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DA2 - EXAMINER’S REPORT – June 2008

General Paper Comments
The purpose of the project is to test candidates’ ability to complete a major piece of work within a defined structure. To succeed in the project it is necessary to display some of the same skills that are required in the exam, but there is also the opportunity to display additional skills. Perhaps the main point is that the extended content and time period for completion of the project provides an opportunity for candidates to carry out greater analysis that is possible in a 20 mark exam question.

Those candidates who accepted this opportunity produced answers which were awarded marks significantly above the pass mark. Indeed a few candidates scored very high marks, and it would be a positive sign if the number of candidates in this category was to increase at future sittings. 

On the other hand, it was difficult to justify high marks for those candidates who regarded the project as merely being an extended exam question. Consequently, such candidates found it difficult to achieve a comfortable pass – and in some cases were unable to achieve the pass mark.

It is important to recognise that the project tests the candidate’s ability to do more than state the obvious or provide the generic technical material that can be found in textbooks. To obtain good marks it is essential that candidates use the data provided as the basis for analysis. The comments below on the each part of the question are an attempt to explain in more detail how some candidates succeeded in doing this, and what others needed to do.

Question Report

The overall scenario required an appraisal of a business seeking funds and management input for a planned expansion. The form and wording of the question was intended to assist candidates in developing their answers.

Part (a) Executive Summary
In both the exam and the project, questions over successive sittings have required a number of different formats. A formal report is perhaps the most frequently used format in business. At this sitting it was decided to allocate marks to a specific aspect of report writing – the executive summary. This aspect was the subject of a recent article in Finance Matters and those candidates, who made use of the advice given in that article, were able to obtain credit for this. Essentially, the executive summary should allow the reader to ascertain whether or not he or she needs to read the full detail of the report. This means that the summary must provide an overview of the content and findings of the analysis contained in the report.

Unfortunately a number of candidates did not follow the advice in the article, and merely provided a summary of the material in the scenario. This meant that it was not possible to award marks, as the answer was not the executive summary which had been requested.

Part (b) Assessment of Performance
This part of the question was placed in a quite specific context. The assessment was to be undertaken from the perspective of the potential venture capital partner, and it was to be based on the information provided in the case. There were two important issues in the question.

Firstly, In order to carry out any assessment of organisational performance, it is essential that consideration is given to the needs of the assessor. It is a basic point that financial statements are ‘general purpose’ documents. This means that they provide information that is intended for a range of users – each of whom have different needs. Certain performance measures which may be appropriate for one user may not be appropriate for another. The implications of this statement are that, in order to be awarded a high proportion of the available marks, a candidate’s analysis must demonstrate an awareness of the context for the assessment.

Over successive sittings, the questions have been worded differently, but the core objective has consistently been to encourage candidates to apply informed choices when selecting measures. Previous projects have included guidance on the number of measures which should be used. Usually the number of measures to be used has been deliberately low, so that candidates are discouraged from simply referring to a textbook and using all the measures included therein. In this sitting, the question was less directive, but the need to carry out the analysis from a particular perspective was a clear indicator that working through a list from a textbook was not a valid approach.

Secondly, the information provided in the case. This aspect was intended to guide candidates, not only in this part of the question, but also in part (d) which related to additional information. It is perhaps worth stating that, although it is expected that candidates will display good academic practice in their answers (for example by providing appropriate references, and therefore avoiding plagiarism) the project is not intended to require candidates to carry out extensive additional research. Perhaps one way of stating this is to say that, while those candidates who display ‘commercial awareness’ are likely to obtain better marks than those who do not, it is not necessary to become an expert in a particular industry in order to produce an answer which will obtain very high marks.

Therefore, those candidates were able to discriminate between measures which were relevant to the venture capital and those which were less relevant, and did so using the information provided in the scenario, were able to score very good marks. However, those candidates who – by all appearances – produced their report with an open textbook beside them fared less well.

In the same vein, comments which simply described the measures and or the results obtained few marks, but candidates who considered why a particular result was obtained (for example how performance was affected by the supermarket contract) were well rewarded.

Part (c)  Significance of measures
It was in this part that candidates were required to demonstrate the clear reasons for their choice of measures. In many ways, this was a logical extension of part (b). Therefore, it was no surprise that candidates who had taken care and thought through their choices in part (b) were able to score maximum marks. Indeed, even candidates who had not demonstrated a high degree of discrimination in part (b) were able to obtain good marks, as the question effectively forced them to carry through the thought process which should already have informed their answer to part (b).

