Succession planning
Succession planning is a process of determining critical roles within the company, identifying and assessing possible successors, and providing them with the appropriate skills and experience for present and future opportunities.
A careful and considered plan of action ensures that the least possible disruption to the person’s responsibilities and therefore the organization’s effectiveness.
Examples include such a person who is
suddenly and unexpectedly unable or unwilling to continue their role within the organization;
accepting an approach from another organization or external opportunity which will terminate or lessen their value to the current organization;
indicating the conclusion of a contract or time-limited project; or
moving to another position and different set of responsibilities within the organization.
A succession plan clearly sets out the factors to be taken into account and the process to be followed in relation to retaining or replacing the person.
In other words succession planning comprises of these important steps -
Recruitment and staffing - you recruit superior and right employees
Training and development - you train the employees to develop their knowledge, skills and abilities
Performance and Compensation management - prepare them for advancement or promotion into ever more challenging roles
Other (in which talent management plays a role) - you are prepared to retain or replace superior employees
Typical activities are
-Determine what roles and skills are critical for the growth of the company
-analyze and address the gaps revealed by the planning process
-identify and understand the developmental needs of employees to fill those positions
-ensure that all key employees understand their career paths and the roles they are being developed to fill
-train people for skills and positions that are not presently existing in the company
understand the time needed to backfill key roles
-enrich succession plans through regular executive discussion of people and posts
-identify top performers in all departments and make sure that they are engaged and satisfied to stay with you for a long period
-continually review and check the process of succession and whether planned individual development has taken place
Succession planning is a process by which successors are identified for key positions throughout an organization including vital roles in each department of the organization. It should take into account the strategic vision and objectives of the organization. With good succession planning in place, employees are ready for new leadership roles so when someone leaves the company, another is skilled and ready to step-up to that position. Succession planning can also help develop a diverse workforce, by enabling senior management to look at the future goals of the organization as a whole.
So the key issues the HR professionals should consider while developing a succession plan are
Strategic plans and future goals
Workforce requirement
Knowledge retention and critical roles
Talent management strategies .
Saturday, February 28, 2009
Friday, February 27, 2009
Foreign Exchange Rates introduction
Foreign Exchange Rates
Foreign exchange rate is defined as the number of units of one currency, which may be bought or sold for one unit of another currency.
there are two ways in which currencies are bought or sold.
Spot – for immediate delivery
Forward – for delivery at a date in the future
Spot Exchange Rate
Spot exchange rate is the exchange rate on currency for immediate delivery.
Forward Rate
The forward rate is the rate for a transaction now on delivery of currency at a future date.
Methods of Quoting a Foreign Currency
Direct Quote
The number of domestic currency units needed to buy one unit of foreign currency. From a UK viewpoint this would be shown as: £0.55 = US$1. This indicates that £0.55 or 55 pence are required to purchase $1.
Indirect Quote
The number of foreign currency units needed to buy one unit of domestic currency. Hence from a UK viewpoint: this would be shown as: US$1.818 = £1. This indicates that US$ 1.818 are required to purchase 1£.
Risk and Risk Management
· Risk means that actual outcome can be different from the expected outcome.
· Basically risk can be managed by using the following two methods.
o Reduce risk
o Avoid/Eliminate risk
· Risk can be reduced using following two methods.
o Pooling of risks: risk, which is unacceptable to individuals, are “pooled”. The most common example is insurance companies.
o Hedging of risks: One party agrees to accept the risk of other party due to:
§ Cover the similar but opposite risk
§ Wants to make profit by speculation
Foreign exchange rate is defined as the number of units of one currency, which may be bought or sold for one unit of another currency.
there are two ways in which currencies are bought or sold.
Spot – for immediate delivery
Forward – for delivery at a date in the future
Spot Exchange Rate
Spot exchange rate is the exchange rate on currency for immediate delivery.
Forward Rate
The forward rate is the rate for a transaction now on delivery of currency at a future date.
