Chapter 3 extract from our ExPress notes for

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Notes
ACCA Paper P5
Advanced Performance Management
For exams in 2011

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 ExPress Notes
ACCA P5 Advanced Performance Management

Chapter 3

Performance Measurement Systems

and Design

START
The Big Picture

The information requirements for management accounting systems depend on the level
addressed by the system. The levels referred to correspond to Anthony’s hierarchy:

1. Long-term, involving the executive level, where strategic planning takes place;

2. Medium-term, at the middle-management level, where resourcing and monitoring

take place;

3. Short-term, or daily operational implementation and control

Information will tend to be more summarized at the executive level, and more detailed
(transactions) at the operational level.

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ACCA P5 Advanced Performance Management

The type of information will depend on the industry in which a business is operating, its
overall complexity and the degree to which competences and responsibilities are
decentralized.

ERP as an example

Enterprise-Wide Resource Planning (ERP)

ERP is the latest development in computerised business management. Organisation’s

information systems are integrated into one central database, linked to all of organisation’s
other applications. Thus, information about an item is input once into the central database,
and all functions have access to it, as necessary.

ERP physical architecture and software components

 Multiple servers containing databases and running applications

 Client workstations operated under a client-server configuration
 ERP software
 Middleware allowing the ERP software to interface with other applications
 Internet portals provide to external users (customers, suppliers) links to related
websites and e-services

Stages of ERP implementation

 Set-up of internal project team and do strategic project planning

 Select ERP software and consultant
 Processes design (entails reengineering and ERP software customization)
 Data conversion
 Testing
 Training
 Implementation

ERP costs

 Purchase costs for hardware, software and consulting/implementation services

 Costs with own staff participating in the ERP project
 Costs with upgrading/customizing other applications and with interface development
 Data conversion costs from legacy system to new ERP system
 User training costs
 Costs from unsuccessful/delayed implementation

ERP benefits

 Greater labour productivity

 More effective supply chain management
 Better working capital management

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 ExPress Notes
ACCA P5 Advanced Performance Management

 Enhanced decision-making
 Better data security, less data redundancy
 Integration of global operations (for multi-national organisations)

Responsibility accounting

A major criterion for information to be relevant to performance management is that it

addresses factors that are within the ability of managers to influence.

Such a system of management accounting attributes costs and/or revenues to individual

business units (responsibility centres) for which a particular manager is held responsible.

The term “controllability” is also associated with responsibility accounting.

Internal and external sources of management information

Identifying appropriate sources of internal and external information is critical to the running
of a business.

 Much information that is internally available is, surprisingly, not exploited by many
companies (e.g. detailed information about customers and customer habits);

 External information is usually associated with the middle to upper-levelsof the

organization and is used to anticipate trends in the market.

Competitor information falls into the “external” category, as does the notion of
“benchmarking”.

Benchmarking

Definition

Systematic analysis of own performance against that of another organisation, with a view of
improving own performance by learning from others’ experience

Typology

 External:
o Competitive: against a “best in class” competitor
o Functional: against “best in class” functions
 Internal (against a “best in class” similar business unit within the organisation)

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 ExPress Notes
ACCA P5 Advanced Performance Management

Steps

 Researching and identifying best-in-class performance (as recognised by the market

and the authorities in the field)
 Selection, measurement, and analysis of key outputs against best-in-class
 Identification of key-causes for the ascertained performance gaps and of the key-
actions necessary to reduce such gaps.

Usefulness

 Targets set by benchmarking are seen as realistic and achievable, as they were
already achieved by others
 It provides early warning of competitive disadvantages
 It stimulates cross-functional interaction and learning

Limitations

 Identifying activities to meaningfully benchmark

 Identifying best-in-class performance and (for external benchmarking) obtain
relevant information regarding that organisation

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© 2011 The ExP Group. Individuals may reproduce this material if it is for their own private study use only. Reproduction by any means for any
Page | 5 other purpose is prohibited. These course materials are for educational purposes only and so are necessarily simplified and summarised. Always
obtain expert advice on any specific issue. Refer to our full terms and conditions of use. No liability for damage arising from use of these notes
will be accepted by the ExP Group.