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management
Performance Management (University of the Witwatersrand, Johannesburg)

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ACCA
Advanced Performance
Management (APM)
Pocket Notes

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Advanced Performance Management (APM)

The text in this material and any others

made available by any Kaplan Group
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Unit 2 The Business Centre otherwise arising in relation to the use of
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ISBN 978-1-78740-443-4 by any means, electronic, mechanical,
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Printed and bound in Great Britain. Kaplan Publishing.
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Advanced Performance Management (APM)

Contents
Chapter 1: Introduction to strategic management accounting ....................................................... 1
Chapter 2: Environmental influences .......................................................................................... 17
Chapter 3: Approaches to budgets ..............................................................................................31
Chapter 4: Business structure and performance management ................................................... 41
Chapter 5: The impact of information technology ....................................................................... 53
Chapter 6: Performance reports for management ...................................................................... 67
Chapter 7: Human resource aspects of performance management ........................................... 73
Chapter 8: Financial performance measures in the private sector ............................................. 81
Chapter 9: Divisional performance appraisal and transfer pricing .............................................. 93
Chapter 10: Performance management in not-for-profit organisations ........................................ 107
Chapter 11: Non-financial performance indicators ....................................................................... 115
Chapter 12: Corporate failure ....................................................................................................... 127
Chapter 13: The role of quality in performance measurement .................................................... 137
Chapter 14: Environmental management accounting ................................................................. 149
Index ....................................................................................................................................I.1

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Advanced Performance Management (APM)

Exam guidance – keys to to have your knowledge in place from PM

success in this paper (Performance Management).

The aim of this paper is to apply relevant

knowledge and skills and to exercise
professional judgement in selecting and
applying strategic management accounting
techniques in different business contexts,
to contribute to the planning, control
and evaluation of the performance of an
organisation and its strategic and operational
development. However it is important to
remember that this paper is about application
of techniques to real-life situations so
you are expected not only to be able to
describe and use a technique but to discuss
implementation issues and the technique’s
usefulness in a particular scenario.
APM also has a strong relationship with
SBL (Strategic Business Leader) in the
areas of strategic planning and control and
performance measurement and expects you

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Advanced Performance Management (APM)

Strategic Performance
planning and evaluation and
control corporate failure

Strategic Core syllabus areas

performance
Performance
measurement
management
information
systems and
developments in
technology
Impact of risk
and uncertainty
on organisational
performance

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Advanced Performance Management (APM)

The examination
The format
The examination paper will comprise two sections.

Marks per Number Syllabus sections examinable

question of marks
Section A One compulsory 50 50 A, C and D
question
Section B Two compulsory 25 50 One question mainly from E. Other
questions question from any other syllabus area
Total marks 100

Total time allowed – 3 hours and 15 minutes.

There will be four professional marks available in Section A.

Candidates will receive a present value table and an annuity table.
The exam will contain a mix of computational and discursive elements.

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Advanced Performance Management (APM)

be able to clearly
communicate
understanding
and application
of knowledge in
the context of a Examiner’s
Professonal level keys to
exam. success

carefully study
all articles that
appear in student
accountant (or clearly understand
elsewhere), which the objectives of the
are relevant to topics exam as explained
within the syllabus in the Syllabus and
for APM Study Guide

practice
computational,
analytical, and
discursive questions ensure that
under exam preparation for
conditions in order a APM exam has
to improve speed been based on a
and presentation programme of study
set for the required
skills syllabus and exam
structure

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Advanced Performance Management (APM)

There will not always be a unique or Spend the last five minutes reading through
correct solution to questions in the APM your answers and making any additions or
examination. Alternative solutions will be corrections.
valid if they are supported by appropriate
If you get completely stuck with a question,
evidence and workings. Therefore if
leave space in your answer book and return
assumptions are made concerning a given
to it later.
scenario, they should be clearly stated.
If you do not understand what a question
Examination tips
is asking, state your assumptions. Even if
Spend the first few minutes of the you do not answer in precisely the way the
examination reading the paper. examiner hoped, you should be given some
credit, if your assumptions are reasonable.
Divide the time you spend on questions
in proportion to the marks on offer. One Do everything you can to make things easy
suggestion for this examination is to for the marker. The marker will find it easier
allocate 1.95 minutes to each mark available, to identify the points you have made if your
so a 10-mark question should be completed answers are legible.
in approximately 19.5 minutes.
Spend some time planning your answer.
Stick to the question and tailor your answer
to what you are asked. Pay particular
attention to the verbs in the question.

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Advanced Performance Management (APM)

Key study tips 5. candidates to be able to tackle

calculations but the emphasis will not be
Ensure you review prior knowledge from PM.
on these
Revise the course as you work through it and 6. candidates to add value, for example
leave sufficient time before the exam for final by quantifying comments or discussing
revision. commercial implications
Cover the whole syllabus and pay attention to 7. implications to be considered from a
areas where your knowledge is weak. business manager’s perspective.