Methods of Quoting a Foreign Currency
Direct Quote
The number of domestic currency units needed to buy one unit of foreign currency. From a UK viewpoint this would be shown as: £0.55 = US$1. This indicates that £0.55 or 55 pence are required to purchase $1.
Indirect Quote
The number of foreign currency units needed to buy one unit of domestic currency. Hence from a UK viewpoint: this would be shown as: US$1.818 = £1. This indicates that US$ 1.818 are required to purchase 1£.
Risk and Risk Management
· Risk means that actual outcome can be different from the expected outcome.
· Basically risk can be managed by using the following two methods.
o Reduce risk
o Avoid/Eliminate risk
· Risk can be reduced using following two methods.
o Pooling of risks: risk, which is unacceptable to individuals, are “pooled”. The most common example is insurance companies.
o Hedging of risks: One party agrees to accept the risk of other party due to:
§ Cover the similar but opposite risk
§ Wants to make profit by speculation
Sunday, February 22, 2009
DERIVATIVE INTRODUCTION
DERIVATIVE
A derivative is a financial instrument that offers a return based on the return of some other underlying asset.
EXCHANGE TRADED CONTRACTS
have standard terms and features and are traded on an organized deivative trading facility usually referred to as a future exchange or an option exchange.
OVER THE COUNTER CONTRACTS
are any transactions created by two parties anywhere else.
TWO CATEGORIES
1) FORWARD COMMITMENTS
It is an agreement between two parties in which one party agrees to buy and the other agrees to sell an asset at a future date at a price agreed on today.
Exchange traded (Futures)
Over the counter (Swaps,forward contracts)
2) CONTINGENT CLAIMS
It is derivative contract with a payoff dependent on the occurrence of - future event.
Exchange traded (Warrants,interest rate options)
Over the counter (Warrants,interest rate options)
A derivative is a financial instrument that offers a return based on the return of some other underlying asset.
EXCHANGE TRADED CONTRACTS
have standard terms and features and are traded on an organized deivative trading facility usually referred to as a future exchange or an option exchange.
OVER THE COUNTER CONTRACTS
are any transactions created by two parties anywhere else.
TWO CATEGORIES
1) FORWARD COMMITMENTS
It is an agreement between two parties in which one party agrees to buy and the other agrees to sell an asset at a future date at a price agreed on today.
Exchange traded (Futures)
Over the counter (Swaps,forward contracts)
2) CONTINGENT CLAIMS
It is derivative contract with a payoff dependent on the occurrence of - future event.
Exchange traded (Warrants,interest rate options)
Over the counter (Warrants,interest rate options)
Friday, February 20, 2009
Capital Budgeting
CAPITAL BUDGETING Plays important role in success & failure of any organization.It involves substantial investment as well as period for completion.
CAPITAL BUDGETING PROCESS
* Gathering ideas
* Collecting Proposals
* Plan Capital budget
* Monitoring& post audit
Capital Budgeting Projects Categories
* Replacement projects
* Expansion projects
* Increase in services & products
* Safety, Regulatory Projects
* Others
Capital Budgeting Evaluation Criteria
* Net present value
* IRR
* Accounting rate of return
* Pay back period
* Discounted Pay back period
* Profitability Index
Net present value
N.P.V (FOR A PROJECT WITH ONE INITIAL OUTLEY) IS EQUAL TO PRESENT VALUE OF FUTURE AFTER TAX CASH FLOWS MINUS INITIAL OUTLEY
NPV = PV OF FUTURE AFTER TAX CASH FLOW MINUS INITIAL OUTLEY
DECISION RULE
ACCEPT PROJECT IF NPV > 0
reject project if NPV is less than 0
EXAMPLE
A PROJECT WITH INITIAL OUTLEY OF RS. 25 MILLION PRODUCING 10 MILLION FOR THREE YEARS WITH REQUIRED RATE OF RETURN 10%. WHETHER IT IS ACCEPTABLE OR NOT
ANSWER
IT IS not acceptable as NPV is less than 0.
