Please help me with the COSO Internal control, and Strategy Statement & Map. Thank you
ACCOUNTING INFORMATION SYSTEMS, 2e
Richardson, Chang, and Smith
Copyright © 2018 McGraw‐Hill Education. All rights reserved. No reproduction or distribution without the prior written
consent of McGraw‐Hill Education.
Background Mr. Z (real name Josh Zubkoff) runs a successful chain of cheese (and wine) shops
in Oregon that specialize in Oregon artisan cheeses. He also sells his cheeses over the internet.
He is considering expanding his business, but he thinks his current accounting and financial
systems are restricting his ability to expand. He has come to you for assistance.
Instructions Your supervisor met with Mr. Z and discussed his requirements in detail. These
interviews are included at the end of these instructions for your review. At that meeting, they
agreed on the following deliverables for your project.
1. Document process activity using BPMN. After gaining an understanding of Z’s business
processes, you will document current processes using business process modeling notation
(BPMN). This involves documenting at least five current business processes. These diagrams
will serve multiple purposes. Mr. Z expects to use them to train new employees. Plus, they
will provide information about potential improvements to those processes by the efficient
use of information technology. Additionally, they will also highlight areas where Mr. Z is
exposed to unnecessary risks in his business.
2. Prepare an integrated data model using UML class diagrams and the REA framework. Be
sure to include a table listing with your submission. This data model will serve as the
blueprint for Z’s prototype database that you will also develop.
3. Prepare a prototype database for Mr. Z. He has agreed to provide financial data from his
business for the 1st quarter of his fiscal year. You will use the Access starter file and support
files to complete this task.
4. Prepare financial reports using your database. You will prepare queries as necessary to
provide the following reports and management information.
a. Z Cheddr income statement for the 1st quarter. Remember that Z uses accrual
accounting.
b. Z Cheddr balance sheet as of the end of the 1st quarter.
c. Income statements for each Z Cheddr store for the 1st quarter.
d. Analysis of product sales and profitability for the 1st quarter. Determine product
turnover and profitability for each inventory item.
ACCOUNTING INFORMATION SYSTEMS, 2e
Richardson, Chang, and Smith
Copyright © 2018 McGraw‐Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw‐Hill Education.
5. Evaluate the financial performance of Z Cheddr for the 1st quarter. Use your Access
queries but also prepare formal financial statements and appropriate ratios to evaluate
performance against the industry and past performance in a one page summary.
6. Assess the business case for use of information technology in Z’s business (see chapters
13 and 14 in the text). Mr. Z wants to move to a cloud‐based accounting system, such as
Netsuite. He wants to upload transactions daily from new smart cash registers in each
store.
7. Prepare a Risk and Controls evaluation (based on the online activity in week six and
chapter 11). Using the template provided in the week six activity; develop a set of at
least ten recommendations to improve internal controls and mitigate risk.
8. Develop a long-term strategy statement using the Balanced Scorecard method (see
chapter 14). Your statement should suggest a cost or differentiation strategy to Mr. Z. In
addition, prepare a strategy map using the template provided in week seven that
outlines at least two-three objectives per area.
9. Describe the performance measures that Z’Cheddr should track regularly, for example in
an executive dashboard, to compare performance against the objectives shown on the
strategy map. Describe the performance measures (daily sales, sales-by-store, etc.) that
Z’Cheddr should emphasize, how often those measures should be updated, and how
those measures relate to accomplishing their strategic objectives. Present this
information in an excel pivot table or in tableau using the financial history data
provided(see chapter 9) based on the week five activity. Include at least three charts
based on executive needs.
Report to Mr. Z
Each group will submit all the deliverables in one report to Mr. Z at the end of the project. You
will also submit your prototype Access database with all the queries along with that report. The
report should be professionally prepared in an executive summary style and not longer than 8
pages not counting any appendices or attachments. The appendices or attachments should
include financial statements, data model and activity diagrams, and other information
necessary to support your analyses and conclusions. The content of the report should be clear
to an accounting novice such as Mr. Z. Most of the content should be presented using tables,
charts, and bullet points. In all cases, you should avoid long paragraphs. Specific content of the
report should include:
• Team Member Introductions
• Executive Summary defining the scope of the project
• Financial performance evaluation as outlined in 4 and 5 above.
• Business case for technology as outlined in 6 above.
• Risk & Controls Evaluation with recommendations as outlined in 7 above.
• Balanced Scorecard strategy formation and strategy map as outlined in 8 above.
• Description of performance measures. Executive Dashboard as outlined in 9
above.
• Appendix:
• BPMN Diagrams
• UML diagram and table listing
• Other Supporting Documentation
ACCOUNTING INFORMATION SYSTEMS, 2e
Richardson, Chang, and Smith
Copyright © 2018 McGraw‐Hill Education. All rights reserved. No reproduction or distribution without the prior written
consent of McGraw‐Hill Education.
Presentation
Your Project Manager has decided that this is an opportunity to highlight the good work of
your firm and earn a three-year consulting contract with Z’Cheddr. The company is also
interviewing several other firms before making a final decision. The Z’Cheddr contract requires
all competing firms to develop YouTube videos to introduce their proposals and highlight the
unique capabilities of their firms. (Note: you don’t need to post your video or to make a video
—although most teams do make videos and post those videos on YouTube — just assume that
your presentation is going to appear on YouTube.)
Length: approximately 3-5 Minutes.
a. Focus: concentrate on the highlights of Z’Cheddr’s business models and your
recommendations for growth, showing what you will do a great job for Z’Cheddr and are
the best choice for the project (see your Team).
b. Style: show some ENTHUSIASM; make it UNIQUE (no BORING description of how you
computed of financial statements using Access).
c. Overall goal: have fun! (5 Bonus points for most creative presentation as determined by
other groups).
Modeling Software Links
I highly recommend Signavio for your BPMN drawings and the
following for UML diagrams (you want to choose a software that
allows you to document your multiplicities).
http://www.gliffy.com
Free trial of online modeling software; students have used this in
the past.
http://creately.com
Initial trial then they charge $5 per month.
http://www.lucidchart.com
Initial trial then they charge $3.33 per month.
http://www.conceptdraw.com/
Free trial available. Use the Pro software.
http://www.ariscloud.com/
Provides a 4-week free trial.
http://www.smartdraw.com
Free trial available but sticks watermark on your printouts (this is
the software that I use).
http://www.visual-paradigm.com/download/vpuml.jsp?
edition=ce
Community edition of VB-UML is free. In any case, provides a 30-
day trial.
http://www.intalio.com/bpms
Community edition free
http://www.objecteering.com/
Free edition available
http://www.igrafx.com/products/process/
Free trial
http://www.activevos.com/download-trial.php
Free trial
Employee Interviews
Z Chedd’r Project
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
Overview
The following interviews were conducted prior to the start of the project to explore specific aspects of Z
Cheddr business processes. The interviews with employees provide information that is representative of
activities performed by all employees with the same titles. For example, the interview with Gordon,
manager of the Bend store, provides information about the activities that all store managers perform. It
is not suggested that these interviews provide complete information about all of Z Cheddr business
processes. They are meant to provide an initial overview of the business.
