Balance Score Card As A Performance

Balance Score Card As A Performance Leading organizations has been successfully using performance measurement to gain insight into the organization and the effectiveness and efficiency of its programs, processes, and people. However, they do not stop at collecting and analysis of data rather, these organizations use performance measurement to force improvements and successfully transform strategy into action. Therefore, they use performance measurement for managing their organizations. The balanced scorecard (BSC) is the most widely applied performance management system today. The BSC was originally developed as a performance measurement system in 1992 by Dr.Robert Kaplan and Dr. David Norton at the Harvard Business School. Unlike earlier performance measurement systems, the BSC measures performance across a number of different perspectives-a financial, a customer, an internal business process, and an innovation and learning perspective. BSC was introduced at a time when businesses were evaluating performance only through a financial scope and the different perspectives added a new dimension to the performance management concept. However over the years a number of alternatives have been introduced to replace BSC such as Applied Information Economics (AIE), Performance Prism, Results based management Model etc. This is mainly due to the changes in the environment which is beyond the four quadrants of BSC and basic implementation issues experienced in BSC. The Balanced Score Card has to go through a transformation in order to survive and revive itself as powerful performance management tool. Balance Score Card Introduction The field of performance management in todays day and age is vital to any organization. This importance can be defined through John E Jones quote What gets measured gets done, what gets measured and fed back gets done well, what gets rewarded gets repeated. John E. Jones. Performance Management can be of two main aspects. In one view, the performance of the company as a whole and further the effectiveness of the management of their capabilities of running the business successfully are looked at while in another view performance management system of evaluating employees to help them reach their respective goals and thereby ensure that the company meets the companys overall objectives. When the word â€Å"measurement† comes to our mind, it has always been through a financial scope. There by performance of an entity was always measured through measures such as Return on Investment (ROI), Earnings Per Share (EPS),Gearing Ratio, Net Profit After Tax (NPAT), and Sales Turnover etc. However when the environment became gradually more competitive and complex there were more stakeholders involved in a business. The customers were one of the main stakeholders interested in the activities in the organization. Their demand evolved and along with that how they perceive performance also too dramatic change. They were no more content with only financial evaluation of the organization; measures such as market share, customer satisfaction, productivity, and innovation etc were more appealing. It was during this transition, the balance score card was introduced by Dr. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give a more balanced view of organizational performance. The balanced scorecard is a strategic management tool used for translating an organizations strategic objectives into a set of performance indicators distributed among four quadrants. Some of these indicators are maintained to measure an organizations advancement towards its vision and other indicators are maintained to measure the long term drivers of success. Through the balanced scorecard, an organization monitors both its current performance and its efforts to improve processes, motivate and educate employees. Balance Score Card History The balance score card has been known to be created by Kaplan and Norton however there is a historical twist to this as for my findings on www.wikipedia.com. The first balance scorecard was created by an independent consultant called Art Schneiderman in 1987.He participated in a research study in 1990 led by by Dr. Robert S. Kaplan and was able to describe his work on balanced score card. Subsequently, Kaplan and David P. Norton included anonymous details of this use of balanced scorecard in their 1992 article on Balanced Scorecard. Kaplan and Nortons article wasnt the only paper on the topic published in early 1992 but the 1992 Kaplan and Norton paper was a popular success, and was quickly followed by a second in 1993.The balances score card was widely spoken of only through their articles and journals. Kaplan and Norton researched on BSC through a project involving 12 companies. Thereby BSC became Kaplan Norton Balance Score Card and they were identified as the creators. Balanced Scorecard has been awarded a prize by the American Accounting Association as the â€Å"best theoretical contribution in 1997†. Balance Sore Card Perspectives As explained earlier BSC is a tool which monitors organizational strategies by using a combination of financial and non financial measures. It is designed to interpret strategy in to objectives and measure it across four balanced perspectives, namely Financial, Customer, Internal Business Process and Learning and Growth. The BSC directs to develop metrics, collect data and analyze as for these for quadrants in order to have an overall perspective. The pictorial view of the perspectives is as follows: The Financial Perspective This perspective reviews if the strategies of the company contribute towards the bottom line of the company. The virtue of Balance Score Card (BSC) is that it represents both leading and lagging performance measures. Traditional lagging indicators include financial measures, such as revenue growth and profitability. As it implies financial data is mostly historical data and organizations are measured based on its past performance. This perspective clearly describes how the organization looks to the shareholders. Few of the measures that can be used are : Return on Capital Employed (ROCE) Return on Investment (ROI) Market Share Revenue Growth Profitability Economic Value Added ( EVA) The Customer Perspective This aspect reviews how customers perceive the organization. And today, the buzz word in the corporate world is customer service. The importance given to this concept is immense due to the competitiveness and the buyer bargaining power. Therefore customer focus, customer satisfaction, on time delivery etc are leading indicators. Poor Performance from this perspective is a leading indicator of downfall in future business even if the financial indicators are healthy. In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups. Metrics for the customer perspective could include: No.of Complaints On Time Deliveries Repeat Purchases Customer Acquisition Customer Retention The Internal Business Process Perspective This assesses the quality of people and processes. This perspective refers to internal business processes which the company should improve in order to achieve its objectives and give customers both satisfaction and productivity. Traditional methods only looked at improving existing systems however the balanced scorecard has the ability to identify entirely new processes that the business should succeed, in order to achieve customer satisfaction. The measures for this have to be developed very carefully as understanding the business process is crucial. The measures should focus on internal processes that will have the greatest impact on customer satisfaction and achieving business objectives. Potential measures for the internal perspective include: Amount of reworking Increase in productivity % of defects Increase in capacity utilization The Learning Growth Perspective This perspective concentrates on the areas an organization must improve, on continuous improvement, and creating value in the future. The focus is on the intangible assets of the organization. The future of any organization today lies on how innovative and evolving it is, thereby this perspective encourages this aspect. Further the perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. The following metrics could be used to measure success in relation to the innovation and learning perspective: No of New Products introduced No of Trainings done per period Research Development as a % of Sales Employee suggestion which were implemented Critical Evaluation of the Balance Score Card An organization without a performance management system is like a ship in the deep blue sea without a compass, not knowing if the direction it sails is correct nor knowing how to improve its