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ImprovingyourPaperP5answers|P5AdvancedPerformanceManagement|ACCAQualification|Students|ACCAGlobal

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IMPROVING YOUR PAPER P5 ANSWERS PART

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ImprovingyourPaperP5answerspart1
StudentAccountanthubpage
ThisarticleaimstogiveaclarityonthelevelofresponsethatisrequiredinaPaperP5answer.Itwill
addressaspecificpastpaperquestionthatcausedconsiderabledifficultyintheJune2014session.The
articlefollowsonfromthefirstpart(see'Relatedlinks')givingexamplesofweakanswers,andwilldiscuss
twopossiblepassingsolutionstothisquestion.Thenitwillconsideramarkersviewofeachone.
Inreadingthroughthesesolutionsandthemarkerscomments,candidatesshouldgainabetter
understandingofthebreadthanddepthofsolutionthatamarkerisexpecting.Commentsaremadein[]
aftereachparagraph,whereappropriate.
Beforereadingthisarticle,itisessentialtohavereadthescenarioandrequirementforQuestion1,part
(i)oftheJune2014PaperP5examanditwillbehelpfultokeepthesetohand.Therequirementis
repeatedhereforclarity.
Requirement:
WriteareporttotheCEOofCantorto:
(i)EvaluatethecurrentperformancereportinAppendix1.(15marks)
Thefirstexample(numbered3tobeconsistentwiththeearlierarticle)isbasedonseveral,verygood
solutionsseen.Thespellingandgrammarhasbeenslightlytidiedupbutnotperfectedsothatthis
solutionisunderstandablebutnotoverlypolished.Thissolutionslengthreflectsrealexamefforts.

EXAMPLESOLUTION3ANEXCELLENT,PASSINGSOLUTION
Thecurrentperformancereporthasthefollowingmeritstoit:
Itrepresentstheresultsofthetwosubsidiariesseparatelyalongwithtotalgroupresults,thusenablingforspecific
managementandmeasurementofthesubsidiaries,whichrepresentsdifferenttypesofbusinessandalsoallowingfor
internalbenchmarking.

[Comment:Valuableherearetheimplicitidentificationofthedifferentusersofthereport,
differentbusinesses(though,moreaccurately,itistheirdifferentstageofdevelopment)andthe
appropriateuseofthejargonterminternalbenchmarking.]
Thereportalsoshowscomparisonsofbudgetedandactualresults,allowingforanalysisandcontinuousimprovement
ofplanningandbudgetingprocesses.
Thereportalsoprovidesalistofmarginsonthegrouplevel,soallowingforefficiencyandprofitabilityanalysisand
conclusions.

[Comment:Noticehow,inthesecondandthirdpoints,theauthorhasnotjustidentifiedwhat
thereportdoes,buthasthensaidwhyitishelpful(allowingforanalysisandcontinuous
improvementofplanningandbudgetingprocesses).]
Thereportshowsindustryaverages,thusallowingforexternalbenchmarkingandpreventingcompanyfrominternal
focus,smugnessandputtingcompanysperformanceintoperspective.

[Comment:Thelanguagestraysherealittlefromtheprofessional(smugness)butamarker
wouldallowsomelatitudeasthegeneralpointiswellmade.]
Thereportalsoshowsdetailisationforfoodanddrinksaleswithinthegroupandsubsidiary,enablingdetailed

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analysisofproductmixandproductmargins.

[Comment:Detailisationisanoverlycomplicatedwayofsayingabreakdown.Markersprefer
simple,clearlanguage.Also,thebreakdownisnotataproductlevelsothiscommentisnot
entirelyaccurate.Betterwouldhavebeentomentionwhatdetailisgivenandthentosaywhat
detailwouldbehelpfulfortheboards.]
Operationalcostsareverydetailedallowingfordeepevaluationwhichisinlinewiththeideaofcostcontrolandcost
reduction,whichisavitalpartofmostbusinessmanagementprocesses.