Unfortunately, some candidates continued to adopt the ‘textbook-based’ approach and merely provided a general description of each of the measures that had been included in part (b). In the main, such descriptions focused on how the measure was calculated, accompanied by a superficial comment.

Surprisingly, some candidates omitted this part of the question altogether. Based on the preceding material in such answers, it can only be assumed that these candidates had given no thought at all to which measures should be included – and which should be left out.    

Part (d) Additional information
The keywords in this requirement were ‘explains the significance of’. Once again the objective of the question was to allow candidates to demonstrate critical thinking. Those candidates who linked this answer to their analysis in earlier parts were able to obtain a high proportion of the available marks. One particular example of this was the contract with the supermarket. The case referred to this explicitly, and many candidates discussed this in part (b) as a key influence on profitability. It follows therefore, that any potential partner would have a keen interest in the details of this contract. Applying this logical flow to the analysis, and explaining precisely how and why each item of information would assist in arriving at a final decision was the most obvious way to obtain marks, and a good number of candidates chose this approach.

Those candidates who did not obtain many marks tended to follow the pattern of the earlier parts of the answer and offered general comments which had no specific application to the scenario. In some cases, the reader got a distinct feeling that what had been presented was an indiscriminate list copied from a textbook. One particular example of this was the few scripts which referred to the need for a full set of financial statements - and then proceeded to describe each element of the financial statements (for example income statement, statement of changes in equity, notes). Some other answers identified the need to review the company’s business plan. This was a perfectly valid comment, but in a number of cases, this was not supported by any explanation as to why this should be reviewed, or any attempt to explain the specific information which would be reviewed.

In some cases, the indiscriminate use of study material was confirmed when the answer included the P/E ratio as additional information – even though the scenario had confirmed that the company was not a listed company.    

Some candidates identified the audit report as relevant additional material, ignoring the fact that the scenario noted that an unqualified opinion had been issued. This is a clear case of a candidate not making full use of the scenario – presumably due to not carefully reading it.

Part (e) Nature of investment
It was in this part of the question that a greater proportion of the marks were obtained by most candidates. This is perhaps because the wording of the requirement allowed for general comments. However, those candidates who made an attempt to ensure that their comments were specifically related to the scenario obtained full marks.

Part (f)  Objectives and mission statement
In this part it was once again necessary to ensure that comments were related to the scenario, as the objectives and mission statement suggested by candidates could not be generic. Once again, like part (e), this part was generally well answered.

The most frequent problem for some candidates was that rather than attempting to focus on a small number of key strategic objectives, they chose to provide a long list of targets – many of which were tactical or operational. While it was possible to award some marks to such answers, the difficulty was that the mark allocation meant that too much material had been provided. This had the impact of using a disproportionate share of the word count, and limited the opportunity to obtain marks in other parts – most obviously in part (g).

Those candidates who recognised that the significance of this part was to set the context for their answer to part (g) scored good marks on both of these parts of the question.

Part (g) Key results
Although this did not specifically request non financial performance measures, a little thought about the module content would have led to the conclusion that answers to this part of the question which focussed on such measures were likely to be more comprehensive than answers which reiterated financial measures – especially as these had already been considered in earlier parts.

Equally, as this requirement followed on from a consideration of key objectives, a logical approach was to consider relevant measure for tracking progress on the objectives.

When this approach was adopted, the result was that the candidate was awarded good marks.

Although the balanced scorecard could provide a useful structure by developing key performance measures across a range of perspectives, the question did not require the use of this specific methodology. Therefore, candidates who used the balanced scorecard in this way performed well. However the tendency of some candidates to present answers without sufficient thought was evident in those answers which offered considerable (and effectively irrelevant) discussion of the methodology.

As before, the need to justify suggestions was important in providing a well developed answer, as was the need to be specific about how performance would actually be measured. These requirements have been a consistent part of the project requirements for any sittings and will continue to be so.

Part (h) Motivation of workforce
Although it was possible to obtain reasonably good marks in this part of the question through an answer which examined motivation as a general issue, it would have been difficult to obtain maximum marks through such an approach. Those candidates whose suggestions were linked back to the scenario – by commenting on why the suggestion was appropriate in this case – did obtain full marks.

Part (i)  Key influences
This part was answered quite well by many candidates, perhaps because it was clear that relevant comments must reflect the specific context provided by the scenario. One useful structure for answers was to apply a PEST analysis. Where this was done, with constant references to the material provided in the scenario, answers tended to be excellent. However those candidates, who chose to describe the PEST technique – or to provide a list of influences taken from a textbook, could not be awarded many marks.