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BPP ACCA p5 advance performance management 2017

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Paper P5
Advanced Performance Management
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Performance Management has been
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S
T
U
D
Y

PAPER P5
ADVANCED PERFORMANCE
MANAGEMENT

BPP Learning Media is an ACCA Approved Content Provider. This means we work
closely with ACCA to ensure this Study Text contains the information you need to pass
your exam.
In this Study Text, which has been reviewed by ACCA’s examination team, we:


Highlight the most important elements in the syllabus and the key skills you need



Signpost how each chapter links to the syllabus and the study guide



Provide lots of exam focus points demonstrating what is expected of you in the exam



Emphasise key points in regular fast forward summaries



Test your knowledge in quick quizzes



Examine your understanding in our practice question bank



Reference all the important topics in our full index

BPP's Practice & Revision Kit also supports this paper.

FOR EXAMS IN SEPTEMBER 2016, DECEMBER 2016,
MARCH 2017 AND JUNE 2017

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First edition 2007
Ninth edition February 2016

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Contents
Page

Introduction
Helping you to pass
Studying P5
The exam paper
Syllabus and study guide

v
vii
xii
xiii

Part A Strategic planning and control
1
2
3
4
5

Strategic management accounting........................................................................................................................... 3
Performance hierarchy........................................................................................................................................... 45
Performance management and control of the organisation .................................................................................... 69
Changes in business structure and management accounting ................................................................................ 97
Environmental and ethical issues ........................................................................................................................ 137

Part B External influences on organisational performance
6

External influences on organisational performance.............................................................................................. 173

Part C Performance measurement systems and design
7
8

Performance management information systems .................................................................................................. 195
Management information, recording and processing and management reports................................................... 219

Part D Strategic performance measurement
9
10
11
12
13
14

Strategic performance measures in the private sector.......................................................................................... 273
Divisional performance and transfer pricing issues ............................................................................................. 319
Strategic performance measures in not-for-profit organisations.......................................................................... 347
Non-financial performance indicators.................................................................................................................. 369
The role of quality in management information and performance measurement
systems ............................................................................................................................................................... 385
Performance measurement and strategic HRM issues ......................................................................................... 427

Part E Performance evaluation and corporate failure
15
16
17

Alternative views of performance measurement and management ....................................................................... 469
Strategic performance issues in complex business structures............................................................................. 503
Predicting and preventing corporate failure ......................................................................................................... 521

Mathematical tables

553

Practice question bank

557

Practice answer bank

579

Index

629

Review form

Contents

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iv
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Helping you to pass
BPP Learning Media – ACCA Approved Content Provider
As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use study
materials reviewed by the ACCA examination team. By incorporating the examination team's comments
and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study
Text provides excellent, ACCA-approved support for your studies.

The PER alert
Before you can qualify as an ACCA member, you have to not only pass all your exams but also fulfil a three
year practical experience requirement (PER). To help you to recognise areas of the syllabus that you
might be able to apply in the workplace to achieve different performance objectives, we have introduced
the 'PER alert' feature. You will find this feature throughout the Study Text to remind you that what you
are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement.

Tackling studying
Studying can be a daunting prospect, particularly when you have lots of other commitments. The different
features of the Study Text, the purposes of which are explained fully on the Chapter features page, will
help you while studying and improve your chances of exam success.

Developing exam awareness
Our Study Texts are completely focused on helping you pass your exam.
Our advice on Studying P5 outlines the content of the paper, the necessary skills you are expected to be
able to demonstrate and any brought forward knowledge you are expected to have.
Exam focus points are included within the chapters to highlight when and how specific topics were
examined, how they might be examined in the future, and how different topics within the syllabus fit
together.

Using the syllabus and study guide
You can find the syllabus and study guide on pages xiii-xxiii of this Study Text.

Testing what you can do
Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can
recall what you have learnt.
We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as
Quick Quizzes at the end of each chapter to test your knowledge of the chapter content.

Introduction

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Chapter features
Each chapter contains a number of helpful features to guide you through each topic.
Topic list
Topic list

Syllabus reference

What you will be studying in this chapter and the relevant
section numbers, together with ACCA syllabus references.

Introduction

Puts the chapter content in the context of the syllabus as
a whole.

Study Guide

Links the chapter content with ACCA guidance.

Exam Guide

Highlights how examinable the chapter content is likely to
be and the ways in which it could be examined.

Knowledge brought forward from earlier studies

What you are assumed to know from previous
studies/exams.

FAST FORWARD

Summarises the content of main chapter headings,
allowing you to preview and review each section easily.

