ACCA Strategic Professional · Strategic Business Leader

Enabling success: performance excellence: formula sheet

Full chapter guide

Key formulas

Performance link: Strategy → Objectives → Enablers → Results → Measurement → Feedback to strategy; A way of structuring answers. It is not an examined formula. Use it to show the loop between strategy and performance.
Balanced scorecard perspectives: Financial, Customer, Internal business process, Learning and growth; Kaplan and Norton's four perspectives. Use them to check that performance is judged on more than profit.
Value for money (3Es): Economy, Efficiency, Effectiveness; Useful for not-for-profit and public sector performance, where profit is not the main objective.
Balanced scorecard perspectives: Financial + Customer + Internal business process + Innovation and learning; Each needs objectives, measures, targets and initiatives linked to strategy.
Performance pyramid levels: Vision → Business unit objectives → Operating systems → Departmental measures; Objectives cascade down. Measures flow up. Has external effectiveness and internal efficiency.
Building block model: Dimensions + Standards + Rewards; Dimensions split into results (financial performance, competitiveness) and determinants (quality, flexibility, resource utilisation, innovation).
Standards criteria (Fitzgerald and Moon): Ownership + Achievability + Fairness (equity); Targets must be owned by staff, be achievable and be fair across staff.
Performance prism facets: Stakeholder satisfaction, Strategies, Processes, Capabilities, Stakeholder contribution; Starts from stakeholders, not strategy.
CSF to KPI chain: Strategic objective → CSF → KPI → target; Every KPI must trace back to a CSF and an objective. If it does not, question why you are measuring it.
SMART test for objectives and targets: Specific, Measurable, Achievable, Relevant, Time-bound; Use it to check that a KPI target is usable. Some texts vary the wording of A and R, so state your own meaning.
Balanced coverage check: Financial + customer + internal process + learning and growth; The Balanced Scorecard perspectives. Use them to check your KPIs are not all financial.
Return on capital employed (ROCE): ROCE = Profit before interest and tax ÷ (Total assets − Current liabilities) × 100%; Use the definition given in the case. Be consistent between years and with the benchmark.
Operating profit margin: Operating margin = Operating profit ÷ Revenue × 100%; Shows cost control and pricing power.
Gross profit margin: Gross margin = Gross profit ÷ Revenue × 100%; Falls may signal price pressure or rising direct costs.
Asset turnover: Asset turnover = Revenue ÷ Capital employed; ROCE = operating margin × asset turnover. Use it to explain why ROCE changed.
Current ratio: Current ratio = Current assets ÷ Current liabilities; A liquidity measure. Interpret with the industry norm.
Gearing: Gearing = Debt ÷ (Debt + Equity) × 100%; Definitions vary. State the one you use.
Leading vs lagging rule: Leading indicator = predicts future results; lagging indicator = reports past results; Financial measures are mostly lagging. Many non-financial measures are leading.
Economy: Economy = Spending less on inputs (compare actual input cost with budget or benchmark, for the same quality); Input focus. Cheaper is only better if quality is held constant.
Efficiency: Efficiency = Outputs ÷ Inputs (or cost per unit of output); Link outputs to resources used, e.g. cost per patient treated or students per teacher.
Effectiveness: Effectiveness = Outcomes achieved ÷ Objectives set; Outcome focus. Judge against the organisation's stated aims, not against cost.
Value for money: VFM = Economy + Efficiency + Effectiveness (often with Equity); A balanced judgement, not a single calculation. A gain in one E can harm another.
Performance link: Sustained performance = strategy delivered + risks controlled + trust maintained; A memory aid, not a calculation. Use it to structure your analysis.
Fundamental principles: Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour; Name the principle that is threatened, then explain how.
Risk responses (TARA): Transfer, Avoid, Reduce, Accept; Match the response to the likelihood and impact of the risk.
Risk assessment: Risk priority = likelihood × impact; A qualitative guide. Rate each factor, do not treat it as exact.
Ethical threats: Self-interest, Self-review, Advocacy, Familiarity, Intimidation; Use them to classify a threat before suggesting safeguards.

Quick revision

Performance means achieving objectives that matter to stakeholders, so first ask whose view counts.
A good measure links to strategy, is controllable by the person judged, and is clear and timely.
The balanced scorecard uses four perspectives: financial, customer, internal business process, and innovation and learning.
Critical success factors are the few things the organisation must get right. KPIs are the measures that track them.
Use a mix of financial and non-financial indicators. Financial ones are often lagging, while many non-financial ones lead.
Check data quality: is it accurate, relevant, timely and comparable?
Not-for-profit bodies have multiple objectives, so use measures like economy, efficiency and effectiveness alongside financial control.
Benchmarking compares performance with others. Make sure the comparison is like for like.
Continuous improvement builds small, regular gains and needs staff involvement and a supportive culture.
Targets can drive the wrong behaviour, such as short-term focus or manipulating figures, so name this risk.
Governance and risk oversight set the boundaries for how performance is pursued.
In every answer: apply to the scenario, show judgement, and finish with a clear recommendation.

Common mistakes

Defining performance as profit only. Fix: Cover customers, processes, people and society too. Use the balanced scorecard as a prompt.
Listing enablers without linking them to the scenario. Fix: For each enabler, quote a case fact and say whether it helps or hinders the strategy.
Describing the model without applying it to the case. Fix: Keep theory to one line per heading. Spend most of your time on measures taken from the scenario.
Suggesting generic measures such as 'profit' or 'customer satisfaction' for every case. Fix: Make measures specific and measurable, such as repeat bookings percentage, order cycle time or staff turnover in a named department.
Treating CSFs and KPIs as the same thing. Fix: Say 'CSF is what must go right; KPI is how I measure it'. Write the KPI as a number with a unit.
Listing generic KPIs such as profit and revenue for every organisation. Fix: Take the KPI from the scenario's strategy. A charity, a retailer and a hospital need different measures.
Listing ratios with no link to the organisation's objectives. Fix: Start every answer with the objective. Choose measures that show progress toward it.
Calculating ratios but not interpreting them. Fix: For each ratio, state the trend, the likely cause from the scenario and the consequence. Aim for a comment with every number.
Treating profit or return on capital as the main measure. Fix: Start from the body's purpose and objectives. Use profit-style measures only as support, such as surplus for sustainability.
Mixing up economy and efficiency. Fix: Economy is the price paid for inputs. Efficiency is output per unit of input. Effectiveness is whether the aim was achieved.

Exam tips

Always start from the strategy and objectives in the case. Marks go to answers that judge performance against them.
Use case evidence in every paragraph. Generic lists earn few marks.
Use frameworks such as the balanced scorecard or value for money as prompts, not as the whole answer.
Finish with a clear recommendation and a way to monitor it. This helps your professional skills marks for commercial acumen and communication.
Show scepticism about reported results. Ask whether the measures are right and could be manipulated.
Use the framework as a structure, not as the answer. Marks go to measures and reasoning taken from the case.
Name the strategy from the case before you list measures. This shows professional skills in analysis and commercial awareness.
Keep two or three measures per perspective rather than a long list. Quality and relevance beat quantity.