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ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008
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ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

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Page 1: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

ACCA Paper P5 – Advanced Performance management

Course slides

For exams in June 2008

Page 2: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 2

Syllabus

A Strategic planning and control

BEconomic, fiscal, market and environmental factors

CPerformance measurement systems and design

D Strategic performance measurement

EPerformance evaluation and corporate failure

FCurrent developments and emerging issues in performance management

Page 3: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 3

Examiner & Format of the Exam

Examiner: Shane Johnson

Examiner: Shane Johnson

Format of the Exam Marks

Section A Two compulsory questions 60-70

Section B Two questions from a choice of three up to 20 marks each

30-40

Total 100

Page 4: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 4

The December 2007 exam

Topics examined in the December 2007 exam

Question 1 Operating and financial performance measurement, performance comparisons

Question 2 Residual income, EVA

Question 3 Sensitivity analysis, CSF, ERPS

Question 4 ABM

Question 5 Porter’s five forces, corporate failure

Page 5: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 5

The BPP Learning Media classroom slides

What do these slides cover?– A selection of key areas of the syllabus

Using the slides – Use the slides as a point of reference– Add detail by talking around the slides (eg

using material from the corresponding Study Text chapter)

– Consider adding slides yourself to suit your course

– Recommend students attempt appropriate questions from the Practice & Revision Kit

Page 6: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 1

Introduction to strategic

management accounting

Study Text Chapter 1

Page 7: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 7

Management Information Hierarchy

• Anthony’s HierarchySTRATEGIC PLANNING

MANAGEMENT CONTROL

OPERATIONAL CONTROL

Page 8: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 8

Roles of management accountant

• Information

• Control

• Targets

• Rewards

Page 9: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 9

Strategic Planning

• Strategy

– A course of action to achieve a specific outcome

• Strategic Planning

– The formulation, evaluation and selection of strategies for the purpose of developing a long-term course of action.

Page 10: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 10

Strategic Planning

•Scope

•Characteristics

•Information

Page 11: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 11

Management Control

•Scope

•Characteristics

•Examples

Page 12: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 12

Operational Control

•Scope

•Information

Page 13: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 13

Rational model

• 3 main stages

– Strategic analysis

– Strategic choice

– Strategic implementation

• of our current position

• to get to our desired future position

• to make a success of our strategic choice

Page 14: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 14

Key features of planning model

• Strategy to achieve objectives

• Formal process

• Led from top

• “Drilled-down” through organisation

Page 15: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 15

The rational model

MISSION &OBJECTIVES

CORPORATEAPPRAISAL

STRATEGICOPTIONS

STRATEGICCHOICE

STRATEGICIMPLEMENT’

STRATEGICCONTROL

ENVIRONMENTANALYSIS

POSITIONAUDIT

Page 16: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 16

The rational model

Advantages

• Guides activities

• Provides a standard

• Communicates

• Legitimacy

• Identifies risks

Problems

• Assumes formality

• Separate from operations

• Bureaucratic

• Inflexible

• Lack commitment

Page 17: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 17

• PEST

• Porter’s 5 forces

– Understand inherent attractiveness of industry

– Understand impact of individual forces

Environmental Analysis

Page 18: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 18

Corporate Appraisal

Identify

• Strengths

• Weaknesses

• Opportunities

• Threats

MISSION &OBJECTIVES

INTERNAL ANALYSIS

ENVIRONMENTANALYSIS

CORPORATEAPPRAISAL

Page 19: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 19

Position Audit

Identify

• Strengths

• WeaknessesMISSION &OBJECTIVES

INTERNAL ANALYSIS

ENVIRONMENTANALYSIS

CORPORATEAPPRAISAL

Page 20: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 20

INTERNAL : RELATIVE TO COMPETITION

WEAKNESSES

rectify

STRENGTHS

exploit

EXTERNAL: PRESENT TO ALL INDUSTRY MEMBERS

OPPORTUNITIES

seize

THREATS

nullify

SWOT Analysis

Page 21: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 21

Gap analysis – fixed period

OBJECTIVE

FORECAST

SALES

TIME

GAP

Page 22: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 22

Gap Strategies

• Efficiency

• Diversification

• Expansion

Page 23: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 23

Product life cycle (PLC)

Time

Sales Volume

Introduction Growth Maturity Decline

Profit

Sales

Page 24: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 24

Lecture Example 1

• What advantages and disadvantages do large companies such as Marks & Spencer face when relying on the rational model to derive new strategy ?

Page 25: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 25

Lecture Example 1

Advantages

• Focus on key strategic issues and risks

• Coordinates and integrates diverse business activities within the organisation

• Improves communication with stakeholders

• Encourages goal congruence

• Avoids damaging short termist behaviour

Page 26: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 26

Lecture Example 1 cont..

