Shareholder value - measure for project management value, Project Management

Assignment Help:

Shareholder value

Project management initiative brings a renewed interest among the shareholders. The major investors show more interest by becoming active in the organisation's performance. Earlier punishing the top executives for failing delivery returns was a rare scenario, however currently it is very common. The shareholder value is often an indicative measure to measure the performance. The shareholder value has no clear definition but was generally taken as the measure of whether the organisation had created or destroyed  the wealth for  their  shareholder.  In the  recent  years  a  more reliable measure has been sought. This includes development of two methods - Market Value Added (MVA) and Economic Value Added (EVA).

As the system of analysis, MVA targets to strip out most of the anomalies developed by the accounting standards to give a correct picture about the shareholder value. The basic calculation is to take the amount of money given to the management which is measured by the adding up the money raised through the shares that have been issued, the borrowings and earnings retained. This gives the measure of how much the outsiders had given to the organisation, since it was found. It then takes the present value of the organisation's shares and the debt to measure how much money the investors could get out of the business. The difference is the MVA which is the measure of how the executives running the organisation have fared with the capital which is under the control since the time of organisation's establishment. If the MVA is positive then it means that the value has been created for the investors. If it has been found negative then it means that the investors' money has been destroyed.

The EVA takes after the tax operating profit for the organisation and also compares it with the cost of capital. The cost of capital is an economic concept which includes more than just the interest paid to the bank and also the dividend to the shareholders. For each organisation, the cost of capital changes quite widely. Some of the industries are more risky than the others and the investors will accept lesser returns from the organisation. For example investors will accept lower returns form a big established food group than a fledgling software company. This is because, the food organisation  can  generate  stable  returns  and  it  is  quite  likely  that  the software company will stumble. The EVA shows the difference between the profit an organisation makes and the cost of the capital. If the cost of the capital is not covered along with a reasonable margin then the logical conclusion is that it might have been better if the investor's money might have been placed else where or if the new management team were brought in to make good use of the capital.

If the organisation is consistently developing the EVA every year then the MVA begins to rise. If the EVA is negative then the MVA will begin to fail. MVA is a good guide to where the organisation has come from but the EVA is better guide to where it will go. Of course the shareholder value will relate to the people who will effectively own the organisation.

The growth in the economic profit is considered as the main driver for creating the shareholder value. Some of the firms regard the free cash flow as the driver and also this is similar to the economic profit. The shareholder value measurement should allow the firm to drill down and also to translate the measurement to individual business units. For example, if the board decides that it wants to increase the economic profit by 20 per cent then they can pass the figure (the percentage) down to individual business and also increase the economic profit in the business or divisions. The economic profit can be easily linked to the incentive and the remuneration plan. Apart from  customers  the  organisations  will  typically  have  other  stakeholders whose attitudes and perceptions are important and will have to be managed. These include, for example, the organised labour, the regulators, and the business partners. The pertinent metrics typically depend on the type of the stakeholder and the ways in which the attitudes of the stakeholders are typically expressed or will impact the interests of the organisations. Often the metrics for the shareholder value will consist of the metrics required to recognise. It characterises the importance of the concerned stakeholder group and the metrics will indicate the anticipated reaction of the groups.


Related Discussions:- Shareholder value - measure for project management value

Explain the reasons for conflicts in project management, Question : Con...

Question : Conflict refers to any situation in which there are incompatible goals, thoughts or emotions within or between individuals or groups. For effective management of con

Distinguish between quality control and quality assurance, Question 1: ...

Question 1: (a) Explain briefly the different steps in an Environmental Impact Assessment study. (b) Give the constraints of the process of Environmental Impact Assessment (

Project Planning Appraisal and Control, 2. Why Conflicts arise between two ...

2. Why Conflicts arise between two or more mutually exclusive projects? Analyse the situations where conflicts may arise and suggest how these conflicts can be resolved.

Changing customer demands and strong competition, In response to changing c...

In response to changing customer demands and strong competition, the new product development team of Z Company has been working on a new product range. However, the process has not

Define and illustrtae the term maintenance strategy, Problem: (a) Def...

Problem: (a) Define and illustrtae the term Maintenance Strategy? Support your answers with relevant examples. (b) Describe the steps that will be taken to improve the

Prepare an action plan based on your findings, As a newly appointed rector ...

As a newly appointed rector of your school, you have received many complaints from students .It is your aim to " democratise quality ", that is to make quality control comprehensib

Factors can make competitive rivalry between organisation, DF Company, a re...

DF Company, a relatively new company, is in the business of designing and building farm equipment and machinery. Whilst it has been winning in its first few years of operation, sal

Define balance of payments, Balance of Payments A summary of balance o...

Balance of Payments A summary of balance of payments in the statement of international transactions between U.S. residents and residents of foreign nations serves as a measure

Project cost accounting, P o w e rful cost reduction The project co...

P o w e rful cost reduction The project cost accounting will track the quality-related costs which can be an important management tool. For example, suppose there are some

Principle of total quality management, 1. Objective ( Theme ) : Continuous...

1. Objective ( Theme ) : Continuous quality improvement at every level at every place and at every stage. 2. Approach :Management involvement and leadership, Empowering s

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd