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Performance
Management
September 2022
Examiner’s report
The examining team share their observations from the
marking process to highlight strengths and
weaknesses in candidates’ performance, and to offer
constructive advice for those sitting the exam in the
future.

Contents
General comments .................................................... 2
Format of exam ......................................................... 2
Question 1 – Belivat................................................... 2
Format of the question ........................................ 3
General comments .............................................. 3
Part (i) – 12 marks ............................................... 3
Part (ii) – 9 marks ................................................ 4
Part (iii) – 6 marks ............................................... 5
Part (iv) – 13 marks ............................................. 6
Professional skills – 10 marks ............................. 7
Question 2 – Eck ....................................................... 8
Format of the question ........................................ 8
General comments .............................................. 8
Part a) – 13 marks ............................................... 9
Part b) – 7 marks............................................... 10
Professional skill – 5 marks ............................... 11
Question 3 – Scye ................................................... 12
Format of the question ...................................... 12
General Comments ........................................... 12
Part a) – 12 marks ............................................. 13
Examiner’s report – APM September 2022 1
Part b) – 8 marks............................................... 15
Professional skills – 5 marks ............................. 16
General comments
This examiner’s report should be used in conjunction with the published September
2022 exam which can be found on the ACCA Practice Platform.
In this report, the examining team provide constructive guidance on how to answer the
questions whilst sharing their observations from the marking process, highlighting the
strengths and weaknesses of candidates who attempted these questions. Future
candidates can use this examiner’s report as part of their exam preparation, attempting
question practice on the ACCA Practice Platform, reviewing the published answers
alongside this report.

Format of exam
The examination comprised two sections, A and B. Section A consisted of one
compulsory question for 50 marks in total. Section B consisted of two compulsory
questions for 25 marks each. Out of this total of 100 marks across sections A and B,
20 marks were available for professional skills related to communication, commercial
acumen, analysis and evaluation, and scepticism. 80 technical marks were available
for applying appropriate technical knowledge in response to the requirements.

Section A
Question 1 – Belivat

Examiner’s report – APM September 2022 2

Format of the question
This 50-mark question was based around a manufacturing company, Belivat, that
produced temperature sensors. The company was in the process of changing its
strategic approach and had the intention of increasing revenue and driving down costs
through innovation in both product and process development.
The requirements of this question were split into four parts. The first part required
candidates to critically compare zero based budgeting (ZBB) with Belivat’s existing
method of budgeting and to explain how ZBB may fit in with Belivat’s plans and aims.
The second part asked for an explanation of kaizen costing, the implications of
changing to it for production in Belivat and a recommendation as to whether this
approach was appropriate for Belivat. The third part asked for an evaluation of whether
kaizen costing would fit with ZBB in controlling production costs at Belivat. The final
part of the question asked for a calculation on the potential benefit of using radio
frequency identification (RFID) along with any other cost/benefit implications that may
exist in the proposal.

General comments
Performance on this question was, overall, disappointing. Many candidates struggled
with at least one part of the question with, for example, few candidates making a well-
developed and genuinely evaluative attempt at part (iii). Other candidates did not
identify the fundamental difference in part (iv) between one-off costs and those
occurring every year for the life of the RFID project. It was also clear that some
candidates struggled with understanding the concepts of ZBB and kaizen.
Performance in the professional skills marks was also slightly disappointing as
candidates often did not fully address the demands of the question, though the format,
style and structure of the responses was generally an area where candidates scored
well.
In general, it is also worth repeating a point that has been made by the examination
team in previous diets – responses should always justify the use of models in relation
to the scenario i.e. why is something important in this particular situation, as opposed
to simply discussing features of a model or just its advantages and disadvantages.
Application to the specifics of the scenario provided are of the essence in the APM
exam and are at the core of most questions.