Examples

Demonstrate how to apply key knowledge and
techniques.

Key terms

Definitions of important concepts that can often earn you
easy marks in exams.

Exam focus points

When and how specific topics were examined, or how
they may be examined in the future.

Formula to learn

Formulae that are not given in the exam but which have to
be learnt.
Gives you a useful indication of syllabus areas that
closely relate to performance objectives in your Practical
Experience Requirement (PER).

vi

Question

Gives you essential practice of techniques covered in the
chapter.

Case Study

Real world examples of theories and techniques.

Chapter Roundup

A full list of the Fast Forwards included in the chapter,
providing an easy source of review.

Quick Quiz

A quick test of your knowledge of the main topics in the
chapter.

Practice Question Bank

Found at the back of the Study Text with more
comprehensive chapter questions. Cross referenced for
easy navigation.

Introduction

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Studying P5
As the name suggests, this paper examines advanced performance management topics and is particularly
suited to those who are thinking about a career in management accountancy or are likely to be involved in
strategic management decisions.
ACCA expects you to demonstrate a professional approach to all questions – not just presenting
information in a professional manner, but also integrating knowledge and understanding of topics from
across the syllabus.
The examination team has stressed that candidates should not expect topics in P5 exams to be examined
in isolation. One of the major skills you will be expected to demonstrate in the P5 exam is being able to
draw on knowledge gained across your studies to date, in order to present complete solutions to relatively
broad business issues or problems.

1 What P5 is about
The syllabus for Paper P5 further develops key aspects and skills introduced in Paper F5, and it draws on
aspects of the material about strategic and operational planning and performance covered in Paper P3,
Business Analysis.
However, whereas Paper P3 assesses principles of management accounting as part of the wider analysis
of a business situation, Paper P5 could examine aspects of management accounting – such as budgeting
or costing techniques – in their own right.
The stated aim of the P5 syllabus is:
'To apply relevant knowledge, skills and exercise professional judgement in selecting and applying
strategic management accounting techniques in different business contexts and to contribute to
the evaluation of the performance of an organisation and its strategic development.'
Read this aim carefully. You are no longer just a 'number cruncher' drawing up budgets and producing
calculations to include management reports. You are expected to understand the wider issues that affect
organisations. These issues are often written about in newspapers and journals such as the Financial
Times and The Economist, so it is important you read the financial press to help you identify how the
issues you are studying in P5 relate to the real world context.
At this level in your studies, you also need to recognise how the subjects you previously studied begin to
fit together. You need to begin to take a holistic view of an organisation, and to see how the various parts
of it and various processes affect overall performance – rather than looking at individual issues in
isolation.
Importantly, the P5 exam is likely to also test your ability to assess different approaches to performance
management, from a variety of perspectives. As well as knowing what the approaches are, you will also
need to be able to compare them with one another in the context of a scenario; for example, comparing
the long-term and short-term issues affecting an organisation's performance.
Snapshot of the syllabus
The syllabus expects you to understand how organisations set their strategy and the external influences
that affect strategic plans and operational outcomes. You will be expected to evaluate different systems of
performance management and apply strategic performance measurement techniques in evaluating and
improving performance. You may also be expected to advise on strategic performance evaluation and the
possibility of corporate failure. Finally, you need to be aware of the current developments in management
accounting and performance management, as these affect organisations.

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There are five parts to the syllabus, as summarised below.
(a)

Use strategic planning and control models to plan and monitor organisational performance

(b)

Assess and identify relevant macroeconomic, fiscal and market factors and key external
influences on organisational performance

(c)

Identify and evaluate the design features of effective performance management information and
monitoring systems

(d)

Apply appropriate strategic performance measurement techniques in evaluating and improving
organisational performance

(e)

Advise clients and senior management on strategic business performance evaluation and on
recognising vulnerability to corporate failure

We expect most of these capabilities (if not all) to be tested to some extent in every P5 exam.

