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PM Examiner’s report June 17 - Section C

Richard Clarke

Section C - Areas tested:

  1. Performance management

  2. Variance analysis

  3. Relevant costing

  4. Transfer pricing

  5. Budgeting

Performance management

This area of the syllabus requires candidates to be able to analyse a business’ performance from a variety of perspectives (including financial and non-financial factors), and explain the performance over a given timeframe or against budget or in comparison to a competitor.

  • Calculation marks

    Remember:

    1) Subtracting one number from another is not enough to earn a calculation mark. 

    For example, if the number of complaints received one year was 50 and the next year it was 60, it is not sufficient to simply say that there were 10 more complaints in the second year, this will not earn any calculation marks. 

    Candidates are expected to state the percentage increase in complaints in order to earn marks, which is this case would be a 20% increase ([(60-50)/50] x 100). 

    2) If there are only 4 marks available for calculations, there is no need to do 30 calculations as this number of calculations would never be expected in order to earn only 4 marks. 

    The marks given reflect the time that should be spent on this part of the question.

    Keep in mind: 1.8 mins per 1 mark. So if you have 4 marks, it should take you approx. 4 x 1.8 mins. = 7.2 mins.

  • Discussion marks

    It is never going to be sufficient to simply say, for example, that ‘the number of complaints rose by 20%, this is bad.’ 

    The calculations already show the movement, the commentary must give some further insight into this in order to earn marks. 

    A rise in the number of complaints is obviously bad, the question is, WHY has it HAPPENED and what is the IMPACT.

    This meant that it was very difficult for them to earn many marks as we then found that they were simply not answering the requirement and instead discussing performance far too generally.

  • Requirements

    The requirements of a performance management question will vary and, as always, candidates must read the requirements carefully.

    If a question asks for a discussion of the advantages or disadvantages of a particular measure, such as ROI or RI, an answer must reflect the requirements. 

    So, for example, if the question asks about RI only, then it is not appropriate to keep talking about ROI or vice versa.

  • Recommendations for Improvements

    When assessing an organisation’s performance, it is not necessary to make recommendations for improvements needed UNLESS THE QUESTION specifically asks for them. 

    Candidates end up wasting valuable time by answering a question that is not actually there and which cannot therefore earn marks. 

    Similarly, when discussing performance, candidates should note the fact that this means bringing in both positive and negative aspects of performance. 

    This will involve more than simply writing out large parts of the scenario as well. 

    Candidates should of course refer to the scenario but, when doing so, they must always add value to whatever they are writing about.

  • Headings

    In order to set out the expectations of the candidates clearly, questions will sometimes ask candidates to set out their answers using headings taken from the question. 

    The purpose of doing this is to help ensure that candidates actually answer the specific question being asked. 

    In this sitting, the majority of candidates did do this where asked, however, there were still a worrying number of people who totally ignored this instruction.

Variance analysis

Variances are a regular PM topic.

Mix and yield variances tend to be more popular than planning and operational variances and it was mix and yield variances that were examined this sitting.

Relevant costing

The relevant costing question was a ‘minimum price’ decision i.e. calculate the minimum cost for a contract and explain why all costs have been included or excluded.

  • Candidates were able to score some marks in this question by doing the basics well 

    i.e. identifying relevant and non-relevant costs and calculating the minimum cost.

  • However, the question was clear in its requirement to explain clearly why costs had been included or excluded in the relevant cost statement and it was here that candidates fell down.

  • The biggest reasons for marks being lost is because explanations were only given for the costs included and weren’t given for the costs EXCLUDED.

Budgeting

The budgeting question involved both the preparation of some budgets, in which inflation had to be taken into account and an expected value calculated, and a discussion of zero based budgeting.

  • The numerical parts of the question were performed quite well, although candidates did need to split costs out into two parts before inflating them and some of them struggled to do this.

  • It is important to note that questions of this type are not generic in nature; they are asking for the benefits FOR THE PARTICULAR ORGANSATION IN THE SCENARIO. 

    Candidates who ignore the precise nature of such requirements will struggle to score well on these types of questions.

Transfer pricing

  • It required some calculations of both transfer prices being suggested and an optimal transfer price.

  • Whilst candidates were able to calculate a very basic transfer price, as soon as they had to calculate something that involved calculating a manufacturing overhead, many of them were unable to do it.

  • This is definitely an area that needs to be worked on by F5 candidates in the future.