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ACCA Strategic Professional · Advanced Performance Management · Financial performance measurement

Dovran Co is adopting value-based management (VBM). Which action is most consistent with the core VBM approach?

VBM identifies the key drivers of shareholder value and aligns strategy, planning, targets, performance measures and rewards with them throughout the organisation. It focuses on long-term cash flows and the cost of capital, not simply short-term accounting profit or blanket cost cutting.

  1. ASetting divisional targets solely on budgeted accounting profit to maximise short-term earnings per share
  2. BIdentifying key value drivers, aligning strategy, planning, targets and incentives to them, and cascading them through the organisationCorrect
  3. CFocusing on cost reduction in all departments regardless of effect on long-term cash flows
  4. DReplacing all financial measures with non-financial indicators to avoid short-termism

Explanation

VBM aims at maximising shareholder value by identifying value drivers (such as growth, margins, capital intensity, cost of capital), and integrating them into strategy, targets, performance measures and rewards at all levels. The other options are profit-focused, cost-only or exclude financial value measures.

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