IRR
IRR is the rate of discount that equates PV of future after tax cash flows with initial outley.
i-e at IRR PV of of future after tax cash flows = initial outley
Decision Rule
Accept project if IRR> r
Reject project if IRR is less than Accounting rate of return
AAR= average net income/average book value
Example
investment Rs. 100,000
Income
year 1 Rs. 5,000
year 2 Rs. 10,000
year 3 Rs. 15,000
then AAR = ((5000+10000+15000)/3)/(100000+0)/2
AAR=20%
DRAWBACKS
It is based on accounting income not on cash flows.
It does not take into accounts time value of money.
Payback period & discounted pay back period
Payback period
It is the number of years the project takes to recover its initial investment. It is based on cash flows. It is measure of payback not profitability.
TABLE
YEAR 0 1 2 3
CASH FLOW (M) -10 2.5 7.5 2
Cum. CASH FLOW -10 -7.5 0 2
PAY BACK PERIOD IS 2 YEARS.
MAIN DRAWBACKS
It ignores time value of money & risk of project.
it ignores cash flow after payback period.
Decision rule
As it is the measure of liquidity, the shorter the payback period the better the project is.
Discounted pay back period
It is the number of years the project takes to recover its initial investment in present value terms. (Discounted cash flows).
If NPV = negative , it will usually not have a discounted payback period.
It accounts time value of money & risk within the discounted payback period.
Decision rule
As it is the measure of liquidity, the shorter the discounted payback period the better the project is.
Main drawback
It does not take into account cash flows beyond the payback period.
Profitability index
It is the P.V of future after tax cash outflow of project divided by initial cash outley.
P.I = P.V of future after tax cash outflow /initial investment
P.I =1+NPV/initial investment
It indicates the value we are receiving in exchange for one unit of currency invested.
Example
If NPV is 100
initial investment is Rs. 1000
Then P.I will be =1+100/1000=1.1
Decision Rule
If P.I > 1 accept the project.
If P.I is less than 1 reject the project.
Mutually exclusive & Independent projects
Independent projects
are projects that are unrelated to each other and are separately evaluated for investment decisions.
Example If A & B are independent projects
& NPV of A = 10,000 NPV of B = 15,000 So both projects can be accepted.(assuming no financial constraints are there)
Mutually Exclusively Projects
mean that only one of them can be accepted and they compete with each other. Example If A & B are Mutually Exclusively projects & NPV of A = 10,000 NPV of B = 15,000 So only one of them i-e B can be accepted but not both.
CAPITAL RATIONING
A firm maximizes its wealth by accepting every project that has a positive NPV but the point is that capital is limited. So capital rationing is the limit set on the amount of investments utilized/available for investments.
Soft Capital rationing
Capital rationing is imposed by top management and not by investors. The factors leading to soft rationing are as under:
Management is reluctant to issue new share because of the fear of outsider taking control of company.
Dilution of EPS
Increased interest payments in case of debt financing.
Company’s will to maintain limited investment level that can be financed through retained earnings.
Hard Capital Rationing
It means that the firm cant raise the funds it needs & imposed by investors.This will not occur under perfect market.
If share prices are depressed , raising capital is very difficult.
Restriction on lending by Banks.
High interest rate.
High cost associated with issuance of share / debt instrument.
DECISION
If there is shortage of capital, the firm needs to pick projects that give highest NPV per dollar of investments i-e profitability index.
