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Operations Management Best Practice

Best Practice

Internationally renowned finance leaders, experts and educators distil and summarize the most important aspects of finance best practice. Each Best Practice essay has an Executive Summary for quick reference, outlining the main points. The Making It Happen feature illustrates practical applications, and where relevant authors have provided illustrative case studies and definitions.

  • Building Potential Catastrophe Management into a Strategic Risk Framework
    by Duncan Martin
    What is catastrophic risk? Catastrophic risk is: Stuff happens. Some unexpected, perhaps unexpectable, natural event occurs. Half a world away from its source in southern China, SARS kills 38 people in Toronto; a nuclear reactor at Chernobyl is driven into a state its designers never even imagined, even as its operators disable critical safety features, and it explodes; events in the Middle East cause Britons to blow themselves up on the London...
  • Business Continuity Management: How to Prepare for the Worst
    by Andrew Hiles
    BC: Business continuityBCM: Business continuity managementBCP: Business continuity planBIA: Business impact assessmentDRP: A plan for the continuity orrecovery of information andcommunications technology (ICT)MCA: Mission-critical activitiesRisk appetite: The level of loss that anorganization is prepared to tolerateRTO: Recovery time objectiveRPO: Recovery point objective (of dataor transactions)
  • Business Implications of the Single Euro Payments Area (SEPA)
    by Juergen Bernd Weiss
    SEPA is one of the largest projects in the history of pan-European monetary transactions. It is another major step toward a common financial market following the introduction of the euro in 1999. SEPA, which became effective in January 2008, affects all companies doing business with European partners and sending or collecting payments in euros. SEPA not only erases the boundaries between payment service systems in the European Union (EU), but...
  • Countering Supply Chain Risk
    by Vinod Lall
    In March 2000, a fire at a Philips semiconductor factory damaged some components used to make chips for mobile phones. Ericsson and Nokia—two of Philips’ major customers—responded to the event in very different ways. Ericsson decided to let the delay take its own course, while supply chain managers at Nokia monitored the situation closely and developed contingency plans. By the time Philips discovered that the fire had contaminated a large area...
  • Customer Product Rationalization (CPR) for Ailing Businesses
    by Jeffrey T. Luftig, Steven M. Ouellette
    Every organization knows that some of its products or services, and perhaps even some customers, lose money with every sale. The problem, of course, is in figuring out which they are. There is a complex interplay between production or service provision rates, differential revenue, and costs, which all needs to be accounted for in order to make rational decisions about the product and service portfolio and customers selected. This is further...
  • Dealing with Cybersquatters
    by Shireen Smith
    Cybersquatting is to be distinguished from the business of domaining. Domainers legitimately own a large number of domain names. They use them to earn money from advertising which they place on the pages that people visit and by selling the domains later on. This use of domain names is completely legitimate.Cybersquatters will also use domains in similar ways to domainers. The main difference between the two is that cybersquatters do not have...
  • Designing Corporate Systems for Success
    by Leslie L. Kossoff
    In best-of-breed organizations, no matter what industry or sector, the two questions everyone always asks are: “What more?” and “What else?” Then they go there—no matter where “there” is. Because they can. Because they have designed their management and decision-making systems—from personnel and payroll to IT and R&D—to ensure that the organization and everyone in it is set up to succeed.
  • Dispute Resolution: The Forum Selection Clause
    by Elisabeth de Nadal, Víctor Manuel Sánchez
    When two companies start a business relationship, they do not wish future conflict or discrepancies to arise; company managers are human beings, and most human beings begin relationships confident that they will work out well.However, as with all human relationships, it is natural that differences may occur. This is why contracts should include dispute resolution clauses and a forum selection clause—sometimes just called a forum clause. More...
  • Electronic Invoicing in the European Union
    by Hansjörg Nymphius
    Europe is entering a crucial stage in the development of electronic invoicing. The European Commission (EC) has made the development of e-invoicing an objective in both the 2002 and the 2005 eEurope Action Plans.1The invoice, just to summarize, consists of an itemized account of goods shipped, services performed or work done, an amount expended or owed, and a demand for payment. It may contain a range of other administrative or logistics...
  • Essentials for Export Success: Understanding How Risks and Relationships Lead to Rewards
    by Paul Beretz
    More and more, companies located throughout the world are recognizing that the way to sustain long-term growth is not by continuing to emphasize local, in-country markets. Whether it be for better or worse, global business is a factor that can provide businesses with the opportunity to consider new and challenging markets. In 2008, we saw that severe credit and financial issues could spread quickly, and that no part of the world was immune....
  • Exporting Against Letters of Credit
    by Buddy Baker
    Letters of credit (LofCs) are a time-honored means of payment for international shipment of goods. Although the vast majority of letters of credit get paid when drawn upon, it is a mistake to think of them as guarantees. Rather, LofCs have specific rules governing how payment works. If sellers do not comply with these rules, they risk not being paid when shipping goods—which is precisely the risk that letters of credit are supposed to guard...
  • Financial Techniques for Building Customer Loyalty
    by Ray Halagera
    Every organization knows that in order for it to survive, let alone grow, it has to acquire and then retain profitable customers. And it is loyal customers that generate increasing profits for each additional year they are retained.Acquiring new customers can cost five times more than retaining current customers.1 A 2% increase in customer retention has the same effect on profits as cutting costs by 10%.2 A 5% reduction in customer defection can...