The drawbacks of rational planning include

• Too infrequent to allow the business to operate flexibly and dynamically

• Deters creative, innovative and radical strategy making

• Loss of entrepreneurial thought processes

• Could cause firm to pursue wrong policies if planning assumptions of plan are wrong

• Can be complicated and difficult to implement because there is only limited staff involvement in the planning process

Page 27: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 27

Freewheeling opportunism

Advantages

• Short term opportunities grasped

• Reactive

• Encourages initiative

• Creative

Disadvantages

• Control difficult

• Long term opportunities missed

• Purely profit driven

• Not Proactive

“..should not bother with strategic planning..”

Page 28: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 28

Benchmarking

How

• Understand your own business processes

• Establish who/what to benchmark

• Collect and analyse data

• Implement improvements

Page 29: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 29

Benchmarking

Who

• Internal – between SBU’s

• Functional – best in any industry

• Competitive – direct competitors

• Strategic – competitors’ strategies

Page 30: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 30

Benchmarking – why ?

Advantages

• Position audit

• Identify CSF’s

• Identify potential advantage

Problems• No best solution• Reactive• Information

dependant

Page 31: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 31

Risk & Uncertainty

Accounting for risk

• ROCE

• Payback

• NPV

• Cost-benefit

Quantify risk

• Rule of thumb

• Probability

• Sensitivity

• Standard deviation

Page 32: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 32

Question practice – end of Chapter 1

Q1

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q2 Q3 Q4

Page 33: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 2

Alternative approaches to budgeting for

control

Study Text Chapter 2

Page 34: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 34

Budget Cycle

Determine Budget

Operate

Control Planning

Page 35: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 35

Budgeting and budgetary control - Summary

• Budgeting is part of planning & control

• Managers should only be assessed on those items they can control

• Feedback control is reactive, feedforward proactive

• The level of budget set and the amount of participation will impact motivation

Page 36: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 36

Budgeting and budgetary control - Summary• Flexible budgets are ideal for planning, flexed

for control

• Incremental budgets build in slack and inefficiency, ZBB uses efficient allocation of resources

• Rolling budgets are useful in time of uncertainty

• ABB looks at managing the causes of costs

• Beyond budgeting focuses on cashflow forecasts and KPI’s

Page 37: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 37

Fixed/Flexible/Flexed Budgets

• Fixed– original budget based on single level of

activity

• Flexible– to cope with different levels of activity– useful at planning stage

• Flexed– necessary as a control device– based on actual activity level

Page 38: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 38

Alternative budget models

• Incremental v Zero Based Budgeting– more efficient allocation of resources– budgetary slack discouraged– resistance– time/effort

• Periodic v Rolling (continuous) Budgets– producing more realistic budgets

• ABB

• Beyond Budgeting

Page 39: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 39

Beyond Budgeting

Adaptive management

process

Adaptive management

processEmployee

empowerment

Employee empowerment

Move away from traditional budgeting

Page 40: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 40

Behavioural aspects of budgeting

• Impact of budgeting system on human behaviour:

– unites employees against management– possible negative results– protective groups– finding fault– victimised– express superiority

Page 41: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 41

Question practice – end of Chapter 2

Q5

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q6 Q7 Q9 Q10

Page 42: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 3

Changes in business

structure and management

accounting

Study Text Chapter 3

Page 43: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 43

Traditional v Modern Manufacturing

• Traditional

– focus was on manufacturing in long production runs

– any idle-time was adverse

– little product diversity

– Buffer inventory– Production is

priority– Focus: COST

• Modern

– produce in shorter production runs/producing on demand

– inventory is unacceptable & will accept some idle-time

– complex/diverse product ranges

– Customer is priority– Focus: FLEXIBILITY

Page 44: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 44

Quality management

Traditional

• Not value adding

• Resource intensive

• Tolerance of waste within limits

TQM

• Get it right first time

• Constant improvement

• Design for quality

• Quality costs defined:– Appraisal– Internal failure– External failure– Prevention

• Abandon variances

Page 45: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 45

Elements of TQM

• Work teams given responsibility for their area

• Clear identification of ‘customer’

• Clear identification of ‘supplier’

• Quality circles

• Any bonus paid on quality improvements

Page 46: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 46

Implications of TQM

• Cross functional teams – new control systems

• Multiple measures for teams

• Resources required to implement improvements

• Management Accounting should be a quality circle (supplier/customer to/of other areas)

