BPP ACCA p5 advance performance management 2017

ACCA APPROVED Paper P5 Advanced Performance Management This ACCA Study Text for Paper P5 Advanced Performance Management has been comprehensively reviewed by the ACCA examining team This review guarantees appropriate depth and breadth of content and comprehensive syllabus coverage For exams in September 2016, December 2016, March 2017 and June 2017 BPP House 142-144 Uxbridge Road London W12 8AA United Kingdom T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) E Learningmedia@bpp.com bpp.com/learningmedia • A user-friendly format for easy navigation • Exam focus points describing what the examining team will want you to • Regular Fast Forward summaries emphasising the key points in each chapter • Questions and quick quizzes to test your understanding • A practice question bank containing exam- standard questions with answers • A full index • All you need in one book Study Text Contact us In addition to ACCA examining team reviewed material you get: Advanced Performance Management BPP Learning Media is dedicated to supporting aspiring business professionals with top-quality learning material as they study for demanding professional exams, often whilst working full time BPP Learning Media’s commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials BPP Learning Media’s study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success ACCA P5 ACCA approved content provider A-PDF Text Replace DEMO: Purchase from www.A-PDF.com to remove the watermark CONTENT PROVIDER ACCA Approved Study Text Paper P5 Advanced Performance Management Free access to our Exam Success site Look inside For exams in September 2016, December 2016, March 2017 and June 2017 February 2016 £32.00 http://accountingpdf.com/ ACP5ST16 (RICOH).indd 1-3 04/02/2016 15:48 ACCA APPROVED CONTENT PROVIDER As the first accredited publisher of ACCA materials, BPP Learning Media has set the benchmark for producing exceptional study materials for students and tutors alike Our Study Texts, Practice & Revision Kits and i-Passes (for exams on demand) are reviewed by the ACCA examining team and are written by our in-house authors with industry and teaching experience who understand what is required for exam success EXAM SUCCESS SITE To help maximise your chances of succeeding in your exams, we’ve put together a suite of exclusive ACCA resources Our Exam Success site provides you with access to a free digital version of this publication, as well as extra resources designed to focus your efforts on exams and study methods To access the Exam Success site, please email learningmedia@bpp.com with the subject line “Access to Exam Success site - eBook”, including your order reference number and the name of the book you’ve bought (ie ACCA F5 Study Text) for your access code Once you have received your code, please follow the instructions below: To access the BPP ACCA Exam Success site for this material please go to: www.bpp.com/ExamSuccessSite n Create a user account if you don’t already have one Make sure you reply to the confirmation email n Log in using your registered username and password Select the paper you wish to access n Enter the code you received when prompted You will only have to this once for each paper you are studying http://accountingpdf.com/ S T U D Y PAPER P5 ADVANCED PERFORMANCE MANAGEMENT BPP Learning Media is an ACCA Approved Content Provider This means we work closely with ACCA to ensure this Study Text contains the information you need to pass your exam In this Study Text, which has been reviewed by ACCA’s examination team, we:  Highlight the most important elements in the syllabus and the key skills you need  Signpost how each chapter links to the syllabus and the study guide  Provide lots of exam focus points demonstrating what is expected of you in the exam  Emphasise key points in regular fast forward summaries  Test your knowledge in quick quizzes  Examine your understanding in our practice question bank  Reference all the important topics in our full index BPP's Practice & Revision Kit also supports this paper FOR EXAMS IN SEPTEMBER 2016, DECEMBER 2016, MARCH 2017 AND JUNE 2017 http://accountingpdf.com/ T E X T First edition 2007 Ninth edition February 2016 A note about copyright ISBN 9781 4727 4431 (Previous ISBN 9781 4727 2683 4) Dear Customer What does the little © mean and why does it matter? e-ISBN 9781 4727 4673 Your market-leading BPP books, course materials and e-learning materials not write and update themselves People write them on their own behalf or as employees of an organisation that invests in this activity Copyright law protects their livelihoods It does so by creating rights over the use of the content British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Breach of copyright is a form of theft – as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics Published by BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media: www.bpp.com/learningmedia Printed in the United Kingdom by RICOH UK Limited  Photocopying our materials is a breach of copyright  Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to facebook or e-mailing them to your friends is a breach of copyright You can, of course, sell your books, in the form in which you have bought them – once you have finished with them (Is this fair to your fellow students? We update for a reason.) Please note the e-products are sold on a single user licence basis: we not supply 'unlock' codes to people who have bought them second hand Unit Wells Place Merstham RH1 3LG Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources 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 BPP Learning Media Ltd And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can you really trust them? We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, unless otherwise stated © BPP Learning Media Ltd 2016 ii http://accountingpdf.com/ Contents Page Introduction Helping you to pass Studying P5 The exam paper Syllabus and study guide v vii xii xiii Part A Strategic planning and control Strategic management accounting Performance hierarchy 45 Performance management and control of the organisation 69 Changes in business structure and management accounting 97 Environmental and ethical issues 137 Part B External influences on organisational performance External influences on organisational performance 173 Part C Performance measurement systems and design Performance management information systems 195 Management information, recording and processing and management reports 219 Part D Strategic performance measurement 10 11 12 13 14 Strategic performance measures in the private sector 273 Divisional performance and transfer pricing issues 