I have observed that most students spend a lot of time doing the situational analysis as well as the quantitative analysis. While both are important, spending 3 hours on an NPV calculation leaves little time to the rest of the report, and there is a limit on how many marks you can get for the perfect NPV. The key is for the effort and time to be appropriate and balanced. To achieve this, I recommend using the following timeline that allows for an adequate and appropriate amount of time on each category.

Suggested timeline that worked for me and others:

**Reading Additional Info & Situational Analysis**(SWOT, constraints, Ratios, etc.) – 75 minutes**Identification and Analysis of Strategic alternatives**(Pros, Cons, NPV, etc.) – 75 minutes (no more than 45 out of these 75 minutes should be spent on calculations for alternatives)**Strategic recommendations**– 30 minutes**Operational issues**– 20 minutes**Implementation plan**– 20 minutes**Intro/conclusion/cover page/executive summary/overall review**– 20 minutes

Let me know if you have specific questions about the timeline. I plan on posting in more detail about each of these case sections in the future.

Image: Arvind Balaraman / FreeDigitalPhotos.net

Image: Arvind Balaraman / FreeDigitalPhotos.net

If we are only supposed to spend 45 minutes on calculations of alternatives how can we get it done right with all the case facts incorporated, the audit trail provided and have it all nice and accurate?

ReplyDeleteIn my SLP class, for the last practice case we had several students who got AE/ME+ and each had a completely different # for the npv for the alternatives... some had a positive npv others negative.. but they all passed the practice case with a great mark so i guess its not that important.

DeleteHi Jen, The goal should not be to get it perfect (that is just impossible given the time constraints). Aim for reasonable and appropriate. Make sure you apply the NPV concept properly, use simplifying assumptions and incorporate the key information and figures provided in the case and you should be fine. Spending twice as much time just to get it 'perfect' will not earn you that much more points but you will end up missing another part of the report and losing significant marks there.

ReplyDeleteWhen doing a quantitative analysis for alternatives keep in mind the following:

- It is ok to make some simplifying assumptions

- Make sure that you apply the concepts properly (i.e. for NPV calculations remember the following components - incremental after tax cash flows, salvage value, tax shield, tax shield lost on salvage, etc.)

- The resulting NPV should not be an outrageously large/small

- The CMA Case Exam is structured in such a way that there is room for ambiguity and assumptions need to be made. This is intentional as they are testing your ability to apply logic and make reasonable assumptions, not your ability to get a perfect NPV

- When running very low on time, it is better to use ballpark figures for the NPV analysis then to show none at all

And make sure to do an NPV for at least 2-3 of your strategic alternatives.

Do we need to calculate NPV for not-for-profit organization? I don't really know how to calculate it. PV of annaul spending + funding avaliable? Could you please help me with this?

DeleteHello,

DeleteGreat question - I think I will write a post this weekend on non for profits because there are a lot of misconceptions about them.

You do have to calculate NPV for Non-For-Profit (NFP) Organizations' strategic alternatives. Any organization, regardless of for profit or not, needs to make money to survive. A NFP organization will not be able to survive if it cannot make money and will not be much use to the community if it has to close its doors.

You calculate the NPV for NFPs the same way as for regular organizations.

The only difference that I see between for profit and not for profit is that there is more importance placed on qualitative factors in NFPs (for example if you have two strategic alternatives and one has NPV of a million and another of two million, you would then recommend the alternative that is most aligned with the NFP's mandate rather than just recommend that one with the biggest NPV). NFP or not, I would not recommend going with an alternative that has a negative NPV.

if you want tips on calculating npv check out my latest post.

DeleteCM

Hi CM,

DeleteIt is a bliss to have found this site! and thank you very much for that. For capital purchases made by NFPs, tax shields don't apply, correct?

Also, I found audit trails on quantitative very time consuming to do. Do you recommend typing out the numbers, or the formula?

Do you recommend doing each type of analysis for each alternative on a separate tab? or do we have to somehow consolidate various analysis on each alternative on one tab? or even multi-column comparative analysis on all alternatives on one tab (I found this very difficult and time consuming to do in a 4 hour limit but I usually do this on assignments that have limitation on how many pages we can use).

Thanking you in advance for offering your opinions.

i have been practicing having a standar npv template and just trying to apply it to as many alternatives as possible, so i am just pluging the numbers into my npv template and get the npv result at the end. of course i have to tweak it here and there depending on the situation

ReplyDeleteThat is a good strategy. The more you can streamline and standardize your approach, the more time you will have to analyze and solve the case.

DeleteWould you mind sharing that standard NPV template so we can see an example and create one for ourselves?

DeleteAny templates or short cuts would be appreciated.

i will put together a post discussing the npv and will include a template that I find useful (give me a few days, hopefully by the weekend I will have it up)

Deletemy approach to the backgrounder is to do a mock swot and calculate some ratios, what do you think?

ReplyDeleteI think it is a good strategy. Make sure you calculate all ratios to see which show trends that you need to pay attention to. Make sure you know the backgroudner very well to minimize amount of time that you need to refer back to it during the exam.

Delete