4 Apm L1

Advanced Performance Management
Lecture 1
By Ramia Kiran
Nutshell
Management Accounting
Now
• The provision of information to support strategic Only Internal
planning and decision making in organisations;
Information
• The provision of information that is external as
well as internal; Traditionally
• The use of non-financial as well as financial • Cost accounting;
information;
• Budgeting;
• The provision of information to support the
• Variance analysis.
competitive advantages of an organisation.
Internal +
External
Performance Management
Strategic Performance Performance Set
• Setting objectives. • an individual;
• Planning how to achieve the objectives. • a group of individuals;
• Setting targets and measuring performance • a division or department of an organisation; or
against the targets.
• an entire organisation.
• Managing and motivating staff.
• Changing business processes to eliminate
non value-added activities and to focus on
providing customers with what they want.
• Managing the risk that organisations face.
Strategic Planning and Control
Planning
Control
- Where & How • Monitoring &
When • taking action
Strategic Control
Ensuring Activities Conform Plans Control Set
• Focus attention on what matters in the long • Critical success factors are the limited areas
term. where things must "go right" if the
organisation is to flourish.
• Identify the drivers of success. Many
businesses identify critical success factors
and use key performance indicators (KPIs)
to measure their progress in meeting these.
• Include reward schemes that are based on
achieving the critical success factors.
Potential Difficulties
• Selecting appropriate measures that reflect the objectives of the

organisation;
• Reflecting objectives and performance measures throughout the
organisation at the operational level, not just the strategic level;
• Motivating managers and employees to work to achieve the objectives;
• Identifying what must be done when objectives are not achieved.
Strategic Performance
Management
Anthony's Model
What
H
o
w
Competitive
Advantage
Strategic Planning
Strategic Planning Activities Strategic Control Measures
• Deciding which products or markets to be • Profits by business segment.

in.
• External factors influencing the
• Investment decisions. organisation.
• Planning for environmental changes. • Present and potential market studies.
• Identifying the competitive advantage of the • Investment appraisal.
organisation.
• Longer-term timescale – could be years.
Tactical Planning
Tactical Planning Activities Tactical Control Measures
• Implementing the strategic decisions, often • Analysis of sales by

via a long-term plan. product/customer/geographical location.
• Preparation of annual budgets, and • Inventory levels.
comparison of actual results with budgets
on a monthly basis.
• Cash flow projections.
• Recruitment of staff.
• Shorter time period for planning – typically
one year ahead.
• Use of both internal and external
information.
Operational Planning
Ops Planning Activities Ops Control Measures
• Routine planning (e.g. staff rotas). • Variances (e.g. materials and labour).
• Programmed decisions (e.g. ordering • Receivables/payable levels.
inventory when inventory levels fall to re-
order levels).
• Payroll details.
• Based on internal, transaction-based

• Customer complaints.
information. • Output records.
Reasons for Conflict
• Managers' incentive schemes may not be aligned with the strategy of the
organisation. For example, managers' bonuses may depend on the current
year's profits that could be increased at the expense of longer-term
strategic objectives, such as quality.
• Local managers may have better knowledge of local opportunities than the
directors who set the strategy.
• Long-term plans are prepared long before the period to which they apply.
Actual conditions may be quite different.
• Local managers may feel that the formal strategic plan stifles their own
creativity or ideas – it may not be flexible enough to allow unplanned
opportunities to be adopted.

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Advanced Performance Management

• Selecting appropriate measures that reflect the objectives of the

• Deciding which products or markets to be • Profits by business segment.

Tactical Planning Activities Tactical Control Measures

• Implementing the strategic decisions, often • Analysis of sales by

• Based on internal, transaction-based

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