[Comment:Aprimereasonwhythisisagoodansweristhatmostofthepointsarestructuredto
statewhatthereportdoesandthenwhy(andoften,how)thisisbeneficial.Noticethatthe
answerdoesnotjustdeclarethatthepointatissueinthereportisgood,itexplainswhythisis
so.]
However,therearesomedrawbackstothereport:
Thereportisobviouslyoverloadedwithinformation.Itsdifficult(almostimpossible)tounderstandfornonfinancial
peopleandmembersoftheboard.Thisishelpfulinformationforthefinancialmanagersbutitwillproveoflittleusefor
thetoplevelofthecompany.

[Comment:Thispointisalittleconfused.Itactuallyappearstobemakingtwopoints.First,that
thereisinformationoverloadandsecondlytheuseofexcessivefinancialjargon.Itmightalso
beconsideredinsultingtotheboardtoimplytheycannotreadabasicsetofaccounts.Itwould
beimprovedbyaspecificexampleofhowthereportgoeswrongforexample,poorrounding
choiceorhowtoimprovethereportegwhichmarginsshouldbehighlighted.]
Thereportconsistsonlyoffinancialinformation,lackingsomenonfinancialaspectswhichareveryimportantforthe
businessofCantor,suchascustomerssatisfaction,brandawarenessandbrandloyalty,staffturnover(especiallyin
thelightofnewstaffangleofthemissionstatement).

[Comment:Thismaynotbeperfectlyput,butisanexcellentpointasitisjustifiedbyusingthe
missionofthecompany.]
Somevitalfinancialinformationismissingaswell.Cantorisalistedcompanystatingmaximisationofshareholders
wealthasitsprimaryobjectivebuttherearenomeasuresofshareholderswealthonthereport.Itcouldbeusefulto
includesuchtraditionalmeasuresastotalshareholdersreturn(TSR),pricetoearnings(P/E),earningsanddividend
yields,earningspershare(EPS)andsuch.However,thismatterisexpectedtobeaddressedaftertheintroductionof
VBMandEVAasitsmainpart.

[Comment:Again,thisiswelljustifiedbyreferencetothemissionthoughalogicalapproach
wouldhaveputpoint3aheadofpoint2.Also,amarkerwilllikethefactthatthesolutionlinks
thepointaboutVBMtothisareaasitshowsthatthecandidateisgraspinganoverallviewofthe
problemsfacedbyCantor.]
Asweknow,CafesandJuiceyareverydifferenttypesofbusiness,Cafesisamaturebusinesswithasaturatedmarket
andlowexpectedgrowth,whereasJuiceyisayoung,rapidlydevelopingbusiness.AccordingtotheBCGmatrix,they
canbeclassifiedascashcowandstarrespectively,soitwouldbelogicaltointroducedifferentmeasuresforthem.For
Cafescashflows,costmeasures(costmargins,costvariances,costtrends)andforJuiceyprofitability,market
share,numberofnewCafeslaunchedandsuch.

[Comment:HereisagoodillustrationofhowtousethemodelsthatthePaperP5syllabus
containsinasuitablecontext.ItisacommonmistakeheretorealisetheBCGmatrixmayhelp
butthentowanderawayintoalengthy(andunnecessary)definitionanddescriptionoftheBCG
matrix.Thesolutionhasusedthejargoncorrectlyincontextanddemonstratedthisinthe
specificadvicegiven.Averygoodapproach.]
PropertiesareveryimportantforrestaurantbusinessingeneralandsoforCafesandJuiceyaswell.Thispartof
activitiesneedspecialcontrolandattention.Cafesarerentingontheopenmarketandusestandardleaseterms(here
weshouldcontrolleasepaymentstoensuretheydontexceedmarketlevels).Juiceyisexperiencingthemonopolyof
onesupplier(strongbargainingpoweraccordingtoPortersFiveForcesmodel).Sothecalculationofrentalswhichis
apercentageofrevenueshouldbecontrolled.