319 Strategic performance measures in not-for-profit organisations 347 Non-financial performance indicators 369 The role of quality in management information and performance measurement systems 385 Performance measurement and strategic HRM issues 427 Part E Performance evaluation and corporate failure 15 16 17 Alternative views of performance measurement and management 469 Strategic performance issues in complex business structures 503 Predicting and preventing corporate failure 521 Mathematical tables 553 Practice question bank 557 Practice answer bank 579 Index 629 Review form Contents http://accountingpdf.com/ iii iv http://accountingpdf.com/ Helping you to pass BPP Learning Media – ACCA Approved Content Provider As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use study materials reviewed by the ACCA examination team By incorporating the examination team's comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies The PER alert Before you can qualify as an ACCA member, you have to not only pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the 'PER alert' feature You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments The different features of the Study Text, the purposes of which are explained fully on the Chapter features page, will help you while studying and improve your chances of exam success Developing exam awareness Our Study Texts are completely focused on helping you pass your exam Our advice on Studying P5 outlines the content of the paper, the necessary skills you are expected to be able to demonstrate and any brought forward knowledge you are expected to have Exam focus points are included within the chapters to highlight when and how specific topics were examined, how they might be examined in the future, and how different topics within the syllabus fit together Using the syllabus and study guide You can find the syllabus and study guide on pages xiii-xxiii of this Study Text Testing what you can Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content Introduction http://accountingpdf.com/ v Chapter features Each chapter contains a number of helpful features to guide you through each topic Topic list Topic list Syllabus reference What you will be studying in this chapter and the relevant section numbers, together with ACCA syllabus references Introduction Puts the chapter content in the context of the syllabus as a whole Study Guide Links the chapter content with ACCA guidance Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined Knowledge brought forward from earlier studies What you are assumed to know from previous studies/exams FAST FORWARD Summarises the content of main chapter headings, allowing you to preview and review each section easily Examples Demonstrate how to apply key knowledge and techniques Key terms Definitions of important concepts that can often earn you easy marks in exams Exam focus points When and how specific topics were examined, or how they may be examined in the future Formula to learn Formulae that are not given in the exam but which have to be learnt Gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) vi Question Gives you essential practice of techniques covered in the chapter Case Study Real world examples of theories and techniques Chapter Roundup A full list of the Fast Forwards included in the chapter, providing an easy source of review Quick Quiz A quick test of your knowledge of the main topics in the chapter Practice Question Bank Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation Introduction http://accountingpdf.com/ Studying P5 As the name suggests, this paper examines advanced performance management topics and is particularly suited to those who are thinking about a career in management accountancy or are likely to be involved in strategic management decisions ACCA expects you to demonstrate a professional approach to all questions – not just presenting information in a professional manner, but also integrating knowledge and understanding of topics from across the syllabus The examination team has stressed that candidates should not expect topics in P5 exams to be examined in isolation One of the major skills you will be expected to demonstrate in the P5 exam is being able to draw on knowledge gained across your studies to date, in order to present complete solutions to relatively broad business issues or problems What P5 is about The syllabus for Paper P5 further develops key aspects and skills introduced in Paper F5, and it draws on aspects of the material about strategic and operational planning and performance covered in Paper P3, Business Analysis However, whereas Paper P3 assesses principles of management accounting as part of the wider analysis of a business situation, Paper P5 could examine aspects of management accounting – such as budgeting or costing techniques – in their own right The stated aim of the P5 syllabus is: 'To apply relevant knowledge, skills and exercise professional judgement in selecting and applying strategic management accounting techniques in different business contexts and to contribute to the evaluation of the performance of an organisation and its strategic development.' Read this aim carefully You are no longer just a 'number cruncher' drawing up budgets and producing calculations to include management reports You are expected to understand the wider issues that affect organisations These issues are often written about in newspapers and journals such as the Financial Times and The Economist, so it is important you read the financial press to help you identify how the issues you are studying in P5 relate to the real world context At this level in your studies, you also need to recognise how the subjects you previously studied begin to fit together You need to begin to take a holistic view of an organisation, and to see how the various parts of it and various processes affect overall performance – rather than looking at individual issues in isolation Importantly, the P5 exam is likely to also test your ability to assess different approaches to performance management, from a variety of perspectives As well as knowing what the approaches are, you will also need to be able to compare them with one another in the context of a scenario; for example, comparing the long-term and short-term issues affecting an organisation's performance Snapshot of the syllabus The syllabus expects you to understand how organisations set their strategy and the external influences that affect strategic plans and operational outcomes You will be expected to evaluate different systems of performance management and apply strategic performance measurement techniques in evaluating and improving performance You may also