Assessing performance reports

Question 1

what is a performance report,
reasons performance report fails? - ACATE

Answer 1

The exam point is to to evaluate if performance report is adequate, evaluate existing performance systems and suggest improvements

Exam questions - Rezilla, chiven, arcade, METIS

Reasons performance reports fail are for a number of reasons
1. Reporting regime is difficult to change
2. Audience based - look at level of detail and recipient
- Report may be sent to wrong people who don’t need it e.g. IT
director getting production report
- Level of detail may not fit the audience e.g. detailed report sent to
the board and summary sent to operational managers
3. Content based
- No adjustment made for items outside of control of recipient e.g.
Head office costs not being separated, forex.
- No adjustment for budget error or other planning errors
- Budget for variable costs not being flexed
- Figures only include financial data without considering non -
financial data
4. Analysis based
- Most often there is no analysis - no variances, no ratios,
budget v actual
- No segmentalization of product lines or regions before analysis
takes place
- Analysis tends to be very basic
5. Targets based
- No discussion of targets carried out in advance
- Inappropriate targets or comparators provided in the report
e.g. seasonality and periods, 3-4 years of data needed for
comparators
6. Explanation based
- No explanation for unusual figures
- Explanation required for all variances with no materiality or
material
- Explanations requested for adverse variances only with
favourable variances ignored i.e.. things we are doing well gets
ignored and is demotivating

Question 2

Suggestions to improve performance

Answer 2

This should be clearly reversing the problems found in the questions and provide solutions

Use table approach is question asks for evaluation and suggestion to improve -

Add value and use examples for suggestions

Shareholder wealth is measured by dividends, cash and market value of shares

Trend analysis should be introduced

Assessment of performance reports involves a critique of the report itself - layout distribution and content

Question 3

Exam Slide

Answer 3

1. The reports level of detail does not fit audience. Too much detail for the board.
2. No adjustment is made for factors outside of control of business
3. No adjustment is made for budget errors - planning variances
4. Flexing is not performed on the budget
5. Non financial measures are ignored.
6. No analysis is provided with report just numbers
7. Lack of adequate segmentalization
8. Inappropriate comparators or none ata all
9. Explanations required for all variances, this should only be for
   the significant.
10. Adverse variances seen as more serious than favourable
    variances.