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Business Management 1st Year Examination

August 2014 Exam Paper, Solutions & Examiner’s Report

Business Management August 2014 1st Year Paper

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NOTES TO USERS ABOUT THESE SOLUTIONS

The solutions in this document are published by Accounting Technicians Ireland. They are intended to provide guidance to students and their teachers regarding possible answers to questions in our examinations. Although they are published by us, we do not necessarily endorse these solutions or agree with the views expressed by their authors. There are often many possible approaches to the solution of questions in professional examinations. It should not be assumed that the approach adopted in these solutions is the ideal or the one preferred by us. Alternative answers will be marked on their own merits. This publication is intended to serve as an educational aid. For this reason, the published solutions will often be significantly longer than would be expected of a candidate in an examination. This will be particularly the case where discursive answers are involved. This publication is copyright 2014 and may not be reproduced without permission of Accounting Technicians Ireland. © Accounting Technicians Ireland, 2014.


3 A2014 Business Management (BM)

Accounting Technicians Ireland

1st Year Examination: Autumn 2014

Paper : BUSINESS MANAGEMENT

Thursday 14th August 2014 – 9.30 a.m. to 12.30 p.m.

INSTRUCTIONS TO CANDIDATES Answer FOUR questions in total. QUESTION 1 IN SECTION A IS COMPULSORY AND MUST BE ANSWERED. Answer ANY THREE questions in Section B. If more than the required number of questions is answered, then only that number, in the order filed, will be corrected. Candidates should allocate their time carefully. Answers should be illustrated with examples, where appropriate. Question 1 begins on page 2 overleaf.



SECTION A

Answer QUESTION 1 (Compulsory) in this Section

QUESTION 1 (Compulsory)

(a) You work at the Head Office of a large motor distributor based in Ireland. The company is a subsidiary

of a large international corporation and distributes a range of motor vehicles (non-commercial) through a network of dealer garages spread across the country. At a recent meeting it was suggested that “Market Positioning” is crucial to understanding the nature of the market for your company’s products.

Following on from the meeting your immediate manager requested you to prepare a short report on the following:

(i) Explain the term “Market Positioning”.

6 Marks

(ii) Explain how a “Perceptual Diagram” might be prepared to depict the position of various products in this market.

8 Marks

(iii) Suggest TWO reasons why “Market Positioning” is particularly relevant to the marketer / advertiser in this industry.

6 Marks (b) “Viewing ethics as an afterthought rather than an integral part of the value creation process is a major

weakness in our current understanding of business” Do you agree? Give TWO reasons in support of your answer.

5 Marks

Total 25 Marks

SECTION B

Answer any THREE of the six questions in this Section

QUESTION 2 (a) “Leadership is difficult to explain. Some theorists suggest leaders possess distinct traits, others suggest

style and situational factors predominate”. (i) Describe the Trait Theory of Leadership.

9 Marks

(ii) In light of the above statement, describe TWO strengths and TWO limitations of Trait Theory. 8 Marks

(b) Organising is defined as “the process of dividing tasks between groups, individuals and departments and

co-ordinating their activities to achieve organisational goals”. Describe FOUR purposes served by the process of organising.

8 Marks Total 25 Marks



QUESTION 3 (a) The newspaper market in Ireland has faced many challenges in recent years.

Using the PESTLE model, you are required to identify FOUR macro-environmental influences that have had a major impact on the market for newspapers in recent years, giving reasons in support of your answer.

12 Marks

(b) Services exhibit characteristics that separate them from products, namely: Intangibility, Inseparability, Perishability, Heterogeneity / Variability. Please describe each of the FOUR characteristics of services mentioned above, from the perspective of a service with which you are familiar.


QUESTION 4

(a) “In times of austerity, issues of equity assume greater relevance”. Explain what is meant by the equity theory of motivation and set out your views on the above statement.

10 Marks

(b) “Recruitment is a critically important task for every organisation”.

Describe FOUR stages in the process of recruiting an external employee in an organisation.

10 Marks

(c) “The Hawthorne experiments were conducted many years ago and have little relevance in today’s work

environment”. Do you agree? Give TWO reasons in support of your answer.


QUESTION 5

(a) Describe FOUR stages in the process of new product development. 10 Marks

(b) Explain how Porter’s five forces model might be applied to the analysis of the passenger airline industry

in Ireland.

10 Marks (c) Explain how Advertising differs from Public Relations.




QUESTION 6 (a) Describe each of the following categories of information system.

- Transaction Processing Systems - Management Information Systems - Decision Support Systems - Expert Systems Give examples to support your answers.

10 Marks

(b) Explain what is meant by a Feasibility Study in the context of an IS/IT project. Describe FOUR major areas to be considered when assessing the feasibility of an IS/IT project.

10 Marks (c) Explain any TWO of the following approaches to implementation:

- Direct Change Over - Parallel Conversion - Pilot Change Over

5 Marks Total 25 Marks QUESTION 7 (a) Describe FOUR major challenges associated with Budgeting in practice.

10 Marks

(b) Describe TWO advantages and TWO disadvantages associated with Ordinary Share Capital as a source of finance.

10 Marks (c) Explain how you would assess the liquidity and solvency of a company.




1st Year Examination: August 2014

Business Management

Suggested Solutions

and Examiner’s Comments

Students please note: These are suggested solutions only; alternative answers may also be deemed to be correct and will be marked on their own merits.

