ACCA P5 - Advanced Performance Management Passcards 2013-1

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<ul><li><p>ACCAPAPER P5ADVANCED PERFORMANCEMANAGEMENT</p><p>PASSCARDS</p><p>FOR EXAMS UP TO JUNE 2014</p><p>ACP5PC12_ACCA Passcards 20/08/2012 12:47 Page 1</p><p> File Attachment9781445392332.jpg</p></li><li><p>Professional Paper P5Advanced Performance Management </p><p>(000)ACP5PC10_FP.qxp 8/18/2012 9:23 PM Page i</p></li><li><p>First edition 2007, Seventh edition September 2012ISBN 9781 4453 9672 9</p><p>e ISBN 9781 4453 9233 2British Library Cataloguing-in-Publication Data</p><p>A catalogue record for this book is available from theBritish Library</p><p>Your learning materials, published by BPP LearningMedia Ltd, are printed on paper obtained from traceablesustainable sources.</p><p>Published byBPP Learning Media Ltd,BPP House, Aldine Place,142-144 Uxbridge Road,London W12</p><p>Printed in the UnitedKingdom by RicohRicoh HouseUllswater CrescentCoulsdonCR5 2HR</p><p>All rights reserved. No part of this publication may bereproduced, stored in a retrieval system or transmitted, inany form or by any means, electronic, mechanical,photocopying, recording or otherwise, without the priorwritten permission of BPP Learning Media.</p><p>BPP Learning Media Ltd</p><p>2012</p><p>(000)ACP5PC10_FP.qxp 20/08/2012 16:11 Page ii</p></li><li><p>Page iii</p><p>Welcome to BPP Learning Medias ACCA Passcards for Professional Paper P5 Advanced PerformanceManagement.</p><p> They focus on your exam and save you time.</p><p> They incorporate diagrams to kick start your memory.</p><p> They follow the overall structure of the BPP Learning Medias Study Texts, but BPP Learning Medias ACCAPasscards are not just a condensed book. Each card has been separately designed for clear presentation.Topics are self contained and can be grasped visually.</p><p> ACCA Passcards are still just the right size for pockets, briefcases and bags.</p><p> ACCA Passcards should be used in conjunction with the revision plan in the front pages of the Kit. The planidentifies key questions for you to try in the Kit.</p><p>Run through the Passcards as often as you can during your final revision period. The day before the exam, tryto go through the Passcards again! You will then be well on your way to passing your exams.</p><p>Good luck!</p><p>ContentsPreface</p><p>(000)ACP5PC10_FP.qxp 8/18/2012 9:23 PM Page iii</p></li><li><p>ContentsPreface</p><p>Page1 Introduction to strategic management</p><p>accounting 12 Performance management and control of </p><p>the organisation 173 Business structure, IT developments and </p><p>other environmental and ethical issues 234 Changing business environment and </p><p>external factors 395 Performance management information </p><p>systems 496 Management information, recording and</p><p>processing and management reports 597 Performance hierarchy 678 Scope of strategic performance measures </p><p>in the private sector 759 Divisional performance and transfer </p><p>pricing issues 85</p><p>Page10a Strategic performance measures </p><p>in not-for-profit organisations 9510b Non-financial performance indicators 10111 The role of quality in management </p><p>information and performance measurement systems 105</p><p>12 Performance measurement: strategy, reward and behaviour 121</p><p>13 Alternative views of performance measurement and management 131</p><p>14 Strategic performance issues in complex business structures 141</p><p>15 Predicting and preventing corporate failure 147</p><p>16 Current developments, issues and trends 153</p><p>(000)ACP5PC10_FP.qxp 8/18/2012 9:23 PM Page iv</p></li><li><p>1: Introduction to strategic managementaccounting</p><p>Topic List</p><p>Planning, control, decision making andmanagement information</p><p>Corporate planning</p><p>Planning and control: strategic andoperational</p><p>Multinational aspects</p><p>SWOT analysis</p><p>Benchmarking</p><p>This chapter introduces strategic managementaccounting and how it fits into the planning and controlprocess of an organisation.</p><p>The chapter also explains how organisations set strategicplans and control their outcomes.</p><p>There is an explanation of some of the techniques usedto do this and some of the factors that affect strategicplanning.</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 1</p></li><li><p>BenchmarkingPlanning, control, decision makingand management information</p><p>Corporate planning</p><p>SWOTanalysis</p><p>Multinationalaspects</p><p>Planning and control:strategic and operational</p><p>The process of deciding on the objectives of theorganisation, on changes in these objectives, on theresources used to attain these objectives, and on thepolicies that are to govern the acquisition, use anddisposal of the resources.</p><p> Long term and wide scope Generally formulated in writing Widely circulated Doesnt trigger direct action, but series of lesser</p><p>plans Includes selection of products, purchase of non-</p><p>current assets, required levels of company profit</p><p>Characteristics of strategic informationStrategic planning</p><p>Strategic decisionsStrategic decisions are long-term decisions,characterised by wide scope, wide impact, relativeuncertainty and complexity.Most strategic decisions are unique, so theinformation needed to support them is likely to be ad-hoc and specially tailored to the decision.