Management of Planning: Strategic & Fiscal Control

Principles of Business Strategy

1. Strategy should identify
   • Consumer (sales, receivables, inventories, fixed assets)--market segment & channels to market. But in public sector, must distinguish between "customer" (focused on satisfaction of own desire) and "citizen" (focused on common good and long-term consequences to community)--Robert Denhardt, PA Times, 2/97.
   • Production process (fixed assets, inventories, payables)--capacity needed
   • Financial structure (ROE= margin X turnover X leverage)--forecasts & capital attraction
   • Performance measures (final market & capital market)--outcome assessment, indicators of achievement
2. Fiscal Control Issues
   • Allocate resources
     • capital budget, capital improvement plan
     • risk vs. return (cost of risk?)
   • Source of money
     • debt vs. Equity
     • cost of capital (how high is hurdle rate? single or multiple hurdles?)
3. Measure and control progress
   • forecast the future
   • evaluate the past
4. Rate of return
   • ROE (Return on equity) = Net income/ equity
   • ROE = Margin X Turnover X Leverage
   • Margin = Net income/ Sales
   • Turnover = Sales / Total assets
   • Leverage = Total assets / Equity
     
5. Types of Budgets
   • Line-item (Personnel, Salary Overhead, Materials, Supplies, Equipment rental, General & Administrative, Profit)
   • Program Budget
   • PPBS
   • Performance Budget
   • ZBB
     
6. Other Fiscal Tools
   • CIP
   • Fiscal Impact Assessment
   • Tax-increment Financing