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OBU RAP Topic 1: Analyse and evaluate the impact on the business and financial performance of an organization of an aspect of the organization’s performance management system

   

Overview

The performance management system is a very structured way to measure the performance of the company’s employees. It has many processes that are specifically used to identify, evaluate, improve, and reward the performance of employees working in the company. Performance management systems aim to benefit the company in many ways. First, it identifies and defines company goals to achieve objectives. Then it sets the right expectations for managers and employees. PMS makes sure that effective communication is taking place between individuals. Performance standards are set, and individual training and performance plans are determined. There are many distinct aspects of performance management systems.
The primary areas that can be studied under performance management in this topic are

  • Budgetary control
  • Costing techniques
  • Environmental performance management

Budgetary control includes the controlling of costs by devising different budgets that are then circulated in relevant departments and responsibilities are established. The budget is then compared with the actual costs and actions are taken to achieve maximum profits. The students should evaluate the impact of this budgetary control. How does this impact the business and financial performance of the organization? All the positive and possible negative impacts should be reported.

Costing techniques vary from industry to industry. It depends on the method to measure output and finished products. There are many types of costs such as fixed costs, variable costs, and direct and indirect costs. Many different costing techniques reflect differently on the financial and business performance of an organization. The main aim of using costing techniques is to increase the company’s profit margins. Many techniques such as job costing, batch costing and process costing can be used.

An environmental management system is used by organizations to reduce the impact on the environment and increase the operational efficiency of a company. It involves four major steps: plan, do check, and act. The basic functions of good environmental management are goal setting; information management; support of decision making; organizing and planning of environmental management; environmental management programs; piloting; implementation and control; communication; internal and external auditing, etc. Students need to study all the areas and their impact on the operational efficiency and financial performance of the company. The main objective of this topic is to create a link between the performance management system and the performance of the company.

Key features/requirements

There are many requirements for this topic but the main things that are required by the OBU thesis are as follows:

  • Identify the aspects of the performance management system in a company
  • Study performance management system aspects to get a clear understanding
  • Identify the financial and operational aspects of the selected study company
  • Study the impact of the areas of the performance management system on the financial performance of the company
  • Study the impact of the areas of performance management on the business performance of the company
  • Overall analysis and evaluation of the pre and post changes in the performance of the company
  • Access to internally generated information is necessary.

Key success factors

While there are many factors that need to be considered before starting your project, you should go through the following crucial points to enable a high-quality RAP:

  • Selecting a suitable company to study the performance management system in detail
  • Identification of different areas of the performance management system
  • Studying areas like budgetary control, costing techniques, and environmental performance management
  • Identification of different financial and business aspects of the company
  • Studying the impact of PMS on the performance of the company
  • Collection of primary data to ensure a good evaluation
  • Access to internally generated information
  • In-depth knowledge of the performance management system that has made an impact on the functionality of the company
  • In-depth knowledge of the operations of the company that are under the influence of the management system
  • Analytical assessment of the impact of the PMS on the different operations of the company
  • Adequate application of the selected goals and objectives that were set at the beginning of the RAP in the proper sections of RAP
  • The implementation of the correct research methodology to get good results on all the selected goals and objectives that were put in place at the beginning of the RAP
  • Keeping the discussion logical by keeping all the objectives in mind
  • Using reliable and appropriate sources for data gathering
  • Collection of primary data to ensure a good evaluation
  • Access to internally generated information
  • Properly referencing the information gathered according to the Harvard referencing style as told by the OBU.

Accounting and business models for topic 1

The following models can be used to effectively evaluate the impact and analyse the performance of the company

