Presentation is loading. Please wait.

Presentation is loading. Please wait.

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

Similar presentations

Presentation on theme: "ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008."— Presentation transcript:

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

2 Slide 2 Syllabus AStrategic planning and control B Economic, fiscal, market and environmental factors CPerformance measurement systems and design DStrategic performance measurement EPerformance evaluation and corporate failure F Current developments and emerging issues in performance management

3 Slide 3 Examiner & Format of the Exam Examiner: Shane Johnson Format of the ExamMarks Section ATwo compulsory questions60-70 Section BTwo questions from a choice of three up to 20 marks each Total100

4 Slide 4 The December 2007 exam Topics examined in the December 2007 exam Question 1Operating and financial performance measurement, performance comparisons Question 2Residual income, EVA Question 3Sensitivity analysis, CSF, ERPS Question 4ABM Question 5Porters five forces, corporate failure

5 Slide 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 Introduction to strategic management accounting Study Text Chapter 1

7 Slide 7 Management Information Hierarchy Anthonys Hierarchy STRATEGIC PLANNING MANAGEMENT CONTROL OPERATIONAL CONTROL

8 Slide 8 Roles of management accountant Information Control Targets Rewards

9 Slide 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 Slide 10 Strategic Planning Scope Characteristics Information

11 Slide 11 Management Control Scope Characteristics Examples

12 Slide 12 Operational Control Scope Information

13 Slide 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 Slide 14 Key features of planning model Strategy to achieve objectives Formal process Led from top Drilled-down through organisation


16 Slide 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 Slide 17 PEST Porters 5 forces –Understand inherent attractiveness of industry –Understand impact of individual forces Environmental Analysis

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



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

22 Slide 22 Gap Strategies Efficiency Diversification Expansion

23 Slide 23 Product life cycle (PLC) Time Sales Volume IntroductionGrowthMaturityDecline Profit Sales

24 Slide 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 Slide 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 Slide 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 Slide 27 Freewheeling opportunism Advantages Short term opportunities grasped Reactive Encourages initiative Creative Disadvantages Control difficult Long term opportunities missed Purely profit driven Not Proactive..should not bother with strategic planning..

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

29 Slide 29 Benchmarking Who Internal – between SBUs Functional – best in any industry Competitive – direct competitors Strategic – competitors strategies

30 Slide 30 Benchmarking – why ? Advantages Position audit Identify CSFs Identify potential advantage Problems No best solution Reactive Information dependant

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

32 Slide 32 Question practice – end of Chapter 1 Q1 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q2Q3Q4

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

34 Slide 34 Budget Cycle Determine Budget Operate Control Planning

35 Slide 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 Slide 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 KPIs

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

40 Slide 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 Slide 41 Question practice – end of Chapter 2 Q5 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q6Q7Q9Q10

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

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

44 Slide 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 Slide 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 Slide 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 Slide 47 Functional organisation AccountsProduction Company PurchasingSales

48 Slide 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 Slide 49 Divisionalisation approaches Functional departments Geographic division Product/brand division Customer/market

50 Slide 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

51 Slide 51 Multi-Divisional

52 Slide 52 Network organisations Functions Clients ABCABC Line Authority Outsourcing

53 Slide 53 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

54 Slide 54 Inbound Logistics OperationsOutbound Logistics Marketing & Sales Service Procurement Human Resource Management Technology Development Firm Infrastructure Support Activities Value Chain

55 Slide 55 Business Process Re-engineering Start from scratch Re-define business processes Add value to customers FUNDAMENTAL RADICAL/DRAMATIC

56 Slide 56 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

57 Slide 57 Activity Based Costing (ABC) and ABM Examined Dec 2007 No. of machine hours No. of labour hours OAR Production set up costs Machine oil & Machine repairs Supervisors salary ACTIVITIES COST DRIVERS No. of production set ups

58 Slide 58 Question practice – end of Chapter 3 Q11 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q12Q13Q14Q15

59 Chapter 4 Effect of information technology on modern management accounting Study Text Chapter 4

60 Slide 60 Information needs and IT within organisations Traditional usage Internal processes focus Cost reduction Localised benefits Solving internal problems Technology led Total system development Exploitation limited by system Strategic usage External customer focus Value creation Shared benefits Solving customer problems Business led Incremental development Exploitation of information

61 Slide 61 Intranets Internal network Hold centralised, digitised information Accessible by all

62 Slide 62 EDI Electronic Data Interchange –Computer to computer interchange –Standardised, agreed exchanges –Used between business partners

63 Slide 63 Extranets Allow external, authorised users access to internal information Use internet technology Help to link the supply chain

64 Slide 64 Databases Systems which hold collections of records and files, designed in such a way as to facilitate access to the whole user community

