Advanced Performance Management – examiner approach

An outline of the aim of APM, its structure and how the syllabus is tested
This article begins by considering the syllabus and overall aims of the exam, how it relates to previous exams and the format of the exam. It will then summarise advice about my approach to the exam using suitable example questions from recent exams to illustrate points.

Syllabus

There are five capabilities and most will feature to some extent in every diet:

• use strategic planning and control models to plan and monitor organisational performance
  – This emphasises the need to take a holistic view of the factors, both internal and external, affecting the business and to consider them when giving strategic advice on performance management and measurement solutions. Good candidates at APM often distinguish themselves by being able to synthesise disparate detailed points into an overall, strategic approach for an organisation.
  
  
• assess the impact of risk and uncertainty on organisational performance
  – This signifies an additional focus on recognition of risk and uncertainty and the need to consider these factors when determining approaches or making decisions across all levels of an organisation; from strategic level through to tactical and operational levels.
  
  
• identify and evaluate the design features of effective performance management information and monitoring systems
  – Candidates will not be required to have detailed technical knowledge of hardware and software but are expected to be conversant with the broad hardware and software trends and issues and how these interact with the provision of performance information throughout the organisation. It is the effect of these technologies on the performance management decision-making processes that is most significant.
  
  
• apply appropriate strategic performance measurement techniques in evaluating and improving organisational performance
  – This capability requires the application of the performance measurement techniques of APM and its assumed knowledge in specific scenarios.
  
  
• advise clients and senior management on strategic business performance evaluation and on recognising vulnerability to corporate failure
  – This capability takes the performance measurement information and seeks to turn it into commercially valuable advice for strategic decision makers both to improve performance and to improve performance management systems.

In addition to these capabilities candidates are expected to show the ability to gather new knowledge from the general technical press and so the articles in Student Accountant will be sources of topics for exam. These articles will also be the principal route by which the students will have new techniques and trends communicated outside of the slower cycle of revisions to the syllabus.

Candidates should note that unlike in the compliance topics such as financial reporting and tax, changes are not regularly made to the syllabus areas so that older articles may well be as relevant to the upcoming exam as the most recent ones. Any additional reading beyond the ACCA-approved texts and Student Accountant articles should be viewed as advisory and not required. However, candidates are advised to broaden their general business knowledge by the regular reading of good quality business press. This will provide additional background and examples of the techniques and issues of performance management.

The syllabus comes with a Study Guide of more detailed guidance about the specific topics to be examined. The syllabus has undergone a recent review and the changes have been attempts to make explicit certain tools and techniques that are applicable at APM. Therefore, most past exam questions will be relevant to the current exam.

Links to other exams

Performance management systems are the systems in an organisation by which the performance of an organisation is measured, controlled and improved. The thrust of the exam will move towards the strategic level of considering different performance measurement techniques and management systems. APM builds on knowledge gained at other levels; especially from PM, Performance Management and MA, Management Accounting. Areas covered in the SBL, Strategic Business Leader, are also useful for APM and vice versa. PM tests the candidate’s ability in application and analysis of core management accounting techniques and APM develops key aspects introduced at the PM level with a greater focus on the synthesis and evaluation of the key topics and techniques. It will also introduce more specialised techniques and current issues in performance management. Therefore, candidates should not expect to be retested in a PM style on topics but need to be aware that all of PM knowledge is assumed to be known and will now be used in a more critical capacity.

Exam format

The exam is a three-hour 15-minute test. There are two sections in the exam:

Section A (a single compulsory question)
There is only one question in Section A worth 50 marks. The purpose of this is to allow a detailed case study scenario to be given so that candidates can have the information and time to develop deeper answers to the question requirements. The Section A question will focus on a range of issues from across syllabus sections A, C and D.

Professional marks are a regular feature of the Section A questions (four marks in every exam) and it should be possible for a well-prepared student to score most of these easily. Efficient preparation involves the identification of appropriate formats and structures to use in answering questions and practising writing answers in order to improve clarity.

From September 2019, this question will fully utilise the use of embedded requirements and there is an article explaining the changes to requirements in APM available on the ACCA website.

Section B (two compulsory questions)
Section B consists of two 25-mark questions. One of the Section B questions will focus mainly on syllabus section E but may include a supporting topic from another syllabus area. The other Section B question can come from any other syllabus section.

Use of dates
ACCA is working towards moving Strategic Professional to computer based exams and dates in the APM exam will be in the format 20XX e.g. 20X5. As this will make the dates for each exam session generic, it has been decided to always apply the same dates in each exam irrespective of the exam session.

Approaching the APM exam

The best approach to the exam can be summarised as:

• cover the whole syllabus
• be prepared to apply all of this knowledge to a business scenario
• read and answer the question asked
• add value to the organisation that is being advised.

Cover the whole syllabus

Remember that, broadly, the exam tests the capabilities that are required of a candidate (listed above). The exam aims to address issues at the strategic, tactical and operational levels and often requires a candidate to understand the connections between these levels. For example, the question evaluating the links between the current key performance indicators (KPIs) and the company’s mission in Question 1 of the March/June 2017 sample questions or evaluating whether a specific critical success factor (CSF) and a specific KPI will help an organisation achieve it strategic objectives as in Question 4 of the September/December 2016 exam.

Another example of the type of question that arises is how does the choice of operational performance measures impact on the strategic performance of the organisation? A phrase that rings true in many situations is Drucker’s dictum ‘What gets measured gets done’. This phrase succinctly points to the impact that the choice of performance metrics have on the management activity of the firm.