Page 47: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 47

Functional organisation

Accounts Production

Company

PurchasingSales

Page 48: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 48

Departments & Divisions

Department – functional specialism

Division – semi-autonomous business unit

Advantages• Lower staff input• Product comparisons• Uses local knowledge• Junior staff morale

Disadvantages• Co-ordination• Loss of control• Conflict

Page 49: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 49

Divisionalisation approaches

• Functional departments

• Geographic division

• Product/brand division

• Customer/market

Page 50: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 50

Centralisation v Decentralisation

Pro-centralisation

• Central decisions

• Wider view

• Resource allocation

• Cheaper management

• Crisis decisions

Pro-decentralisation

• Management overload

• Junior managers morale

• Local decisions

• Faster decisions

• Develop junior managers

• Separate spheres of responsibility

Page 51: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 51

Multi-Divisional

P ro du c t 1

F in an ce M a rke ting P u rcha s ing

P ro du c t 2 P ro du c t 3

C o m p a ny

Page 52: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 52

Network organisations

Functions1 2 3

ClientsA

B

C

Line Authority

Outsourcing

Page 53: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 53

Porter’s Value Chain

• Identifies specific points where a firm can organise and perform its activities most effectively to gain competitive advantage

• Benefits along the value chain can be achieved due to integration, automation and better information exchanges

Page 54: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 54

InboundLogistics

Operations OutboundLogistics

Marketing& Sales

Service

Procurement

Human Resource Management

Technology Development

Firm Infrastructure Support Activities

Value Chain

Page 55: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 55

Business Process Re-engineering

• Start from scratch

• Re-define business processes

• Add value to customers

•FUNDAMENTAL

•RADICAL/DRAMATIC

Page 56: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 56

Steps in BPR

• Identify Business Objectives

• Identify specific processes to be redesigned

• Evaluate existing processes

• Identify Potential IT applications

• Design and build new processes and systems

• Implement

Page 57: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 57

Activity Based Costing (ABC) and ABM

Examined Dec 2007

No. of machinehours

No. of labourhours

OAR

OAR

OAR

Production set up costs

Machine oil & Machine repairs

Supervisor’ssalary

ACTIVITIES COST DRIVERS

No. of production set ups

Page 58: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 58

Question practice – end of Chapter 3

Q11

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q12 Q13 Q14 Q15

Page 59: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 4

Effect of information

technology on modern

management accounting

Study Text Chapter 4

Page 60: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 60

Information needs and IT within organisations

Traditional usage

Internal processes focus

Cost reduction

Localised benefits

Solving internal problems

Technology led

Total system development

Exploitation limited by system

Strategic usage

External customer focus

Value creation

Shared benefits

Solving customer

problems

Business led

Incremental development

Exploitation of information

Page 61: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 61

Intranets

• Internal network

• Hold centralised, digitised information

• Accessible by all

Page 62: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 62

EDI

• Electronic Data Interchange

– Computer to computer interchange– Standardised, agreed exchanges– Used between business partners

Page 63: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 63

Extranets

• Allow external, authorised users access to internal information

• Use internet technology

• Help to link the supply chain

Page 64: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 64

Databases

• Systems which hold collections of records and files, designed in such a way as to facilitate access to the whole user community

Page 65: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 65

Database Structure

Store

Database Management System

Database AdministratorUser 1 User 2

Page 66: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 66

Data Warehouse

A separate database that stores current and historical data of potential interest to managers throughout the company

(Laudon and Laudon)

Page 67: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 67

Components of a Data Warehouse

Internaloperational

data

Internal historical

data

External data

sources

Extractionand

Transformation

DataWarehouse

Information directory

Data access

and analysis

•Queries

•Reports•OLAP•Data mining

Page 68: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 68

Other Systems

• CRM Systems

– Facilitate the creation of a comprehensive customer profile giving everyone in the organisation one view

• SCM Systems

- Provide links across the supply chain to enhance efficiency and sharing of information

• ERP Systems

– Provide firm wide integration of processes and information

Page 69: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 69

Question practice – end of Chapter 4

Q17

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q18

Page 70: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 5

Impact of world economic and market trends

Study Text Chapter 5

Page 71: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 71

Lecture Example

Despite having a wide range of business interests Virgin have received wide and often negative press about the standard and value for money of its rail service.

Suggest environmental factors which Virgin management should consider and continuously monitor during their rail business planning process

Page 72: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 72

Lecture Example

Virgin Rail

• Government legislation (integrated transport policies, safety measures, etc.)