P.I= NPV/Initial investment
CAPITAL BUDGETING PROCESS
* Gathering ideas
* Collecting Proposals
* Plan Capital budget
* Monitoring& post audit
Capital Budgeting Projects Categories
* Replacement projects
* Expansion projects
* Increase in services & products
* Safety, Regulatory Projects
* Others
Capital Budgeting Evaluation Criteria
* Net present value
* IRR
* Accounting rate of return
* Pay back period
* Discounted Pay back period
* Profitability Index
Net present value
N.P.V (FOR A PROJECT WITH ONE INITIAL OUTLEY) IS EQUAL TO PRESENT VALUE OF FUTURE AFTER TAX CASH FLOWS MINUS INITIAL OUTLEY
NPV = PV OF FUTURE AFTER TAX CASH FLOW MINUS INITIAL OUTLEY
DECISION RULE
ACCEPT PROJECT IF NPV > 0
reject project if NPV is less than 0
EXAMPLE
A PROJECT WITH INITIAL OUTLEY OF RS. 25 MILLION PRODUCING 10 MILLION FOR THREE YEARS WITH REQUIRED RATE OF RETURN 10%. WHETHER IT IS ACCEPTABLE OR NOT
ANSWER
IT IS not acceptable as NPV is less than 0.
IRR
IRR is the rate of discount that equates PV of future after tax cash flows with initial outley.
i-e at IRR PV of of future after tax cash flows = initial outley
Decision Rule
Accept project if IRR> r
Reject project if IRR is less than Accounting rate of return
AAR= average net income/average book value
Example
investment Rs. 100,000
Income
year 1 Rs. 5,000
year 2 Rs. 10,000
year 3 Rs. 15,000
then AAR = ((5000+10000+15000)/3)/(100000+0)/2
AAR=20%
DRAWBACKS
It is based on accounting income not on cash flows.
It does not take into accounts time value of money.
Payback period & discounted pay back period
Payback period
It is the number of years the project takes to recover its initial investment. It is based on cash flows. It is measure of payback not profitability.
TABLE
YEAR 0 1 2 3
CASH FLOW (M) -10 2.5 7.5 2
Cum. CASH FLOW -10 -7.5 0 2
PAY BACK PERIOD IS 2 YEARS.
MAIN DRAWBACKS
It ignores time value of money & risk of project.
it ignores cash flow after payback period.
Decision rule
As it is the measure of liquidity, the shorter the payback period the better the project is.
Discounted pay back period
It is the number of years the project takes to recover its initial investment in present value terms. (Discounted cash flows).
If NPV = negative , it will usually not have a discounted payback period.
It accounts time value of money & risk within the discounted payback period.
Decision rule
As it is the measure of liquidity, the shorter the discounted payback period the better the project is.
Main drawback
It does not take into account cash flows beyond the payback period.
Profitability index
It is the P.V of future after tax cash outflow of project divided by initial cash outley.
P.I = P.V of future after tax cash outflow /initial investment
P.I =1+NPV/initial investment
It indicates the value we are receiving in exchange for one unit of currency invested.
Example
If NPV is 100
initial investment is Rs. 1000
Then P.I will be =1+100/1000=1.1
Decision Rule
If P.I > 1 accept the project.
If P.I is less than 1 reject the project.
Mutually exclusive & Independent projects
Independent projects
are projects that are unrelated to each other and are separately evaluated for investment decisions.
Example If A & B are independent projects
& NPV of A = 10,000 NPV of B = 15,000 So both projects can be accepted.(assuming no financial constraints are there)
Mutually Exclusively Projects
mean that only one of them can be accepted and they compete with each other. Example If A & B are Mutually Exclusively projects & NPV of A = 10,000 NPV of B = 15,000 So only one of them i-e B can be accepted but not both.
CAPITAL RATIONING
A firm maximizes its wealth by accepting every project that has a positive NPV but the point is that capital is limited. So capital rationing is the limit set on the amount of investments utilized/available for investments.
Soft Capital rationing
Capital rationing is imposed by top management and not by investors. The factors leading to soft rationing are as under:
Management is reluctant to issue new share because of the fear of outsider taking control of company.
Dilution of EPS
Increased interest payments in case of debt financing.
Company’s will to maintain limited investment level that can be financed through retained earnings.
Hard Capital Rationing
It means that the firm cant raise the funds it needs & imposed by investors.This will not occur under perfect market.
If share prices are depressed , raising capital is very difficult.
Restriction on lending by Banks.
High interest rate.
High cost associated with issuance of share / debt instrument.
