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

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MACROECONOMIC POLICY

Themanagementoftheeconomybythe

government.

aims:

Fullemployment,pricestability,economic

growthandappropriatedistributionof

incomeandwealth.

inuenceslevel

ofaggregate

demand

USING : FISCAL POLICY

Thegovernment

adjuststaxation,

publicspendingand

publicborrowing.

USING : MONETARY POLICY

Thegovernmentadjuststhemoneysupply,interest

rates,exchangerates&availabilityofcredit.

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Macroeconomic policy can change with a

change in the political climate due to:

change in government or its leader•

change in the power of the government •

and its ability to change policy due to a

change in its majority

a change in the government’s priorities.•

Government regulation

Government regulation includes:

• competition policy

supply-side policies•

green policies.•

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Supply-side policies

Largely anti-regulation and anti-government interference.•

Based on the view that regulation prevents the efficient and effective working of the economy.•

Competition policy

government’sresponsetoactualorpotentialmonopolypower

publicprovision

ofservices:

nationalisation•

publicregulation,

especiallyof

privatisedservices:

settingalimiton•

priceincreases

agreeing•

investment

targets

Frameworkofkpis•

withrewardsand

penalties

self-regulation:

e.g.legaland•

accountancy

professions

Thecontrolof

monopoly:

investigating•

mergersand

marketshares

Regulationof•

companies

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Green policies

Growing area of government intervention.•

Response to external environmental costs of production and consumption.•

Examples are carbon taxes, emission targets and penalties.•

Stakeholders

Stakeholders are anyone affected by the organisation and its activities

Stakeholders

shareholders

Managers

Employees

Thepublic

Competitors

government

suppliers

Customers

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Consideration of stakeholders is important.

The requirements, power and ambitions •

of stakeholders will influence the

organisation’s ability to implement

strategy.

Managers must deal with the conflict •

through:

prioritisation – this could follow from –

Mendelow’s matrix

negotiation and ‘satisficing’ – finding –

the minimum acceptable outcome for

each group to achieve a compromise

sequential attention – each period –

a different stakeholder group is

focused upon

side payments – this can often –

involve benefiting a group without

giving them what they actually want

exercise of power. –

The management of stakeholders will •

have a direct impact on objectives and

key performance indicators (KPIs).

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Managing stakeholders – Mendelow’s matrix

low high

Stakeholder power

Probability of exercising power/level of interest

low high

Keep informed

havelittlepowerbutvery

interestedandcanhavestrong

inuenceonothergroups

Can be ignored

forallpractical

purposes

Keep satised

otherwisemay

becomemilitant

Give them most of

what they wantat

leastintheshort-term

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ETHICS

Ethicalbehaviourreducesrisk

andtheorganisationislikely

tobefavouredbyexistingand

potentialcustomers,employees,

businesspartnersandinvestors.

CORPORATE SOCIAL

RESPONSIBILITY (CSR)

CsRisgivingthestakeholders

morethanthelegalminimum.

E.g.Donatingfundstocharity

andbecomingcarbonneutral.

benetsarecustomergoodwill,

betterreputation,happy

employeesandlesschanceof

legislationbeingpassed.

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Pricing

Generic strategies

Cost leadership – keeping costs low to enable good margins at market price•

Differentiation – products distinct from those of competitors•

Focus on small market segment•

Costs

needtocovervariable

costs,plusxedcostsat

thesalesvolumeachieved

Selling price

Competition

Whatdotheyoffer?

howcompetitiveisthemarket?

aretheresubstituteproducts?

Customers

Whatwilltheypay?

howwilltheyreacttoprice

changes?

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Possible pricing methods and the impact on performance management

Cost plus

mark-upisaddedto•

thefullcostperunit.

Economic arguments

statethatprofitsare•

maximisedwhen

Marginalrevenue

Marginalcost.

Target price

requiredprofitforthe•

organisationisestimated

andthenthesellingprice

thatshouldgeneratethat

profit.

Market skimming

enterthemarketforanew•

productataveryhighprice

toskimoffcustomerswho

arewillingtopayapremium

tohaveitfirst.

Penetration pricing

startwithalowpriceto•

gainahighmarketshare.

Thenusuallyincreasethe

priceoncetheproductis

established.

Perceived value pricing

whatisthecustomerwilling•

topay?

Product range pricing

selltheinitialitemcheaply•

butsellfollowupproducts

orservicesathigh

prices(inkjetprinters/

cartridges).

Price differentiation prices

thesameproductsare•

soldindifferentmarkets

atdifferentprices.

Competitive pricing

whatdocompetitors•

charge?

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The theory behind the

marginal cost = marginal

revenue approach to pricing.

Marginal cost = the increase in total cost

from making one more unit.

Marginal revenue = the increase in total

revenue from selling one more unit.

MC is an increasing function.

MR is a decreasing function.

MC > MR profit must be falling

MC < MR profit must be rising

MC = MR profit must be maximised.

Steps to calculating the optimal price

1 Establish price equation (P = a – bQ)

2 Establish MR equation (MR = a – 2bQ)

3 Find MC (usually just the variable cost

per unit)

4 Make MC = MR to get optimal quantity

to sell

5 Insert this quantity back into the price

equation to get the optimal price.

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

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