APM

Question 1

SWOT Analysis

Answer 1

Internal: SW, strengths weaknesses. EG financial, people, products, marketing
External: OT. Opportunities, threats. EG Competition, political, economic

Question 2

Porters Five Forces

Answer 2

Competitive Rivalry within industry
Threat of substitute products
Bargaining power of suppliers
Threat of new entrants
Bargaining power of customers

Question 3

Cost leadership

Answer 3

Lowest cost product
Opposite of differentiation

Question 4

Differentiation

Answer 4

Not price sensitive. Has some kind of luxury/customers are willing to pay more
Opposite of Cost leadership

Question 5

BCG Matrix

Answer 5

Analyse businesses product lines
Relevant market share vs market growth rate
Stars: high high
Question marks: low high
Cash cows: high low
Dogs: low low
Only the largest player can have a positive market share

Question 6

Key words for BCG Matrix (4)

Answer 6

Build share: here the company can invest to increase market share (for example, turning a
Question mark into a Star), marketing, R&D, cut price, increase distribution etc
 Hold: here the company invests just enough to keep the SBU in its present position.
 Harvest: here the company reduces the amount of investment in order to maximise the short-term
cash flows and profits from the SBU. This may have the effect of turning Stars into Cash cows.
 Divest: the company can divest the SBU by phasing it out or selling it.

Question 7

Criticisms of the BCG model (5)

Answer 7

 Average growth is difficult to define.
 Many very successful products or business units would be classified as Dogs, e.g. 1 series BMW
ranks behind the Audi A3, Sainsbury, Asda, and Morrison rank behind Tesco.
 Finding market share is difficult. (P&G and Lever Bros. each claim 62% of detergent market.)
 BCG makes no attempt to measure cash flows or profit.
 Difficult to know how to deal with declining markets.

Question 8

Ansoffs Growth Matrix

Answer 8

Which direction for the business to grow in. e.g. new product, buy suppliers/competitor
Market: existing. new
Product: existing. new
In 4 squares

Question 9

Best in class benchmarking / functional benchmarking

Answer 9

Southwest Airlines improved aircraft maintenance, refuelling and turnaround time by studying the
processes around Nascar racing pit stops

Question 10

Value of benchmarking (7)

Answer 10

Challenges assumptions
 Helps cut costs (BA cabin crew v Easy Jet)
 Improves service if lessons are learned
 Helps simplify processes
 Improves quality if relevant actions are taken
 Changes behaviour
 Helps break resistance to change by demonstrating other methods of solving problems

Question 11

Pitfalls of benchmarking (4)

Answer 11

“You get what you measure”. If the basis for benchmarking is flawed, it can lead to new
strategies that are flawed rather than improved performance.
 Too much information for managers.
 Takes too much time and money to perform. Getting the information may be problematic.
 Benchmarking will not identify the reasons for good or poor performance because it does not
compare competences directly,

Question 12

Mission statements should include (4)

Answer 12

(1) Purpose: Why do we exist and who for?
(2) Strategy: How and where are we going to compete
(3) Behavioural standards: To guide the actions of employees
(4) Values: What does the organisation believe in?

Question 13

CSFs generally include objectives around (5)

Answer 13

 Improving market share
 Innovation in products
 Quality of products and delivery
 Growth in profits (margins are important)
 Key performance metrics (e.g. EPS, ROCE, awards) especially if a listed company

Question 14

Benefits of budgeting. PRIME

Answer 14

Planning – It forces you to look ahead and fee plan your resource requirements
Responsibility – Gives managers (budget holders) areas to oversee
Integration – This covers co-ordination and communication where different departments are forced
to talk to each other.
Motivation – The budget can be used as the basis for setting targets.
Evaluation – Gives a basis for comparison of actual performance

Question 15

BPR Engineering

Answer 15

‘The fundamental rethinking and radical redesign of business processes to achieve dramatic
improvements in critical contemporary measures of performance, e.g. cost, quality, service, speed

Most of the work being done does not add any value for customers, and
this work should be removed, not accelerated through automation.
Instead, companies should reconsider their processes in order to maximise customer value, while
minimising the consumption of resources required for delivering their product or service

Question 16

Criticisms of BPR (9)

Answer 16

Dehumanised the work place
 increased managerial control
 An excuse to downsize
 Lack of management support and thus poor acceptance in the organisation
 Exaggerated expectations regarding the potential benefits from a BPR initiative and
consequently failure to achieve the expected results
 Underestimation of the resistance to change within the organisation
 Generic “best-practice processes” do not fit specific company needs
 BPR performed as a one-off project with limited strategy alignment
 Poor project management

Question 17

Impact of BPR on organisational performance

Answer 17

The two cornerstones of any organisation are the people and the processes. If individuals are
motivated and working hard, yet the business processes are cumbersome and non-essential activities
remain, organisational performance will be poor.
Business Process Re-engineering is the key to transforming how people work.