65 Slide 65 Database Structure Store Database Management System Database Administrator User 1 User 2

66 Slide 66 Data Warehouse A separate database that stores current and historical data of potential interest to managers throughout the company (Laudon and Laudon)

67 Slide 67 Components of a Data Warehouse Internal operational data Internal historical data External data sources Extraction and Transformation Data Warehouse Information directory Data access and analysis Queries Reports OLAP Data mining

68 Slide 68 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

69 Slide 69 Question practice – end of Chapter 4 Q17 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q18

70 Chapter 5 Impact of world economic and market trends Study Text Chapter 5

71 Slide 71 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

72 Slide 72 Lecture Example Virgin Rail Government legislation (integrated transport policies, safety measures, etc.) The franchisers power and attitude Competition Level of service Pricing

73 Slide 73 Lecture example cont… Performance Customer comments Media comment and adverse publicity Technology (availability of new rolling stock) Network Rail policies, programmes and plans

74 Slide 74 Full Cost plus Relevant cost approach Marginal Cost Plus All costs plus mark up Marginal costs plus mark up Minimum price considering opportunity cost Cost plus pricing

75 Slide 75 Pricing Strategies Premium pricing Price discrimination –By age –By time –By place Product bundling Psychological pricing Multiple products/loss leaders Discounts


77 Slide 77 BCG Matrix Market or Industry Growth Rate High Low Relative Market Share High Low StarQuestion Mark Cash CowDog

78 Slide 78 Ansoffs Matrix MARKET PRODUCT Present New Withdrawal Consolidation Penetration Product Development Market Development Diversification Related Unrelated PresentNew

79 Slide 79 Question practice – end of Chapter 5 Q19 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

80 Chapter 6 Impact of national fiscal and monetary policy on performance Study Text Chapter 6

81 Slide 81 What should a company consider when assessing performance? Culture Economics Competitive forces Politics Technology Funding Legal factors

82 Slide 82 Organisational culture Values Attitudes Norms Expectations the way we do things round here Handy

83 Slide 83 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

84 Slide 84 Question practice – end of Chapter 6 Q20 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

85 Chapter 7 Other environmental and ethical issues Study Text Chapter 7

86 Slide 86 Stakeholders: Customers Suppliers Competition Employees Local Community –connected –external –internal –external

87 Slide 87 Stakeholder mapping Matrix Interest Power Low High Minimal EffortKeep Informed Keep SatisfiedKey Players (+)/(-) support/oppose new strategy (+)(-)

88 Slide 88 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

89 Slide 89 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

90 Slide 90 Ethics and the organisation Sources of pressure UK government EU Consumers Employees Pressure groups Scope Treatment of stakeholders Green issues Support for the disadvantaged Dealing with unethical entities

91 Slide 91 Corporate Ethics Two approaches Organisation exists to maximise shareholder wealth Organisation should benefit all stakeholders Considerations Who are stakeholders? Implications? Rights? Considered rights? Honest dealings? Compensation? Consequences?

92 Slide 92 Professional Ethics Objectivity Professional competence Professional behaviour Technical standards Integrity Confidentiality

93 Slide 93 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

94 Slide 94 Question practice – end of Chapter 7 Q21 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

95 Chapter 8 Management accounting and information systems Study Text Chapter 8

96 Slide 96 Characteristics of management information Strategic Planning Tactical Mgt and control Operational control

97 Slide 97 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

98 Slide 98 Lecture example Strategic Tactical Operational New outlets E-commerce strategy Pricing Promotion strategies Staff rota Inventory replenishment

99 Slide 99 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

100 Slide 100 Question practice – end of Chapter 8 Q22 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

101 Chapter 9 Sources of management information Study Text Chapter 9

102 Slide 102 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.

103 Slide 103 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

104 Slide 104 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

105 Slide 105 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

106 Slide 106 Question practice – end of Chapter 9 Q23 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q24

107 Chapter 10 Recording and processing methods and management reports Study Text Chapter 10

108 Slide 108 Lecture example – Security # 1 Suggest ways in which computer facilities and equipment can be physically protected.

109 Slide 109 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

110 Slide 110 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?

111 Slide 111 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

112 Slide 112 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.

113 Slide 113 Question practice – end of Chapter 10 Q25 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

114 Chapter 11 Performance hierarchy Study Text Chapter 11

115 Slide 115 The performance hierarchy Vision Mission Goals Objectives Timebound Timeless Specific Vague

116 Slide 116 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

117 Slide 117 An effective mission should contain: Campbell et al –Purpose –Strategy –Policies & Behaviour Standards –Values & Beliefs

118 Slide 118 Mission Statement Examples Purpose Strategy Behaviour standards Values & beliefs Profit, service, to be the best Quality, cheap, global Open door policy Animal testing, staff welfare, environment

119 Slide 119 Mission statements Advantages Nature Common culture Focus Goal congruence Criticisms Vague/meaningless Not representative Implementation needed

