Chapter 36 - Answer PDF

Preview

Summary

Answer Key...

Description

MANAGEMENT CONSULTANCY - Solutions Manual

CHAPTER 36 BUSINESS PROCESS IMPROVEMENT / RE-ENGINEERING I.

Questions

Note: Answers to Questions 1, 2 & 3 may vary depending on the activity analysis of the students. A sample analysis for these situations follow: 1. Several restaurant activities are listed in the following table, along with the required characteristics for each activity. Many other possibilities could be listed, depending on the level of detail. Activity Description

Value-Added or Non-ValueAdded

Activity Trigger

Root Cause

Taking reservations

VA

Customer calls on phone

Customer desires reservation

Customers waiting for a table

NVA

Customer arrives, but no table is ready

An error was made in reservation; service is slow; customers are slow; customers arrive without reservations

Seating customers

VA

Table becomes available

Customer’s reservation (or turn in line) comes up; table becomes ready

Taking orders

VA

Customers indicate readiness to order

Kitchen staff needs to know what to prepare

Serving meals to customers

VA

Meals are ready

Meals are ready; customers are hungry

Returning meal

NVA

Customer

An error was

36-1

Chapter 36

Business Process Improvement / Re-engineering

to kitchen for revised preparation

complains about meal

made in explaining the menu; there is an error in the printed menu description; meal was prepared wrong; customer is picky

Customers eating meal

VA

Meals are served and are satisfactory

Customers are hungry

Clearing the table

VA

Customers are finished

Customer are finished

Delivering check to table

VA

Customers are finished ordering and eating

Customers need to know amount of bill

Collecting payment

VA

Customers have produced cash or credit card

Restaurant needs to collect payment for services rendered

2. Requirement (1) Description of course registration process: (a) Receive list of courses in mail, along with “bubble sheet” for filling in desired courses and sections. (b) During allotted week, select courses and fill in bubble sheet. (c) Return bubble sheets to bursar’s office. Often must stand in line for more than an hour to turn in sheet. Required, since sheet and student ID must be checked by bursar’s personnel. (d) One month later, receive preliminary schedule. If acceptable, no further action necessary. Just pay tuition. Automatically enrolled. Final schedule received shortly, before next semester starts. If didn’t pay tuition, schedule is dropped. (e) If schedule is unacceptable, attend “Drop/Add” with 15,000 other students in the basketball arena. This is a madhouse and a guaranteed headache. Posted around the entrance are lists of open 36-2

Business Process Improvement / Re-engineering

Chapter 36

classes, but the list is often out of date within an hour or so. Using carbon-copy drop/add forms, select new class(es). (f) Stand in line corresponding to last four digits of social security number so that bursar’s personnel can check course availability. Often in line for 30 minutes or more, depending on time of day. (g) If course available and requirements for course met, enrolled on the spot. If not, must initiate process all over gain, or could be placed on a wait list. Schedule resulting from drop/add process received shortly before classes start. (h) If schedule unacceptable of did/didn’t get off waiting list once school begins, fill out drop/add form, get approval by the relevant professor, and submit to the bursar. Long lines once again. Requirement (2) Activity analysis: (a) Activity analysis looks at activity linkages, activity triggers, and root causes. It should also consider the goals of the parties involved. Starting with the goals, students want a faster, easier organization method that does not require standing in line for hours to obtain information or approvals. They want to be able to prioritize their class selections, get relatively fast feedback on whether or not they are in a class, and know where they stand on the waiting list. The college wants a faster, easier registration method that does not require so much paperwork and direct labor is less costly, provides timely information on class availability, is accurate, and enrolls only paid students. (b) Activity linkages: Described in requirement (1).

(c) Activity triggers: The time of year triggers the registration process. The approval requirement triggers time delays. A high volume of students turning 36-3

Chapter 36

Business Process Improvement / Re-engineering

in sheets at same time triggers delays. Class availability and preferences trigger the need for Drop/Add. The mad-house at Drop/Add is triggered by a lack of up-to-date information, a high volume of students, and approval requirements. The waiting list procedure and the late delivery of schedules trigger more registration frustration, approval time, and time at the bursar’s office the first week of classes. (d) Root cause: The information system cannot automatically approve students’ credentials or confirm that registration has been done correctly. The time during which students must submit schedules is very compressed, and all must flow through the bursar, which has only four lines, essentially on the same day, thus creating a bottleneck. Students are not able to list classes in order of preference, so Drop/Add is required for most of the student body. The drop/add process is highly inefficient and information is not timely. The information system does not provide timely information, so problems with registration must be fixed in a rush during the busiest time of the semester. Requirement (3) Re-engineering: Based on the root causes, activity triggers, linkages, and goals, the college could benefit from a computerized information network that is accessible to students at all computer labs around campus and by modem. This system would enable many more students to register for classes at the same time, at their leisure, and allow them to note preferences via a point-weighting system. The system would automatically check credentials (i.e., student ID, social security number, tuition status) against existing records, thus eliminating the bursar bottleneck, and it would lead students through the process to ensure accuracy. The process would enable the bursar to quickly run a class-fill program on the submitted data to produce schedules. The absence of drop/add forms would reduce bursar paperwork and cost significantly. A drop/add time period could be established for students to quickly confirm class availability without dealing with the drop/add madhouse. 36-4

