Monthly Archives: January 2014

PERCEIVED ENVIRONMENTAL UNCERTAINTY: DISCUSSIONS AND CONCLUSIONS

Posted by Kathryn Schwartz on January 30, 2014
Risk Analysis / No Comments

The purpose of the models was to discover the influence of the perceived environmental uncertainty and perceived company performance on the extent of use of risk analysis techniques in automotive companies. Using the multivariate statistical tool PLS-PM, the study identified the key influences and their relative role on risk analysis in SIDs. Note that, two of the two paths in the research model were found to be significant. The discussion part begins with the extent of use of risk analysis techniques in SIDs. The most often used method is sensitivity analysis followed by probability analysis. An increase in the usage of risk analysis techniques is due to the availability of software packages containing risk analysis tools which assist in making SIDs (Pike, 1996; and Manoj, 2002). The use of multiple techniques is consistent with idea of Miller and Waller (2003) that multiple techniques are used to display management responsiveness to different aspects of the investment decisions.

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PERCEIVED ENVIRONMENTAL UNCERTAINTY: RESULTS

Posted by Kathryn Schwartz on January 28, 2014
Risk Analysis / No Comments

RESULTS

In order to examine the proposed research model, the study employed the Partial Least Square which is a Structural Equation Modelling (SEM) technique. This technique is well suited for predictive models using small samples (Chin, 1998). Typically, SEM approach is used to develop a causal model with an objective of model validation. SEM is a second generation multivariate technique gaining popularity in management research. It combines multiple regression and factor analysis to estimate the interdependence relationships simultaneously. There are two approaches to SEM namely Covariance approach and Partial Least Square based approach. The Covariance-based approach for SEM needs a large sample. The definition of large size varies from one author to another. Some define it as a sample having more than 100 subjects and some others define it as a sample having three characteristics namely more than 200 subjects, at least three indicators, and typically requiring reflective mode. On the other hand, Herman Wold initiated the component-based approach to SEM in 1982, under the name “PLS” as an alternative to covariance based approach. Partial Least Square Path Modelling (PLS-PM) is generally meant as a component-based approach to SEM. Further, PLS does not make assumptions about the population or scale of measurement and there are no distributional requirements (Fornell et al 1995).

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PERCEIVED ENVIRONMENTAL UNCERTAINTY: RESEARCH METHOD

Posted by Kathryn Schwartz on January 26, 2014
Risk Analysis / No Comments

Sample

This study was restricted to listed companies in BSE/NSE operating in the automotive industry India. Among the 146 listed companies, the study has identified 95 companies as the sample frame of this study. The other fifty one companies were excluded due to the companies being relatively new and the decision making being centralised for group of companies. The questionnaire was sent to senior finance professionals (CFO, General Manager-Finance, Vice President-Finance, Controller etc.) of 95 companies. Each questionnaire was sent to senior financial professionals along with signed personalised covering letter. To increase the response rate of the survey, two personalised mailings were sent two months apart. After follow up, 36 completed questionnaires were received (a response rate of 37.89).

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PERCEIVED ENVIRONMENTAL UNCERTAINTY: LITERATURE REVIEW AND HYPOTHESES

Posted by Kathryn Schwartz on January 24, 2014
Risk Analysis / No Comments

HYPOTHESES

There are a number of techniques available for analysing investment risk, which may be classified into subjective and formal techniques. Formal techniques include sensitivity analysis (SA), simulation models (SM), probability tree (PT), adjustment of required payback period (ARPP), Adjustment of discount rate (ADR) and so on. The trends in the use of formal risk analysis techniques in capital budgeting are well documented in many countries. The increasing use of formal techniques is due to the availability of computer software packages which can help in applying these techniques in practice. Among the risk analysis techniques, Sensitivity analysis technique is the most popular technique, followed by scenario analysis technique (Pike (1988 and 1996), Klammer et al (1991), Arnold and Hatzopoulos (2000), Farragher et al 1999, Farragher and Leung 1987, Kester and Chong 1998, Kester et al 1999, Jog and Srivastava 1995, Pandey 1989, Manoj Anand 2002, Ashish Kumar and Bhavin Shah 2006, ZakiOsemy 2001, for example.) The extent of use of these techniques is influenced by various factors such as organisational characteristics, individual characteristics, and industry characteristics. This study deals with select organisational characteristics viz. Environmental uncertainty and perceived company performance. Financial services

