CIMA Paper P3 Performance Strategy Study Notes *SNP3M10* SNP3M10 CIMA Study Notes P3 M10 British library cataloguinginpublication data A catalogue record for this book is available from the British Library. Published by: Kaplan Publishing UK Unit 2 The Business Centre Molly Millars Lane Wokingham Berkshire RG41 2QZ ISBN 9781847109279 © Kaplan Financial Limited, 2009 The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. Printed and bound in the UK. Acknowledgements We are grateful to the Association of Chartered Certified Accountants and the Chartered Institute of Management Accountants for permisssion to reproduce past examination questions. The answers have been prepared by Kaplan Publishing. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Kaplan Publishing. ii KAPLAN PUBLISHING Contents Page Chapter CIMA verb hierarchy – Strategic level exams Chapter Enterprise governance and risk Chapter Risk management 23 Chapter Management control systems 59 Chapter Internal control 87 Chapter Fraud 113 Chapter Ethics 121 Chapter Review and audit 135 Chapter Audit process 157 Chapter 10 Corporate governance 179 Chapter 11 Financial risk 197 Chapter 12 Currency risk management 215 Chapter 13 Interest rate risk management 257 Chapter 14 Reporting on financial instruments 279 Chapter 15 Information strategy 289 Chapter 16 Information systems and information technology 305 Chapter 17 Information management 321 Chapter 18 Control of information systems 337 Chapter 19 Section Astyle practice question 359 KAPLAN PUBLISHING iii iv KAPLAN PUBLISHING chapter Intro v How to Use the Materials These Kaplan Publishing learning materials have been carefully designed to make your learning experience as easy as possible and to give you the best chances of success in your examinations The product range contains a number of features to help you in the study process. They include: (1) Detailed study guide and syllabus objectives (2) Description of the examination (3) Study skills and revision guidance (4) Complete text or essential text (5) Question practice The sections on the study guide, the syllabus objectives, the examination and study skills should all be read before you commence your studies. They are designed to familiarise you with the nature and content of the examination and give you tips on how to best to approach your learning The complete text or essential text comprises the main learning materials and gives guidance as to the importance of topics and where other related resources can be found. Each chapter includes: vi • The learning objectives contained in each chapter are taken directly from CIMA's own syllabus learning objectives. You should use these to check you have a clear understanding of all the topics on which you might be assessed in the examination • The chapter diagram provides a visual reference for the content in the chapter, giving an overview of the topics and how they link together • The content for each topic area commences with a brief explanation or definition to put the topic into context before covering the topic in detail. You should follow your studying of the content with a review of the illustration/s. These are worked examples which will help you to understand better how to apply the content for the topic • Test your understanding sections provide an opportunity to assess your understanding of the key topics by applying what you have learned to short questions. Answers can be found at the back of each chapter • Summary diagrams complete each chapter to show the important links between topics and the overall content of the paper. These diagrams should be used to check that you have covered and understood the core topics before moving on KAPLAN PUBLISHING • Question practice is provided in each chapter. In P3 you also have a chapter containing a Section Astyle question for further practice Icon Explanations Definition these sections explain important areas of Knowledge which must be understood and reproduced in an exam environment Key Point identifies topics which are key to success and are often examined New identifies topics that are brand new in papers that build on, and therefore also contain, learning covered in earlier papers Expandable Text within the online version of the work book and the complete text is additional material such as more detailed explanation of key terms, further examples, additional writers' views and other background reading. These sections will help to provide a deeper understanding of core areas. Reference to this text is vital when self studying Test Your Understanding following key points and definitions are exercises which give the opportunity to assess the understanding of these core areas. Within the work book the answers to these sections are left blank, explanations to the questions can be found within the online version which can be hidden or shown on screen to enable repetition of activities Illustration to help develop an understanding of topics and the test your understanding exercises the illustrative examples can be used Exclamation Mark this symbol signifies a topic which can be more difficult to understand, when reviewing these areas care should be taken For more details about the syllabus and the format of your exam, please see your Complete Text or go online KAPLAN PUBLISHING vii Paper background Candidate requirements The examiners Aim of paper Core areas of syllabus The syllabus in detail Format of paper Assessment strategy Paperbased examination tips Study skills and revision guidance Preparing to study Effective studying Revision Further reading You can find further reading and technical articles under the student section of CIMA's website viii KAPLAN PUBLISHING FORMULAE AND TABLES Annuity Present value of an annuity of £1 per annum, receivable or payable for n years, commencing in one year, discounted at r% per annum: PV = 1 1− r [1 + r ] n Perpetuity Present value of £1 per annum, payable or receivable in perpetuity, commencing in one year, discounted at r% per annum: PV = r Growing Perpetuity Present value of £1 per annum, receivable or payable, commencing in one year, growing in perpetuity at a constant rate of g% per annum, discounted at r% per annum: PV = KAPLAN PUBLISHING r −g ix Area under the normal curve This table gives the area under the normal curve between the mean and a point Z standard deviations above the mean The corresponding area for deviations below the mean can be found by symmetry Z= x (x − μ ) Z- 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.0 0.1 0.2 0.3 0.4 0000 0398 0793 1179 1554 0040 0438 0832 1217 1591 0080 0478 0871 1255 1628 0120 0517 0910 1293 1664 0159 0557 0948 1331 1700 0199 0596 0987 1368 1736 0239 0636 1026 1406 1772 0279 0675 1064 1443 1808 0319 0714 1103 1480 1844 0359 0753 1141 1517 1879 0.5 0.6 0.7 0.8 0.9 1915 2257 2580 2881 3159 1950 2291 2611 2910 3186 1985 2324 2642 2939 3212 2019 2357 2673 2967 3238 2054 2389 2704 2995 3264 2088 2422 2734 3023 3289 2123 2454 2764 3051 3315 2157 2486 2794 3078 3340 2190 2518 2823 3106 3365 2224 2549 2852 3133 3389 1.0 1.1 1.2 1.3 1.4 3413 3643 3849 4032 4192 3438 3665 3869 4049 4207 3461 3686 3888 4066 4222 3485 3708 3907 4082 4236 3508 3729 3925 4099 4251 3531 3749 3944 4115 4265 3554 3770 3962 4131 4279 3577 3790 3980 4147 4292 3599 3810 3997 4162 4306 3621 3830 4015 4177 4319 1.5 1.6 1.7 1.8 1.9 4332 4452 4554 4641 4713 4345 4463 4564 4649 4719 4357 4474 4573 4656 4726 4370 4485 4582 4664 4732 4382 4495 4591 4671 4738 4394 4505 4559 4678 4744 4406 4515 4608 4686 4750 4418 4525 4616 4693 4756 4430 4535 4625 4699 4762 4441 4545 4633 4706 4767 2.0 2.1 2.2 2.3 2.4 4772 4821 4861 4893 4918 4778 4826 4865 4896 4920 4783 4830 4868 4898 4922 4788 4831 4871 4901 4925 4793 4838 4875 4904 4927 4798 4842 4878 4906 4929 4803 4856 4881 4909 4931 4808 4850 4884 4911 4932 4812 4854 4887 4913 4934 4817 4857 4890 4916 4936 2.5 2.6 2.7 2.8 2.9 4938 4953 4965 4974 4981 4940 4955 4966 4975 4982 4941 4956 4967 4976 4983 4943 4957 4968 4977 4983 4945 4959 4969 4977 4984 4946 4960 4970 4978 4984 4948 4961 4971 4979 4985 4949 4962 4972 4980 4985 4951 4963 4973 4980 4986 4952 4964 4974 4981 4986 3.0 3.1 3.2 3.3 3.4 3.5 49865 49903 49931 49952 49966 49977 4987 4491 4993 4495 4997 4987 4991 4994 4995 4997 4988 4991 4994 4996 4997 4988 4992 4994 4996 4997 4989 4992 4994 4996 4997 4989 4992 4994 4996 4997 4989 4992 4995 4996 4997 4990 4993 4995 4996 4997 4990 4993 4995 4997 4998 σ KAPLAN PUBLISHING Control of information systems Test your understanding Marlborough Conferences (a) A presence on the internet or accessing the Internet could offer Marlborough Conferences the following opportunities: – More customers might become aware of Marlborough’s existence and activities through Marlborough appearing as the result of a key word search. This could lead to an increase in business. The customers could be of several types: those who want to run conferences, those who want stands at exhibitions, those who want to attend exhibitions or attend conferences as delegates – Information about forthcoming events can be published on the internet. This information is available internationally and could be used as initial publicity. More expensive printed material could be sent on request. This should reduce overall publicity costs – Transactions can be completed over the internet. For example, the purchase of tickets and the booking of places on conferences – Including hypertext links to other organisations could be a source of revenue for Marlborough. Effectively, Marlborough’s website is providing advertising space for other organisations – Feedback can be received from clients – Information about competing or similar organisations can be obtained from their websites – A web address can give the impression of an uptodate, technically advanced business (b) The dangers of allowing employee access to the internet include: – Employees spending too much time ‘surfing the net’ instead of getting on with their jobs. This can waste employees’ time and connection costs – Employees could download virusinfected material which could endanger the whole IT system – Employees could download illegal material – There is a possibility that information could be divulged which would allow outsiders to hack into the company’s system 358 KAPLAN PUBLISHING chapter 19 Section Astyle practice question 359 Section A-style practice question 1 Crashcarts PRESEEN INFORMATION Group structure Crashcarts IT Consultancy is a £100 million revenue business with a head office in the UK and additional offices in Paris, Madrid and one recently opened in Chicago. The group has the following divisional structure: • Consultancy division. This division is structured on a regional basis with business units as follows: – Central and Western Europe – Eastern Europe – North America – Emerging markets (covers South East Asia and India). The division provides a range of IT and business change/business process reengineering consultancy services to clients. Over the history of the group, clients have spanned all sectors and sizes, from small local businesses to large bluechip organisations. • Support division. This division primarily provides outsourcing services to businesses, and is structured on a product basis as follows: – Technical IT support – Project management – Development – Valueadded services (discussed in more detail below). Background Crashcarts developed from a small partnership established 18 years ago by three former employees of a major international consultancy. They brought with them approximately 28 years of combined experience in consultancy and IT management. At first the business grew organically, with additional consultants being taken on when required to meet workload demands. The original business premises were rented office space in a provincial UK town. After eight years in operation the company was employing 52 consultants across the UK on a fulltime basis, with additional partners providing services where required. The activity was supported by a central team of 30 administration, finance, marketing and IT specialists, with all sales activities continuing to be driven by the three founding partners. 360 KAPLAN PUBLISHING chapter 19 Growth in business continued to be impressive with the consultancy division gaining a reputation for providing world class IT consultancy services to blue chip clients, predominantly in the retail sector. In order to fund further expansion Crashcarts floated on the London Stock Exchange seven years ago. The group was subsequently restructured as described above. Management structure Crashcarts is run by a Board of Directors headed by the Chairman, who is one of the former managing partners. Up until two years ago he held the role of Chief Executive in the company. The other two founding partners hold the positions of Chief Executive Officer and Sales Director. The remaining board level positions are filled by people who have been recruited into the business in the three years, having been headhunted from other management consultancies. The executive directors on the board are supported by three independent nonexecutive directors (NEDs) with backgrounds in IT development, retail banking and manufacturing. These NEDs provide a wide range of experience and support to the strategic development process. They also play a major part in the board subcommittees such as the remuneration and audit committee. All such committees are chaired by the Executive Chairman of the board. Expansion plans Since obtaining a listing on the London Stock Exchange, Crashcarts has followed an aggressive ‘growth by acquisition strategy whereby it has acquired a number of smaller consultancy businesses. This has led to its expansion into Europe and North America with business premises now being situated in both regions. The support division is an area of relatively recent growth, having been set up just five years ago. Crashcarts’ management felt that it was an obvious extension of their consultancy activities to move towards the outsource provision field for IT and related activities. To date this decision has proved extremely successful with the business winning many high profile contracts for provision of services to major clients. Value added services The newest business unit in the group is that of Value Added Services within the support division. This unit was established in 20X1 when Crashcarts acquired a new subsidiary named Crashcarts Call Centre. The purchase was completed for £2million based on a P/E ratio of 8. The call centre subsidiary provides two major services for its clients. First, it holds databases, primarily for large retail chains’ catalogue sales, connected in real time to clients’ inventory control systems. Second, its call centre operation allows its clients’ customers to place orders by telephone. KAPLAN PUBLISHING 361 Section A-style practice question UNSEEN INFORMATION Further information is available about the new subsidiary, Crashcarts Call Centre Operations The call centre subsidiary leases all of its hardware, software and telecommunications equipment over a fiveyear term. The infrastructure provides the capacity to process three million orders and ten million line items per annum. In addition, maintenance contracts have been signed for the full fiveyear period. These contracts include the provision of a daily backup facility in an offsite location For telephone orders the realtime system determines whether there is inventory available and, if so, a shipment is requested. The sophisticated technology in use by the call centre also incorporates a secure payment facility for credit and debit card payments, details of which are transferred to the retail stores’ own computer system. Crashcarts Call Centre is staffed by call centre operators (there were 70 in 20X2 and 80 in each of 20X3 and 20X4). In addition, a management team, training staff and administrative personnel are employed. Like other call centres, there is a high turnover of call centre operators (over 100% per annum) and this requires an almost continuous process of staff training and detailed supervision and monitoring Charging basis The call centre charges each retail client a lump sum each year for the IT and communications infrastructure it provides. There is a 12 month contract in place for each client. In addition, Crashcarts earns a fixed sum for every order it processes, plus an additional amount for every line item. If items are not in inventory, Crashcarts earns no processing fee 362 KAPLAN PUBLISHING chapter 19 Performance A summary of Crashcarts Call Centre’s financial performance for the last three years: 20X2 20X3 20X4 Revenue £000 £000 £000 Contract fixed fee 400 385 385 2,500 3,025 3,450 Line item processing fees 600 ––––– 480 ––––– 390 ––––– Total revenue 3,220 ––––– 3,705 ––––– 4,060 ––––– Order processing fees Expenses Office rent and expenses Operator salaries and salaryrelated costs 200 205 210 1,550 1,920 2,180 1,020 1,070 1,120 300 310 330 Other expenses 150 ––––– 200 ––––– 220 ––––– Total expenses 3,500 ––––– 3,890 ––––– 4,225 ––––– 280 185 165 Management, administration and training salaries IT and telecoms lease and maintenance expenses Operating profit Nonfinancial performance information for the same period is as follows: Number of incoming calls received Number of orders processed Order strike rate (orders/calls) Number of line items processed Average number of line items per order Number of retail clients 20X2 20X3 20X4 1,200,000 1,300,000 1,350,000 1,000,000 1,100,000 1,150,000 83.3% 84.6% 85.2% 3,000,000 3,200,000 3,250,000 3.0 2.9 2.8 7 KAPLAN PUBLISHING 363 Section A-style practice question Fixed contract income per client £50,000 £55,000 £55,000 Income per order processed £2.50 £2.75 £3.00 Income per line item processed £0.20 £0.15 £0.12 Average number of orders per operator 15,000 15,000 15,000 Number of operators required 66.7 73.3 76.7 Actual number of operators employed 70.0 80.0 80.0 Question Crashcarts Risk management Discuss the increase in importance of risk management to all businesses (with an emphasis on listed ones) over the last few years, and the role of management accountants in risk management. (10 marks) Question Crashcarts Risk analysis Advise the Crashcarts Call Centre on methods for analysing its risks. (5 marks) Question Crashcarts Risk identification & quantification Identify and quantify (using appropriate methods) the major risks facing Crashcarts, at both parent level and subsidiary level, arising from its expansion into the call centre business. (20 marks) Question Crashcarts Management control systems & controls Explain the components of a management control system and recommend the main controls that would be appropriate for the Crashcarts Call Centre. (15 marks) 364 KAPLAN PUBLISHING chapter 19 Test your understanding answers Question Crashcarts Risk management Importance of risk management Risk management should always be important, but it has gained wider recognition in recent years following the development of corporate governance frameworks in many countries, such as the Combined Code in the UK and the SarbanesOxley legislation in the US In the UK, the Combined Code recognised the need for a sound system of internal control and risk management, and specified that it was a responsibility of the board of directors to carry out an annual review of the internal control and risk management systems. The basic view is that the objectives of a company should be to achieve a return for its shareholders consistent with the risk to which the shareholders wish to be exposed to achieve that return. Greater risk as well as lower returns can destroy shareholder value In the UK, the board of directors of a listed company should be responsible for maintaining a sound system of internal control, and for carrying out an annual review of the system of internal control. This review should cover all material controls, including financial, operational and compliance controls, and risk management systems However, it is the responsibility of executive management to devise the system of internal controls and to implement it. Such a system should include arrangements for identifying risks, implementing risk controls, monitoring performance and taking control measures where appropriate. The effectiveness of control systems depends to a very large extent on the quality of its information and communication systems Role of management accountants The extent to which management accountants are involved in risk management will vary between different organisations, but the management accounting system is an essential element in the management information systems of an organisation. An essential feature of control systems is that targets need to be established, together with risk limits, and actual performance needs to be monitored and compared with these targets. This requires systems for planning and forecasting, and for monitoring performance through systems of feedforward control or feedback control KAPLAN PUBLISHING 365 Section A-style practice question Management accountants are closely involved in the design and implementation of such systems. For example: • Within a system of budgeting and budgetary control, management accountants are involved in the preparation of budgets, and in monitoring actual performance against budget, or revised forecasts against budget, and reporting variances • Management accountants are often involved in the provision and analysis of information for strategic planning and control, including risk assessment (for example, through risk modelling and analysis of forecasts) • Management accountants are often involved in the operation of systems for reporting nonfinancial performance, including reporting systems based on a balanced scorecard or Key Performance Indicators • In the role of internal auditors, management accountants are involved in monitoring the effectiveness of controls Question Crashcarts Risk analysis Risk analysis methods The Call Centre should establish methods for risk analysis within an organised control framework. To do this, it is necessary to identify the objectives of the Call Centre (for example to