In CPA Canada CFE Day 1, it is typical to have 4 strategic issues. In some cases, there could be a strategic issue that have multiple options within it. For example, the issue may require you to analyze: keep vs drop, make vs. buy, repair vs replace.
In this article, I’ll discuss the best approach on how to format these issues.
Multiple Options – Quants
For each strategic issue, a quantitative and qualitative analysis is required. The same is true when a strategic issue contains multiple options. Each option will need a corresponding quantitative and qualitative analysis.
For the quantitative component, the following steps should be taken:
- Excel appendix should have a clear title and headers to separate each option.
- In Excel, choose the right technique/calculation approach and find ways to save time on set up. For example, if there are multiple product production options, you can set up your common inputs for each as the rows, and your products as the columns. This will help you avoid duplication of headers for each separate calculation.
- Include short support for calculations.
- Summarize results of each option’s quants in your memo. Include assumptions and other considerations
- Conclude which option is better and why.
At least 2-3 assumptions are needed for each quants you prepare. Be sure to have a balance between the different options if applicable.
Using Creative Toys Inc. (CTI) as an example, the first strategic issue is that the doll head division has low margins, and the board wishes to make this more profitable by automating the manufacturing or outsourcing the production to one of two suppliers. We have 3 options within 1 issue (manufacture, outsource #1, outsource #2).
For the quants, we provide NPV calculation for each scenario and conclude in the memo. The first option is to update the equipment and we write a separate interpretation of the results:
The second and third options are for outsourcing. We write a conclusion for each:
Multiple Options – Qual
For the qualitative component, the following steps should be taken:
- Using bullet form, write 4-5 pros and cons (total) for each option.
- Ensure there is a balance between pros and cons for each (i.e. not all pros or all cons).
- Integrate AT LEAST 4 situational analysis factors. There should be a balance in linking factors to each of the options within the AO.
Continuing from the earlier example, for the qual, we write pros and cons for new manufacturing equipment vs outsourcing. We would write 4-5 pros/cons for manufacture vs outsource and 4-5 pros/cons of outsource #1 vs outsource #2.
Notice how we combine the pros/cons by writing “Pros of X/Cons of Y”. This is an effective way to cover both options.
Overall, when an AO contains multiple issues, tackle each one as a sub issue with it’s own quantitative and quantitative analysis, and conclusion. Be sure then to create an overall conclusion that considers each of the issues.
Extra resources are available at CFE Review course.