Question

GoGo Airline's parent company is planning to take a cautious approach in launching MegaSaver. In response to the concerns raised by several shareholders, the parent company is exploring the possibilities of dividing its airline business into two distinct departments and monitoring the working capital of the new airline to prevent any liquidity crises. The parent company has requested that you prepare a report which can enable it to make an informed decision. You are required to include the following information in the report: Critical evaluation of the advantages and disadvantages of divisionalisation to the parent company Explanation of various techniques the parent company can use to measure the performance of the proposed divisions and divisional managers Explanation of the importance of non-financial measures in measuring performance Costs associated with various elements of working capital and Methods of controlling various elements of working capital

Answer 1

Critical evaluation of advantages and disadvantages:-

Advantages:-

1) performance of each division can be measured separately

2)coordination of activities will become more efficient

3)business strategies and tactics can be more subjective

4)specialization of work increases with reduced chances of error

5) customer satisfaction can be increased

6)indepth analysis of work can be attained

7)resonsibility of employees increases

8)environmently flexible

9)healthy competition among departments

Disadvantages:-

1)economies of scale

2)unhealthy competition

3)lack of communication

4)overequalizing of departments

5)reduced quality of work

Various techniques to measure the performance :-

1)self evaluation:- The auditor or manager eveluates the performnace by himself visualy or by the help of software.less efficient way of measurement as it include biasing.

2)management by objective:- the manager will discuss the objective with the workers, find way to tackle problems, assign work for them, help them in situations, discuss the reason for inefficiencies and move forward

3)360 degree feedback: it is the method of taking feedback from different empolyees and eveluating an employee

4)questionaree:-prepare a questionaree to be answered so as to find the efficiency of employees in meeting the objective

5)checklist:- checklist comprises of various statements that needed to be marked as done to get a short visual of performance

6)rating method: the raating scale is preepared to measure and fix the perfromnace of certain employees. it can be forced or graphical

importance of non-financial measures in measuring performance:-

1) provides look into long term organizational strategies:- not only focus on the short term and annual performance, it can help to focus on the long term strategies.

2) provide value to both tangible and intangible assets of the firm:- intangile assets like loyalty, happiness are difficult to measure using financial tools. but non financial tools can help to measure the same to agreater extend.

3) used as an indicator of financial performance:- ultimate aim of business is to maximize profit. but focusing solely on this will not yiled to maximum profit. focus on some non profit activities will provide greater profit in long term perspective.

Costs associated with various elements of working capital:-

there are 3 elements of cost:-

1) account receivable: the amount that is to be recieved ny the firm after sales.they appear on assets column of balance sheet

2)account payable: the amount that is to be paid by the firm on purchase of commodities or services. they appear on liability column of balance sheet.

3)inventory: it is the primary asste of a firm used to transfer into sales.inventory should be made optimum to balance demand.

Methods of controlling various elements of working capital

1)vendor with discounts

2)fixed and variable cost analysi

3)inventory management

4)zero disputes with customers and venders

5)analyse ways to manage working capital

6)consider tax benefits

7) study financial statements

8) meet debt obligations