• The franchiser’s power and attitude

• Competition

• Level of service

• Pricing

Page 73: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 73

Lecture example cont…

• Performance

• Customer comments

• Media comment and adverse publicity

• Technology (availability of new rolling stock)

• Network Rail policies, programmes and plans

Page 74: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 74

Full Cost plus

Relevant cost

approachMarginal Cost Plus

All costs plus mark

up

Marginal costs plus mark up

Minimum price

considering opportunity

cost

Cost plus pricing

Page 75: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 75

Pricing Strategies

• Premium pricing

• Price discrimination

– By age– By time– By place

• Product bundling

• Psychological pricing

• Multiple products/loss leaders

• Discounts

Page 76: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 76

SUPPLIERS

POTENTIALENTRANTS

BUYERSINDUSTRY

COMPETITORS

SUBSTITUTEINDUSTRIES

Porter’s 5 Forces Examined Dec 2007

Page 77: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 77

BCG Matrix

Market or Industry Growth Rate

High

Low

Relative Market ShareHigh Low

Star Question Mark

Cash Cow Dog

Page 78: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 78

Ansoff’s Matrix

MARKET

PRODUCT

Present

New

Withdrawal

Consolidation

Penetration

Product Development

Market Development

Diversification

• Related

• Unrelated

Present New

Page 79: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 79

Question practice – end of Chapter 5

Q19

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Page 80: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 6

Impact of national fiscal and monetary

policy on performance

Study Text Chapter 6

Page 81: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 81

What should a company consider when assessing performance?

• Culture

• Economics

• Competitive forces

• Politics

• Technology

• Funding

• Legal factors

Page 82: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 82

Organisational culture

• Values

• Attitudes

• Norms

• Expectations

“the way we do things round here” Handy

Page 83: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 83

Levels of Culture

• Basic – which guides behaviour within the organisation

• Overt – expressed in the organisation and members

• Visible – style of office and dress rules etc

Page 84: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 84

Question practice – end of Chapter 6

Q20

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Page 85: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 7

Other environmental

and ethical issues

Study Text Chapter 7

Page 86: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 86

Stakeholders:

• Customers

• Suppliers

• Competition

• Employees

• Local Community

– connected

– connected

– external

– internal

– external

Page 87: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 87

Stakeholder mapping Matrix

Interest

Power

Low

Low

High

High

Minimal Effort Keep Informed

Keep Satisfied Key Players

(+)/(-) support/oppose new strategy

(+) (-)

(-) (-)

Page 88: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 88

Position in Matrix: (Open to discussion)• Customers – High power, high interest

• Suppliers – Low power, high interest

• Competition – Low power, high interest

• Employees – Low power, high interest

• Local Community – Low power, high interest

Page 89: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 89

Views on Stakeholders

Strong View

• All stakeholders have legitimate claim on management

• Management should adopt a balanced approach

Weak View

• Management should focus on enhancement of shareholder wealth

• Management should only consider other stakeholders if assisting the core objective

Page 90: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 90

Ethics and the organisation

Sources of pressure

• UK government

• EU

• Consumers

• Employees

• Pressure groups

Scope

• Treatment of stakeholders

• Green issues

• Support for the disadvantaged

• Dealing with unethical entities

Page 91: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 91

Corporate Ethics

Two approaches• Organisation

exists to maximise shareholder wealth

• Organisation should benefit all stakeholders

Considerations• Who are

stakeholders?• Implications?• Rights?• Considered rights?• Honest dealings?• Compensation?• Consequences?

Page 92: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 92

Professional Ethics

• Objectivity

• Professional competence

• Professional behaviour

• Technical standards

• Integrity

• Confidentiality

Page 93: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 93

Ethical codes

Content• Employee –

employer relationship

• Customer care• Supplier

relations• Bribery

Implementation• Senior mgmt

support• Followers prosper• Offenders

punished• Explained to staff• Detail provided• Staff have access

Page 94: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 94

Question practice – end of Chapter 7

Q21

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Page 95: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 8

Management accounting and

information systems

Study Text Chapter 8

Page 96: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 96

Characteristics of management information

Strategic PlanningStrategic Planning

Tactical Mgt and controlTactical Mgt and control

Operational controlOperational control

Page 97: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 97

Information at different levels

• In the exam you must be able to identify the key features of information at different levels in the organisation

• The differences relate to:

– The nature of the role/tasks– The nature of the decision making– The format, source and level of detail

Page 98: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 98

Lecture example

Strategic

Tactical

Operational

•New outlets•E-commerce strategy

•Pricing•Promotion strategies

•Staff rota•Inventory replenishment

Page 99: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 99

Management Information Systems (MIS)

• In relation to the information issues raised in Chapter 1, organisations must develop a range of appropriate MIS

• The design and selection of the MIS system needs to take into account the information needs of the organisation

Page 100: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 100

Question practice – end of Chapter 8

Q22

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Page 101: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 9

Sources of management

information

Study Text Chapter 9

Page 102: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 102

Information

…is data that has been processed in a way to be meaningful and useful to its recipients.

