Appendix B: My Years with General Motors [Part 2]

Purpose: To show students how financial controls are critical to the success of a growing business and how demands from capital appropriations, inventory build-up and earnings management are critical.

by Alfred P. Sloan, Jr.

Questions from Reading Selected Chapters

(Each student will be prepared to discuss the answers to each of the following questions in class.)

 

Chapter 8: the Development of Financial Controls

 

1.      Who originally developed the DuPont Model of emphasizing capital turnover as well as profit margin in calculating ROI?

 

2.      Who initiated the technique of displaying charts of the efficiency of divisional performance at general managers’ meetings at DuPont?

 

3.      Who, and in what year, made an effort to apply the principle of ROI in appropriating funds to the operating side of the corporation at General Motors?

 

4.      During the expansion of 1919 three problems emerged that resulted in the crisis of 1920, what were they?

 

5.      What was the financial model that is one fot he chief bases for strategic business decisions?

 

6.      The story of how General Motors survived the crisis of 1920 falls into two parts. What are they?

 

7.      Summarize the four principles that were to be satisfied in appropriations procedures.

 

8.      Under the new proposals could general managers authorize expenditures?

 

9.      How often were reports of construction in progress to be made?

 

10.  Each appropriation request was to receive consideration and analysis from whom before a commitment was made?

 

11.  What would you say about information on appropriations requests?

 

12.  Why was General Motors short of cash in 1920?

 

13.  Initially, what level in the corporation controlled cash?

 

14.  Under the consolidated cash-control system explain how each of the following worked: Depository accounts; minimum and maximum balances; transfer by telegraph; and settlement certificates.

 

15.  The corporation began calculating a month ahead what their cash would be for what time period?

 

16.  What components were considered in the month ahead cash calculation?

 

17.  What did the company do with the excess cash their cash plan generated?

 

18.  What did the Inventory Committee do?

 

19.  General Managers submitted a monthly budget to the Inventory Committee which showed estimated sales for how many months?

 

20.  Inventory levels and inventory turnover changed by how much between Sep. 1920 and Jun 1922?

 

21.  What attitude did the company take toward expectations of increased future sales?

 

22.  Eventually, what became the key and long-term solution to inventory control in the company?

 

23.  The scope of the four-month forecast was eventually enlarged to include what components?

 

24.  The enlarged forecasts were to be in the hands of the V.P. by what date?

 

25.  What was the key element in the forecast?

 

26.  How often were division managers required to report on actual unit production and sales at the factory?

 

27.  At the end of each month division managers had to report to the V.P. what three statistics?

 

28.  Where was the big gap in the information system at headquarters?

 

29.  Beginning in 1922 the division managers had to submit year end estimates of what three statistics for what three conditions?

 

30.  Complete the following sentence: “There will always be some conflict between the _____________ and the ______________, since the ______________ naturally think they can do something about a statistical situation, as they often can.”

 

31.  Complete the following sentence: “It is not often that the _____________ of a large corporation himself discovers visible overproduction by a ______________ of the inventory.”

 

32.  Complete the following sentence: “The ____________ in this instance was right and the ______________ were wrong. Everywhere the _____________ were excessive.”

 

33.  Because of the excessive inventory of 1924 Sloan developed a procedure called the “Monthly Forecast----“ of what?

 

34.  There had to be a reconciliation of what two types of people to reconcile production levels with seasonal peaks in sales?

35.  The basic problem of controlling production was determined to eventually involve what two actions?

 

36.  The corporate-wide estimate of sales was based upon what two components?

 

37.  What is the “index volume?”

 

38.  A system of statistical reports to be sent by dealers was worked out in 1924/25. What was in these reports and how often were they sent?

 

39.  What were a “pyramid of demand” and the so-called “saturation point?”

 

40.  The 1923 study failed to gauge accurately the future growth of the market largely because it underestimated the effect of what two important factors on new car sales?

 

41.  Complete the following: “Since considerations of economical _____________ and economical _____________ were thus diametrically opposed, planning and judgment were required to find a _______________________________________.”

 

42.  How was the solution to the previously mentioned problem addressed?

 

43.  How did the production schedule respond to the actual trend of retail demand?

 

44.  The objectivity and systematic use of retail demand and production schedules operated as a basic control on what other financial controls?

 

45.  The basic elements of financial control in General Motors are what four items?

 

46.  Explain the concept of “the economic return attainable.”

 

47.  Complete the following: “The ________________ thus established were compared with ________________. The heart of financial-control principles lies in such comparisons.”

 

48.  What was in Sloan’s “little black book” he carried around on his visits to divisions?

 

49.  Uniformity was essential to financial control. How did this affect the accounting practices?

 

50.  Explain the “principle of dual responsibility” for divisional comptrollers.