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Incorporating subject areas:
- Interpretation of Financial Statements
- Performance Management.

It is good to be able to record that overall candidate performance improved at this sitting, with a greater proportion of candidates passing. However, there were a number of trends which raise concern. For example, the number of candidates who were awarded very high marks was lower than in previous sittings, while the number of candidates who were awarded very low marks increased.
Therefore, it may be useful to set out some clear guidance at the outset of this report for candidates preparing for future sittings.
Perhaps the first point is to emphasise that when the project (and indeed, the exam) is drafted, an effort is made to ensure that the questions are fair, that the requirements will be clearly understood by candidates, and that it is possible to produce an answer that will be awarded full marks. In addition, the mark allocation is intended to provide guidance on how much of the project should address each part of the question(s).
In previous reports, I have commented on the fact that in discussing performance management, some candidates seem to view the balanced scorecard as the only means of measuring performance, or that they describe the use of this technique in detail without proper use of the material provided in the scenario. This tendency, which arises due to candidates having a pre-conceived idea of what to expect from the questions, was again evident this time, but in a different form. This is discussed below.
The reason for setting an assessment such as the project is to provide candidates with an opportunity to demonstrate their ability to select and interpret information, to analyse information, to make recommendations, and to communicate. The key issue here is that marks are awarded for the development of a candidate’s answer, not for stating a fact – as this can easily be taken from study material. Candidates must recognise that as the DipFM is intended to equip managers with financial skills. It is essential that they explain why an issue is important, what it means in the context of the scenario, and how it will affect the particular organisation.
Those candidates who recognised the importance of the points discussed above were successful, while those who ignored these points were not successful.
How these points apply to each subpart of the question is considered below.

Part (a)
This required candidates to consider how each of the options available to the company would relate to its mission and strategy. The question did not specifically include the word ‘future’, but clearly it had a future orientation. An obvious starting point for discussion on this matter would have been the ‘Cleenup Credo’. The reason that organisations have a mission statement – or a credo – is to provide a cohesive mission and strategy and to ensure that actions are suitably focused.
Those candidates who recognised this, and discussed the impact of each option on future mission and strategy scored good marks, and in some cases, full marks.
However, a number of candidates chose to answer a different question. In the main, this tended to lead to answers which assessed the likely success of each option. In some cases, such answers tended to have a historic focus and included a SWOT analysis.
It is difficult to be certain as to what leads to such answers, but very often the reason is that candidates approach the question with a preconceived idea of what will be asked, or they see certain words in the requirement which act as ‘triggers’ for their thoughts and therefore their answers. For such candidates, the advice can only be to read the question carefully.

Part (b)
This part of the question moved from strategy and mission and focused on one specific option. It was divided into a number of
subparts. Once again, the requirements had a future orientation. This was signalled by the wording. In both subparts (i) and (ii) this included the phrase ‘which could be used’. Once again, those candidates who recognised this and presented answers which considered how future performance could be assessed, obtained good marks. In the case of those candidates who explained why their selected measures were relevant, full marks were able to be awarded.
It should be noted that the second part of the requirement specifically asked for an explanation of the relevance of the measures chosen. As discussed in the introduction above, a key managerial skill is the ability to explain why an issue is important. Candidates should be aware that such explanations are an integral part of the project, and that the 5,000 word limit is intended specifically to allow answers to be developed in this way.
However, once again, a disappointing number of candidates presented answers which either focused on historical performance. In the main, this took the form of a ‘traditional’ ratio analysis. What was surprising was that in some cases, this analysis included an attempt to calculate the price earnings ratio. As the scenario specifically noted the shareholders’ intention that the company would remain a private company, this was clearly misguided.
Again, it is difficult to assess the motivation for this approach. One possible reason is that answers may be drafted while using study resources with little or no discrimination. This leads to a list of ratios being taken from the material with no consideration of its relevance in the context of the question.
Some candidates moved even further away from explanation by providing a description of how each ratio should be calculated. This is obviously descriptive and therefore cannot be awarded marks. Such information can be taken directly from study material. In the project, the assumption is that a candidate can calculate the ratios correctly – or will at least consult relevant material in order to do so.

Part (c)
In the third part, most candidates recognised that the treatment of research and development (R&D) expenditure was an accounting policy issue. This is precisely an example of the skill of selecting information discussed above. Sadly, some candidates did not carry this discernment through and seemed to ask ‘what can I write about R&D?’. This led to a description of the criteria that must be fulfilled for R&D expenditure to be capitalised. However the question asked for the effect on the measures of performance already identified.
Again, this is a clear example of the need to read the question carefully. 

Part (d)
This required a consideration of possible funding methods and their impact on the measures already selected. It was expected that the form of the question would provide a structure within which candidates could construct their answers. Where this opportunity was taken, the result was that good marks were obtained. There were some extremely good answers to this part of the question, and some candidates obtained full marks.
However, there were also a number of candidates who did not take the opportunity. The most common reason that marks were not awarded was that some answers discussed the advantages and disadvantages of equity funding and borrowing in generic terms. From what has been said already in this report, it should be apparent that this is unsatisfactory. What was needed was an explanation of how the specific company would be affected. There was also the opportunity to break the overall mark allocation down to ensure that marks were obtained, as the question also asked how the measures already identified would be affected by each method of funding. This presented an opportunity to discuss how six measures would be affected by two methods of funding. It had therefore been expected that the biggest challenge for candidates would be to avoid breaching the word limit. This tested the managerial skills of selection, explanation, and communication. A number of candidates responded to this challenge in a professional and effective manner.
However, it was in this part of the question that the tendency to ignore the mark allocation was most obvious. As the maximum word count for the project is 5,000, this part of the question should require around 1,000 words (20% of 5,000), but some candidates presented less than 200 words. It is difficult to understand how these candidates could realistically have expected to obtain marks for an answer which is so clearly lacking in development.

Part (e)
Candidates were required to consider how the current organisational structure would be suitable for the new activity. This continued the future orientation of the overall project. This is also an example of a question to which there is no one ‘correct’ answer. Rather the question was intended to provide an opportunity for candidates to demonstrate their managerial skills by presenting an argument – and justifying their chosen position.
There were some excellent answers to this part of the question. Such answers made a clear link between structure, mission and strategy, although not all proposed the same structure – emphasising the point above about the importance of the construction of the answer.

Part (f)
The final part of the question required a consideration of non-financial performance measures. Once again, it called for the measures selected to be justified. It is not surprising that those candidates who read the question carefully took that opportunity and, in some cases, obtained full marks. However, there were also some candidates who appeared to have read only the first part of the question. Such candidates simply identified non-financial measures, but provided little or no justification. As a consequence an opportunity to pick up a good number of marks was missed. It is therefore appropriate to remind future candidates to read the question carefully.    
It is hoped that the comments in this report will assist candidates in future projects to maximise their marks. These comments should be considered alongside the recent examiner’s approach article in finance matters.