Statistical Analysis – By Question Question No. 1 2 3 4 5 6 7 Average Mark (%) 43% 48% 58% 48% 49% 60% 44%

Nos. Attempting 133 57 118 42 106 66 32

Statistical Analysis - Overall Pass Rate 65% Average Mark 49% Range of Marks Nos. of Students 0-39 39 40-49 10 50-59 56 60-69 24 70 and over 12 Total No. Sitting Exam 141Total Absent 76 Total Approved Absent 13 Total No. Applied for Exam 230

GENERAL COMMENTS ON THE PAPER AS A WHOLE Overall the performance of students was satisfactory but there was evidence that a number of students had not prepared well for this examination. There was also evidence of students studying a narrow range of topics in depth while developing a superficial knowledge of other areas of the syllabus. This is not a wise strategy to adopt as a broad range of topics may appear on the paper in any one sitting. A number of students attempted more than the required number of questions. Many of these students answered just parts of these questions (e.g. a selection of parts from say six questions). This is a most unwise examination strategy. Students should concentrate their energies on all parts of four questions. Some students write very brief answers or do not relate their answers to the scenario presented. Every effort should be made by students to develop their answers as comprehensively as possible and to relate these to the scenario presented where relevant.



Examiner’s Comments on Question One Solution One Part A (i) Market positioning considers the perceptions of the consumer about the product or service, relative to other products and services in the market. It explores how you want your customers to perceive your product or service particularly in relation to those of your nearest competitors. It is the place the product or service occupies in consumers’ minds relative to competing products or services. The marketer seeks to position the product so it is perceived to possess the key variables or attributes considered important by customers. Re-positioning involves moving the product away from its current position to a point that improves its market appeal. Lucozade is a product that was re-positioned from a drink for people who were feeling unwell to a high energy sports drink. Positioning examines the associations an organisation wants potential customers to infer about its product or service. For example, we associate Ryan with low cost flights. Consumers are overloaded with information about products and services. They cannot re-evaluate products or services every time they make a buying decision. All products and services will have a position in the mind of the consumer (and this can be positive or negative). It is a complex set perceptions, impressions and feelings that consumers have for the product or service compared with competing products or services. It is best not left to chance.

Marks Allocated6 marks for the quality of the explanation of the concept

6 marks Part A (ii) An interesting way of seeing market positioning is to consider a perceptual diagram which maps the brand (i.e. product or service) on an axis according to certain criteria. It is used to locate or situate the brand in relation to its competitors. For example, it may be used to situate customers perceptions of the positions of various brands and organisations in the retail sector in terms of quality and price. (Lidl, Aldi, M&S, House of Frazer). These perceptual diagrams can be used to map consumers perceptions of their brands versus competing products on important buying dimensions. To the extent that a company can position itself as providing superior value, it gains a competitive advantage. For example, House of Frazer continually strives to position its products as superior to its competitors on various criteria. In the case of Motor vehicles a perceptual diagram could be prepared based on consumers perceptions of various motor vehicles based on the two dimensions of price and quality. A range of other dimensions, such as functional characteristics, symbolic projections and other experiential attributes may be used to map customers perceptions of the brand, product or service. In the case of motor vehicles we would probably place the luxury

Answers to Part A (i) and A (ii) were quite good. Students were comfortable explaining the term “Market Positioning” and outlining why it may be relevant. Knowledge of how perceptual diagrams might be used to depict the positions of various products in the market was less well developed, although there were some excellent answers to this part of the question. A small number of students were able to explain the concept of perceptual diagrams but did not relate it to the scenario presented. Answers to Part B were good. Some students tended to emphasise solely the business benefits of ethics rather than their wider relevance.



car market (e.g. BMW’s , Mercedes and Lexus and Porches) in the high quality / high price quadrants, while other lower end models of motot vehicles (various Ford, Toyota, Fiat models etc.) would all occupy various locations in the remaining quadrants.

Marks Allocated4 marks for the explanation of the perceptual diagram 4 marks for overall quality of explanation and presentation

8 marks Part A (iii) The full positioning of a brand is called the brand’s value proposition. That is, the full mix of benefits upon which the brand is positioned. Many organisations in the motor sector are striving to differentiate their offerings from their competitors on the basis of price and quality. (e.g. luxury /special features at an affordable price). Marketers do not want to leave their products’ positions to chance. Positioning helps the marketer develop products that better match customer needs and wants, define customer priorities and develop competitive strategies through differentiation. To build profitable relationships with target customers, marketers must understand customer needs better and deliver more value than competitors do. Marketers must plan positions that will give their products the greatest advantage in selected target markets. Some firms find it easy to choose a differentiation and marketing strategy. In other cases two or more firms may be going after the same position. Each will have to find ways to set itself apart. This may involve drawing on all elements of the marketing mix for products or services to devise an effective marketing strategy. To the extent that a company can position itself well, such as providing superior value, it gains competitive advantage. It is important to remember that solid positions cannot be built on empty promises. Companies must do more than simply shout out their positions with slogans and taglines. They must deliver on the promised quality and service.

