Tips for Paper P5 Advanced Performance Management

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Non financial performance measures
Information needs of different business structures
Different approaches to budgeting; beyond budgeting

Performance analysis:
The new examiner has indicated that his questions will require more skill in interpreting data and discussing strategies to improve performance rather than performing calculations. You may be asked to analysis performance vs budget to identify underlying problems that a company needs to address. This analysis could include the use of activity-based approaches, learning curves or non-financial performance measures.
‘Beyond budgeting’ is an important area that can be tested either as a discussion or a numerical question.
Performance appraisal requires effective information systems, expect to be asked to identify the key strategic, tactical and operational information requirements of a business.
Risk analysis:
Analysis of the risk of a new proposal could include numerical techniques such as expected values and probabilities; but strategic frameworks such as PEST analysis could feature here.
Strategic performance measures in the private sector:
Divisional performance measurement is another key area; ROI, RI , EVA, NPV or even cost of quality could feature here and transfer pricing could feature as an aspect of these questions.
EVA is especially likely given the recent articles published in this area – make sure you have read them. Modified IRR is new to the syllabus so make sure that you are comfortable with this area.
Reward systems:
HR issues are new to the syllabus from June 2011; the examiner is interested in the impact of reward systems on performance management.
Alternative views of performance measurement:
Questions are commonly set that require a good understanding of the balanced scorecard, the building blocks model and the performance pyramid. Questions will often require you to analyse data that has been collected using one of these models. The balanced scorecard and performance pyramid were tested heavily in June 2011.
Performance hierarchy:
Linking strategic decisions to mission statements or suggesting strategic options using models such as Ansoff’s matrix or the BCG matrix lend themselves to questions containing a mixture of financial and discursive elements that could easily include a simple NPV or profit analysis.
Kaplan tips
•CSFs and KPIs
•Strategic analysis tools
•Ethics / CSR
•Budget preparation/forecasting
•League table and targets in the public sector
•Evaluation of financial and non-financial performance
First Intuition
Performance pyramid
Performance management hierarchy
Quality costs
EV and risk
Impact of external factors on performance
Activity based principles
•Quality measurement
•PEST/Porters 5 forces
•Incremental Budgeting
•Public sector performance measurement
•Activity Based Costing
The examiner has warned candidates against relying on tips, and the dangers of question spotting, so I do not propose to try to provide a list of my best guesses.
Many of the topics in P5 were covered in other papers, so for a student at the final level, it is more important to focus on applying your knowledge to real life situations, or more specifically, the case studies in the P5 exam, than accumulating new knowledge.
Exam Tips
Rather than tipping specific topics therefore, I would just like to give some general advice.
The examiner for P5, Alex Watt, only took over as examiner for the December 2010 session. His style is different from that of his predecessor, so it is important that you work through all the questions in the December 2010 exam and June 2011, and also the sample question that Alex published ahead of the December 2010
exam – this is available on the ACCA web site.
Alex has also mentioned that candidates appear to focus too much on the area of performance evaluation- and ignore the other important areas – particularly management accounting systems. These are likely to feature more often in Alex’s papers. Alex’s advice for a management accounting systems type question is to
focus on the objectives of the organisation, before deciding on what type of management accounting system would be most appropriate for that type of
Alex has said that his case studies will be very wordy – you will have to digest a lot
of information in a short space of time. Practicing past exam paper questions is clearly important- although try to avoid those that contain a lots of number-crunching. So question 1 from the December 2010 and June 2011 exams and the examiner’s sample question are most important. Two other good case studies to practice are The Superior Business Consultancy (June 10 exam) and the Glasburgh Trust (June 2009).
Exam Technique
− Spend at least 15 minutes planning the long Section A questions. Read the requirement first, before reading the scenario. As you read the scenario, underline key pieces of information and relate these to the requirement of the case study. Finally, do a quick plan of what you will write, taking into account the marking guide. Then start writing.
Paper P5 is described as a “high-level performance management exam” and that is exactly what the exam itself demands of participants. Adopting a stratetegic/managerial approach to performance management, you will be expected to write good, focused, relevant answers to discursive questions, while processing and interpreting data provided in Section-A (long scenario)-type questions.The topics that are key in the syllabus include:
• Budgetary forecasting (including learning curve effects):There may be mention of “beyond budgeting” issues.You certainly need to be ready to handle scenarios that involve “dysfunctional” behaviorand require an assessment of reward systems and impact on motivation;
• Quality concerns: This can range from the costs of quality to six sigma measurement (in a descriptive way).The identification of CSFsand the design of suitable performance metrics (KPIs) may also be tested;
• Management information systems design: Taking a high-level approach to specifying what constitutes a suitable and effective managerial accounting system able to capture relevant data and process it in a way which relevant for performance benchmarking and target costing;
• Non-financial performance indicators: The Balanced Scorecard and the Performance Pyramid remain favourites (and don’t forget Fitzgerald and Moon!);
• Non-profit and public sector organisations: It is important that you are prepared to assess performance management metrics to schools, charities and hospitals;
• Transfer pricing (possibly also in an international taxation context) is likely to remain a “popular” topic. Don’t forget to relate this also to inter-divisional performance measures, such as ROCE, RIand EVA (also, check out the ACCA website for articles on EVA);
• Do you remember Ansoffand the BCGmatrices?Above all, make sure that your answers are well-organised and neatly presented. Remember that answers in the exam kit are often comprehensive and exceed (in length) the possibility to reproduce them in an exam. Writing concise answers (but full sentences please!) without repetition and verbosity is preferable. Avoid copying entire tables of data from the question as this is a waste of time.

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