Relevant to candidates sitting P5 from September 2016
An outline of the aim of P5, its structure and how the syllabus is tested
This article begins by considering the syllabus and overall aims of the exam, how it relates to previous exams and the format of the exam. It will then summarise advice about my approach to the exam using suitable example questions from recent exams to illustrate points.
There are five capabilities and most will feature to some extent in every diet:
In addition to these capabilities candidates are expected to show the ability to gather new knowledge from the general technical press and so the articles in Student Accountant will be sources of topics for exam. These articles will also be the principal route by which the students will have new techniques and trends communicated outside of the slower cycle of revisions to the syllabus. Candidates should note that unlike in the compliance topics such as financial reporting and tax, changes are not regularly made to the syllabus areas so that older articles may well be as relevant to the upcoming exam as the most recent ones. Any additional reading beyond the ACCA-approved texts and Student Accountant articles should be viewed as advisory and not required. However, candidates are advised to broaden their general business knowledge by the regular reading of good quality business newspapers and magazines. This will provide additional background and examples of the techniques and issues of performance management.
The syllabus comes with a Study Guide of more detailed guidance about the specific topics to be examined. The syllabus has undergone a recent review and the changes have been attempts to make explicit certain tools and techniques that are applicable at P5. Therefore, most past exam questions will be relevant to the current exam.
Performance management systems are the systems in an organisation by which the performance of an organisation is measured, controlled and improved. The thrust of the exam will move towards the strategic level of considering different performance measurement techniques and management systems. P5 builds on knowledge gained at other levels, for example, P3, Business Analysis and especially from F5, Performance Management. F5 tests the candidate’s ability in application and analysis of core management accounting techniques.
P5 develops key aspects introduced at the F5 level with a greater focus on the synthesis and evaluation of the key topics and techniques. It will also introduce more specialised techniques and current issues in performance management. Therefore, candidates should not expect to be retested in an F5 style on topics but need to be aware that all of F5 knowledge is assumed to be known and will now be used in a more critical capacity.
The exam is a three-hour 15-minute test. There are two sections in the exam:
Section A (a single compulsory question)
There is only one question in Section A worth 50 marks. The purpose of this is to allow a detailed scenario to be given so that candidates can have the information and time to develop deeper answers to the question requirements. The Section A question ranges across various parts of the syllabus.
Section B (a choice of two from three questions)
Section B consists of three 25-mark questions from which two must be chosen. The Section B questions focus on specific issues in the P5 syllabus (though not necessarily exclusively on only one topic).
Professional marks are a regular feature of the Section A questions (four marks in every exam) and it should be possible for a well-prepared student to score most of these easily. Efficient preparation involves the identification of appropriate formats and structures to use in answering questions and practising writing answers in order to improve clarity.
The best approach to the exam can be summarised as:
Remember that, broadly, the exam tests the capabilities that are required of a candidate (listed above). The exam aims to address issues at both the strategic and operational levels and often requires a candidate to understand the connections between these levels. For example, the question of how strategic objectives flow through critical success factors to performance indicators as in Question 1 of the December 2010 exam or applying the performance pyramid in order to suggest additional KPIs (strategic level) and a set of operational performance measures as in Question 2 of December 2011 exam.
Another example of the type of question that arises is how does the choice of operational performance measures impact on the strategic performance of the organisation? A phrase that rings true in many situations is Drucker’s dictum ‘What gets measured gets done’. This phrase succinctly points to the impact that the choice of performance metrics have on the management activity of the firm, for an example, see Question 1 of June 2012 exam.
Now these points should illustrate why it is a misapprehension that the exam is predominantly about performance measurement, it is a performance management exam. This error often manifests in a candidate’s over-concentration on detailed elements of Section D (strategic performance measurement) of the syllabus. As indicated above, it is important to remember that the ideas contained in the various metrics need to be coherently applied to meet the strategic needs of an organisation and this is where other sections of the syllabus will connect to a question – for example, the choice of performance measures needs to fit with the planning and control structures (Section A) or whether chosen measures relate to external drivers of performance (Section B).
Finally, in thinking about syllabus issues remember that P5 builds on F5 knowledge applying it in more complex scenarios so you should ensure that this F5 knowledge is available in the exam.