Information is data with added business value.

Information systems collect, process and provide information for use within the organisation.

Page 103: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 103

Sources of organisational information

Internal sources

Formal1. Management accounting information2. Control procedures, records and general

correspondence3. Appraisal systems

Informal1. Cross-departmental networking2. The “Grapevine”3. Social gatherings

Page 104: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 104

Sources of organisational information

External sources

Formal1. Commercial data vendors2. Government and official authorities3. Trade associations and professional bodies

Informal1. Suppliers and other intermediaries2. Customers and their representatives3. The Internet

Page 105: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 105

The Internet

• The Internet – an international network of networks, both commercially and publicly owned

• E-commerce – the process of buying and selling using computer mediated communications

Page 106: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 106

Question practice – end of Chapter 9

Q23

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q24

Page 107: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 10

Recording and processing

methods and management

reports

Study Text Chapter 10

Page 108: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 108

Lecture example – Security # 1

Suggest ways in which computer facilities and equipment can be physically protected.

Page 109: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 109

Answera) Secure location

(i) locked doors, access cards, security guards, reception personnel, keypad access

b) Personnel controls(i) ID cards – including photograph(ii) sign in/out procedure

• IT(i) alarm systems

• Portable equipment

(i) register to include booking out procedures, barcoding/postcode marking

• Checking

(i) equipment audits

Page 110: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 110

Lecture example – Security # 2

• How might unauthorised access to a computer system be prevented and, if it cannot be prevented (and 100% prevention is unlikely), how the offenders might be discovered and apprehended?

Page 111: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 111

Answera) Hardware

(i) card access to rooms,(ii)firewall computers,(iii) CCTV

• Software(i) passwords,(ii)virus checkers(iii) computer access logs(iv) file access logs

• Organisational arrangements(i) internal audit(ii)division of duties

Page 112: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 112

Viruses

• A virus is a piece of software which may damage the software and data held on the computer.

• Writing, distributing or planting viruses is an offence under the Computer Misuse Act.

• Cheap, commercial, anti-virus software is available from many sources.

• Many organisations also install firewalls on computers connected to the internet.

Page 113: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 113

Question practice – end of Chapter 10

Q25

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Page 114: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 11

Performance hierarchy

Study Text Chapter 11

Page 115: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 115

The performance hierarchy

•Vision

•Mission

•Goals

•Objectives Timebound

Timeless

Specific

Vague

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Slide 116

Mission / mission statements

• Provides rationale as to why an organisation exists

• States long term direction

• Effective when all members work towards rather than against its main principles

Page 117: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 117

An effective mission should contain:

• Campbell et al

– Purpose– Strategy– Policies & Behaviour Standards– Values & Beliefs

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Slide 118

Mission Statement Examples

Purpose

Strategy

Behaviour standards

Values & beliefs

Profit, service, to be the best

Quality, cheap, global

Open door policy

Animal testing, staff welfare, environment

Page 119: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 119

Mission statements

Advantages

• Nature

• Common culture

• Focus

• Goal congruence

Criticisms

• Vague/meaningless

• Not representative

• Implementation needed

Page 120: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 120

The role of objectives

• S - specific

• M - measurable

• A - agreed

• R - realistic

• T - time bound

Page 121: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 121

Objective setting

Mission

Vertical consistency

Horizontal Consistency

Page 122: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 122

Gap analysis

Objective

Forecast

Objective

eg profit

Time

GAP

Page 123: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 123

Ansoff’s Matrix

MARKET

PRODUCT

Present

New

Withdrawal

Consolidation

Penetration

Product Development

Market Development

Diversification

• Related

• Unrelated

Present New

Page 124: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 124

Question practice – end of Chapter 11

Q26

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Page 125: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 12

Scope of strategic

performance measures in the

private sector

Study Text Chapter 12

Page 126: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 126

Introduction

• Aim of private company is to maximise shareholder wealth

• Analysis can be performed across 4 areas:

Profitability

Liquidity

Gearing

Shareholders’ ratios

Page 127: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 127

Financial analysis

• Profitability and return

• Debt and gearing

• Liquidity

• Shareholders ratios

Must compare

Different firms and time periods

ROCE, margins, asset turnoverDebt/equity, interest cover

Receivables/payables/inventory days, current ratio, acid test

P/E, div cover, div yield, EPS, div cover

Examined Dec 2007

Page 128: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 128

Basis for comparison

• Over time

• Against other companies

– Same sector?– Different sector?

