ACCA Paper P5 (INT) Advanced Performance management - Pocket notes - Kaplan

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Introduction to strategic management accounting

Introduction to strategic management accounting Chapter 1

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Mission statement

briefgeneral

open-etnded

statement

statestheaims

&operational

businessareas

not

time-

assigned

Formulates

goals,objectives

andtargets

guidesand

communicates

directonof

strategy.

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Introduction to strategic management accounting Chapter 1

Notes:

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The product life cycle

No product is successful for ever, and organisations have to try to understand products’ life •

cycles and have strategies for replacing lost revenue when products start to decline.

There will be different critical success factors at different stages in the life cycle. Key •

performance targets will need to vary over the life cycle.

The stages of the life cycle have different intrinsic levels of risk. Understanding and responding •

to these risks is vital for the future success of the organisation.

Mission

statement

Strategic plans and

objectives

Tactical plans and

objectives

Operational plans and

objectives

general,broad

aims

Morespecic

objectives

Detailedplans

andtargets

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Introduction to strategic management accounting Chapter 1

High risk

high•

likelihood

offailure

introduction growth Maturity Decline

sales

High risk

Market•

sizeand

share

uncertain

Decreasing risk Low risk

Company•

knowsthe

productis

dying

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Introduction to strategic management accounting Chapter 1

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Multinational companies

Process specialisation

Costadvantages•

inlocatingcertain

typesofactivity

incertain

countries.

Economic risk

issuessuchasexchange•

ratefluctuations.

Key characteristics of

multinational organisations

requiring consideration by

strategic management

accounting

Process specialisation

particularcountries•

havecharacteristic

tastesthatthe

multinationalmust

caterto.

Political sensitivities

Riskfactorsassociatedwith•

operatingacrossstateboundaries.

Administrative issues

impactoninternaltransactions•

ofexchangeratemovements,

currencyexchangecontrolsand

internationaltaxtreaties.

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Introduction to strategic management accounting Chapter 1

Short- and long-term conflicts

pressuresonmanagers

areforshort-termresults

strategyisconcerned

withthelong-term

strictadherencetoastrategy

canlimitcreativityandair

Potential for conict

Theadoptionofcorporatestrategyrequiresthatthe

interestsofdepartments,activitiesandindividuals

aresubordinatetothecorporateinterests

Divisionalautonomy–individualmanagers

operatetheirbusinessunitsasiftheywere

independentbusinesses–seekingand

exploitinglocalopportunitiesastheyarise

Rigidlong-termplanscan

preventtheorganisation

respondingtoshort-term

opportunitiesorcrises

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Convertthreats

intoopportunities

SWOT analysis (corporate appraisal)

Theorganisation’s

strengths,

weaknesses,

opportunities

andthreatsare

ascertained.

itcanhelpidentify

CsF’sandkpi’s

itprovidesa

summarisedanalysis

ofthecompany’s

presentpositionin

themarketplace.

assistin

closingthegap

SWOT

ANALYSIS

pursue

opportunities

Matchstrengths

withmarket

opportunities

Converta

weakness

intoastrength

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Introduction to strategic management accounting Chapter 1

Benchmarking

Benchmarking – the concepts

Internal

benchmarking

Comparisonof

actualresults

withinternally

generated

target.

E.g.traditional

standard

costing

Best practice

Operationalpractices

whichappeartoproduce

thehigheststandards

intermsofthemetrics

judgedtobemost

appropriate;‘best

practice’providesthe

benchmarkagainst

whichresultscanbe

comparedinorderto

measureperformance.

Comparability

apartnerneed

notbeinthesame

businesssector.it

isthefunctionor

activitybeing

measuredwhere

comparabilityis

needed.

External

benchmarking

information

exchangebetween

differentorganisations,

tocomparerelative

performanceinthe

partnerorganisations.

Maybebothnancial

andnon-nancial

information.

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Different levels of benchmark

Strategic•

Functional•

Operational•

Benefits of benchmarking Difficulties with benchmarking

Identifying gaps in performance.•

Gives perspective.•

Learning and applying best practices.•

Learning from the success of others.•

Minimising complacency.•

Encouraging continuous improvement.•

Difficulty obtaining information.•

May be difficult to obtain information.•

Functions being benchmarked must be similar •

enough to allow meaningful comparison.

Need to be specific when identifying areas to •

benchmark.

Requires commitment from top managers •

and readiness to act on the results of

benchmarking.

Benchmarking information needs careful •

interpretation.

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Risk and uncertainty

Exogenous variables

Originateoutsideorganisation.•

Difficulttoforecastlong-termeffects.•

Changesinonevariablecouldinvalidateastrategy.•

Difficulttoquantify.•

Canchangerapidly.•

Ofteninterrelated.•

Examplesarelong-termmarkettrends,governmentpolicy.•

Risk and uncertainty

ACCA Paper P5 (INT) Advanced Performance management - Pocket notes - Kaplan - 2010

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