Difference between Firm's and Project Financial Reporting, Financial and Management Accounting - Case Study Example

COMMERCIAL PROJECT MANAGEMENT Table of Contents Table of Contents 2 Part 3 Difference between organizational financial reporting and project financial reporting: 3 ResortLife Development Case: 3 Difference between financial accounting and management accounting: 4 Reflection of project stages in financial statements: 4 Difference between contingency reserve and management reserve: 5 Part 2: 5 Critical Review of Strategic Procurement and Supply Chain Management: 5 Part 3: 7 Decision Making Styles: 7 Reflect on task process and relationship you observed during the work shop: 8 Lessons learned during the simulation that can be applied in the real world: 9 Reference List: 11 Part 1: Difference between organizational financial reporting and project financial reporting: Organizational financial reporting includes a much bigger perspective in comparison to that of the project financial reporting. The organizational financial reporting focuses on reflecting the overall performance of the company and evaluates the .net present value of the firm in order to assess the existing position of the organization (Financial Accounting Standards Board, 2006). The organizational financial reporting comprises of balance sheet, profit and loss statements, cash flows, etc. On the other hand, project financial reporting is solely focused on the operations of the project (Ingram and Albright, 2009). The financial reporting of a project includes the budgeting, the estimation of the resources, the risk identification and the impact of the risks and uncertainties on the project completion process. The primary area of conflict in the organizational and the project financial reporting is the consideration of time frame of the financial statements. ResortLife Development Case: The construction of ResortLife Development reflects many costs and conditions that were not being considered in the initial planning. The inclusion of new changes in the project is also delaying the completion. Moreover, purchase of the custom-made glazed tiles went in vain for the construction project because of the changes in the planning process. It was an erroneous decision as the tiles would have been required after 9 months and could have been purchased in a later project stage (Seetharaman, Moorthy and Saravanan, 2011). Moreover, the inclusion of the drainage improvement process will also increase the cost of the project (Ingram and Albright, 2009). The increase in cost can be minimized by conducting multiple activities at the same time; this will reduce the resources and man hours used for project completion. Difference between financial accounting and management accounting: Financial accounting is mainly used by the external stakeholders of the company such as the shareholders, investors, customers and other regulatory bodies for measuring the performance of the company whereas management accounting is used for the internal stakeholders of the company such as managers and employee base (Seetharaman, Moorthy and Saravanan, 2011). Financial reporting presents the historical performance of a firm while management accounting focuses on the present and the future prospects of a firm. The financial statement reflects the overall of the entire organization whereas management accounting is developed in more specific manner considering the internal segments of the business (Ittelson, 2009). Reflection of project stages in financial statements: During the planning phase of a project, it is reflected in the Assets side of the balance sheet. The project planning process also includes expenses that can be treated as capital expenditure and can be deducted from the capital of the company under the liability section of the balance sheet to nullify the impact of project planning process (Financial Accounting Standards Board, 2006). In case of the development phase of the project, most of the project activities lead to expenses and resource utilization and is entered in the profit and loss statement in the expense side (Seetharaman, Moorthy and Saravanan, 2011). Finally, after the project is completed, it is shown in the revenue section under the Assets in the Balance sheet. Difference between contingency reserve and management reserve: The purpose of both contingency reserve and management reserve is to manage the risks and uncertainties faced by a business. However, contingency reserve is developed on the basis of the proper estimation based on various risk management strategies by the organization. On the other hand, management reserves are randomly taken based on the organizational policy (Ingram and Albright, 2009). Contingency reserve is being monitored and controlled by the project manager whereas the management control the management reserve and is generally does not operate within the project team. In case of uncertainties, the project manager has to get approval from the concerned manager for using the management reserve (Seetharaman, Moorthy and Saravanan, 2011). Meanwhile, in case of contingency reserve the project manager has the authority of using the reserve as seen fit or the authority can be transferred by the project manager to any other project person. Part 2: Critical Review of Strategic Procurement and Supply Chain Management: The observation and analysis of the strategic