Practice exam standard questions under Pass rates are still low. The examiner
timed conditions. Attempt all the different recommends:
styles of questions you may be asked. 1. using the scenario
Read the APM articles on the ACCA website 2. avoiding question spotting
and read good newspapers and professional 3. good time management – get the paper
journals. marked out of 100
The examiner expects: 4. answering the question asked
1. assumed knowledge to be in place 5. planning answers
2. candidates to use the scenario 6. that before the exam, students should
study the whole syllabus, revise
3. general business knowledge
assumed knowledge and practice lots of
4. a rounded view of the whole subject past exam questions.

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Advanced Performance Management (APM)

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action to ensure it is corrected in future
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chapter

1 Introduction to strategic
management accounting
In this chapter
• Planning and control.
• Strategic (corporate) planning.
• Objectives, critical success factors and key performance
indicators.
• Long-term and short-term conflicts.
• The changing role of the management accountant.
• Integrated reporting.
• Benchmarking performance.
• Models used in the performance management process.

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Introduction to strategic management accounting

Exam focus

The emphasis of this section is on

understanding the role of performance
management in an organisation, to
understand strategic management
accounting and specific tools. It is important
that, in addition to understanding the tools,
you can also apply the tools to specific
scenarios.
This section also explores the changing role
of the management accountant and explores
the role of the management accountant in
integrated reporting.

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Chapter 1

Planning and control

Definition

Strategic Planning is concerned with:

• where an organisation wants to be (usually expressed in terms of its objectives) and
• how it will get there (strategies)
Control is concerned with monitoring the achievement of objectives and suggesting corrective
action.
The performance hierarchy

General, broad
aims
Mission
statement
Strategic plans and More specific
objectives objectives
Tactical plans and
objectives

Operational plans and Detailed plans

objectives and targets

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Introduction to strategic management accounting

Characteristics of a mission statement:

A guide for
employees Addressed to
to work a number of
Succint Memorable Enduring
towards the stakeholder
accomplishment groups
of the mission

Strategic and operational planning and control

Strategic planning & control Operational planning & control

Long-term, considering the whole Short-term, based on a set of assets and
organisation. resources.
Match activities to external environment Rarely involves any major change.
and identify future requirements.
High degree of uncertainty. Unlikely to involve major elements of uncertainty.
Control by monitoring the strategy and how Will not lead to changes in strategy.
well objectives are achieved.

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Chapter 1

Strategic (corporate) planning

Strategic analysis
• External analysis to identify opportunities and threats.
• Internal analysis to identify strengths and weaknesses.
• Stakeholder analysis to identify key objectives and to assess power and interest of different groups.
• Gap analysis to identify the difference between desired and expected performance.

Strategic choice
• Strategies are required to ‘close the gap’.
• Competitive strategy – for each business unit.
• Directions for growth – which markets/products should be invested in.
• Whether expansion should be achieved by organic growth, acquisition or some form of joint arrangement.

Strategic implementation
• Formulation of detailed plans and budgets.
• Target setting for KPIs.
• Monitoring and control.

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Introduction to strategic management accounting

Objectives, critical success factors and key performance

indicators
An organisation needs to establish SMART objectives and then key factors and processes will be
identified that will enable it to achieve its objectives.

Critical success factors (CSFs) Key performance indicators

(KPIs)

The vital areas where things must go

The achievement of CSFs can be
right for the business in order for them
measured by establishing KPIs for each
to achieve their strategic objectives.
CSF and measuring actual performance
The organisation will need to have in
against these KPIs.
place the core competences that are
KPIs are essential to strategy since
required to achieve the CSFs.
what gets measured gets done.

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Chapter 1

Long-term and Short-term conflicts

Divisional autonomy – individual managers

operate their business units as if they were
independent businesses – seeking and
exploiting local opportunities as they arise

Pressures on managers Rigid long-term plans can

are for short-term results prevent the organisation
Potential for conflict
Strategy is concerned responding to short-term
with the long-term opportunities or crises

The adoption of corporate strategy requires that the

Strict adherence to a strategy
interests of departments, activities and individuals
can limit creativity and flair
are subordinate to the corporate interests

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Introduction to strategic management accounting

The changing role of the management accountant

ROLE OF MANAGEMENT ACCOUNTANT

Historically Today
• Role limted to implementation • Strategic role providing information
stage, e.g. responsible for on financial aspects of strategic
operational budgeting and control. planning e.g. competitors’ costs.
• Focus is on internal factors and • Uses internal and external
financial information. information.
• Focus is on the past. • Monitors performance in financial
and non-financial terms.
• Focus is on the future.