Summary of Interview with Mr. Z
Western Oregon’s mild climate and abundant rainfall contribute to the state’s allure for dairy farmers.
Mr. Z routinely said, “We have more green grass longer than any state in the country.” What’s more,
land prices and living costs are relatively low in Oregon, luring a number of cheesemakers from
neighboring California. Many new cheesemakers are also attracted by the cross-marketing potential of
locating in Oregon wine country. Those were some of the reasons that he started Z Cheddr just over 10
years ago. His business quickly grew from one store to 10 stores plus an internet presence. Recently, he
also started selling some cheeses on a wholesale basis to small groceries and other cheese and wine
shops on the west coast.
Mr. Z is the sole owner of Z Cheddr and operates his business as a limited liability corporation. He has a
small board of directors, including his daughter and her husband, but they are seldom involved in any
real business decisions. Mr. Z is a good businessman and knows a lot about selling wine and cheese.
Unfortunately, Z’s accounting knowledge is marginal. His systems did not keep up with the growth of his
business. He currently relies heavily on manual processes, and his data is spread among several different
systems and EXCEL spreadsheets. He plans to expand his business to other west coast states to take
advantage of the rapid growth in artisan cheese, wine, and beer makers. So, in addition to providing
financial information about his current performance, he wants advice on the risks his business faces and
cloud-based accounting system where each store submits transactions daily via the internet.
He also sells cheeses and cheese and wine gift baskets over the internet. His website looks good, but the
backend processes require heavy manual intervention. After a customer places an order and pays by
credit card, his employees must print the orders and move to another system to update inventory,
prepare shipping documents, and record the sales. He knows that this can be streamlined, so he also
wants an overall evaluation of how he can use information technology to streamline his online process.
Of course, he also wants to know how those changes would affect his internal control system.
Summary of interview with Gordon Lightfoot, manager of the Bend store
Gordon has been the manager of the Bend, Oregon store since it opened in 2005. He has made a
number of friends among the regular customers that visit the store. Gordon is known in the area for his
knowledge of cheeses and especially his knowledge of which wines to pair with which cheeses. Each
morning, Gordon opens the store, checking to make sure that the display cases are at the right
temperature, the cash drawers are ready, and the signs are set up to display the daily specials. Then,
Gordon or his clerks spend the day selling wine and cheese.
Employee Interviews
Z Chedd’r Project
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
A few times a week, Gordon hosts cheese and wine tasting promotions for his customers. These tastings
have been very successful. Customers come from all over town to attend, and most leave purchasing
both the cheese and wine that they tasted. To determine which wine and cheese to promote, Gordon
checks his inventory to be sure that he has plenty on hand so that customers will be able to buy the
product after the promotion. Using the Z Cheddr Promotions form, he carefully records the amount of
cheese and wine pulled from inventory for the promotion. After the promotion, he files the promotion
form until he can send it to Chad, the Z Cheddr accountant, with the van driver.
At the end of the day, Gordon closes out the cash registers and collects the various cash drawers. He
does a final check of the display cases, making sure that all cheeses are appropriately refrigerated
overnight. He puts the drawers and the cash register tapes in the safe for the bookkeeper.
Summary of interview with Joan Baez, bookkeeper for the Bend store
Joan is the part time bookkeeper for the store. The job is perfect for her, because she just comes in after
the store closes, prepares the deposit information, and records the daily transactions in a spreadsheet.
She emails the spreadsheet to Chad, the Z Cheddr accountant. She also prepares the cash drawers for
the next morning and takes the daily receipts to the bank for deposit. All this usually takes two or three
hours. She files the deposit slips until she can send them to Chad with the van driver.
Summary of interview with Bob Dylan, cheese and wine buyer
Bob recently graduated from Oregon State University, where he worked with other food science
students at the O.S Creamery. They learned about cheese making by making and selling cheese,
especially their famous Beaver Classic cheese. He uses his knowledge of artisan cheese making and his
connections with other cheese makers to select the best cheeses to sell at Z Cheddr . Bob negotiated
contracts with each of the cheese, so all he does is call them to place an order.
Each day, Bob reviews the Z Cheddr inventory records to determine what to order. He also considers
recent sales trends and potential seasonal demand for particular products. Often, he will check the
physical warehouse inventory and call the stores to verify inventory levels, since he is not completely
confident in the electronic records. He then calls the suppliers to place the orders. The suppliers deliver
their products to the Z Cheddr central warehouse in Eugene Oregon. Occasionally, Bob will arrange for a
van to pick up the order if it looks like shipment might be delayed. After the products are received and
accepted by Judy in shipping and receiving, Bob authorizes the payment and sends a copy of the
supplier’s invoice to Chad. Chad pays each cheese maker at the end of the month for purchases during
the month. Sometimes, Chad combines payments if there is more than one shipment from the same
cheese maker during the month.
Recently, Bob has also assumed the duties of wine buyer. The wine buying process is identical to the
cheese buying process. It requires a good relationship with the suppliers and knowledge of the products
offered by each supplier. Bob has a good rapport with his suppliers, but he makes them compete for our
Employee Interviews
Z Chedd’r Project
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
business. This helps keep costs down and allows Z Cheddr to provide high quality wines for reasonable
prices to our customers.
Summary of interview with Chad Mitchell, accountant
Chad has been with Josh (Mr. Z) since the beginning. He used to work in the Bend store while he finished
school, but when Mr. Z needed someone to do the accounting, Chad volunteered. Chad’s job is to pay
the bills, update the inventory records, put together the financial records, make sure Z Cheddr pays its
taxes on time, and keep Mr. Z informed about company performance. Chad gets the sales and
promotions information from the stores via the van drivers. He gets transfers, wholesale and internet
sales information from shipping and receiving. That way, he can maintain up to date inventory counts
and record sales daily. Z Cheddr conducts physical inventory counts each quarter, and Chad uses those
counts to update or correct the electronic inventory records. Chad uses average inventory cost (average
cost in the inventory worksheet) to value transfers, promotions, and ending inventory. The beginning
inventory is valued at the average cost for the previous quarter (beginning cost in the inventory
worksheet).
Chad also pays all the bills. His clerk assembles the invoices and recurring payment information for both
inventory purchases and administrative purchases and prepares the checks. The administrative
purchases include recurring payments for rent of Z Cheddr retail stores, all of which are rented through
one broker, Oregon Commercial Real Estate. Then Chad reviews the support material, corrects any
errors, and signs the checks.
Chad also gets the timesheets from each store at the end of the month and with his assistant enters that
payroll information on the payroll services’ website. Each employee then receives a monthly check from
the payroll service. Chad transfers money from the main operating account to the payroll account to
cover the payroll each month. Chad sends checks for federal and state payroll taxes, social security
(FICA) and Medicare (MC) withholding, including the matching employer amounts for FICA and MC, to
appropriate tax authorities after the end of each quarter. Oregon has no sales tax, so he doesn’t have to
make those tax payments.