• Industry averages

• Against other measures

Page 129: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 129

Limitations/strengths of ratios

• Limitations

– Need a comparator– Must be clearly

defined– Inflation effects– Differing bases– Historical

• Strengths

– Easier to understand than absolutes

– Changes over time can be seen

– Gives context– Can help create

targets– Summary of results

Page 130: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 130

Profit as a measure

Advantages

• Simple

• Relates to shareholder wealth

Disadvantages• Easily

manipulated• Short term

enhancement• Absolute

measure

Page 131: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 131

ROCE/ROI

Advantages

• Relative measure

• Easily understood

• Relates to asset consumption

Disadvantages• Reliance on

profit• Which

investment base to use?

Profit before interest and tax

Average capital employed. x 100%

Page 132: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 132

RI

Advantages

• Fewer dysfunctional decisions

• Can account for risk

Disadvantages• Profit based

absolute measure• Investment base?• Determining ROI?• Inter-divisional

comparisons difficult

Controllable divisional profit – notional interest charge

(Head Office Investment x ROI)

Examined Dec 2007

Page 133: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 133

NPV calculations

Cashflows

Must be • Future • Incremental • Cash

Exclude inflation

• Use current/real cashflows

• Discount at real rate, r

Include inflation

• Use money/nominal cashflows

• Discount at money rate, m

1+m = (1+r) x (1+i)

Page 134: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 134

Sensitivity analysisHow much can NPV change before NPV is negative?

Sensitivity = NPV total

PV cashflow

NPV total = 1,148

PV of resale value = 4,000 * DF @12%

=4,000 * 0.636

=2,544

Examined Dec 2007

Page 135: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 135

Sensitivity

= 1,148

2,544

= 45%

If the chain sells for 45% less than our initial estimate the NPV of the project will be zero.

If the estimate is further out than this, the project would return a negative NPV.

Page 136: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 136

Question practice – end of Chapter 12

Q27

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q28 Q29 Q30 Q31

Page 137: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 13

Strategic performance

issues in complex business

structures

Study Text Chapter 13

Page 138: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 138

Porter’s 5 Forces

Competitive Rivalry

Bargaining Power ofSuppliers

SubstituteIndustries

Bargaining Power of

Customers

Threat of New

Entrants

Examined Dec 2007

Page 139: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 139

• Using the model identify the forces and their strength for a clothing manufacturer

Lecture Example

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Slide 140

Lecture Example

• Buyers – retail stores, strong

• Suppliers – staff (labour), manufacturers (fabric and equipment) weak

• Substitutes – Other manufacturers, strong

• New Entrants – Easy to set up on basic level (China currently entering market), strong

• Competition – Brands, strong

Page 141: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 141

Lecture Example

• Buyers – Value adding activities, keeping up with trends

• Suppliers – Single supplier deals regularly reviewed

• Substitutes – Build reputation (no subs for clothing!)

• New Entrants – Build reputation

• Competition – Branding or niche products

Page 142: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 142

BCG Matrix

Market or Industry Growth Rate

High

Low

Relative Market ShareHigh Low

Star Question Mark

Cash Cow Dog

Page 143: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 143

Uses of The BCG

• Internal balance

• Assess trends

• Evaluate competitors

• Evaluate risk

Page 144: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 144

Ansoff’s Matrix

MARKET

PRODUCT

Present

New

Market Penetration

Product Development

Market Development

Diversification

• Related

• Unrelated

Present New

Page 145: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 145

Question practice – end of Chapter 13

Q34

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q35

Page 146: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 14

Divisional performance and transfer

pricing issues

Study Text Chapter 14

Page 147: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 147

EVA

Calculate NOPAT – interest rate (WACC) x net assets

(or capital charge)

NOPAT

• Take reported profit after tax

• Adjust for non-cash items

• Add back net interest cost

• Economic depreciation is a cost

Net Assets – usually replacement cost

• Shareholder funds plus long term debt

Examined Dec 2007

Page 148: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 148

ExampleProfit after tax = 160, depreciation = 30, tax rate = 30%, interest = 20, WACC = 15%, replacement cost of net assets = 1,100

20X8

NOPAT = 160 + 30 + 20 x 0.7

= 204

Net Assets= 1,100

EVA = 204 – 15% x 1,100

= 39

Page 149: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 149

EVA

Advantages

• Measures value added to Shareholders

• Cash based

• Easy to communicate

Disadvantages X

• Lots of adjustments to profit

• Historic measure

• Relies on estimate of interest rate

• Difficult to make comparisons

Page 150: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 150

Aims of Transfer Pricing System

• Controllability– one product one price and easily agreed,

simplicity

• Goal congruence– divisional decisions benefit whole company

• Autonomy– motivation

• Performance evaluation– ensure reward goes where it’s due

Remember: Does the company want the transfer to take place?

