- Information
- AI Chat
APM Compact Notes - APM-P5
Association of Chartered Certified Accountants - ACCA (PAC150)
INTEC Education College
Recommended for you
Preview text
CHAPTER 1
Strategic Management
Accounting
Strategic Performance Management
- it is about planning, control and decision making
Planning
- process of deciding what to do
Control -monitor actions taken
Decision Making
- choosing between alternatives
- Performance Management vs Performance Measurement
P. Management
- activites an organisation carrioed out leading towards its goal
P. Measurement
- setting KPI to measure goal of organisation
Benchmarking
- it is process of comparing against the best practice to identify area for improvement
Types of benchmarking a) Internal Benchmarking b) External Benchmarking c) Competitor Benchmarking d) Functional Benchmarking *for more infor read yourself the definition
Steps/Stages of Benchmarking
- Set objective of benchmarking
- Select key measures or areas to benchmark
- Select organisation to benchmark
- Collect data
- Compare to identify area for improvement
- Improvement strategy
- Monitor
Strategic Models and Performance Management
1) SWOT Analysis
critical assessment of strength weakness, opportunity and threat of organisation in order to establish its strategic position prior to developing strategic plan.
strength and weakness analyse external factor
opportunity and threat analyse external factor
SWOT analysis in performance management a) able to address weakness and threat b) able to exploit stregth and opportunity c) identify critical success factor d) determine information need in measuring organisation performance
Example weakness of company B is lack of presence in social media, so performance measure to address weakness is number of followers in social media, number of shares and likes of post.
Weakness of company - customers always received orders LATE
KPI - number of late orders
- customer rating
- time taken to receive orders
- number of customer complaints
Strength (marketing) KPI - Sales volume
2) Porter’s five forces
suggest that 5 key forces determine profitability of an industry, the higher the forces then the loweer level of industry profit
5 forces are new entrant, suppliers, buyers, substitutes product and competition rivalry
analysing 5 forces can help organisation identify performance measure which could be particularly important. Example to measure how huge the threat of new entrants can use market share as performance measure
potential issues with 5 forces is it is not easy to identify what industry organisation operates in, as example some large organisation might operate accross more than industry eg SAMSUNG
3) BCG analysis
it is assessment of market share and market growth of products or business unit ie division or subsidiary, thus able to identify future strategy in regards to this products or business unit
high market share, high market growth: STARS, retain
high market share, low market growth: CASH COWS, retain
low market share, high market growth: QUESTION MARKS, retain or sell
low market share, low market growth: DOGS, sell
Market growth: CY - PY Sales / PY Sales
BENEFIT OF BCG
- helps manager to understand product position
- helps manager in strategy formulation
LIMITATION BCG
- sometimes one product will support other product ie complimentary (eg gardenia & jam, if sell roti, jam nak sapu kat mana?) the division may be complimentary to each other
- too simple ie strategy only based on 2 factors ie market share and market growth
- attractiveness of product not solely based on market growth , profit margin can affect profitaibility
- they are grey are within matrix ie subjective, how high is high (eg, market share is 8%, is it high? & in exam: anything above 10% is HIGH)
4) Porter’s Generic Strategy
organisation either to be lowest cost producer (cost leadership) or differentiate its product from competitor (differentiation)
implication for performance management
a) cost leadership: organisation will focus more on financial measuring contribution, cost of sales, target costing (eg XIAOMI)
b) differentiation: organisation will focus on non financial measure eg customers satisfaction score, number of new innovation (eg IPHONE) [n/o award won: non-financial measure]
CHAPTER 2
PERFORMANCE HIERARCHY
MISSION AND MISSION
STATEMENTS
Mission
- refers to purpose and aim of the organisation (company)
- it is reflection of stakeholders expectation ie shareholders, customers etc
- in APM exam it is about set performance measure in order to achieve organisation mission
OBJECTIVES
Statement of specific outcomes that organisation wish to achieve
Objectives need to be SMART (Specific, Measurable, Attainable, Realistic and Time Bound)
Organisation can have more than one objectives
CRITICAL SUCCESS FACTORS (CSFs)
1) Critical Success Factor (CSF)
- refers to areas/features that are particularly valued by customers
- if it results in satisfactory, it will increase competitive advantage for company and outperform competitors
- there can be more than one CSF in any company
- eg. CSF for restaurant is Quality of Service
2) Sources of CSF
- company mission and strategy
- external environment (PEST, 5 Forces)
3) Type of CSF
- Internal
- External
- Monitoring
- Building
3a) Monitoring CSF
- ST in nature
- more for operational performance and used to control
3b) Building CSF
- LT in nature
- it is concern with ability of organisation to change and adapt to business environment ie. involve future and competitive advantage
KEY PERFORMANCE INDICATORS (KPIs)