  1. Types of budget/variance control: Business budget is the expenditure plan for the business and how much the company needs to spend and save to remain profitable. It also helps in the prediction of revenue. There are many diverse types of budgets that are used by companies. Students need to identify the type of budget the company under their consideration is using. Types of budgets can be Master budget, Cash budget, Operating budget, financial budget, labour budget, etc.
  2. Types of costing: students will identify the costing techniques being used by the company under consideration. There are many costing techniques such as:
    Lifecycle costing: It is the method of adding up all the costs of an asset from the start of its life till the end. It does not include the residual value of the asset. It gives an estimated cost of all the expenses an asset incurs in its lifetime.
    TAC Vs MC: Total absorption costing, and Marginal costing are two different methods of dealing with fixed production overheads and they make the decision if these costs should be added to the value of inventory or not. Marginal costing includes all the variable costs in the costs of units and ignores all the fixed costs. Whereas Absorption costing involves all the costs of the product by means of several overhead absorption rates.
    Accounting for overheads: overhead cost accounting refers to all the costs that cannot be attributed to a sole product or unit. It includes all the indirect material, labour, and factory overheads that are associated with the overall running of business activities.
  3. Relevant KPIs can also be used to better analyse this topic. KPIs are the key targets you should track to make the most impact on your financial and business performance. KPIs support your plans and help your teams focus on what’s important. Examples of key performance indicators related to topic 1 would be ‘sales growth rate’, ‘revenue concentration’, net profit margin, account receivables turnover, and many more. There are many other KPIs that can be considered to judge financial and operational performance.
  4. ROI: Return on investment (ROI) is calculated by dividing the profit earned from an investment by the cost of that investment. For example, an investment with a profit of $10 and a cost of $10 would have an ROI of 1, or 100% when expressed as a percentage.
  5. Residual income: It is the additional income that the business keeps receiving even after the work related to the initial income is done. For example, the interest or the income from dividends. It is a particularly important measure as it allows companies to take loans on better terms.
  6. Environmental performance: To study the environmental performance of the company and what impact it has on the key financial and business areas; students should study the compliance reports of the company with the rules set either by GRI (Global reporting initiatives). Environmental performance can also be gauged by calculating SROI (Social Return on investments) which is a method of calculating values that are not usually shown in financial statements. It shows the social and environmental value of the company which cannot be shown in conventional financial accounts.
  7. Integrated reporting capitals: Many companies are concerned about creating sustainable development these days. Apart from economic values, social values are also being considered. To meet this requirement, the International Integrated Reporting Commission (IIRC) has devised a capital framework. There are six capitals that ensure the delivery of both quality and quantity. These six capitals include Manufactured, natural, social and relationship, Human, Intellectual and financial capital. For the company to create value over time, all six capitals should be delivered in harmony.
    The selection of relevant models is critical to the success of the RAP.

Major benefits of choosing Topic 1

Every topic given by OBU has its own value for the academic and professional growth of the students, but Topic 1 is unique and provides the following benefits if chosen:

  • Students will gain an understanding of performance management systems (PMS)
  • Students will learn about the costing methods, budgetary control systems etc.
  • In-depth knowledge of Environmental management systems will be gained
  • A detailed study regarding the business and financial performance of the company will equip the students for their careers
  • Students will excel in their careers if they can study the impacts of different strategies in different situations
  • This will further sharpen the analytical skills that are needed by an accountant
  • The assessment and evaluation of this topic will help the students to gain business acumen

General limitations

Limitations faced by students while researching topic 1. Students will come across many hurdles during the research for their project

Research method: Students need to have a clear understanding of the research methods. The research methods are not relevant or reliable as students are not trained in different methodologies. Simply replicating the knowledge available online or from various sources is not wise. There is a lack of basic knowledge regarding the correct methods of research.

Overlapping information: overlapping information is often obtained because of excessive research through various sources. Each source has its own story to tell. Students often get confused regarding the facts and statements. Students may not be able to get authorization to talk to the higher management and some information may not be provided due to confidentiality issues.

Interaction between the subject company and student: There isn’t any proper interaction between the subject company and the student. This means that a substantial amount of data going into the thesis goes untapped. The key issues of the company can only be highlighted with the help of internal company management.

Time constraints: it is without a doubt that students need to complete their RAP before the deadline hits. Sometimes, the time limit can affect the quality of RAP very negatively. Students need to acknowledge this from the very start and set a schedule to be consistent with their research.

Data collection process: The diverse ways of collecting data present a strong limitation. If a student conducts an interview person to person or if he does it over the phone, both can have different effects on the interview. Hence, this data limitation must be reflected upon

Specific limitations

  • No access to budgets: Students may not be able to get the budget that is being used by the company due to confidentiality matters.
  • No access to variance reports: Access to variance reports may be restricted for students.
  • Permission letter: The permission letter from the management that is necessary to be taken before starting your research may not be given

Suitable organization for topic 1

Students need to select an organization that has a detailed PMS plan in action. A company should be established enough so that a three-year study can be carried out. Students should always choose such a company whose operations are easily understood, and reliable information can be gathered.
The following factors should be kept in mind when choosing a company for RAP:

  • The general interest of the students in the company
  • The amount of information available for the company
  • Access to reliable secondary sources of information
  • Ability to generate primary data through interviews or surveys
  • Familiarity with the industry sector associated with the company

All big companies nowadays use performance management systems to increase their profitability. Many organizations are now shifting from traditional annual reviews to more innovative and flexible management systems. You can research and choose any of the big companies for your research.

Suggested approach for topic 1

Before starting your research, you should understand the assignment. The guidelines mentioned in the information pack should be read. The word count and length should be looked upon. What kind of sources are required by the topic, primary or secondary? This topic requires the use of internally generated or primary information. Secondary information could be used. The style of citation ‘Harvard referencing’ should be understood by the students. All the other requirements and directions made by the OBU must be complied with. After choosing this topic, a proper mind map must be made from the start, so the student conducts all the required tasks in a proper and timely manner. All the major requirements and aspects of the topic should be considered thoroughly so that a strategy can be devised to meet those requirements. A research methodology and all reliable websites and authentic sources should be noted down. The style of referencing must be kept in mind while researching this topic to pass the OBU RAP.

