P5 Course Slides

ACCA Paper P5 Advanced Performance management
Course slides
For exams in June 2008
Syllabus
A B
C D E F
Slide 2
Strategic planning and control

Economic, fiscal, market and environmental factors Performance measurement systems and design Strategic performance measurement Performance evaluation and corporate failure Current developments and emerging issues in performance management
Examiner & Format of the Exam

Examiner: Shane Johnson
Format of the Exam

Section A Two compulsory questions
Marks
60-70
Section B
Total
Two questions from a choice of three up to 20 marks each
30-40
100
Slide 3
The December 2007 exam
Topics examined in the December 2007 exam

Question 1 Question 2 Question 3 Operating and financial performance measurement, performance comparisons Residual income, EVA Sensitivity analysis, CSF, ERPS
Question 4
Question 5
ABM
Porters five forces, corporate failure
Slide 4
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
Slide 5
Chapter 1
Study Text Chapter 1
Introduction to strategic management accounting
Management Information Hierarchy

Anthonys Hierarchy
STRATEGIC PLANNING MANAGEMENT CONTROL OPERATIONAL CONTROL
Slide 7
Roles of management accountant
Information Control Targets Rewards
Slide 8
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 longterm course of action.
Slide 9
Strategic Planning
Scope
Characteristics Information
Slide 10
Management Control
Scope
Characteristics Examples
Slide 11
Operational Control
Scope
Information
Slide 12
Rational model
3 main stages Strategic analysis Strategic choice Strategic implementation
Slide 13
of our current position to get to our desired future position to make a success of our strategic choice
Key features of planning model

Strategy to achieve objectives
Formal process
Led from top

Drilled-down through organisation
Slide 14
The rational model

POSITION AUDIT STRATEGIC CONTROL
MISSION & CORPORATE STRATEGIC OBJECTIVES APPRAISAL OPTIONS
STRATEGIC STRATEGIC CHOICE IMPLEMENT
ENVIRONMENT ANALYSIS
Slide 15
The rational model

Advantages Guides activities Provides a standard Communicates Legitimacy Problems Assumes formality Separate from operations Bureaucratic
Identifies risks
Inflexible
Lack commitment
Slide 16
Environmental Analysis
PEST
Porters 5 forces
Understand inherent attractiveness of industry Understand impact of individual forces
Slide 17
Corporate Appraisal
Identify
INTERNAL ANALYSIS
Strengths
Weaknesses Opportunities Threats
MISSION & CORPORATE OBJECTIVES APPRAISAL
Slide 18
Position Audit
Identify
INTERNAL ANALYSIS
Strengths
Weaknesses
MISSION & CORPORATE OBJECTIVES APPRAISAL
Slide 19
SWOT Analysis
INTERNAL : RELATIVE TO COMPETITION STRENGTHS exploit WEAKNESSES rectify
OPPORTUNITIES seize
THREATS nullify
EXTERNAL: PRESENT TO ALL INDUSTRY MEMBERS

Slide 20
Gap analysis fixed period
OBJECTIVE
SALES GAP
FORECAST
TIME
Slide 21
Gap Strategies
Efficiency Expansion Diversification
Slide 22
Product life cycle (PLC)

Sales Volume
Sales
Profit
Time Introduction
Slide 23
Growth
Maturity
Decline
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 ?
Slide 24
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
Slide 25
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
Slide 26
Freewheeling opportunism
..should not bother with strategic planning..
Advantages Short term opportunities grasped Reactive Encourages initiative Creative Disadvantages Control difficult Long term opportunities missed Purely profit driven Not Proactive

Slide 27
Benchmarking
How
Understand your own business processes Establish who/what to benchmark Collect and analyse data Implement improvements
Slide 28
Benchmarking
Who
Internal between SBUs Functional best in any industry Competitive direct competitors Strategic competitors strategies
Slide 29
Benchmarking why ?
Advantages Position audit Identify CSFs Identify potential advantage Problems No best solution Reactive Information dependant
Slide 30
Risk & Uncertainty

Accounting for risk ROCE Quantify risk Rule of thumb
Payback
NPV Cost-benefit
Probability
Sensitivity Standard deviation
Slide 31
Question practice end of Chapter 1
You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.
Q1
Q2
Q3
Q4
Slide 32
Chapter 2
Alternative approaches to budgeting for control
Budget Cycle
Determine Budget
Control
Planning
Operate
Slide 34
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
Slide 35
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 KPIs
Slide 36
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
Slide 37
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