[Comment:Theseareusefulperformancemanagementpointsbuttheyareindangerofnot
beingrelevanttothequestionasked.Theycanbemadeclearlyrelevanttothereport(andsothe
question)byexplainingwhatmetricsshouldbeappearinginthereport(forexample,benchmark
ofopenmarketfixedandvariablerentalchargesoralternatively,themarketinflationrateof
theseamounts).Itwouldnotbewise,however,totakethisadviceasimplyingthatitwouldbe
bettertoaddtothereportmanynewmetricssincethiscontradictspoint1above.However,
giventhatthesolutionhasjustifiedthisspecificpointasofparticularimportancetoCantor,it
wouldseemreasonabletomakesuchasuggestionhere.Afurtherimprovementmightbeto
suggestwhatdataintheexistingreportshouldbedroppedtoallowforthisinclusion.]
ItsalsonotrecommendedthatCantoruseonereportforthepurposesofallthreeboards.Cantorshouldcustomiseits
reports,issuingthreedifferentreportswhichwouldaddressspecialstrategiesandfactorsofbothCafesandJuicey
andwouldbemoreaggregatedforCantorasaparentcompany.

[Comment:Muchmorecouldbesaidaboutthis,however,theanswerhasatleastshownhow
thisimprovementcouldbedone(moreaggregatedforCantor).]
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Idalsorecommendtheroundingupoffigurestorepresenttheminthousands(000),notindollarsitaddslittlebut
excessivelyclogsthereport.

[Comment:Amarkerwouldbehappytoseethisminorpointtowardstheendofthelist.]
Italsowouldassistmanagerialdecisionmakingandappraisalifpreviousyearscomparativefigureswouldappearon
thereportallowingforyearonyearcomparison.

[Comment:Againnotethatthissolutiondoesnotjustsayincludehistoriccomparatives,it
stateswhy,althoughitmightbebetterputasallowingforhistorictrendstobeshown.]
Summary:
Overall,theanswerhasagoodlogicalstructuremeritsthendrawbackswhichiswhatisexpectedwhen
theverbevaluateisused.Withinthelistsofpoints,thereissomeefforttoprioritisebutthiscouldbe
improvedseethirddrawback.
Moreanddifferentpointscouldbemade,butinatimelimitedexaminationthisisanexcellenteffort.It
maybeworthnotingthatthisanswercontainsc.600wordswhilethepooranswerexampleforthesame
question(intheearlierarticle)hadc.800wordsandwouldhavescoredlessthanhalfasmanymarks!
Qualitynotquantityiswhatmarkersandyourfutureemployersseek.

EXAMPLESOLUTION4THEMODELSOLUTION
Adetailedcommentaryonthissolutionisprovidedattheend.
Currentperformancereport
Thecurrentreporthasanumberofstrengthsandweaknesses.Thesewillbediscussedaccordingto
whetherthereport:
addressestheoverallaimsofthegroup
assiststheindividualsubsidiaries
iswellpresented
containsappropriateinformationfordecisionmaking.

Thecurrentmissionofthegroupcanbebrokendownintothreeparts:
tomaximiseshareholdervalue
supplyinggoodvaluefoodanddrink,and
providingappealingenvironmentsforourcustomers.