2 What skills are required?
Look back at the action verbs in the six parts of the syllabus outlined above. You are expected to be able to
assess, advise and evaluate, as well as to identify and monitor.
The need for these skills of assessing, advising and evaluating highlights that, at P5 level, you are
expected to have moved beyond merely demonstrating your knowledge of a model or technique, and
instead you have to apply that knowledge to practical situations. For example, the examination team will
expect that, by the time you reach P5, you can already calculate basic financial ratios. In P5, though, the
examination team will expect you to be able to interpret the information provided by those ratios to
understand how an organisation is performing, and to make sensible suggestions (where appropriate)
about how its performance could be improved.
The questions set in P5 exams will be based around case study scenarios which describe an organisation,
its objectives and its business environment. You will need to relate your answers specifically to the
scenario given in the question. There will be very few marks available for simply describing models or
theories. Evidence from past exam sittings suggests that candidates who simply learn models and
theories, but then do not apply their knowledge to the question scenarios, typically score between 20-30%
in their P5 exams.
The P5 paper has a large written element, with well over half the marks being earned for written answers
(discussion, analysis, evaluation) rather than calculations. Again, this is designed to reflect the position of
a qualified accountant working in a business. The accountant can expect a number of the routine
calculations and figures to be produced by their more junior colleagues, but the accountant should then
expect to identify the issues or implications being identified by those figures.
We have summarised here the skills you are expected to demonstrate in P5.
(a)

Core knowledge. The contents of Paper F5 Performance Management – assumed knowledge
brought forward for Paper P5.

(b)

Numerical skills. Those skills demonstrated in Paper F5. You only learn a small number of new
mathematical techniques in this paper but, alongside these, you are also expected to remember
those you learnt previously.

(c)

Written skills. These are key skills on this paper. You will be expected to write reports and notes
explaining issues you encounter.

(d)

Analysis and interpretation of question data or calculations. The examination team has stressed
that candidates will be expected to analyse (not merely calculate) numerical data given in a
scenario.
Wider business awareness or application of skills in a practical context.

(e)

viii

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3 Passing the P5 exam
The examination team provides a lot of useful feedback in the 'Examiner's reports' to past exams. This
feedback highlights areas where students have struggled in exams, and also indicates the skills the
examination team expects candidates to be able to demonstrate.
Looking at the post exam guidance can also be useful for reminding yourself about essential areas of
exam technique. Therefore you are strongly recommended to read these guides which are available in the
'Qualification resources' section of ACCA's website: www.accaglobal.com
The points highlighted in the post exam guidance include the following.
(a)

Read questions very carefully and answer the question asked, not the question you hoped had
been asked. In particular, if a question asks you to 'evaluate' or 'assess' the usefulness of a
performance measure for assessing performance in an organisation, this is not asking you to
evaluate or assess the organisation's performance. Instead, the focus of your answer must be on
the performance measure itself.

(b)

Answers which consist of rote-learned definitions or explanations with no application to the
scenario will score very few marks. It is vital that you apply your knowledge to the context
described by the question scenario.

(c)

Look at the mark allocation to help you manage your time allocation and plan your answer.

(d)

Read all the parts of the question before you prepare your answer, so that you avoid repeating the
same points in answering different parts of the question.

We recommend you read the 'Examiner's approach to P5' article published in October 2012 and available
on ACCA's website. This illustrates how some of the skills required to pass P5 have been tested in recent
exam sittings, and provides some useful hints about how to approach the paper.
Approach to the exam – In the article, the Examining team suggested that the best approach to the exam
can be summarised as:
(a)

Cover the whole syllabus – Candidates often appear to over-concentrate on Section D of the
syllabus (strategic performance measurement). However, it is important to understand how, for
example, the choice of performance measures fits with planning and control structures (Section A
of the syllabus) or how well the measures chosen relate to external drivers of performance (Section
B of the syllabus).

(b)

Be prepared to apply your knowledge of syllabus topics to a business scenario – answers which
provide lists of rote-learned points (or rote-learned advantages and disadvantages for different
techniques and approaches) will not earn sufficient marks to pass a question. Candidates will be
expected to tailor their knowledge specifically to the situation given in the question scenario.

(c)

Read and answer the question set – Candidates earn marks where their answers are technically
correct and relevant to the question asked. However, candidates have a tendency to write answers
to the question they wish had been asked, rather than the question the examining team actually set.
This approach scores little or no credit though.

(d)

Add value to the organisation that is being advised – Candidates need to demonstrate their ability
to add value by taking data already produced and identifying and analysing the key issues in that
data and the commercial implications of it. Candidates need to be prepared to analyse numerical
data given in a scenario, not merely to perform calculations on it.

Importantly, the article also stresses that P5 is a paper about performance management, not simply about
performance measurement. While it is important for an organisation to measure how well it is performing,
this performance measurement takes place within the wider context of strategic planning and control, and
is subject to both internal and external factors which can affect performance. In Paper P5 you need to be
aware of this context and its impact on performance, not simply how an organisation can measure
performance. Performance management also considers how the management of an organisation can be
informed by the results of performance measurement; for example, through the way in which staff are
rewarded for their performance.
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Question practice
The importance of tailoring your answer to the question actually set, rather than simply rote-learning
models and theories, also highlights the importance of question practice in preparing for your P5 exam.
You can develop application skills by attempting questions in the BPP Learning Media Practice &
Revision Kit.