In Part 1 (Research objectives and overall research approach), Students need to make a table of contents and a title page mentioning the ACCA reg number and the selected topic. Part 1 mostly contains the introduction and the objectives of the RAP. The objectives should be consistent with the research of the project. Its main objective is to study the performance management system and students must not deviate from the topic. Everything related to budget, variance and environmental performance must be included in the report. Your personal aims and goals are not required to be a part of this section. The reasons for selecting the topic must be jotted down. The organization which is suitable for topic 1 and why that organization was deemed appropriate for the topic. The aims and objectives of the project should be explained in several ways. Research questions are written in detail, and it targets the specific areas that need to be researched. Usually, there are 3 or 4 research questions. Consideration of all these points is important in part 1. If you follow all these instructions, you can move very strongly ahead.

Part 2- (Information gathering/accounting and business techniques) is a crucial section as all your understanding of the business and accountancy models is analysed here. A quality explanation of the used models or any other frameworks and analysis of all their limitations must be performed. The most structured way of representing section 2 is by first mentioning the sources of information that were used to acquire the data for research on topic 1. Topic 1 relates to the impact of a performance management system so both internal and external information can be used. Students must interact with the management regarding the types of budgets used in the company, the parameters used to set those budgets and what steps are being taken to improve environmental performance. It is advised that internally generated information must be used for better evaluation of results. Many other internal reports such as forecasting must be studied. There are many websites, books and newspapers that can be used. A discussion of the limitations of your information gathering must be included. Students should find references to mention limitations instead of writing from their own opinion. Any ethical issues that arose during information gathering and your solutions regarding the issues. Every part should be backed up by good references. Next, you would list all the business and accountancy models and their limitations. The types of budgets and costing methods must be identified. To find out more about the selection of respective models for topic 1, kindly refer to section ‘Accounting and business models for topic 1’ above.  Word count is to be prioritized which is 1800-2000 words.

In part 3, there is a further evaluation, analysis, and conclusion. It should contain a description of the results obtained and all the limitations. Further research with examples and comparisons between the two companies is done. It is the most critical section, and most students fail in it if they are not in the hands of an experienced mentor. A qualified mentor can guide the students critically to secure a passing grade.

Evaluation and analysis of topic one (1) means that students need to critically study the budget used by the company, the difference between actual and forecasted numbers and variance reports are to be studied. Students should be able to study the budgeting techniques used and their effects on the performance management of the company.  How well is the variance report acted on and what are its effects? You should analyse how effectively the performance management system is workings towards a better future. Demonstrate your understanding by making a connection between finances and budgeting.  4500 words must be written to ensure a detailed analysis.

Every student has their own way of drafting a research thesis and this is only a broad version of what can be done.

Suggested approach for SLS

The meetings with the mentor must be planned at the start of the RAP and a track of those meetings must be kept in a diary. Make your notes during each meeting and use them as it will help later to write evidence for your learning experience. SLS requires self-reflection more than the SLS. The time required to conduct effective research needs to be calculated description of events. Write about your learning journey and all the new skills that you gained.

The timetable should be made from the start and a timetable should be kept in place. Religiously following the requirements and keeping track of the time is necessary to pass the RAP. All the information gathered should be recorded systemically and need to be shared followed religiously. Consult with your project mentor so that complete guidance can be given to you. Consultation with the project mentor ensures that a student passes with the highest possible grade. If any issue arises it can be solved by discussing it with your project guide.

Every student takes his approach regarding the given topic, and this is only an extremely broad version of what can be done. The detailed approach depends on the student’s perception of the topic and the sources of information being used. Whatever approach is taken, the guidance of the project mentor is needed every step of the way to pass RAP with good grades.

Sources of information

There are two types of sources that can be used, primary and secondary.

Primary sources are the data that you collect on your own and it is considered first-hand. This can be done by conducting interviews, surveys, or having participants fill in questionnaires. In this topic, students are required to gather information directly from the management and these sources will qualify as primary sources of information. Variance reports, Budgets, parameters for setting budgets, etc. Internally generated information is essential.

Secondary information on the other hand refers to already available and published information. Using it to your own advantage by checking the authenticity of these sources can be beneficial for RAP. All other sources of information such as online websites, journals, annual reports, and articles are considered secondary sources of information. For using a secondary source, the reliability must be checked, and then the information should be put in the RAP. Information in the RAP must be through a relevant source and its content should also be relevant to the topic. The sources of information play a crucial role in producing a good RAP that is based on facts. If reliable sources are not found, then a student must consider choosing a different topic for which information is more easily available.

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