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Enterprise Pillar
E2 Enterprise Management
25 May 2010 - Tuesday Afternoon Session
Instructions to candidates
You are allowed three hours to answer this question paper.
You are allowed 20 minutes reading time before the examination begins
during which you should read the question paper and, if you wish, highlight
and/or make notes on the question paper. However, you are not allowed,
under any circumstances, to open the answer book and start writing or use
your calculator during this reading time.
You are strongly advised to carefully read all the question requirements
before attempting the question concerned (that is all parts and/or subquestions).
ALL answers must be written in the answer book. Answers or notes written
on the question paper will not be submitted for marking.
ALL QUESTIONS ARE COMPULSORY.
Section A comprises 5 questions and is on pages 2 to 5.
Section B comprises 2 questions and is on pages 6 and 7.
The list of verbs as published in the syllabus is given for reference on page
11.
Write your candidate number, the paper number and the examination subject
title in the spaces provided on the front of the examination answer book. Also
write your contact ID and name in the space provided in the right hand
margin and seal to close.
Tick the appropriate boxes on the front of the answer book to indicate which
questions you have answered.
Management Level
TURN OVER
The Chartered Institute of Management Accountants 2010
SECTION A 50 MARKS
[the indicative time for answering this section is 90 minutes]
ANSWER ALL FIVE QUESTIONS IN THIS SECTION
Question One
SM is a consultant who has been asked to work with FX Company, a family owned business,
which produces home-made ice cream. Her brief is to undertake an assessment of the
companys competitive position. As part of her review she is gathering information from various
areas of the business. She has asked the Sales and Marketing Director to provide her with: an
overview of the companys competitors; information on whether market growth is high or low;
and what FXs market share is. She is surprised by his response that the company does not
undertake any competitor analysis and that he has no idea of its market share.
Required
(a)
Explain why FX Company should undertake competitor analysis.

(4 marks)
(b)
Discuss why it is important for FX Company to understand the concepts of

high/low market growth and market share when undertaking competitor analysis.
(6 marks)
(Total for Question One = 10 marks)
Section A continues on the opposite page
Enterprise Management
May 2010
Question Two
CT established her business, KCC, specialising in making handmade cakes, six years ago.
Initially CT worked from her home, developing new recipes and cake designs. The business
thrived on the creative talents of CT and her staff. In fact, the business became more successful
than CT could have hoped for with a number of upmarket supermarkets now stocking her
products.
Six years on, CT is reflecting on her success. She does feel that things have changed
significantly since the early days when her business was run from her home kitchen. To satisfy
increasing demand, three years ago she bought a factory for the production of her cakes, and in
the last year she has opened five shops to sell the companys products.
KCC currently employs over 450 staff and the company has significantly changed compared to
when it was first established. It now has a formal functional structure and the culture has more of
the feel of a large bureaucratic organisation. CT feels that she has lost the passion and
enthusiasm she once had for her business and feels that far too much of her time is spent on
management issues rather than creating designs for cakes. She has a senior management team
made up of the managers looking after different functional areas of the business. They make
decisions about the running of the business, but seem to be focused on achieving efficiencies,
control and bottom line performance, and have little interest in the creative side of the business.
CT used to be on first name terms with her staff, but this is no longer the case. She was
particularly saddened when she overheard an employee comment that he just felt he was a
robot on a production line rather than a craft worker and that his ideas for new cake designs do
not get heard.
Required:
Distinguish between the characteristics of KCCs culture when it was first set up and the
culture the company is likely to have now.
(Total for Question Two = 10 marks)
Section A continues over the page
TURN OVER
May 2010
Question Three
V has just left her job as a website designer for a large systems design company and is about to
start up her own website design business. She will be renting an office which needs to be
prepared, and also needs to procure all the necessary equipment before the business can
commence operating. She intends to open her business in 12 weeks time. In her previous role,
she often encountered critical path analysis when she was involved in large design projects and
she considers that this technique may also be useful to help her to plan the setting up of the new
business.
V has devised a list of activities shown below that must be completed before the new business
can commence. When drawing up this list she was aware that there was a degree of uncertainty
in the timescales for some of the activities. She is concerned that if these uncertainties are not
considered at this stage then she may not hit the deadline of opening her new business in 12
weeks time. (Note: there is no slack shown).
Activity
Dependency
A
B
C
D
E
F
G
H
A
A
A
B,C
D,E
F
G
Find rental office

Procure equipment
Prepare office
Recruit staff (2 people)
Delivery and installation of equipment
Train staff
Design tests on web design system
Test web design system
Time
(Weeks)
2
1
3
4
2
2
1
1
Required:
(a)
Using the above information, construct a network diagram, clearly identifying the
critical path, for setting up Vs business.
(4 marks)
(b)
Explain to V the difference between contingency/scenario plans and buffering in the