Question 18

McKinsey 7-S Model

Answer 18

Premise of an organisation isn’t just structure
3 Hard S’s : Strategy, Structure, Systems. Easy to identify
4 Soft S’s: Shared values, skills, staff and style

Question 19

Value chain analysis - Primary (5)

Answer 19

Porter suggests that once a business has decided the basis on which it would like to compete (cost
leader or differentiator) it needs to make sure all aspects of its primary and support activities are
consistent with this

Inbound Logistics
Operations
Outbound Logistics
Marketing and sales
Service

Question 20

Value chain analysis - Support (4)

Answer 20

Porter suggests that once a business has decided the basis on which it would like to compete (cost
leader or differentiator) it needs to make sure all aspects of its primary and support activities are
consistent with this

Firm Infrastructure
Human Resource Management
Technology Development
Procurement

Question 21

Environmental: Conventional, Contingent, Relational, Reputational

Answer 21

Conventional: E.g raw materials and energy costs. Hidden in overheads
Contingent: Cleaning, end of a project life, long term so not considered
Relational: Reporting costs
Reputational: Failure costs, lost revenue etc

Question 22

Data Silos

Answer 22

Data part of organisation can access but others cant

Question 23

Lean Management Information Systems (MIS) - 5S’s

Answer 23

Lean = no waste in system

Structurise Sort through components and remove any that are not necessary (i.e. de-cluttering)
Systemise Arrange components to make the workflow as efficient as possible
Sanitise Keep the workplace clean, tidy and well-maintained
Standardise Develop and implement processes to sort, set in order and shine
Self-discipline Maintain regular training and audits to ensure that processes are adhered to

Question 24

Descriptive Analytics

Answer 24

Data to state what happened. Historical data and trends.

Question 25

Diagnostic Analytics

Answer 25

Analyse to see why events identified by descriptive Analytics occurred.

Question 26

Black box algorithms

Answer 26

Black box algorithms are computer processes creating output and models where there is a lack of
understanding about how exactly they work. This lack of understanding can be because they are
combining variables in ways that are too complicated even for their creators to understand

Question 27

Modified IRR

Answer 27

Modified to fix these limitations, more likely surplus cash would be reinvested into bank etc:
Multiple IRRs for cash flows which change direction
IRR assumed surplus cash reinvested in project

COMPOUND amounts (times by int) to get terminal value
Work out compound rate to get investment to terminal value

Question 28

ROI

Answer 28

Divisional profit / divisional investment

DP: Should use profit before head office allocations, usually before interest and tax, if you are assessing the
managers’ performance. If looking at the performance of the division it may be better to include centrally allocated costs as well.
DI: TALCL, Net assets

Question 29

Why ROI over RI

Answer 29

ROI is still preferred in the majority of businesses, largely because:
 It gives a % answer and people understand % returns such as ROCE.
 Interdivision comparisons are easier to do since ROI is a relative measure not an absolute one
like RI. This makes it simpler to compare divisions of differing sizes.
 It is not felt that dysfunctional decision making happens often enough to be a real problem.
 RI does need an estimate of cost of capital to be made

Question 30

Why RI over ROI

Answer 30

residual income is the better method because it is linked to cost of capital and should
result in fewer dysfunctional decisions being made

Question 31

Economic Value Added

Answer 31

NOPAT
Less capital charge (WAXX x EV of capital employed)
= EVA

How to adj figures:
Training, r&d, advertising: add to profit
Depreciation: Add acc dep to profit and deduct economic dep. Adjust diff between to on cap empl
Provisions: removed from profit. Prov BF added to capital empl
Other non cash items: Add back non cash expenses. Adj cap empl if needed
Tax Charge: tax per accounts +/- deferred tax prov + tax benefit of interest = cash tax figure
Interest: Took off already above. Alt can start with PAT and add back int net of tax for same result.

Question 32

Benefits of EVA (4)

Answer 32

It is linked to cost of capital and hence will be consistent with trying to improve shareholders’
wealth. A positive EVA will coincide with increased returns to investors (i.e. the method gives a
clear basis for interpretation).
 NOPAT will be a closer reflection of cash flow than accounting profit because of the adjustments
made.
 Adjustments reflect the economic reality of the costs and revenues rather than accounting
prudence.
 It encourages longer term investment since costs such as R&D and advertising are treated as
capital items and not wholly penalising current year profits.

Question 33

Limitations of using EVA (4)

Answer 33

 The measure itself does not link to future performance since it is based on historical accounts.
 It involves potentially many adjustments.
 Like RI it is difficult to compare divisions of differing sizes using EVA since it is an absolute
measure.
 The WACC used will be in relation to the company as a whole and so may not reflect the
individual risks of one division if it is used to assess divisional performance.

