7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 1/13
Click to edit Master subtitle style
CONCEPTUAL FRAMEWORK OF SFM
SREEKANTH
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 2/13
OUT LINE•
ROI• VALUE CHAIN ANALYSIS• VLAUE CHAIN AND INVESTMENT•
STRATEGIC BUSINESS UNITS• RESPONSIBILITY ACCOUNTING• COST BENEFIT ANALYSIS(CBA)
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 3/13
OUT LINE•
LIFE CYCLE COSTING• ACTIVITY BASED COSTING(ABC)
AND OBJECTIVE BASED
COSTING(OBC)• ECONOMIC VALUE ADDED• OWNERS VALUE ADDED (OVA)•
ADVANTAGES OF OVA OVER EVA• COST OF CAPITAL FOR AN
ENTERPRISE AND FOR A GROUP OF
ENTERPRISES UNDER SINGLEOWNERSHIP
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 4/13
ROI
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 5/13
MINIMUM ACHIEVABLEROIINGREDIENGT OF
OPERATING ROI
INDIAAS A CASE
(APPROX VALUE)
ENGLANDAS A CASE
(APPORX VALUE)
Cost of Findsemployed or Rate of
Inflation, whicheveris higher
15%(cost of funds)
7%(cost of funds)
+ Rate of RealIncome
7.5% 3.5%
+ Rate of Growth 5.5% 2.5%
Minimum AchievableOperating ROI
28% 13%
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 6/13
RATE OF RETURN IN OWNERSROI
OWNERS ENTIRE BUSINESS PORTFOLIO
BUSINESS I BUSINESS II BUSINESS III
High ROI business (70%
efforts & time of owners)
Average ROI business(20% efforts & time of
owners)
Low ROI (10% efforts &
time of owners)
HIGH RISK AVERAGE RISK LOW RISK
Core competencies of theowners and highentrepreneurial skills
Extended competence of the owners and semi-automated business
processes
Depending on otherscompetence & automaticbusiness process
Owners retain the mostindispensable portions of
business value chain
Owners depend onpartners for indispensable
portions of business valuechain
Owners totally depend forvalue chain, on biggerpartners in networking
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 7/13
VALUE CHAIN ANALYSISPROFIT
TOTAL
COST
VALUE ADDITION
EXTRA VALUEADDITIONTHROUGHTFORWARDINTEGRATION
ADMINISTRATIVESUPPORT
PROCESSING
(MOH)
THE SUPPLIERSAND VENDORS
PRODUCT P P D
COST OF
FUNDSSUBCONTRACTORS
INHOUSEMATETIALSUPPLY ( BACK WARDINTEGRATION
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 8/13
RESPONSIBILITY ACCOUNTING
CO
STCENTER
PROFIT
CENTER
INVESTMEN
TCENTER
R E S P O N S I B I L I
T Y
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 9/13
RESPONSIBILITY
ACCOUNTING
COSTPARAM
ETERS
COST ANDPROFIT
PARAMETE
COST PROFIT
ANDINVESTMENTPARAMETERS
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 10/13
IMPLEMENTATION OF RA•
The degree of empowerment should notbe disproportionate to the degree of accountability
•
The nationality of the profit to be madeand the transfer price between tworesponsibility center may be left to agenuine competition inside theorganization.
• The parameters to apprise theperformance of the responsibility centers
should be based on realistic, flexible and
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 11/13
•
The application of ROI to thecenters should ultimatelysupport the owners wealthmaximization.
• The arrangement of aresposibility center should beflexible and should create anadequate scope fororganizational restructuringfor expansion through vertical
or horizontal approaches.
IMPLEMENTATION OF RA
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 12/13
•
Sophistication in theinformaton system andtransparency in theaccounting and appraisals arepre - requisites
IMPLEMENTATION OF RA
7/31/2019 Conceptual Frame Work of SFM
http://slidepdf.com/reader/full/conceptual-frame-work-of-sfm 13/13
Cost Benefit Analysis•
A cost benefit analysis is done todetermine how well, or how poorly, aplanned action will turn out. Althougha cost benefit analysis can be used foralmost anything, it is most commonlydone on financial questions. Since thecost benefit analysis relies on theaddition of positive factors and thesubtraction of negative ones todetermine a net result, it is also known
as running the numbers.