context of helping V plan for the uncertainties in setting up the business.
(6 marks)
(Total for Question Three = 10 marks)
May 2010
Question Four
PW has been asked by her local management accountants forum to present a paper at the
annual conference on the subject of social responsibility. She has been asked to do this as her
company has recently won a national award for its socially responsible initiatives including its
success in recycling methods, community based projects and reducing its carbon footprint.
PW has decided that her presentation should start by setting out what is meant by the concept
of social responsibility since she feels there are often misconceptions surrounding the term. She
also wants to emphasise through her presentation the key benefits that companies can gain
from developing strategies which are socially responsible. PW is aware that there will be some
cynics in the audience who view socially responsible business driven strategies as unrealistic,
that they conflict with the achievement of healthy profits and detract from creating shareholder
value.
Required:
Discuss the points that PW should include in her presentation on social responsibility.
(Total for Question Four = 10 marks)
Question Five
Required:
Explain why it is important that the strategies of a strategic business unit (SBU) link to both the
overall corporate strategy of a company and to the companys functional strategies.
(Total for Question Five = 10 marks)
(Total for Section A = 50 marks)
End of Section A
Section B starts on the next page
TURN OVER
May 2010
SECTION B 50 MARKS
[the indicative time for answering this section is 90 minutes]
ANSWER BOTH QUESTIONS FROM THIS SECTION 25 MARKS EACH
Question Six
COL is a private college offering online tuition and qualifications to candidates all over the world.
The Board of Directors of COL has decided to upgrade its computer system in order to enable
COL to offer faster, more flexible delivery of courses and examination materials. It feels that this
is necessary due to increasing competition in the delivery of online tuition and qualifications from
both private and public colleges throughout the world. The Board of Directors and senior
managers of COL have spent several months identifying the objectives for the proposed new
system and identifying and discussing a range of project proposals. They have identified a clear
requirement for the new online system but recognise that they do not possess the internal
expertise they need to undertake such a project.
COL has contracted a local systems development company, SYS, to carry out the project. A
project manager, D, has been assigned from SYS to lead the COL project. He will be
responsible for all of the key stages of the project management process, beginning with the
project plan. He will also be responsible for leading the project team, which will be made up of
mainly SYS designers and also a number of IT staff and users from COL. He is also responsible
for communication of the projects progress and events to Mrs Y, the senior IT manager at COL.
COL has made it clear that no extra money will be available than that presented in the original
budget of $3 million and that any cost overruns will be borne by the contracting company. It has
also set a deadline for final delivery of the system of 12 months. Again, there is no flexibility on
this deadline.
One of the main enhancements to the updated system required by COL is the security of
candidates details. Unauthorised access to these details or candidates results is the greatest
outcome risk to the new system.
Mrs Y has insisted that staff from COL should play an active role in the systems development
project and that communications between COL and SYS should be a key feature of the project
management process.
Required:
(a)
Construct an outline project plan for the upgrade of COLs online system to be
presented by D, the project manager, to the key stakeholders of the project.
(15 marks)
(b)
Describe the main skills required of the project manager, D, to lead the project
team and create customer confidence.
(10 marks)
(Total for Question Six = 25 marks)
Section B continues on the opposite page
May 2010
Question Seven
T4M is a mobile phone network provider, with its main headquarters based in B country. Whilst
there has been significant industry growth in the last decade, more recently there are signs that
this growth has begun to level off. At the same time, competition is intensifying.
The Board of T4M is preparing to take on the strategic challenges of the changing operating
environment. As well as assessing the external environment, it has started a major review of its
internal capability, with a particular focus on examining how efficiency gains can be achieved
across the various business functions.
F, the Finance Director, is deliberating on how he can gain efficiency in his department. His
initial assessment has identified a number of transaction activities that he feels could be
outsourced, such as the work undertaken by the customer bill payment team, including some
aspects of customer service on bill queries and payroll. F is very enthusiastic about this and his
thinking has been informed by the fact that he was only recently approached by G2O, a
company specialising in this type of service, based in H Country.
If the outsourcing strategy goes ahead, along with other efficiencies the Finance Director has
planned, then this would mean a substantial reduction in headcount within the Finance
Department, with predicted job losses of around 300 staff. The trade union has already heard
about the proposal and the possibility of redundancies. It has made it clear that it will put up a
fight against redundancies, on behalf of its members, to keep jobs in T4M.
F will need good negotiation skills since it is likely that he will be involved in a number of
negotiation scenarios if the outsourcing strategy is implemented.
Required:
(a)
Explain the benefits and drawbacks associated with T4Ms proposal to outsource some
of the work currently undertaken in the Finance Department.
(12 marks)
(b)
Discuss how F, the Finance Director, should approach negotiations so that they are
effective if the outsourcing strategy goes ahead.
(13 marks)
(Total for Question Seven = 25 marks)
(Total for Section B = 50 marks)
End of Question Paper
May 2010
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10
May 2010
LIST OF VERBS USED IN THE QUESTION REQUIREMENTS

A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for
each question in this paper.
It is important that you answer the question according to the definition of the verb.
LEARNING OBJECTIVE
1 KNOWLEDGE
What you are expected to know.
2 COMPREHENSION
What you are expected to understand.
VERBS USED
DEFINITION
List
State
Define
Make a list of
Express, fully or clearly, the details of/facts of
Give the exact meaning of
Describe
Distinguish
Explain
Identify
Communicate the key features

Highlight the differences between
Make clear or intelligible/State the meaning purpose
Recognise, establish or select after
consideration
Use an example to describe or explain
something
Illustrate
3 APPLICATION
How you are expected to apply your knowledge.
Apply
Calculate
Demonstrate
Prepare
Reconcile
Solve
Tabulate
4 ANALYSIS
How you are expected to analyse the detail of
what you have learned.
Analyse
Categorise
Compare and contrast
5 EVALUATION
How you are expected to use your learning to
evaluate, make decisions or recommendations.
May 2010
11
Put to practical use

Ascertain or reckon mathematically
Prove with certainty or to exhibit by
practical means
Make or get ready for use
Make or prove consistent/compatible
Find an answer to
Arrange in a table
Construct
Discuss
Interpret
Prioritise
Produce
Examine in detail the structure of

Place into a defined class or division
Show the similarities and/or differences
between
Build up or compile
Examine in detail by argument
Translate into intelligible or familiar terms
Place in order of priority or sequence for action
Create or bring into existence
Advise
Evaluate
Recommend
Counsel, inform or notify

Appraise or assess the value of
Propose a course of action
Enterprise Pillar
Management Level Paper
May 2010
Tuesday Afternoon Session
12
May 2010
The Examiner's Answers

E2 - Enterprise Management
SECTION A
Some of the answers that follow in Sections A and B are fuller and more comprehensive than
would be expected from a well-prepared candidate. They have been written in this way to aid
teaching, study and revision for tutors and candidates alike.
Answer to Question One

Requirement (a)
Competitors are organisations that satisfy the same customers needs and make similar
product offerings. Competitor analysis would essentially involve an exploration of the other
companies in FXs industry sector or market for ice-cream that are competing with its
products for market share. Hence, competitor analysis is important for FX company to
undertake since the information can provide useful knowledge on the characteristics of its
competitors in terms of, for example, their strategies, objectives, strengths and weaknesses.
This should help FX company to be better aware of who its competitors are in the market
place and how it could react to its competitor strategies. It should also help the management
of FX company in understanding the organisation's competitive advantage (or indeed
disadvantage) relative to its competitors.
Conducting competitor analysis can help in generating insights into the past, present and,
importantly, potential future strategies of FX companys competitors. This in turn will provide
an informed basis for FX in developing its strategies to sustain and establish advantage over
its competitors and ensure the company is ready to respond to competitor activities. It will
also assist FX company with forecasting the potential returns on strategic investments and for
deciding between alternative competitive strategies.
Requirement (b)
It is important for FX company to understand the concept of market growth since this involves
estimating how much the market for home made ice cream has grown and is predicted to
grow over a particular period of time. Hence, it represents the increase (or indeed decrease)
in demand for FXs products over time. This is usually specified in terms of the annual growth
of the market in which FX operates based on sales, by volume or value.
It is also important for FX company to determine whether the rate of market growth is high or
low; this will very much depend on the conditions of the market. New markets may grow very
quickly, whilst mature markets may hardly grow at all. A high market growth rate can indicate
potential good opportunities for FX company. However, it is important to consider the
competitor responses since intense competition in a high growth market can erode profit. On
the other hand a market with low growth but one with high barriers to entry can be very
profitable. The importance of market growth to developing competitive strategies is that if FX
company has a strategy which requires quick growth then it would be attracted to a market
which is growing rapidly.
May 2010
Market share represents FXs sales of a product within a specified market. It is usually
expressed as a percentage of total sales of that market, for example 25% market share, and
can be measured by sales revenue or sales volume (the number of units sold).
Market share can be used by FX company to determine its competitive strength compared to
other companies in the same sector facing the same challenges and opportunities. Knowing
its market share of a particular product would enable FX to assess its performance year to
year. A high market share is usually regarded as being strategically beneficial since it may
make it possible to influence prices and reduce costs through economies of scale. The end
result should be increased profitability.
Answer to Question Two