direction. Therefore the purpose of measuring performance is not only to know how the entity is performing but also to enable it to perform better. The Balanced Scorecard concept measures whether the companies are aligned with its larger-scale objectives in terms of vision and strategy. It focuses not only on financial outcomes but also on the human aspect as explained earlier under the introduction and the perspectives area. Thereby the BSC provides an overall view of the organization and the business. This is contrasting to the traditional method of being only financial oriented only. The measurements used in the separate perspectives are explained in the earlier section. The balanced scorecard is not only a measurement system but is a management system as well. It enables organizations to clarify their vision and strategy to its employees and translate them in to operational goals or action plans. The evolution of BSC from its simple performance measurement framework to a strategic planning and management system is gradual. Further the BSC is also useful to communicate the expectations expected from the employees. This can be done through clearly defining the measures or KPIs to be achieved by individual or department. To elaborate this in order to achieve overall objectives of the organization of Sales growth by 10%, Employee A,B C of Production Department can contribute by keeping the lead time of goods 98% as expected or better than customer expectation. Employee D E of Sales team can target to ensure customer complaints are attended to within 24hours which is an industry norm. As explained in this, the Sales growth of 10% is expected to come through attending to customer order on time (lead time) and customer service (handling complaints). Cascading the organizational objectives to the lowest level employee will pave the way for success. As explained the balance scorecard has evolved over the years to be identified as a â€Å"strategic linkage model† or a strategy map. The strategy map enables organizations to clarify their strategy and assist organizations with creating their BSC framework and measures. A generic corporate strategy map is provided below to illustrate the â€Å"Strategy Map† concept. The balance score card has the ability to identify the key areas which can make a huge impact in an organization. The critical success factors of each perspective can be identified through the well defined measurement criteria. As for the results of the KPIs the management has the ability to identify the superior and weaker link of the organization and take action to correct the situation. A business might be performing well with increased sales, however the production team might have a ratio of increased defect rates. This might not reflect in the top line as the production team ensures the sales are not slowed down by covering up with increased production. If the internal process is not reviewed properly the production defect rates will not highlighted. This is where the BSC becomes a critical tool to identify critical success factors. The balanced scorecard approach can be used and applied at both the individual and the organizational level. It provides a balanced approach to evaluate the employees performance in a comprehensive manner. Traditionally, measuring the employee performance refers to only the comparing of their action plans and behaviors with the standards set. However the BSC actually measures the results of their actions like profits, increasing market share. It considers the progress towards achieving the goals and objectives of the organization and the effectiveness of the process. Thereby, the balanced scorecard gives the full view of the employees and the organizational performance and it helps to align the employee performance plans with the organizational goals. The Balanced Scorecard provides a stage for feedback and in turn a process for learning as well. Feedback about products, new learnings discoveries can be included in to the scorecard. Based on the measures employees can be given feedback and also training in order to improve the processes. This helps to refine the processes on a continuous basis with the use of the feedback. Thereby once a balanced scorecard system is in place, it allows for ongoing monitoring of goals and objectives. BSC benefits to maximize co-operation between teams. Employee helps one another to achieve their respective overall KPIs. This helps to build the team culture in the organization. The BSC drives a performance drive in to the business with its set objectives and continuos feedback. And if the objectives are linked to rewards, employees are very well motivated to achieve the set targets. The BSCs ability to give a wide view of the business operations makes it a formidable tool in the business world. The four perspectives of the scorecard permit a balance between short term and long term objectives, between desired outcomes and the performance drivers of the outcome, between soft measures and hard measures. However having gone through the positives of the Balanced Score Card, this tool has its negatives as well. The Balanced score card in was introduced in the early 90s and now the business environment has seen many changes. Has the Balanced Score Card got all requirements to still qualify as good performance management tool in current context? , will be discussed in detail in the following section. The organization through different elements in BSC analyzes the organizations performance and these measures are vital in creating a good balanced scorecard. Once the balance score card is implemented, you can not presume the business environment to be the same. In current context the volatility of the business environment is so rapid therefore the nature of your business can change in time, which means the BSC too has to be modified accordingly. It is a time consuming affair to maintain a scorecard but if it is not done properly the organizations ability to evaluate its employees will become an issue. The business should be able to give a considerable time to upkeep or maintain the scorecard, if not; it might not be a good solution for the business. The balance scorecard attempts to involve employees from all levels in the organization by cascading the vision and strategies. Despite inherent attempts to empower employees, the balanced scorecard is still seen to be based around a centralized, prescriptive model. Even though BSC focuses on dynamism and constant feedback it would still react slow to bottom level suggestions based on the organizational culture and background. In their book in 2007, Kaplan Norton (2007) mentioned that implementing a BSC would take a minimum time line of 26 months. Another weakness in BSC or a question which remains unanswered is how well the BSC will function in a dynamic environment. Organizations today are going through a paradigm shift. Internet and Information Technology as a whole has made the world a global market. Thereby the businesses also have to adapt to different environments, new changes in order to survive. Is BSC a model which is fast enough for this adaptation? , is a query in most peoples mind. Currently any measurement tools have to be modified taking in to account the dynamic changes in the environment in order to make it a pervasive tool. As discussed in the previous areas the BSC is designed to measure performance through four major perspectives. However questions are raised now whether these perspectives are sufficient to measure a business performance. As indicated in the BSC History this model was introduced in the early 90s, however the organizations and the environments they perform in have moved much further and there are many other concepts which are significant for an organizations long term sustainability. As an example the Green concept was only a thought in the early 90s but today its a way of life for organizations. Even customers are concerned in how respectful their brands are to the environment. Corporate Social Responsibility is another indicator that organizations have stepped out of the traditional financial performance criteria, and they are actually weighed for the contribution they make to the society. It is used as a way of marketing too. These areas have a special place in the annual report an d it is the pride of any organization to report their contribution to the society and the environment. Further ethical practices play a main role in reporting and in anything an organization does. After the Enron issue ethics have been discussed in the corporate tables and it does matter in blue chip companies to be ethical towards its stakeholders and shareholders. However these elements have not been touched upon on the balance score