Slide 38
Beyond Budgeting
Move away from traditional budgeting
Adaptive management process
Employee empowerment
Slide 39
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
Slide 40
Q5
Q6
Q7
Q9
Q10
Slide 41
Chapter 3
Changes in business structure and management accounting
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
Slide 43
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
Slide 44
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
Slide 45
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)
Slide 46
Functional organisation
Company
Sales Purchasing
Accounts
Production
Slide 47
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
Slide 48
Divisionalisation approaches
Functional departments
Geographic division
Product/brand division Customer/market
Slide 49
Centralisation v Decentralisation
Pro-centralisation Pro-decentralisation
Central decisions
Wider view Resource allocation Crisis decisions
Management overload
Junior managers morale Local decisions Develop junior managers
Cheaper management Faster decisions
Separate spheres of responsibility
Slide 50
Multi-Divisional
Company
Product 1
Product 2
Product 3
Finance
Marketing
Purchasing
Slide 51
Network organisations Functions

Line Authority Outsourcin g
Clients
B C
Slide 52
Porters 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
Slide 53
Value Chain
Firm Infrastructure
Support Activities
Technology Development
Human Resource Management Procurement Inbound Operations Outbound Logistics Logistics Marketing & Sales Service
Slide 54
Business Process Re-engineering

Start from scratch Re-define business processes Add value to customers FUNDAMENTAL RADICAL/DRAMATIC
Slide 55
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
Slide 56
Activity Based Costing (ABC) and ABM
Examined Dec 2007
Production set up costs
No. of production set ups
OAR
Machine oil & Machine repairs Supervisors salary
No. of machine hours
OAR
No. of labour hours
OAR
ACTIVITIES
Slide 57
COST DRIVERS
Q11
Q12
Q13
Q14
Q15
Slide 58
Chapter 4
Effect of information technology on modern management accounting
Information needs and IT within organisations

Traditional usage Internal processes focus Cost reduction Shared benefits Localised benefits Solving internal problems Technology led Total system development Exploitation limited by system Solving customer problems Business led Incremental development Strategic usage External customer focus Value creation
Exploitation of information
Slide 60
Intranets
Internal network Hold centralised, digitised information Accessible by all
Slide 61
EDI
Electronic Data Interchange
Computer to computer interchange Standardised, agreed exchanges Used between business partners
Slide 62
Extranets
Allow external, authorised users access to internal information Use internet technology
Help to link the supply chain
Slide 63
Databases
Systems which hold collections of records and files, designed in such a way as to facilitate access to the whole user community
Slide 64
Database Structure
User 1
User 2
Database Administrator
Database Management System
Store
Slide 65
Data Warehouse
A separate database that stores current and historical data of potential interest to managers throughout the company (Laudon and Laudon)
Slide 66
Components of a Data Warehouse
Internal operational data Internal historical data
Extraction and Transformation
Data Warehouse
Data access and analysis

Queries Reports OLAP Data mining
External data sources
Information directory
Slide 67
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
Slide 68
Q17
Q18
Slide 69
Chapter 5
Impact of world economic and market trends
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
Slide 71
Lecture Example
Virgin Rail
Government legislation (integrated transport policies, safety measures, etc.) The franchisers power and attitude Competition Level of service Pricing
Slide 72
Lecture example cont

Performance
Customer comments
Media comment and adverse publicity

Technology (availability of new rolling stock)
Network Rail policies, programmes and plans
Slide 73
Cost plus pricing

Full Cost plus
All costs plus mark up
Marginal Cost Plus

Marginal costs plus mark up
Relevant cost approach

Minimum price considering opportunity cost
Slide 74
Pricing Strategies
Premium pricing
Price discrimination
By age By time By place
Product bundling
Psychological pricing
Multiple products/loss leaders Discounts
Slide 75
Porters 5 Forces
POTENTIAL ENTRANTS
Examined Dec 2007
SUPPLIERS
INDUSTRY COMPETITORS
BUYERS
SUBSTITUTE INDUSTRIES
Slide 76
BCG Matrix
High
Relative Market Share
Low
High
Market or Industry Growth Rate