120 Slide 120 The role of objectives S - specific M - measurable A - agreed R - realistic T - time bound

121 Slide 121 Objective setting Mission Vertical consistency Horizontal Consistency

122 Slide 122 Gap analysis Objective Forecast Objective eg profit Time GAP

123 Slide 123 Ansoffs Matrix MARKET PRODUCT Present New Withdrawal Consolidation Penetration Product Development Market Development Diversification Related Unrelated PresentNew

124 Slide 124 Question practice – end of Chapter 11 Q26 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit.

125 Chapter 12 Scope of strategic performance measures in the private sector Study Text Chapter 12

126 Slide 126 Introduction Aim of private company is to maximise shareholder wealth Analysis can be performed across 4 areas: Profitability Liquidity Gearing Shareholders ratios

127 Slide 127 Financial analysis Profitability and return Debt and gearing Liquidity Shareholders ratios Must compare Different firms and time periods ROCE, margins, asset turnover Debt/equity, interest cover Receivables/payables/inventory days, current ratio, acid test P/E, div cover, div yield, EPS, div cover Examined Dec 2007

128 Slide 128 Basis for comparison Over time Against other companies –Same sector? –Different sector? Industry averages Against other measures

129 Slide 129 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

130 Slide 130 Profit as a measure Advantages Simple Relates to shareholder wealth Disadvantages Easily manipulated Short term enhancement Absolute measure

131 Slide 131 ROCE/ROI Advantages Relative measure Easily understood Relates to asset consumption Disadvantages Reliance on profit Which investment base to use? Profit before interest and tax Average capital employed. x 100%

132 Slide 132 RI Advantages Fewer dysfunctional decisions Can account for risk Disadvantages Profit based absolute measure Investment base? Determining ROI? Inter-divisional comparisons difficult Controllable divisional profit – notional interest charge (Head Office Investment x ROI) Examined Dec 2007

133 Slide 133 NPV calculations Cashflows Must be Future Incremental Cash Exclude inflation Use current/real cashflows Discount at real rate, r Include inflation Use money/nominal cashflows Discount at money rate, m 1+m = (1+r) x (1+i)

134 Slide 134 Sensitivity analysis How much can NPV change before NPV is negative? Sensitivity = NPV total PV cashflow NPV total = 1,148 PV of resale value = 4,000 * =4,000 * =2,544 Examined Dec 2007

135 Slide 135 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.

136 Slide 136 Question practice – end of Chapter 12 Q27 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q28Q29Q30Q31

137 Chapter 13 Strategic performance issues in complex business structures Study Text Chapter 13

138 Slide 138 Porters 5 Forces Competitive Rivalry Bargaining Power of Suppliers Substitute Industries Bargaining Power of Customers Threat of New Entrants Examined Dec 2007

139 Slide 139 Using the model identify the forces and their strength for a clothing manufacturer Lecture Example

140 Slide 140 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

141 Slide 141 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

142 Slide 142 BCG Matrix Market or Industry Growth Rate High Low Relative Market Share High Low StarQuestion Mark Cash CowDog

143 Slide 143 Uses of The BCG Internal balance Assess trends Evaluate competitors Evaluate risk

144 Slide 144 Ansoffs Matrix MARKET PRODUCT Present New Market Penetration Product Development Market Development Diversification Related Unrelated PresentNew

145 Slide 145 Question practice – end of Chapter 13 Q34 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q35

146 Chapter 14 Divisional performance and transfer pricing issues Study Text Chapter 14

147 Slide 147 EVA 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 Examined Dec 2007

148 Slide 148 Example Profit after tax = 160, depreciation = 30, tax rate = 30%, interest = 20, WACC = 15%, replacement cost of net assets = 1,100 20X8 NOPAT= x 0.7 = 204 Net Assets= 1,100 EVA= 204 – 15% x 1,100 = 39

149 Slide 149 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

150 Slide 150 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?

151 Slide 151 A transfer pricing situation – The Brewery Group Beer Rooms

152 Slide 152 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

153 Slide 153 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 %

154 Slide 154 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

155 Slide 155 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

156 Slide 156 Opportunity Cost Based Approach 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

157 Slide 157 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 Opportunity Cost Based Approach

158 Slide 158 Transfer pricing in practice Negotiation Head Office intervention Head Office cost allocations

159 Slide 159 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

160 Slide 160 Question practice – end of Chapter 14 Q36 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q37Q38Q39Q40

161 Chapter 15 Scope of strategic performance measures in not-for-profit organisations Study Text Chapter 15

162 Slide 162 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

163 Slide 163 Public Sector bodies Citizens Charter –Set and published standards –Quality via privatisation –League tables –Complaints procedures –User to consumer

164 Slide 164 Lecture Example Highlight problems that may occur when using league tables –Tunnel Vision –Lack of true comparability –Creative accounting –Self fulfilling prophecy