  • Fraud: Minimizing the Impact on Corporate Image
    by Tim Johnson
    The threat of fraud is faced by all organizations regardless of their size or sector. From the perspective of reputation management, controlling the impact of fraud is particularly challenging for two reasons:That an organization has become a victim of fraud suggests either that someone in the organization is corrupt, or that the organization and its compliance systems are vulnerable. Neither possibility inspires confidence. The word “fraud” has...
  • How to Manage Emerging Market Risks with Third Party Insurance
    by Rod Morris
    There are numerous issues that investors and companies must consider when contemplating an investment in a foreign country. Take for example, cultural differences, the tax regime, foreign currency exchange restrictions, the regulatory and legal environment, the judicial system, and security requirements for both assets and employees. For emerging markets in particular, each of these factors can be further complicated by the potential for...
  • International Arbitration: Basic Principles and Characteristics
    by Stavros Brekoulakis
    International arbitration can be defined as a specially established mechanism for the final and binding determination of disputes concerning a contract between two or more parties that has an international element. The disputes are determined by independent arbitrators in accordance with standards and procedures chosen by the parties involved in the dispute.1The distinctive feature of arbitration is that it is a private dispute resolution...
  • Islamic Finance Litigation
    by Kilian Bälz
    This article deals with litigation-related aspects of Islamic financing transactions. It focuses on those enforcement and litigation issues that arise specifically from the shariah-compliant nature of a certain transaction—so-called shariah risk. It is based on an analysis of relevant court precedents, and provides concrete suggestions of what to bear in mind when drafting shariah-compliant agreements and capital market documents. It concludes...
  • Managing Operational Risks Using an All-Hazards Approach
    by Mark Abkowitz
    For the purpose of this discussion, Operational Risk Management (ORM) is considered to be the policies, methods, practices, and institutional culture that enable an enterprise to understand, prioritize, and control risks that threaten the well-being of the organization, its business partners, communities in which it operates, and society at large.The cost of poor operational risk management can be excessive, considering that the occurrence of...
  • Multiparty and Multicontract Arbitration
    by Stavros Brekoulakis
    Contemporary international transactions are extremely complicated and very often require the participation of several parties in the delivery of a single project. For example, a typical construction project will usually involve—apart from a client and a main contractor—an engineer and/or an architect, several subcontractors, suppliers, financiers, and possibly additional commercial parties. Therefore, a dispute that might arise between the...
  • Reducing Costs through Change Management
    by Beverly Goldberg
    Today, globalization, technological advances, scientific developments, and new business theories and processes are forcing businesses to make changes over and over again, often introducing yet another change before the last round undertaken has been implemented. The changes that must be made to ensure success in so highly charged a business environment requires changes in the work that people do, the way they do it, the environment they work in,...
  • Reducing Costs through Production and Supply Chain Management
    by Vinod Lall
    IKEA, the Swedish home products retailer, is known for its good-quality, inexpensive products, which are typically sold at prices 30–50% below those of its competitors. While the price of products from other companies continues to rise over time, IKEA claims that its retail prices have been reduced by a total of 20% over the last four years. At IKEA, the process of cost reduction starts at product conception and continues throughout the process...
  • Risk Management: Beyond Compliance
    by Bill Sharon
    Over the past decade the line between risk management and compliance has been blurred to the point where, in many organizations, it is impossible to determine if they are not one and the same. In part, this confusion between the two functions was initiated and then exacerbated by the passage of the Sarbanes–Oxley Act of 2002 and the implementation of Basel II. Both of these events consumed a great deal of resources, and many consulting firms...
  • The Impact of Climate Change on Business
    by Graham Dawson
    The standard approach to assessing the economic impact of climate change on business requires giving a monetary value to the costs that may be incurred by those affected and the benefits that may accrue to them.The most comprehensive attempt to do this is the Stern Review (2007), commissioned by the UK government, which predicts severe impacts from an average global temperature rise of 2–3°C within the next 50 years or so. These impacts include...
  • Understanding the UCP600
    by Buddy Baker
    In May 2003, the Banking Commission of the International Chamber of Commerce (ICC) began revising the international rules for letters of credit, known as the Uniform Customs and Practice for Documentary Credits. The process took three and a half years. The ICC published the new rules in their publication number 600, commonly referred to as the “UCP600,” and set the effective date as July 1, 2007. This article describes the UCP rules and their...
  • Using Decision Analysis to Value R&D Projects
    by Bert De Reyck
    Project portfolio management, the equivalent of financial portfolio management but focused on R&D projects rather than financial assets, often relies on decision analysis methods to value projects rather than traditional financial valuation methods such as net present value (NPV). In finance, the idea of managing portfolios of assets goes back a long time, with the first formal methods being developed in the 1950s. Simply put, assembling a...
  • Winning Commercial Tenders
    by Damian Merciar
    Before a vendor or bidding contractor can consider whether his or her deliverable output is aligned with the client’s desired outcome, the client must fully understand what it is they want to achieve by the project. A clearly defined project will greatly assist the vendor in removing the element of second-guessing the client.Fundamentally, the scope of a project comes down to three things:Understanding the client: Appreciate where the client is...

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