Low
Star
Question Mark
Cash Cow
Dog
Slide 77
Ansoffs Matrix
Present Present
PRODUCT
New Product Development Diversification
Withdrawal Consolidation
MARKET
Penetration
Market Development
New
Related Unrelated
Slide 78
Q19
Slide 79
Chapter 6
Impact of national fiscal and monetary policy on performance
What should a company consider when assessing performance?
Culture
Economics
Competitive forces
Politics
Technology Funding Legal factors
Slide 81
Organisational culture
Values
Attitudes
Norms
Expectations the way we do things round here Handy
Slide 82
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
Slide 83
Q20
Slide 84
Chapter 7
Other environmental and ethical issues
Stakeholders:
Customers
Suppliers Competition Employees Local Community connected
connected
external internal external
Slide 86
Stakeholder mapping Matrix

Low Low Minimal Effort (-) Keep Informed (-) Key Players (+)
Interest
High
Power
High Keep Satisfied (-)
(+)/(-) support/oppose new strategy
Slide 87
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
Slide 88
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
Slide 89
Ethics and the organisation

Sources of pressure Scope
UK government
EU
Treatment of stakeholders Green issues

Support for the disadvantaged Dealing with unethical entities
Consumers
Employees
Pressure groups
Slide 90
Corporate Ethics
Two approaches Organisation exists to maximise shareholder wealth Organisation should benefit all stakeholders
Slide 91
Considerations Who are stakeholders? Implications? Rights? Considered rights? Honest dealings? Compensation? Consequences?
Professional Ethics
Objectivity
Professional competence
Professional behaviour
Technical standards
Integrity
Confidentiality
Slide 92
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
Slide 93
Q21
Slide 94
Chapter 8
Management accounting and information systems
information
Strategic Planning Tactical Mgt and control Operational control
Slide 96
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
Slide 97
Lecture example
New outlets E-commerce strategy Pricing Promotion strategies Staff rota Inventory replenishment
Strategic
Tactical
Operational
Slide 98
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
Slide 99
Q22
Slide 100
Chapter 9
Sources of management information
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.
Slide 102
Sources of organisational information

Internal sources Formal
1. Management accounting information 2. Control procedures, records and general correspondence 3. Appraisal systems
Informal
1. Cross-departmental networking 2. The Grapevine 3. Social gatherings
Slide 103
Sources of organisational information

External sources Formal
1. Commercial data vendors 2. Government and official authorities 3. Trade associations and professional bodies
Informal
1. Suppliers and other intermediaries 2. Customers and their representatives 3. The Internet
Slide 104
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
Slide 105
Q23
Q24
Slide 106
Chapter 10
Recording and processing methods and management reports
Lecture example Security # 1

Suggest ways in which computer facilities and equipment can be physically protected.
Slide 108
Answer
a) 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
Slide 109
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?
Slide 110
Answer
a) 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
Slide 111
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.
Slide 112
Q25
Slide 113
Chapter 11
Performance hierarchy
The performance hierarchy
Vision Mission Goals
Vague
Timeless
Objectives
Slide 115
Specific
Timebound
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
Slide 116
An effective mission should contain:
Campbell et al
Purpose Strategy Policies & Behaviour Standards Values & Beliefs
Slide 117
Mission Statement Examples

Purpose Strategy Quality, cheap, global Behaviour standards Open door policy Values & beliefs Animal testing, staff welfare, environment
Slide 118
Profit, service, to be the best
Mission statements
Advantages Nature Common culture Focus Goal congruence Criticisms Vague/meaningless Not representative Implementation needed
Slide 119
The role of objectives

S - specific M - measurable
A - agreed
R - realistic T - time bound
Slide 120
Objective setting
Mission
Vertical consistency
Horizontal Consistency
Slide 121
Gap analysis
Objective
Objective
GAP
eg profit
Forecast
Time
Slide 122
Ansoffs Matrix
Present Present PRODUCT New
Withdrawal Consolidation
Product Development
Diversification
MARKET
Penetration
Market Development
New
Related
Unrelated
Slide 123
Q26
Slide 124
Chapter 12
Scope of strategic performance measures in the private sector
Introduction
Aim of private company is to maximise shareholder wealth Analysis can be performed across 4 areas:
Profitability Liquidity Gearing Shareholders ratios
Slide 126
Financial analysis
Profitability and return
Debt and gearing
Examined Dec 2007
Must compare
Different firms and time periods
Liquidity
Shareholders ratios
P/E, div cover, div yield, EPS, div cover ROCE, margins, asset turnover Debt/equity, interest cover Receivables/payables/inventory days, current ratio, acid test
Slide 127
Basis for comparison

