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School of Business and Computer Science Limited

ACCA: Performance Management (PM)

Learning Outcome: Information, Technology and Systems for

Organizations

Assessment Criteria: A3: Information Systems and

Data Analytics
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Information levels
Performance management information systems provide the information which enables
performance measurement to take place.

Tactical information is also important to facilitate management planning & control for
shorter time periods (e.g. 1 year ahead); and those responsible for day to day
management will also need operational information to facilitate day to day decision
making.

Strategic Management Accounting

Definition: A form of management accounting in which emphasis is placed on
information about factors which are external to the organisation, as well as non-financial
and internally generated information.

It differs from traditional management accounting because it has an external and future
Orientation.

Examples of Strategic Management information provided:

Product profitability
Customer profitability
Value of market share
Capacity expansion
Brand values
Shareholder wealth
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Cashflow
Competitors’ costs
Financial effect of competitor response
Effect of acquisitions and mergers

Management accounting information can be used to support strategic planning,

control and decision making.

Strategic management accounting differs from traditional management accounting

because it has external orientation and a future orientation.

Management control is the process by which managers ensure that resources are
obtained and used effectively and efficiently in the accomplishment of the organisation's
objectives. It is sometimes called tactics or tactical planning.

Management control decisions need to support an organisation's strategic plans.

Characteristics of management control

 Short-term and non-strategic
 Management control planning activities include preparing annual sales budget
 Management control activities include ensuring budget targets are (at least)
reached
 Carried out in a series of routine and regular planning and comparison
procedures
 Management control information covers the whole organisation, is routinely
collected/disseminated, is often quantitative and commonly expressed in money
terms (cash flow forecasts, variance analysis reports, staffing levels).
 Source of information likely to be endogenous (from within the organisation

Management control and strategic planning compared

Example: The decision to launch a new brand of frozen foods is a strategic plan, but
the choice of ingredients for the meals is a management control decision.

Conflict
 Long-term strategic plans can conflict with the shorter-term objectives of
management control
 Performance measures/control measures do not take strategic direction into
account
 Strategic imperatives might not be properly communicated to middle
management
 Strategic planning information might be difficult to measure
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Operational control/planning
 The process of ensuring that specific tasks are carried out effectively and
efficiently

Management control v operational control

 Operational control decisions are more narrowly focused, carried out within a
shorter time frame and taken by managers less senior in the organisation.
 Operational control focuses on individual tasks whereas management control is
concerned with the sum of all tasks.

Example:

Strategic plan
 Senior management decide sales should increase by 5% pa for at least five
years.

Management control decision

 Sales quotas are assigned to each sales territory.

Operational control decision

 Management of sales territories specify weekly targets for each sales
representative.

Characteristics Operational Control Decision

 Short-term and non-strategic
 Occurs in all aspects of an organisation's activities and needed for day to day
implementation of plans
 Often carried out at short notice
 Information likely to have an endogenous source, to be detailed transaction
data, quantitative and expressed in terms of units/hours
 Includes customer orders and cash receipts

Qualities Good information

 Relevant
 Complete
 Accurate
 Clear
 Usable with confidence
 Appropriately communicated (to the right person using the correct method)
 Manageable volume
 Timely
 Cost effective
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What management accounting information helps managers to do (its objectives)

 Measure performance
 Control the business
 Plan for the future
 Make decisions

Management accounting information is used for score keeping, problem solving and
attention directing.

Features that characterise management accounting information in particular

 Forward looking
 Neutral (free from bias)
 Financial, non-financial, quantitative or qualitative

Types of Management information systems

(1) Transaction processing system (TPS)

TPS collect, store, modify and retrieve the transactions of an organisation. There are two main types: Batch
transaction processing which collects data as a group and processes it later and real time transaction
processing, which involves immediate processing of data.

The four important characteristics of a TPS are as follows.

(a) Controlled processing. The processing must support an organisation’s operations.

(b) Inflexibility. A TPS wants every transaction processed in the same way regardless
of user or time. If it were flexible there would be too many opportunities for non-standard
operations.

(c) Rapid response. Fast performance is critical. Input must become output in seconds
so customers don’t wait.

(d) Reliability. Organisations rely heavily on transaction processing systems with failure
potentially stopping business. Back-up and recovery procedures must be quick and
accurate.
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(2) Management information systems (MIS) convert data from mainly internal
sources into information (eg summary reports, exception reports). This information
enables managers to make timely and effective decisions for planning, directing and
controlling the activities for which they are responsible.

MIS have the following characteristics:

 Support structured decisions at operational and management control levels.

 Designed to report on existing operations.
 Have little analytical capability.
 Relatively inflexible.
 Have an internal focus.

(3) Executive information systems (EIS) provide a generalised computing and

communication environment to senior managers to support strategic decisions

Executive information systems (EIS) draw data from the MIS and allow
communication with external sources of information.

Key characteristics
 Menu driven used friendly interfaces
 Interactive graphics
 Communication capabilities linking the executive to external databases

Enterprise resource planning systems (ERP)

 Software systems designed to support and automate the business processes of

medium-sized and large organisations

 Aid the flow of information between functions within an organisation and can
manage connections to outside suppliers

 All departments that are involved in operations or production are integrated in

one system

Key characteristics
• Work in real-time
• Multiple languages and currencies
• Integrate the key processes in an organisation
• Decision support features
• Extranet links to major suppliers and customers

(4) Customer relationship management systems (CRM systems)

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CRM systems are software applications which specialise in providing information

concerning and organisation’s products, services and customers. Usually based on a
database these systems offer companies a cost effective way of offering a personalised
service to customers, which should lead to greater levels of customer retention.

There is a different need for volume of data at each level of the organisation. For
example, the CEO is not going to be concerned about the detail of every sale (which
would be represented in the TPS) but is going to require strategic information including
external data (represented in the EIS) so that he can set strategy for the business. The
volume of data decreases the higher you go in the organisation.

Big Data
Big Data refers to the mass of data that society creates each year, extending far beyond
the traditional data created by companies. Sources of Big Data includes social
networking site, internet search engines and mobile devices. How organisations use this
data

The three Vs of Big Data:

Big data and business value

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Big data can be used to analyse opportunities to increase revenues by improving

product offerings, or reducing costs through process efficiencies.
In 2013 Tesco used big data analytics to ensure its in-store refrigeration units worked
at the correct temperature. On initial investigation they were being kept much colder
than the expectations of the Energy and Carbon Manager. Cooling cost savings of up to
£20m were realised by Tesco once refrigeration performance was being monitored.

Big data and the customer

Organisations can build a more rounded picture of their customer base through past
transactions, website data cookies, responses to emails, and social media.
Certain businesses have been early adopters of big data and have benefited from
significant competitive advantage as a result. Tesco partnered with customer science
company Dunnhumby to create the Tesco Clubcard, a loyalty programme the company
used to track customer behaviour through a vast database of customer data.

Big data and corporate strategy

After identifying how business value can be improved, taking into account customer
requirements, business priorities can be determined.

Big data and the finance professional

Five traits of a data-enabled finance professional:

 Understands the fundamental drivers and metrics of the business

 Has a clear sense of what customers care about, and how to track this
 Embraces new, unconventional sources of data
 Comfortable with uncertainty
 Looks for new visual ways to present data with impact

Big data analytics is the term used to describe the extraction of meaning from vast quantities of data with
the aim of putting it to commercial use.