card. Another observation on BSC is on the weight given on the four perspectives, the standard weight given may not be applicable to all organizations. It might vary from industry to industry and even internal divisions might have varied measures, thereby based on the importance of the perspective has to be reviewed before weighs are assigned. Based on the research by Kaplan Norton (2003) it has been found that using about 20 -25 measures is the usual recommended practice. Figure 3 drawn from an article written by Dr David Norton illustrates the weights assigned for each perspective, with greater emphasis on internal business process, as it is the primary source through which the strategy of the organization is implemented. The balance score card weights should not be a pre defined and should be a management decision based on industry norms etc. At IFS which is an organization keen on research and development and learning, the emphasis on the internal process and learning and growth perspectives will be high. However if we take a bank, Financial stability, Customer service and the Internal Processes are all vital and require high weight. Thereby it is crucial on understanding the concept properly on assigning weights as it is a crucial part of BSC. The stakeholders form the main category of any organization, because they are the group of people who will be affected from the decisions made by the organization. The customers perspectives have been included in to the Balanced score card however the other main categories which I felt lacking in BSC are the suppliers and the competitors. The suppliers are key to a companys source of raw materials and supplier management can bring monetary benefits to the organization. Organization should always keep a tab of its competitors and scores should be kept to follow up on direct competitors. As adding more perspectives will complicate the BSC, I have suggested a recommended way of handling this under recommendation section. Though the balanced score card could be reward the employees it is criticized when performance evaluation and incentives are related to it. It has been found that when rewards are linked to the scorecard directly, productivity drops considerably. This is mainly due to the fear by the employee that he/she maybe made responsible for factors which is beyond their control. Thereby they may tend to keep a margin or levy when agreeing upon targets in order to achieve the targets and get the incentives in a relaxed way. However this is not critic on the BSC concept, it is an issue with the implementation. Another criticism is that the Balanced Scorecard does not provide a bottom line score. The scores are not assigned based on any proven economic or financial theory. The bottom line score does not give a unified view with clear recommendations. It acts only as a simple list of metrics and how they are interpreted will vary from organization and industry. Therefore the implementation and the management commitment and intelligence in interpreting the measures play a main role in the success of BSC. Further to elaborate on this for BSC it is not usually sufficient to use generic measures used by other organizations. Each business should strive to identify the firm specific measures that are appropriate to implement their strategies and achieve the vision of the company. This relies upon the competency of the management. Further many companies use only lagging measures which shows results of a past event. For the balance score card to be successful the business should include leading measures as well, which will indicate the future of the business. Many managers get carried away with BSC by only including non financial measures however to reap the full benefit of BSC managers have to include future indicators (leading measures) as well. A research conducted by Claude Levy, a professor at the Free University of Amsterdam reported that the failure rate of BSC implementation is 70% and this is mainly due to the many number of metrics and employees not having an understanding of the metrics. Due to its long duration in implementation many organizations use a balanced scorecard system. However this cost a lot of money in training time and additional money for any consultants that are needed during the process. Therefore the initial cost in implementing the balanced scorecard is huge. Balance Score Card Recommended Improvements Based on the evaluation above I suggest the following to improve the current balanced score card. The main stakeholders such as competitors and suppliers should also be entered in to the BSC. As including another area will complicate the score card, I suggest these stakeholders are identified under internal business process however even 2-3 measures/KPI each has to be assigned for each stakeholder under this area. Many alternative tools have been designed based on the BSC framework and the â€Å"Performance Prism† is one such customized BSC framework which takes in to account five perspectives, which includes stakeholders as well. The BSC design should be broader in order to accommodate the environmental aspect, Society and Ethics. However complicating the BSC with many perspectives will not serve the purpose either. Therefore the balanced score card should have an industry specific format with assigned measures. This standard could be used for the firm and customized if required. The measures used should be between 25-30 maximum with the newly included areas as well. Too many measures mean most of the time nothing gets measured at all. The weights assigned to the perspectives should be decided based on the firm and the importance of the processes relevant to the business. I feel that it is hard to pre-define the weights in todays context and it should be a management decision, however in order to ensure order prevail they could get audit support on assigning weightage. On implementation of the BSC it is of utmost importance that the objective of the concept is clearly communicated. Further if the measures/KPIs are discusses with line managers and staff before entering it to the scorecard the employees will feel ownership towards the KPIs. And thus can avoid any issues later arising when rewards are linked to KPIs. Linking incentives to the achievement of these KPIs is a motivator, and I feel should be an integral part of BSC. The BSC will not be successful if it does not include leading measures as well as the lagging measures. At the end of the day it is all about improving your future. Thereby there should be a specification on BSC that out of the total measures even 40% should be leading measures and that there should be even one for each quadrant. The balanced scorecard or any other performance management tool is driven by a well defined strategy of the organization. It is the understanding of the linkages between the objectives and metrics that is the foundation of the BSC. Thereby if the business is not equipped with a good strategy and competent management team, I feel the BSC is not the performance management tool for them. The balance score card with its metrics should be an automated system. In present scenario, unnecessary issues can be resolved if a balanced scorecard software is installed. The organization should also give adequate time for training the staff. Conclusion The Balanced Score Card is the pioneer tool in focusing on a range of perspectives which included financial and non-financial factors. The tool is built to focus on past and future of the business with its lagging and leading measures. However in an ever evolving business environment, the BSC has failed to evolve with time. And the balance scorecard depends heavily upon how it is used or interpreted. Therefore the management commitment towards BSC is vital for its success. The biggest critic for BSC is that its disability to be maintained in a dynamic environment. The industry specific BSC designs will be more applicable and more flexible. And these formats can include the perspectives relevant to that industry. For example for the power generation industry the environmental perspective should be mandatory. Further if the Balance Score card software is used the time factor for implementation can be reduced. The weights assigned to each perspective should also be firm specific and the KPIs should be reviewed on a constant basis in order to ensure that they are real time KPIs. The balance score card is still a popular tool among many mainly due to its simple to understand concept. All organizations are trying to gain an advantage over the other at all times, therefore if one organization takes the first step towards another performance management tool, the Balance scorecard will see a slow death.