Marks Allocated3 Marks per valid reason

6 marks PART B I would tend to agree with the above statement. There has been a tendency within certain firms to take a superficial view of their ethical responsibilities. Ethics has to be seen as integral part of the value creation process not just a public image issue. Sustainable business practices means meeting current needs in a way that preserves the rights and options of future generations. Ethical concerns permeate every aspect of business activity. Core ethical values such as honesty and justice help to determine when other people’s rights are being undermined by our actions. Whenever there is a choice to be made between values, or a better or worse way of doing anything, an ethical judgement is involved. Many judgements and decisions about goals, standards and priorities are ethical, or have an ethical aspect. Trust, dependability and the sense that the organisation is pursuing proper ends and is accountable for its actions are foundations for sound business relationships. Management make a vast range of decisions, such as hiring and firing, choosing suppliers, setting prices, allocating resources, determining dividends, disciplining workers, planning schedules and awarding contracts. All these decisions involve ethical choices. Even the most trivial decisions, and ones which appear to be made on purely technical or economic grounds, typically have ethical aspects. It is not just in the fringe areas of “do-gooding” that ethical issues occur, but throughout all of the business. The real thorny business ethics issues are those where there is a genuine disagreement about what is right. Views may diverge because of unfamiliarity with the issues, or from a lack of analysis. More frequently, however, serious ethical issues arise because business people are faced with apparently incompatible objectives.



When, for example, employees are exhorted to improve quality, but are rewarded politically and financially for sacrificing quality to cut costs, they can face a genuine moral dilemma. In helping business to make informed decisions, business ethics is rather like management accounting. Of course, businesses can and do operate without management accounts. Small businesses often dispense with formal accounting systems altogether, and even large firms can survive in favourable circumstances ignorant of exactly how their costs arise, or which of their activities are profitable. While it may be possible to operate blindly like this for a while, it does not mean it is sensible to do so. A business without management accounts suffers from a serious handicap: it lacks a fundamental management tool, as basic to directing business as a map is to navigation. Operating without such aids may be more adventurous, but it is unlikely to be as effective: it is easier to hit a target when its location and identity are known. Business ethics provides greater awareness of what is important in business activities, and can thus contribute to the long term well being of the entity and the stakeholders it serves.

Marks Allocated1 mark for conclusion 2 marks for reasons (2 mark each) 5 marks Examiner’s Comments on Question Two Solution Two Part A (i) Trait theory is one way to describe who leaders are. Trait theory suggests that effective leaders possess a similar set of traits or characteristics. Traits are relatively stable characteristics, such as abilities, psychological motives, or consistent patterns of behaviour. Trait theory is also known as the ‘great person’ theory because early versions of the theory stated that leaders were born not made. For some time it was thought that trait theory was wrong and that there are no consistent trait differences between leaders and non leaders, or between effective and ineffective leaders. However, more recent evidence shows that ‘successful’ leaders are not like other people, that successful leaders are indeed different from the rest of us. More specifically leaders are different from non leaders in the following traits; drive, the desire to lead, honesty / integrity, self-confidence, emotional stability, cognitive ability, and knowledge of the business. There is much debate as to whether traits are biologically inherent in some people or whether people develop them over time and situations. Whilst the trait approach has become somewhat discredited, more recent research has examined traits which are conducive to leadership. These include the following:

• Demonstrated emotional composure and stability • Remained calm and confident rather than angry or moody during crises • Admitted mistakes and then tried to correct mistakes rather than blaming others • Had strong interpersonal skills

Part A was well answered by students. Most candidates demonstrated a solid understanding of the Trait theory of leadership and were able to engage in an informative discussion on its strengths and limitations as a leadership theory. Part B was not answered by a number of people which was unfortunate as the students who did answer it scored well.



Traits alone however, aren’t enough for successful leadership. Leaders who possess these desirable traits (or many of them) must also behave in ways that encourage people to achieve group or organizational goals. Two key leadership behaviours are (i) initiating structure, which improves subordinate performance, and (ii) consideration, which improves subordinate satisfaction. Some argue there is no ‘best’ combination of these behaviours.

Marks Allocated2 marks per valid point 1 mark for overall quality and presentation 9 marks Part A (ii) Strengths

Limitations

• Certain traits are measurable, and can be

identified (e.g. emotional stability) • Creating a classification of traits assists

managers in identifying employees with potential for promotion, i.e. it assists in identifying future leaders.

• Situational (internal or context) forces are

deemed to be of secondary importance • Socio-economic (external circumstances)

factors are deemed to have little relevance. • The nature versus nurture debate is not

conclusive • There is strong evidence that certain traits are

flexible and can be learned over time • There was a tendency in earlier versions of

the theory to be gender biased

Marks Allocated 2 marks for valid strength and limitation (2 mark each) 8 marks Part B Organising serves many purposes including the following:

• The segregation of work to be performed into specific jobs and departments • The delegation of tasks and responsibilities associated with individual jobs • It provides a framework for co-ordinating different organisational tasks • It provides clarity in the relationships amongst employees and departments • It establishes a formal hierarchy within the firm • It assists in the deployment of organisational resources • It provides a basis for accountability • It helps with customer focus and quality assurance • It may help empower employees to reach goals and targets • It compliments strategic planning by helping set a direction for the organisation

