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The project covers both Subject Area 1 (Interpretation of Financial Statements) and Subject Area 2 (Performance Management). At each sitting, an attempt is made to ensure that marks are divided equally between the two subject areas. This was the case at this sitting.

It is invariably the case that, in terms of the proportion of successful candidates, overall performance in the project is better than the performance in the exam. It has been noticeable that the number of candidates achieving very high marks has been reducing in recent sittings. As there appears to be a small number of reasons for this, it seems appropriate to make some observations as to why this is the case.

These general comments will then be developed in the consideration of candidate performance in each of the questions.

Perhaps the most common reason for candidates not scoring highly is that answers are often descriptive, or contain little analysis. In some cases, even when the answer includes analysis, this has been left underdeveloped.

In the most extreme cases, some candidates present projects of less than 2,500 words. Given that the limit is 5,000 words, one is left to reflect how such candidates can realistically expect to obtain sufficient marks to achieve a pass. The limit of 5,000 words has been set to encourage candidates to carry out a reasonably in-depth analysis of the material. However, it would be incorrect to assume that a pass can only be obtained by using the maximum number of words. For example, on occasions, those candidates who are able to express themselves succinctly by discussing relevant issues in the correct context have obtained almost 60% for a submission of around 4,000 words. The key issues, as already noted, are context and development of comments. Therefore, candidates are reminded that it is essential that they should prepare a number of drafts of their work and critically review these to ensure that the context for comments is set out, and that observations are justified and explained.

It is also interesting to note that, in general, the performance in the elements of the project that relate to performance management is better than in the elements that relate to interpretation of financial statements. It seems that there are two reasons for this. The first is probably related to the fact that the DipFM is intended for practising managers who wish to develop their skills of financial awareness and financial literacy. By definition this will mean that candidates come to the qualification with some managerial competences. It is therefore natural that it will be more straightforward to apply these competences, than the newly acquired financial competences. The second is almost certainly linked to the issue of context, and a related misunderstanding as to what is expected in answers. An attempt to address this matter was an article in finance matters entitled ‘Ratios – a place for everything?’. The point to note is that when selecting ratios for use in an appraisal of performance, candidates should ensure that they have carefully thought about why the appraisal is being carried out, and how the needs of the party carrying out the appraisal can be met. In simple terms, if candidates constantly ask themselves ‘why?’ and ‘how?’, the quality of answers would improve.

The matter of the number of words must also be considered in another context. Marks are not awarded for effort, but for outcome. It is probably the case that, when the results are released, a number of candidates (both successful and unsuccessful) find themselves thinking ‘I put a lot of work into that. I spent hours going through the material, and I wrote 4,998 words. Why did I not get more marks?’

The reason is because it is too late to ask ‘why?’. This should have been done before the work was submitted. This might be best explained by noting how some candidates do not obtain the maximum advantage from their use of references and personal experience. Many candidates who provide such references (to writers or personal experience) do not take the next step of explaining why the reference is relevant. While such references can be valuable, no marks are awarded unless the reference is used to develop the point which is being made. If candidates were to ask themselves ‘why am I writing this?’ or ‘how does this develop the discussion?’ this weakness may be less apparent. 

A further general point is that there continues to be a surprising number of candidates who ignore the reporting format stated in the question. Question 1 required a report format to be used, and Question 2 required a presentation. Even more surprising is the fact that even though more work is required to present an answer in the form of a presentation, some answers were in the correct format for Question 2, but not for Question 1. Candidates who ignore the opportunity to pick up such easy marks can only be described as extremely careless.

Question 1

Parts (a) and (b) of this question required an analysis of the performance of the company. As information about a competitor had been provided, it was expected that this would be used to provide a benchmark. Most candidates attempted to make appropriate use of the competitor information to carry out a comparative analysis. Those candidates who developed their comments and provided some analysis scored well on these two parts. Such analysis tended to attempt to explain differences or similarities in performance or to suggest additional research which could be carried out.

However too many candidates provided what might be termed a general analysis of performance, and therefore scored low marks. It may be helpful to reiterate what is meant by ‘a general analysis’. Such answers tend to simply choose a number of ratios, calculate the results for these ratios, and note that performance is better (or worse) than the comparator. This is not the kind of analysis that is sought. Further development of the answer is required. This can be done by explaining why a particular ratio has been chosen. In particular, the explanation should clearly state the significance of the ratio in this case. An attempt to signal this was made in the wording of the question: candidates were specifically asked to choose ratios ‘which would be of most significance for your institution’. The need for development was further emphasised by the requirement to explain ‘why these (ratios) are significant for your assessment’.