</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 2</p></li><li><p>1: Introduction to strategic management accountingPage 3</p><p>Management controlThe process by which managers ensure thatresources are obtained and used effectively andefficiently in the accomplishment of the organisationsobjectives. It is sometimes called tactics or tacticalplanning.</p><p> Short-term and non-strategic Management control planning activities include</p><p>preparing annual sales budget Management control activities include ensuring budget</p><p>targets are (at least) reached Carried out in a series of routine and regular planning</p><p>and comparison procedures Management control information covers the whole</p><p>organisation, is routinely collected/disseminated, isoften quantitative and commonly expressed in moneyterms Cash flow forecasts Variance analysis reports Staffing levels</p><p> Source of information likely to be endogenous (fromwithin the organisation)</p><p>Characteristics of management accountinginformation</p><p>Management accounting information forstrategic planning and decision making Incorporates forecasts/estimates/risk and</p><p>uncertainty analysis Has an external orientation Forward looking and outward looking Helps to ensure goal congruence</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 3</p></li><li><p>BenchmarkingPlanning, control, decision makingand management information</p><p>Corporate planning</p><p>SWOTanalysis</p><p>Multinationalaspects</p><p>Planning and control:strategic and operational</p><p>Long-term strategic plans can conflict with the shorter-term objectives of management control.</p><p> Performance measures/control measures do not take strategic direction into account.</p><p> Strategic imperatives might not be properly communicated to middle management.</p><p> Strategic planning information might be difficult to measure.</p><p>Management control and strategic planning compared</p><p>ExampleThe decision to launch a new brand of frozen foods is a strategic plan, but the choice of ingredients for themeals is a management control decision.</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 4</p></li><li><p>1: Introduction to strategic management accountingPage 5</p><p>Performance managementActivity designed to improve anorganisations performance and ensurethat its goals are being met</p><p>Performance management systemsPlans, with set guidelines and targets, to helporganisations measure how efficiently goals are beingmet, and to identify areas where performance can beimproved</p><p> Organisation has to establish its goals andobjectives before it can assess whether theyare being met.</p><p> Once performance targets have been set, anorganisation can measure whether its goalsand targets are being achieved.</p><p> Often linked to employee reward programmesso employees are rewarded for helping anorganisation reach its goals.</p><p>Performance measurement is an importantcontrol in an organisation.</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 5</p></li><li><p>BenchmarkingPlanning, control, decision makingand management information</p><p>Corporate planning</p><p>SWOTanalysis</p><p>Multinationalaspects</p><p>Planning and control:strategic and operational</p><p>Management control v operational control</p><p>Operational control/planningThe process of ensuring that specifictasks are carried out effectively andefficiently. Short-term and non-strategic</p><p> Occurs in all aspects of anorganisations activities andneeded for day to dayimplementation of plans</p><p> Often carried out at shortnotice</p><p> Information likely to have anendogenous source, to bedetailed transaction data,quantitative and expressed interms of units/hours</p><p> Includes customer orders andcash receipts</p><p>Characteristics of operationalcontrol</p><p>ExampleStrategic planSenior management decidesales should increase by 5% pafor at least five years.Management control decisionSales quotas are assigned toeach sales territory.Operational control decisionManagers of sales territoriesspecify weekly targets for eachsales representative.</p><p>Operational control decisions aremore narrowly focused, carried outwithin a shorter time frame and takenby managers less senior in theorganisation.Operational control focuses onindividual tasks whereasmanagement control is concernedwith the sum of all tasks.</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 6</p></li><li><p>1: Introduction to strategic management accountingPage 7</p><p> Performance management systemsshould have clear links betweenperformance measures at the differenthierarchical levels of the organisation.</p><p> Means all departments and divisions willbe working towards the same ultimategoal.</p><p> Illustrated by performance pyramid (seechapter 13).</p><p>Strategic planning</p><p>Operational control</p><p>Managment control</p><p>Anthony hierarchy</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 7</p></li><li><p>BenchmarkingPlanning, control, decision makingand management information</p><p>Corporate planning</p><p>SWOTanalysis</p><p>Multinationalaspects</p><p>Planning and control:strategic and operational</p><p>Overall strategicstance</p><p>Businesssunderlying values</p><p>and/or</p><p>Strategicanalysis</p><p>Companys internal resources andfacilities: current performance,</p><p>comparatives</p><p>POSITION AUDIT</p><p>eg PEST factors, competitive forces,turbulence</p><p>ENVIRONMENTAL ANALYSIS</p><p>eg Strengths, Weaknesses,Opportunities, Threats; Gap analysis</p><p>CORPORATE APPRAISAL</p><p>Why the business exists at allWhat the business is</p><p>MISSION</p><p>The relevance of the mission todifferent stakeholders</p><p>GOALS</p><p>How the mission can be achievedDesirable outcomes of corporate</p><p>activity</p><p>OBJECTIVES</p><p>Often the same.Terms used interchangeably.