- Key Performance Indicators (KPI)
- targets that organisation has to achieve in order to meet or measure the CSF
- Remember KPI must be measurable
- eg KPI is n/o customers complaint, n/o awards won
- notes CSF and KPI are not the same
EXAMPLE CSF - customer satisfaction KPI - number of complaint
CHAPTER 3
PERFORMANCE
MANAGEMENT AND
CONTROL
1 THE PURPOSE OF BUDGETS
Budgeting
- tools used by organisation for planning (resource allocation) and control (variance analysis)
Purpose of Budgeting P - Planning R - Responsibility I - Integration M - Motivation E - Evaluation
*read yourself further in workbook
2 APPROACHES TO BUDGETING
Budgeting Style a) Top Down Budgeting b) Bottom Up Budgeting
2 TOP-DOWN/BOTTOM UP
- Top Down Budgeting
- budget comes from top management and divisional manager are responsible for achievement of the budget set
Benefit
lead to goal congruence ie every division works together towards achieving organisation goal
reduce cost it senior management will control cost for every division
Problem
- unrealistic budget
- demotivation budget
- Bottom Up Budgeting
- budgets are prepared by divisional manager and submitted to higher management approval
Benefit
- realistic budget
- higher level of motivation (budget higher sikit je, not much, so senang and motivated to achieve, than an unrealistic budget like top- down budgeting)
Problem
- budgetary slack ie inefficiency
- may not lead to goal congruence, lack of coordination
2 INCREMENTAL Incremental Budgeting
- type of budget where the budget is prepared based on previous year results. adjustment and allowance is made based on previous year result to derived current year budget.
a) benefit
- this type of budget is suitable if the business environment is stable and not much uncertainty
b) problem
- issues with incremental budgeting is that it does not encourage improvement and changes. ie innovation as division manager are looking at previous year result in preparing the budget
2 ZERO BASED (ZBB) ZBB
- the type of budget which start from basic. In preparing the budget, the manager would assume that they have zero knowledge thus everything is to start from scratch
CHAPTER 4
ORGANISATIONAL CHANGE,
ENVIRONMENTAL AND
ETHICAL ISSUES
1 PERFORMANCE MANAGEMENT
ISSUES IN DIFFERENT BUSINESS
1 FUNCTIONAL
Functional Structure
department are by functions
eg company will have sales, finance, purchase, HR, warehouse department lead by different people
company can set KPI or targets to measure performance of functions
ie - sales department - revenue - set targets (ie 500k), if tak achieve sales, then functional level deparment may be poor
1 DIVISIONAL
Divisional structure
- company divided by division which focus on products or geographical territory
- eg large company which have HQ and further split into division with
their own functions eg Asian market, European market, American market
- can measure performance of division is Return on Investment, Residual Income etc
1 NETWORK STRUCTURES
Network Structure
a type of company that outsource majority its department or functions because believe it is cheaper rather than having it in house
currently there are many company outsource IT, manufacturing, customer service etc (also audit)
can measure performance using agreement, ie will set KPI on time schedule, sharing resources (how much will u and the other party will share each of your resources)
2 PERFORMANCE MANAGEMENT
IN SERVICE BUSINESSES
Performance management in service businesses
Characteristics of Service Organisation (ISHOP)
I - Intangible (no physical offering to assess customer value)
S - simultaneous (production and consumption occur at same time)
H - hetregenous (varies from day to day or employee to employee)
O - no transfer ownership (not result in changing of owners)
P - perishable (only last for period of time and cannot be stored)
*NOTES FOR SERVICE ORGANISATION a) Information for performance measure are more brader than manufacturing organisition b) more concern about qualitative measure
eg. customer satisfaction and employee morale c) most expenses are overhead, making activity based costing more valuable
(MORE CONCERN ON THEIR NON- FINANCIAL MEASURE)
3 BUSINESS INTEGRATION
3 VALUE CHAIN
Value Chain a) concept
- identify activities within the organisation
Primary activities Inbound logistics Operation - process of RM to Finished Goods Outbound logistics - Delivery from warehouse to customers Marketing and sale s Service - Repair/Warranty
Supporting activities Firm infrastructure - accountant etc HR management - how u recruit your staff Technology development - IT department Procurement - Process where u select/buy your supplier
Impact on performance management
- identify acitivities that add value (eg. marketing)
- set the right performance measure
Benefit of value chain
- identify how activities can be improved
- identify value addiing and non- value adding activities
Criticism value chain
- suitable for manufacturin organisation rather than service organisation
- it is time consuming
3 7S MODEL
McKinsey 7S Model
- Structure
- relate to organisation structure
- Strategy
- relate to how organisation plan to outperform the competitors
- System
- relate to process and procedure of the company
- Skills
- refers to things organisation does well ie competence
- Shared Values
- refers to how company is managed by senior management
- Style
- refers to employee whether they are train and motivated
*NOTES ALL ELEMENTS MUST BE ALLIGN FOR ORGANISATION TO BE EFFECTIVE. IF SOME ELEMENTS ARE NOT PROPERLY ALLIGN, IT CAN THEN ASSESS WHAT NEED TO BE CHANGED.