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Chapter 1

Burns and Scapens studied how the role of the management accountant has changed in recent
years.

• The role has

following changes

following benefits
• Accountants ensures

Leading to the

Leading to the
changed from
financial control strategic goals are
to business reflected in performance
support. management.
Driving forces for
change: • The new role • Management accountant
has been helps the strategic
• Technology. business unit to get
called a hybrid
• Management accountant. the most from their
structure. information system.
• Accountants
• Competition. may no • Management accountant
longer work can develop a range of
in a separate performance measures
accounting to capture factors that
department. will drive success.

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Introduction to strategic management accounting

Integrated reporting
The modern management accountant has a role in informing stakeholders of the financial and non-
financial impact of the company’s decisions.
A new approach to reporting is called integrated reporting. With integrated reporting one report
captures the strategic and operational actions of management in its holistic approach to business
and stakeholder wellbeing.
is a balance of quantitative
and qualitative information.
is tailored to the The IS must be able to
specific situation considers how
capture both financial and resources should
but remains non-financial measures
concise be allocated

The management accountant

must produce information
provides an analysis that: links past, present and
of opportunities future information.
and risks that could The forward looking
impact the future nature will require more
forecasted information
considers the
regulatory impacts
on performance

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Chapter 1

Benchmarking performance
The objective of benchmarking is to understand and evaluate the current position of a business
organisation in relation to best practice and to identify areas and means of performance
improvement.

Types of benchmarking

Internal Process or
benchmarking Competitor activity
This is where benchmarking benchmarking
another function Uses a direct Focuses on a
or department competitor in the same similar process
of the industry with the same in another
organisation or similar processes as company which
is used as the the benchmark. is not a direct
benchmark. competitor.

It is important that you are able to evaluate the use of benchmarking in general and each of the
types of benchmarking.

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Introduction to strategic management accounting

Step 1: Set objectives and determine which areas or functions to benchmark.

Step 2: Identify key performance indicators and drivers that will be measured.

Step 3: Select organisations/partners for benchmarking comparisons.

Step 4: Measure performance of all organisations/partners involved in benchmarking using

measures identified in step 2.

Step 5: Measure own performance and compare it to the benchmark. Identify gaps in performance.

Step 6: Specify actions required to close the gap.

Step 7: Implement and monitor actions.

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Chapter 1

Models used in the performance management process

SWOT analysis (corporate appraisal)

The organisation’s
strengths,
weaknesses, Match strengths
Pursue
opportunities with market
opportunities
and threats are opportunities
ascertained.

It provides a
summarised analysis SWOT Assist in
of the company’s closing the gap
present position in ANALYSIS
the market place.

Convert a
It can help identify Convert threats
weakness
CSFs and KPIs into opportunities
into a strength

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Introduction to strategic management accounting

Boston Consulting Group (BCG) matrix

• The matrix shows whether the firm has a balanced portfolio.
• It can be used to assess business performance and performance management issues of an entity.
Star Problem child
• Is the high reinvestment being spent Investment strategy
effectively? • Is market share being gained?
• Is market share being gained, held or • Effectiveness of promotional spend.
High

eroded?
Divestment strategy
• Is customer perception improving?
• Monitor contribution to see whether
Market growth

• Are customer CSFs changing as the market

to exit quickly or divest slowly.
grows?
• Net cash flow should be measured.
• Is the star becoming a cash cow?

Cash cow Dog

• Cash generator. Strategy is minimal • Monitor contribution to see whether
Low

investment to keep product going. to exit quickly or divest slowly.

• Is market share being eroded – could the • Monitor market growth as an increase
cash cow be moving towards becoming in the growth rate could justify
a dog? retaining the product.
• Measure net cash flow.

High Low
Relative market share
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Chapter 1

Porter’s generic strategies

An important part of strategic choice is deciding on what basis to compete.

Lower cost Higher cost

Broad target Cost leadership Differentiation

Focus
Narrow target Cost focus Differentiation focus

The most appropriate strategy should be chosen to help the organisation achieve competitive advantage
and to optimise performance.

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Introduction to strategic management accounting

Exam focus

Exam sitting Area examined Question number Number of marks

Dec 2018 Benchmarking 1(c) 24
June 2018 Recommendation of 1(ii) 8
performance measures
Sept/ Dec 2017 Role of management 1(ii) 6
accountant in IR
Sept/ Dec 2017 Benchmarking 2(b) 9
March/Jun 2017 KPIs and mission 1(i)(ii) 20
Sept/Dec 2016 CSFs and KPIs 4(a) 8
Sept/Dec 2015 CSFs 1(ii)(iii) 21
June 2015 BCG 4(c) 10
June 2015 Choice of metrics, SWOT 1(i)(iv) 26
December 2014 Benchmarking 1(iii) 16
June 2014 Mission 1 (v) 6

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