Paper:

Synopsis

P2 Performance Management

In this article, Tim Thompson and the P2 examiner highlight some vital issues that students need to be aware of to give them the best chance of succeeding in the examination for paper P2 Performance Management. Some vital issues for students sitting paper P2 Performance Management A review of the pass rates over the years for both paper P1 and paper P2 indicates that many students find difficulty in passing these `intermediate examinations in what is now called the performance pillar (formerly the management accounting pillar). This is a paradox; after all, CIMA is the qualification for management accountants. This article is designed to reinforce CIMAs many messages about what is expected of students in order to be successful in the paper P2 examination. The advice in this article is based on the assumption that the student sitting P2 has already passed, or been exempted from paper P1. CIMA strongly recommends that the papers are sat in this sequence and, as you will see below, this is effectively essential. The recent launch of CIMAs new 2010 syllabus means that each student sitting P2 in November 2010 will fit into one of two categories. Some will have achieved success in the old paper P1 under the 2005 syllabus whilst for others this will have come from the new paper P1 the new 2010 syllabus. Some of our points apply to all students, but there are some specific issues for each of the two categories to consider A key feature of P2 (as with all management level papers) is that there is no choice of questions in the paper and all questions are compulsory. Some may have been used to having some choice in earlier studies and so now need to recognise that this flexibility does not exist in this paper. Unless they want to throw marks out of the window, students cannot disregard a question because they `dont like the topic or `didnt get round to studying it. More than ever before, students must ensure that they have a thorough understanding of the whole syllabus if they are to give themselves a meaningful chance of passing the examination. If you have not already done so, have a look at the detailed syllabus for P2 (accessing CIMAs website www.cimaglobal.com is one way to do this). You will see from this syllabus that the paper is comprised of the following four topics: A. Pricing and Product Decisions B. Cost Planning and Analysis for Competitive Advantage C. Budgeting and Management Control D. Control and Performance Measurement of Responsibility Centres 30% 30% 20% 20%

Take a closer look at the detailed learning outcomes for syllabus topics C (Budgeting and Management Control) and D (Control and Performance Measurement of Responsibility Centres). Students who passed P1 on the former 2005 syllabus should recognise these learning outcomes; apart from some wording differences, almost all of them can be found on the syllabus for the former 2005 P1 that you have been credited with. These students will recall that these learning outcomes were in topic areas C and D on this former syllabus. So, if you are one of the students who passed P1 under the old 2005 syllabus, being re-examined on these topics in the new 2010 P2 should present no problem to you, should it? In this respect, the study process may have been made somewhat easier for you. But watch out; there is a sting in the tail. Take a closer look at the wording of the learning outcomes for topics C and D in the P2 syllabus. Although most of these cover the same broad ground as those that were on the former 2005 P1, can you see any differences in the wording? For example: 1

Former 2005 paper P1 (outcome D6)

New 2010 paper P2 (outcome D3b)

`explain the typical consequences of `discuss the typical consequences of a divisional structure for performance a divisional structure for performance measurement as divisions compete measurement as divisions compete or trade with each other or trade with each other These learning outcomes are very similar, but they are not identical. For the P2 examination you will be required to `discuss whereas on the former 2005 P1 you had to `explain. Is this difference significant? It certainly is, and this is why. Lets remind ourselves of CIMAs hierarchy of learning objectives. The full details of this hierarchy are available on CIMAs website, but in essence, there are five levels (level 5 being the highest and level 1 the lowest) as follows: 5. Evaluation can you use your learning to evaluate, make decisions or recommendations? can you analyse the detail of what you have learned? can you apply your knowledge? what you are expected to understand what you are expected to know

4. Analysis 3. Application 2. Comprehension 1. Knowledge

Each of these levels is comprised of a number of specific verbs. If you check out the verb `discuss, you will find this located within level 4 of the above hierarchy and defined as `examine in detail by argument. By comparison `explain is to be found within the lower level 2 and is defined as `make clear or intelligible, or state the meaning of. Why is this significant? It means that, in the case of this outcome, the P2 examiner will expect a higher level of response from you than would have been expected from candidates who sat the former 2005 P1. If you review the old and new syllabuses further, you will see that this upgrading of the verb relates to other learning outcomes too. Although the above comments are directed at students who passed P1 under the former 2005 syllabus, the message is basically the same for those of you who passed under the 2010 syllabus in May 2010. Whatever your background, you will find that the P2 examiner will tend to use higher level verbs than you encountered in when you sat P1. We recommend that you make sure that your answer reflects the verb in the question; both in terms of its definition and its place in the hierarchy of learning objectives. Now lets consider another issue. Take a look at the syllabus for P1 under the new 2010 syllabus. What are your thoughts about the following three topic areas? C. Project Appraisal D. Dealing with Uncertainty in Analysis E. Managing Short-Term Finance 25% 15% 20%