There are a number of different types of culture which are determined by a range of factors
such as the organisation's structures, processes and management methods.
It is probable that KCC originally developed as an entrepreneurial organisation with CT, as its
founder, bringing the technical and creative expertise which is at the heart of the business.
When KCC was first set up it would have been typified as having a power culture. This is
based on one or a few powerful central individuals, in this case CT, who keeps control of all
activities and makes all the decisions for the company. Control is achieved in an informal way.
The culture is often depicted as a web whereby the power resides at the centre and all
authority and power emanates from one individual, i.e. CT. This type of culture means that the
organisation is not rigidly structured and has few rules and procedures. It can react well to
change because it is adaptable, informal and decision making is quick.
As a company grows it often results in the introduction of formal structures and control
systems, as in the case of KCC. In contrast to the culture at set up, it is likely that KCC may
have developed a role culture. Within a role culture KCC will be dependent upon various
functions, each of which has its own areas of strength and influence, with an emphasis on
internal processes. This type of culture can be impersonal, illustrated by the employee who
commented that he felt he was just a robot and CT's observation that she no longer knew the
names of her staff.
It relies on formalised rules and procedures for work routines to guide decision making in a
standardised and bureaucratic way. Each job is clearly defined and the power is based on
position in the hierarchy. Individuals are selected for particular roles on the basis of their
ability to complete a particular task to the required level. The formal rules and procedures
which must be followed should ensure an efficient operation. Decisions tend to be controlled
at the centre, in KCC this is done by the senior management team.
This type of culture can be depicted as a Greek temple drawing strength from the pillars
which represent functions such as marketing, finance and human resource management and
are joined at the top where the heads of the functions form the management board, as in
KCC. Whilst the role culture can produce a very efficient way of working it can be slow to
respond to and react to change. Communication is vertical and the bureaucracy and rigid
control can result in stifling creativity within the company. This sums up how CT is feeling
about her business today.
May 2010
Answer to Question Three

Requirement (a)
Critical Path = ACEFGH
Duration of project to set up V's business = 11 weeks
Network Diagram is shown on the following page
May 2010
A2
C3
B1
D4
Critical Path = ACEFGH

Duration of project to set up Vs business = 11 weeks
Requirement (a)
5
E2
4
7
F2
5
9
G1
10
10
H1
11
11
Requirement (b)
The network diagram will help V in analysing the sequence of activities that must be
undertaken in setting up her business, identifying those that can occur in parallel. It will also
indicate the start and finish time for each activity and the time of the project overall. However,
as with any project, there may be uncertainties associated with the time planning of various
activities. For example, the delivery of the equipment may be delayed, or there may be
problems with the installation of the equipment, taking longer than anticipated. To plan for
possible uncertainties, V could construct contingency or scenario plans. This would require V
to look at the various activities involved in setting up her business and have alternative
contingency/scenario plans ready in order to minimise the possible risk associated with the
project activities, which V could switch to if needed. For instance, V could have a contingency
plan to combine staff training with designing the tests on the web based system to make up
time if the delivery of the equipment is late.
A more simplistic way to incorporate uncertainty into the plan is to add artificial slack into risky
activities. This is known as buffering. This is not the best method to deal with uncertainty as it
may cause the build up of slack in a plan and may lead to complacency. By building in slack,
then V may not achieve her aim of opening the business in 12 weeks time.
The project currently has a critical path of 11 weeks, and V wishes to open her business in 12
weeks, leaving 1 week for contingencies. This may be insufficient considering the potential for
activities to be delayed. For example, if Activity E, the delivery of the equipment was to be
delayed by over 1 week, then the business would not open on time, unless V makes a
number of contingency plans, as discussed above.
Answer to Question Four

PW needs to set out the business case for organisations to be socially responsible in a way
that will convince the sceptics/cynics who are wedded to the shareholder view of a business,
that it is not only possible, but also in the longer term interest of the business, to practice
social responsibility. She could, therefore, usefully start her presentation by explaining how
her company interprets the concept of social responsibility, defining her terms and setting the
concept of social responsibility in the context of the wider debate between the traditional
shareholder view of the purpose of business and the more recently developed stakeholder
perspective.
PW should argue that essentially social responsibility is about taking account of more than
just the immediate interests of the shareholders when considering the corporate purposes
and making business decisions. It recognises that there are many groups in society with an
interest in the activities of a company, not just its shareholders and that, increasingly socially
responsible strategies are expected from companies in the interactions with their different
stakeholders. She could go on to make the point that, in a business sense, social
responsibility is concerned with externalities. This refers to the costs not absorbed in products
and services and not paid for by customers, but borne by the wider community.
PW should then go on to stress that socially responsible business strategies should be
viewed as win-win, rather than being a drain on profits. She could present the following points
in making the case and providing evidence that there can be a positive link between
strategies which are socially responsible and good financial performance:
There is a strong argument that if a companys strategies or core business conflict

with the needs and values of society it may not survive in the long term. In addition,
socially responsible strategies can have commercial benefits. For example, there is
the potential to drive down costs by reducing waste and pollution and saving energy
and recycling resources may lead to lower overheads, which in turn can help improve
profits.
There are also the reputational benefits to be gained by a company presenting its
socially responsible credentials. Adopting a more socially responsible stance should
May 2010
have a positive impact on the corporate image of a company, attracting favourable

publicity. This could be used as a competitive advantage.
Socially responsible actions might include charitable donations and sponsorship by a

company which should reflect well on the company and be good public relations.
Doing business in a socially responsible manner could attract socially conscious

