Tactical Goal. a. Only one statement is correct b. Only two statements are correct c. Only three statements are correct d. All statements are correct e. All statements are incorrect 20. Which of the following is a characteristic of a Just-In-Time (JIT) System? a. Materials are then on backflushed from Raw Materials to Finished Goods b. Materials are ordered in advance to take advantage of sales discounts c. Materials are processed directly to finished products on time and are shelved as inventory d. All statements are characteristics of a JIT system 21. Which of the following is a characteristic of Kaizen rather than Business Process Reengineering? a. Changes in the organization are quickly implemented b. Efforts are consistent, step-by-step and are deemed considered as helpful c. High reliance on technology d. Simplification of business process 22. When a segment is considered as a Question Mark investment at the onset and after the maturity stage is reached, which quadrant may NOT be the leading trend of this investment? a. Stars b. Cash Cows c. Dogs d. None, an investment or segment initially considered as a Question Mark shall remain as is from inception 23. MANCERA INSTANT CRUSH decided to implement a Value Chain Mechanism in the organization at the beginning of 2024. Which is NOT considered as a direct result of implementing a Value Chain in an organization? a. Advancing quality control b. Reduction in cost by optimizing the value chain components or activities c. Increasing profits d. Added investment to be maintained by the company e. Increased customer loyalty 24. STRONGER WITH YOU INTENSLY is currently having problems in gaining the industry market share. An internal auditor has examined the controls of the organization and found out that losses bloated by 27% from 2023 to 2024. It was noted that the company has experienced a huge increase in the “Allowance for Inventory Impairment’ account which then on matched negatively with earnings Which strategy should be best implemented by STRONGER WITH YOU INTENSLY? a. Porter’s 5 Forces Strategy b. Value Chain Analysis c. JIT System d. Lean Management System 25. ECLAT NOIR is planning to expand its operations overseas. The products that the company produces are distributed locally, sourcing from the province of Pampanga. Tools of trade, operational investments, experts and laborers and intended to remain in Pampanga.  Page 17 of 19 The company intends to widen reach by offering them to Thailand as a showroom then an outlet in Southeast Asia. Which activity in the Value Chain must be carefully examined by ECLAT NOIR before implementing this plan? a. Marketing and Sales b. Inbound Logistics c. Technological Development d. Outbound Logistics USE THE FOLLOWING INFORMATION FOR THE NEXT FIVE (5) ITEMS: As an Internal Auditor, you are tasked to obtain competencies in various business domains – internal controls, risk management, governance, accounting, business management, IT, data analytics and the like. An Internal Auditor is expected to bring value to an organization for its continuous growth and development. Read the case of LA FRAGRANCIA ILLUMINA, apply the various concepts and techniques in business acumen and answer the following questions. BUSINESS CASE – “LA FRAGRANCIA ILLUMINA” LA FRAGRANCIA ILLUMINA is a publicly listed company established in Grasse, France, which is the fragrance capital of the world. LA FRAGRANCIA ILLUMINA was established in 2002, and it is owned by Pierre Ceruique, a French fragrance enthusiast. LA FRAGRANCIA ILLUMINA’s fragrance factory is in the lone area in Grasse. In September 2024, a “PARFUM EXPO” was launched in the city of Grasse where various perfumiest were engaged to participate. The PARFUM EXPO is set to be held in 2025. The PARFUM EXPO uplifts the spirit of fragrance as a way of encouraging romance to the world. It believes in the importance of fragrance in the development of the community – that “Fragrance is a spirit that binds hearts and minds as a coherent space that would remind the world the beauty of falling in love”. Perfumiest were tasked to develop an oozing scent that would unleash romantic vibes in preparation for Valentine’s Day in February 2025. The winner of the PARFUM EXPO shall a government grant of 200 million and tax exemptions. LA FRAGRANCIA ILLUMINA believes that it could capture more market share when it wins the expo. In preparation for the Expo, LA FRAGRANCIA ILLUMINA examined its financial statements from 2016 to 2022 to see if there are excess funds and resources that could be used. Its Accountant, Christine Pierre presented the data using data visualization techniques. Christine assumed different variables that could help project the financial figures needed for the expo. In line with LA FRAGRANCIA ILLUMINA’s pursuit of winning the expo, it engaged a well-known perfumiest in the city Paris – Christian Andre. Andre released fragrances that shunned the world and wooed the hearts of women of all ages. He invented the LOVESTRUCK, which was made from red roses and lemony fresh nuances. His other perfume called, CUPID was a success in the European and the US region inspired with Grapefruit, Rosemary and Cardamom; whose middle notes are Ylang-Ylang and Tuberose, and base notes are Suede, Virginia Cedar, Vetiver and Leather.  Page 18 of 19 Andre then started to create LA FRAGRANCIA ILLUMINA’s entry for the expo and released “THE BACHELOR”. THE BACHELOR is a perfume for men designed to capture the heart of a young lady desperate for love and craving for emotional intelligence. THE BACHELOR’s top notes are Mint, Green Apple and Lemon while the middle notes are Tonka Bean, Ambroxan and Geranium and the base notes are Madagascar Vanilla, Virginian Cedar, Atlas Cedar, Vetiver and Oakmoss. THE BACHELOR comes in three concentrations – EAU DE TOILLETTE, EAU DE PARFUM and PARFUM. The nose behind THE BACHELOR believes that love is strengthened not in the most ideal way, but in the seasons of droughts and lows. Data for the three concentrations follow: EAU DE PARFUM EAU DE TOILLETE (EDT) (EDP) PARFUM Selling Price 500 699 899 Materials cost 249 349 449 Processing time 1.5 hours 1.75 hours 1 hour Projected sales increase 35% 25% 15% LA FRAGRANCIA ILLUMINA is contemplating launching THE BACHELOR not only in the PARFUM EXPO but also as commercial product. It is projected that THE BACHELOR will bring in an overall increase of 38% in LA FRAGRANCIA ILLUMINA’s global sales. THE BACHELOR won the PARFUM EXPO in 2025. In 2027, two years after the PARFUM EXPO, THE BACHELOR is one of LA FRAGRANCIA ILLUMINA’S greatest scents of all time. Based on the forgoing, answer the following questions: 26. Analyzing the different concentrations of THE BACHELOR, LA ILLUMINA FRAGRANCIA was able to charge supreme price for the PARFUM variant. Which generic strategy is implemented here? a. Cost Leadership b. Differentiation c. Matrix d. Niche 27. Assume that in 2027, the demand for THE BACHELOR decreased in the market due to unwarranted competition in the market. Which of the following strategies shall LA FRAGRANCIA ILLUMINA use to get back the market share? a. Cost Leadership b. Differentiation c. Focused or Niche d. Either A, B or C  Page 19 of 19 28. Analyze the below passage: The PARFUM EXPO uplifts the spirit of fragrance as a way of encouraging romance to the world. It believes in the importance of fragrance in the development of the community – that “Fragrance is a spirit that binds hearts and minds as a coherent space that would remind the world the beauty of falling in love”. The above statement can be best described as: a. Vision b. Mission c. Goal d. Plan 29. The processing time of the PARFUM variant is significantly lower than the EDT and EDP. What strategy could have explained this? a. Kaizen b. Business Process Reengineering c. JIT d. Value Chain 30. LA FRAGRANCIA ILLUMINA contracted the services of Christian Andre, a well-known perfumiest. The act of contracting an expert is considered as a ______________ a. Plan b. Goal c. Vision d. Mission GOODLUCK, FEUture CIAs! ---END--- “Many of life’s failures are people who did not realize how close they were to success when they gave up” – THOMAS A. EDISON