Topic area E is substantially new to the performance pillar. Topic areas C and D were to be found on the syllabus for the former 2005 P2, but they are not on the new 2010 P2 syllabus. Students who passed P1 under the new 2010 syllabus in May 2010 should have a thorough understanding of these topics, but what about those who passed under the former 2005 syllabus? Having not been examined on the above syllabus topics, does this mean that you able to qualify and practice as a management accountant without mastering these topics? You will not be surprised to learn that the answer to this question is a resounding `NO. These topics are vital to anyone who wishes to become a Chartered Management Accountant, and this is not a sweeping generalisation about the professional knowledge and skills that you should have. You will need an in-depth understanding these topics to succeed in your management level and in your later strategic level studies. 2

Under the former (2005) syllabus, candidates could sit papers P1 and P2 in any order, or even simultaneously at the same diet; this was because there was no assumed knowledge taken forward from one paper to the other. Under the new syllabus, things are very different and this point applies to all students sitting P2. You are assumed to have already passed (or been exempted from) P1. Thus, in sitting the P2, you are assumed to bring to the exam a full working knowledge of the new P1 syllabus and this leads to our next sting in the tail. The examiner is very likely to require you to make use of topics from P1 in answering the P2 questions. How might this manifest itself? There are numerous possible examples; here is a speculative one. Lets assume that the P2 examiner wishes to test you on outcome B1e (`apply learning curves to estimate time and cost for new products and services) and decides to set the question within a scenario. What might this scenario be? It could well be an investment appraisal scenario where the viability of the investment depends on the progressive reduction of costs through the learning curve. If this were to be the case, then to understand the question, let alone answer it, you would need to be competent in a number of the learning outcomes from the new P1 syllabus. An example of a relevant P1 learning outcome in this respect would be C2a (`evaluate project proposals using the techniques of investment appraisal). In this case, you would need to be competent in the application of the net present value (NPV) technique to deal with the question requirement. You also need to understand that this concept of assumed knowledge brought forward is not limited to the relationship between P1 and P2. For example, substantial elements of the strategic level papers also rely heavily on your understanding of investment appraisal. You will also find the principles of net present value used extensively at strategic level in calculations to determine the value of financial assets and corporate enterprises. If you want confirmation of this, take a look at the new 2010 strategic level syllabus, particularly that for Paper F3 (Financial Strategy). We cannot emphasise too strongly the incremental nature of the CIMA assessment regime. If you have been exempted from a particular paper without covering every aspect of that papers syllabus, or if you passed a paper without fully understanding all of its topics, or if you simply take the view `learned it, passed it, forgot it, then you could be in for a nasty surprise when you sit later papers. Here is a summary of our advice to help you succeed in the P2 examination. 1. Since all questions are compulsory, ensure that you are fully conversant with all aspects of the syllabus; do not put success at risk by attempting to question spot. Reflect carefully on the precise wording of the learning outcomes in the P2 syllabus. Make sure that you are clear about the level of learning that the examiner will expect you to demonstrate and recognise that a higher level of learning will be tested compared to P1. Recognise the assumed knowledge brought forward from P1 to P2; the examiner is very likely to make use of P1 topics in formulating questions that address the requirements of P2. If you passed P1 under the former 2005 syllabus you particularly need to ensure that you are competent in the topics of Project Appraisal, Uncertainty and Short-Term Finance that you will not have covered in your P1 studies. The potential time saving that we identified earlier from the replication of certain elements of syllabus topics C and D could be helpful here.

2.

3.

4.

Tim Thompson FCMA is a senior lecturer in accountancy and finance at Lincoln Business School, University of Lincoln. The examiner for P2 runs his own successful accountancy practice.