165 Slide 165 VFM example– washing up liquid Economy– more clean plates per $ Efficiency – more clean plates per squirt Effectiveness– plates as clean as they should be

166 Slide 166 Question practice – end of Chapter 15 Q41 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q42Q43Q44Q45

167 Chapter 16 Behavioural aspects of performance measurement Study Text Chapter 16

168 Slide 168 Controllability –Variable costs –Fixed costs Accountability –Agency theory –Hard and soft accountability Uncontrollable factors –Factors beyond the control of the manager Performance measurement and behaviour Reward schemes –Link to performance –Group scheme

169 Slide 169 Management styles and motivation Hopwoods management styles –Budget-constrained –Profit-conscious –Non-accounting Motivation –challenging but achievable –goal congruence

170 Slide 170 Question practice – end of Chapter 16 Q46 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q47

171 Chapter 17 Alternative views of performance measurement Study Text Chapter 17

172 Slide 172 Balanced Scorecard Customer Internal Financial Innovation & Learning

173 Slide 173 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

174 Slide 174 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

175 Slide 175 The Performance Pyramid MarketFinancial Customer Satisfaction Flexibility Productivity QualityDelivery Cycle time Waste Operations Corporate Vision Lynch & Cross

176 Slide 176 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

177 Slide 177 Problems of PM in Service Businesses S imultaneity H eterogeneity I ntangibility P erishability

178 Slide 178 Fitzgerald and Moons Building Blocks Standards Ownership Achievability Equity Standards Ownership Achievability Equity Rewards Clarity Motivation Controllability Rewards Clarity Motivation Controllability Dimensions Profit Competitiveness Quality Resource utilisation Flexibility Innovation Dimensions Profit Competitiveness Quality Resource utilisation Flexibility Innovation Dimensions base measure on these areas Dimensions base measure on these areas Standards/Targets ensure equity/fairness Standards/Targets ensure equity/fairness Rewards need to be clear Rewards need to be clear

179 Slide 179 Question practice – end of Chapter 17 Q48 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q49Q50Q51Q53

180 Chapter 18 Non- financial performance indicators Study Text Chapter 18

181 Slide 181 Problems with Financial Performance Indicators Only monetary terms Focus on past Not full picture Short term focus Solution = NFPIs

182 Slide 182 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

183 Slide 183 Problems of NFPIs Information overload Detail vs. big picture Out of date Must be linked to financial measures Balanced Scorecard

184 Slide 184 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

185 Slide 185 Question practice – end of Chapter 18 Q54 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q55Q56Q57Q58

186 Chapter 19 Predicting and preventing corporate failure Study Text Chapter 19

187 Slide 187 Predicting business failure Declining industries –End game –Product revitalisation Declining companies –Slatters ten symptoms Measures –Liquidity –Z score –Argentis A score Examined Dec 2007

188 Slide 188 Strategies for improvement Identify the causes of decline and strategies to deal with them Strategic drift –Counteracting Review leadership

189 Slide 189 Question practice – end of Chapter 19 Q59 You should now be able to attempt the following key question from the BPP Learning Media Practice and Revision Kit.

190 Chapter 20 Current developments in management accounting techniques Study Text Chapter 20

191 Slide 191 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

192 Slide 192 Modern Japanese techniques TQM JIT Target costing Kaizen costing Continuous improvement

193 Slide 193 Supplier Base JIT purchasing Raw material & components Work-in Progress Finished Goods Demand Pull Customers Manufacturing Resources Planning (MRP 2) Advanced Manufacturing Technology Total Quality Management Computer Integrated Manufacturing Just In Time

194 Slide 194 Target costing To reduce the life-cycle costs of new products through cost reduction: Pre-production planning R&D

195 Slide 195 Implementing target costing a)Define product spec & sales volume b)Target selling price c)Required profit d)Target selling price X less: target profit(X) Target cost X e)Estimated cost f)Estimated cost – target cost = cost gap g)Reduce costs or negotiate with customer

196 Slide 196 Question practice – end of Chapter 20 Q60 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q61Q62

197 Chapter 21 Current issues and trends in performance management Study Text Chapter 21

198 Slide 198 Value-based management Value mind set Value drivers –Any variable that affects the value of the company Management processes

199 Slide 199 Recently developed performance management frameworks Six Sigma –Define –Measure –Analyse –Improve –Control Performance Prism –Stakeholders satisfaction –Strategies –Processes –Capabilities –Stakeholder contribution

200 Slide 200 Question practice – end of Chapter 21 Q63 You should now be able to attempt the following key questions from the BPP Learning Media Practice and Revision Kit. Q64Q65Q66

Download ppt "ACCA Paper P5 – Advanced Performance management Course slides For exams in June 2008."

Similar presentations

Ads by Google