consumers. Consumers may be willing to pay premium prices for products they
regard as sound. Increasingly, customers are becoming more concerned for the
environment and may boycott companies that damage the environment preferring to
do business with those that demonstrate sustainable business practices.
Socially responsible strategies can attract socially conscious investors. This means
that investment funds may be attracted to a company with a good social responsibility
score, which could then have a positive effect on share prices and hence represent a
direct increase in shareholder wealth. In turn, this should cause shares to trade at a
premium price representing a direct rise in shareholder wealth.
Being a socially responsible company can lead to improved staff morale. This benefit
is based on the fact that feelings of social responsibility are not just external to the
firm. The management and staff of the firm are members of society too and may have
similar values. If business decisions force managers and staff to contradict their
personal ethics on a daily basis the impact will be to reduce morale and increase staff
turnover. This could harm financial performance. A socially responsible firm on the
other hand may be able to attract good staff.
Another positive is that adopting socially responsible strategies could improve relations with
government and other regulatory bodies. Many companies depend on the goodwill of
government bodies, for example in granting production licences, planning permission etc. A
good record of social responsibility may help convince the decision-makers to use discretion
in the company's' favour.
Answer to Question Five

A strategic business unit (SBU) is usually a division within a larger organisation that has a
significant degree of autonomy, typically being responsible for developing and marketing its
own products and services. [CIMA Management Accounting Official Terminology].
In explaining why it important that the strategies of an SBU link to the overall strategy of a
company and also to its functional strategies, it is helpful to think about these different levels
as a hierarchy whereby activities at the lowest level are guided by and constrained by
decisions at the higher levels. The point here is that the different levels of strategic decisions
are interdependent so that one level should be consistent with the strategies at the next level.
It is important that SBU strategies fit with the overall direction of the company, its purpose and
scope as articulated in its corporate strategy. This means that the strategies developed at
SBU level should be formulated within the broad framework of the objectives determined by
the overall corporate strategy of a company. At corporate level the strategy will determine
how much investment should be provided to each of its business units and will provide a
framework of goals and objectives that will inform business level strategies. Hence, this will
influence, at SBU level, decisions such as which products/services should be developed, how
each SBU should segment its market/s and how to gain competitive advantage over its
competitors. It is worth noting that the extent to which an SBU is free to make competitive
strategy decisions varies from organisation to organisation reflecting the degree of
centralisation versus decentralisation in the management structure of a firm.
In order that the strategies of an SBU are actually implemented as intended it is important that
they inform the development of functional strategies. Functional (sometimes referred to as
operational) level refers to the main business functions such as marketing, sales, production,
purchasing, human resources and finance. Functional strategies are the longer term
management policies that are intended to ensure that the functional areas of a company play
their part in helping the SBU achieve its goals and ultimately those of the corporate strategy.
May 2010
This means translating the objectives of the SBU into digestible elements and converting
theory into practice. It is important to ensure that the various functions of the organisation
contribute to the achievement of the business level strategies working in a supportive sense
rather than conflict with the SBU strategies.
May 2010
SECTION B
Answer to Question Six

Requirement (a)
Outline Plan
Project Name: The COL on-line course delivery system upgrade project
Project team and responsibilities: For example, Project Manager D, responsibility to
prepare and implement plans, selection and management of the project team, manage the
successful delivery of the project to time, cost and quality criteria, communication to all
stakeholders.
Project Objectives and Scope: To design and implement an upgraded on-line course
delivery system to meet the proposed requirements as set by COL. The project must be
completed within 12 months from the date of commencement at a maximum cost of $3
million.
Technical Plan: This will include the technical features of the project. The requirements as
set out by COL will be identified, the systems specifications, systems-diagrams, site plans
and any relevant tools and techniques that will be used to undertake the COL project.
Quality and Management: The quality plan will identify the key outcomes that COL expects,
the acceptance criteria agreed between COL and SYS and a plan of how each outcome will
be tested. Safety and security is clearly a key issue for COL and therefore the planning for
this criterion is essential as the system must be 100% secure.
Project Communication Plan: This will identify the key personnel and main stakeholders in
the project. D, as project manager will be responsible for reporting weekly to Mrs Y to update
her on project progress and to address any concerns she may have. Project design meetings
will be scheduled with the designers of SYS and the users of COL. Project status review
meetings will also be scheduled with all of the project team to assess progress and to raise
issues or problems. Monthly resource reports will also be necessary as the budget is a critical
aspect of this project and must be monitored carefully.
Organisation and Personnel: This describes the structure of the project team and the
responsibility of team members. Included will be staff from COL, whose main responsibility
will be to ensure that the requirements of the system are met and fit the user needs. Any
training needs will need to be highlighted.
Project schedule: This is likely to be highlighted as a Gantt chart or network diagram and will
describe the main phases of the project and key milestones. A Work Breakdown Structure
(WBS) will need to be provided to the project team to identify all of the tasks and those
responsible for them.
Project resources and budget: A cash flow forecast will need to be drawn up to show time
phasing of cash requirements. A cost plan, breaking down costs per hour and the cost of
purchases will be necessary. COL has made it clear that no extra money is available
therefore D must try to ensure that his costings and time/resource management are as
accurate as possible. SYS bears the risk of any cost overruns.
Risk assessment and management: Risks are identified and assessed and contingency
plans made. A contingency plan must be identified for each risk and allocated responsibility
and monitoring by a team member. For COL, unauthorised access to candidate details and
results is a huge outcome risk and therefore security must be 100%. Therefore, the most
advanced security software must be used and cost implications must be considered.
Change management: Requests for change may be instigated by D or COL, represented by
Mrs Y. These need to be approved by the project board.
Post-implementation audit: Provision will be made for a review of the final project to ensure
completion. This will involve the project team, suppliers and the customer. It will include a
May 2010
summary of performance, reviewing all aspects of the project. Lessons learned should be
identified.
In addition, a number of separate plans will need to be drawn up by the project manager,
including separate plans for time, cost, quality, resources and communication.
Requirement (b)
The project manager D will require a set of skills that will encourage and lead the project team
to succeed and create confidence in the project team. These skills are as follows:
Leadership skills
The project manager must have the ability to motivate the project team. Leadership involves
influencing others through personality and through the actions of the project manager. This
may be difficult for D initially, as some of the project team members are not from SYS and
therefore will not be familiar with this style of project working or with his style of leadership. D
must ensure that there is open communication between team members and that all team
members feel part of the team whether they are from COL or SYS. Therefore, a key role for D
is to empower the project team members to take ownership and responsibility for the project.
Communication skills
D must also be an effective communicator. A key role for any project manager is to
communicate regularly with a variety of people, including team members, the systems
suppliers, the end users of the COL system, the Board of Directors of COL and there has
been a specific request by Mrs Y for regular communication Therefore, D must ensure that
she is kept in constant communication throughout the project. D will be responsible for
communicating through regular formal team meetings, face-to face meetings with Mrs Y,
informal face to face meetings with individual team members, written progress reports to all
stakeholders and constantly listening to all the stakeholders in the project. Therefore D has a
responsibility to communicate in a variety of formal and informal ways to a variety of
stakeholders.
Negotiation skills
D will have to negotiate with suppliers, team members and senior staff within COL on a
variety of issues such as availability and level of resources, priorities, standards, procedures,
costs, quality and people issues. The difficulty for D is that he will have to negotiate with some
over whom he has no direct authority over, such as suppliers and with those who have no
authority over him, such as Mrs Y. It is vital that D keeps conflict to an absolute minimum.
This is particularly relevant in this project as a finite budget has been set and any cost
overruns must be borne by SYS.
Delegation skills
Delegation involves empowering the project team members to accomplish their own tasks
within the project. Delegation is a key role of the project manager as it is an impossibility for
the project manager to take responsibility for every aspect and task occurring in a project.
Delegation helps to ensure effective performance of the project team and helps to foster team
work and motivation.
Change management skills
D must have the skill to manage and control change, which is inevitable on any project. D
must ensure that the impact of change upon the COL project must be kept to a minimum if the
time and cost deadlines are to be met. Any changes requested by the customer must be
evaluated and costed and presented to the customer for approval.
May 2010
Answer to Question Seven