Customer Relationship Management and Systems Essay

1. What concepts in this chapter are illustrated in this case? Symantec Corporation started out with good intentions. Shortly after acquiring Veritas it began an ERP rollout that was designed to standardize and unify the Symantec and Veritas information systems. The goal was to create a single ERP system, within which all of the company’s extensive network of resellers, integrators, distributors, and customers could place orders for over 250,000 different products Symantec offered in the same way. That follows the basic concept of enterprise systems which are based on a suite of integrated software modules and a common central database. When new information is entered by one process, the information is made immediately available to other business processes. Although companies can rewrite some of the software in ERP systems, the software is unusually complex and extensive customization may degrade system performance, compromising the information and process integration. If companies want to reap the maximum benefits from enterprise software, they must change the way they work to conform to the business processes in the software. Although Symantec and Veritas had each used Oracle E-Business Suite 11d prior to the merger, both used highly customized versions of the systems that made integration a daunting task. An overhaul of the combined company’s enterprise systems was needed to join together Symantec and Veritas’s data from key business processes. Enterprise systems help large companies enforce standard practices and data so that everyone does business the same way worldwide. Enterprise systems help firms respond rapidly to customer requests for information or products. Unfortunately, the two companies bungled the implementation of the enterprise system almost from the beginning. 2. What management, organization, and technology factors were responsible for Symantec’s difficulties in overhauling its ERP systems? Management: Most of the issues were due to the company’s shortsightedness in implementing Project Oasis. The initial reaction to the launch of the new system was decidedly negative. Once customers reached a Symantec employee, they could spend up to 20 more minutes troubleshooting problems, and were often told that there was nothing that could be done. There was simply too much change occurring all at once for typical customers to handle. Partners were unhappy with Symantec’s slow response to many of the problems. Organization: The company was unprepared to meet the increased demand for customer support after the rollout. Symantec neglected to coordinate the development of its new ERP system with the launch of other products from different divisions within the company. The changes to the licensing system were not coordinated with the rest of the project. Customers were unhappy with changes to the stock-keeping unit product system (SKU system). Symantec had overlooked the needs of many customers while designing a technically sound but user-unfriendly ERP system. Technology: Both companies used highly customized versions of Oracle’s E-Business Suite 11d prior to the merger. Users struggled to process the large amount of information provided to them and were overwhelmed by the increased number of steps, all of them new, required to place orders. Some smaller distributors and partners didn’t update their systems to handle the new SKUs and were unable to submit purchase orders electronically. After the rollout, licensing became much more difficult for Symantec’s customers and partners, forcing them to wait multiple weeks before receiving their licenses. 3. Was Symantec’s response to the problem adequate? Explain your reasoning. The company initiated a follow-up project named Project Nero. The goal of the project was to recapture the loyalty of customers who were disenchanted by the changes brought about by Oasis. The project reached out to customers and fixed the problems with the information systems to improve response times and streamline operations. The company began by adding over 150 new customer representatives to handle the increased volume of calls, reducing wait times and increasing customer satisfaction. Executives traveled the country to improve relations with angered customers and partners. The company introduced a master list of product releases readily available and standardized its communication methods between departments regarding new projects and change management. Symantec used Net Promoter methodology to measure and increase customer loyalty. The results identified specific criticisms and customer problems and dramatically aided Symantec in correcting those problems. Project Nero helped the company weather the worst of the crisis. However, the company does not release the results of its Net Promoter surveys to the public so the extent to which it has repaired its reputation is unclear. 4. What would you have done differently to prevent the implementation problems that arose at Symantec? Student answers will vary but some of the principles that should be included in their answers are: Even the most careful planning and well-designed systems can quickly go awry if customers are unable to make use of the new system. Enterprise applications involve complex pieces of software that are very expensive to purchase and implement. The total implementation cost of a large system, including software, database tools, consulting fees, personnel costs, training, and perhaps hardware costs, might amount to four to five times the initial purchase price for the software. Enterprise applications require not only deep-seated technological changes but also fundamental changes in the way a business operates. Business processes must be changed to work with the software. Employees must accept new job functions and responsibilities. Most implementation projects fail or experience enormous problems because executives, managers, and employees did not understand how much organizational change was required. Specific Symantec problems that perhaps could have been avoided: †¢ Communicate with employees better to counteract the negative attitude towards the project. †¢ Communicate with customers and distributors better about the upcoming changes. †¢ Make sure all of the systems that were changing were coordinated throughout the organization. †¢ Not change as many systems all at the same time. Even though stretching the implementation out over a longer period may have cost more money, perhaps it would have prevented some of the massive problems overall. 5. If you were a partner or customer of Symantec, would you have switched vendors in response to the ERP overhaul issues? Why or why not? Student answers will vary. Some principles to keep in mind are: Enterprise applications introduce switching costs that make it very costly to switch vendors. Companies become dependent on the vendor to upgrade its product and maintain the installation. Many of Symantec’s partners and smaller distributors were reliant on Symantec and perhaps could not afford to switch vendors. That would mean they would have to switch all of their internal systems at great cost. Customers are often reluctant to switch vendors based on historical relationships. If the problems seem temporary, the customers will hang on. If the problems seem insurmountable, some customers will desert the sinking ship.