Chad and his assistant are also responsible for bank reconciliations each month. They use the deposit
slips received from the stores to confirm deposits. Additionally, deposits include the internet credit card
receipts and payments from the wholesale customers. Z Cheddr uses their bank’s merchant services to
process customers’ credit card payments. Credit card payment information is transferred electronically
from the website to the bank’s site. The bank takes their cut, which can range from 3 to 8% of the sale
amounts, depending on the credit card the customer uses. It then electronically deposits the rest of the
payment in the Z Cheddr account and sends an email to Chad to confirm the deposit. Of course, Chad
uses the Z Cheddr checkbook (and any transfer vouchers for transfers to the payroll account) to confirm
payments.
Lately, Mr. Z has been more and more frustrated because Chad is too busy to give him any timely
information on how the business is really doing. Chad barely has time to put together quarterly
financials, let alone monthly comparisons to the budget. He is stretched way too thin and needs a better
accounting system to take some of the load.
Employee Interviews
Z Chedd’r Project
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
Summary of interview with Judy Collins, Shipping and Receiving clerk at Central Warehouse
Judy’s job is not easy, although she has help from several part time clerks. She records receipts for the
incoming shipments from our cheese and wine suppliers in Oregon. She checks each shipment for
damage and returns damaged items to the suppliers. She updates the invoices/delivery slips and sends
those to Bob (the buyer), so Bob knows what has been received and can check that against what he
ordered. Judy also updates the inventory records based on the items received and accepted. She and
her clerks then store the items in the warehouse.
Each day, Judy also prints the list of internet orders and pulls those items from inventory. She packs the
products for delivery sets them aside for pickup by UPS. She also updates the inventory records. Then,
she sends the list of internet orders to Chad, so he can record sales information. UPS handles all the
outgoing shipments for our internet sales. UPS bills Z Cheddr monthly for shipping costs, but so far, the
flat rate $9.95 shipping charges that the customers pay have covered the shipping costs.
Additionally, she packs the Z Cheddr vans that deliver to our ten stores around the state. Sometimes,
she even drives the vans. She prepares the transfer lists for each store, and a clerk at the store confirms
the deliveries. Then, she or one of the other van drivers brings the transfer sheets, along with any
promotion forms and deposit slips sent from the stores, back to Chad, so he can update the inventory
and accounting records. She also uses the company credit card to get gasoline for the vans or pay for
repairs and maintenance. She sends the credit card slips to Chad so he can confirm the bills from the
credit card company.
Z Cheddr also sells and delivers to small groceries and wine shops around the state. Judy handles those
wholesale sales. She takes orders from the wholesale customers over the phone, and then she packs the
vans for delivery to those customers. Judy includes an invoice with the delivery and the wholesale
customers typically pay at the end of the month.
Summary of interview with Bobby Darin, Van Driver at Central Warehouse
Bobby is on the road most of the week. He helps Judy pack his van and then hits the road to deliver
cheese and wine to the retail stores as well as to wholesale customers. He helps prepare the transfer list
for the transfers to the retail stores. Then, he gets the manager or an employee at the retail store to
confirm the transfer. When he gets back to the warehouse, he gives all the transfer forms to Chad (or
puts them in his mailbox when he is not available).
Bobby also delivers to the wholesale customers. He usually combines trips to avoid unnecessary driving.
The wholesale customers confirm receipt on a copy of the delivery document, and he gives them an
invoice at that time. He brings those confirmed delivery documents back to the warehouse and again
gives them to Chad, so Chad can record wholesale sales.
Accounting Cycle Interviews
Z Cheddr Project
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
Summary of Interview with Woody Guthrie, Clerk and Accounting Assistant to Chad Mitchell
The following interview was recently conducted to provide more information on aspects of Z Cheddr
financial reporting processes. Woody usually assembles the end-of-quarter data necessary to prepare
financial statements for each store and for Z Cheddr overall. He understands that you will be performing
this task, but he wanted to provide you some background on the process that he has used in the past.
Income statement (IS)
Sales
1. First, Woody takes the sales item transaction data (for retail, wholesale, and internet sales) and
ensures that all transactions occur within the quarter. He then checks the Item Amount
extension to make sure that sales amounts are calculated correctly. The result is the Sales Detail
for Quarter.
2. Using the Sales Detail for Quarter, he then summarizes sales and shipping costs for each store.
He calculates total revenue by adding sales and shipping costs. First, however, he needs to
convert blank cells (null values) for shipping costs to zeroes1, since the only store with shipping
costs is the warehouse. He calls this result the IS Stores Revenue.
Cost of Goods Sold
1. Calculating cost of goods is the hardest part of the income statement. In all cases, Woody limits
the transactions to the quarter.
a. Beginning inventory, valued using the physical inventory count on Dec 31 times the
beginning cost in the Inventory table.
b. Purchases, valued at actual cost.
c. Transfers Out, valued by multiplying the quantity transferred times the average cost
figure in the Inventory table.
d. Transfers In, valued by multiplying the quantity transferred times the average cost
figure in the Inventory table.
e. Promotions, valued by multiplying the promotion quantity times the average cost figure
in the Inventory table.
f. Ending inventory, valued using the physical inventory count on Dec 31 times the average
cost in the Inventory table.
2. Then, he summarizes the values by store. Join the Stores table with each query identified above.
Change the JOIN properties so that the resulting query shows all Stores. He changes null values
(blanks) to zeroes as described in footnote 1. He makes sure that all summary-by-store queries
show one row for each of the eleven stores.
3. He calculates goods available for sale at each store as beginning inventory plus purchases minus
transfers out plus transfers in minus promotions.
4. Then, he subtracts ending inventory to compute cost of goods sold for each store and calls this
query IS Stores COGS.
1 Use the combination of the Val and NZ functions to change null values to zeroes that can be formatted as
currency, e.g., Val(NZ([Shipping Cost per Order], 0)).
Accounting Cycle Interviews
Z Cheddr Project
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
Pay Expense
1. Woody first prepares a query to limit the payroll transactions to the quarter and calculates the
pay expense for each transaction. Pay expense includes gross pay plus employer contributions
to FICA and MC. He calls this result Pay Expense Detail for Quarter.
2. Then, he summarizes the Pay Expense Detail for each store. He calls this result IS Stores Pay
Expense.
General and administrative expenses
1. Woody first limits the miscellaneous expenses (rent, electricity, phones, and credit card bills for
example) in the Purchases Admin table to those incurred during the quarter. These purchases
are recorded when they are incurred, so there are no prepaid amounts. Woody calls this result
Admin Expense Detail.
2. He then summarizes the administrative expenses by store. He calls this result IS Stores Admin
Expense.
Promotion Expenses
1. Woody uses the information on promotion expenses subtracted from cost of goods sold as the
promotion expense amount.