Page 151: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 151

A transfer pricing situation – The Brewery Group

BeerBeer

Rooms

Page 152: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 152

Avoiding dysfunctional behaviour

• Set price to earn a return in one division and incur cost in another

• Enable profit centres are measured commercially

• Allow profit centre managers to agree on transfer

Page 153: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 153

Methods of setting transfer price

• Market price

– Use external market price where there is an external market

– Adjusted market price to reflect savings

• Cost Based Approach

– Actual v Standard– Standard full cost plus % – Standard variable cost plus %

Page 154: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 154

Selling Division transfers at MC

• When is this desirable?

– If there is no external market for Division S– If there is an external market for S and it

has spare capacity

• Who benefits?

– If there is spare capacity then the whole group should benefit

• Reaction of the Selling Division?

– S will be unhappy with a TP at MC

Page 155: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 155

Methods of setting transfer price• Dual pricing

– Use variable cost and transfer share of profits at end of year to supplying division

– If external market exists• charge receiving division variable or marginal cost• supplying gets market price

• Two Part Tariff

– Variable cost for transfer plus fixed costs at year end

• Opportunity Cost Based Approach

Page 156: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 156

Opportunity Cost Based Approach

MinimumTP (accepted by transferring division)

• If external market for intermediate product– if S is at full capacity, then it may have

to forego income from the external market and the opportunity cost will be lost contribution

– if S has spare capacity - it will not be forgoing any income and hence the transfer price will be at MC

• No external market – no opportunity cost - transfer at MC

Page 157: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 157

Maximum TP (accepted by receiving division)

• Lower of – External Market Price and– Net revenue in receiving division

• Where net revenue =– final selling price LESS own divisional costs

Opportunity Cost Based Approach

Page 158: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 158

Transfer pricing in practice

• Negotiation

• Head Office intervention

• Head Office cost allocations

Page 159: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 159

International Transfer Pricing

• Global company with many subsidiaries around the world

• Taxation consideration

• Possibly manipulate pricing system to earn high profits in a low tax country

• But tax authority impose ‘Arm’s length’ price

Page 160: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 160

Question practice – end of Chapter 14

Q36

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q37 Q38 Q39 Q40

Page 161: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 15

Scope of strategic

performance measures in not-for-profit

organisations

Study Text Chapter 15

Page 162: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 162

Not-for-profit organisations

• Prime goal for assessed by economic measures

– Profit making may be part of this activity however

• Examples

– Charities, Councils, Forces, Colleges, NHS

Page 163: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 163

Public Sector bodies

• Citizens Charter

– Set and published standards– Quality via privatisation– League tables– Complaints procedures– User to consumer

Page 164: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 164

Lecture Example

• Highlight problems that may occur when using league tables

– Tunnel Vision– Lack of true comparability– Creative accounting– Self fulfilling prophecy

Page 165: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 165

VFM

example – washing up liquid

Economy – more clean plates per $

Efficiency – more clean plates per squirt

Effectiveness – plates as clean as they should be

Page 166: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 166

Question practice – end of Chapter 15

Q41

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q42 Q43 Q44 Q45

Page 167: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 16

Behavioural aspects of

performance measurement

Study Text Chapter 16

Page 168: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 168

Controllability– Variable costs– Fixed costs

Accountability– Agency theory– Hard and soft

accountability

Uncontrollable factors– Factors beyond the

control of the manager

Performance measurement and behaviour

Reward schemes– Link to

performance– Group scheme

Page 169: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 169

Management styles and motivation

• Hopwood’s management styles

– Budget-constrained– Profit-conscious– Non-accounting

• Motivation

– challenging but achievable– goal congruence

Page 170: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 170

Question practice – end of Chapter 16

Q46

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q47

Page 171: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 17

Alternative views of

performance measurement

Study Text Chapter 17

Page 172: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 172

Balanced Scorecard

CustomerCustomer Internal Internal

FinancialFinancialInnovation & Learning

Innovation & Learning

Page 173: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 173

Advantages of Balanced Scorecard

• Considers all strategic measures

• Holistic view

• Avoids short term arguments

• Considers business activity linkages

• Forces organisation to look externally

• Useful for risk assessment

Page 174: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 174

Balanced Scorecard

• Features– Broad outlook– internal & external matters– financial & non-financial– Identifies customer needs

• Development– Specific to company– Can be created at all levels of

management

Page 175: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 175

The Performance Pyramid

Market Financial

CustomerSatisfaction

Flexibility Productivity

Quality Delivery Cycle time Waste

Operations

Corporate Vision

Lynch & Cross

Page 176: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 176

Performance pyramid

• Derives from the idea that the organisation operates at different (management) levels