Business Process Improvement / Re-engineering

Chapter 36

The system would reveal placement and progress on the waiting list, and would produce final schedules that could be delivered via mail or an email system, a week or so after Drop/Add. Then any problems could be remedied before classes begin. (This solution is courtesy of a managerial-accounting student.) 3. This is a chance to think carefully about how detailed and precise an activity analysis can be. It’s also an opportunity to involve your sense of humor and air your pet peeves about a couple of errands we all have to do routinely. There is clearly no single correct answer: Reasonable answers will vary widely. (1) Activity sequences and linkages: Grocery Store

Bank

(1) Strategically choose time of day, keeping in mind (a) how urgent need is, (b) likely crowding, and (c) how well stocked the shelves will be

(1) Strategically choose time of day and branch location

(2) Drive or walk to store

(2) Choose among inside teller window, drive-up lane, or ATM

(3) Park car

(3) Park car

(4) Walk to front door

(4) Walk to front door

(5) Get cart; search parking lot if necessary

(5) Prepare banking documents

(6) Walk aisles to find items

(6) Wait in line

(7) Read product labels

(7) Explain banking needs to teller (or operate ATM)

(8) Compare prices

(8) Wait while transaction is completed

36-5

Chapter 36

Business Process Improvement / Re-engineering

(9) Select items

(9) Check teller’s (or ATM’s) work

(10) Strategically choose checkout line (Express line? Cash only? Which one is shortest? Which one is fastest? Which clerk is fastest? etc.)

(10) Leave bank

(11) Wait in line; jockey for position if new checkout lane opens

(11) Leave parking lot

(12) Unpack cart (13) Items are checked out (14) Items are bagged (paper or plastic) (15) Carry out bags (or have bags carried out) (16) Load car (17) Leave parking lot (2) Specifying whether an activity is value-added or non-value-added often depends on how well the business is organized for the activity. For example, some grocery stores make it easier to park close to the entrance than do others. Thus, getting from your car to the front door could be value-added or non-value-added, depending on how convenient the store’s parking lot is. The designations of VA or NVA will vary widely, depending on individual experiences.

Grocery Store Activity VA or NVA (1) VA

36-6

Bank Activity (1)

VA or NVA VA

Business Process Improvement / Re-engineering (2) (3) a (4) a (5) b (6) c (7) d (8) d (9) (10) e (11) e (12) (13) (14) f (15) g (16) g (17) h a

b

c

d

e

f

g

VA VA, NVA VA, NVA VA, NVA VA, NVA VA, NVA VA VA NVA NVA VA VA NVA NVA NVA VA, NVA

(2) (3)a (4)a (5)i (6)j (7)k (8)l (9)m (10) (11)h

Chapter 36 VA VA, NVA VA, NVA VA, NVA NVA VA, NVA NVA NVA VA VA, NVA

Depends on the configuration of the parking lot in relation to the design of the building and the location of the front door. Getting a cart in the stove or by the front door, VA; searching the parking lot, NVA. Depends on the store layout. The author is inclined to say NVA, since it would be an improvement if grocery stores would adopt a standard layout (e.g., the soda always in aisle 4, or the diary-case pizza always in aisle 6 on the end near the registers). Depends on how convenient the store makes these tasks. Interestingly, this is one area where the law has helped the consumer. Stores now must display unit pricing information, and food companies must included nutritional information on the labels of many items. This part of grocery shopping drives the author up the wall. Why not have all non-express-lane customers wait in one line and then feed into the next available checkout lane? This configuration is typical of banks, but the author has seen it done in only one grocery store. Bagging can be simultaneous with checking out, especially if bar code scanners are in use. The store could adopt the technology of an automated materialhandling system (AMHS) here. Bags of groceries would be placed in bins with the customer’s number indicated. Then the bins would be transported by conveyor to a location by the front door. When 36-7

Chapter 36

h i j

k

l

m

Business Process Improvement / Re-engineering

the customer drove up, a store employee would load the groceries into the car. The author has seen this system in operation, but rarely. Depends on the configuration of the parking lot. Depends on how user-friendly the documents are. NVA, but a lot better than in a typical grocery store. See note (e) above. Depends on the bank’s operating procedures and level of teller training. Electronic operating systems process transactions much faster than do manual systems. NVA, because we wouldn’t have to check if errors were extremely rare or nonexistent.