Credit Card Fees
1. Finally, Woody calculate the expense related to credit card fees. This expense arises from the
charges assessed by the credit card processor and appears as the difference between sales plus
shipping amounts and the corresponding cash receipts.
2. Woody calculates credit card fees related to each deposit and that amount is shown in the Cash
Receipts table. So, for the end of quarter processing, he first limits cash receipts to the first
quarter.
3. Next, he summarizes cash receipts by store. He calls this result IS Store Credit Card Expense.
Van and Store Depreciation
1. Woody divides the annual depreciation figures for each van by 4 to calculate the quarterly
depreciation expense for the vans. He does the same for the owned store.
2. Then, he joins the Store table and the depreciation calculation. He changes the JOIN properties
to show all stores and converts null values to zeroes for all stores. He names these two queries
IS Stores Van Depreciation and IS Stores Store Depreciation.
Overall Income Statement
1. Once Woody completes the income statement for the stores, he then summarizes the amounts
in that query to show the overall income statement for Z Cheddr. He calls this IS Z Cheddr
Overall.
Accounting Cycle Interviews
Z Cheddr Project
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of McGraw-Hill Education.
Balance Sheet (BS)
Woody says that the balance sheet is easier to prepare, since he doesn’t need to calculate balance
sheets for individual stores. He just prepares one overall balance sheet.
Assets.
• Cash. To compute the ending cash balance, Woody first summarizes the cash balance beginning,
the cash receipts, and the cash disbursements (cash disbursements for inventory purchases,
cash disbursements for miscellaneous expenses, and payroll) in separate queries. Each query
should have one row showing only the total. Then, the ending cash balance is calculated as the
beginning cash balance plus cash receipts less cash disbursements.
• Accounts Receivable. Woody says that AR amounts only arise when the wholesale customers’
payments are delayed. He first summarizes wholesale sales. He then summarizes cash receipts
for wholesale sales. Finally, he creates a query to calculate AR as the difference between
wholesale sales and wholesale cash receipts.
• Inventory. Woody uses the physical count of inventory at the end of quarter as the basis for the
ending inventory value. Inventory is valued at average cost as shown in the Inventory table.
• Stores and Vans. Woody uses the book values of the owned store and the vans. He computes
accumulated depreciation including the depreciation for the current quarter. Z Cheddr records a
full year’s depreciation in the year of acquisition, so accumulated depreciation is the number of
years since acquisition plus one quarter times the annual depreciation amount.
Liabilities.
• Trade accounts payable. Woody calculates trade accounts payable by first summarizing
purchases of inventory in the first quarter, then summarizing cash disbursements for inventory
in the first quarter, and finally subtracting cash disbursements from purchases.
• Administrative accounts payable. Woody uses the same process to calculate administrative
accounts payable.
• Taxes and withholdings payable. Finally, he calculates payroll taxes payable by summarizing
employer and employee FICA and MC, federal withholding, and state withholding. He sums
those six items to determine taxes payable.
• Z Cheddr has no mortgages or notes outstanding, so Woody does not need to calculate long-
term liabilities.
Z Equity. Mr. Z owns all the stock and he originally contributed $500,000 when he started the business.
He hasn’t taken any distributions. Woody repots Stockholders’ Equity value as contributed capital plus
retained earnings and calculates retained earnings as assets minus liabilities minus contributed capital.
- Z Cheddr Project Instructions
- Z Cheddr Project Instructions-2
- Z Chedd’r employee interviews
- Additional Z Chedd’r employee interview on preparing financials
(
COSO SUMMARY – APPLY TO BILTRITE
)
Control Environment Summary
Design Effectiveness of Control
Environment Component
Are Z’Cheddr’s processes sufficient to accomplish the seven control environment principles identified and support the achievement of the company’s objectives related to financial reporting?
Fully Met
Partially Met
Not Met
Summarize the reasoning for this judgment. Specifically identify ways in which the following attributes have been achieved at Z’Cheddr. If an attribute has not been achieved, provide a suggested approach to Z’Cheddr.
Principle 1 – Integrity and Ethical Values Attributes of the Principle
· Articulates Values – Top management develops a clearly articulated statement of ethical values that is understood at all levels of the organization.
· Monitors Adherence – Processes are in place to monitor adherence to principles of sound integrity and ethical values.
· Addresses Deviation – Deviations from sound integrity and ethical values are identified in a timely manner and appropriately addressed and remedied at appropriate levels within the company.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR
Z’CHEDDR?
Principle 2 – Board of Directors Attributes of the Principle
· Defines Authorities – The board defines and communicates authorities retained at the board level and those delegated to management.
· Operates Independently – The board has a critical mass of members who are independent directors.
· Monitors Risk – The audit committee actively evaluates and monitors risks of management override of internal control and considers risks affecting the reliability of financial reporting.
· Retains Financial Reporting Expertise – One or more audit committee members has financial reporting expertise.
· Oversees Quality and Reliability – The audit committee provides oversight to the effectiveness of internal control over financial reporting and financial statement preparation.
· Oversees Audit Activities – The audit committee oversees the work of both internal and external auditors, and interacts with regulatory auditors if necessary. The audit committee has exclusive authority to engage, replace, and determine the compensation of the external audit firm. The audit committee meets privately with internal and external audit to discuss relevant matters.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
(
COSO SUMMARY
)
(
PAGE
6
)
Principle 3 – Management’s Philosophy and Operating Style Attributes of the Principle
· Sets the Tone – Management’s philosophy and operating style emphasize reliable financial reporting.
· Influences Attitudes towards Accounting Principles and Estimates – Management’s attitude supports a disciplined, objective process in selecting accounting principles and developing accounting estimates.
· Articulates Objectives – Management establishes and clearly articulates financial reporting objectives, including the role of internal control over financial reporting.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 4 – Organizational Structure Attributes of the Principle
· Establishes Lines of Financial Reporting – Management establishes appropriate lines of financial reporting for each functional area and business unit in the organization.
· Establishes Structure – Management maintains an organizational structure that facilitates effective reporting and other communications about internal control over financial reporting.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 5 – Financial Reporting Competencies Attributes of the Principle
· Identifies Competencies – Competencies that support reliable financial reporting are identified.
· Retains Individuals – The company employs or otherwise retains individuals who possess the required competencies related to financial reporting.
· Evaluates Competencies – Needed competencies are regularly evaluated and maintained.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 6 – Authority and Responsibility Attributes of the Principle
· Defines Responsibilities – Assignment of responsibility and delegation of authority are clearly defined for all employees, including:
Board – The audit committee oversees management’s process for defining responsibilities for key financial reporting roles.
Top Management – The CEO and top management are responsible for sound internal control over financial reporting, including both initiating and maintaining the internal control system.
Senior and Functional Management – Senior and functional management are responsible for ensuring all employees understand their responsibilities for achieving financial reporting objectives through adherence to internal control policies and procedures.
· Limits Authority – Assignment of authority and responsibility includes appropriate limitations.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 7- Human Resources Attributes of the Principle
· Establishes Human Resource Practices – Management establishes human resource practices that demonstrate its commitment to integrity, ethical behavior, and competence.