Thereportdoesnotdirectlymeasureshareholdervaluewhichcouldbedonethroughconsideringnet
presentvalueoreconomicvalueadded(EVA)orsharepriceanddividends.Thisproblemhasbeen
recognisedandisaddressedinalatersectionofthisreport.Thecurrentreportusesperiodprofitsasits
mainmeasureofperformance.Thiscansufferfrombeingshorttermunliketheshareholdervalue
measuresmentioned.Thereportdoescomparebudgetandactualperformancewhichgivesanindication
ofwhetherplansarebeingfollowedandishelpfulincontrollingtheorganisation.
Thereisanindirectmeasureofthecustomervaluebeingofferedbythegroupthroughthegrossprofit
which,whencomparedtotheindustryaverage,givesapartialmeasureofvaluebutwithoutdataonthe
price/qualitymixcomparedtocompetitors,itisdifficulttobeconclusiveaboutthis.Revenuegrowth
comparedtoindustrygrowthwouldaidingivinganimpressionoftheattractivenessofourofferingtothe
customer.However,nohistoricinformationisgivenwhichwouldallowtrendstobecalculated.
Measuringtheappealofthesitestocustomerswillbedifficultandinvolvesubjectivenonfinancial
measurements.Customerloyaltyandpriceelasticityofdemandwillgivesomeindicationoftheappealbut
itwillbedifficultwithoutdirectlysurveyingcustomerstountiethisfromtheissuesofprice/quality
mentionedabove.
Themainboardwouldprobablyfinditeasieriflessdetailedfiguresweregivenandaclearstatementof
thekeymeasuresofsubsidiaryperformanceprovided.
Thereportseemstotreatthesubsidiariesinthesamewayasthegroup,usingprofitandcomparisonto
industryaveragemarginsandbudgetsasthemainassessmenttools.Asalreadymentioned,the
reportingofperformanceagainstbudgetisahelpfulcontroltool.However,asthesubsidiarieswillhave
moredetailedissuesthanthegroup,itdoesnotseemappropriatetobeusingthesamehighlevel
overviewasforthegroupboard.Forthesubsidiaries,itwouldbeexpectedthattherewouldbeamore
detailedbreakdownofrevenuesandgrossmarginsbyproductline.Marketing,whichisasignificantcost,
isnotattributedtospecificsites/productswhichwouldhelptoexplainthechangesinthesecategories.
Thesubsidiarymanagerswouldprobablybenefitfromtheinclusionofabreakdownofprofitby
geographicalregionaswell.Itwouldseemthatthemeasurebeingusedtoassesssubsidiary
performancewouldbetheoperatingprofit,whichisappropriateasitcontainstheelementsof
performancecontrollablebythesubsidiariesmanagers.Theannualreportingperiodwouldalsoappear
tobetoolengthytoallowthedetailedcontrolofoperationsrequiredbythesubsidiaryboards.
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Intermsofpresentation,thedataisclearandinaformwhichwouldbeeasilyrecognisabletothoseused
toreadingaccounts.However,itiscommontoprovideanarrativecommentarywithsuchareportinorder
tohighlightthekeyfeaturesinthereport,suchasmajordeviationsfromthebudgetorperformancewell
outsideindustrynorms.Thereportcouldbemadeeasiertoreadbyroundingallfigurestothousandsand
thusremovingunnecessarydetail.
Tosummarise,additionalinformationwhichcouldbesuppliedinthereportalsoincludes:
historicinformationtodemonstratetrends(especiallyimportantatJuiceywithitsfastgrowth)
greaterdetailbyproductorsitetoaidthemanagersofthesubsidiaries
competitorinformationrelatingtotheirperformanceinthethreeareasofCantorsmission(shareholdervalue,product
value,siteappeal)

[Overallcommentary:
Aswithallmodelsolutions,thisislongerthanamarkerwouldexpecttoseeproducedinthe
timelimitsoftheexam.Thismodelsolutionhasmorethan15markswithinit(probablyabout20
marks).
However,thisisthetopofthestandardexpectedintermsofthedepthofpointsmadenot
beyondthatstandard!Itwouldbewisetostudyhoweachpointissupportedbyevidenceor
argumentfromthescenarioorelseisdeveloped.Theanswertriestoavoidmakingunsupported
judgements.Asanexample,inthesecondlastparagraph,thesolutiondoesnotonlysay
However,anarrativecommentaryshouldalwaysbeprovidedinsuchareport.Instead,itsays
However,itiscommontoprovideanarrativecommentarywithsuchareportinorderto
highlightthekeyfeaturesinthereport,(reason/benefit)suchasmajordeviationsfromthe
budgetorperformancewelloutsideindustrynorms(specificexample).Itistheitalicised
clausesthatthemarkerislookingfor.
Anotherfeatureofthemodelsolutionisitslogicalstructure.Themodelsolutionbeginswiththe
mostimportantpointofview:thegroupboardsperspective.Itlaysoutthegroupstrategyand
thenassesseswhetherthereportismeasuringtheachievementofthestrategy.Then,itgoes
deeperbyconsideringtheneedsofthesubsidiariesboards.Finally,itfinisheswithprobably,
theleastimportantpointsaboutgeneralpresentationandprovidesashortsummary.
Havingreadthisarticle,prepare(orifalreadydone)/reviewyourownsolutiontothisquestion
sothatyoucanseewhereimprovementscanbemade.]
WrittenbyamemberofthePaperP5examiningteam

Lastupdated:18Aug2015

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