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PERCEIVED ENVIRONMENTAL UNCERTAINTY: INTRODUCTION

Posted by Kathryn Schwartz on January 22, 2014
Risk Analysis / No Comments

In today’s dynamic business environment, efficient allocation of capital is the most important and challenging task for the modern decision- makers. As the business environment becomes increasingly volatile and competitive, the art of making good decisions is considered as more complex and significant than ever before. This enhances the importance of decision makers who take/involve themselves in strategic decisions (SDs). Strategic Investment Decisions (SIDs) are among the most important of all SDs that determine the overall direction of any business. Further, these decisions are the key drivers to the survival and success of a company (Kannadhasan and Nandagopal, 2008). A variety of techniques (viz. Payback, Accounting Rate of Return, Net present value, internal rate of return, and Profitability index) have been developed to assist in making SIDs which may be classified into naive and sophisticated techniques (Mark Freeman and Garry Hobes, 1991). The Net Present Value (NPV) and Internal Rate of Return (IRR) methods are considered to be the most sophisticated of all (Pike 1983; Klammer, 1972; Haka et al, 1985). However these two techniques are demonstrated under the conditions of certainty. The development of various risk analysis techniques has been necessitated by the uncertainty associated with cash flows, which are due to changes in the management’s expectations over time and arrival of new information (Klammeret al 1991, Dastgir 2005).

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PERCEIVED ENVIRONMENTAL UNCERTAINTY

Posted by Kathryn Schwartz on January 20, 2014
Risk Analysis / No Comments

UNCERTAINTYPurpose

The purpose of this research is to empirically examine the influence of perceived environmental uncertainty and perceived company performance on the extent of use of risk analysis techniques in strategic investment decisions. Bank-customer

Design/Methodology/Approach

This study has developed and tested a structural model linking perceived environmental uncertainty and perceived company performance and the extent of use of risk analysis techniques using Partial Least Square -Path Modelling method. The primary data has been collected from Senior Finance Professionals representing 36 automotive companies operating in India through a single cross-sectional mailed survey.

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IRRATIONAL BUDGETING: CONCLUSIONS

Posted by Kathryn Schwartz on January 18, 2014
Economy / No Comments

CONCLUSIONS

In addition to the increased scope of activities, the other major reason for increased costs/budget estimates was delay at all stages in respect of most activities. These delays, with consequent bunching of activities towards Games time, led to substantial increases in cost.

The unique challenge of managing and monitoring the activities of multiple agencies for delivering the Games project should have been met by entrusting its stewardship to a single point of authority and accountability, with adequate mandate to ensure all deliverables in time, to cost, and to specified quality standards. Further, in view of the Government guarantee for meeting the cost of the Games, it was essential for such stewardship to be fully under Government control. However, this model of management or financial control was not followed for the Games project. Design process

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IRRATIONAL BUDGETING: RESULTS/DISCUSSIONS

Posted by Kathryn Schwartz on January 16, 2014
Economy / No Comments

Melbourne Commonwealth Games 2006

The 2006 Melbourne Commonwealth Games was anticipated to be the largest sporting and community event in Victoria’s history, and was expected to provide substantial economic benefits similar to those achieved in Manchester as a result of hosting the 2002 Games. The total expenditure associated with the 2006 Games in Victoria was around $2.9billion. In terms of the impact on the Victorian economy, using a CGE modelling approach, the 2006 Games was estimated to result in-
• An increase in Gross State Product (‘GSP’) of around $1.6 billion over a 20 year period, with around half of the impact occurring in the year of the Games; and
• Employment of around 13,600 jobs (in FTE terms).

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IRRATIONAL BUDGETING: METHODOLOGY

Posted by Kathryn Schwartz on January 14, 2014
Economy / No Comments

METHODOLOGY

The present study has been conducted to ascertain the impact of irrational budgeting on the performance of complex, long term and multidimensional mega events. The analysis was conducted on hosting the Commonwealth Games in relation to its impact on the economic standards of a hosting city/country. The study further revealed the importance of a rational budget for the successful completion of such types of mega events, which are basically the economic, political, and sovereign power showcase to the world. The study is focused on two editions of Commonwealth Games-Commonwealth Games 2006 Melbourne and Commonwealth Games 2010 Delhi; and the accompanied budgetary provision to host the mega events.

This study used a Computable General Equilibrium (CGE) model due to the size and relative significance of the event. CGE models are economy wide models used to provide an assessment of the impacts throughout the economy of a given policy change or economic shock. As the name suggests, “computable” or “applied” refers to the emphasis of the models as being a practical application, in that with the ever broadening sphere of economic theory the models are able to accommodate the changes and upgrades in economic thought into their framework. Buyer seller

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IRRATIONAL BUDGETING: LITERATURE REVIEW

Posted by Kathryn Schwartz on January 12, 2014
Economy / No Comments

Roche (2000) describes mega sporting events as large-scale cultural, including commercial and sporting events which have a dramatic character, mass popular appeal and international significance. They are typically organised by variable combination of national governmental and international non-governmental organisations.

Sola (1998) suggests numerous ways that mega-sporting events impact upon host communities, indicating that one or more of the following factors must be in place for a sporting event to evolve from being classified as a mere major event:
• Increased tourist volumes directly and indirectly relating to the event;
• Visitor expenditures boosting local trade;
• Additional publicity for the host city/nation leading to further knowledge of the culture of the nation by visitors and a positive image;
• Infrastructure improvements in place and surrounding area leading to further prosperity both during and following the event. Credit card

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