Question 34

Goals of transfer pricing system (3)

Answer 34

Goal Congruence
Autonomy
Performance Evaluation

Question 35

Dual Pricing

Answer 35

If external sales of the intermediate good are possible, for internal transfers, credit Zara with
the market price of the goods and charge (debit) Yasmin with the variable (or marginal) cost.
This can get awkward for head office admin and accounts functions

Question 36

Two part tariff

Answer 36

TP is set at variable cost and each period a lump sum fixed fee is given to Zara as a contribution
towards its fixed costs and potential profit. The difficulty here is that you are essentially treating
Zara as a glorified cost centre and this may impact the perceived autonomy by Zara.

Question 37

Drawbcks of using financial performance indicators (8)

Answer 37

Historic rather than forward-looking
 Only really consider the needs of shareholders
 Do not look at qualitative factors
 Tend to create short-term focus
 Measuring financial results e.g. ROCE does not actually help to improve them
 Affected by accounting policies
 Subject to manipulation
 Often several ways to calculate

Question 38

Benefits of using non financial perf indicators (5)

Answer 38

1 More forward looking
(2) Allow a longer-term view to be taken
(3) Consider a wider variety of stakeholders
(4) Can be assessed more rapidly and corrective action taken sooner
(5) Less scope for manipulation so less tendency for short-termism

Question 39

Kaizen

Answer 39

Kaizen involves continuous improvement through small incremental steps. It is a long-term approach
to quality improvement and often involves providing the workforce with the appropriate tools and
techniques to achieve the required quality. This approach may need to be compared to the more
radical approach of Business Process Reengineering (BPR).
With Kaizen the overall aim is to keep on improving and updating standards with a view to cut out
waste and improves processes on a sustainable basis.

Question 40

Quality Assurance

Answer 40

Quality assurance is a more contemporary, proactive approach to ensuring systems are developed to
produce high quality items on a continual basis. Rather than inspection of goods, it focuses on the
processes in the system and aims to produce zero defects in the first place.
Quality control is a more traditional approach, where the quality of actual out

Question 41

Quality management systems should be structured around 8 principles:

Answer 41

(1) Process driven
(2) Systems approach
(3) Effective leadership
(4) Factual decision making
(5) Wide participation
(6) Continuous improvement
(7) Customer focus
8 Mutually beneficial

Question 42

Benefits of quality management system

Answer 42

 Improved and consistent quality of outputs;
 Improved staff commitment as a result of greater pride in work;
 Better customer relations (less complaints);
 Greater turnover.

Question 43

Six Sigma - Near perfection.

Answer 43

Cut defects and raise quality

D - Define problem/opportunity
M - Measure the current state of performance and set appropriate targets. Maybe formulate why at this point
A - Analyse the reasons for short-falls You are trying to look for the key root causes of the problems.
I - Improve the process to close any short-fall and improve performance.
C - Control and monitor results.

A - think of loads. I - use most beneficial from A. C - if doesnt work go back to C

Question 44

Benefits of six sigma (7)

Answer 44

Cost reduction
 Productivity improvement
 Market share growth
 Customer retention
 Cycle time reduction
 Defect reduction
 Culture change…..

Question 45

Six Sigma requirements (4)

Answer 45

Board level and senior manager buy in to the process
Understanding of what customers requirement are
Staff who have been trained and educated in the process
Clear focus on what the CSF’s for the organisation are

Question 46

Balanced Scorecard

Answer 46

Customer focused. Provides mechanism to link KPI’s to CSF’s.

Financial. Customer. Internal Business Processes. Innovation & Learning.

Question 47

Building block model

Answer 47

Performance measurement in service businesses

Dimensions - Downstream results/upstream determinants.
Standards - Targets set for dimensions measured
Rewards - Motivators

Question 48

Performance Pyramid

Answer 48

This model views organisation as interdependent levels, supporting each other but each with its own concerns

External effectiveness on left
Internal effectiveness on right

Question 49

Operational / strategic ABM

Answer 49

Operational ABM – ‘doing things right’ using ABC information to improve efficiency.
Strategic ABM – ‘doing the right things’ using ABC information to decide which products to develop.
The information may also be used in customer profitability analysis to focus more on the ones who are
more profitable for us.

Question 50

Enterprise resource planning system (ERPS)

Answer 50

an integrated computer-based system used to
manage internal and external resources, including tangible assets, financial resources, materials,
and human resources. It integrates the various business functions into one system and is usually
undertaken centrally by information management specialists. It should cause a substantial
reduction in the gathering and processing of routine information. Managers can directly access
relevant information rather than having to rely on management accountants.

Question 51

TQM (Perfect)

Answer 51

Prevention of errors before they occur
 Elimination of waste
 Right first time
 Full participation of all employees
 Everybody’s concern
 Continuous improvement needed - Kaizen
 Teamwork