DECISION
If there is shortage of capital, the firm needs to pick projects that give highest NPV per dollar of investments i-e profitability index.
P.I= NPV/Initial investment
Thursday, February 19, 2009
Allocation of scarce resources
Allocation of scarce resources
Resources are scarce , so they must be allocated somehow.
Methods are:
1) Market price
The people who are willing and able to pay that price get the resource.
2) Command
It allocates resources by the order (command) of someone in authority.
3) Majority Rule
It allocates resources in th way that a majority voters choose.
4) Contest
A contest allocates resources to a winner( or a group of winners).
5) First Come First Served
It allocates resources to those who are first in line.
6) Lottery
It allocates resources to those who pick the wining number, draw the lucky cards.
7) Personal Characteristics
People with right characteristics get the resource.
8) Force
It plays a cruicial role for both ill & good.(Theft, war, legal framework)
Resources are scarce , so they must be allocated somehow.
Methods are:
1) Market price
The people who are willing and able to pay that price get the resource.
2) Command
It allocates resources by the order (command) of someone in authority.
3) Majority Rule
It allocates resources in th way that a majority voters choose.
4) Contest
A contest allocates resources to a winner( or a group of winners).
5) First Come First Served
It allocates resources to those who are first in line.
6) Lottery
It allocates resources to those who pick the wining number, draw the lucky cards.
7) Personal Characteristics
People with right characteristics get the resource.
8) Force
It plays a cruicial role for both ill & good.(Theft, war, legal framework)
Wednesday, February 18, 2009
FISCAL POLICY INTRODUCTION
FISCAL POLICY INTRODUCTION
Fiscal policy refers to government attempts to influence the direction of the economy through changes in government taxes, or through some spending. So it is the use of government spending and revenue collection to influence the economy.
The two main instruments are:
Governmet spending
Taxation
Changes in the level and composition of taxation and government spending can impact on the following variables in the economy:
a) Aggregate demand and the level of economic activity;
b) The pattern of resource allocation;
c) The distribution of income.
Fiscal policy refers to the overall effect of the budget outcome on economic activity.
The three possible stances of fiscal policy are neutral, expansionary and contractionary:
a) A neutral stance of fiscal policy implies a balanced budget where G = T (Government spending = Tax revenue). Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.
b) An expansionary stance of fiscal policy involves a net increase in government spending (G > T) through rises in government spending or a fall in taxation revenue or a combination of the two. This will lead to a larger budget deficit or a smaller budget surplus than the government previously had, or a deficit if the government previously had a balanced budget. Expansionary fiscal policy is usually associated with a budget deficit.
C) A contractionary fiscal policy (G < T) occurs when net government spending is reduced either through higher taxation revenue or reduced government spending or a combination of the two. This would lead to a lower budget deficit or a larger surplus than the government previously had, or a surplus if the government previously had a balanced budget. Contractionary fiscal policy is usually associated with a surplus.
Fiscal policy refers to government attempts to influence the direction of the economy through changes in government taxes, or through some spending. So it is the use of government spending and revenue collection to influence the economy.
The two main instruments are:
Governmet spending
Taxation
Changes in the level and composition of taxation and government spending can impact on the following variables in the economy:
a) Aggregate demand and the level of economic activity;
b) The pattern of resource allocation;
c) The distribution of income.
Fiscal policy refers to the overall effect of the budget outcome on economic activity.
The three possible stances of fiscal policy are neutral, expansionary and contractionary:
a) A neutral stance of fiscal policy implies a balanced budget where G = T (Government spending = Tax revenue). Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.
b) An expansionary stance of fiscal policy involves a net increase in government spending (G > T) through rises in government spending or a fall in taxation revenue or a combination of the two. This will lead to a larger budget deficit or a smaller budget surplus than the government previously had, or a deficit if the government previously had a balanced budget. Expansionary fiscal policy is usually associated with a budget deficit.