4 BUSINESS PROCESS RE-
ENGINEERING
Business Process Re-engineering
- it is FUNDAMENTAL rethinking and RADICAL redesign of process to achieve DRAMATIC results
*notes
found out that company responsible for pollution (eg. oil leak)
iv) external failure cost - cost incur by company if people outside company found out that company responsible for pollution (eg. oil leak
- pay compensation)
c) EMA accounting technique Activity based accounting life cycle costing input output analysis flow cost accounting
CHAPTER 5
IMPACT OF RISK AND
UNCERTAINTY
1 ENVIRONMENTAL CHANGE
You can read yourself
2 UNCERTAINTY
Uncertainty
When the future is unknown and the decision maker has no past experience on which to base prediction of change so that outcomes cannot be predicted or assign probability
3 RISK
Risk
When a decision maker has knowledge that several outcome are possible and probabilities are known or can be estimated usually due to past experience
3 EXPECTED VALUES
Expected Value
- is a weighted average that is calculated using probabilities
Formula: EV = probability x value of outcome
3 RISK ATTITUDES
Risk Attitude
Risk Seeker
- a decision maker who is interested in trying to secure the best outcome, no matter how small the chance they may occur
Risk Neutral
- a decision maker who are concern with what will be the most likely outcome
Risk Averse
- a decision maker who acts on assumption that the worst outcome might occur
3 RISK ATTITUDES AND
DECISION MAKING
Risk Attitudes and Decision Making
- Risk Seeker will use Maximax
- Risk Averse will use Maximin or Minimax Regret
- Risk Neutral will use Expected Value
*Key Terms
a) Maximax - select option that give the best possible result
b) Maximin - select option that offer least unattractive worst outcome
c) Minimax Regret - aim to minimise the regret from making the wrong decision
3 JOINT PROBABILITIES
Joint probabilities
The probabilty of two events occuring at the same time and is calculate by multiplying together the probability of each individual variable occuring
CHAPTER 6
PERFORMANCE
MEASUREMENT SYSTEMS
AND REPORTS
1 PERFORMANCE
MANAGEMENT AND INFORMATION
SYSTEMS
MANAGAMENT ACCOUNTING SYSTEM
Benefit ERPS
- whole organisation is integrated, lower cost thru better info, more flexibility and efficiency
Problem ERPS
- cost involve and also time consume in implementation
- problem in one funciton will affect other function
- 5S Lean Model It can help evaluate existing system
Lean System It is about eliminate waste and improve efficiency. It involves 5S concept
Structure - prioritise important items SYstemise - arrage things so that they can be found easily Sanitise - keep the work clean and tidy Standardise - follow proper procedure Self Discipline - motivating employees to continue make improvement
2 SOURCES OF MANAGEMENT
INFORMATION
SOURCES OF MANAGEMENT
INFORMATION
- internal eg accounting report, human resources report
- external eg market/industry analysis, newspaper, internet
- Quality in Management Information System
a) features of quality software
- functionality
- reliability
- easy to use
- build quality
b) Features of quality information
Accurate
Complete
Cost effective
Understandable
Relevant
Attainable
Timely
Easy to use
look at the report, talk about what the report have
look at the report, talk about what the report lacking
- TIPS WHAT TO LOOK AT PERFORMANCE REPORT
Is there any measure ie KPI that reflect company object, organisation goal, CSF, stakeholders demand etc
Is the report too detailed ie contain too much data or too brief ie lack of information
Is there any comparable figure eg budget vs actual, last year cs this year, company vs competitor/industry
Presentation of report, is it easy to understand
Is there any relative meausre (%) and absolute measure (numbers) given - BOTH
Is it only financial information, take note that non-financial information also important
6 INTEGRATED REPORTING
INTEGRATED REPORTING (IR)
Refers to report which inform about company business model and
Content Integrated Reporting a) Organisation overview and External environment b) Opportunity and Treat c) Strategy and Resource allocation d) Business model e) Future outlook f) Corporate Governance
Types of Capital in IR (see petronas’ IR for example)
a) Financial Capital eg total cash b) Manufacturing Capital eg n/o machine equipment
c) Human Capital ef n/o new recruite staff d) Natural Capital eg n/o carbon e) Social and Relationship eg n/o customer complaint f) Intellectual Capital eg new patent product (read workbook to know more)
Advantage of IR
- better decision for shareholders
- standardise in terms of contents
- improve reputation of company by being transparent
- higher level of trust between stakeholders
- strengthen communication and improve relations between company and stakeholders
CHAPTER 7
STRATEGIC PERFORMANE
MEASURES IN THE PRIVATE
SECTOR
1 PRIMARY FINANCIAL
OBJECTIVE
2 FINANCIAL RATIOS
2 PROFIT, LIQUIDITY, GEARING
AND INVESTOR RATIOS
3A) Financial risk (Financial Gearing)
Formula
Financial Gearing = LT Loan
3B) Business Risk (Operational
Gearing)
Formula
Operational Gearing = Fixed
Cost/Variable Cost
Operating gearing is risk of making
losses due to nature of business i
percentage of cost which is fixed
If high operating gearing means high
fixed cost, higher breakeven point,
drop in sales, profit will drop
2 ROCE AND ROI
ROCE formula = PBIT/CE
It measures profitability, higher the
ratio then the better for company
Remember, ROCE does NOT
measure shareholder wealth.