4 Brought forward knowledge
You will be expected to build on the skills and knowledge you acquired when you studied Paper F5
Performance Management. That paper introduces topics such as budgeting and pricing that continue into
the higher level syllabus. Paper F5 also covers cost and management accounting techniques including
activity-based costing that you will encounter in this paper. You will also be expected to draw on your
knowledge of performance measurement and control techniques that were introduced in this earlier
paper, because candidates sitting P5 will be expected to have a thorough understanding of the F5 syllabus.
In addition, you might be expected to draw on topics covered in Paper P3, Business Analysis, particularly
in relation to aspects of strategic planning and control, and performance measurement.
ACCA technical article: 'Bringing forward Paper F5 knowledge and skills in Paper P5'
There is an article in the P5 technical articles section of ACCA's website called 'Bringing forward Paper F5
knowledge and skills in Paper P5'. The article highlights the core skills from Paper F5 you will need to
bring forward into Paper P5, but also the differences in the depth and application of knowledge required in
P5 compared with F5. For example, instead of simply understanding the rationale of the Balanced
Scorecard, in P5 you might be asked to evaluate its usefulness to an organisation in a specific scenario.
You are strongly advised to read the article as part of your studies for your P5 exam.

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Analysis of past papers
The table below provides details of when each element of the syllabus has been examined and whether it
was examined as part of a compulsory (C) or optional (O) question. Further details about questions can be
found in the Exam Focus Points in the relevant chapters.
Sept/
Dec
2015

Text
chapter

June
2015

Dec
2014

C

C

June
2014

Dec
2013

June
2013

Dec
2012

June
2012

O

O

Dec
2011

June
2011

STRATEGIC PLANNING AND
CONTROL
1

Introduction to strategic
management accounting

2

Performance hierarchy

C

3

Performance management and
control of the organisation

O

4

Changes in business structure and
management accounting

5

Environmental and ethical issues

C

C

C

C

C

O

O

O

C

C
C

O

O

EXTERNAL INFLUENCES ON
ORGANISATIONAL PERFORMANCE
6

C

External influences on
organisational performance

O

C

O

O

C

PERFORMANCE MEASUREMENT
SYSTEMS AND DESIGN
7

Performance management
information systems

8

Management information, recording
and processing and management
reports

C,O

O

0

O

C

C

C

O, O

O

C

C

O

STRATEGIC PERFORMANCE
MEASUREMENT
9

Strategic performance measures in
the private sector

O

10

Divisional performance and transfer
pricing issues

O

11

Strategic performance measures in
not-for-profit organisations

O

12

Non-financial performance
indicators

O

13

The role of quality in management
information and performance
measurement systems

14

Performance measurement: and
strategic HRM issues

C,O

C, O

C

C

O
O
O

C

O,O

C

O

C
O

O

O

C

C

C

O

C, O

O

O

O

O

O

O

C

C, O

PERFORMANCE EVALUATION AND
CORPORATE FAILURE
15

Alternative views of performance
measurement and management

16

Strategic performance issues in
complex business structures

17

Predicting and preventing corporate
failure

O

O

C

O
O

O

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O

xi


The exam paper
Format of the paper
The P5 exam paper consists of two sections, and lasts 3 hours and 15 minutes.
Important note: The format of the exam paper changed in June 2013. If you are looking at past exams
(on ACCA's website) from 2012 or earlier, it is vital that you remember this point.
Section A
Section A will contain one compulsory question comprising 50 marks in total. This question will
comprise several sub-sections, and will usually assess and link a range of subject areas from across the
syllabus. The Section A question will require students to demonstrate high-level capabilities to evaluate,
relate and apply the information in the case study to the question requirements.
Section B
You need to answer two questions in Section B from a choice of three, comprising 25 marks each.
Section B questions are more likely to assess a range of discrete subject areas from the main syllabus
section headings. However, they will still require evaluation and synthesis of information contained within
the case study scenarios, and will require the application of this information to the question requirements.
A small number of professional marks will be available. The examination team has emphasised that in
order to gain the marks available, candidates must write in the specified format (such as a report or
memo). Reports must have terms of reference, conclusion, appendices and appropriate headings. Make
sure you are familiar with how different types of documents are constructed to improve your chances of
gaining maximum professional marks.

Syllabus and Study Guide
The P5 syllabus and Study Guide can be found on the following pages.

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