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A belief system is something that is explicitly set

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Unformatted text preview: alysis This is where the entity looks for ways to improve both environmental and financial performance, given the data from the previous two steps. A life cycle cost assessment is different in that it assigns benefits and costs of the environment onto products. The Balanced Scorecard Attempts have been made to place an environmental perspective onto the Balanced Scorecard but these attempts have been unsuccessful. Currently, environmental strategies are simply embedded into the other perspectives, usually the Internal Business Process and Learning & Growth Perspectives. Objectives related to the environment tend to be those that aim to minimise waste and energy while maximising recycling opportunities. Reporting on Social and Environmental Performance Most entities these days report their social and environmental performances on their annual reports, however, they can also be individually reported as: • Triple Bottom Line (TBL) Reports [Reporting Social, Economic and Environment together] Management Accounting 2 – Semester 2 2010 29 Managing Social and Environmental Stakeholders • • • • Environmental Reports Stakeholder Impact Reports Corporate Responsibility Reports Sustainability Development Reports However, these are not standardised so they differ between entities so it may not be simple to compare. Management Accounting 2 – Semester 2 2010 30 Strategic Risk Management Strategic Risk Management Background Risk is the possibility of the actual result being different to the planned result. In most cases, better results are desirable and lower results are usually undesirable, although this is not always the case. Strategic risk is any risk that reduces the ability of the entity to implement their strategies. Risk is an important issue for businesses since it can severely impact on financial performance due to compensation payments, tarnished image/brand names, costly recalls and/or replacement costs. Identifying Risk The first step in risk management is to identify that risk. Franchise/Reputation risk stems from three sources: • • • Operations Risk This is the risk in the breakdown of core operations, such as failures in machinery etc. Asset Risk This is the risk that assets lose value because of a significantly reduced future economic benefit from that asset. This can be due to financial impairment (decline in market value), impairment of intellectual property rights (loss of rights over intangibles) and physical impairment (destroyed asset). Competitive Risk This is risk that arises from competition that could impact on the business. Lastly, Franchise/Reputation Risk is what results when there is excessive risk of the three previously mentioned risks. It is the risk that there is a loss of confidence in the business from stakeholders in the entity. Strategic risk is the risk is loss/reduction of ability to deliver strategies. The Risk Exposure Calculator Internal risk can be identified with the Risk Exposure Calculator. This takes into account the entity’s growth, culture and information management. This is used to search for pressure points within the entity and by estimating the magnitude of a variety of factors. Growth Pressures for Performance Rewards for Risk Taking Transaction Complexity and Velocity Culture Information Management + Rate of Expansion Executive Resistance to Bad News Gaps in Diagnostic Performance Measures + + Management Accounting 2 – Semester 2 2010 + + + Inexperience of = Score Key Employees Level of Internal = Score Competition Level of = Score Decentralised Decision Making = Total Score 31 Strategic Risk Management Each measure is given a value between 1 to 5, from low to high. This total score is then aggregated with the other measures. This result will fall into 3 categories: • • • 9 – 20: Safety There is a low amount of risk in the entity. 21 – 34: Caution The entity should exercise caution here and focus on lowering risk in areas with high score. 35 – 45: Danger There is a very high risk level and management should find a solution. We are generally not interested in the aggregate score, but rather the scores of each individual measure. This allows the entity to pinpoint specific areas that are of high risk and address them appropriately. Key Areas to Monitor Key areas that...
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