Assignment Brief As part of the formal assessment for the Master of Business Administration you are required to submit a Performance Management assignment. Please refer to your Student Handbook for full details of the programme assessment scheme and general information on preparing and submitting assignments. Learning Outcomes After completing the module the student should be able to: 1. Critically analyse, evaluate and apply a range of strategic planning models. 2. Calculate, interpret and critique a range of financial strategic performance measures such as Return on Investment (ROI), Residual Income (RI) and Economic Value Added (EVA). 3. Use, problem solve and appraise models for the prediction of potential business failure. 4. Critically evaluate the use of non-financial and multidimensional models of performance management. Case Background You are employed as a management accountant within JH Alarms plc. The company began in the South of England 19 years ago with the entrepreneurial intuition of John Harris. He began the business by contracting to change fire alarms in large stocks of social housing. After several years of working in such a manner he began to acquire the alarms himself, from a Far Eastern supplier, prior to fitting them. This business expanded rapidly over the years, eventually becoming nationwide, and after recourse to the financial markets for debt and equity finance the company began to manufacture its own fire and burglar alarms within a modern factory environment in the UK. John Harris, now the Chairman and CEO, and his family still own 15% of the share capital of the business. To a certain extent, although a plc, John Harris still runs the company as a personal fiefdom. He realises that constant innovation is vital within the burglar alarm market, in particular, and as a result has pushed through ever growing levels of debt financing. However, there is an uneasy feeling among several senior managers and although they are reluctant to challenge John Harris, directly,(although a couple have recently resigned) they feel that the company is growing out of control and they are concerned with the share price performance in particular. Task 1 You are approached by your manager, Mike Seenitall, who says, “I have recently been on a two day workshop concerning corporate performance management and itseems to me that we are too reliant on traditional financial performance measurement. I would like you to look into this for me.” As part of your initial research you come across some research by Gosselin XXXXXXXXXXwho, when undertaking a study of Canadian manufacturing firms stated that, “The results show that manufacturing firms continue to use financial performance measures. Despite the recommendations from experts and academics, the firms that implement a balanced scorecard or integrated [multidimensional] performance measurement system is low (p419)” You are required to prepare a report for Mike Seenitall which considers: I. The problematic issue of an over-reliance on financial performance management. (20 marks) II. The possible benefits that JH Alarms may be forsaking by not utilising some type of integrated (multidimensional) scorecard for performance management. (20 marks) (Total 40 marks) Task 2 Whilst completing the above work Mike Seenitall approaches you with another problem and says, “It may be worse than I expected, profitability has fallen to such an extent over the last three years that I am beginning to wonder if the company will survive. The market seems to reflect this as the share price also seems to be suffering at the moment.” As you are completing an MBA you are aware of models that can be used to predict corporate failure and as a result gather the following information: Summary Income Statements XXXXXXXXXX £m £m £m Revenue 973 1,040 1,278 Operating Costs XXXXXXXXXX,149 Operating Profit XXXXXXXXXXInterest XXXXXXXXXXProfit before tax XXXXXXXXXXTax XXXXXXXXXXProfit for period XXXXXXXXXX45Statements of Financial Position XXXXXXXXXX £m £m £m Assets Non-current assets 747 1,185 1,410 Current Assets XXXXXXXXXX,376 1,639 Equity and Liabilities Share Capital XXXXXXXXXXRetained Earnings XXXXXXXXXXLong-term borrowings XXXXXXXXXXCurrent Liabilities XXXXXXXXXX XXXXXXXXXXThe average share price over the last three accounting years has been as follows: 2009 £ XXXXXXXXXX £ XXXXXXXXXX £0.89 There are 450 million shares in issue. A relevant Z-score model for the industry sector is ? Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + X5 where: ? X1 = working capital/total assets ? X2 = accumulated retained earnings/total assets ? X3 = earnings before interest and tax/total assets ? X4 = market value of equity/ total long-term debt ? X5= revenue/total Assets In turn, you decide to apply the following parameters for analysing your calculations: ? Companies with a ‘Z’ score of below 1.81 are in danger and possibly heading towards bankruptcy within the next 2 years ? Companies with a score of 3 or above are financially sound ? Companies with scores between 1.81 and 2.99 need further investigation.Required: I. Comment upon the financial position of JH Alarms plc in the light of the last three years’ performance. You should calculate Z-scores and use any additional financial ratios that you consider to be relevant. (25 marks) II. Provide a brief summary of additional information which you would require in order to enable a more in depth analysis of the performance of the company. (10 marks) III. Altman’s XXXXXXXXXXZ-score model could be said to be an example of quantitative analysis, whereas Argenti’s XXXXXXXXXXfailure model could be described as qualitative. You are required to discuss the relative strengths of these different approaches to the prediction of corporate failure (15 marks). You should also highlight the qualitative issues that may impact on the performance of JH Alarms plc and provide an indication as to why the identified factors are important (10 marks). (25 marks) (Total 60 marks) Grand Total 100 marks Further Information Word Count: 4000 words (maximum) The word count excludes the title page, executive summary, reference list and appendices. Where assessment questions have been reprinted from the assessment brief these will also be excluded from the word count. ALL other printed words ARE included in the word count. Printed words include those contained within charts and tables. See ‘Word Count Policy’ in My Resources for more information. Assignments submitted late will be marked as a 0% fail, unless you have withdrawn your intent to submit for this module in advance of the deadline. Your assessment should be submitted as a single word or pdf file. For more information please see the “Guide to Submitting an Assignment” document available on the module page on ilearn. You must ensure that the submitted assignment is all your own work and that all sources used are correctly attributed. Penalties apply to assignments which show evidence of academic unfair practice. (See ‘Dealing with Plagiarism’ in the Study Skills Guide in My Resources).