ACCA P5 Paper Review
ACCA Paper P5: Advanced Performance Management
June 2012 Exam Commentary
An unusual feature of this exam was that section A of this paper was, for the first time, for more than 60 marks; question 1 was 40% of the whole exam. The rubric of the exam clearly states that section A could be for up to 70 marks so this should not have been a complete shock.
Overall this was a hard exam, both in terms of testing higher level application skills and also hard in that the theoretical content of this paper included the performance prism and 6 sigma, neither of which have been commonly examined.
SECTION A – 2 compulsory questions
Question 1 – 40 marks compulsory
This question focused on performance measuring & reporting for a restaurant owned and run by its three founders. A detailed performance report was provided showing the restaurant’s performance over the past 3 years and a forecast for the year ahead.
A report format covered all 40 marks available, which included 4 professional marks for format, style, structure & clarity.
i) 12 marks – asked for a critical assessment of the existing performance report & suggestions for improvements. This type of question has been seen before and offered plenty of scope for scoring marks by adopting a practical approach or using a theoretical model (e.g. using Fitzgerald & Moon building blocks) as a framework for the answer.
ii) 14 marks (10 for calculations) – this asked for an evaluation of the 1st 3 years of the company using NPV (5 marks), MIRR (3 marks), EVA (2 marks) and other profit measures such as ROE and ROCE (3 marks) with a further 4 marks for commentary. It was disappointing that the ACCA did not provide the MIRR formula after saying that they would, and this would have been disconcerting, to the say the least, under exam conditions. Ironically, MIRR was also tested in the June exam for paper P4 and the formula was given here! However, candidates who kept their head would have been able to score almost full marks even if they had skipped the MIRR part.
iii) 10 marks – for assessing the principle that ‘you get what you measure’. This required students to use the specific clues in the question to illustrate the problems arising from the lack of key non-financial performance measures.
This question was a real test of nerve – it looks harder than it is, and students who could keep their focus despite not being given the MIRR formula had real opportunities to score well here.
Question 2 – 26 marks compulsory
As with the December 2011 exam, performance indicators featured heavily in question 2.
In this case the company, Amal Airline (Amal), was looking to respond to a global economic downturn by reducing its cost base. Data for Amal and 2 rivals was given and in part (a), for 12 marks, candidates had to produce a sensible series of performance indicators from this data; 6 marks were for calculations. Suitable measures included fuel used / seat kilometre, revenue per staff member, cost per staff member, operating profit, and the percent of seats that were occupied.
Part (b) for 14 marks required an application of the performance prism. Two marks were available for a general description of the model. The remaining marks were available for a sensible application of the clues in the scenario:
(a) Stakeholder satisfaction – e.g. finance providers, customers, employees and suppliers were all mentioned in the scenario. It would have been relevant to mention their needs and possible performance measures.
(b) Strategies – what strategies do we have to put in place to satisfy the wants and needs of these key stakeholders? The only clear target given in the question is the reduction of costs by 14%. It would have been sensible to talk about strategies to reduce staff costs and fuel costs (using the data from part a), as well as strategies for other stakeholders.
(c) Processes – what critical processes do we require if we are to execute these strategies? Process initiatives are given in the question for staff costs and fuel costs. BPR could be mentioned.
(d) Capabilities – what capabilities do we need to operate and enhance these processes? An audit of the strengths and weaknesses of Amal could be commissioned. Non financial performance measures are relevant here.
(e) Stakeholder contribution – what contribution does Amal want from its finance providers, customers, employees and suppliers etc, again it would be relevant to mention possible performance measures.
As a time-pressured exercise it would be difficult to produce a ‘polished’ answer but any attempt to apply and describe the prism should score at least a pass mark.
SECTION B – choice of two 17 mark questions from three
This question was looked at the use of 6 sigma. Part (a) asked for an explanation of the benefits of six sigma. Part (b) asked for an application of six sigma. For students who had revised this area this should be a straightforward question.
This question involved a university that is using benchmarking to improve the efficiency of its administration. Part (a), for 8 marks, was an unusual question that required an assessment of what had been done to date in the benchmarking exercise, and what more needed to be done. This required an understanding of the processes that are involved in a benchmarking exercise.
Part (b), for 9 marks, required a manipulation of the data provided to produce relevant benchmarking data using the given drivers of cost that were given in the question.
Although this was a slightly unusual question, it would have been an attractive question to many since both the topic (benchmarking) and the key skill (data manipulation) have been commonly examined in this paper.
This question examined the difficulties of performance management & measurement in a on-line retailer using a ‘virtual’ organisation structure. The lengthy scenario provided the clues for candidates to use in developing their answer. Due to its length, this question would probably have been the default question that candidates attempted if they were not happy with the other 2 optional questions.
The marking guide splts the marks evenly between performance management & performance measurement.