Fiscal and Monetary Policy

Introduction As an assistant manager for Skanska I have been asked by my manager to explain how fiscal and monetary policy decisions affect the business in which I work. To undertake this task I will provide explanation of the fiscal and monetary policies. I will also explain what interest rate is and what could be possible changes on it. Additionally, I will explain how both policies could make changes in employment level. Fiscal policy Economic climate is essential to be controlled within every single county because this helps control important activities within the particular country.All countries where economy is developed created and follow polices which ensure that money spent by government are used in an appropriate way. Those policies are known as fiscal and monetary policies. Fiscal Policy Fiscal policy could be defined as a legislation which was introduced by government to control the economy. The fiscal policy control and affects public taxation, public expenditure and bor rowing money. Fiscal policy includes direct and indirect taxation, public finances, public sector borrowing, pre-budget report and redistribution of income.The purpose of fiscal policy is to monitor, control and support economy as a whole. (Ref. http://www. investopedia. com/terms/f/fiscalpolicy. asp#ixzz1nhAdVG74) Taxation Taxation could be defines as a collection of money by government from their citizens and corporation businesses to found operational expenditure of the country. Changes in taxation would have a large influence on economy because amount of obtained money could be spent for different purposes or needs of the country. Taxation could be divided into two main types which are direct and indirect taxation. Ref. Book: Business level 3, Book Publisher: Edexcel Page: 300 Author John Bevan) Direct Taxation This particular type of taxes is paid by population and businesses on their income and profit. If the amount of income is higher than the higher will be direct tax which will have to be paid. Direct taxes could be collected by government in form of income tax, corporation tax, council tax, working tax, road tax, capital gains tax, inheritance tax, stamp duty, national insurance (NI). (Ref. Class notes- Direct and Indirect taxation Lecturer- Brenda Horan Date- 06/02/2012) Income TaxIncome Tax rates 2011-12 by tax band and type of income Income tax is a main financial source for government to found activities of the country and public services. This is pay by anyone within the country who has an income. It is protected by legislation that organisations and individuals have to proof how much income was generated for each year. Income tax could be calculated in three ways which is 20, 40 and 50 percent. Additionally, there is a possibility of personal allowance which means that some people income is not taxable as they do not earned enough to pay income tax.This tax year the basic personal allowance or tax-free amount is ? 7,475. Furthermore, some peopl e may be entitled to a higher Personal Allowance if they have reached the age of 65 or over. (Ref. http://www. hmrc. gov. uk/incometax/basics. htm) †¢ National Insurance Contributions This is another form of tax which is based on income. National Insurance contribution also known as NI is paid by employees and employers to the government. NI is dependable on the amount of money which is earned by each party and whether people are employed or self-employed.Through National Insurance contributions employees are building up to entitlement for different social benefits if they have to. Additionally, NI building up a form of state pensions when employees would be retired. There is one restriction where people do not have to pay NI and this is when they reach retirement age. (Ref. http://www. hmrc. gov. uk/incometax/basics. htm) †¢ Corporation Tax Corporation tax is a form of tax which is based on taxable profits of all businesses. This is why organisations do their best to redu ce amount of corporation tax.The most common way to deduct the amount of corporation tax is to reinvest the profit into the further development of the business. (Ref. http://lexicon. ft. com/Term? term=corporation-tax) Indirect Taxation Indirect taxes are charged by government on producers or suppliers. The main aim of these taxes is to reduce pollution and improve the environment. The examples of indirect taxes are value added tax (VAT), excise duty, air passenger duty, insurance taxes such as car, home or pet insurance, TV licence or driving licence. (Ref. http://tutor2u. net/economics/revision-notes/as-marketfailure-indirect-taxation. tml) †¢ Value Added Tax (VAT) This type of tax is charged almost on all products or services provided by organisations. For instance businesses pay VAT for all products which are needed to manufacture the products and then VAT is paid by customers if they want to buy manufactured products. VAT could be charged into three different rates which a re standard rate 20%, reduced rate 5% and zero rated 0%. Standard rate is most common form of VAT and this is paid on almost all products or services unless they have been specified to reduce or zero rate.Reduced rate is depend on products it’s self and the circumstances of the sale. The most common example of reduced rate VAT are domestic fuel and power, installation of energy saving materials, sanitary hygiene goods or children’s car seats. Zero rated VAT is similar to the reduced rated VAT as is depend on products it’s self and the circumstances of the sale. The example of this type of VAT could be products or services such as food apart from the meals purchased in restaurants or hot takeaways, books and newspapers, children's clothes and shoes, public transport. (Ref. http://www. hmrc. gov. k/vat/start/introduction. htm) †¢ Excise Duty This is another form of indirect tax which is only paid for certain products on the market. Excise duty tax is added to the goods or services which might be luxuries, danger for environment and harmful for the health of population. The examples of products which include excise duty are tobacco, spirits and beers, oil or gambling. The government has introduced excise duty to increase amount of overall collected taxes but also to decrease the demand for particular products. (Ref. http://customs. hmrc. gov. uk/channelsPortalWebApp/channelsPortalWebApp. ortal? _nfpb=true;_pageLabel=pageExcise_InfoGuides) †¢ Air Passenger Duty Air passenger duty is paid by airlines to the government for carriage passengers from UK airports. International booked passengers who are coming into the country are exempted to pay this duty. Since 2009 air passenger duty is paid by the amount of flies whereas use to it was charged by every single passenger. The changes amended in this type of taxation increased prices of airline tickets as organisations are forced to pay more taxes. The main purpose of collection of air pas senger duty is to raise extra funds to upport economy but also for environmental reasons. (Ref. Book: Business level 3, Book Publisher: Edexcel Page: 301 Author John Bevan) Public Finances Public finances could be referred as the amount of money which government pays for its expenditures through collection of taxes and borrowing. To support community within the country the government provides valuable activities such as security, education, transport and health support. Running the following activities might cost government millions so this is why appropriate amount of collected taxes is essential.Government have to balance overheads for different departments in appropriate way and ensure that money spent in certain area would benefit population and generate future return in the economy. (Ref. http://glossary. econguru. com/economic-term/public+finance http://www. etvotenow. org/financial-tips/public-finance-definition-know-your-environment-in-the-business-world-233. html) Public Se ctor Borrowing Public sector borrowing also known as a Public Sector Cash Requirement could be defined as an amount of