C) A contractionary fiscal policy (G < T) occurs when net government spending is reduced either through higher taxation revenue or reduced government spending or a combination of the two. This would lead to a lower budget deficit or a larger surplus than the government previously had, or a surplus if the government previously had a balanced budget. Contractionary fiscal policy is usually associated with a surplus.
Tuesday, February 17, 2009
Six companies born during down turns
Six companies born during down turns
The story of FEdex,United technologies corp,General motors, General electric, Ibm & procter & gamble during downturns give us hope to tackle this financial crisis.
To see more details please visits
http://money.cnn.com/galleries/2009/smallbusiness/0901/gallery.founded_in_a_recession.smb/index.html
Source CNN money
The story of FEdex,United technologies corp,General motors, General electric, Ibm & procter & gamble during downturns give us hope to tackle this financial crisis.
To see more details please visits
http://money.cnn.com/galleries/2009/smallbusiness/0901/gallery.founded_in_a_recession.smb/index.html
Source CNN money
Saturday, February 14, 2009
What drive stock prices ( information from NYSE)
What drive stock prices ( information from NYSE)
It is very useful information from NYSE as provided in the following link.
http://www.nyse.com/pdfs/nyse_chap_04.pdf
It is very useful information from NYSE as provided in the following link.
http://www.nyse.com/pdfs/nyse_chap_04.pdf
Tuesday, February 10, 2009
World Bank Research on Financial Crises
World Bank Research on Financial Crises
The benefits of financial development and globalization have come with continuing fragility in financial sectors. Periodic crises have had real but heterogeneous welfare impacts and not just for poor people; indeed, some of the conditions that foster deep and persistent poverty, such as lack of connectivity to markets, have provided a degree of protection for the poor. Past crises have also had longerterm impacts for some of those affected, most notably through the nutrition and schooling of children in poor families. As in other areas of policy, effective responses to a crisis require sound data and must take account of incentives and behavior. An important lesson from past experience is that the short-term responses to a crisis—macroeconomic stabilization, trade policies, financial sector policies and social protection—cannot ignore longer-term implications for both economic development and vulnerability to future crises.
To study above report please visit world bank official website.
http://www-wds.worldbank.org/external/default/main?pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&theSitePK=523679&entityID=000158349_20081216093241&searchMenuPK=64187283&theSitePK=523679
The benefits of financial development and globalization have come with continuing fragility in financial sectors. Periodic crises have had real but heterogeneous welfare impacts and not just for poor people; indeed, some of the conditions that foster deep and persistent poverty, such as lack of connectivity to markets, have provided a degree of protection for the poor. Past crises have also had longerterm impacts for some of those affected, most notably through the nutrition and schooling of children in poor families. As in other areas of policy, effective responses to a crisis require sound data and must take account of incentives and behavior. An important lesson from past experience is that the short-term responses to a crisis—macroeconomic stabilization, trade policies, financial sector policies and social protection—cannot ignore longer-term implications for both economic development and vulnerability to future crises.
To study above report please visit world bank official website.
http://www-wds.worldbank.org/external/default/main?pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&theSitePK=523679&entityID=000158349_20081216093241&searchMenuPK=64187283&theSitePK=523679
INTRODUCTION OF IMPLEMETATION OF CONTROLS IN IT SYSTEM
IMPLEMETATION OF CONTROLS IN IT SYSTEM
Implementation of controls is a critical security feature of information systems.
1. Access Controls
Controlling who can access the information system.
2. Input Controls
Controls over how the data is input to the information system.
3. Communication Controls
Controls over the transfer of data between LAN, WAN or internet.
4. Processing Controls
Controlling the processing of data
5. Database Controls
Securing the most important asset of the organization
6. Output controls
Controlling the privacy of the data.
Implementation of controls is a critical security feature of information systems.
1. Access Controls
Controlling who can access the information system.
2. Input Controls
Controls over how the data is input to the information system.
3. Communication Controls
Controls over the transfer of data between LAN, WAN or internet.
4. Processing Controls
Controlling the processing of data
5. Database Controls
Securing the most important asset of the organization
6. Output controls
Controlling the privacy of the data.
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