AMA Plc (AMA) provides online educational services to their clients in the higher education sector. The company offers its products in a package which includes online courses and supporting materials for follow up reading and self-paced practices. In the recent years, the company has experienced rapid growth rate and is operating beyond its initial expansion plans. While management is excited about the growth, they remain concerned about the financial viability due to the rising operating costs, particularly the overhead costs. The company is also uncertain about the sustainability of market demand, given that more new players are entering the market that AMA operates. 

During the recent Company Away Day, management from different levels and across business functions gathered to brainstorm ideas and exchange views about how AMA may better position itself in the increasingly competitive environment. Amongst the many points that had emerged, the CEO, Mdm AMA, has endorsed the following with high priority: 

 The company needs to review its current budgeting practice. AMA adopts a flexible budgeting system and uses it as the basis to conduct its monthly variance analyses. The budgeting system seems to be less talked about in recent management meetings. Managers generally find the system unable to equip them with information needed to respond to the market in a timely manner. 

Moreover, the system primarily draws the attention of budget holders to achieve the targets set for their respective business units. This is becoming an increasing issue when the company as a whole needs to respond to the fast-paced changes in the external environment. The review of current practice is aimed to seek better or alternative approaches that support its management. 

 The company needs to be customer centric in the way it operates. Specifically, AMA needs to understand the preferences of existing customers and be able to improve customer satisfaction. The company must also understand the needs of prospective customers and be able to influence the customer’s selection process and increase the convergence rate. 

Additionally, AMA needs to be clear about the trends in customer demands, and be ready to price the products in response to such trends. Last but not least, the company must be able to seize opportunities to increase revenue from its registered clients by promoting further online educational services that may be of interest to them.

  The company needs to assess and manage the risks in its business in order to stay resilient and viable. One key risk is the rising operating costs, particularly the overhead costs. Following a lengthy discussion, the following risk management strategies were proposed:

Strategy 1. Take limited or no action to reduce the exposure to risk relating to operating costs.

Strategy 2. Cease the production of online educational services. This would be pursued if the impact and probability of incurring losses were considered to be unacceptably high and there were no options for reducing the cost levels.

Strategy 3. Outsource some of its production and convince the outsourcee to share the rising costs. This will mean that AMA accepts only a portion of the risk.

Strategy 4. Reconfigure its production capacity to produce products based on their profitability, hence reducing or removing some product lines in the overall portfolio. This strategy would involve departments within the inbound logistic, operations and outbound logistic to support the reconfiguration.

(a) The CEO has approached you, the Management Accountant, to provide a critical discussion on the extent to which Beyond Budgeting could perform better than the current budgeting practice in improving the performance of AMA. (20 marks)

(b) The management suggests that big data could be used to achieve more. Provide a critical evaluation of the usefulness of big data in supporting the company to become customer centric, highlighting the potential implications that big data may have on the company’s management information systems. (15 marks)

(c) Critically evaluate, against the TARA risk management framework, the strategies that AMA has formulated in managing the risks of rising costs in its business. (15 marks) [50 marks]