Question required to consider issues of justifying performance measures, undertaking target costing exercise, examining division of responsibility for quality costs in outsourcing contract and assessing  impact of sources of information on management of quality within an outsourcing contract.

The company in question was a manufacturer.

Part (i) for 16 marks required recommendation and justification of two key performance indicators (KPIs) for each critical success factor (CSF) and assessment of use of resultant KPIs in measuring strategic performance of company.

Candidates generally scored about half the marks available.

Part of the problem candidates encountered here appeared to be in not fully comprehending, for the first CSF, that it was two particular groups of capital providers who had to be satisfied.

Many responses suggested KPIs that were clearly not relevant to the scenario in this regard.

It is also clear that many candidates felt that justifying the measure they had offered could be undertaken by providing a definition of that term. Clearly, such comments are not appropriate when a justification is being sought.

Candidates also found it challenging to offer KPIs for CSFs that were essentially non-financial in nature and many responses offered financial KPIs which were not justified in the context of the CSF they were discussing.

Almost all candidates ignored the second part of the requirement and examination team cannot comprehend why. The requirement made clear that the CEO wanted an assessment of the group of KPIs to measure strategic performance.

The relation of KPIs in measuring strategic performance is a topic which is examined almost every diet in APM and it is not possible that candidates could have been unaware of this topic area or that they found it too challenging.

It is essentially the fundamental skill that is being tested in the evaluation of any performance report and it is something that candidates should realise is one of the main learning outcomes of the APM examination – put simply,

are the measures that they have come up with appropriate and fitting for the company to help it achieve its overall aims?

Part (ii) for 10 marks asked for a target costing calculation to be undertaken with an explanation as to how the result would impact on negotiations with an outsourcing company.

Candidates appeared to be very well prepared for this topic and the calculations were generally accurate.

Most candidates scored about 8 and some of the analysis with regard to the effect on negotiations was insightful with candidates discussing specific elements of cost and how they were likely to relate to the two companies.

Part (iii) for 11 marks asked for an explanation of the four quality cost areas and an evaluation as to how responsibilities for them may be divided in an outsourcing contract.

Most candidates passed this part of the question.

Though this question was generally well done, however, there was a significant minority who did not understand what quality costs were and discussed costs in general. This is a fundamental lack of basic knowledge and such responses did not address any part of the question asked.

Most candidates, however, offered explanations of each of the cost terms though clarification that cost was the focus of these areas would have helped. For example, candidates might indicate that: “internal failure costs are products that fail before they reach the customer” when it is the costs that are associated with that failure (cost of scrap or cost of rework, for example) that is the explanation sought.

Some candidates also struggled to divide responsibilities accurately and did not refer to the specifics of the scenario to explain their response.

With regard to external failure costs, for example, most candidates assumed that it would be the company who subcontracted the production that would be wholly responsible for these costs. It is clear, however, that if such errors and costs related to errors made by the company that was subcontracted to manufacture the product, the replacement cost would lie with them, even if the reputational damage with regard to the end-customer lay with the company that subcontracted the manufacture.

Part (iv) for 9 marks asked for an assessment of the impact of the sources of information on the management of quality within the outsourcing contract.

Candidates found this part of the question very challenging and most candidates did not pass this part of the question.

Responses here were either brief or not relevant to scenario. Many candidates responded to slightly different question, which was much more focused towards qualities that information should have. Such responses did score some marks but did not address the main focus of question, which was around sources of information.

Few candidates highlighted that the subcontractor had to have certain quality metrics stipulated and they required faith in the systems of the subcontractor to be able to report these metrics both accurately and, if possible, in real time.

Candidates also often offered unjustified, commercially unaware suggestions such as the companies purchasing an Enterprise Resource Planning (ERP) system. Such systems are very expensive and the overall profit on the venture would not justify further expenditure of this nature.

Part (iv) for 9 Marks asked for an assessment of the impact of the sources of information on management of quality within outsourcing contract.

Candidates found this part of the question very challenging and most candidates did not pass this part of the question.

Responses here were either brief or not relevant to the scenario.

Many candidates responded to a slightly different question, which was much more focused towards qualities that information should have. Such responses did score some marks but did not address the main focus of the question,
which was around sources of information.

Few candidates highlighted that subcontractor had to have certain quality metrics stipulated and they required faith in the systems of the subcontractor to be able to report these metrics both accurately and, if possible, in real time.

Candidates also often offered unjustified, commercially unaware suggestions such as companies purchasing an Enterprise Resource Planning (ERP) system. Such systems are very expensive and the overall profit on the venture would not justify further expenditure of this nature.

This question required to assess how characteristics of a service business may create problems in the performance measurement and management of quality of service and resource utilisation and, to use the Fitzgerald and Moon building block model to evaluate whether a proposed reward scheme would encourage set standards to be achieved.

Part a) worth 10 marks tested candidates’ knowledge on the specifics of the applicability of intangibility, heterogeneity, perishability and simultaneity in relation to organisation which provided cosmetic procedures to customers.

Most candidates could offer definitions, with an example appropriate to the scenario, of the terms, though it was also clear that some candidates had not undertaken any revision in this area and were unclear as to any of the meanings of the characteristics.

Most candidates narrowly failed this part of the question.

Other candidates erred in assuming that a term such as heterogeneity related to the different types of cosmetic procedure the company undertook, rather than the fact that no two procedures are exactly the same.