Marks Allocated2 marks for each valid purpose

8 marks



Examiner’s Comments on Question Three Solution Three Part A PESTLE analysis is a technique for analyzing the macro environment of an organization under the following headings – political, economic, socio-cultural, technological, legal and environmental considerations. Analysis of the Political environment involves considering the impact of changes in Taxation requirements, Safety regulations, Consumer protection legislation, Parties in Government, EU Developments etc. Consideration of the levels of demand within the economy, interest rates, foreign exchange rates, grants, inflation etc. are indicative of the economic variables to be monitored and considered. The Socio-Cultural environment encompasses issues of a demographic nature, such as, changes in the structure of the population – age, gender, income distribution, emigration etc.; and issues of a cultural nature, such as, language, customs, religion etc. The Technological environment includes consideration of the threats and opportunities arising from IT and scientific developments in various areas. Organisations must be aware of the legal parameters of their markets and operating environments including issues related to employment law, contract law etc. Increasingly organizations are developing strategies to minimize the effects their operations have on the ecological systems etc. Many factors have had an impact on the newspaper industry over the last five years. A number of these are set out below: Technology Developments in the area of technology have had an enormous impact on readership numbers as people draw on the internet to update themselves on news and other developments. Many newspapers are struggling with the challenges this presents as readers are reluctant to pay for material on the Internet. Economic The recession has impacted the industry significantly in the last four years. People find it difficult to afford newspapers and many have opted to just buy newspapers at weekends or not at all. Competition from overseas newspapers has also placed strains on local providers. The drop off in advertising as a result of the recession has also had a major impact on the industry.

Part A was very well answered by students. Most students have a deep understanding of the PESTLE model and were able to apply it to the scenario presented in a logical and coherent manner. A small number of students described the model in detail but failed to relate it to the scenario presented. Answers to Part B were generally good but a sizable number of students failed to demonstrate a clear understanding of the characteristics of services. (e.g. mixing up the perishability of products with those of services etc.).



Solution Three (Cont’d)

Socio Cultural factors Socio cultural factors such as attitudes and perceptions have changed towards the industry in recent times. It is now seen as possibly less authoritative than heretofore. People are more accustomed to news being received in different forms – Utube or on social net working sites, so newspapers are now seen as the dominant provider. Legislation New laws have been introduced to further regulate the industry. These have had a major impact on the industry in recent years in terms of restrictions on advertising and journalism in general. Data protection and privacy legislation has placed further strains on the role of newspapers.

Marks Allocated3 marks for quality of description of each influential factor

12 marks Part B A large number of businesses offer services – airlines, banks, hotels, insurance companies, consulting firms, medical and legal practices, entertainment and telecommunications companies, real estate firms and others. Although services are ‘products’ in a general sense, they have special characteristics that separate them from manufacturing. Intangibility Services are intangible: Unlike physical products they cannot be seen or touched before they are bought. Services are difficult to describe, to demonstrate to the buying public, or to illustrate in communications and promotional material. An organisations reputation and that of its sales people are essential to service marketing. Airline passengers have nothing but a ticket and a promise that they and their luggage will arrive safely at the intended destinations, hopefully at the same time. To reduce uncertainty, buyers look for signals of service quality. Many factors influence the experience of a service. This is particularly true of hotels where the ambiance and décor and overall quality of the surroundings and service levels influence the consumer’s perceptions and their interpretation of the experience. The service provider’s task is to make the service tangible in one or more ways and send the right signals about quality. Inseparability Services are purchased and consumed simultaneously. Buyer provider interaction is a special feature of services marketing. Services cannot be separated from their providers. Customers and service providers participate in and affect the transaction. It is a once off experience. The impressions created by hotel staff cannot be inspected like the products at the end of an assembly line. Perishibility Services cannot be stored or inventoried. The perishability of services is generally not a problem when demand is steady. When demand fluctuates service firms may experience problems. It is difficult to synchronise supply and demand. Hotels have to strive to ensure they recognise service experiences as one-off and that damage done at one point in time may be difficult to rectify later. Heterogeneity / Variability Because services depend on who provides them, (as well as when and where they are provided), service quality is highly variable. Many services cannot be provided by machines and therefore the human factor is of great importance in the maintenance of service quality. There can be a great deal of variability in the output of a services organisation. This arises, as it is more difficult to establish standards for output and even harder to ensure standards are being met each time the service is being delivered. For example, hotel employee’s reactions to customers may vary with their levels of tiredness



and fatigue. Even the quality of a single hotel employee’s service varies according to his or her energy and frame of mind at the time of each customer encounter.

