Goal Congruence

7/28/2019 Goal Congruence

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Goal

A set of benchmarks for judging theorganizations performance.

Goals represent a managerial commitment toachieve specific performance targets with in aspecific time frame.

Goals converts the companys mission,

strategic vision and objectives into specificperformance targets, so the organizations progress can be measured.


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characteristics of Goal

Help in Strategic decision making for what toaccomplish. Goals describe objectives that are specific with

respect to magnitude and time. A goal is a realistic, measurable, time-dated

target to be accomplish in the future. Goals are like stair steps to your mission and

vision. Goals become the bridge to turn your mission

and vision to reality.


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Goal setting

Goal setting means stating goals in measurable terms and thenholding managers accountable for meeting their assigned targetswith a specified time frame.

Realistic goals are developed and set from the SWOT analysis. They

are not wishful thinking. Goals are Set in terms of Performance target not only for the

organization as a whole, but also for each of the organizationsseparate businesses, product lines, functional areas, and department.

Every unit in a company needs concrete, measurable performancetargets that contribute meaningfully toward achieving companyobjectives.


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Goal congruence The goal congruence is to insure that all its

operations and activities are set up in supportof the organization's goals.

This means that the organization will reviewall its operations and activities to insure thatnone of them (those operations and activities)work in a way that limits or inhibit the

organization's ability to reach its goals,whatever they may be.


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factors that influence goal congruence Formal and informal factors influence human behaviour in organisation,

consequently it effects degree to which goal congruence can be achieved.formal factors are :

Strategic plans Budget Rules for physical control, Task control Management Control System itself Performance evaluation and report writing

Informal factors are: External factors

-desirable behaviour of the society,- work ethics and culture of local manpower- industry specific attitudes and norms.

Internal factors:-Organisation own culture-Resistance to change


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Business Benefits of Clear and congruent Goals1. Increased Operating Margins

Employees who clearly understand their individual goals-and how they relate to

those of your company-naturally become more engaged with their work. Onceemployees see how they can make a direct contribution to your company'ssuccess, they begin to focus on finding ways to work smarter and more efficiently.This boosts employee productivity and will naturally lead to increased operatingmargins and profitability for your company.

2. Quicker Execution of Company Strategy Tighter goal alignment and goal visibility allows for quicker execution of companystrategy by enabling management team to more effectively allocate labor resourcesacross various projects. It also increases overall efficiency by ensuring employeesare not duplicating the efforts of others.

Understand more clearly all responsibilities associated with specific goals Eliminate redundancies across job titles Staffs Focus on company's most pertinent goals


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Con..

3. Reduced Employee Turnover

The business value of having employees engaged in their work cannot beoverestimated, clear goal alignment can create greater employeeownership in your company's ultimate success.Goal alignment also lets you establish a true pay-for-performanceculture at your company by providing the foundation for closely linking

reward systems with both individual and team performance.


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financial goal setting Financial objectives focus on achieving

acceptable profitability in a companys pursuit of its mission/vision, long-term health, andultimate survival.

Financial objectives are signal of commitment tosuch outcomes as good cash flow,creditworthiness, earnings growth, anacceptable return on investment, dividendgrowth, and stock price appreciation.


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Examples of financial goals

Maximizing share holders valueGrowth in revenuesGrowth in earnings

Wider profit marginsBigger cash flowsHigher returns on invested capitalAttractive economic value added (EVA) performanceAttractive and sustainable increases in market valueadded (MVA)A more diversified revenue base


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Financial Forecast A financial forecast is normally an estimate of future

financial outcomes for a company or country. Usinghistorical internal accounting and sales data, inaddition to external market and economic indicators, afinancial forecast is an economist's best guess of whatwill happen to a company in financial terms over agiven time period which is usually one year.

The most difficult aspect of preparing a financialforecast is predicting revenue. Future costs can beestimated by using historical accounting data; variablecosts are also a function of sales.