Most candidates did not address the main demands of question with regard to discussing quality of service and resource utilisation. Instead of discussing the implications with regard to quality of how unlikely the procedures would be performed to exactly the same standard on different occasions, candidates who correctly defined heterogeneity tended to only indicate that this state existed and then moved on to defining the next characteristic.

There was also little discussion or analysis of resource utilisation, which would have been particularly appropriate to perishability when there is unpredictable demand.

Candidates tended to indicate that the organisation could not keep inventory but did not address the problems of having resources available when there is increased demand.

Candidates also repeated themselves in this question to significant extent, perhaps because they did not develop analysis to level required. Comments would end, in discussion of each of the characteristics, with observations on how it was very hard to have a consistent standard and how no two procedures were the same. Whereas such comments are certainly relevant, the repetition of them throughout the response should have acted as a prompt to candidates that further analysis was required.

Part b) worth 15 marks tested applicability of the rewards part of the Fitzgerald & Moon building block model.

Most candidates scored less than half marks on this part.

This question provided a very clear example as to why candidates must address the specifics of the question asked. The focus of the question was the reward system, not the dimensions and standards.

However, many candidates discussed the applicability of the dimensions and the standards, areas which it was very clear were not part of the requirement, as well as the rewards. Such answers were doubly disadvantaged as valuable time was wasted discussing areas that were not asked about and candidates were inevitably left with less time left to spend addressing the requirement of the question.

This is something that can be learned as exam technique, perhaps through looking at past examination questions with model solutions.

This approach tended to mean that most answers did not address the rewards in the depth that was required. For example, candidates might highlight that being rewarded on net profit was potentially unfair to the staff, as it contained factors outside of their control but candidates then ended not to evaluate what these factors were or point to the relevant areas detailed in the scenario.

Concerning, also, was that a significant minority of candidates were not aware of the three areas of controllability, motivation and clarity that the building block model highlights are necessary for the reward system to operate effectively.

Perhaps of more significance with regard to responses lacking the necessary depth, most candidates did not address the potential conflict between, and the effect on behaviour of, the three measures. In a desire to increase the number of customers seen per day), for example, there must be a significant risk of a fall in quality of the service provided and a resultant fall in profitability. The desire to increase net profit may also lead to staff to rush the procedure and affect the quality of the provision and reputation of the company.

These are the kind of key examples of conflict that the examination team hoped that candidates, using the building block model framework, would refer to and discuss but such a level of analysis was not very noticeable.

This question required candidates to evaluate whether a clothing retailer should change its budgeting system to an activity based one and then to complete some figure work for an activity based budget, offering an explanation for any variances.

Part (a) worth 13 marks required consideration of the advantages and disadvantages of both the current system (incremental) and activity based budgeting (ABB) before offering a justified conclusion as to what the company should do.

Candidates generally performed well in this part, if not in all parts of the evaluation.

Candidates would rarely undertake all of these requirements: some, for example, would focus exclusively on ABB and not refer in any detail or level of analysis to the current system whereas others might suggest disadvantages of the current system without explaining the advantages.

It was evident from the scenario that advantages must have existed as the company had been successful over the 18 years it had used the current budget method. Most frequent of all, however, was the lack of any conclusion or, alternatively, the suggestion of a conclusion – “the company should adopt ABB”, for example – without any justification offered.

This highlights an area where candidates should be more prepared. The use of the word “evaluate”, as has been highlighted in previous Examiner’s Reports for this examination, means that candidates should assess the strengths and weaknesses of the arguments that arise, in relation to the scenario that is detailed, before coming to a justified conclusion as to what the company should do. Seen in that light, this should have been a question where most candidates were scoring at least ten marks.

Both budgeting methods would have been well known to from Performance Management and the issues that arose from them were very clear from the scenario.

One other area where candidates did not score as well was in offering definitions of terms such as incremental budgeting and, in particular, on ABB without directing the comments that they made towards answering the question’s requirement.

It is always worthwhile offering a very brief definition of any technique or technical term to demonstrate comprehension but candidates should be aware that such comments are not worthy of many, if any, marks and that it is evaluation of those techniques with regard to the specifics of the scenario that the examining team wish to see.

Candidates also tended to bring in other techniques that were not relevant to requirement here and such practice is generally to be avoided as examining team has focused candidates’ attention on specific areas that they wish to examine.

In this part of the question, for example, candidates frequently commented on zero-based budgeting (ZBB) or rolling budgeting. An analysis of such techniques may have been relevant had the question requirement been more open – “evaluate whether the company should change its current budgeting system”, but the requirement in this case was to evaluate a prospective change from the current system to ABB.

In terms of examination technique, candidates should focus their responses on what they have specifically been asked to address and, in this case, discussion of any other budgeting technique is irrelevant and represents a waste of time which candidates could have deployed better elsewhere.

Part b) worth 12 marks

It was not well done with many candidates not undertaking it at all.

Those candidates that did undertake it tended to score most of the calculation marks.

Candidates who did not score well did not appear to realise that they had to work out how many manual workers were needed to be employed by the company. It was perhaps an inability to calculate this figure that confused some candidates as the rest of the calculations, as with the one above, were straightforward.

Most candidates gained comment marks for the insights they offered even if their initial calculations were incorrect.

Candidates also tended to err with regard to the heating and lighting costs in this part, not realising that the proposal for an increase in cost in an environment of zero inflation should not be accepted in an activity based budget. This was a key part of demonstrating the difference between the inefficiencies that the traditional system would allow to be carried forward from year to year and the new system which required justification for the figures used.