Requirement (a)
The concept of outsourcing is concerned with contracting with a third party (external supplier)
to provide a part of a business process. The proposal in the scenario could in fact be termed
offshoring since the outsourced business function will be carried out in another country.
There are a number of benefits T4M could gain from outsourcing to G2O:
A primary benefit of outsourcing is cost reduction to T4M which is perhaps why the
Finance Director is so enthusiastic about the proposal. The supplier, G2O, should be
able to perform the functions more cheaply and efficiently for a whole host of reasons,
not least if the labour costs are lower in H country. It will also save T4M labour costs
such as those associated with recruiting and training staff. Essentially, outsourcing
activities converts fixed costs into variable costs.
The services provided by G2O should be at an agreed cost which could lead to a
more accurate prediction of costs for T4M, and therefore assist budgetary control.
A specialist provider could give access to specialist skills and bring best practice
expertise. The outsourced company can leverage skills to achieve greater efficiency
gains.
It may allow the finance function to concentrate on its role as business partner,
working more closely with the business, improving its contribution to strategic
decision making.
There are, however, a number of drawbacks which the Finance Director should take into
consideration:
Whilst reducing cost, when moving to an outsourced model, T4M will need to factor in
the costs of managing the outsourced contract (i.e. transaction costs), along with
developing the expertise needed to manage the contract. There will be the
negotiation and drafting of the legal contract with G2O and then the monitoring of
compliance with the contract in terms of the quality and reliability of service that G2O
provides. There is also the possibility of costs associated with pursuing legal actions
for redress due to non performance by G2O.
Outsourcing can result in less managerial control, since it may be harder for T4M to
manage the outsourcing service provider, G2O, as compared to managing its own
staff.
Another drawback is associated with risk. Over reliance on external providers can
lead to an erosion of internal knowledge and skills and can result in some of the
benefits of organisational learning being transferred to the service provider.
A further potential drawback concerns confidentiality of information given to the

external provider, for example that provided by T4M's customers such as bank
account details. T4M will need to put in place security measures to limit the risk of any
breaches in the use of confidential customer information by G2O.
T4M could end up having to pay increased costs from additional services required
after the service level has been agreed. There may be penalty payments and
cancellation payments if T4M finds that it needs to change its side of the bargain and
draft a new contract with G2O.
It will be important to ensure contract compliance to the predetermined standards to

reduce the risk of increasing any monitoring costs and the costs associated with loss
of customer business as a result of unsatisfactory service.
Requirement (b)
Negotiation is the process of satisfying needs by reaching an agreement. The main aim of
negotiation is to use argument and persuasion in order to strengthen ones own case by
undermining the opposition.
May 2010
F, the Finance Director will need good negotiation skills since it is likely that he will be
involved in a number of different negotiation scenarios if the decision to outsource goes
ahead. For example, in implementing the outsourcing strategy with the Finance Director will
need to use his negotiating skills when securing the contract with T4M on his desired terms.
Negotiation is often necessary within organisations to resolve conflicts of interest between two
or more parties which have arisen because the parties have different objectives, when there
is a conflict of interest between two or more parties and when what one party wants is not
necessarily what the other wants. This is likely to be the case in T4M where the Finance
Director will need to reduce numbers of staff but employees will not want to lose their jobs. In
this situation F will be involved in negotiations with employees and trade unions regarding the
possible redundancies.
If F is to be effective in his negotiations it is essential that he adopts the strategies and tactics
that experienced negotiators have learned and developed over the years.
Since negotiation takes place between different parties who have different objectives it is
important to find out at the outset what these objectives are, since approaches to the
negotiation process can be best achieved through focussing initially on each sides primary
objectives, rather than becoming distracted by minor negotiating points at an early stage.
This will be important in determining the terms of the contract with G2O.
Given that G2O is located in H, a different country to that of T4M, it may be necessary to
learn something about the prevailing culture in H. Whilst most of the objectives should be
made explicit and clearly stated, others may be unspoken and those unfamiliar with culture
may not realise that negotiations are not proceeding well because they have not taken into
account the unspoken objectives of the other party.
It is necessary to maintain some flexibility within the negotiation process and for both parties
to be prepared to settle for what is fair. It is also important to listen to what the other side
wants and to make an effort to compromise so that both sides can attain their goals.
However, this is often where negotiation can fail because of the tensions between the
different objectives that can never coincide. This could occur for T4M since the employees
and the unions main objective will be to keep jobs, whilst the Finance Director may see no
alternative if the outsourcing proposal goes ahead.
With regard to negotiations on redundancies it is likely that in the first stages of negotiation
that the union will reject the proposals as unacceptable and will prepare its negotiation
strategy. Whilst the union will not want to agree to job losses it might recognise that they are
inevitable and concentrate instead on persuading management to provide generous
severance pay above the legal minimum and to consider redeployment opportunities. F
should have anticipated such a reaction and should have his negotiation strategy worked out.
The ideal will be to achieve a win-win outcome where both sides achieve enough of their
objectives to be satisfied with the end result, trading-off wins and losses so that each side get
something in return for everything it concedes on. Win-lose or lose-lose outcomes are in no
ones best long term interest. Whilst T4M will want to get a good deal, for example with G2O, if
one party comes out of the negotiation a loser it may feel resentful and this is not a good
basis for building a long term relationship.
Important tactics for negotiation are to use questions effectively so as to control the situation;
the use of persuasion. F will not want to weaken his case inadvertently. During the negotiation
process it is important from time to time to test that both sides understand clearly what is
being proposed and at the stage the negotiations are at.
It is suggested that effective negotiation should go through a number of stages, for example:
Preparation
This involves both parties in the negotiation gathering information and insight to the
problems in order to understand the constraints acting on the negotiating parties.
Who is involved in the negotiation, what the concerns of each party are and what the
goal of the negotiation is will need to be determined. Another key feature at this stage
is to determine the time for negotiation.
The opening phase of negotiation
May 2010
10
This involves both sides presenting their starting positions to one another. It is at this
stage that the greatest opportunity is present to influence the other side.
The bargaining phase