Over time
Against other companies
Same sector? Different sector?
Industry averages Against other measures
Slide 128
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
Slide 129
Profit as a measure
Advantages Simple Relates to shareholder wealth Disadvantages Easily manipulated Short term enhancement Absolute measure
Slide 130
ROCE/ROI
Profit before interest and tax x 100%
Average capital employed.
Advantages Relative measure Easily understood
Relates to asset consumption

Slide 131
Disadvantages Reliance on profit Which investment base to use?
RI
Examined Dec 2007
Controllable divisional profit notional interest charge (Head Office Investment x ROI) Advantages Fewer dysfunctional decisions Can account for risk Disadvantages Profit based absolute measure Investment base? Determining ROI? Inter-divisional comparisons difficult
Slide 132
NPV calculations
Cashflows
Exclude inflation Include inflation Must be Future Incremental Cash
Use current/real cashflows Use money/nominal cashflows Discount at real rate, r Discount at money rate, m
1+m = (1+r) x (1+i)

Slide 133
Sensitivity analysis
Examined Dec 2007
How 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

Slide 134
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.
Slide 135
Q27
Q28
Q29
Q30
Q31
Slide 136
Chapter 13
Strategic performance issues in complex business structures
Porters 5 Forces
Threat of New Entrants
Examined Dec 2007
Bargaining Power of Suppliers
Competitive Rivalry
Bargaining Power of Customers
Substitute Industries
Slide 138
Lecture Example
Using the model identify the forces and their strength for a clothing manufacturer
Slide 139
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

Slide 140
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
Slide 141
BCG Matrix
High High
Relative Market Share
Low
Market or Industry Growth Rate

Low
Star
Question Mark
Cash Cow
Dog
Slide 142
Uses of The BCG

Internal balance
Assess trends
Evaluate competitors
Evaluate risk
Slide 143
Ansoffs Matrix
Present PRODUCT New Product Development Diversification Market Development Related Unrelated
Present
Market Penetration
MARKET
New
Slide 144
Q34
Q35
Slide 145
Chapter 14
Divisional performance and transfer pricing issues
EVA
Examined Dec 2007
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
Slide 147
Example
Profit 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
Slide 148
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
Slide 149
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 its due
Remember: Does the company want the transfer to take place?
Slide 150
A transfer pricing situation The Brewery Group
Beer
Beer
Rooms
Slide 151
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
Slide 152
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 %
Slide 153
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

Slide 154
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

Slide 155

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
Slide 156

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
Slide 157
Transfer pricing in practice
Negotiation
Head Office intervention
Head Office cost allocations
Slide 158
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 Arms length price
Slide 159
Q36
Q37
Q38
Q39
Q40
Slide 160
Chapter 15
Scope of strategic performance measures in not-for-profit organisations
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
Slide 162
Public Sector bodies

Citizens Charter
Set and published standards Quality via privatisation League tables Complaints procedures User to consumer
Slide 163
Lecture Example
Highlight problems that may occur when using league tables
Tunnel Vision Lack of true comparability Creative accounting Self fulfilling prophecy
Slide 164
VFM
example
Economy
washing up liquid
more clean plates per $
Efficiency
more clean plates per squirt

plates as clean as they
Effectiveness should be
Slide 165
Q41
Q42
Q43
Q44
Q45
Slide 166
Chapter 16
Behavioural aspects of performance measurement
Performance measurement and behaviour

Controllability
Variable costs Fixed costs
Accountability
Agency theory Hard and soft accountability
Link to performance Group scheme
Uncontrollable factors Reward schemes

Factors beyond the control of the manager
Slide 168
Management styles and motivation

Hopwoods management styles
Budget-constrained Profit-conscious Non-accounting
Motivation
challenging but achievable goal congruence
Slide 169
Q46
Q47
Slide 170
Chapter 17
Alternative views of performance measurement
Balanced Scorecard
Customer Internal
Innovation & Learning
Financial
Slide 172
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
Slide 173
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
Slide 174
The Performance Pyramid Lynch & Cross

Corporate Vision
Market
Customer Satisfaction Flexibility
Financial
Productivity
Quality Delivery
Cycle time
Waste
Operations
Slide 175
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
Slide 176
Problems of PM in Service Businesses

S imultaneity H eterogeneity I ntangibility P erishability
Slide 177
Fitzgerald and Moons Building Blocks