Marks Allocated3 marks for the quality and description of each characteristic 1 mark for overall quality and presentation 13 Marks Examiner’s Comments on Question Four Solution Four Part A Equity theory says that people will be motivated at work, where they perceive that they are being treated fairly. In particular, equity theory stresses the importance of perceptions. So, regardless of the actual level of rewards people receive. They must also perceive that, relative to others, they are being treated fairly. The basic components of equity theory are inputs, outcomes, and referents. Inputs are the contributions the employees make to the organisation. According to the equity theory, employees compare their outcomes, the rewards they receive from the organisation, with their inputs and their contributions to the organisation. This comparison of outcomes to inputs is called the outcome /input ratio. When people perceive that their outcome /input ratio is different from their referents ratio, they conclude that they have been treated inequitably or unfairly. People who perceive that they have been under-rewarded try to restore equity by decreasing or withholding their inputs. Another method of restoring equity is to rationalise or distort inputs or outcomes. Instead of decreasing inputs or increasing outcomes, employees may restore equity by making mental or emotional adjustments to their outcome / input ratios or to the outcome /input ratios of their referents. It is likely that these people would still be angry or frustrated with their position even though they have rationalised it. (e.g., I still have a job). Managers can use equity theory to motivate workers by looking for and correcting major inequities, reducing employees’ inputs, and emphasising procedural as well as distributive justice. Motivation is a complex concept. There are a variety of factors which influence the meanings people give to a situation and which prompt them to act in particular ways. Similarly, there is no one universally accepted theory of motivation. Broadly speaking the theories, may be categorised into two groups, need and cognitive theories of motivation. Adam’s theory falls into the latter category. It takes an egalitarian perspective towards motivation. It argues that the system for measuring performance must be fair and robust. The outcome / input ratio’s must be seen to be fair and applied in an equitable manner, otherwise the system risks loosing credibility. It assumes people make conscious decisions about the equality of their treatment with regard to others in discharging their effort. It argues that it is the equality and robustness of the system which links effort to performance and rewards that is fundamental to motivation.

Answers to Part A were quite good with students demonstrating a fair grasp of the Equity theory of motivation. A number of students seemed to confuse it with Expectancy theory. Also some students failed to discuss its relevance in times of Austerity. Part B was answered well in general. A number of students clearly had not heard of the Hawthorne experiments and resorted to creative guesswork. Those that were familiar with it tended to engage with the assertion at a deep level.



The model certainly has intuitive and practical appeal and there is a body of evidence to suggest that relativity is vital to motivation. The model like most theoretical frameworks does not necessarily hold for all people in all situations. People’s needs vary from individual to individual, from culture to culture and there is a temporal dimension to motivation in that different needs will assume varying degrees of importance at different stages of peoples lives. The nature of the task environment also influences the appropriateness of the framework. The tangibility of the outputs and the ability to design systems that achieve equality impacts its relevance. If a robust system cannot be developed management may take the view that the level of potential friction out weights the potential benefits. It is fair to say that issues of equity have assumed greater importance as a result of the financial crisis. The outcome / input ratio has come into sharper focus. In many organisastions this has been recalibrated. There has also been a greater focus on tackling under performance along with calls for greater transparency in the processes by which senior management pay scales are set. The financial crisis has highlighted the importance of the central element of the equity theory of motivation; perceptions of the fariness of the system adopted for arriving at the rewards offered for contributions provided by staff members and management. Overall, no one theory of motivation covers all of the complexities of reality, but in appropriate conditions and circumstances, equity theory has a significant part to play in the way motivation systems are designed and implemented in work environments.

Marks Allocated6 marks for the quality of the quality of the description 3 marks for relevance 1 mark for the overall quality and presentation 10 marks Part B Employee recruitment is the process of obtaining a sufficient number of the right people at the right time to best meet the needs of the organisation. It involves finding, hiring and holding onto people who can satisfy the technical, educational and social needs of the organisation. Recruitment relies on a number of sources, including internal promotions, advertisements, employment agencies, management consultants, and so on. The process is comprised of a number of distinct stages 1. Manpower planning / Needs analysis 2. Job description – responsibilities defined 3. Attributes & aptitudes required 4. Conditions established – terms and conditions 5. Job advertisement drawn up 6. Advertised internally 7. Advertised externally 8. Short listing 9. Interview and other selection procedures 10. Offer made 11. If accepted unsuccessful candidates notified 12. Induction and training A short description of a selection of stages is set out below. Need Analysis This stage of the process is concerned with estimating the quantity and quality of human resources required to meet the objectives of the organisation. It is based on a thorough understanding of organisations strategy and its implications for the workforce, planned technological changes, a detailed inventory of employee characteristics (age, sex, martial status, tenure, skill level, qualifications, promotion potential and performance levels) and attrition rate.



Job Description This involves specifying the job and what the job demands in terms of employee behaviour. It is a statement of the main tasks of the job. It is clearly an important aspect of the background stage of recruitment, because the ideal individual is derived from the contents of the job description. If an inaccurate job description is prepared, then the individual characteristics subsequently specified may also be inaccurate or inappropriate. Attribute and Aptitudes required The may also be called the person specification. It details the skills, qualification, knowledge and experience the individual should possess in order to best match the job. The person specification may often distinguish between those characteristics considered essential and those considered desirable. Among the things it might take account of are: - attainments, education/ qualifications / experience - general intelligence - special aptitudes - interests - motivation - adjustment Advertising Equipped with a job description and a person specification, the task now becomes one of attracting a pool of potential candidates. In considering possible sources of labour, we must consider internal and external sources. Internal sources may come from transfers or promotions. Potential external sources include colleges, Institute’s of Technology, Universities, employment agencies and management consultancies and executive search agencies. Each of these sources should be evaluated, particularly with respect to their suitability to yield the right candidate, and the costs involved. Selection The selection process effectively begins when application forms / CV’s are received. Selection tools available to organisations range from the more traditional methods of interviews and references, through to the more sophisticated techniques, such as biographical data, aptitude tests and psychological tests. The interview is widely held to be the most commonly used selection technique. Often described as a conversation with the purpose, it may take a number of different forms. The three most common types are one-to-one interviews, panel interviews and group interviews / assessment.

