ACCA SP Advanced Performance Management — Questions and Answers
Question 1: Which of the following best describes the 'performance prism'?
- A framework measuring financial performance only
- A stakeholder-centred performance framework with five facets: stakeholder satisfaction, strategies, processes, capabilities and stakeholder contribution (Correct answer)
- A three-dimensional scorecard using revenue, cost and quality
- A risk management framework for public sector organisations
Correct answer: A stakeholder-centred performance framework with five facets: stakeholder satisfaction, strategies, processes, capabilities and stakeholder contribution
The performance prism (Neely et al.) starts with stakeholders, identifying what they want (satisfaction) and what they can provide (contribution), then aligns strategies, processes and capabilities accordingly.
Question 2: Which of the following is a criticism of traditional financial performance measures?
- They are too forward-looking
- They are lagging indicators that reflect past decisions and do not drive future value creation (Correct answer)
- They are too difficult to calculate from published accounts
- They focus too much on non-financial outcomes
Correct answer: They are lagging indicators that reflect past decisions and do not drive future value creation
Traditional financial measures (e.g., EPS, ROCE) are backward-looking lagging indicators; they report historical outcomes rather than leading indicators of future performance and value drivers.
Question 3: Economic Value Added (EVA) is calculated as:
- Operating profit minus tax
- Net operating profit after tax (NOPAT) minus (Capital employed × WACC) (Correct answer)
- EBIT × (1 − tax rate) ÷ Total assets
- Revenue minus total costs
Correct answer: Net operating profit after tax (NOPAT) minus (Capital employed × WACC)
EVA = NOPAT − (Capital employed × WACC). A positive EVA means the business earns more than its cost of capital, creating shareholder value.
Question 4: In the context of transfer pricing for multinational companies, 'arm's length pricing' refers to:
- A price set at marginal cost to optimise group output
- A price that reflects what unrelated parties would agree in a free market transaction (Correct answer)
- A price set to minimise global tax
- A price equal to the standard cost of production
Correct answer: A price that reflects what unrelated parties would agree in a free market transaction
The arm's length principle (OECD guidelines) requires that transactions between related parties be priced as if they were between independent parties in comparable circumstances, to prevent tax base erosion.
Question 5: A 'reward management' system is most likely to be effective when:
- It is based solely on seniority and length of service
- Rewards are clearly linked to the performance indicators used in the performance management system (Correct answer)
- All employees receive identical bonuses regardless of performance
- Rewards are determined by head office without divisional input
Correct answer: Rewards are clearly linked to the performance indicators used in the performance management system
For performance management to work, rewards must be clearly aligned with the organisation's key performance measures, motivating the desired behaviours and creating goal congruence.
Question 6: Which of the following is a feature of 'beyond budgeting'?
- Stricter top-down budget control
- Replacing annual budgets with rolling forecasts and relative performance targets, empowering front-line managers (Correct answer)
- More detailed variance analysis of budget vs actual
- Requiring budget approval from external auditors
Correct answer: Replacing annual budgets with rolling forecasts and relative performance targets, empowering front-line managers
Beyond budgeting (Hope & Fraser) replaces fixed annual budgets with adaptive processes (rolling forecasts, relative targets), decentralising decision-making to improve responsiveness and reduce gaming.
ACCA SP Advanced Performance Management
Which of the following best describes the 'performance prism'?