Part (i) – 12 marks

Write a report to the CEO of Belivat to respond to her instructions for work on
the following areas:
(i) product development budgeting
This was worth 12 marks and asked for a critical comparison between the existing
method of budgeting (incremental) and ZBB. The response should also have included
a consideration as to how ZBB fitted with Belivat’s plans and aims. Many responses
started, unfortunately, by failing to offer a satisfactory description of ZBB. Such
responses simply indicated that ZBB started from scratch without highlighting the

Examiner’s report – APM September 2022 3

nature of the decision package, and the implications around it, that is at the centre of
ZBB. This was disappointing as ZBB is an often-examined subject area and
candidates should be aware of both the nature of it and the areas of its operation that
are distinctive.
For example, candidates often would write something similar to: “the difference with
ZBB is that it starts from zero. This will help Belivat with its aim of controlling cost as
there will be no budgetary slack carried forward.” The point about budgetary slack not
being carried forward is true and is a worthwhile point to make but no clear indication
is given as to what, specifically, ZBB does that is both different to the current approach
and which will enhance cost reduction. A better response would have been to have
said: “the decision package is central to the operation of ZBB as it describes, and
details the costs of, all the activities that require funding. Every item in the decision
package has to be justified. This is in stark contrast to the current incremental
approach, where the previous year’s budget is used as the base for next year and
incremental adjustments are made for aspects such as inflation. Taking a ZBB
approach will ensure that all costs are scrutinised, assessed and, ultimately, justified
and such an approach will make a significant contribution to Belivat’s aim to drive down
costs.” This response offers both a critical comparison of ZBB with incremental
budgeting but also explains and justifies why a ZBB approach would be helpful to
Belivat.
Many candidates did not undertake a genuine critical comparison of the nature of what
has been described in the example above. The majority of responses offered an
evaluation of both budgeting techniques – and those responses often offered strong
evaluations – but did not offer a critical comparison. Such responses forced the reader
to undertake any critical comparison by comparing the one technique against the other
but candidates should have been writing their answers by focusing on the specific
requirement of the scenario. As such, it might have been better to have constructed
responses on the basis of specific budgeting themes, such as their starting points, the
time taken to produce the respective budgets, the focus on innovation in the budgeting
process, etc and then consider how each budgeting approach deals with this theme.
This would be preferable to offering individual descriptions and evaluations of each
technique, without any comparison between them, as most candidates seemed to do.
Responses which adopted this latter approach were awarded appropriate credit but
failed to score any of the professional skills marks in the area.

Part (ii) – 9 marks

Write a report to the CEO of Belivat to respond to her instructions for work on
the following areas:
(ii) Kaizen costing
Part (ii) was worth 9 marks and asked for an explanation of kaizen costing and the
implications for the production management in Belivat of changing to kaizen costing
from the current system of standard costing. Most candidates managed to explain
kaizen costing but a significant minority were unsure, with some candidates describing
it as value-based management and several describing it as total quality management.

Examiner’s report – APM September 2022 4

Many also appeared to believe that it was part of target costing. Whereas kaizen
costing may help to reduce a cost gap that had been determined in a target costing
exercise, kaizen costing is not an intrinsic part of target costing and many candidates
wasted time and effort in explaining the steps of target costing. Such responses also
often failed to focus on the production function as was detailed in the requirement and
which is also the specific area where kaizen costing is normally deployed. On
occasion, such responses offered some accurate and insightful observations on
kaizen costing, and were awarded credit accordingly, but target costing was not the
focus of the question here.
It was also a concern that candidates did not seem able to apply their responses to
the management of production. Indeed, few candidates made a reasonable attempt to
undertake this part of the question. A typical response would say: “kaizen costing
represents a significant change from standard costing and this will affect the role of
the operational staff. A change in culture will be required.” Such responses would
recognise that kaizen costing represented a change but offered too generic comment
thereafter to show anything by way of either understanding of kaizen costing or of how
it would affect production management. A better response would have been to say:
“kaizen costing differs from standard costing in that it sets regular cost reduction
targets rather than setting annual standards and controlling variances. In terms of the
production process, employees are empowered in kaizen costing and encouraged to
be innovative in their approach. This will help drive incremental improvement in
production cost and could see cost saving developments in areas such as the layout
of the production machinery and in terms of the actual stages and processes required
to produce a product.”
Many candidates did, as requested in the requirement, offer a recommendation as to
whether kaizen costing was appropriate for Belivat but very often these
recommendations did not arise directly from what candidates had discussed
beforehand. Often, for example, responses would end with a phrase such as “Belivat
should adopt kaizen costing” without any real justification being offered. Better
responses referred briefly back to areas that had been discussed in the response and
would indicate: “Given the innovative approach and the focus on cost reduction that
kaizen costing will bring, it is very appropriate for Belivat and should be adopted in
order to help Belivat achieve its aim of driving down costs.”