</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 8</p></li><li><p>1: Introduction to strategic management accountingPage 9</p><p>Strategicchoice</p><p>Strategicimplementation</p><p>Options generation</p><p>Options evaluation</p><p>Choice</p><p>CORPORATE STRATEGIC CHOICE</p><p>1</p><p>2</p><p>3</p><p>eg Marketing strategies, productionstrategies</p><p>STRATEGY IMPLEMENTATION</p><p>Assess actual performance in thelight of plans etc</p><p>REVIEW &amp; CONTROL</p><p>TACTICS ACTUAL PERFORMANCE</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 9</p></li><li><p>BenchmarkingPlanning, control, decision makingand management information</p><p>Corporate planning</p><p>SWOTanalysis</p><p>Multinationalaspects</p><p>Planning and control:strategic and operational</p><p>Corporate Strategy</p><p>Operational/functionalStrategies</p><p>Business levelStrategy</p><p>Levels of strategyCovers business as a whole</p><p>Issues such as: diversifying or restricting activities investing survival or growth</p><p>How an organisation approaches a particular market</p><p>Choice of generic strategies: cost leadership differentiation focus</p><p>Involves decisions made at operational leveleg product pricing; personnel and recruitment</p><p>Operational strategies are crucial in implementingcorporate and business level strategies successfully.</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 10</p></li><li><p>BenchmarkingPlanning, control, decision makingand management information</p><p>Corporate planning</p><p>SWOTanalysis</p><p>Multinationalaspects</p><p>Planning and control:strategic and operational</p><p>Linking strategy andoperations</p><p>The achievement of long-termgoals will require strategicplanning which is linked to short-term operational planning ... Ifthere is no link between strategicplanning and operationalplanning the result is likely to beunrealistic plans, inconsistentgoals, poor communicationand inadequate performancemeasurement.</p><p>Strategic planning and control versus operational planning and control</p><p>Strategic</p><p>Broad brush targetsWhole organisationExternal inputExternal focusFuture orientated, feedforwardcontrolPotential for double loopfeedback (ie opportunity tochange the plan)</p><p>Long term</p><p>Operational</p><p>DetailedActivities of departmentMainly internal informationInternal focus, on actual proceduresMore concerned with monitoringcurrent performance against planMainly single loop feedback(performance must change, not theplan)</p><p>Short term</p><p>Page 11 1: Introduction to strategic management accounting</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 11</p></li><li><p>BenchmarkingPlanning, control, decision makingand management information</p><p>Corporate planning</p><p>SWOTanalysis</p><p>Multinationalaspects</p><p>Planning and control:strategic and operational</p><p>Strategic controlTo encourage the measurement of theright things, organisations can instituteformal or informal systems of strategiccontrol. Formal systems require theidentification of milestones ofperformance (strategic objectives).</p><p> Focus on what matters in thelong term</p><p> Identify and communicatedrivers of success</p><p> Support organisational learning Provide a basis for reward Measurable Meaningful Acceptable Described by strategy and</p><p>relevant to it Consistently measured Re-evaluated regularly</p><p>Desirable features of strategicperformance measures</p><p> Linkages Diversity Criticality Change Competitive advantage</p><p>Guidelines for a strategic control system</p><p>The key to strategic control isensuring that the right thingsget measured.</p><p> False alarmsmotivate managers toimprove areas where thereare few benefits to theorganisation</p><p> Gaps are important areasthat are neglected (egcustomer satisfaction)</p><p> Different measures applyto different industries</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 12</p></li><li><p>BenchmarkingPlanning, control, decision makingand management information</p><p>Corporate planning</p><p>SWOTanalysis</p><p>Multinationalaspects</p><p>Planning and control:strategic and operational</p><p>1: Introduction to strategic management accountingPage 13</p><p> Cultural factors (eg international hasfragmented, diverse markets)</p><p> Economic factors (eg international hasmultiple (unstable?) environments)</p><p> Competitive factors (eg little informationabout many more competitors ininternational business)</p><p> Political factors (often significant ininternational businesses)</p><p> Technological factors (eg training problemsin international businesses)</p><p>Differences between domestic and internationalbusinesses</p><p> Establishing realistic standards Determining controllable cash flows Currency conversion Bases of comparison</p><p>Problems of performance measurement</p><p> Exchange rate fluctuations Risk Cost structure Accounting policies Transfer prices Workforce Government policy Life cycle Level of domestic competition</p><p>Examples of problems when setting objectives</p><p>Potential issues in managing foreign subsidiaries Planning: is strategic planning co-ordinated by corporate centre or at national level? Control: is control centralised or do foreign subsidiaries have autonomy?</p><p>Performance measurement</p><p>(001)ACP5PC10_CH01.qxp 8/18/2012 9:24 PM Page 13</p></li><li><p>BenchmarkingPlanning, control, decision makingand management info...</p></li></ul>