ACCA SP Advanced Performance Management 2 — Questions and Answers
Question 1: Which of the following correctly describes a 'key performance indicator' (KPI)?
- Any financial ratio calculated from the accounts
- A quantifiable metric that measures progress toward strategic objectives critical to the organisation's success (Correct answer)
- A target set by the government for public sector bodies
- The ratio of actual to budgeted expenditure
Correct answer: A quantifiable metric that measures progress toward strategic objectives critical to the organisation's success
KPIs are measurable values that demonstrate how effectively an organisation is achieving its key business objectives. They are selected to reflect what truly matters strategically.
Question 2: Fitzgerald and Moon's 'building block' model applies to:
- Manufacturing companies only
- Service organisations, using dimensions of results and determinants, with standards and rewards (Correct answer)
- Listed companies required to publish KPIs
- Public sector organisations measuring value for money
Correct answer: Service organisations, using dimensions of results and determinants, with standards and rewards
Fitzgerald and Moon's building block model for service businesses uses: Results (financial performance, competitiveness) and Determinants (quality, flexibility, resource utilisation, innovation), supported by fair Standards and Rewards.
Question 3: The 'divisional autonomy vs central control' dilemma in large organisations refers to:
- Whether to use debt or equity financing
- The tension between allowing divisions freedom to make decisions and head office retaining control for coordination and risk management (Correct answer)
- Whether to outsource non-core functions
- The allocation of tax liabilities between divisions
Correct answer: The tension between allowing divisions freedom to make decisions and head office retaining control for coordination and risk management
Decentralisation grants divisions autonomy (speed, motivation, local knowledge) but risks sub-optimal decisions from a group perspective. The balance between autonomy and central control is a core APM challenge.
Question 4: Which of the following is the primary purpose of 'benchmarking' in strategic performance management?
- To set targets based solely on historical performance
- To compare performance against best-in-class standards to identify performance gaps and improvement opportunities (Correct answer)
- To replace the balanced scorecard
- To calculate the variance between budget and actual
Correct answer: To compare performance against best-in-class standards to identify performance gaps and improvement opportunities
Benchmarking identifies gaps between current performance and best-in-class standards, providing the foundation for improvement initiatives and more challenging performance targets.
Question 5: In the context of APM, 'Big Data' analytics can improve performance management by:
- Replacing all non-financial measures with data-driven financial ratios
- Enabling real-time, granular analysis of large datasets to identify patterns and predict future performance (Correct answer)
- Eliminating the need for management judgement
- Removing the requirement for traditional KPIs
Correct answer: Enabling real-time, granular analysis of large datasets to identify patterns and predict future performance
Big Data enables organisations to analyse vast, varied and fast-moving datasets in real time, uncovering patterns invisible to traditional reporting and enabling predictive performance management.
Question 6: Which of the following best describes 'total quality management' (TQM)?
- A method of calculating the cost of defects
- A philosophy of continuous improvement involving every employee in achieving customer satisfaction through quality (Correct answer)
- An ISO certification process
- A statistical sampling technique for quality control
Correct answer: A philosophy of continuous improvement involving every employee in achieving customer satisfaction through quality
TQM is a management philosophy focused on continuous improvement (kaizen), customer orientation and involvement of all employees in the quality process, aiming for zero defects.
ACCA SP Advanced Performance Management 2
Which of the following correctly describes a 'key performance indicator' (KPI)?