Dimensions base measure on these areas
Dimensions Profit Competitiveness Quality Resource utilisation Flexibility Innovation
Standards/Targets
ensure equity/fairness
Standards Ownership Achievability Equity
Rewards Clarity Motivation Controllability
Rewards need to be clear
Slide 178
Q48
Q49
Q50
Q51
Q53
Slide 179
Chapter 18
Non- financial performance indicators
Problems with Financial Performance Indicators Only monetary terms
Focus on past
Not full picture
Short term focus
Solution = NFPIs
Slide 181
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

Slide 182
Problems of NFPIs
Information overload
Detail vs. big picture

Out of date Must be linked to financial measures
Balanced Scorecard
Slide 183
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
Slide 184
Q54
Q55
Q56
Q57
Q58
Slide 185
Chapter 19
Predicting and preventing corporate failure
Predicting business failure

Declining industries
End game Product revitalisation
Examined Dec 2007
Declining companies
Slatters ten symptoms
Measures
Liquidity Z score Argentis A score
Slide 187
Strategies for improvement

Identify the causes of decline and strategies to deal with them Strategic drift
Counteracting
Review leadership
Slide 188
You should now be able to attempt the following key question from the BPP Learning Media Practice and Revision Kit.
Q59
Slide 189
Chapter 20
Current developments in management accounting techniques
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
Slide 191
Modern Japanese techniques

TQM
JIT Target costing
Kaizen costing
Continuous improvement
Slide 192
Just In Time
Supplier Base JIT purchasing Raw material & components Work-in Progress
Manufacturing Resources Planning (MRP 2) Advanced Manufacturing Technology Total Quality Management Computer Integrated Manufacturing
Finished Goods Demand Pull Customers Slide 193
Target costing
To reduce the life-cycle costs of new products through cost reduction: Pre-production planning R&D
Slide 194
Implementing target costing

a) Define product spec & sales volume
b) Target selling price c) Required profit d) Target selling price less: target profit Target cost e) Estimated cost f) Estimated cost target cost = cost gap g) Reduce costs or negotiate with customer
Slide 195
X (X) X
Q60
Q61
Q62
Slide 196
Chapter 21
Current issues and trends in performance management
Value-based management
Value mind set
Value drivers
Any variable that affects the value of the company
Management processes
Slide 198
Recently developed performance management frameworks
Six Sigma
Define Measure Analyse Improve Control
Performance Prism
Stakeholders satisfaction Strategies Processes Capabilities Stakeholder contribution
Slide 199
Q63
Q64
Q65
Q66
Slide 200

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ACCA Paper P5 Advanced Performance management

Strategic planning and control

Examiner & Format of the Exam

Format of the Exam

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

The December 2007 exam

Topics examined in the December 2007 exam

The BPP Learning Media classroom slides

Using the slides

Study Text Chapter 1

Introduction to strategic management accounting

Management Information Hierarchy

Roles of management accountant

Information Control Targets Rewards

Key features of planning model

Led from top

The rational model

MISSION & CORPORATE STRATEGIC OBJECTIVES APPRAISAL OPTIONS

STRATEGIC STRATEGIC CHOICE IMPLEMENT

The rational model

MISSION & CORPORATE OBJECTIVES APPRAISAL

MISSION & CORPORATE OBJECTIVES APPRAISAL

EXTERNAL: PRESENT TO ALL INDUSTRY MEMBERS

Gap analysis fixed period

Product life cycle (PLC)

Encourages goal congruence

Lecture Example 1 cont..

Risk & Uncertainty

Question practice end of Chapter 1

Study Text Chapter 2

Alternative approaches to budgeting for control

Budgeting and budgetary control - Summary

Budgeting and budgetary control - Summary

Alternative budget models

Periodic v Rolling (continuous) Budgets

ABB Beyond Budgeting

Adaptive management process

Behavioural aspects of budgeting

Question practice end of Chapter 2

Study Text Chapter 3

Changes in business structure and management accounting

Traditional v Modern Manufacturing

Get it right first time

Quality costs defined:

Multiple measures for teams

Departments & Divisions

Division semi-autonomous business unit

Cheaper management Faster decisions

Separate spheres of responsibility

Network organisations Functions

Porters Value Chain

Business Process Re-engineering

Identify Potential IT applications

Activity Based Costing (ABC) and ABM

Examined Dec 2007

Production set up costs

No. of production set ups

Machine oil & Machine repairs Supervisors salary

No. of machine hours

No. of labour hours

Question practice end of Chapter 3

Study Text Chapter 4

Effect of information technology on modern management accounting