achieve growth in annual profits), because risks need to be considered in the context of failing to achieve objectives. In addition, a management framework should be established, with individual managers or risk management committees given the responsibility for risk analysis A variety of methods should be used to identify and assess or measure risks. These include brainstorming by a group of managers, environmental analysis (PEST or SLEPT analysis), scenario analysis and modelling (for example, simulation or forecasting models). All recognisable risks should be considered. In the case of a Call Centre, these will include business continuity risks and breach of security risks, as well as commercial, business and financial risks Where possible, the analysis of risks should include an attempt to measure them, in terms of both the probability that they will occur and the potential losses or consequences when they do occur. A record should be kept of all the assessed risks, and risk mapping could also be used as a comparative analytical tool 366 KAPLAN PUBLISHING chapter 19 Question Crashcarts Risk identification & quantification Risk identification An appropriate method of identifying the major risks at both parent level and subsidiary level might be brainstorming Subsidiary risks At the subsidiary level, it seems clear that the Call Centre is essentially a fixed cost operation. Variations in profit depend on controlling fixed costs and ensuring that there is sufficient revenue. Major risks that might be identified from the information provided are: (1) excessive growth in annual fixed costs; (2) a fall in operator productivity; (3) the loss of a client (or several clients) at the year end; (4) a fall in the number of processed orders: this could be caused by either a fall in the total number of incoming calls received or a fall in the order strike rate (conversion of calls to processed orders); (5) possibly, a fall in the number of line items for each order; (6) resistance to further price increases from clients; (7) problems with the computer system and backup, such as a fraud The probability of each of these adverse events occurred might be assessed, and divided simply into ‘likely’ or ‘not likely’, as a first step towards risk mapping Parent company risks At the parent company level, the risks would appear to be strategic, and therefore more difficult to measure. A brainstorming approach to risk identification could be used. Potential risks might include: (1) The risks from diversifying into an unfamiliar business over which management at the parent company level has little or no experience (2) The different risk profile of the Call Centre business compared with the consultancy business might result in a change in the risk profile, and the market value, of the Crashcarts group (3) If any of the Call Centre clients are either clients of the consultancy business, or keen competitors of the consultancy business clients, there could be adverse consequences for customer relations (4) The parent company could be exposing itself to a greater risk to its reputation, if the Call Centre performs badly or attracts bad publicity KAPLAN PUBLISHING 367 Section A-style practice question (Tutorial note: this is not a exclusive list of all risks – other relevant and wellexplained risks will be appropriate.) Risk quantification The risks for the parent company cannot be measured from the information available. However, some of the risks facing the subsidiary can be quantified Risk: fixed costs become excessive Between 20X1 and 20X3, annual revenue increased by £725,000 but the total annual salaries and salaryrelated costs of operators, management and administration staff rose by £730,000. If salary costs continue to rise at a faster rate than annual income, annual profits will be eroded. Operating profit in 20X3 was equal to just 5% [165/(2,180 + 1,120)] of salary costs Risk: fall in processed orders Since the business has few, if any, variable costs, profitability is affected directly by variations in revenue. Revenue from each processed call: £ Income per order processed 3.000 Income from line items (2.8 items × £0.12) 0.336 –––– 3.336 –––– The risks to the number of processed orders include: • • a fall in the total number of calls, which is possibly a low risk; • a fall in the number of clients a fall in the number of incoming calls that turn into actual orders, possibly due to a greater frequency in outofinventory responses from clients’ inventory systems; Risk: loss of a client This is likely to be a major risk in terms of probability. It would also have a major effect on profitability. In 20X3, the average number of processed orders per client was about 164,000 (1,150,000/7). The loss of revenue would be, in terms of 20X3 revenue: 368 KAPLAN PUBLISHING chapter 19 Loss of fixed contract income Loss of revenue from processed orders (164,000 × £3.336) Total loss of revenue £000 55 547 –––– 602 –––– Although there would be some savings in fixed costs, it seems probable that the loss of a further client would damage profits significantly. Risk: fall in operator productivity In view of the rapid staff turnover, there is probably a fairly high risk of some loss in operator productivity. However, in 20X3, 80 operators were employed when only 76.7 operators were required The excess capacity might be due to the risk of sudden staff reductions, or the need to employ large numbers temporarily whilst new operators are being trained. However, on the basis of the figures available, productivity in 