· Recruits and Retains – Employee recruitment and retention for key financial reporting positions are guided by principles of integrity and by necessary competencies associated with the positions.
· Adequately Trains – Management supports employees by providing tools and training needed to perform their financial reporting roles.
· Evaluates Performance and Compensates – Employee performance evaluations and the company’s compensation practices, including those affecting top management, support achievement of financial reporting objectives.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Risk Assessment Summary |
Design Effectiveness of Risk Assessment Component |
In summary, are Z’Cheddr’s processes sufficient to accomplish the three risk assessment principles identified and support the achievement of the company’s objectives related to financial reporting? |
|
Summarize the reasoning for this judgment. Specifically identify ways in which the following attributes have been achieved at Z’Cheddr. If an attribute has not been achieved, provide a suggested approach to Z’Cheddr.
Principle 8 – Financial Reporting Objectives Attributes of the Principle · Complies with Generally Accepted Accounting Principles – Financial reporting objectives are consistent with generally accepted accounting principles. The accounting principles selected are appropriate in the circumstances. · Supports Informative Disclosures – Financial statements are informative of matters that may affect their use, understanding, and interpretation. Information presented is classified and summarized in a reasonable manner, neither too detailed nor too condensed. · Reflects Company Activities – The financial statements reflect the underlying transactions and events in a manner that presents the financial position, results of operations, and cash flows within a range of acceptable limits. · Are Supported by Relevant Financial Statement Assertions – Supporting the objectives is a series of financial statement assertions that underlie a company’s financial statements, with relevance depending on circumstances. Existence – Assets, liabilities, and ownership interests exist at a specific date, and recorded transactions represent events that actually occurred during a certain period. Completeness – All transactions and other events and circumstances that occurred during a specific period, and should have been recognized in that period, have been recorded. Rights and Obligations – Assets are the rights, and liabilities are the obligations, of the entity at a given date.
Valuation or Allocation – Asset, liability, revenue, and expense components are recorded at appropriate amounts in conformity with relevant and appropriate accounting principles. Transactions are mathematically correct, appropriately summarized, and recorded in the entity’s books and records. · Considers Materiality – Reflects the concept of materiality in fair financial statement presentation. WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR? |
Principle 9 – Financial Reporting Risks Attributes of the Principle
· Includes Business Processes – Risk identification includes consideration of the business processes that impact financial statement accounts and disclosures.
· Includes Personnel – Risk identification and assessment considers the competency of company personnel supporting the financial reporting objectives.
· Includes Information Technology – Information technology infrastructure and processes supporting the financial reporting objectives are included in the financial reporting risk assessment.
· Involves Appropriate Levels of Management – The organization puts into place effective risk assessment mechanisms that involve appropriate levels of management.
· Considers Both Internal and External Factors – Risk identification considers both internal and external factors and their impact on the achievement of financial reporting objectives.
· Estimates Likelihood and Impact – Identified risks are analyzed through a process that includes estimating the likelihood of its occurrence and potential impact of the risk.
· Triggers Reassessment – Management establishes triggers for reassessing risks as changes occur that may impact financial reporting objectives.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 10 – Fraud Risk Attributes of the Principle
·
Considers Incentives and Pressures – Management’s assessment of fraud risks considers incentives and pressures, attitudes, and rationalizations, as well as opportunity to commit fraud.
· Considers Risk Factors – A company’s assessment considers risk factors that influence the likelihood of someone committing a fraud and the impact of a fraud on financial reporting.
· Establishes Responsibility and Accountability – Responsibility and accountability for fraud policies and procedures reside with management of the business unit or process in which the risk resides.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
FOCUS ON THE REVENUE PROCESS
Control Activities Summary
Design Effectiveness of Control Activities Component
FOCUS ON THE REVENUE PROCESS
In summary, are control procedures implemented over major transaction cycles, accounting estimates, and the closing process sufficient to support the achievement of the company’s objectives related to effective financial reporting? Consider summary conclusions in the context of revenue process.
Fully Met
Partially Met
Not Met
Summarize the reasoning for this judgment. Specifically identify ways in which the following attributes have been achieved at Z’Cheddr. If an attribute has not been achieved, provide a suggested approach to Z’Cheddr.
FOCUS ON THE REVENUE PROCESS
Principle 11 – Integration with Risk Assessment Attributes of the Principle
· Mitigates Risks – Control activities respond to risks, mitigating their potential impact on financial reporting objectives.
· Considers All Significant Points of Entry into the Company’s General Ledger – Control activities consider risks related to all aspects of the recording process, including accounting estimates and adjusting and closing journal entries.
· Considers Information Technology – The selection of control activities encompasses relevant information technology risks.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 12 – Selection and Development of Control Activities Attributes of the Principle
· Considers Ranges of Activities – Control activities include a range of activities that vary in terms of cost and effectiveness, depending on the circumstances. These include approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets, and segregation of duties.
· Includes Preventive and Detective Controls – Management uses an appropriate balance of preventive and detective controls, and an appropriate balance of manual and automated controls, to mitigate risks to the achievement of financial reporting objectives.
· Segregates Duties – Duties are logically divided among people or processes to mitigate risks and meet financial reporting objectives.
· Considers Cost vs. Benefit – When selecting among alternative control options, management considers the cost of control activities in relation to expected benefits of improved control.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
FOCUS ON THE REVENUE PROCESS
Principle 13 – Policies and Procedures Attributes of the Principle
· Integrates into Business Processes – Control activities are built into business processes and employees’ day-to-day activities.
· Establishes Responsibility and Accountability – Responsibility and accountability for policies and procedures resides with management of the business unit or function in which the relevant risk resides.
· Occurs on a Timely Basis – Procedures are performed in a timely manner.
· Thoughtfully Implements – Procedures are implemented thoughtfully, conscientiously, and consistently across the business. Procedures reflect policies developed at the senior management level as well as those with more specificity developed at the function, department, and process levels.
· Investigates Exceptions – Conditions identified as a result of executing the procedures are investigated and appropriate actions are taken.
· Periodically Reassesses – Policies and procedures are reviewed periodically to determine their continued relevance.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 14 – Information Technology Attributes of the Principle
· Includes Application Controls – Application controls are:
Built into computer programs and supported by manual procedures. Designed to provide completeness and accuracy of information processing critical to integrity of the financial reporting process.
· Considers General Computer Operations – General computer controls are broad and include controls over access, change and incident management, systems development and deployment, computer operations, data backup and recovery, third party vendor management, and logical and physical security critical to the integrity of the financial reporting process.
· Includes End-User Computing – End-user computing processes, including spreadsheets and other user-developed programs, are documented, secured, backed up, and regularly reviewed for processing integrity.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Information and Communications Summary
Design Effectiveness of Information and Communications Component
In summary, are Biltrite’s processes sufficient to accomplish the four information and communication principles identified and support the achievement of the company’s objectives related to financial reporting?