• Each of these levels has different concerns

• But they should support each other in achieving business objectives

LINKAGES

Page 177: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 177

Problems of PM in Service Businesses

• S imultaneity

• H eterogeneity

• I ntangibility

• P erishability

Page 178: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 178

Fitzgerald and Moon’s Building Blocks

Standards Ownership

AchievabilityEquity

Standards Ownership

AchievabilityEquity

RewardsClarity

MotivationControllability

RewardsClarity

MotivationControllability

DimensionsProfit

CompetitivenessQuality

Resource utilisationFlexibilityInnovation

DimensionsProfit

CompetitivenessQuality

Resource utilisationFlexibilityInnovation

Dimensionsbase measure on

these areas

Dimensionsbase measure on

these areas

Standards/Targets

ensure equity/fairness

Standards/Targets

ensure equity/fairness

Rewards

need to be clear

Rewards

need to be clear

Page 179: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 179

Question practice – end of Chapter 17

Q48

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q49 Q50 Q51 Q53

Page 180: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 18

Non- financial performance

indicators

Study Text Chapter 18

Page 181: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 181

Problems with Financial Performance Indicators

• Only monetary terms

• Focus on past

• Not full picture

• Short term focus

Solution = NFPIs

Page 182: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 182

Value of NFPIs

• Quick

• Anything can be measured

• Easy to calculate

• Not as easy to manipulate

• Qualitative or quantitative

• Can focus on key areas like customer satisfaction, quality

Page 183: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 183

Problems of NFPIs

• Information overload

• Detail vs. big picture

• Out of date

Must be linked to financial measures

Balanced Scorecard

Page 184: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 184

Lecture Example 1

• In the role of coffee shop manager, suggest some NFPI for your business

– Returning customers– Comments– Occupancy– Knowledge of staff– New product take up– Stock outs

Page 185: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 185

Question practice – end of Chapter 18

Q54

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q55 Q56 Q57 Q58

Page 186: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 19

Predicting and preventing corporate

failure

Study Text Chapter 19

Page 187: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 187

Predicting business failure

• Declining industries

– End game– Product revitalisation

• Declining companies

– Slatter’s ten symptoms

• Measures

– Liquidity– Z score– Argenti’s A score

Examined Dec 2007

Page 188: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 188

Strategies for improvement

• Identify the causes of decline and strategies to deal with them

• Strategic drift– Counteracting

• Review leadership

Page 189: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 189

Question practice – end of Chapter 19

Q59

You should now be able to attempt the following key question from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key question from the BPP Learning Media Practice and Revision Kit.

Page 190: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 20

Current developments

in management accounting techniques

Study Text Chapter 20

Page 191: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 191

Changing role of the Management Accountant. Burns and Scapens

• Provision of information that is;

– Forward looking – External– Assists meeting of objectives

• Links to strategic core

– Planning and control

• Changes arose due to

– Technology– Management structure– Competition

Page 192: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 192

Modern Japanese techniques

• TQM

• JIT

• Target costing

• Kaizen costing

• Continuous improvement

Page 193: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 193

Supplier BaseSupplier Base

JIT purchasingJIT purchasing

Raw material & components

Raw material & components

Work-in ProgressWork-in Progress

Finished GoodsFinished Goods

Demand Pull Demand Pull

CustomersCustomers

Manufacturing Resources Planning (MRP 2)

Advanced Manufacturing Technology

Total Quality Management

Computer Integrated Manufacturing

Just In Time

Page 194: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 194

Target costing

To reduce the life-cycle costs of new products through cost reduction:• Pre-production planning• R&D

Page 195: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 195

Implementing target costing

a) Define product spec & sales volume

b) Target selling price

c) Required profit

d) Target selling price Xless: target profit (X)Target cost X

e) Estimated cost

f) Estimated cost – target cost = cost gap

g) Reduce costs or negotiate with customer

Page 196: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 196

Question practice – end of Chapter 20

Q60

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q61 Q62

Page 197: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Chapter 21

Current issues and trends in performance

management

Study Text Chapter 21

Page 198: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 198

Value-based management

• Value mind set

• Value drivers

– Any variable that affects the value of the

company

• Management processes

Page 199: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 199

Recently developed performance management frameworks

• Six Sigma

– Define– Measure– Analyse– Improve– Control

• Performance Prism

– Stakeholders satisfaction

– Strategies– Processes– Capabilities– Stakeholder

contribution

Page 200: ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008.

Slide 200

Question practice – end of Chapter 21

Q63

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

Q64 Q65 Q66