Now these points should illustrate why it is a misapprehension that the exam is predominantly about performance measurement, it is a performance management exam. This error often manifests in a candidate’s over-concentration on detailed elements of Section D (Strategic Performance Measurement) of the syllabus. As indicated above, it is important to remember that the ideas contained in the various metrics need to be coherently applied to meet the strategic needs of an organisation and this is where other sections of the syllabus will connect to a question – for example, the choice of performance measures needs to fit with the planning and control structures (Section A) or whether chosen measures will impact the information systems employed (Section C).

Finally, in thinking about syllabus issues remember that APM builds on PM knowledge applying it in more complex scenarios so you should ensure that this PM knowledge is available in the exam.

Apply your knowledge to the question scenario

The exam tests a candidate’s ability to assess different approaches to performance management from a variety of perspectives. This will entail the candidate knowing what the approaches are and more importantly being able to compare one with another in the context of a scenario – for example, profit and value approaches, financial and non-financial perspectives, short-term and long-term issues.

A good candidate will be able to tailor the approaches suitable to the organisation described in the scenario and justify this advice using the evidence given in the scenario.

The scenario describes the organisation, its objectives and its business environment. A good candidate will show how they have taken in this information and then applied it to the performance management of that organisation. For example, when assessing different performance management approaches, a useful question to ask is ‘Does this meet the objectives/needs of the organisation?’ so obviously, the candidate must have identified these from the scenario.

Candidates must make sure that they can:

• assess the current situation of the organisation (for example, its existing performance management systems) and then
• consider how to apply a new approach to performance management (for example, value-based or based on one of the many models mentioned in the syllabus such as the performance pyramid or the building block model) and
• assess whether this new approach will be an improvement (for example, by helping to meet the corporate objectives).

Lists of rote-learned advantages and disadvantages for different approaches will not produce a complete answer as a candidate will be expected to tailor this knowledge to the situation given in the question. Also, simply writing the appropriate jargon words or phrases associated with a model or method will not score heavily. It is essential that candidates demonstrate that they know how to apply these appropriately to the scenario. So for example, Question 3 of the March/June 2018 questions asked for an evaluation of a value-based management approach within a company which hired machinery out to the construction industry. A good answer considered the advantages and disadvantages of the value-based management approach for that organisation and also considered alternative approaches which could have been taken.

Answer the question asked

The question requirement usually gets a great deal of attention from the examiner who first writes it and the team of reviewers who perform more than five layers of review before the exam is finalised. My approach to this point is that candidates should be given credit where their answer is technically correct and relevant to the question asked. There has been a tendency by candidates to write good answers to questions that they wish had been asked by the examiner rather than the one actually set in the exam. This approach scores little if no credit. There is a longer article entitled ‘Reading the Question Requirements of APM’ (see ‘Related links’) that illustrates the common misinterpretations seen in previous sessions. In addition, there is a two-part article entitled ‘Improving Your APM Answers’ that is very useful reading (see ‘Related links’).

Create information from data

As the business environment has been profoundly affected by the increased use of technology, there is less need at a strategic level to manually perform calculations. This is already tested heavily in earlier exams; therefore, there has been a reduction in the volume of computational work required for this exam compared to the lower levels. Occasionally, longer computations may appear but these will be used as a way of allowing the student to absorb the data in a question and become comfortable with the scenario. Large repetitious calculations are avoided but it should be noted that some repetition is inevitable as, for example, a trend can only be identified with at least two, or more realistically three data points.

However, computational work has not totally disappeared from APM but features more in the interpretation and further analysis of data provided in the question. Candidates have to demonstrate the ability to add value to their advice by taking information already produced and identifying the important features. At Strategic Professional, comments should be helpfully quantified where possible and the commercial implications discussed. Candidates should be constantly on the lookout for ways to make their numbers more understandable, for example, by comparing them to increased activity of the business or to competitor performance.

A valuable management accountant will create information from the detailed data given in a question. It is often best to begin by considering the ‘big picture’ (what is the overall objective); next, break down the data into smaller but meaningful (and manageable) chunks; finally, discuss the individual lines of the data table and even then, a candidate should focus on the data that explains the overall picture of changes.

A good example of this was Question 1 Part (ii) from the March/June 2017 questions.

1. Consider the ‘big picture’ – when assessing the definitions and assumptions in the calculation of the KPIs consider whether they are giving a misleading impression to stakeholders which is what has driven this request from the CEO.
   
   
2. Break down the data into smaller but meaningful (and manageable) chunks – the individual KPIs
   
   
3. Discuss the individual lines of the data table focusing on the data and the notes provided about the financial data.

It is important to realise that, at the APM level, it is not enough to throw down all the ratios and measures that can be imagined. In doing this, the candidate is probably going to overload the report reader with unnecessary data. It is essential that candidates try to be selective in their choice of what to calculate. This is an important testing area in the exam as it shows that the candidate has appreciated the strategic goals or key drivers of performance and can focus on them. (Further examples of applying this skill are in Question 3 of the September/December 2017 questions and Question 1 of the March/June 2018 questions).

Note specifically that in handling data heavy questions, the level required for APM is for answers to go beyond repeating, in sentence form, the data given in (say) a table in that question. In Question 1 of the March/June 2017 questions, many candidates wasted their time by limiting their comments to only writing out statements such as ‘Operating profit is a regularly used performance measure and all parts of the organisation have a comparable result’. This does not address the question which wanted a focus on how that measure had been calculated and what costs should be included, in particular what the impact on the operating profit figure would be for the catering business if exceptional costs were treated differently.

Candidates will be expected to analyse not merely calculate numerical data given from a scenario.

Overall

A candidate would be advised to ask him/herself if the answer they have produced would help the organisation to answer the question requirement.

Remember, try to add value with your answers by way of comments relevant to the issue at hand.