Fully Met
Partially Met
Not Met
Summarize the reasoning for this judgment. Specifically identify ways in which the following attributes have been achieved at Biltrite. If an attribute has not been achieved, provide a suggested approach to Biltrite.
Principle 15 – Financial Reporting Information Attributes of the Principle
· Captures Data – Data underlying financial statements are captured (optimally, at the source) completely, accurately, timely.
· Includes Financial Information – Information is identified and captured for all financial transactions and events. Information is used, among other purposes, for adjusting entries and accounting estimates, as well as to monitor the reasonableness of recorded transactions.
· Uses Internal and External Sources – Information is developed using internal and external sources.
· Includes Operating Information – Operating information used to develop accounting and financial information often serves as a basis for reliable financial reporting.
· Maintains Quality – Information systems produce information that is timely, current, accurate, and accessible.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 16 – Internal Control Information Attributes of the Principle
· Captures Data – Data required to execute each control component are captured completely, accurately, and timely and in compliance with laws and regulations.
· Triggers Resolution and Update – Reporting triggers prompt exception resolution, root-cause analysis, and control update, as needed.
· Maintains Quality – Information systems produce information that is timely, current, accurate and accessible. The quality of system information is reviewed periodically to assess its reliability and timeliness in meeting the company’s internal control objectives.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 17 – Internal Communication Attributes of the Principle
· Communicates with Personnel – Management communicates to all personnel, particularly those in roles affecting financial reporting, that internal control over financial reporting must be taken seriously.
· Communicates with Board – Communication exists between management and the board of directors so that both have information needed to fulfill their roles with respect to financial reporting objectives.
· Includes Separate Communication Lines – Separate communication channels are in place and serve as a “fail-safe” mechanism in case normal channels are inoperative or ineffective.
· Accesses Information – The board has access to information sources outside of management, on a regular basis and as needed, including access to the external auditors, the internal auditors, and other relevant parties (such as regulatory authorities).
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
Principle 18 – External Communication Attributes of the Principle
· Provides Input – Open communication channels allow input from customers, consumers, suppliers, external auditors, regulators, financial analysts and others, providing management and the board with important information on the effectiveness of internal control over financial reporting.
· Independently Assesses – Where internal control over financial reporting is assessed by external auditors, information relevant to the assessment is communicated to management and the board.
WHAT DOES Z’CHEDDR HAVE? WHAT SUGGESTIONS DO YOU HAVE FOR Z’CHEDDR?
(
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CGMATOOL
How to Develop
a Strategy Map
Introduction 2
The Strategy Pyramid
3
Step 1: Specify an Overriding Objective
5
Step 2: Choose the Value Proposition 6
Step 3: Choose the Financial Strategies
7
Step 4: Choosing the Customer Strategies 8
Step 5: Execute Through the Internal Perspective Strategies
9
Step 6: Plan the Learning and Growth Strategies 10
Validating and Cascading the Strategy Map 1
1
Conclusion 12
1
COnTEnTS
Two of the world’s most prestigious accounting bodies, the AICPA
and CIMA, have formed a joint venture to establish the Chartered
Global Management Accountant (CGMA) designation to elevate the
profession of management accounting. The designation recognises
the most talented and committed management accountants with the
discipline and skill to drive strong business performance.
CGMA TOOL – How to Develop a Strategy Map2
InTrODuCTIOn
The vast majority of organisations have well-defined procedures
for developing strategic plans. And for the most part, the result
of their planning exercises are good, solid, strategies designed
to move the entity forward and provide sustainable, even superior,
returns. But there is often a major disconnect between the formulation
and execution phases of strategy. The ability to cascade an organisation’s
vision, mission and core strategies into actionable behaviours
that achieve critical objectives continues to be a challenge for
most organisations.
As the saying goes, “a picture is worth a thousand words.” Strategy
maps, pioneered by Balanced Scorecard founders Robert Kaplan
and David Norton, allow organisations to describe and communicate
their strategies concisely and succinctly and close the gap between
formulation and successful implementation of strategy. Strategy
maps describe how organisations create value by building on strategic
themes such as “growth” or “productivity.” These themes determine
what specific strategies organisations will adopt at their customer,
process, and learning and growth levels. Well-constructed
maps describe how the organisation plans to meet its specific
customer promises through a combination of employee, technology
and business processes that satisfy customer expectations
and meet shareholder demands.
3
THE STrATEGy PyrAMID
Mission
Why We Exist
Values
What’s Important to Us
Vision
What We Want to Be
Strategy
Our Game Plan
Strategy Map
Translate the Strategy
Balanced
Scorecard
Measure and Focus
Targets and Initiatives
What We Need to Do
Satisfied
Shareholders
Efficient and
Effective Processes
Delighted
Customers
Motivated and
Prepared Workforce
Figure 1: Strategy Pyramid
Strategy maps can be, and often are, used as standalone tools that
organisations employ to develop, understand and convey their strategic
story. To maximise their value, however, they need to be seen and
used as core building blocks in an aligned strategy initiative. Figure 1
highlights where the strategy map and Balanced Scorecard fit in the
overall strategic management process.
Personal Objectives
Strategic Outcomes
CGMA TOOL – How to Develop a Strategy Map4
Maximise Organisational Value
Revenue Growth Strategy Productivity Strategy
Increase
Revenue per
Customer
Add/Retain
High-Value
Customers
Current Migrated New New Offerings Scalability Strategies
(eg Web)
Customer
Management
Leadership
Innovation &
Commercialisation
Supremacy
Interna
l
Operations
Excellence
Effective
Governance &
Control
Perception;
Public
Relations
Reduce Cost
per Customer
1) Human Capital
(Staff competencies)
2) Information Capital
(Technology infrastructure)
3) Organisation Capital
(Climate for action)
Fina
ncia
l
W
hat w
e w
ant to accom
plish
H
ow
w
e plan to accom
plish it
Custo
m
er
Interna
l
Lea
rning
&
G
ro
w
th
Solutions
Focus
Completed Generic Strategy Map
Asset Utilisation
Figure 2: Generic Strategy Map
This tool provides an integrated view of the development
of a strategy map. The steps are:
1. Specify an overriding objective.
2. Choose the value proposition.
3. Choose the financial strategies.
4. Choose the customer strategies.
5. Execute through the internal perspective strategies.
6. Plan the learning and growth strategies.
Steps 1 through 4 of the strategy mapping process
address the question, “What do we want to accomplish?”
Steps 5 and 6 address the question, “How do we plan
to accomplish our objectives?” The completed generic
strategy map (Figure 2) illustrates how the financial and
customer-focused goals of the organisation are linked
to the underlying internal processes and learning and
growth strategies necessary to deliver on those goals.
Strategy Mapping – A Six-Step Process
5
There is considerable confusion on this point.
Many mission and vision statements are often
mistakenly portrayed as the ultimate objective
to be achieved – satisfied customers, service excellence,
best-in-field, market leader, low-cost provider and
so on. Indeed, these are critical outcomes and are
highly desired by all organisations. However,
for profit-making organisations, the overriding
objective must be economic.