This is where both parties will aim to narrow the gap between the two initial positions
to persuade the other party that its case is so strong that the other must accept less
than it had planned. This might, in the case of T4M, perhaps be in terms of the total
number of job losses, or the financial arrangements for redundancy. The union will
want the best for its members, whereas the management will want to minimise the
cost of redundancy. In terms of the contract with G2O, T4M will want to get the best
service level agreement for the lowest cost.
Some rules of bargaining have emerged which skilled negotiators have found helpful.
For example, dont give anything without taking something in return, give things you
can afford to lose and only take the things that you want.
In the bargaining process, F should be careful not to push things so hard that conflict
with the other party ensues. Conflict can damage the relationship between the parties
to negotiation to such an extent that a beneficial outcome becomes increasingly
difficult.
If negotiations reach a point of deadlock, which neither party can shift from if its
objectives are to be achieved, then the advice is to look for areas of common ground
and then to build on them.
The closing phase of negotiation

This represents the opportunity to capitalise on the work that has been done at the
earlier phases. It is at this stage that agreement is reached. The outcomes from the
agreement should be formalised and implemented. It is important that the contract or
terms of reference document is drawn up, perhaps with the help of the company
lawyer to make sure that what has been agreed in the negotiations is reflected in the
document.
11
May 2010
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Management Level
23 November 2010 - Tuesday Afternoon Session
Instructions to candidates
You are allowed three hours to answer this question paper.
You are allowed 20 minutes reading time before the examination begins
during which you should read the question paper and, if you wish, highlight
and/or make notes on the question paper. However, you are not allowed,
under any circumstances, to open the answer book and start writing or use
your calculator during this reading time.
You are strongly advised to carefully read all the question requirements
before attempting the question concerned (that is all parts and/or subquestions).
ALL answers must be written in the answer book. Answers or notes written
on the question paper will not be submitted for marking.
ALL QUESTIONS ARE COMPULSORY.
Section A comprises 5 questions and is on pages 2 to 4.
Section B comprises 2 questions and is on pages 5 and 6.
The list of verbs as published in the syllabus is given for reference on page 7.
Write your candidate number, the paper number and the examination subject
title in the spaces provided on the front of the examination answer book. Also
write your contact ID and name in the space provided in the right hand
margin and seal to close.
Tick the appropriate boxes on the front of the answer book to indicate which
questions you have answered.
Enterprise Pillar
TURN OVER
The Chartered Institute of Management Accountants 2010
SECTION A 50 MARKS
[You are advised to spend no longer than 18 minutes on each question in this section]
ANSWER ALL FIVE QUESTIONS IN THIS SECTION

Question One
TS Consultants has been asked to investigate the issues underlying the underperformance and
low staff morale of the Finance Department in YR Hospital.
The consultants have access to various sources of information such as the recent staff
satisfaction survey which shows that staff morale in the department is low. In addition, statistics
from the HR Department reveals that both absenteeism and staff turnover are exceptionally high
in the Finance Department. There have also been many complaints from other areas of the
hospital about both the management and staff working in the department. However, staff enjoy
competitive salaries and other excellent working conditions such as free car parking, a
subsidised canteen and access to sports facilities.
The consultants have run some focus groups with members of staff working in the department to
try to gather more information to help them better understand the causes of underperformance
and low staff morale. The findings suggest that there appears to be very much a them and us
culture between management and staff, with the managers in the department exerting power
based on their position and status. Staff say that they are only allowed to undertake the specific
activities included in their narrow job descriptions and feel unable to fully contribute as a result of
the chain of command in the Finance Department. Staff also say that they are not involved in
decisions regarding the departments activities, and many say they have not had any training.
They mentioned that there are very few career progression opportunities because of this. They
feel their contributions are not recognised by management and that they never receive feedback
on their performance. Staff characterise the leadership and management of the department as
task-focused, with tight controls and close supervision.
Having undertaken the review, the consultants are preparing the recommendations on how to
improve the poor performance and low staff morale.
Required
With reference to theory, discuss the recommendations TS Consultants could make to
help improve performance and staff morale in the Finance Department of YR Hospital.
(Total for Question One = 10 marks)
November 2010
Question Two
M is a business that sells custom made computer-based information systems. Each customer
order is for a unique system, which will involve experts from many functional areas within M.
Each customer expects a high level of individual attention. Some systems take only four to six
months to design and produce and cost less than 50,000, whereas other systems cost several
million Euros and can take up to three years to complete. Projects are continually being
completed and started.
A Management Consultant's review of M's organisational effectiveness has concluded that the
matrix structure is the most appropriate for M.
Required:
Identify the characteristics of the organisation that make it appropriate for M to have a matrix
structure.
(Total for Question Two = 10 marks)
Question Three
JB has recently joined the Finance Department of P Company as a trainee management
accountant. As part of the Company's induction, she has been offered a mentor. However, since
JB has not had any previous experience of mentoring, she is unconvinced of the benefits. She
has asked LC, the facilitator of the induction session, to explain what is involved in the process
of mentoring and how it might be a benefit to her as a new member of staff.
Required:
Explain the points that LC should make concerning the process and the benefits of
mentoring for new members of staff.
(Total for Question Three = 10 marks)
Section A continues on the next page
TURN OVER
November 2010
Question Four
PRC Company, a retailer of baby clothes and toys, has been in existence for 20 years. Its
approach to strategy has tended to be informal and emergent rather than planned. However, the
company is facing uncertain times and at a recent Board meeting, one of the directors
suggested that the company should adopt a more formal approach to how it develops its
strategy. He has suggested that the use of strategic management tools and techniques could
help and, as a start, has recommended that the company should undertake a corporate
appraisal.
Required:
Explain the purpose of corporate appraisal (SWOT), and what would be involved in PRC
Company undertaking a corporate appraisal.
(Total for Question Four = 10 marks)
Question Five
The data on sales performance in LS Company has shown a significant downward trend over
the last year. The Marketing and Sales Department is blaming the Finance Department for the
poor performance, since it was the pressure from the Finance Department that led the Marketing
and Sales Department to increase the product price. The Marketing and Sales Department staff
say that, in current market conditions, this was inappropriate and was the main reason for the
loss of market share. They feel that the Finance Department staff are short sighted, too focused
on costs in pricing decisions and do not appreciate that there are other factors that should be
considered in product price setting. However, the Finance Department thinks that the Marketing
and Sales Department has been complacent and has not had an aggressive marketing and
sales strategy in place. Perhaps not surprisingly, communications and cooperation between the
staff in the two departments is at an all time low and in meetings there is constant in-fighting and
disagreements.
To make matters worse, a consequence of the drop in sales has been that the senior
management is proposing that there will need to be job losses in the Production Department.
The trade union which represents the production workers is now threatening to take industrial
action.
Required:
Compare and contrast the different types and sources of conflict occurring in LS Company.
(Total for Question Five = 10 marks)
(Total for Section A = 50 marks)
End of Section A
Section B starts on the opposite page
November 2010
SECTION B 50 MARKS
[You are advised to spend no longer than 45 minutes on each question in this section]
ANSWER BOTH QUESTIONS FROM THIS SECTION 25 MARKS EACH
Question Six
S Company operates in the consumer electronics industry designing and producing component
parts which it assembles into products such as mobile phones, laptops and MP3 players.
To date, it has only sold its products in D Country, its home market, where until recently it was
market leader. However, the competitive landscape has changed significantly as companies
from PP Country have entered D Country's market, competing aggressively on product
innovation, quality and price. Market intelligence gathered by S Company on the new
competitors suggests that they are supported in pursuit of their international strategies by
sources of national competitive advantage.
Looking to the future, S Company is evaluating its options on how to respond to the increased
competition, including how it could better position itself, and what alternative strategies it could
pursue. One option under review is to sell its products in new markets. GR, the Sales and
Marketing Director, has identified NN Country as a possible market opportunity. As the first step
in understanding whether this is a viable option, he has asked his team to undertake an initial
assessment of the external environment in NN Country.
Required:
(a)
With reference to Porter's Diamond model, explain the different sources of national
competitive advantage that the companies from PP Country may enjoy and which
could give them a competitive edge over S Company.
(15 marks)
(b)
Using an appropriate strategic management framework / model, describe the

