ACCA Strategic Professional · Advanced Performance Management · Management reports
Calder Retail's store managers receive a report showing store profit after an allocation of head office costs, which they cannot influence. Managers complain the report is demotivating and they ignore it. Which change would most improve the report's usefulness for assessing managers' performance?
Separating controllable profit from allocated head office costs is best. Managers are then assessed on items they can influence, which makes the report fairer, more motivating and more actionable, whereas more allocations or sales-only reporting would ignore controllability or cost control.
- AIncrease the head office cost allocation to encourage cost awareness
- BPresent controllable profit separately from allocated costs, so managers are judged on items they can influenceCorrect
- CRemove all profit figures and report only sales volume
- DReport only the allocated costs to highlight corporate overheads
Explanation
Performance reports should distinguish controllable from non-controllable items so managers are held accountable only for what they influence. Increasing allocations adds more uncontrollable noise. Reporting sales alone ignores cost control.
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