ACCA Paper P5 – Advanced Performance management

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

2. Syllabus

3. Examiner & Format of the Exam Examiner: Shane Johnson

4. The December 2007 exam

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

6. Chapter 1 Study Text Chapter 1 Introduction to strategic management accounting

7. Management Information Hierarchy • Anthony’s Hierarchy STRATEGIC PLANNING MANAGEMENT CONTROL OPERATIONAL CONTROL

8. Roles of management accountant • Information • Control • Targets • Rewards

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.

10. Strategic Planning • Scope • Characteristics • Information

11. Management Control • Scope • Characteristics • Examples

12. Operational Control • Scope • Information

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

14. Key features of planning model • Strategy to achieve objectives • Formal process • Led from top • “Drilled-down” through organisation

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

16. The rational model • Advantages • Guides activities • Provides a standard • Communicates • Legitimacy • Identifies risks • Problems • Assumes formality • Separate from operations • Bureaucratic • Inflexible • Lack commitment

17. Environmental Analysis • PEST • Porter’s 5 forces • Understand inherent attractiveness of industry • Understand impact of individual forces

18. Corporate Appraisal Identify Strengths Weaknesses Opportunities Threats INTERNAL ANALYSIS MISSION & OBJECTIVES CORPORATE APPRAISAL ENVIRONMENT ANALYSIS

19. Position Audit Identify Strengths Weaknesses INTERNAL ANALYSIS MISSION & OBJECTIVES CORPORATE APPRAISAL ENVIRONMENT ANALYSIS

20. SWOT Analysis INTERNAL : RELATIVE TO COMPETITION STRENGTHS exploit WEAKNESSES rectify OPPORTUNITIES seize THREATS nullify EXTERNAL: PRESENT TO ALL INDUSTRY MEMBERS

21. Gap analysis – fixed period OBJECTIVE SALES GAP FORECAST TIME

22. Gap Strategies • Efficiency • Expansion • Diversification

23. Product life cycle (PLC) Sales Volume Sales Profit Time Introduction Growth Maturity Decline

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 ?

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

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

27. 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

28. Benchmarking How • Understand your own business processes • Establish who/what to benchmark • Collect and analyse data • Implement improvements

29. Benchmarking Who • Internal – between SBU’s • Functional – best in any industry • Competitive – direct competitors • Strategic – competitors’ strategies

30. Benchmarking – why ? Advantages • Position audit • Identify CSF’s • Identify potential advantage • Problems • No best solution • Reactive • Information dependant

31. Risk & Uncertainty • Accounting for risk • ROCE • Payback • NPV • Cost-benefit • Quantify risk • Rule of thumb • Probability • Sensitivity • Standard deviation

32. 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

33. Chapter 2 Study Text Chapter 2 Alternative approaches to budgeting for control

34. Budget Cycle Determine Budget Control Planning Operate

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

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

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

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

39. Beyond Budgeting Move away from traditional budgeting Adaptive management process Employee empowerment

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

41. Question practice – end of Chapter 2 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q5 Q6 Q7 Q9 Q10

42. Chapter 3 Study Text Chapter 3 Changes in business structure and management accounting

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 shorterproduction runs/producing on demand inventory is unacceptable & will accept some idle-time complex/diverse product ranges Customer is priority Focus: FLEXIBILITY

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

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

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)

47. Functional organisation Company Sales Purchasing Accounts Production

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

49. Divisionalisation approaches • Functional departments • Geographic division • Product/brand division • Customer/market

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