Question

Case Study 1

The management in Unilever plant in Ontario is preparing for a change. The company plans to improve energy efficiency to help manage the rising and unpredictable energy prices. The plant produces margarine and other vegetable oil products. The cost of energy represents 15% of all production costs. The company expects that the cost will increase further in the coming years, as the energy price are expected to increase further. To meet an aggressive goal of reducing energy consumption by at least 6% per year, the plant’s energy team has implemented, and carefully documented, 120 projects since 1999, saving more than $4.2m in costs (based on 2006 prices), and avoiding about 23,000 tons of greenhouse gases.

One of the solutions was to invest in new technology – a reverse osmosis (RO) system that would enable significant, measurable improvements in the efficiency of the steam plant operations. In the first year of operation, Unilever calculated that the project would lead to net savings of $378,166 (based on 2006 prices), even after accounting for the full cost of operating and maintaining the RO system. It is expected that the technology will pay for itself in less than 16 months.

In order to verify whether the savings by implementing a new technology is significant, the company decided to conduct a research. The objectives of the research were to examine whether reverse osmosis (RO) system is beneficial for companies in the region. It is decided to select a few companies. The list of all companies was available. The management accountant has classified the list into; a) manufacturing, b) extraction and c) other companies. Samples are selected randomly from of these groups.

Based on the above case, answer the following questions.

Question No. 2

1. What type of information is required for the junior level, middle level and top-level management in the above case, for decision making?                                          [3 Marks]
2. Briefly explain the sampling method used in this case study.                              [2 Marks]

Answer 1

a)

Managers at all levels must make decisions on behalf of a company. The difference between decisions at various levels lies in the scope of the choices made. All decisions relate directly or indirectly to broader management functions: planning, organizing, leading, staffing, and controlling. Different management levels spend more time on certain functions than on others.

Long-term decisions affecting the company as a whole belong to the highest management levels, while decisions affecting day-to-day operations fall to bottom management.

Top-level management:

Top-level management must translate the vast scope of mission and vision into concrete achievements over time. In other words, top-level management needs a strategic plan to improve energy efficiency to help manage rising and unpredictable energy prices. Decisions related to strategy involve company-wide matters enacted over the long term. The goals are what the company hopes to accomplish at least a year – more often five years – into the future.

Management then chooses a grand strategy, such as growth or diversification, to reach strategic goals. Of all management levels, upper managers spend the most time making decisions involving plans. They also have decision power over middle management.

Total cash outflow involved in the new technology.

Break-even point and the time is taken for break even.

Expected outcomes of reverse osmosis technology.

Middle-level Management :

Once upper management decides the overall direction of the company, it’s up to middle management to choose smaller tactical objectives that, put together, accomplish strategic goals. Middle managers create tactical plans, which have more detail than strategic plans. The tactics often are geared toward some function or department such as production, where a possible objective could involve some measurable efficiency or quality improvement.

Middle management’s choices and plans see fruition in a year or less. Managers in this tier oversee other middle managers or operational managers.

It involves staffing, organizing, controlling.

Labour requirement.

Periodical Quality check.

Junior-level Management :

Also called first-line management, operational management is the level directly responsible for employees. By choosing their own goals on a daily, weekly, or monthly basis, first-line management accomplishes the objectives of middle management. The scope of operational management covers departments, sections or teams.

Inventory, scheduling, Quality assurance, and budgeting are examples of plans and decisions that operational managers adopt. Goals might include a certain number of sales for the day.

b)

There are several different sampling techniques available, and they can be subdivided into two groups: probability sampling and non-probability sampling. The sampling method conducted by the company is Stratified Random Sampling.

In probability (random) sampling, the company starts with a complete sampling frame of all eligible individuals from which the company selects its sample. In this way, all eligible individuals have a chance of being chosen for the sample, and the company will be more able to generalize the results from its study. Probability sampling methods tend to be more time-consuming and expensive than non-probability sampling.

Stratified sampling

In this method, the population which is the companies selected for research are first divided into subgroups (or strata) who all share a similar characteristic like manufacturing, extraction, and other companies. It is used when we might reasonably expect the measurement of interest to vary between the different subgroups, and we want to ensure representation from all the subgroups. The study sample is then obtained by taking equal sample sizes from each stratum. In stratified sampling, it may also be appropriate to choose non-equal sample sizes from each stratum. For instance, in the given case study of the benefits of reverse osmosis to the companies, if there are three different regions each with different kinds of benefits (Manufacturing a very minimal no. of benefits, Extraction companies have huge benefits and other companies have moderate benefits. Then it would be appropriate to choose the sample numbers from each company proportionally This ensures a more realistic and accurate estimation of the beneficial outcomes of reverse osmosis for the companies, whereas simple random sampling would over-represent different companies among the selected companies. The fact that the sample was stratified should be taken into account at the analysis stage.

Stratified sampling improves the accuracy and representativeness of the results by reducing sampling bias. However, it requires knowledge of the appropriate characteristics of the sampling frame (the details of which are not always available), and it can be difficult to decide which characteristic(s) to stratify by.