money which government has to borrow from Bank of England to operate essential activities provided to the public.Public sector cash requirement occurs when the country does not collect enough finances to cover overheads of essential activities. If that would happen, then country will start going into the debt what would disadvantage economy and community as less money might be invested in public interest. (Ref. http://www. qfinance. com/dictionary/public-sector-borrowing-requirement) Impact of Fiscal policies on Skanska? Changes made within Fiscal policy would have a large impact on business operations. Skanska could be affected by any decisions made within these policies as any decisions could change the activities and revenues of the business.For instance, if government cut down the spending costs to build hospitals or motorways then Skanska will lose contracts, w hich simply means there would not be projects undertaken by my organisation. This situation would be reflected in the release of employees as the organisation might not be able to afford to maintain workforce. Additionally, this would affect the manufacturing organisations as they would not be able to supply Skanska with their products and therefore less money will be generated and flowed into the economy.How does Fiscal policy affect Skanska? Skanska operates in construction industry so any changes in fiscal policy would affect overall operation of this business. Skanska as a one of leading construction organisations in the United Kingdom would be affected by positive or negative outcome. For instance, if government would change income tax band from taxation element for higher then this would benefit this organisation as there would be a possibility to pay lower amount of taxes by Skanska.The example could be that if government increase the income tax band of 50% from 150,000 to 20 0,000 then my chosen organisation would generate higher revenue as even if they would achieve revenue of 180,000 the business will under the 40% of income tax band. The effect of changes in this fiscal policy could create more profit for Skanska so owners, stakeholders and employees might benefit from this fact as higher amount of money obtained by the business could be shared into these parties. Additionally, the result of fewer taxes paid by my organisation would nathnelo investors and owners to reinvest extra income in the business.Reinvestment of generated profit would be equalised to the expansion of Skanska what might create new jobs for employees due to further investments. Changes in public sector borrowing would also affect Skanska because if government would not collect enough taxes than it automatically decrease amount of possible spending’s into the economy. In the past the government applied Golden Rule of public borrowing which state that it should never be borr owed more than 40% of overall income from economy. Due to recession in United Kingdom the government has to break this rule to reduce possibility of bank collapse.In 2010 the government decided to introduce Fiscal Responsibility Act which is about limiting the amount of government borrowing. This act is mended to stop the country to follow into the debt. Due to breaking Golden Rule decision my chosen organisation had better opportunities to undertake any projects as more money were flowing into the economy. (Ref. Book: Business level 3, Book Publisher: Edexcel Page: 301 Author John Bevan) Monetary Policy Monetary policy is interlinked to fiscal policy and it was created by the government to support and control an economy activities.Monetary policy influence aggregate demand, employment level, money supply, the interest rate that is offered by central bank and the level exchange rate within the country. In the United Kingdom the central bank is the Bank of England which is in charge of interest and exchange rates or money supply. Additionally, the Bank of England is responsible for the amount of money that banks need to keep in the vault which is also known as bank reserves. The purpose of monetary policy is to control and stabilize overall economy within the country. (Ref. http://www. nvestopedia. com/terms/m/monetarypolicy. asp#ixzz1oQuE0cW4) Aggregate Demand Aggregate Demand could be defined as the total demand for provided goods and services produced within the economy over a certain period of time. Aggregate demand is considered as the sum of consumption, investment, government spending, and net exports. Aggregate demand has a large influence on the economy as a whole because its increase or decrease would generate positive or negative outcomes in the economy. (Ref. http://finance-dictionary. com/definition/a/aggregate-demand/) Interest RateInterest rate could be defined as the amount of percentage charged by lender usually banks to the borrower. The perce ntage of interest rate is based on the annual basis also known as Annual Percentage Rate (APR) and this is dependable on the value of borrowed money or assets. The example of borrowed assets could be cash, beneficial goods of consumers and large assets such as vehicles or premises. If the interest rate is low then there is frequent possibility of larger investments as the businesses do not have to pay back much more than it was borrowed from the bank. Ref. http://www. investopedia. com/terms/i/interestrate. asp#axzz1oRT2mwKL) Employment Level Employment level could be defined as the population who is currently working and this is presented in form of percentage. The level of employment is very important factor to be considered by government because through this aspect the taxes are collected which could be reinvested into the economy. Employment level is affected by monetary policy because if inflation level would increase then more likely the wages of employees would be higher.The overall result from this situation could be that the employer might reduce workforce to cut down cost which possibly would decrease aggregate demand due to less people would have confidence in spending money. (Ref. http://www. economicshelp. org/blog/453/unemployment/definition-of-full-employment/) Impact of Monetary policies on Skanska The changes in monetary policy would have a large influence on my chosen business because changes amended in these policies could have knock-on effect in my organization.For instance, changes of the interest rate for lower could lead to the situation where Skanska might invest in latest machinery as interest rate on this purchase will be lower so the business would save money if the make a purchase in this period. Additionally, low interest rate might create situation where population would be less likely to make a savings due to low interest which they could receive. If population would not be interested in saving then they would prefer to spend the money which they earn so the economy would benefit as the aggregate demand would increase.How does Monetary policy affect Skanska? Implementation of monetary policy could affect industry within my chosen business operates. Through increase or decrease of interest rates Skanska would be affected by the changes in demand of provided services by population. For instance, if government would decrease the level of interest rate than this might stimulate higher aggregate demand because people would have more money to spent. If population have a confidence to spend money than my chosen business is more likely to convince potential customers to make the purchase.Additionally, lower interest rate would attract Skanska for new investments due to low interests which need to be paid back. This is also easier for construction industry to find new invertors all over the world as in this period investors are able to generate large return of invested finances. If government and central bank would decide to raise interest rate than this would disadvantage my chosen organisation as opposite effect which most likely would reduce aggregate demand and inflation. Employment level would be affected by changes in monetary policy which