Part (iii) – 6 marks

Write a report to the CEO of Belivat to respond to her instructions for work on
the following areas:
(iii) the interaction of ZBB and Kaizen
This part was worth 6 marks and asked for an evaluation of whether kaizen costing
would fit with ZBB in controlling production costs. This part of the question was very
badly done with very few candidates highlighting the fundamental difference between
the two techniques in that kaizen is concerned with incremental change and ZBB is
concerned with change which is fundamental whenever it is adopted. Kaizen uses past
data to help develop and improve future performance in a step-by-step manner

Examiner’s report – APM September 2022 5

whereas ZBB ignores all past data and starts from zero to build decision packages
anew.
Most candidates therefore scored very few marks on this part of the question and this
was disappointing as this is the type of question that is very appropriate for the level
that the APM exam sits at. There are many management accounting techniques in
APM and candidates should expect to be asked how well these techniques may relate
to each other if adopted at the same time. In this question, most candidates highlighted
that both techniques had a focus on cost reduction, which is undoubtedly the case, but
the focus of the requirement specifically is on evaluating how ZBB would fit with kaizen
costing in controlling production costs. As such this part of the question is seeking to
examine candidates’ ability to evaluate how these two techniques would operate
together in controlling production costs. It should have been clear that the very
different operational practices of these techniques would make it inappropriate for
them to operate together.

Part (iv) – 13 marks

Write a report to the CEO of Belivat to respond to her instructions for work on
the following areas:
(iv) the inventory management project
This part was worth 13 marks and asked for a quantification of a plan to tag all items
in Belivat’s warehouse with RFID tags. Generally, most candidates passed this part of
the question though, in many cases, the responses were underdeveloped by
candidates being unable to distinguish between annual costs and one-off costs. The
RFID project itself ran across eight years but many candidates treated initial spend
costs and annual maintenance costs as behaving in the same way and all costs being,
essentially, one-off. This was a fundamental misreading of the data, even though there
was a clear clause in the exhibit that: “it is expected that the new system will last for
eight years.”
Candidates were also asked to consider the additional costs and benefits of
introducing the RFID system and several candidates did offer additional perspectives
and observations in this area, highlighting that training costs had not been considered,
for example. Other responses highlighted that customers may be served more quickly
due to RFID tags and that this was likely to enhance customer satisfaction and, as a
result, to increase profitability. Such responses received appropriate merit and showed
a clear understanding of both the nature of the proposal and the range of potential
costs/benefits that had not been considered by Belivat.
However, a significant minority of candidates wasted their time here by explaining the
reasons for the calculations that they had performed when these reasons had already
been substantively given to them in the scenario. For example, often responses would
highlight: “there is likely to be a significant saving with the efficiency of the picking
process for staff. The new system will make products easier to find and this will have
a significant effect on how quickly staff can find the products.” However, the scenario
details that picking efficiency will improve, even highlighting that this will save 35% of

Examiner’s report – APM September 2022 6

existing staff time. Given that the requirement indicates that the CEO is seeking advice
on the costs and benefits of introducing the new system beyond those detailed, it is
difficult to see why a significant minority of candidates spent time explaining/repeating
the information that was given in the exhibit. It is likely that, due to the time spent in
this area, these candidates penalised themselves in terms of the time that they were
able to spend on the other questions in the exam.