20X3 could have been worse by 4.3% [(80 – 76.7)/76.7)] without affecting staffing requirement levels Since productivity has been unchanged for three years, the risk of such a fall is probably remote Risk: fall in line orders for each processed order Income from processing line items was just £390,000 in 20X3. To reduce profitability significantly, there would have to be a very large fall in the average line entries per processed order. Although there has been some decline between 20X1 and 20X3, the probability of a large fall seems unlikely Conclusion Each measured risk could be placed on a 2 × 2 risk map, with high/low likelihood on one axis and serious/not serious consequences on the other axis. This would indicate, for example, that the risk of a loss of a client is a major risk (high probability/major consequence) whereas the risk from a fall in productivity is a much smaller risk (fairly low probability/ probably a limited consequence). Other risks could be placed on the map in the same way. Management must then identify those risks that need the most urgent control measures or monitoring KAPLAN PUBLISHING 369 Section A-style practice question (Tutorial note: The extent of the quantified analysis you can provide for this part will depend on the time you have available. There is no single ‘correct’ answer to this question, but having selected the risks you wish to quantify, present your argument – and your figures – clearly.) Question Crashcarts Management control systems & controls (Tutorial note: Our solution provides the component elements in a diagram as well as in narrative form; however a diagram is not essential, since it is not required specifically by the question) Components of a management control system A management control system might include elements of both feedforward control and feedback control • Feedback control involves a comparison of actual results with a plan, measuring differences or variances, investigating their causes and taking control action • Feedforward control involves using information about actual results or from external sources to revise forecasts for the future, comparing the revised forecast with the plan, measuring differences, investigate their causes and taking control measures as appropriate The components of these systems are illustrated in the simple diagram below: 370 KAPLAN PUBLISHING chapter 19 The components are as follows: (1) Outputs from the system are measured, to provide control information (2) In a feedback system, these measured outputs (actual results) are compared with the budget or plan, and differences or variances are measured (3) On the basis of this control information, the controller responsible for results takes suitable control measures to change inputs to the system (4) In a feedforward system, revised forecasts are prepared, using information from measured actual results or from other (external sources) (5) On the basis of this information, the controller responsible takes suitable control measures (6) Where appropriate, the original plan is replaced with a revised plan or revised forecast as the basis for future control comparisons Main controls for the Call Centre • There must be all necessary system and security controls in the Call Centre and the Call Centre’s computer system, to minimise the risks of unauthorised access by hackers and the risks of system down time • A major risk is the loss of a client, and controls should be applied that contain or reduce this risk. Control information might include client feedback (for example, information obtained from discussions with each client’s management team), and measures of operator performance, in terms of quality of service to customers as well as speed and productivity. Control measures to ensure client and customer satisfaction might be applied by means of supervision and refresher training • Another potentially significant risk is a change in the total number of processed orders, both a fall in total calls for reasons other than the loss of a client and also an increase in calls due to a growth in business volume. Feedforward information can be provided at regular intervals, comparing the current forecast of total calls volume with the original plan. Where necessary, suitable control measures might be to reduce or increase operator staffing levels • Controls over salary levels should be applied through the annual salary review process KAPLAN PUBLISHING 371 Section A-style practice question • Operator productivity does not appear to be a major risk at the moment, but productivity (measured by orders taken per operator or line items processed per operator) could be checked by means of productivity and idle time measures. Improvements in productivity might be achieved through better training, supervision, or by reducing staff levels to reduce inactivity/ idle time 372 KAPLAN PUBLISHING ... otherwise, without the prior written permission of Kaplan Publishing. ii KAPLAN PUBLISHING Contents Page Chapter CIMA verb hierarchy – Strategic level exams Chapter Enterprise governance and risk Chapter Risk management 23 Chapter Management control systems... tips Study skills and revision guidance Preparing to study Effective studying Revision Further reading You can find further reading and technical articles under the student section of CIMA' s website... 4.730 4.775 4.812 4.843 4.870 xii KAPLAN PUBLISHING chapter CIMA verb hierarchy – Strategic level exams Chapter learning objectives CIMA VERB HIERARCHY CIMA place great importance on the choice of verbs in exam