Marks Awarded 2 marks per stage – max 8 2 marks for overall quality and presentation

10 marks

Part C The Hawthorn experiments were held in Western Electric’s Plant in Illinois. They involved tests designed to analyse the conditions under which productivity could be increased in line with Taylor’s ideas. The researchers concluded that productivity seemed to go up regardless of the conditions under which staff worked. Their main finding which became known as the Hawthorne effect was the discovery that the workers involved in the experiment increased productivity simply because their needs were being catered for as part of an experiment. They were consulted about their part in it, and made to feel special, a practice which became an integral part of the Human Relations perspective. Furthermore the study revealed the importance of informal dynamics / norms on group performance. The relevance of these studies is reflected in the level of attention that is now given to the management of Human Resources in organisational settings. The Hawthorne Studies revealed the shortcomings in the



traditional functionalist approaches of the era. The problems the study explored are however, still evident and important today. Recent research in employee motivation, group dynamics, change management all present theories that assist us in obtaining a deeper understanding of the complex social reality of organisations that the Hawthorne experiments uncovered in their systematic study of life in the Western Electric Plant in Illinois in the late 1920’s. A complex reality that eludes simplistic reductionism. Just as the Hawthorne studies showed at the time.

Marks Allocated1 mark for conclusion 2 marks for reasons (2 mark each) 5 marks Examiner’s Comments on Question Five Solution Five Part A New product development is the term used to describe the complete process of bringing a new product or service to the market place. It is suggested that it consists of seven sequential steps 1 Idea generation This is a process of brain storming whereby companies generate new product / service ideas and possibilities 2. Screening of ideas This involves assessing whether the new ideas match organisational objectives / resources 3. Concept testing This is a process whereby an organisation seeks potential buyers responses to a new product idea. 4. Business analysis This involves an evaluation of a product idea to determine its potential impact on sales, costs or profits 5. Product development This is the process whereby the company determines the technical and financial feasibility of the product / service proposal 6. Test Marketing This involves the introduction of the product on a test basis in geographic areas chosen to represent the intended market for the product.

Regrettably a number of students confused new product development with the product life cycle and scored little or no marks in Part A. Answers to Part B were of a high standard. It is unfortunate that there is still a group of students who can label the components of Porters five forces but cannot explain them. (e.g. demonstrate they understand the meaning and relevance of each force). Part C was well answered by most students.



7. Commercialisation The process of refining and implementing plans for the full scale manufacturing and selling of the new product.

Marks Allocated2 mark for each stage (Max four) 2 marks for overall quality and presentation 10 marks Part B Porter’s five forces model maybe used to analyse the airline industry in Ireland Threat of new entrants The industry is highly specialized, regulated and capital intensive. It is most unlikely new indigenous competitors will emerge from within the state. The threat of new entrants is mainly likely to come from overseas airlines. However with the downturn in the world economy and consequent fall off in passenger numbers this is unlikely in the short term. The short haul market is highly competitive and this is likely to act as a significant barrier to new entrants. Threat of substitutes Threats from substitutes arise at a number of levels. Ireland as an island nation can only be accessed by sea or air transport. Sea transport offers an alternative for nearby destinations (e.g. the UK and France) weather conditions permitting. Increased journey times are a deterrent, as indeed is price given the competitive nature of the market at present. However, sea transport offers flexibility in terms of luggage requirements, security checks and the use of ones own vehicle when abroad etc. Substitutes to air travel within Ireland have increased in recent years with the improvements in road networks, intercity bus links and rail services. Buying power of suppliers The major raw material resources are fuel, airplanes and labour. The price of oil has an immediate and direct impact on the competitors in this market. It is largely outside the control of airlines but may be managed to some extent via the use of forward contracts and options etc. Airline manufacturers may have significant power in the market when the industry is buoyant. This may also extend to the market for spare parts and maintenance etc. Landing rights may also be a major competitive factor. All airlines will be subject to agreements with employees about changes in work practices and terms and conditions of work. Some airlines may also be subject to a wider set of political obligations than others because of their historical role and ownership structure and are likely to be subject to greater political influence than others. Buying Power of Customers. The market is characterized by a very large number of small players / customers in most cases. Customer loyalty is low and switching costs are minimal. The price demand relationship is therefore highly price elastic. The advent of eCommerce has facilitated greater price transparency and responsiveness to special deals etc further increasing the bargaining power of customers. Degree of rivalry Competition is intense between the major players in the Irish market. The no frills marketing strategy of low cost airlines such as Ryan Air and Easy Jet have contributed to significant reductions in airline prices. Every effort is being made by all airlines to reduce their transaction costs and overall cost bases. (e.g. online boarding



passes, luggage fees, cabin attendants cleaning the airlines etc.) Certain airlines seek to recoup some of their costs from the countries they fly to. The intensity of competition is likely to continue with the onset of the global recession. Porter identified five forces that assist organisations in analysing the intensity of competition, profitability and attractiveness of an industry. An understanding of these forces increases a managers insight into the nature and dynamics of the market place thereby facilitating the development of appropriate business and marketing strategies.