be expected to advise on strategic performance evaluation and the possibility of corporate failure Finally, you need to be aware of the current developments in management accounting and performance management, as these affect organisations Introduction http://accountingpdf.com/ vii There are five parts to the syllabus, as summarised below (a) Use strategic planning and control models to plan and monitor organisational performance (b) Assess and identify relevant macroeconomic, fiscal and market factors and key external influences on organisational performance (c) Identify and evaluate the design features of effective performance management information and monitoring systems (d) Apply appropriate strategic performance measurement techniques in evaluating and improving organisational performance (e) Advise clients and senior management on strategic business performance evaluation and on recognising vulnerability to corporate failure We expect most of these capabilities (if not all) to be tested to some extent in every P5 exam What skills are required? Look back at the action verbs in the six parts of the syllabus outlined above You are expected to be able to assess, advise and evaluate, as well as to identify and monitor The need for these skills of assessing, advising and evaluating highlights that, at P5 level, you are expected to have moved beyond merely demonstrating your knowledge of a model or technique, and instead you have to apply that knowledge to practical situations For example, the examination team will expect that, by the time you reach P5, you can already calculate basic financial ratios In P5, though, the examination team will expect you to be able to interpret the information provided by those ratios to understand how an organisation is performing, and to make sensible suggestions (where appropriate) about how its performance could be improved The questions set in P5 exams will be based around case study scenarios which describe an organisation, its objectives and its business environment You will need to relate your answers specifically to the scenario given in the question There will be very few marks available for simply describing models or theories Evidence from past exam sittings suggests that candidates who simply learn models and theories, but then not apply their knowledge to the question scenarios, typically score between 20-30% in their P5 exams The P5 paper has a large written element, with well over half the marks being earned for written answers (discussion, analysis, evaluation) rather than calculations Again, this is designed to reflect the position of a qualified accountant working in a business The accountant can expect a number of the routine calculations and figures to be produced by their more junior colleagues, but the accountant should then expect to identify the issues or implications being identified by those figures We have summarised here the skills you are expected to demonstrate in P5 (a) Core knowledge The contents of Paper F5 Performance Management – assumed knowledge brought forward for Paper P5 (b) Numerical skills Those skills demonstrated in Paper F5 You only learn a small number of new mathematical techniques in this paper but, alongside these, you are also expected to remember those you learnt previously (c) Written skills These are key skills on this paper You will be expected to write reports and notes explaining issues you encounter (d) Analysis and interpretation of question data or calculations The examination team has stressed that candidates will be expected to analyse (not merely calculate) numerical data given in a scenario Wider business awareness or application of skills in a practical context (e) viii Introduction http://accountingpdf.com/ 634 Index http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Review Form – Paper P5 Advanced Performance Management (02/16) Please help us to ensure that the ACCA learning materials we produce remain as accurate and user-friendly as possible We cannot promise to answer every submission we receive, but we promise that it will be read and taken into account when we update this Study Text Name: Address: During the past six months you recall seeing/receiving any of the following? (Tick as many boxes as are relevant) How have you used this Study Text? (Tick one box only) On its own (book only) On a BPP in-centre course Our advertisement in ACCA Student Accountant On a BPP online course Our advertisement in Pass On a course with another college Our advertisement in PQ Other Our brochure with a letter through the post Our website www.bpp.com Why did you decide to purchase this Study Text? (Tick one box only) Which (if any) aspects of our advertising you find useful? (Tick as many boxes as are relevant) Have used BPP Study Texts in the past Recommendation by friend/colleague Prices and publication dates of new editions Recommendation by a lecturer at college Information on Study Text content Saw information on BPP website Facility to order books off-the-page Saw advertising None of the above Other Which BPP products have you used? Study Text Passcards Kit Other Your ratings, comments and suggestions would be appreciated on the following areas Very useful Useful Not useful Good Adequate Poor Yes No Introductory section Chapter introductions Key terms Quality of explanations Case studies and other examples Exam focus points Questions and answers in each chapter Fast forwards and chapter roundups Quick quizzes Question Bank Answer Bank Index Overall opinion of this Study Text Excellent Do you intend to continue using BPP products? On the reverse of this page is space for you to write your comments about our Study Text We welcome your feedback The author of this edition can be emailed at: accaqueries@bpp.com Please return this form to: Head of ACCA & FIA Programmes, BPP Learning Media Ltd, FREEPOST, London, W12 8AA http://accountingpdf.com/ TELL US WHAT YOU THINK Please note any further comments and suggestions/errors below For example, was the text accurate, readable, concise, user-friendly and comprehensive? http://accountingpdf.com/ ... http://accountingpdf.com/ S T U D Y PAPER P5 ADVANCED PERFORMANCE MANAGEMENT BPP Learning Media is an ACCA Approved Content Provider This means we work closely with ACCA to ensure this Study Text contains... organisational performance External influences on organisational performance 173 Part C Performance measurement systems and design Performance management information systems 195 Management. .. which can affect performance In Paper P5 you need to be aware of this context and its impact on performance, not simply how an organisation can measure performance Performance management also