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ICAEW Management Information > 8. Performance Management > Flashcards

8. Performance Management Flashcards

1
Q

Describe the feedback control loop

A
  1. Plans and targets are set for the future
  2. Plans are put into operation
  3. Actual results are recorded and analysed
  4. Actual results are fed back to management
  5. Management compare actual results to the plan / targets
  6. Management can then take control action or alter the plan / targets
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2
Q

What are the features of effective feedback? (8)

A
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3
Q

What are three distinct ways of using budgetary information to evaluate performance? What term is given to this style of evaluation

A

Hopwood’s styles of evaluation

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4
Q

Outline what effect the three Hopwood’s styles of evaluation will have on the following: i) Involvement with costs ii) Job-related tension iii) Manipulation of reports (bias) iv) Relations with the supervisor v) Relations with colleagues

A
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5
Q

What is divisionalisation?

A

Splitting the company into divisions, e.g. according to location or according to the product or service provided.

Divisional managers are then given the authority to make decisions concerning the activities of their divisions.

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6
Q

What is meant by decentralisation?

A

Management structure where decision-making authority is delegated to lower-level managers and employees - i.e. not all controlled by head office

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7
Q

What factors affect the degree of decentralisation? How? (7)

A
  • Management style - the more authoritarian the management, the less chance for decentralisation
  • The size of the organisation - the smaller the organisation, the less chance for decentralisation
  • The extent of activity diversification
  • Effectiveness of communications - the more effective the communication, the more chance for decentralisation
  • The ability of management - the more experienced the management, the more chance for decentralisation
  • The speed of technological advancement - the greater the speed of technological advancement, the more chance for decentralisation
  • The geography of locations and the extent of local knowledge needed - the more geographically diverse and the greate the need for local knowledge, the more chance for decentralisation
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8
Q

Outline the advantages (5) & disadvantages (5) of decentralisation

A
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9
Q

What are the types of centres/departments within an organisation? (4)

A
  1. Cost
  2. Profit
  3. Revenue
  4. Investment
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10
Q

For each type of centre/department within an organisation, give a brief description, what a manager of that division has control of with regards to the company, and the principle performance measures that can be used to appraise them

A
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11
Q

What is return on investment (ROI)? Give the equation

A

A measure of how much profit has been earned in relation to the amount of capital invested in the centre

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12
Q

Define capital employed

A
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13
Q

What is important to remember regarding the assets and liabilities included in ROI calculations for divisions?

A

Centrally controlled assets and liabilities should be excluded - i.e. head office

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14
Q

What is residual income (RI)? Give the equation

A

A measure of the centre’s profits after deducting a notional or imputed interest cost of the capital invested in the centre

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15
Q

Define imputed interest cost of capital

A

The fraction of capital employed, where the fraction is controlled by the cost of finance (i.e. interest cost)

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16
Q

What are the advantages of RI over ROI? Explain each (2)

A
  • Residual income will increase when investments earning above the cost of capital are undertaken (hence, as long as the return on a project beats the notional cost of capital it will be undertaken). - divisions may be put off from making desisions that will dilute ROI
  • Residual income is more flexible since a different cost of capital can be applied to riskier investments
17
Q

What are the advantages of ROI over RI? Explain each (2)

A
  • It does not facilitate comparisons between investment centres.
  • it does not relate the size of a centre’s income to the size of the investment - two divisions may have the same RI but it is much easier for a larger division to generate a further RI
18
Q

What are the four perspectives used in the balance scorecard apporach to identify critical success factors?

A
  • Financial perspective – how do we create value for our shareholders?
  • Customer perspective – what do new and existing customers value from us?
  • Innovation and learning perspective – can we continue to improve and create value?
  • Internal business perspective – at what must we excel?
19
Q

Outline how a balance scorecard is displayed and include some key performance indication examples

A
20
Q

What is a fixed budget? What is a flexible budget? Why is a flexible budget necessary to prepare?

A

A fixed budget is one that is prepared for the expected level of production or output and then not adjusted for actual production or output.

A flexible budget recognises different cost behaviour patterns and is designed to change as the volume of activity changes.

In order to make a meaningful comparison of actual results to our expectations, we need to compare them to a budget that is based on the actual activity levels (i.e. the actual units sold)

21
Q

Outline the method for preparing a flexible budget

A

METHOD

22
Q

What is a shared service centres (SSC)?

A

A shared service center (SSC) is a centralized unit that handles specific business functions for multiple business units within an organization - functions such as human resources, payroll, accounting and IT may be carried out in a shared service centre

23
Q

What are the advantages (4) and disadvantages (4) of using a shared service centre?

A
24
Q

What is cloud computing?

A

Cloud computing is the model enabling on demand access to application, storage, networks at anytime from anywhere online.

25
Q

What is cloud accounting?

A

Cloud accounting is an application of cloud computing where accountancy software is provided in the cloud and is often delivered in an as-a-service model.

26
Q

What are the different types of ‘-as-a-service model’? Define each (3)

A
  • Software-as-a-Service (SaaS) is access via web browsers to ready-to-use, cloud-hosted application software. This is how most cloud accounting applications are provided.
  • Platform-as-a-Service (PaaS) is a cloud-hosted platform that allows users to develop, run, maintain and manage applications.
  • Infrastructure-as-a-Service (IaaS)provides access to cloud-hosted infrastructure (physical and virtual servers, storage and networking) on which the user installs the software of their choice.
27
Q

What are the advantages (9) and disadvantages (5) of using cloud accounting?

A
28
Q

What is real-time monitoring? Why is it advantageous?

A

Real-time monitoring is the process of continuously observing, measuring, and analyzing data, events, or processes as they happen - i.e. when a sale is made a real-time accounting system will update receivables data, sales data and so

Advantages of having instant access (anytime, anywhere via a cloud accounting system) to up-to-date financial data include:
* Faster, more informed decision making
* Fast reaction to market fluctuations Improved cash flow management
* Improved accuracy (as time lags in traditional accounting systems are removed)
* Adherence to regulatory compliance

29
Q

What is a sustainability report and what areas should it cover?

A

A sustainability report is a report published by companies on the environmental, social and governance (ESG) impacts of their activities.

A sustainability report should cover the three ESG areas and include a range of ESG metrics (actual performance against targets and targets for the coming year).

30
Q

What is the Taskforce on Climate-related Financial Disclosures (TCFD)?

A

A voluntary set of recommendations for improved disclosure of climate-related risks and opportunities for decision-useful, climate-related financial information.
They ask organisations to identify climate-related risks and opportunities, to consider the financial implications and to assess the resilience of the business strategy to future climate outcomes

31
Q

What elements have the TCFD provided guidance and recommendations of climate-related risk disclosure around? Define each (4)

A
32
Q

What are the climate-related risk types? Define each (2)

A
33
Q

Why is ESG performance hard to measure? (4)

A

A business may measure its performance using key performance indicators (KPIs). However, in practice, it can often be difficult or impossible to quantify ESG performance for the following reasons:
* The choice of KPIs often involves a certain degree of subjectivity.
* Qualitative effects can be difficult to measure (e.g. employee satisfaction).
* KPIs that are not sufficiently specific may be hard to measure (eg reducing environmental damage).
* It can be difficult to compare the ESG metrics of different businesses because different industries may lead to different impacts.

ICAEW Management Information (10 decks)

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