Question

7. Choose four of the terms/techniques listed below and for each one: i) Explain the meaning of the term/technique
   ii) Give two examples of its application.

   ii) Explain some of the practical limitations of which users should be aware with regard to the term/technique.

   a) Post completion audit of project cashflows.
   b) Benchmarking.
   c) Target Rate of Return pricing.
   d) Value added and non value added costs.
   e) Not yet controlled resources/ already controlled resources. f) Learning curve.

   (5 marks per term/technique)

   Note: only the first four answers provided will be marked. Examiners value the use of your own words. The word limit for each answer is 200 words

Answer 1

1.

• Post completion audit is a technique of matching the actual cash flows post the project period with the Budgeted /expected cash flows.
• Usage:
  • Forming future cash flow decisions
  • Framing cash budgets
• Limitations:
  • If budget itself is erroneous, the purpose of post completion audit also fails.

2. Benchmarking: It is a method of comparing actual results with that of the industry's metrics Predetermined standards.

• Uses:
  • Computation of variations
  • Evaluation of performance gaps.
• Limitations: Benchmarking by itself does not solve the issue or report the causes for the issue. Instead it only reports that there is an issue.

3. Target rate of return pricing model is a model where the business of the price is determined on the capital invested and his expected target rate of return on the investment made.

• Uses:
  • Useful tool for determining price of business purchase.
  • For short-term requirements, it is useful for deciding the price of the product sold.
• Limitations: The investor may not find it easy to chose the rate of target return and also the time to achieve it as it's subject to socio-economic and political factors as well as internal factors.

4. Value added costs are those costs which add values to the service/product delivered to the customer. Those costs which do not add value are termed as non value adding activities. It is a classification based on value chain analysis.

• Uses:
  • It is very useful cost cutting tool.
  • Reduction of wastage, defects and unnecessary expenses.
• Limitations: Some activities which may not add any value to the product delivered but necessary for smoother flow of activities.

5. Already controlled resources are those resources under the control of the organisation and will be readily available when needed by the project teams. On the other hand resources required but presently subject to minimum/no control of the organisation are termed as not yet contorlled resources.

• Application:
  • This is a useful tool for financial forecasting.
  • Segregation of resources helps in effective cost benefit analysis
• Limitations: Resources coined as not yet controlled are probable of being controlled and not absolutely possible.

6. Learning Curve: It is a study of the relationship between the learning experience of the worker and time spent by him production.

• Ueses:
  • Learning curve theory is useful for setting the standard wage rates and hours.
  • Effective tool for forecasting and budgeting new proposals.
• Limiations: The benefits of learning curve are only percieved and no tangible proof that the benfits occur exist.