There is no question that serving customers effectively,
developing new and unique products and achieving
market dominance are worthy objectives. But in a
profit-making environment, these are all the ingredients
for success, not success itself. Success is achieved by
significant revenues and/or cost containment that lead to
superior economic returns — the overriding objective.
The overriding objective should be the first element of
the strategy map. It should contain a financial target and
a time dimension. Examples of an overriding objective
could be:
• Increase return on capital employed by 6% within
three years
• Increase profit margin from 8 to 12% and net cash flow
from $500,000 to $750,000 within five years
• Increase target share price by 20% by next reporting date
• Increase total shareholder return relative to benchmark
by 10% within two years
Overriding objectives are the first item to appear
on a strategy map.
STEP 1: SPECIFy An OVErrIDInG ObjECTIVE
In the next few years, what will it take to succeed? This first step
is critical because it links the strategy map to the earlier phase
of creating/reaffirming an organisation’s mission, core values
and vision. This step must differentiate between what the
organisation truly understands as its overriding objective
and the strategies it plans to implement.
CGMA TOOL – How to Develop a Strategy Map6
1. Operational excellence
(also referred to as best total cost)
2. Product leadership
3. Customer intimacy
(also referred to as customer solutions)
As Table 1 indicates, three images can make an
organisation stand out. Companies focused on
operational excellence will use price as the key driver
of the “best deal” image. The next image is the
“best product or service.” Companies that decide to
compete here are using the product leadership value
proposition, and will use unique attributes and features
in their products and services as their main image
driver. The third and final image is that of the “best
friend.” Companies that compete in this area follow
the customer intimacy value proposition, providing
solutions to their customers.
Table 1: The Value Propositions
STEP 2: CHOOSE THE VALuE PrOPOSITIOn
Operational Excellence Product Leadership Customer Intimacy
Price
Primary focus: very low
prices; Image: “Best deal”
High end of pricing High end of pricing
Unique attributes
Meets threshold
standards
Primary focus: very
unique attributes;
Image: “Best product/
service”
Meets threshold
standards
Relationship level
Low end of threshold
standards
Meets threshold
standards
Primary focus: very high
customer intimacy;
Image: “Best friend”
Value
Proposition
External
Image
The second step in strategy mapping is to choose the value proposition
that will help the organisation win the market. The idea behind the value
proposition approach is to choose one dominant value proposition,
and provide breakthrough customer value in it. For the two propositions
not chosen, it is imperative not to lead but to compete, at least to some
threshold level. The three value propositions put forth by Treacy and
Wiersema provide an excellent framework for competing
in today’s markets:
7
1. Revenue growth
2. Productivity
3. Asset utilisation
All organisations must pay some level of attention to
each of these strategies. However, the choice of value
proposition in Step 2 helps dictate which of the three
will dominate and where to spend most of the effort and
activity. Table 2 below indicates the types of financial
strategies companies pursue based on the choice of value
proposition. By aligning financial strategies with the
value proposition, companies can position themselves to
properly decide what customers are willing to purchase.
Knowledge of the value proposition assists
organisations to pinpoint which of the three
financial strategies will dominate. Table 2 illustrates
that organisations pursuing operational efficiency
propositions will focus on reaching their overriding
objectives primarily through productivity and
asset utilisation strategies. Organisations following
customer-intimate or product leadership propositions
will put less focus on these efficiency strategies, instead
attempting to grow revenue through unique product
or customer features.
STEP 3: CHOOSE THE FInAnCIAL STrATEGIES
Operational Excellence Product Leadership Customer Intimacy
Revenue Growth
Competitive prices
Volume
Premium pricing
New features
Bundling
Cross-selling
Productivity
Tight variable and
discretionary cost control
Control but also spend
on R&D and marketing
Control but also spend
on solution selling
Asset utilisation
Maximise inventory
turnover
Utilise fixed assets to
reduce product cost
Utilise fixed assets
in pursuit of
product leadership
Utilise fixed assets
in pursuit of
customer intimacy
Value
Proposition
Financial
Strategy
Table 2: Financial Strategy Chart
Having established the value proposition, organisations next formalise
their plans and strategies around revenues and costs. Financial
strategies can be categorised into three key areas:
CGMA TOOL – How to Develop a Strategy Map8
1. Retaining and adding customers
2. Increasing revenue per customer
3. Reducing cost per customer
Organisations must pay attention to each of these
strategies. However, the choice of value proposition once
again dictates where the firm should focus its effort and
activity. Table 3 indicates the types of customer-focused
strategies companies tend to pursue based on the value
proposition chosen.
STEP 4: CHOOSInG THE CuSTOMEr STrATEGIES
Operational Excellence Product Leadership Customer Intimacy
Retain and add
customers
Competitive prices
Latest technologies
Newest features
Loyalty programs
Word-of-mouth
Increase revenue per
customer
Competitive prices
New features
“Add-on” products and
services
Solution selling
Bundling
Reduce cost per customer
Tight process and supply
chain management
Spending and cost
control policies in pursuit
of product leadership
Spending and cost
control policies in pursuit
of customer intimacy
Value
Proposition
Customer
Strategy
Table 3: Customer Strategy Chart
Those pursuing operational excellence will use
competitive prices to retain and add customers,
in addition to increasing revenue per customer. Tight
process and supply chain management will assist in its
ongoing efforts to reduce costs per customer. Product
leaders will offer the latest of technologies and features,
including “add-on” products and services, to increase
customer volume and revenue per customer. To retain
and add customers, customer-intimate companies
will tend to use strategies such as promoting
word-of-mouth marketing and loyalty programmes.
By offering complete solutions and bundling packages,
these companies attempt to increase revenue per customer.
Having established financial strategies, organisations must formalise
their plans and strategies to win the marketplace. In other words, they
must clearly establish and articulate their customer strategies. Customer
strategies can be categorised into three key areas:
9
The internal perspective is all about choosing and
executing the right business processes to achieve
the desired customer and financial strategies the
organisation believes will lead to the accomplishment
of the overriding objective. Consequently, organisations
must consciously choose internal business processes that
link directly to the earlier steps. Table 4 below indicates
how a company could focus its processes, given its
value proposition.
To endure, all organisations must have solid internal
operations. However, companies following an
operational excellence value proposition must make
internal operations a very high priority, eliminating
non-value-adding activities, reducing cost, and
delivering low prices. Organisations pursuing product
leadership must mainly focus on processes that
motivate, identify, develop and launch commercial
innovations because the leadership proposition is to
bring cutting-edge technologies, designs or services
first to market. Customer-intimate organisations
tend to focus on those processes most closely linked
to customer management: selection, acquisition,
preservation and growth. The focus here is on
developing knowledge of customers and building
strong relationships.