The key point is that the assessment was to be carried out for a particular purpose.

Perhaps this can be illustrated by referring to the kind of comment offered with regard to return on capital employed. Many candidates choose this ratio, and explained their choice by noting that the ratio measured the company success in obtaining a return on the funds invested. This is absolutely correct, but could be copied from any textbook. Consequently, it did not attract any marks. What was required was a comment to explain why (in this case) a lender would be interested in this ratio.

In Part (b), the tendency to provide a general analysis led to comments that simply noted how the ratio had changed since the previous period or compared to the competitor. The need here is to explain:

          why the change may be important for the specific analysis being carried out

          what further information may be relevant

          what might explain the change.

The last of these points is probably the most difficult, as no specific information is likely to be available. For that reason, those candidates who can make realistic suggestions as to why the change may have occurred will score good marks. The greater the extent to which such suggestions are backed up by reference to the material provided, the higher the marks which will be obtained.

Part (c) required candidates to consider the impact of the accounting treatment of goodwill. Answering this question required specific technical knowledge. It is the need for such technical knowledge that led to
this issue being tested in the project rather than the exam. The fact that candidates have time to carry out research while developing project answers makes it disappointing that a number of answers were technically incorrect. It was also disappointing that a number of candidates discussed internally generated goodwill, even though the question specifically referred to purchased goodwill.

The question also emphasised the need to answer in the context of IFRS by clearly referring to impairment. This built on the reference to IFRS in the background material. It is therefore surprising that a number of answers discussed amortisation of goodwill and referred to UK GAAP. This can only be explained by a less than careful reading of the question and a failure to carry out research to obtain relevant technical knowledge.

Question 2

The requirements of this question tested candidates’ application of a number of aspects of performance management.

The progression from Part (a) to Part (e) was intended to provide a clear structure for candidates to follow. In many cases, the structure was used and very good marks were scored.

As before, the main reason why candidates did not score good marks was a lack of application. This is best illustrated by considering each part of the question in turn.

Part (a) involved a critical appraisal of the suitability of the chosen benchmark. The best answers were those which considered both the reasons why Compass was a suitable benchmark and the reasons why it may not be – and provided a logical conclusion to the discussion. Answers that merely discussed the nature of benchmarking and how it could be used in general terms did not score good marks.

The use of measures of shareholder value was tested in Part (b). Once again, good marks were obtained by those candidates who ensured that comments were related to the target company, as well as provided – and justified – a specific measure. Discussion of all the measures of shareholder value included in a textbook with no final recommendation did not gain many marks. To repeat a common theme in this report, the fact that some candidates did not ensure that their comments were specific and applied, or did not provide a final recommendation is more than a little surprising, as this was specifically and explicitly required by the wording of the question.

Exactly the same comment can be made with regard to Part (c) which covered supply chain management. General discussion of supply chain management, and reproduction of a diagram taken from a textbook did not gain many marks. Those candidates who discussed specific aspects of the supply chain and how these related to the business of Exfood were well rewarded.

The final two parts of the question required candidates to draw their preceding discussion together to present specific performance measures. This was set in the context of critical success factors (CSFs). An encouraging number of candidates scored very good marks. The key to obtaining good marks was to ensure that the performance measures were clearly linked to the objectives of Exfood, and that the specific means of measuring the CSF was provided. An example of this is ‘customer satisfaction’. It goes without saying that for any customer focused organisation, this is an important measure. What is almost as obvious but often overlooked, is that it is notoriously difficult to measure. Those answers that considered aspects of customer satisfaction in the context of Exfood, and then proposed logical – and specific – means of measuring such aspects, obtained good marks. Conversely, those candidates who did not move from the general and omitted to provide specific measures did not.

A further point to note is that in any organisation, CSFs are not measured by a large number of measures. The whole point about CSFs is that they are very tightly focused. Therefore some candidates weakened their answers by providing a
long list of measures.

Summary

To summarise, candidates can improve their marks by:

          Reading the question carefully and noting the requirement to set answers in
context.

          Fully explaining the significance of all measures of performance in the context of the specific company.

          Constantly asking themselves ‘how?’ and ‘why?’ For example:

–        How does this measure help in assessing performance?

–        Why am I using it?

–        How can the results be interpreted?

–        Why has the measure changed?

–        Why is the measure different between the two companies?

–        How might changes in the company’s activities or practices have affected the measure?