information that GR, the Sales and Marketing Director, would require to help him
assess the external environment in NN Country.
(10 marks)
(Total for Question Six = 25 marks)
Section B continues on the next page
TURN OVER
November 2010
Question Seven
V is a regional authority, which is about to invest in a new sporting facility in one of the main
towns in the region. The sporting facility will include a large swimming pool, an athletics track
and a number of indoor facilities such as a gymnasium and indoor tennis courts. It is hoped that
this facility will attract major sporting events to the town and will encourage more local people,
particularly school children, to take part in more sporting activities.
The Finance Director of V has been appointed as the project manager and is in the early stages
of setting up the project. This will be a complex project involving the construction of a range of
new buildings and facilities involving a large number of specialist building contractors and
equipment suppliers. The project is a collaborative venture funded by the regional authority and
investment from three large local businesses. The Finance Director has been informed by the
Board of V that this is a very high profile project for the regional authority and that overspending
on this project is not allowed.
It has recently been reported in the local newspaper that the local residents living near to the
proposed site for the new sporting facility are not happy with the proposal. This is largely
because the proposed site is in a wealthy area on the edge of the town and local residents feel
that it would be more appropriate if the new facility was located more centrally.
The new sporting facility would mean that two other smaller sporting facilities in the town,
currently owned and run by the regional authority, would be closed down and staff relocated to
the new facility. In the first meeting held by the project manager to communicate the proposals
to staff, he was met with a hostile reaction, with many of them being very unhappy about moving
to the new site.
The Finance Director is aware that it is a complex project and that the use of project
management software will be an important tool in making the project objectives achievable. He
is also aware that he must consider the needs of the different stakeholders throughout the
duration of the project.
Required:
(a)
Explain how project management software could help the project manager and the
project team during the life of the project.
(12 marks)
(b)
Identify the main stakeholders of the project and recommend appropriate strategies
that the project manager could use to manage the different stakeholders' expectations.
(13 marks)
(Total for Question Seven = 25 marks)
(Total for Section B = 50 marks)
End of Question Paper
November 2010
LIST OF VERBS USED IN THE QUESTION REQUIREMENTS

A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for
each question in this paper.
It is important that you answer the question according to the definition of the verb.
LEARNING OBJECTIVE
1 KNOWLEDGE
What you are expected to know.
2 COMPREHENSION
What you are expected to understand.
VERBS USED
DEFINITION
List
State
Define
Make a list of
Express, fully or clearly, the details of/facts of
Give the exact meaning of
Describe
Distinguish
Explain
Communicate the key features

Highlight the differences between
Make clear or intelligible/State the meaning
purpose of
Recognise, establish or select after
consideration
Use an example to describe or explain
something
Identify
Illustrate
3 APPLICATION
How you are expected to apply your knowledge.
Apply
Calculate
Demonstrate
Prepare
Reconcile
Solve
Tabulate
4 ANALYSIS
How you are expected to analyse the detail of
what you have learned.
Analyse
Categorise
Compare and contrast
5 EVALUATION
How you are expected to use your learning to
evaluate, make decisions or recommendations.
November 2010
Put to practical use

Ascertain or reckon mathematically
Prove with certainty or to exhibit by
practical means
Make or get ready for use
Make or prove consistent/compatible
Find an answer to
Arrange in a table
Construct
Discuss
Interpret
Prioritise
Produce
Examine in detail the structure of

Place into a defined class or division
Show the similarities and/or differences
between
Build up or compile
Examine in detail by argument
Translate into intelligible or familiar terms
Place in order of priority or sequence for action
Create or bring into existence
Advise
Evaluate
Recommend
Counsel, inform or notify

Appraise or assess the value of
Propose a course of action
Enterprise Pillar
Management Level Paper
November 2010
Tuesday Afternoon Session
November 2010
The Examiner's Answers