(3) Two striking examples of successful re-engineering are the widespread introduction of bar code scanners by grocery stores (and other retailers) and ATMs (automatic teller machines) by banks. The introduction of electronic banking (from the home) is another emerging example of re-engineering in the banking industry. Similarly, the introduction of shopping services and telephone ordering by grocery stores continues the re-engineering process in this industry. Also, many retail companies are dramatically reengineering their sales and billing procedures due to the everincreasing use of buying via the Internet. II. Cases Problem 1 1. a. For the valuation assertion, existing controls are (1) standardized billing rates. (2) time-accounting system (time sheet). (3) use of actual clock time in 15-minute increments. (4) resolution of billing discrepancies by the office manager. b. For the completeness assertion, existing controls are (1) separate client-funds accounting and firm-accounting systems. (2) reconciliation of memo and accounting entries. (3) centralized billing of overhead and fee charges. (4) identification and resolution of hours billed versus hours on attorney’s time sheet. 36-8

Business Process Improvement / Re-engineering

Chapter 36

(5) final approval of special fee billings by managing partner. 2. a. Risks to valuation associated with misfunctioning controls are (1) incorrect rates, especially too low rates. (2) inaccurate time charges, caused by  incorrect estimates of time.  time assigned to wrong client. (3) time (hour) charges calculated incorrectly. (4) billing discrepancies not resolved correctly. b. Risks to completeness associated with misfunctioning controls are (1)  commingling of funds.  imposition of fines and penalties. (2) billings (fees and charges) never collected. (3) incomplete or inaccurate billing of overhead and fees. (4) billed hours either over or under actual hours. (5) disbarment. 3. a. Appropriate audit tests of valuation controls are (1) comparing billing rates used to those authorized. (2) recalculating time billed from the time sheets. (3) analyzing reasonableness of hours charged. (4) reperforming resolution of billing discrepancies. b. Appropriate audit tests of completeness controls are (1)  reviewing classification of all cash receipts.  verifying authorization for cash transfers from client accounting system. (2) testing the reconciliation of memo entries. (3)  performing analytical review of overhead and fee charges.  tracing specific costs to overhead allocation model.  tracing specific costs incurred to fees charged to clients. (4)  checking that hours billed agree with hours on time sheets.  comparing differences identified to discrepancies resolved by office manager. (5) examining special fee billings for evidence of approval by managing partner. Problem 3

36-9

Chapter 36

Business Process Improvement / Re-engineering

Weakness

Recommended Improvement

1. There is no segregation of duties between persons responsible for collecting admission fees and persons responsible for authorizing admission.

One clerk (hereafter referred to as the collection clerk) should collect admission fees and issue prenumbered tickets. The other clerk (hereafter referred to as the admission clerk) should authorize admission on receipt of the ticket or proof of membership.

2. An independent count of paying patrons is not made.

The admission clerk should retain a portion of the prenumbered admission ticket (admission ticket stub).

3. There is no proof of accuracy of The treasurer should reconcile the amounts collected by the clerks. admission ticket stubs with cash collected by the collection clerk each day. 4. Cash receipts records are not Cash collections should be recorded promptly prepared. daily by the collection clerk on a permanent record that will serve as the first record of accountability. 5. Cash receipts are not promptly Cash should not be left undeposited deposited. for a week. Cash should be deposited at least once each day. 6. There is no proof of accuracy of Authenticated deposit slips should amounts deposited. be compared with daily cash collection records. Discrepancies should be promptly investigated and resolved. In addition, the treasurer should establish a policy that includes performing analytical procedures to cash collections.

7. There is no record of the The treasurer should issue a signed internal accountability for cash. receipt for all proceeds received 36-10

Business Process Improvement / Re-engineering

Chapter 36

from the collection clerk. These receipts should be maintained and should be periodically checked against cash collection and deposit records. Problem 3 Requirement 1 Process time: steps 3, 5, 6, 7, 8, 10, 11 Inspection time: steps 1, 9 Move time: steps 2, 5, 6, 7, 10, 11 Waiting time: steps 4, 5, 7 Storage time: steps 1, 11 Requirement 2 Candidates for non-valued added activities: (a) Step 2:

Carrying ingredients on hand carts.

(b) Step 4:

Storing dough until doughnut machine is free. (Could move forward a JIT system).

(c) Step 5:

Keeping cut-out doughnuts until boiling vat is free. (Could move toward JIT system).

(d) Step 7:

Carrying doughnuts to oven room.

(e) Step 7:

Continual opening and closing of oven door.

(f) Step 9:

Consumption of misshapen doughnuts by the staff. (Could these faulty products be sold at a reduced price?)

(g) Step 10:

Carrying wire baskets to the packaging room.

(h) Step 11:

Driving forklift to freezer.

36-11...