Professional skills – 10 marks

Additionally, 10 professional skills marks were available on this question. Analysis &
evaluation marks were available on part (i), for critical comparison and for a
conclusion. Commercial acumen marks were available on part (ii) and scepticism
marks were available on part (iii). Analysis & evaluation, scepticism and commercial
acumen marks were available on part (iv) and communication marks were available
for the script as a whole.
Most candidates scored well on the traditional communication marks but fewer scored
well on the other professional skills marks. Most candidates attempted some
comparison of ZBB and incremental budgeting in part (i) but, as has been highlighted
previously, most candidates tended to present their responses here as distinct
descriptions and evaluations of each technique rather than as a critical comparison.
Likewise, few candidates demonstrated commercial acumen in their understanding of
the impact of kaizen costing on production for Belivat.
As was highlighted above, part (iii) was badly done and very few candidates made any
sceptical points at all on the nature of the challenge that might exist between ZBB and
kaizen costing. Candidates performed better on part (iv) in the professional skills
marks, with several making comments about other benefits that Belivat might
experience (commercial acumen) and other costs that they may not have considered
(scepticism). As mentioned, most scored well on the format, structure and style of their
responses in term of communication which, overall, probably saw most candidates
achieving a bare pass on the professional skills marks.
For future diets, candidates should be advised to focus on the requirements of the
specific parts of each question and to ensure the specific requirements are followed.
The professional skills marks relate mostly to candidates fulfilling the question
requirements in that an evaluation, for example, does not mean a list, identification or
an explanation. If candidates can fulfil the requirement as directed in the question, the
professional skills marks will surely improve.

Examiner’s report – APM September 2022 7

Section B
Question 2 – Eck

Format of the question

This 25-mark question was based around a manufacturing company, Eck, that was
capital-intensive and had several divisions operating as profit centres. The board was
considering the use of the measure of earnings before interest, tax, depreciation and
amortisation (EDITDA) as a way of assessing divisional manager performance and
was also considering introducing a new reward scheme, based on EVA™, for
managers.
The requirements of the question were split into two parts. Part a) was worth 13 marks
and was further split into two components, with the first one being for eight marks,
requiring an assessment of the usefulness of EBITDA in assessing a divisional
manager’s performance. The second one being for five marks and requiring an
illustrative EVA™ calculation. Part b) was worth seven marks and asked for advice on
a proposed new reward scheme.

General comments
Performance on this question was disappointing. Many candidates struggled with
EBITDA and some candidates did not progress beyond offering definitions of the
words that made up the different letters of the EBITDA acronym, even though these
words were given to them in the scenario. Others struggled with the specifics of the
proposed reward system and offered generic comments on rewards and bonuses that
did not address the specific areas of Eck’s scheme. Most candidates passed the
EVA™ calculation but very few scored full marks here.
Specifically with regard to part b), it is worth repeating a point that has been made by
the examination team in previous diets – responses should always justify the use of
models in relation to the scenario i.e. why is something important in this particular
situation, as opposed to simply discussing features of a model or just its advantages
and disadvantages. Application to the specifics of the scenario provided are of the
essence in the APM and are at the core of most questions. Candidates have to show

Examiner’s report – APM September 2022 8

that they have thought about how the proposals will directly affect the company. That
level of analysis was unfortunately missing from most responses to the first part of part
a) and to part b).

Part a) – 13 marks
Respond to the board of Eck's request for work on the following areas:
(a) measuring divisional manager performance
This part was worth 13 marks and the marks were split between an assessment of the
appropriateness of EBITDA for Eck (eight marks) and an EVA calculation (five marks).
This part of the question was done quite poorly. It was clear that many candidates
were simply not aware of the operation of EBITDA and how it might function in
assessing a divisional manager’s performance. These were two distinct areas where
candidates should have been able to demonstrate their competence. They could have
done this by explaining how EBITDA may be appropriate for Eck and how it would
operate in assessing divisional manager performance. Many candidates were unable
to demonstrate the effect of EBITDA and many responses would indicate: “it removes
interest and tax which are beyond the control of the divisional manager. Depreciation
and amortisation are also not under the control of the divisional manager.” Highlighting
the lack of divisional manager control is relevant and is a correct point to make but
such responses did not highlight the significance of removing these separate areas. A
better response would have addressed this by indicating: “EBITDA removes the effect
of subjective assessments in areas such as depreciation and amortisation, as
experienced recently by Eck in its revision of the value of its existing assets. Excluding
such revisions allows for managerial performance to be judged in a more objective
manner.”
Candidates also performed poorly with regard to assessing how EBITDA might assess
a divisional manager as they did not appear to recognise that there is a very significant
difference between assessment performance of the divisional manager and assessing
performance of the division. Many candidates highlighted how EBITDA would be an
inappropriate measure, for example, and highlighted that costs such as depreciation
were relevant in assessing divisional performance. However, to respond in this
manner is to misunderstand the requirement of the question. With the focus on the
performance of the divisional manager, a better response would have been to
highlight: “EBITDA removes factors over which a manager has no control. Eck’s
depreciation policy is a matter that is out of the divisional manager’s control and it
would also be unfair to judge the manager’s performance on areas such as interest
and tax. The former is a direct result of Eck’s financing policy, which is out of the control
of the divisional manager, and the latter is a distribution of profit to the government at
a rate set by the government. The manager cannot be held responsible for the rate at
which tax is set or for any change in that rate.”
Also disappointing was the reference that many candidates made to measures being
manipulated, whether as part of EBITDA or as something which EBITDA might, in part,
help overcome. The word manipulation is emotive and comes with a definite indication
that something borderline (at best) unethical is being undertaken. Of course the

Examiner’s report – APM September 2022 9

production of accounting information is open to different and legitimate interpretation
in the pursuit of trying to convey a true and fair view. However, the suggestion that the
practices being undertaken are manipulative is not at all appropriate and candidates
really should avoid using this word except in cases where something in the scenario
is clearly unethical. This has been a term that candidates have used for several years
it should have been clear by now, through previous examination reports, that the
casual use of this term is not at all appropriate.
The brevity of many responses made it clear that candidates did not have a full
understanding of EBITDA. Many candidates believed that aspects, such as
depreciation were included in the measurement of EBITDA and a sizeable minority,
possibly around 10-15%, simply not addressing the specifics of the question at all.
Instead these candidates highlighted other ways that Eck may measure performance.
EBITDA is a mainstream performance measure, it is not new, and it was disappointing
to see a lack of technical knowledge on it. The examination team can offer little by way
of help or advice in this area except to advise candidates to know the syllabus. Just
as, if not more importantly, when learning the material and techniques of the syllabus
candidates must learn to assess the applicability of the techniques to different
companies in different situations. A questioning attitude is key to achieving success in
an exam at the level of APM and it would be worthwhile asking, when learning about
techniques such as EBITDA, questions such as: where would this work best? How
would a divisional manager feel if they were assessed by this technique? Where might
it not work? Would it be appropriate to measure performance using EBITDA in (say) a
hospital? Asking such questions, and offering justification for the responses, will help
ensure that responses offer answers that are analytical and evaluative in nature rather
than ones which offer little beyond (often flawed) definitions and descriptions of the
terms and techniques.
The second part of part a) was worth five marks and was a straightforward EVA
calculation. Most candidates that made an attempt at this part of the question scored
over half marks as they managed to calculate the WACC figure, highlight the correct
assets figure and calculate EVA, often receiving a mark for this on an “own figure rule”
basis. Most candidates found the calculation of the interest net of tax figure and the
development costs less relevant amortisation a bit harder to obtain. Of most concern
in this area was the number of candidates that did not manage to calculate a correct
WACC figure. Many simply added the debt and equity figures together rather than
taking account of the fact that Eck was funded by equal amounts of debt and equity.
Overall, however, most candidates would have passed this relatively small part of the
question.

Part b) – 7 marks
Respond to the board of Eck's request for work on the following areas:
(b) proposed reward scheme
This part asked for advice on a new reward scheme and was worth seven marks. This
part was badly done and this was a shock to the examining team as the area of reward
is often asked about and candidates tend to perform quite well in this area. Some

Examiner’s report – APM September 2022 10

candidates did not address the demands of the question and, instead of discussing
the proposed bonus scheme which focused on EVA™, discussed why the company
might use EBITDA as a basis for reward. Some candidates also ignored the scenario
given and offered generic responses as to why bonuses should be based on a mixture
of measures, financial and non-financial. Others chose to discuss the pros and cons
of EVA™ as a performance management technique rather than relate any comments
to the specifics of the proposed reward scheme. Other candidates would discuss areas
such as basing bonuses on short term profits and managers behaving sub optimally
when the actual bonus in the scenario was based on EVA™, and the scenario made
it clear that Eck had internal procedures in place to prevent managers focusing too
much on specific targets whilst ignoring others.
The examining team has highlighted previously that it does sometimes appear as
though candidates see a specific area, such as EVA™, and are determined to repeat
what they have learned without focusing on the specific demands of the question.
Candidates should be aware that, of course, some alternative suggestions can be
welcome and can provide strong evidence of good analysis and evaluation but such
suggestions must arise from a discussion of the scenario. For example, it may have
been relevant to comment: “the bonus is worth 45% of the manager’s salary. This is
likely to be a strong motivator for the divisional managers as this is likely to represent
a significant amount of money. Managers may be likely to take excessive risks and,
despite Eck indicating that it has internal procedures to prevent managers from
focusing too much on particular targets, it may find that such procedures are
significantly challenged. It may also be worthwhile, therefore, ensuring the bonus
includes an element of customer satisfaction or a quality-based metric to try to ensure
that longer term goals are not compromised by managerial attempts to achieve
significant financial gain in the short term.” The benefit of this comment is that it does
not ignore the scenario and start from a discussion point of introducing non-financial
measures but instead analyses the reward scheme, highlights the potential dangers,
explains why the dangers exist and then offers a potential mitigating adjustment to the
proposed scheme.

Professional skill – 5 marks

Additionally, five professional skills marks were available on this question. These
marks were available in part a) for analysis and evaluation (A&E), for comments and
for a justified recommendation of an EVA calculation, and scepticism. Marks for
commercial acumen were available in part b) for offering specific advice to Eck.
Most candidates scored two or three professional skills marks here as they usually
made correct suggestions (based on their own calculations) with regard to EVA™ and
were often able to address a range of areas in their discussion of EBITDA in part a),
which earned them at least one professional A&E mark. Candidates also often were
awarded at least one commercial acumen mark in part b) as they were usually able to
offer some relevant advice to Eck.
For future diets, candidates are advised to focus on the requirements of the specific
parts of each question and to ensure those requirements are followed. The

Examiner’s report – APM September 2022 11

professional skills marks relate mostly to candidates fulfilling the question
requirements in that an evaluation, for example, does not mean a list, identification or
an explanation. If candidates can fulfil the requirement as directed in the question, the
professional skills marks will surely improve.

Question 3 – Scye

Format of the question

This 25-mark question was based around a company of architects, Scye, that was
considering adopting a value-based management approach (VBM) to performance
management.
The requirements of the question were split into two parts. Part a) was worth 12 marks
and asked for an explanation of the basic principles of VBM and then an evaluation as
to how a VBM approach would compare with Scye’s existing performance dashboard.
To help guide responses, an evaluation as to how VBM would affect the different
management levels (strategic, tactical, operational) was requested along with a
consideration as to how implementation might affect Scye. Part b) was worth 8 marks
and asked for an example calculation of shareholder value, which included an NPV
and MIRR calculation.

General Comments
Performance on this question was disappointing. A significant minority of candidates
did not know what VBM was, with some confusing it with the three “Es” of economy,
efficiency and effectiveness and others believing that it was total quality management.
The majority of candidates did understand VBM but failed to apply it to Scye’s scenario
in a meaningful manner. Many candidates also failed to undertake the NPV calculation
accurately with some being unaware of the importance of the timing of cash flows and
most candidates being unaware of the decision rule for MIRR.
Specifically with regard to part a) in this question, it is worth repeating a point that has
been made by the examination team in previous diets – responses should always

Examiner’s report – APM September 2022 12

justify the use of models in relation to the scenario i.e. why is something important in
this particular situation, as opposed to simply discussing features of a model or just its
advantages and disadvantages. Application to the specifics of the scenario provided
are of the essence in the APM and are at the core of most questions. Candidates have
to show that they have thought about how the proposals will directly affect the
company and that level of analysis was unfortunately missing from most responses in
part a) as candidates struggled to consider how VBM might operate at different levels
in Scye.

Part a) – 12 marks
Respond to the CEO of Scye's request for work on the following areas:
(a) value-based management (VBM)
Part a) of the question was worth 12 marks and asked about the possible adoption
and implementation of VBM at Scye. VBM is very much a mainstream part of the APM
syllabus and is often a topic for questions but candidates seemed to find this question
challenging. Though there were a significant minority of candidates, around 10-15%,
that did not understand the main principles of VBM, it was nonetheless the case that
most candidates managed to explain the main concepts of VBM. However, and of
concern to the examining team, many candidates did not gain many further marks.
These candidates were unable to articulate how VBM might operate at different levels
or to address any issues that Scye might find around implementation.
For example, a typical response would be: “VBM relates to all levels of management
and operation. The idea of long term returns to shareholders will permeate all levels.”
However, such a response does not illustrate either understanding of the concept or,
more significantly, how it might be applied in Scye. A better response would have been
to say: “sustaining long-term returns to shareholders and ensuring value is enhanced
by focusing on the measurement of discounted cash flows is at the core of VBM. At a
high level, measures such as NPV and EVA™ may be appropriate though it is much
harder to measure these meaningfully at lower levels in the organisation. Instead,
Scye should try to measure the value drivers, even though they can be hard to identify.
At a tactical level, areas such as customer service may be of importance in ensuring
repeat and sustained business. At an operational level, cost per unit of material or
waste percentage on a daily/weekly basis may be strong indicators of areas that are
driving value.”
Another shortcoming of responses in regard to this particular area was that they often
defined the three terms (strategic, tactical, operational) but then did not develop
responses further in terms of VBM specifically. Candidates should be aware by now
that they are expected to be able to define most techniques and methods in the APM
syllabus without repetition of this nature gaining any credit. Definition and identification
are generally not the skills that the APM exam is seeking to develop.
Candidates were also asked about how implementation might affect Scye. Many
candidates either did not address this part of the question or offered very brief and
generic responses around the need for culture change. The significance of

Examiner’s report – APM September 2022 13

determining appropriate value drivers was one that most candidates identified in the
first part of this question as being a basic principle of VBM. However, very few
candidates mentioned the value drivers as being a problem or difficulty with
implementation. This, perhaps, shows an inability to think in an evaluative way about
a concept such as this and instead demonstrates competence at repeating something
that has been rote learned. Any productive reflection on what a value driver is would
quickly give rise to the conclusion that they will be very hard to identify. Doing so also
means discovering the specific activities that a company undertakes which contribute
most to it earning equal to, or above, its cost of capital. It can be very difficult to
determine a clear line of sight as to definitive cause and effect in this area and it is
likely to be a significant problem for Scye in its implementation of VBM.
Many candidates also clearly believed that EVA™ is an intrinsic part of VBM and
offered responses which detailed the pros and cons of the technique. Not only was
this inappropriate to the question asked, in the scenario it was made clear that the
Board did not want to use EVA™ and, further, had agreed to avoid its use. Despite
this instruction, many candidates felt that it was necessary to highlight to the Board
that it was incorrect in its assessment of EVA™. The requirement of the question was
that candidates should address the area of VBM without focusing specifically on the
advantages and disadvantages of EVA™ and few candidates adhered to this
throughout.
Also of concern with regard to this part of the question, most answers tended to be
underdeveloped. They were often a series of single sentence statements that were
not expressed in the style or manner of a justified response, which is the key learning
outcome at the core of this exam. This may be evidence of the points made above, in
that candidates simply were not aware of how to apply VBM or of any of the major
issues with regard to implementation. Generally, single sentence statements that have
no connection with each other are clear indicators that candidates are not thinking
through the specifics of the scenario but instead repeating specific facts that had been
learned about the area of VBM. Such responses almost always lacked any meaningful
analysis of Scye’s situation. Candidates are best to think in terms of introducing an
idea and then developing it. So, for example, if a candidate wishes to say that
implementation might be difficult because the culture would change then merely
saying so would not be demonstrating a level of analysis or evaluation that is
appropriate for this exam. A better response would indicate: “there may be a change
in the culture with Scye adopting a VBM approach. Non-financial factors such as
customer satisfaction are often value drivers in a VBM approach and Sye’s employees
may find a focus on measuring areas such as this to be challenging and difficult to
adopt to, given that the previous performance measures were all financial. This could
make employees feel insecure in their working environment and Scye’s management
will require to be both more supportive of employees, particularly if new targets are not
immediately achieved, and very clear in their communication as to the benefits of
adopting VBM.”
Also disappointing was the reference that many candidates made to measures being
manipulated. This was as part of VBM or more normally as something which adopting
a VBM approach might, in part, help to overcome. The word manipulation is emotive

Examiner’s report – APM September 2022 14

and comes with a definite indication that something borderline (at best) unethical is
being undertaken. Of course the production of accounting information is open to
different and legitimate interpretation in the pursuit of trying to convey a true and fair
view but the suggestion that the practices being undertaken are manipulative is not at
all appropriate. However, candidates really should avoid using this word except in
cases where something in the scenario is clearly unethical. This has been a term that
candidates have used for several years it should have been clear by now, through
previous examination reports, that the casual use of this term is not at all appropriate.

Part b) – 8 marks
Respond to the CEO of Scye's request for work on the following areas:
(b) new project appraisal
Part b) asked for an NPV and MIRR calculation and was worth 8 marks. This part was
also badly done and this was surprising given that most of this part of the question
asks for an application of pre-learned knowledge and most candidates would have
experienced these methods/techniques before in the exams that underpin APM.
Several areas were of concern to the examining team with regard to candidate
responses in this part of the question. Perhaps of most concern was that a significant
minority of candidates – approximately 10% – did not set out the calculation into the
respective years of 0,1, 2 and 3. Instead, those candidates presented their responses
as if all cash flows had arisen in one year. In a similar manner, several candidates
added together cash flows from years 1,2 and 3 and discounted them by a discount
rate that was only appropriate to year 1.
Both these examples demonstrate a fundamental misunderstanding of the concept of
the timing of cash flows that is at the core of any NPV calculation, to the extent that
those responses which did not identify distinct years of cash flows struggled to score
any marks. This is a significant flaw for a candidate at this level and the examining
team would repeat one of the points often made previously that candidates should
ensure they are knowledgeable about the content of the exams that underpin APM.
Other candidates seemed unfamiliar with the manner in which depreciation should be
treated, with many adding it back prior to the tax calculation and there was a general
misunderstanding of the timing of specific cash flows. Many candidates, for example,
had the investment of $25 occurring in year 1.
Another area of concern for the examining team was that many candidates were
clearly not familiar with MIRR and many simply did not attempt the calculation, despite
the formula being supplied in the Appendix. Many candidates that did attempt the
MIRR calculation were unfamiliar with its decision rule, with candidates often
highlighting that the project should go ahead if the MIRR was above 0 rather than if it
was above the rate of the cost of capital.

Examiner’s report – APM September 2022 15

Professional skills – 5 marks
Five professional skills marks were available in this question. In part a), the marks
were for analysis & evaluation (A&E), scepticism and commercial acumen. A&E marks
were also available in part b) for justified recommendations with regard to the NPV
and IRR calculations.
In general, candidates did not score very well on these marks. As has been highlighted
above, responses did not often address all levels of the organisation in part a), and
therefore failed to score the A&E marks, and there were few comments on the
challenges of introducing VBM at Scye which inevitably made it difficult to award any
scepticism marks. Candidates were slightly better at trying to make their comments
relevant and practical for Scye and tended to score at least 1 commercial acumen
mark. In part b), candidates often did not complete the calculation and it was not
possible to award any A&E marks here as no justified conclusion was made.
For future diets, candidates should be advised to focus on the requirements of the
specific parts of each question and to ensure the specific requirements are followed.
The professional skills marks relate mostly to candidates fulfilling the question
requirements in that an evaluation, for example, does not mean a list, identification or
an explanation. If candidates can fulfil the requirement as directed in the question, the
professional skills marks will surely improve.

Examiner’s report – APM September 2022 16