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Incremental ROI

Incremental Profit = ROITotal incremental Cost


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WHAT IS EVA ?

Most successful performance metric

EVA is a measure of financial performancebased on the context that all capital has a costand that earning more than the cost of capitalcreates value for shareholders.

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UNDERSTANDING EVA AND ITSCOMPONENTS

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EVA EVA = NOPAT CAPITAL COST EVA = NOPAT COST OF CAPITAL x CAPITAL

EMPLOYED EVA = (RATE OF RETURN COST OF CAPITAL) x

CAPITAL Where: Rate of return = Nopat/Capital Cost of capital = Cost of Equity x Proportion of equity

from capital + Cost of debt x Proportion of debt fromcapital x (1-tax rate). EVA = (ROI WACC) x CAPITAL EMPLOYED


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MARKET VALUE ADDED(MVA): Measure of wealth which a company has created for its investors Cumulative measure of corporate performance Primary objective of co.- Maximizing MVA MVA = [(Shares outstanding x Stock price) + Market value of

preferred stock + Market value of debt] Total capital Book value and market value of debt and preference share is same

so, MVA= Market Value of Equity book value of equity If company is not a listed company then Market Value of Equity = Book Value of Equity + Present value of

all future EVA MVA= Present value of all future EVA

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EVA V/S MVA

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ECONOMIC VALUE ADDED MARKET VALUE ADDED

Attempts to measure the true economicprofit produced by a company

Diff between current market value of company & capital contributed byinvestors.

Performance metric Wealth metric

Useful for investors-determine thecompany value

Improves the book value of thecompany shares


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ROE Return on Equity: Return on equity is also known as return on

shareholders investment. The ratio establishes relationshipbetween profit available to equity shareholders with equityshareholders funds.

Return on Equity = Net Profit after Interest, Tax and Preference Dividend/EquityShareholders Funds x 100 Where Equity Shareholders Funds = Equity Share Capital + Reserves

and Surplus Fictitious Assets Objective and Significance: Return on Equity judges the profitability

from the point of view of equity shareholders. This ratio has greatinterest to equity shareholders. The return on equity measures theprofitability of equity funds invested in the firm. The investorsfavour the company with higher ROE.


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ROI Return on Investment or Return on Capital Employed: This ratio shows

the relationship between the profit earned before interest and tax and the

capital employed to earn such profit. Return on Capital Employed = Net Profit before Interest, Tax and

Dividend/Capital Employed x 100 Where Capital Employed = Share Capital (Equity + Preference) + Reserves

and Surplus + Long-term Loans Fictitious Assets Or Capital Employed = Fixed Assets + Current Assets Current Liabilities Some time it is calculated on Net operating profit after tax ROI = NOPAT/capital employed Objective and Significance: Return on capital employed measures the

profit, which a firm earns on investing a unit of capital. The profit beingthe net result of all operations, the return on capital expresses allefficiencies and inefficiencies of a business.

ROI calculations can be easily manipulated to suit the user's purposes, andthe result can be expressed in many different ways. When using this

metric, make sure you understand what inputs are being used.


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EPS Earning Per Share: Earning per share is calculated by

dividing the net profit (after interest, tax and preferencedividend) by the number of equity shares.

Earning Per Share

= Net Profit after Interest, Tax and PreferenceDividend/No. Of Equity Shares Objective and Significance: Earning per share helps in

determining the market price of the equity share of thecompany. It also helps to know whether the company is

able to use its equity share capital effectively with compareto other companies. It also tells about the capacity of thecompany to pay dividends to its equity shareholders.


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Return on equity

Return on equity: This ratio shows therelationship between the profit earned afterinterest and tax and the share holders capitalto earn such profit.

= Net Profit after Interest, Tax /equity x 100 Where Equity = Share Capital (Equity) +

Reserves and Surplus + P & L A/c


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Documents

Goal Congruence