WHY?
Because a HIGH CE would result to
LOW ROCE, thus, company may
manipulate ROCE for it to appear as
high when it does not truly reflect the
measure of shareholder wealth.
Example: Has low capital, thus high
ROCE
ROI formula = PAT/SH Funds
Usually used to evaluate projects ie
whether or not accept the project
NPV
Positive NPV means accept the project
IRR
If IRR more than cost of capital means
accept the project
3 MIRR (Modified MIRR)
It assumes that cash flow are
reinvested at required rate of return
Formula MIRR
Split between
- Investment phase
- Return phase
NOTES^
n – life of project (years)
Advantage of MIRR
- Quicker to calculate than IRR
- More realistic assumption about
reinvestment rate
- Does not give multiple answers
(unlike with IRR)
What is a good measure of
shareholder wealth?
Share price
If listed company – got share price –
can use growth of share price,
indicates growth of shareholder wealth
Dividend growth
EVA
CHAPTER 9
STRATEGIC PERFORMANE
MEASURES IN NOT-FOR-
PROFIT ORGANISATIONS
1 OBJECTIVE OF NOT-FOR-
PROFIT ORGANISATION
It is to meet the needs of demand of
the shareholder and stakeholders –
donor etc
2 MEASURING PERFORMANCE
IN NOT-FOR-PROFIT
ORGANISATIONS
2 VALUE FOR MONEY (VFM)
Relates to 3E
Economy
Looks at the cost of providing service
Gov hospital – may not have much
funds as much as private sector
Public transport – for the use of public
Fees of the entrance of swimming club
Effectiveness
Ability to meet objective of
organisation
How many patients cured from
disease
Rail – can reduce the number of car in
the country
Does the members know how to
swim?
Efficiency
Looks at resource utilisation to provide
service
How many patients in one room
One doctor treats how many patients
Rail – how many passengers can
commute
Number of students one coach can
teach
2 PROBLEMS WITH
PERFORMANCE MEASUREMENT IN
NOT-FOR-PROFIT ORGANISATION
Measuring objectives
Conflict in objectives – which is main
objective
Example: gov hospital has low funds,
so the treatment to cure patients may
be low in quality, thus the gov hospital
may not achieve the target, thus not
effective (economy & effectiveness)
Measuring output
Service provided is difficult to measure
No profit measure
Financial ratio e. gearing not useful
Financial constraint
Difficult to be effective and efficient
Political and social constraint
May have some political agenda and
social expectation e. NGO and public
hospital
Example: LYNAS – NGO
How to compare performance
between not-for-profit vs profit
organisation (e. public hospital vs
private hospital)
Provide notional charge
If NFP do not normally change for
services, then determine notional
amount for the revenue of services
Remove uneconomic section
NFP have great number of
uneconomic section i. cost of
reporting to government. So need to
remove this to make fair comparison
Use non-financial measures
Non-financial measures can be used
as alternative to measure performance
3 BENCHMARKING AND
LEAGUE TABLES
League table
It is a readily available data that
provides a range pf measure.
Compiled by benchmark against
comparative organisation and then it is
ranked
Example:
How many lecturers has PHD
How many classrooms has projector
How many students graduate with first
class honours/director’s award
(and then the university will be ranked
from the best to least according to
respective measure)
Argument against league table
There is element of subjectivity around
areas of performance e. ranking of
university. Some university is not good
Application of weightings to the score
is arbitrary e. provide no reason why
some areas less weightage compare
to other areas
Common question on the chapter
Value for money – suggest KPI for 3Es
Benchmarking – benchmark
performance of the organisation
Example: Teeland has 5 hospitals, you
have to use league table to rank which
hospital is the best
APM Compact Notes - APM-P5
Course: Association of Chartered Certified Accountants - ACCA (PAC150)
University: INTEC Education College
- Discover more from:
