Hi I'm Doug Haste I work as a subject specialist for BPP and one of my areas of specialisation
is ACCA P5: Advanced Performance Management.
The purpose of this exam technique presentation is to focus on a key area of the syllabus
and this is syllabus area E: Performance Measurement and it's an area that the examiners feedback
indicates people are not doing very well on at the moment.
So the purpose of this session is to outline an approach to this syllabus area and to use
a June 2011 exam question to work through and apply that approach.
The purpose is not to re-teach the theories but as we go through the question we'll certainly
have time to look at some of the technical areas.
In syllabus area E there are four key models and the examiners feedback is that people
simply don't know them well enough.
It's crucial that when you go into the exam you know these four models very well so yes
you need to know who wrote them, you need to know the headings.
For example the four different quadrants of the balanced scorecard but you need to know
more than that.
You need to know why they might be difficult to apply, you need to be able to criticise
them, to contrast them to each other, so the harder you can work on those models the better
and although this syllabus generally isn't one where you can get many marks for knowing
the theories very well this syllabus area is one of the exceptions.
So good knowledge of these models is the critical starting point but this is a professional
level exam and you wouldn't expect to walk into the exam repeat the knowledge and to
score very well.
So you need to be able to adapt your knowledge and understanding to specific scenarios and
we're going to illustrate this by taking a June 2011 exam question one written by your
new examiner and what your applying is the building block model which is Fitzgerald & Moon.
That's the only model that we're going to apply here, at the end of the presentation
I'm going to recommend two other questions for you, one on the balanced scorecard and
the other on the performance pyramid and it will be very important that you look at those
questions.
So let's have a quick look at extracts from this June 2011 question, it will be helpful
if you had this in front of you but not essential because we are going to build it up gradually.
It's actually a very easy scenario, we're looking at a typical accountancy practice
and it's offering audit, tax and business advisory services.
It's operating in a country where there is a recession and we're told that the insolvency
work that it dies which is within its business advice division is doing particularly well.
We're then given some numbers of the three different divisions audit, tax and business
insolvency, the numbers are overly straight-forward, they concern revenue and revenue growth both
for the company is called APX the industry that it's operating in.
Finally we're told the profit margin for the company in each of its divisions and customer
satisfaction scores five being an excellent score.
So we've got some fairly typical information followed by a little bit of detail on how
the staff are remunerated, their being paid a 10% bonus based on their line managers review
whereas the partners get profit share based on their seniority.
SO it's not a very un-usual scenario to get your head around.
Right at the end we're told that the merging partner is not convinced that the performance
management is driving the company in the right direction.
she wants to see the company expanding and ultimately floating and she's asked you to
consider the impact of using Fitzgerald & Moon's building block model, so that's; the basis
scenario, then we're given three requirements.
Each of the three requirements expects you to use the building blocks model so there's
no running, if you don't know this model very well you can't score well on this question.
So in part (a) we have to briefly describe it, in part (b) we apparently have to apply
it and in part (c) we have to explain the improvements that it would bring.
There's more to parts (a) (b) & (c) to that but before we address the requirements we
just need to think about planning time because this is really important for this paper and
particularly for this syllabus area.
If you don't plan then what you'll end up doing is just repeating your knowledge and
that's a big danger.
So normally we would say it's a 180 minute exam for one hundred marks so we're talking
1.8 minutes per mark so that means thirty six minutes for a thirty mark question but
you must allocate some of the time to planning.
It's unlikely that you will have used much of your reading time, if any at the beginning
of your exam to plan the optional questions so it's really important that you spend at
least seven minutes planning.
It's important that you practice questions to see how long you need to plan but we would
recommend generally about seven minutes and that leaves you twenty-nine minutes to write
out your answer and in twenty-none minutes for a twenty mark question that's 1.45 minutes
per mark.
On that basis you can say part (a) = six minutes and part (b) and part (c) = twelve minutes
each and that's multiplying the mark allocation by 1.45.
Planning is absolutely crucial particularly in this syllabus area.
We can now look at part (a) and start to address it, we're going to spend six minutes wring
it out but in this presentation we are just going to plan out the answer and before we
do it's worth making the point that this is P5; there is no correct answer.
However there is a correct approach and that's what we're going to be emphasising and it
will often be the case that the correct approach is built around one of these strategic models,
here the building blocks model and in part (a) for four marks we have to briefly describe
it.
No mention here of the companies name this is a general description of the model; a textbook
description of the model for four marks.
The key bit of the Fitzgerald &Moon model is that is suggests that performance needs
to be evaluated over a range of dimensions and you can get up to two marks just about
by describing these dimensions.
You could make the point that there are four areas that it argues to determine future performance.
These four areas are: the abilities of the company to be flexible to customer demand,
ti innovate, to be efficient and to hit high quality levels and if you manage to achieve
those things then good profits should follow.
So there are two results based measured: profit and competiveness, there are four determinants.
The building blocks model makes sure that you are evaluation a business so for a number
of different strategically important mentions but it's more than that and the examiner commented
that people weren't aware often of the other elements of the building blocks model.
There are three building blocks; it's not enough to know one and you can get 1 1/2 marks
for just describing the ether two building blocks.
So Fitzgerald &Moon argue that you need to set fair standards for your staff against
which you're assessing performance.
They've got to feel like they've got some ownership, that they've had some input into
designing the standards and that the standards are achievable and that they're fair perhaps
from one department to another.
You get a 1/2 marks for outlining this and also that you need to reward people for hitting
the standards or they're not going to take them seriously and that crucially these rewards
should be areas that they've got control.
That's the key point but you could also mention that the rewards need to be clearly linked
to standards and people know what they have to do to achieve a reward and that people
need to feel motivated to achieve the things that matter to the business so these standards
need to be carefully defined.
So essentially it's a mark and a half for each building block covered which is four
but you can't score well unless you know all three parts of the building block and these
three bits of the building block they have become the structure for your answer here
not just this four mark element it gives you the structure for part (b) and to some extent
part (c) as well in your planning time you need as well as immersing yourself in this
scenario which is really important to do, you need to look at the keywords in the question
and to underline them.You may not be able in your planning time to bulletpoint each
point you're going to discuss but you'll certainly knoew what the question is about and have
a couple of your key points outlined.
In part (b) we're being asked to evaluate the system being used so we're not being asked
to evaluate the visions which is what a lot of people thought and we're not being asked
actually to apply the building blocks model, we're being asked to apply the model to evaluate
the system and that's going to take careful planning.
The first bit of the building blocks model the Dimensions that we've just described in
part (a) so as we judge the system that's being used we can come up with some positive
judgements.
Under the results headings the business appears to be doing the right thing, we are assessing
our profits, we are assessing effectively our market share by using the models that
we're using and these are extremely important.
We are also assessing quality and again quality in the service business in particular is absolutely
crucial.
Those three things need to be measured and they are being measured and that's great.
However, as we apply the model we can see that there are a number of determinants to
not being measured, we are not measuring innovation, we are not measuring efficiency and we are
not measuring flexibility and we could write briefly about the importance of the service
business being efficient, being innovative and being able to react to customer demand
when it needs to.
So immediately within this building block we've got a structure for our answer it's
only one of three building blocks and this is an eight mark question so we're not going
to score a lot of marks here but there are three marks available for applying that part
of the model.
Then for the other three marks per building block we need to say something about the standards
that are being used and the rewards system there's lots that you could say here but it
is this framework that's going to guide you towards a good answer and a really good pass
mark.
So now moving onto standards there are up to three marks here again the model is giving
you framework for a good answer, lots of things that you could say.
We know that revenue is being assessed against industry standards and that's likely to be
seen as being fair and achievable.
However we don't appear to have any obvious standards for assessing profit and for assessing
quality, there are no industry benchmarks and that implies that we will be benchmarking
one division against another.
Well is that fair?
If you're in a recession is it going to be easy to have strong profit margins in your
audit bit of the business compares to your existing insolvency bit of the business.
If you've got audit bit of the business where your customers are obliged to have audits
are they going to give you a strong and customer satisfaction score that if you give them some
good tax advice, it would appear two different to allow for internal benchmarking and that
looks like a weakness.
Finally rewards what do we think about the rewards system, partners being given a reward
based on their seniority, they don't control it has no links to their performance in any
of the strategically important dimensions that have been outlined in this model and
the staff are being given a 10% bonus which does look motivational, a significant amount
of money but it's on their line managers perception of how they've performed and they might have
a personality clash with their line manager and there's no direct statement in the question
in how that assessment is being performed.
Now whatever points you choose to make in these three frameworks, these three building
blocks; three marks per building block.
Moving into part (c) in your planning time and that what we're concentrating on here
you have to have split the question into two; this is an eight mark question and its partly
about what this building blocks model can bring and this is a general explanation of
the improvements that you would get from using the building blocks model compared to what
you are currently using, three of the eight marks are available to that and those are
three marks that you should score fairly well on.
The difficult bit of the question, though you can get up to seven marks for it, right
marks overall is for suggesting improvements to the performance measures that are being
used.
Any reasonable point will get a mark but it's going to be easier if you've got this building
blocks model learnt to heart because you can say I need measures for innovation, I need
measured for flexibility, I need measures for resource utilisation and maybe I can improve
some of the other measures as well.
In your plan you won't have everything bulleted out and ready to write up but you should have
those two bits of the question clearly identified and then in the general bit you could say
something along the lines of 'the buildings block model will make sure that there are
no strategic dimensions'.
It gives you a comprehensive framework for building up strategically important performance
measures.
But that's not enough you need to be backed up by performance standards and an effective
rewards system and if you can engage staff by having fair standards and an effective
rewards system they will be taking the performance measures seriously and that's really going
to be critical for the service business, that will be one way of scoring the three marks
here.
Then moving on the the hardest part of the question actually what should we do differently
here, there's lots you can say, you'd be looking at maybe three or four points and that will
allow you to give a great answer to part (c).
In this debrief we're going to go down each part of the strategic dimensions that Fitzgerald
& Moon use we're going to talk about each of them but I don't think you'll be doing
this in your exam, I don't think you'll have time to cover all of them.
For example you could say 'what do we think about the profits measure?
Why are we measuring profit margin?
Why not EVA?'
We know that economic value added is an effective performance measure and for a mark we could
say something about that.
We're benchmarking our revenue, can we benchmark anything else?
Could we do a client survey on how they rate us against our key rivals?
That would be an effective way of broadening our strategic performance measures.
Flexibility: how many of our audits are being completed on time?
That would be a sensible measure, completing any project work on time is going to be critical
for your customers.
Innovation what percent of your revenue is coming from new products and services that
are being developed over the last few years, we could measure that.
How many training days are our staff working on?
Innovating in terms of staff skills is going to be crucial for an accounting practice and
finally efficiency are we billing out all of the time that we can?
That's a very traditional measure and one that really should be used here.
Now in terms of answering this question I think that's quite enough, it's very interesting
though to look at the examiners comments here; this is an optional question, the examiners
comments is that it's sad to know the number of candidates that did not know the names
of the three building blocks and that's in an optional question.
You've chosen to do the question and you don't know enough and that's a situation you really
can't be in in this exam.
Professional preparation for this exam is critical, although it's technically easy that
doesn't mean there isn't work for you to do is you'll revise for it.
So I think the key learning points are, I'm repeating myself a little bit here but learn
the models and learn them really well, not just their headings, problems in applying
them, criticisms of them, anything you can.
In you planning time first of all make sure you are planning for an adequate amount of
time and during that planning time immerse yourself in the scenario and carefully fillet
the question to help you understand its breadth and its scope.
More practice here is essential, we've been talking about the building blocks model -0
I would strongly suggest that you look at the June 2011 question pharmaceutical technologies
that's based on the balance scorecard and the other question Code electrical motors
is based on the performance pyramid and both of those again look at them make sure that
you understand the models and know them in sufficient detail to tackle the question.
Good luck with the rest of your revision and good luck with your final exam.