Exam Paper
Answer:
Strategic audits are examinations and evaluations of strategic management processes including measuring corporate performance against the corporate strategy. Whenever a deficiency is noted or performance of an organization is sub-par, the organization may elect to perform a strategic audit. This may be done with in-house auditors, or an audit firm may be contracted to perform the audit.
The auditors will audit performance of the organization against the current corporate strategy and seek to identify problems within the current strategy that may be tied or can be traced to poor performance. Upon completion of the audit, a report will be created regarding the auditing firm or group’s findings and submit the report with recommended remedies to the management of the organization. The organization will then seek to implement the proposed remedies with hopes of increasing organizational performance.
Donaldson has specified five elements of strategic audit. These are: 1. Establishing criteria for performance 2. Database design and maintenance 3. Strategic audit committee 4. Relationship with the CEO 5. Alert to duty (by board members)
The performance criteria should be simple, well-understood and well- accepted measures of financial performance. A number of measures of financial performance are available. One common measure, used by many companies, is return on investment (ROI). The ROI can be analyzed as follows; * Profit per unit of sales (profit margin); * Sales per unit of capital employed (asset turnover); and, * Capital employed per unit of equity invested (leverage).
If these three ratios are multiplied together, the resultant ratio will give profit per unit of equity
To calculate different performance ratios and monitor performance criteria, a proper database is essential. This involves both database design and maintenance. This has to be a regular and an ongoing process. Data on financial performance can
Strategic audits are examinations and evaluations of strategic management processes including measuring corporate performance against the corporate strategy. Whenever a deficiency is noted or performance of an organization is sub-par, the organization may elect to perform a strategic audit. This may be done with in-house auditors, or an audit firm may be contracted to perform the audit.
The auditors will audit performance of the organization against the current corporate strategy and seek to identify problems within the current strategy that may be tied or can be traced to poor performance. Upon completion of the audit, a report will be created regarding the auditing firm or group’s findings and submit the report with recommended remedies to the management of the organization. The organization will then seek to implement the proposed remedies with hopes of increasing organizational performance.
Donaldson has specified five elements of strategic audit. These are: 1. Establishing criteria for performance 2. Database design and maintenance 3. Strategic audit committee 4. Relationship with the CEO 5. Alert to duty (by board members)
The performance criteria should be simple, well-understood and well- accepted measures of financial performance. A number of measures of financial performance are available. One common measure, used by many companies, is return on investment (ROI). The ROI can be analyzed as follows; * Profit per unit of sales (profit margin); * Sales per unit of capital employed (asset turnover); and, * Capital employed per unit of equity invested (leverage).
If these three ratios are multiplied together, the resultant ratio will give profit per unit of equity
To calculate different performance ratios and monitor performance criteria, a proper database is essential. This involves both database design and maintenance. This has to be a regular and an ongoing process. Data on financial performance can