could create different situations within operation of Skanska.Government do their best to keep inflation at 2% which means that economy would be stable and wages would be increase by similar level. Low raise of inflation would means that employees have a job security due to steady costs of business. For instance, if inflation would drastically rise then wages would increase too so as a result business might not be able to afford workforce due to too high overheads. (Ref. http://tutor2u. net/economics/content/topics/ad_as/ad-as_notes. htm) How fiscal and monetary policy would help Skanska to achieve its objectives.Skanska committed their selves to outperform business in the management of the environment, health ; safety and the engagement with the commu nities they work in as well as the project performance and profitability. The achievement of main aims is depended on the legislations of government. Through changes in fiscal policy my chosen organisation would be able to generate outcome which would benefit the business and the productivity of economy. For instance, if inflation increased due to raise of aggregate demand than increased spending would most probably decrease national debt at least in short term.Also decrease of income tax would increase the amount of available organisational income which might increase the aggregate demand. Appropriate changes in fiscal policy could create significantly impact the national income and therefore have immediate effect on the economy. Another benefit which Skanska could obtain from changes in fiscal policy is higher profitability and motivation of workforce if taxes on wages would be decreased. Additionally, if higher amount of people and organizations would earn more than automatically the government would collect more taxes such as VAT or income tax.Growth of economy would also means that government would spend less money for different types of benefits which support unemployment community. (Ref. http://12chunso. wordpress. com/2011/05/11/advantages-and-disadvantages-of-fiscal-policy/ http://library. thinkquest. org/19110/english/advantag/index. html http://www. economicshelp. org/macroeconomics/fiscal-policy/fiscal_policy. html) On the other hand, Fiscal policy have great influence on businesses operation so government have to ensure that amended changes do not affect the organisations in the way that they would not be able to operate.For instance if government would increase the income tax as too high level than organisation would not be interested in feather operations as too much amount of taxes which will have to be paid to government would be seen as not reasonable and the organisations might be closed down. This would create negative outcome for economy b ecause if businesses will be closed down then unemployment would increase and more money government will have to spend to support those people and no taxes at all would be collected as organisations would abandon from operations.Additionally, changes in direct taxation or government spending may take considerable time because of both political and moral reasons. For instance, taxing rich people more than the others might be seen as unfair treatment for parties who are charged higher. (Ref. http://12chunso. wordpress. com/2011/05/11/advantages-and-disadvantages-of-fiscal-policy/ How monetary policy would help Skanska to achieve its objectives. http://www. ehow. com/facts_5796267_benefits-policy-over-fiscal-policy_. html) ConclusionOverall, I have described what fiscal and monetary policies are and what is involved in those aspects. Also I have explained how does policies affect my chosen organisations and what out6come could be generated through changes in both policies. The fiscal a nd monetary policies are closely interlinked to each other. Fiscal and monetary policies are very important to be managed in an appropriate manner by government because wrong changes would not only affect businesses within the country but also the economy as a whole will be affected.Bibliography AuthorPageDate John Bevan Book- Business level 3 Page: 300-305 Publisher: Edexcel Class notes- Direct and Indirect taxation Lecturer- Brenda Horan Date- 06/02/2012 http://www. investopedia. com/terms/f/fiscalpolicy. asp#ixzz1nhAdVG74 http://www. hmrc. gov. uk/incometax/basics. htm http://lexicon. ft. com/Term? term=corporation-tax http://tutor2u. net/economics/revision-notes/as-marketfailure-indirect-taxation. html http://www. hmrc. gov. uk/vat/start/introduction. htm http://customs. hmrc. gov. k/channelsPortalWebApp/channelsPortalWebApp. portal? _nfpb=true;_pageLabel=pageExcise_InfoGuides http://glossary. econguru. com/economic-term/public+finance http://www. etvotenow. org/financial-tips/p ublic-finance-definition-know-your-environment-in-the-business-world-233. html http://www. qfinance. com/dictionary/public-sector-borrowing-requirement http://www. investopedia. com/terms/m/monetarypolicy. asp#ixzz1oQuE0cW4 http://finance-dictionary. com/definition/a/aggregate-demand/ http://www. investopedia. com/terms/i/interestrate. asp#axzz1oRT2mwKL Fiscal and Monetary Policy TOMAS L. OLFATO ANSWERS TO GROUP 4 EXAM ECON 204 (NOTE: ANSWERS ARE HIGHLIGHTED IN YELLOW) PART I. (5 points each) A. An increase in government spending will shift the IS curve to left increasing output with higher interest rate. [pic] Expansionary monetary policy or Contractionary monetary policy. a) To maintain the same level of output, what monetary policy should BSP implement? ANSWER: EXPANSIONARY MONETARY POLICY (Increasing money supply lowers interest rate) b) To maintain the same level of interest rate, what monetary policy should BSP implement?ANSWER: CONTRACTIONARY MONETARY POLICY (Reducing money supply results to an increase in interest rate) B. An inflationary gap occurs when aggregate demand exceeds aggregate supply at full employment level of output. When there is increased spending and availability of money are high, prices start to rise resulting to an inflationary gap. What fiscal policy (Expansionary or Restrictive) should the government implement to dampen growth an d lower inflationary pressures(5 points). ANSWER: RESTRICTIVE FISCAL POLICY (Racing taxes or cutting government spending to dampen GDP(Aggregate Demand) growth and lower inflationary ressures) [pic] C. A Deflationary gap occurs when aggregate supply exceeds aggregate demands at full employment level of output. The opposite of Inflation, deflation has the side effect of increased unemployment which can lead to economic depression. What fiscal policy (Expansionary or Restrictive) can government implement to stop severe deflation(5 points). ANSWER: EXPANSIONARY FISCAL POLICY ( Increasing government purchases, decrease in taxes and/or increase in transfer payments closes a recessionary gap, stimulate the economy and decreases the unemployment rate) pic] PART II. (2 points each) True or False: FALSE 1. The Keynesian school of thought is based on the premise that free markets can regulate themselves alone, free of any human intervention. There is an invisible hand that moves market toward s a natural equilibrium, without the requirement of an intervention. TRUE2. Keynesian economic models stress the fact that government intervention is absolutely necessary to ensure growth and economic stability. The government has the very important job of smoothing out the business cycle bumps.TRUE3. In the Goods market, an increase in interest rate will result to a decrease in Money Demand while a decrease interest rate will result to an increase in Money Demand. TRUE4. In the financial market, an increase in interest rate will increase Money Supply while a decrease in interest rate will decrease Money Supply TRUE5. In liquidity trap, people are indifferent as to how much money or how many bonds they hold, so they are willing to hold fewer bonds and more money (more liquid) at the same nominal interest rate.The money supply will increase but the effect on the nominal interest rate remains zero. All the additional money is held as idle