procurement articles are mainly based on improving the supply chain and the procurement process of the business houses. Lewis and Roehrich (2009) focused on the importance of integration in the supply chain process with the help of contracts and relationships. The paper reflected the influence of the public and private agencies on the supply chain integration process and how integrations can be used for ensuring smooth operations. However, Lewis and Roehrich (2009) mainly stated the impact of the internal and external structure on the process of integrating the supply chain process. Ittelson (2009) argued that integrating of the supply chain undoubtedly enhances the operational excellence but also increases the risk of complete system failure. In this regard Lewis and Roehrich (2009) suggested that business firms are now trying to develop vertical integration for enhancing supply chain efficacy. OBrien et al. (2009) focused on the managerial aspects of construction projects and the process to evaluate the best practice in the construction project management process. The managerial decision making process in a construction project is often focused on the resource procurement, budget control and time management techniques. OBrien et al. (2009) emphasized that construction managers don’t generally consider the operational tasks and leave them under the guidance of the supervisors. This is creates gap in the working style. The process of procurement for the project needs to be developed by including techniques such as supplier sourcing and supply chain integration. However based on the variety of projects and the diversity in the management styles the best practice for project management cannot be set specifically (Christopher and Juttner, 2000). The report of Infrastructure Partnerships Australia is based on analyzing the Public-Private-Partnerships (PPPs) in the procurement process of projects. The report highlighted the importance and use of PPPs for improving the time management process and the cost control aspects of project management. OBrien et al. (2009) mentioned that connecting the various stakeholders of a project in order to enhance the work efficacy and reduce the cost of operations also improves the project outcome. However, in order to develop an intensive integration among the project stakeholders, there has to be a steady communication process which should support the project nature. This strategy was also supported by Christopher and Juttner (2000) stating the importance of strategic partnerships in the supply chain process of projects. The relationship buildup process between the suppliers and the project team can be established with a long term view but there has to a supportive interface for creating competitive advantage with strategic partnerships. Managing the relationships by the concerned parties is also essential for gaining competitive advantage and the gain control over the time and cost factors of a project. The research of Kwon (2004) focused on the trust building process between the suppliers and the project team for developing a sustainable relationship. Kwon (2004) stated that lack of trust among the parties to a contract can reduce the effectiveness of the transaction and hamper the project development process. Christopher and Juttner (2000) reflected on the lack of quantifiable evidence in this respected but OBrien et al. (2009) supported the notion of trust and its importance in order to gain absolute commitment from the business process. Part 3: Decision Making Styles: Decision making process of every individual differs based on their experience, situation and their intentions (Salem et al. 2013). In this segment, the decision making style of the Royal Commission of Jubail City in Saudi Arabia will be analyzed. The Royal Commission of Jubail City is currently working for developing the Jubail Industrial City. The activities of the Royal Commission of Jubail City reflect prospect theory of decision making process (Royal Commission of Jubail City 2014). The project making team believes in pursuing the scope of improvement by nullifying the risks and uncertainties that may exist in the project completion process. Aviad and Roy (2012) stated that the decision making process of a project team creates the direction of work for the project and noted that prospect decision making process is a optimist approach. However Salem et al. (2013) argued that the most influential factor in the decision making process of a project is the optimism bias and the halo effect. The optimism bias reduces the ability of a tam to identify and mitigate the risks. For instance, during the construction of the world’s tallest building Burj Khalifah, sudden increase in price of the raw materials due to global recession had increased the budget by 50% and the project was completed 9 months after the estimated time period (Gu, Bohns and Leonardelli, 2013). However, in case of Royal Commission their organizational structure also supports the decision making process. They have a hierarchical structure that has individual categories for each of the ongoing projects (Royal Commission of Jubail City 2014). This has created the scope of making authoritative decisions with the influence of external bodies. Aviad and Roy (2012) observed that including a rational decision making approach with the prospect decision making style will help in increasing the