Internal Assessment

Chapter Outline
The Nature of an Internal Audit
Functional Areas
 Management
 Marketing
 Finance/Accounting
 Production/Operations
 Research and Development
 Management Information Systems
The Internal Factor Evaluation Matrix (IFE)
 Marketing
Process of defining, anticipating, creating, and fulfilling
customers’ needs and wants for products and services

1. Customer analysis
2. Selling products/services
3. Product and service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
Marketing Strategy and the Marketing Mix
 Marketing Strategy and the Marketing Mix
Customer-Driven Marketing Strategy

Market segmentation is the division of a market into

distinct groups of buyers who have distinct needs,
characteristics, or behavior and who might require
separate products or marketing mixes
 Marketing Strategy and the Marketing Mix
Customer-Centered Marketing Strategy

Market positioning

is the arranging for a product to occupy a clear,

distinctive, and desirable place relative to
competing products in the minds of the target
consumer
 Marketing Strategy and the Marketing Mix
Developing an Integrated Marketing Mix
strategy

Marketing mix
is the set of controllable tactical marketing tools
product, price, place, and promotion—that the firm
blends to produce the response it wants in the target
market
Marketing Strategy and the Marketing Mix
Developing an Integrated Marketing Mix
 Marketing Audit
 Are markets segmented effectively?
 Is the organization positioned well among competitors?
 Has the firm’s market share been increasing?
 Are present channels of distribution reliable and cost
effective?
 Does the firm conduct market research?
 Are product quality and customer service good?
 Are the firm's products/services priced appropriately?
 Does the firm have an effective promotion, advertising, and
publicity strategy?
 Finance/Accounting

Determining financial strengths and weaknesses

key to strategy formulation.

This area is responsible for securing financial

resources at favorable prices and allocating those
resources throughout the organization.
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision
 Finance/Accounting Audit
 Where is the firm strong and weak as indicated by
financial ratio analysis?
 Can the firm raise needed short-term capital?
 Can the firm raise needed long-term capital through
debt and/or equity?
 Does the firm have sufficient working capital?
 Are capital budgeting
 Does the firm have good relations with its investors and
stockholders?
 Are the firm’s financial managers experienced and well
trained??
 Operations/Production Management

“It involves understanding the needs of our

customers, managing the processes that
deliver the services, ensuring our objectives
are met, while also paying attention to the
continual improvements of our services.”
[Johnston & Clark, 2008:3]
 Operations/Production Management
Operations management is “the effective and
efficient management of the transformation
process” [Melnyk & Denzler, 1996:5].
“..operations are processes that take in a set of
input resources which are used to transform
something, or are transformed themselves, into
outputs of products and services.” (Slack,
2010:11).
 Production/Operations
Process
Design of facility Capacity
Choice of technology Forecasting
Process flow analysis Facilities planning
Facility location Aggregate planning
Line balancing Quality Capacity planning
Process control Quality control Queuing analysis
Sampling
Testing
Quality assurance
Inventory Workforce
Cost control
Raw material Work measurement
Work in process Job enrichment
Finished goods Work standards
Materials handling Motivation techniques
Production/Operations Audit
 Are suppliers of raw materials, parts, and
subassemblies reliable and reasonable?
 Are facilities, equipment, machinery, and offices in
good condition?
 Are inventory-control policies and procedures
effective?
 Are quality-control policies and procedures
effective?
 Are facilities, resources, and markets strategically
located?
 Does the firm have technological competencies?
 Research and Development
Research is the process of finding solutions to a
problem after a thorough study and analysis of
the situational factors.
Managers in organizations constantly engage
themselves in studying and analyzing issues and
hence are involved in some form of research
activity as they make decisions at the workplace.
 Financing as many projects as possible
 Use percentage-of-sales method
 Budgeting relative to competitors
 Deciding how many successful new products are
needed
 Research and Development Audit
 Does the firm have R&D facilities? Are they
adequate?
 If outside R&D firms are used, are they cost
effective?
 Are the organization’s R&D personnel well qualified?
 Are management information and computer systems
adequate?
 Is communication between R&D and other organizational
units effective?
 Are present products technologically competitive?
?
 Management Information Systems
A management information system (MIS) provides
information that organizations require to manage
themselves efficiently and effectively(Comptroller’s 1995 )
Management information system  are typically computer
systems used for managing. The five primary
components:
1.) Hardware,  2.) Software,
 3.) Data (information for decision making), 
4.) Procedures (design, development and documentation),
5.) People (individuals, groups, or organizations). 
Management information systems are separate from
other Information because they are used to
analyze and facilitate strategic and operational
Activities (O’Brien, J 1999).
Improve performance of an enterprise by improving
the quality of managerial decision

 Information Systems
 Security
 User-friendly
 E-commerce
 Management Information Systems
Audit
 Do all managers in the firm use the information system to make
decisions?
 Is there a chief information officer or director of information
systems position in the firm?
 Are data in the information system updated regularly?
 Is the information system user-friendly?
 Do all users of the information system understand the
competitive advantages that information can provide firms?
 Are computer training workshops provided for users?
 Is the firm’s
 Do managers from all functional areas of the firm contribute
input to the information system?
 Internal Analysis (IFE)
Five-Step Process:

List key internal factors (10-20)

Strengths & weaknesses

Assign weight to each (0 to 1.0)

Sum of all weights = 1.0

Assign 1-4 rating to each factor

Firm’s current strategies response to the factor

Multiply each factor’s weight by its rating

Produces a weighted score

Sum the weighted scores for each

Determines the total weighted score for the organization
Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average
= 2.5
 Internal Analysis (IFE)
Mandalay Bay Weight Rating
Weighted
Internal Strengths score

Largest casino company in world .05 4 .20

Room occupancy rates over 95% .10 4 .40
Increasing free cash flows .05 3 .15
Owns 1 mile on Las Vegas strip .15 4 .60
Strong management team .05 3 .15
Buffets at most facilities .05 3 .15
Minimal comps provided .05 3 .15
Long-range planning .05 4 .20
Reputation as family-friendly .05 3 .15
Financial ratios .05 3 .15
 Internal Analysis (IFE)
Mandalay Bay Weight Rating
Weighted
Internal Weaknesses score

Most properties located in Las Vegas .05 1 .05

Little diversification .05 2 .10
Family reputation, not high rollers .05 2 .10
Laughlin properties .10 1 .10
Recent loss of joint ventures .10 1 .10

TOTAL (including Strengths) 1.0 2.75

 Internal Analysis (IFE)

Mandalay Bay (in the previous

example), has a total weighted score
of 2.75 indicating that the firm is
above average in its overall internal
strength