The paper tests a candidate’s ability to assess different approaches to performance management from a variety of perspectives. This will entail the candidate knowing what the approaches are and more importantly being able to compare one with another in the context of a scenario – for example, profit and value approaches, financial and non-financial perspectives, short-term and long-term issues.
A good candidate will be able to tailor the approaches suitable to the organisation described in the scenario and justify this advice using the evidence given in the scenario.
The scenario describes the organisation, its objectives and its business environment. A good candidate will show how they have taken in this information and then applied it to the performance management of that organisation. For example, when assessing different performance management approaches, a useful question to ask is ‘Does this meet the objectives/needs of the organisation?’ so obviously, the candidate must have identified these from the scenario.
Candidates must make sure that they can:
Lists of rote-learned advantages and disadvantages for different approaches will not produce a complete answer as a candidate will be expected to tailor this knowledge to the situation given in the question. Also, simply writing the appropriate jargon words or phrases associated with a model or method will not score heavily. It is essential that candidates demonstrate that they know how to apply these appropriately to the scenario. So for example, Question 1 of December 2014 asked for an evaluation of a benchmarking approach within an engineering company. A good answer considered the advantages and disadvantages of the benchmarking approach for that organisation and also considered alternative approaches which could have been taken.
The question requirement usually gets a great deal of attention from the examiner who first writes it and the team of reviewers who perform more than five layers of review before the exam is finalised. My approach to this point is that candidates should be given credit where their answer is technically correct and relevant to the question asked. There has been a tendency by candidates to write good answers to questions that they wish had been asked by the examiner rather than the one actually set in the exam. This approach scores little if no credit. There is a longer article entitled ‘Reading the Question Requirements of P5’ (see ‘Related links’) that illustrates the common misinterpretations seen in previous sessions. In addition, there is a two-part article entitled ‘Improving Your P5 Answers’ that is very useful reading (see ‘Related links’).
As the business environment has been profoundly affected by the increased use of technology, there is less need at a strategic level to manually perform calculations. This is already tested heavily in earlier exams; therefore, there has been a reduction in the volume of computational work required for this exam compared to the lower levels. Occasionally, longer computations may appear but these will be used as a way of allowing the student to absorb the data in a question and become comfortable with the scenario. Large repetitious calculations are avoided but it should be noted that some repetition is inevitable as, for example, a trend can only be identified with at least two or more realistically three data points.
However, computational work has not totally disappeared from P5 but features more in the interpretation and further analysis of data provided in the question. Candidates have to demonstrate the ability to add value to their advice by taking information already produced and identifying the important features. At the Professional level, comments should be helpfully quantified where possible and the commercial implications discussed. Candidates should be constantly on the lookout for ways to make their numbers more understandable, for example, by comparing them to increased activity of the business or to competitor performance.
A valuable management accountant will create information from the detailed data given in a question. It is often best to begin by considering the ‘big picture’ (what is the overall objective); next, break down the data into smaller but meaningful (and manageable) chunks; finally, discuss the individual lines of the data table and even then, a candidate should focus on the data that explains the overall picture of changes.
A good example of this was Question 4 Part (b) of the December 2010 exam.
It is important to realise that, at the P5 level, it is not enough to throw down all the ratios and measures that can be imagined. In doing this, the candidate is probably going to overload the report reader with unnecessary data. It is essential that candidates try to be selective in their choice of what to calculate. This is an important testing area in the exam as it shows that the candidate has appreciated the strategic goals or key drivers of performance and can focus on them. (Further examples of applying this skill are in Question 2 of December 2011 and Questions 2 and 4 of June 2012.)
Note specifically that in handling data heavy questions, the level required for P5 is for answers to go beyond repeating, in sentence form, the data given in (say) a table in that question. In Question 4 of December 2010 for example, many candidates wasted their time by limiting their comments to only writing out statements such as ‘Commercial Fleet Diesel use has fallen from 105.4 to 70.1’ or even ‘Commercial Fleet Diesel use has gone down’. First, this is stating the obvious to anyone who read the table but also importantly, this was far too detailed for most reporting purposes in this scenario.
Candidates will be expected to analyse not merely calculate numerical data given from a scenario.
A candidate would be advised to ask him/herself if the answer they have produced would help the organisation to answer the question requirement.
Remember, try to add value with your answers by way of comments relevant to the issue at hand.
Written by a member of the P5 examining team