Marks Allocated2 mark for each influence (Max ) 10 marks Part C Most firms, and particularly the large firms, have become very conscious of their image and how the public, at large, sees them. In an effort to have good public relations, some firms have separate public relations departments headed by a public relations manager or officer (PRO). There are also a number of independent professional public relations consultants and agencies who handle public relations for various firms. Public relations can be distinguished from advertising in that it tends not to be paid for by the firm benefiting from it. A firm may benefit from publicity received for their products in newspaper articles, TV and radio discussion programmes etc. The main aim of a public relations department is to establish and maintain a good impression of a company in the minds of the public. A good public image is essential to success. To do this the organisation must evaluate public attitudes and develop policies and procedures consistent with the public interest, and take steps to earn public understanding and acceptance. Activities include media relations, event management, exhibitions and conferences, community relations, sponsorship of personalities or events and crisis management. Advertising on the other hand is any paid form of non-personal communication about an organization, product, service or idea by an identified sponsor. Its key purpose is to inform potential customers about products and services and how to obtain and use them. Advertising in short is a form of communication designed to persuade an audience to take a particular action.

Marks Allocated2 marks for the quality of each explanation 1 mark for the overall quality and presentation 5 marks Examiner’s Comments on Question Six

Answers to Part A were of a high standard. Most students were able to explain all four categories of information system. Students demonstrated a good understanding of Feasibility studies in the context of IS/IT project. Answers to Part C were of a very high standard.



Solution Six Part A Transaction processing systems (TPS) are information systems which exist to support the day to day, or week to week, processing and recording of routine business transactions such as Orders, Despatch Notes and Invoices. (e.g. cash registers, atm’s, sales order processing systems etc.). Transaction processing systems are primarily used by operational managers. However they contain a pool of information in databases which may be used by all levels of management to guide their decision making.

They are generally designed to work with high volumes of data on a “real time” basis. (e.g. online cinema seat sales, or on line airline ticket sales). They form the backbone of the entities information processing systems and need to be fully secure and functional at all times.

Management information system (MIS) are systems which produce and present information in order to satisfy the information needs of managers at various levels in the organisation. They are systems that analyse/summarise existing data (usually from a database) and produce reports for management-level staff. The reports generated by an MIS are usually:

- Periodic (e.g. a monthly sales report for the Galway branch)

- Demand (e.g. an updated class attendance sheet showing all registered students)

- Exception ( e.g. a report showing all rejected / refused credit card transactions for the last month; or a report showing all accounts more than two months overdue)

Management are tasked with making the decisions that will decide how the business will operate in the foreseeable future. They need to be able to drill down into existing data sources to the level of detail required for the purpose. (e.g. to be able to view sales by product, region, salesperson or some combination of these).

Decision support systems are complex systems designed and used by managers to help them make non-routine decisions. They generally consist of a “model” based on past experience. Managers use them to generate projections and other relevant information. (e.g. projected profits etc.) DSS’s use various types of models, such as “what if” analysis (i.e. change in one element of the model and see what happens to the result), and “sensitivity” analysis (i.e. make small changes to one element and see what happens to another element). A spreadsheet model can be used as a simple but effective Decision Support System. Expert Systems (ES) are systems designed to act like real human experts in a very specific area of expertise. Expert systems typically contain a knowledge base of amassed experience along with a repository of rules for applying this knowledge base to each individual situation. Over time both the knowledge base and the rules can be added to and improved. A simple example might be a computer chess game. More professional applications would be found in the fields of medicine, taxation and law.

Marks Awarded 2 marks for quality of description of each type 2 mark for overall quality and presentation

10 marks



Part B A feasibility study is conducted to determine whether a project is fundamentally worthwhile. There are many areas to consider when assessing the feasibility of a project, these include its economic feasibility, its technical feasibility, and its organizational and operational feasibility. The feasibility analysis provides a high level snap shot of the potential costs and benefits of the proposed system and the technical / organisational feasibility of the project. If the results of the analysis are favourable an explicit decision is made to proceed. There are many ways to assess the feasibility of a project. Amongst these are: 1. Economic feasibility The main question here surrounds the costs of acquiring the system versus the benefits of having the finished system. This is generally determined using a Cost-Benefit-Analysis. All costs (tangible and intangible) and benefits (tangible and intangible) need to be considered is assessing the economic feasibility of a computer project. Tangible costs These include all those costs that can be predicted and measured to a fairly accurate degree. Typical examples include

- Hardware / Equipment - Wages / salaries and consultancy fees - Ongoing system benefits

Tangible benefits, would include

- Improved efficiency and throughput - Reduction in errors - Reduction in costs

Intangible costs, refer to costs that cannot be measured accurately and may always occur – some examples would include

- loss of employee morale - disruption to the organisation

Intangible benefits would include

- gaining a competitive advantage - improved employee morale - faster decision making

2. Operational and Organisational feasibility The focus here is on whether the organisation has the necessary skills/ capabilities available to actually operate the system on a day to day basis. And if not, where these can be obtained in a realistic way. 3. Technical Feasibility The main issue here is whether the organisation is technically capable of developing/ operating the system, and if not, whether the necessary technology can be developed or acquired in a feasible manner. 4. Schedule Feasibility



This is an assessment of the time-frame involved. Long projects are more likely to run into problems and / or fail. Also there may be a critical deadline that must be met for the system to be of use (e.g. end of year or to comply with new legislation).