efficiency of the project planning. Rational decision making allows the project manager to identify all the possible options that can be applied in case of any risks or obstructions. Royal Commission of Jubail City, also needs to understand the importance of shared decision making style that will also build a communication platform among various levels of its hierarchical structure. Reflect on task process and relationship you observed during the work shop: During the workshop, our team was focusing on improving the team capability with the help decision making process. The voting system was implemented in order to ensure that all the team members were in the same page. This also allowed me to share some valuable ideas during the workshop. The performance of our team during the block workshop can be best explained with the help of the Tuckman’s model. The initial phase was the team forming process where the team protocol sheet was developed and this made all the team members wonder if the right role was assigned to the right person. However, the roles were continuously changed among the team members that made it easy for us to overcome the storming phase. During the norming phase, the risk register was maintained and the diversity in performance of the team members increased during the simulation process. The team reached the performing phase when the simulation was more challenging however, on reaching the adjourning phase the team was celebrating its good position and performance. Lessons learned during the simulation that can be applied in the real world: a- The simulation was a real life business journey in Appleton City. Selecting the business type, making our business strategy, value consultant, project management companies etc., it was a good way for evaluating the decision we made in each step for building the business. The review process also helped in judging the decision making process based on the selection of choices. b- Understanding the potential risks in my business and how to balance between the risk and reward, looking to the world from different perspectives of lenders and brewers. c- How to convince the lender to give me the money I need for doing my business, and the potential questions that could be asked to me in order to convince the lender. Questions such as what is the business, why we need to do this business and how I will deliver it were asked? d- Understanding the contract type is very important in the business because it give knowledge base of how sharing and transferring the risks in business. e- How market changes could influence your business dramatically , therefore f- The project manager has to spend more time collecting information and business small details in order to cover all project aspects. g- I was not familiar with loan process in real life business and the model helped me to live the moment, especially when the other team (lender) was trying to examine us as a borrower to understand why we need more money and why we made the decision in a repetitive manner. h- Building the accurate and completed model for your business and spend more time on it will help you to avoid potential risks in the future. Reference List: Aviad, B., and Roy, G. 2012. A decision support method, based on bounded rationality concepts, to reveal feature saliency in clustering problems Decision Support Systems, 54 (1), 292-303. Chirstopher, M and Juttner, U 2007. Developing strategic partnerships in the supply chain: a practitioner perspective, European Journal of Purchasing & Supply Management, 6, 117-127. Financial Accounting Standards Board 2006. Financial Statement Presentation – Joint Project of the IASB and FASB (formerly known as Financial Performance Reporting by Business Enterprises). FASB, Stamford, Connecticut Gu, J., Bohns, V.K., Leonardelli, G.J. 2013. Regulatory focus and interdependent economic decision-making. Journal of Experimental Social Psychology, 49 (4), pp. 692-698. Infrastructure Partnerships Australia, 2008. Performance of PPPs and Traditional Procurement in Australia. Available at: < http://www.infrastructure.org.au/> [Accessed on 19/10/2014] Ingram, R. W. and Albright, T. L. 2009. Financial Accounting: Information for Decisions - Page 142 4th ed. Harlow: Prentice Hall Companion. Ittelson, T. R. 2009. Financial Statements: A Step-By-Step Guide to Understanding and Creating Financial Report, 5th ed. Bedford, London: Thomson Learning. Kwon, I.G. and Suh,. T. 2004. Factors Affecting the Level of Trust and Commitment in Supply Chain Relationships, The Journal of Supply Chain Management, Spring, 4-17. Lewis, M.A. and Roehrich, J. K. 2009. Contracts, relationships and integration: towards a model of the procurement of complex performance, Int. J. Procurement Management, 2(2), 125-142. OBrien, W.J., et al (eds) 2009. Construction Supply Chain Management Handbook, CRC Press, Boca Raton. Royal Commission of Jubail City 2014. Environment. Available at: [Accessed on 19/10/2014] Salem, O.M., Miller, R.A., Deshpande, A.S., and Arurkar, T.P. 2013. Multi-criteria decision-making system for selecting an effective plan for bridge rehabilitation, Structure and Infrastructure Engineering, 9 (8), 806-816. Seetharaman, A., Moorthy, M. K. and Saravanan, A. S. 2011. A New Approach to the Preparation of Consolidated Financial Statements of Group Companies, The Review of Financial and Accounting Studies, 1, 326-341. Read More