STEP 5: ExECuTE THrOuGH THE InTErnAL
PErSPECTIVE STrATEGIES
Operational Excellence Product Leadership Customer Intimacy
Internal operations
Primary focus—
must excel
Meets or maintains
threshold standards
Meets or maintains
threshold standards
Innovation
Low end of threshold
standards
Primary focus—
must excel
Meets or maintains
threshold standards
Customer management
Meets or maintains
threshold standards
Meets or maintains
threshold standards
Primary focus—
must excel
Value
PropositionProcess
to excel
and lead at
Table 4: Key Process Chart
Having established financial and customer strategies, organisations next
establish those important actions that will realise the plans and strategies
to win the marketplace. On the right hand side of the strategy map, the
focus changes from “What do we want to accomplish?” to “How we
plan to accomplish it.” In other words, the firm must execute the story
that has been developed and revealed in Steps 1–4.
CGMA TOOL – How to Develop a Strategy Map10
STEP 6: PLAn THE LEArnInG AnD GrOwTH
STrATEGIES
In this final strategy mapping step, companies develop
the appropriate learning and growth strategies. The
learning and growth perspective is about identifying and
bridging gaps that could limit the organisation’s ability
to execute the key processes identified in the internal
perspective. Learning and growth can be classified into
three primary areas:
1. Human capital
2. Information capital
3. Organisational capital
Human capital is the economic value an organisation
derives from (a) application of knowledge,
(b) collaboration and (c) engaged individuals. Managed
well, human capital is an enormous source of value that
comes from committed individuals making informed
decisions on service, quality, effectiveness, creativity,
goal alignment and productivity.
Information capital relates to how organisations utilise
their information systems, networks, manuals, databases,
files and infrastructure to gain competitive advantage
and to execute strategy.
Organisational capital is the firm’s ability to connect
employee goals to corporate goals. Companies with
high levels of organisational capital are ones that exhibit
complementary team memberships, open communication
channels, shared visions, trust in leaders and common
bonds — usually leading to greater employee retention
and superior performance. Leadership, teamwork and
communication are important ingredients in
organisational capital.
Companies need to take different approaches to
learning and growth because of their specific
circumstances, customer expectations and internal
business requirements. In short, the firm’s human,
informational and organisational capital policies must
be aligned to the chosen value proposition.
Having established financial and customer strategies and developed
an execution plan, organisations will inevitably notice some gaps in
knowledge, skills and abilities necessary to execute the chosen strategy.
11
Corporate-level strategy maps help organisations
effectively describe and communicate core strategies
to their stakeholders. Executives report considerable
satisfaction after completing this stage because, often for
the first time, the senior management team finds itself
agreeing on high-level objectives, value proposition and
key strategies.
Some firms have the simple objective of clarifying
strategic direction and communicating a clear picture
to stakeholders. Many strategy mapping exercises stop
at this “corporate strategy map” point. However, most
strategy mapping exercises use the corporate map
as a starting point for developing lower level maps and
scorecards. As Figure 3 illustrates, there is a continuum
of possible drilldown maps.
Organisations can employ different types of cascading
maps. First, there is the “within organisation” type
shown in Figure 3. Here the corporate map is cascaded
into a series of lower level maps, usually based on
geographical, product, service or group distinctions.
Second, there is the “within-perspective” type of map.
“Within-perspective” drilldown maps convey additional
information that can point employees to specific actions
and accountabilities that will help in executing strategy.
A third type of cascading is the “across-function” type.
The most appropriate drill-down approach will vary
from company to company, and from business unit
to business unit even within a company. The important
result is a set of actionable steps that employees
understand and are equipped to act on.
VALIDATInG AnD CASCADInG THE STrATEGy MAP
Figure 3: Drill-Down Map Continuum
Cascading the Map
Strategy Map Continuum
Maps and Scorecards of lower-level maps may or may not roll up to higher-level maps
Corporate
Map &
Scorecard
Department
Maps &
Scorecard
Division
Maps &
Scorecard
Personal
Scorecard
Support
Department
Maps &
Scorecard
Once the map is developed, goals and measures that are consistent
with and advance the chosen strategy must be specified. Validation
refers to verifying the cause-and-effect linkages between the various
perspectives on the strategy map. Validation only occurs when
management can track how improving the measures at one level
of the map create improvements in other perspectives and contribute
to achieving the overriding objective.
CGMA TOOL – How to Develop a Strategy Map12
COnCLuSIOn
Strategy mapping is an effective and powerful initiative that can help
keep a company at its competitive peak. The steps provided in this tool
enable organisations to effectively and efficiently conduct their own
strategy mapping initiative and to successfully implement strategy where
others have failed. Companies struggling with strategy execution will find
maps a compelling way to think about, agree upon and communicate
their strategic initiatives to various stakeholder communities. This can
only promote better execution. In addition, strategy maps form the
appropriate basis for (a) balanced scorecard performance measures,
(b) linkages to appropriate management and validation techniques, and
(c) allocating resources to initiatives and strategies that support its value
propositions and overriding objectives. This has proven to lead to better
organisational performance.
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constitute consent to the redistribution of it in any form.
No part of this material may be otherwise reproduced,
stored in third party platforms and databases,
or transmitted in any form or by any printed, electronic,
mechanical, digital or other means without the written
permission of the owner of the copyright as set forth
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requesting permission to reuse this content please email
copyright@CGMA.org
The information and any opinions expressed in this
material do not represent official pronouncements of
or on behalf of AICPA, CIMA, the CGMA designation
or the Association of International Certified
Professional Accountants. This material is offered with
the understanding that it does not constitute legal,
accounting, or other professional services or advice. If
legal advice or other expert assistance is required, the
services of a competent professional should be sought.
The information contained herein is provided to assist
the reader in developing a general understanding of the
topics discussed, but no attempt has been made to cover
the subjects or issues exhaustively. While every attempt
to verify the timeliness and accuracy of the information
herein as of the date of issuance has been made, no
guarantee is or can be given regarding the applicability
of the information found within to any given set of facts
and circumstances.
The information herein was adapted from Using
Strategy Maps to Drive Performance by Howard M.
Armitage, Ph.D, CMA, FCMA and Cameron Scholey,
MBA, CMA. Copyright © 2006 by The Society of
Management Accountants of Canada (CMA Canada),
the American Institute of CPAs, Inc. (AICPA®)
and The Chartered Institute of Management
Accountants (CIMA).
Copyright © 2012 American Institute of CPAs. All rights reserved.
1M. Treacy and F. Wiersema,“The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market,”
(Cambridge: Perseus Books, 1995).
Endnote
The Association of International Certified Professional Accountants,
a joint venture of AICPA and CIMA, established the CGMA designation
to elevate the profession of management accounting globally.
American Institute of CPAs
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New York, NY 10036-8775
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cgma.org
October 2012
CIMA has offices in the following locations: Australia, Bangladesh, Botswana, China,
Ghana, Hong Kong SAR, India, Ireland, Malaysia, Nigeria, Pakistan, Poland, Russia,
Singapore, South Africa, Sri Lanka, UAE, UK, Zambia and Zimbabwe.
12557-359