Marks Allocated2 marks for the quality of description of each area (Max three areas) 2 marks for overall quality and presentation

10 marks Part C Direct Changeover This is when the old system is turned off and the new system goes live straight away. There is no “change over” period. This is fast and appears cheap, but has a number of problems; - there is no time to identify remaining problems with the new system. If something goes wrong, there is no

fall back.

- It will take time for users to get to know the new system, and this will mean that productivity drops.

- When problems occur, it is often expensive to fix them. Parallel Conversion This is when both old and new systems run “in parallel” for a certain period of time (the ‘changeover’ period). This allows problems in the new system to be identified, and also allows time for users to familiarize themselves with the new system. But: - running two systems in parallel is very resource intensive and can be complex and expensive

- there is a danger that users will just keep using the old system and never engage with the old system. Pilot Changeover This is where the system is introduced in one location (or one department) only. This can be viewed almost as a “trial run”, and once problems have been ironed out the system will be rolled out to the rest of the company. The pilot location still has to follow either a direct or parallel changeover method.

Marks Allocated2 marks for each mode 1 mark for the overall quality and presentation 5 marks Examiner’s Comments on Question Seven

Answers to Part A were mixed. Some candidates demonstrated a clear understanding of the challenges; other answers confused the question with stages in the budgeting process. Answers to Part B also were mixed, with some students providing a description of share capital rather than a description of its advantages and disadvantages as a source of finance. Students were strong in answering the first element in Part C on liquidity but many struggled when answering the issue of solvency.



Solution Seven Part A A budget is a financial or quantitative plan of operations prepared, negotiated and approved prior to a defined period of time. Budgets for organisations serve a number of objectives. They: • aid the planning of operations • co-ordinate the activities of the various parts of the organisation and ensure that the parts are in

harmony with each other • communicate plans to the managers of responsibility centres • motivate managers to strive to achieve the organisational goals • control activities • evaluate the performance of managers. Financial control of activities is vital to all organisations. Many smaller firms, for a variety of reasons, such as lack of expertise or over-trading, opt for informal rather than formal systems of control. This can be catastrophic for the small firm as the true performance or profitability cannot be gauged. Budgetary control requires that realistic profit and loss and cash flow forecasts are prepared at the beginning of the period and that they be updated normally on a quarterly basis as the year progresses. Due care and consideration is required in interpreting variances from budget to ensure managers are held accountable for all those matters that fall within their sphere of control The cash flow forecast may be used to determine if company borrowing is required or if surplus funds are likely to be available for re-investment. Comparing actual performance against forecasted profit and loss account projections allows management to monitor margins on a regular basis and to take appropriate corrective action before deviations become too serious. It is vitally important that the budgeting system is detailed enough to suit the size and nature of the organisation. If the budget is not prepared in a realistic manner, it can have a negative impact on the attitudes and behaviour of mangers and staff. In many cases instances of gaming (i.e. padding and building in of slack) are prevalent. There is also a temptation to overstate the importance of the short term. Also a degree of uncertainty is involved in budgeting and this needs to be given due cognizance. Company politics and departmental rivalry can also be a problem with budgeting in practice. None the less it is an important managerial process and every effort should be made to ensure it is accurate and implemented effectively. It is meant to anticipate problems before they arise thus giving sufficient time to find a remedy for those problems. Its credibility as a forcasting tool and control mechanism will be compromised if the estimates used are not realistic. The manner in which feedback information is used is also central to the effectiveness of the budgetary control system..

Marks Allocated2 marks for the quality of the explanation of each challenge 2 marks for the overall quality and presentation 10 marks



Part B Ordinary Shares Ordinary shareholders are members of the company holding voting rights. They own a share of the company’s assets and a share of any profits earned after all prior claims have been met. Ordinary shares or Equity, as they are termed, are a permanent source of finance. Ordinary shareholders provide seed capital to allow the business to develop and grow. There are no fixed repayment or interest charges to be paid in the case of equity. Equity also provides the owners with authority to influence policy and direction. Equity may be raised through offers for sale, public issues, placing, tender or rights issues. Equity is generally regarded as an expensive source of finance when compared to loan finance, as the dividends to equity holders unlike loan interest are not tax deductible. Another disadvantage of equity is the potential for change in the balance of control between existing and new shareholders.

Marks Allocated2 marks for advantages and disadvantages 2 mark for overall quality and presentation

10 marks Part C

Cash is the lifeblood of any organisation whether in the not for profit or private sector. Decisions made and activities planned are meaningless without the necessary finance to carry them through. The finance function is concerned with not only ensuring the adequate supply of funds for organisational activities but also reporting the results and putting in place procedures to evaluate and examine performance over periods. Indeed the various elements of the finance function are specialist areas in themselves. Liquidity refers to the ability of the entity to meet its debts as they fall due. It is measured by the current asset ratio and the quick asset or acid test ratio. Solvency refers to the level of indebtedness in a company. It is measured by the level of long term debt to the level of capital employed. It highlights how close the company might be to being bankrupt if all the debts were called in. We hear of frequent references to negative equity in the present housing market as a result of the recent financial crisis and the fall in housing prices. It reflects the difficult solvency situation entities may experience when asset values fall.

Marks Allocated2 marks for the quality of the description of each element 1 mark for overall quality and presentation 5 marks

bm autumn 2014 - final - accounting technicians … · 1st year examination august 2014 exam paper,...

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