balances and equilibrium is unchanged. FALSE6. Disposable Income excludes both the negative impact of taxes and positive impact of transfer payments. FALSE7. Transfer payments decreases disposable income TRUE8. Fiscal neutrality creates a condition where demand is neither stimulated nor diminished by taxation and government spending. TRUE9. Crowding out effect happens when expansionary fiscal policy causes interest rates to rise, thereby reducing the investment or spending.If an increase in government spending and/or a decrease in tax leads to a budget deficit and this deficit is financed by increased borrowing, this creates demand for money and loanable funds. This will increase interest rates leading to a reduction in private consumption or investment. FALSE10. Expansionary fiscal policy increases national saving thereby reducing the supply of loanable funds and raising the equilibrium of the interest rate. PART III. (5 points each) 1. A monetary policy wherein the government steps on the break. RESTRICTIVE MONETARY POLICY 2. A policy that focuses on controlling price and interest rates.MONETARY POLICY 3. The most popular policy instrument. OPEN MARKET OPERATIONS 4. A monetary policy instrument in which BSP have no total control. DISCOUNT RATE 5. When the government wants to reduce the money supply in open market, it has to. SELL BONDS TO THE PUBLIC PART IV. (10 points) If the government wants to solve the issue on economic growth by increasing the money supply, what should be the effect on interest rate, investment, and consumption? ^MONEY SUPPLY, v INTEREST RATE, ^INVESTMENT, ^ CONSUMPTION Please email your answers to [email  protected] com with copy to [email  protected] com and [email  protected] com THANKS

Gun Control And The Second Amendment - 1850 Words

Whenever the Second Amendment is discussed, gun control is usually the focus of the discussion due to the connections that gun control and the Second Amendment have. Although the Second Amendment protects the individual right to firearms, the unlimited right is not. America was founded through guns, using their own arms to fight the British in order to gain independence, making it natural for America to be heavily focused on guns. However, many people have abused the weapon, making the controversial topic of gun control a reality. On the one hand, the pro gun control side believe that more lives are taken rather than saved by guns, thus making some form of gun control necessary. Less guns in an area theoretically means less deaths, along†¦show more content†¦Moreover, Brandi Graham, a lobbyist for the NRA claimed that more lives are saved from guns than taken. Across 11 state prisons, a 1984 survey on male felons found that 34% claimed that they have been wounded or shot at by the victim who defended themselves with a firearm(Wright). When it concerns the economics of gun control, the pro gun control side believe that the loopholes of purchasing a gun illegally are one of the main factors in the crime rates, and that because of this, trace data should be released. One thing both sides may agree on is that there are many flaws in the process of purchasing guns. Around 40 percent of gun owners have not been through a background check. Obtaining guns illegally is not necessarily through a direct purchase of them. Kelly Sampson explained that the two main methods of illegal purchases are the obvious black market, where guns are sold illegally to potential malicious users. However, straw purchasing is another method of obtaining guns illegally, where a person who is allowed to purchase guns, buys a gun with no problem, but later gives that gun to the illegal user. According to ATF director Bradley Buckles, â€Å"Virtually every crime gun in the United States starts off as a legal firearm.† However, it is difficu lt to determine the effect it has on crime due to trace data not being available to the public. This frustration is expressed by Kelly Sampson, who claimed that if the traceShow MoreRelatedGun Control And The Second Amendment1391 Words   |  6 Pages In the Constitution, the second amendment gives the American people to have the right to possess and bear arms. This amendment has been the most controversial issue since guns have been around. Issues such as gun control and gun ownership have remained a matter of debate and have been floating around in Congress. 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But does the entire removal and ban of firearms really work? Gun control and the second amendment has been a never ending conflict between politicians. As we look further into gun control there are more draw backs for the citizens than benefits. The Second Amendment was ratified to the US Constitution on December 17, 1791 by Congress. The Second Amendment states â€Å"A well-regulatedRead MoreGun Control And The Second Amendment1166 Words   |  5 Pagesterrible about the Second Amendment; because pro-gun zealots use the Second Amendment to protect their immoral actions, but this is their twisted and corrupted interpretation on the meaning and intent of the Amendment because this is in no way the original premise of the Second Amendment. The right to bear arms laid out in the Second Amendment is just because guns are weapons for self-defense. Precautions are taken on gun control, such as keeping a permanent record of all gun sales, requiring a licenseRead MoreGun Control And The Second Amendment Essay1294 Words   |  6 PagesGuns, Guns, Guns. In today’s news Gun Control, has become a controversial topic. I have heard many people say that, â€Å"Guns don’t kill people, people kill people†. So, do we need gun control? People talk because they have mouths, they don’t know the extent about gun violence. About half of the country’s population is for / against gun control. Consistently, the media outlets are reporting shootings, that is accidental or intentional whichever way it is trending across the United States. Stronger gunRead MoreGun Control And The Second Amendment994 Words   |  4 Pagescrimes take place every second and there is nothing we can do about it. Not only that, but, with the dramatic rise in mass shootings in our nation comes a compelling division between political and legal agendas predicated on the Second Amendment. I want to emphasize that every single crime is violent whether is involves a handgun, knife or nothing at all. Everyone in our nation knows the law and it is the offenders choices to break it and harm others. With that being said, guns dont kill people, butRead MoreGun Control And The Second Amendment Essay1981 Words   |  8 Page s Gun Control has been a controversy for as long as people can remember. This Controversy has increased recently due to the mass shootings taken place all over the United States. Gun control has its pros and cons, Some believe â€Å"Gun control laws state that the Second Amendment was intended for militias; that gun violence would be reduced; that gun restrictions have always existed; and that a majority of Americans, including gun owners, support new gun restrictions.†While others say that the SecondRead MoreGun Control And The Second Amendment922 Words   |  4 PagesGun control has been a long debate to determine if it’s better to have stricter access to firearms. America is one of the few countries that has gun rights embedded in their constitution. But what makes the US exceptional is that it has the right to keep and bear arms, other countries do not provide the right to have access to them, but rather, the government is allowed to regulate its use. 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In reference to the Second Amendment and gun control, the author, Saul Cornell, makes a case for how sometimes every group can think they are the ones in the right, but at the same time, every group can ultimately be in the wrong. It is important to think of not just right or wrong and the rights given to citizens by the Second Amendment to the Constitution, but to think back deeper into history as well and what helped to found