E2 - Enterprise Management
SECTION A
Some of the answers that follow in Sections A and B are fuller and more comprehensive than
would be expected from a well-prepared candidate. They have been written in this way to aid
teaching, study and revision for tutors and candidates alike.
Answer to Question One

In making their recommendations TS Consultants could refer to Hertzbergs theory on
motivation. Essentially, the two factor theory proposed by Herzberg suggests that there are
hygiene factors which need to be in place in order to reduce staff dissatisfaction. If they are
absent this can lead to dissatisfaction and consequently impact on performance. For
example, factors surrounding the job context such as pay, working environment, company
policy and interpersonal relationships. These factors tend to be extrinsic to the job itself and
whilst they are unlikely to motivate staff, if they are not right can cause dissatisfaction and demotivation. The other set of factors are those, which if present, can motivate individuals to
superior effort and performance. They tend to be related to the job itself, in other words are
intrinsic factors and are referred to as motivators or growth factors.
Applying this theory to the Finance Department based on the Consultants findings, it is
apparent that the hygiene factors such as competitive salaries and good physical working
conditions are in place. However, there are some hygiene factors that need attention,
specifically the nature of supervision. The consultants should recommend that action is
needed to address the nature of supervision by management and the poor relationships
suggested by the 'them and us' culture, which would involve a shift in the approach to
leadership in the department.
Another set of recommendations should be made which relate to the potential motivating
factors, such as those relating to recognition, challenging work, responsibility and
advancement. This could include reviewing job design to determine possibilities for job
enlargement and job enrichment. This would involve exploring the design of job roles in the
Finance Department to widen the scope of jobs, providing more interesting and challenging
work for staff. The benefit to employees would be the development of new skills and being
given greater responsibility through empowerment. This would, however, require the
managers to adopt a more participative leadership style, with junior staff given greater
responsibility for their own areas of work and encouraged to participate in decision making,
but with managers providing constructive feedback.
Another recommendation would be to look at how improved prospects for career development
could be achieved. This might mean providing opportunities for lateral moves to enable staff
to gain new experiences and competencies.
A recommendation could be made to introduce some kind of recognition scheme since
recognition is an important motivator. This could be achieved, at one level, by simply
November 2010
encouraging managers to thank members of staff for their contribution, acknowledging extra
effort and performance. More formal recognition systems could also be considered.
TS Consultants should make a recommendation which highlights the training and
development needs of managers in the Finance Department. To resolve some of the
difficulties, it is likely that the managers will need to adapt their leadership style to a more
democratic approach. Reference to the Blake and Mouton managerial grid would help identify
the focus on the training needs for the managers. It would seem from the scenario that
currently they have the characteristics of authority-compliance management with a high
concern for the task, but low concern for people. Leadership training and development should
be designed to help the managers to understand the need to balance concern for the task
with the concern for people. Development interventions should focus on helping them to
develop better working relationships with their teams, perhaps using team building
techniques.
(Answers could develop with reference to alternative theories on motivation and
management/leadership styles).
Answer to Question Two

The characteristics of M that are appropriate to it adopting a matrix organisational structure
are as follows:
The business of M consists of a series of projects which are custom made, which are
complex and require staff from a number of different functional areas;
The projects undertaken by M have different start and end dates, so the organisation
is continually reassigning resources from project to project as one ends and another
begins;
The projects undertaken by M are complex so the staff benefit from also being
assigned to a technical function (such as finance or procurement) where they can
share knowledge and experience with colleagues in their functional teams;
The projects undertaken by M are often expensive, so having resources controlled by

functional heads should lead to improved utilisation and reduced duplication across
the different projects;
The projects undertaken by M are customer facing and customers expect a high level
of customer focus. Therefore, the customer will require a single point of contact (the
project manager) to deal with customer requests and problems.
November 2010

LC could start by explaining to JB that the purpose of a mentoring system is to provide new
employees with a forum to discuss development issues in a relaxed and supportive
environment. A mentoring system would be useful to JB, as a new member of staff, in helping
her socialise into the culture of the organisation and facilitate quicker learning about the way
the organisation works. LC could go on to say that the mentoring relationship is not based on
authority but, rather, a genuine wish by a mentor to share knowledge, advice and experience
with junior members of staff.
LC should explain that the mentor would be in a senior position within P Company, and the
purpose would be to guide and support JB, as a less experienced employee. LC should also
explain that whilst JBs mentor will hopefully be from the finance function that she has joined,
the person acting as mentor would not be her direct line manager. The reason for this is to
ensure that the mentor can act as an independent arbiter, and avoid the danger of conflict
given the developmental nature of mentoring versus line management. The mentor would
normally be a role model, having already achieved a status to which JB might aspire.
LC could then explain the different functions of mentoring, for example differentiating between
career-enhancing and psychological functions.
In terms of career enhancing, a mentor could help JB in her career with P Company through
exposure, visibility and sponsorship. Having a mentor could also help JB in expanding her
network of contacts and in gaining greater exposure in the organisation.
The psychological function of mentoring could help JB enhance her competence and
effectiveness in her role. LC could point out that the role of the mentor would be to encourage
and assist JB in analysing her performance and identifying her strengths and weaknesses.
The mentor would provide JB with honest but supportive feedback and guidance on how she
could work on her weaknesses. The mentor would also provide feedback and encourage JB
to reflect on her behaviour and experiences as she develops into her new role. LC could
explain that JB could ask her mentor questions and learn from her mentors experience, using
the mentor as a safe sounding board. So having a mentor should help JB in her new job
through encouragement and nurturing her learning and development.
LC should also explain that mentoring would work alongside some of the more formal control
mechanisms such as appraisal. The mentor would be able discuss with JB her training needs,
advise on qualifications and provide a forum for her to discuss any interpersonal problems
and career goals.
Answer to Question Four

Corporate appraisal, sometimes referred to as SWOT, involves the quantitative and
qualitative review of a companys internal strengths and weaknesses and its relationship with
external opportunities and threats. In essence, it could be used to summarise the key issues
from PRC's business environment and its strategic capability, that are most likely to impact on
its future strategic development.
Conducting a corporate appraisal brings together information derived from an analysis of the
trends in the external and competitive environments and internal developments that may be of
significance to PRC Company. The outcomes from the corporate appraisal could then be
used to determine the company's current position and inform whether it should continue with
its existing strategy or formulate a new strategy that will enable it to operate more effectively.
The process of conducting a corporate appraisal will require PRC to draw on two sets of data:
Information on the current performance and resource position of the company to

establish internal capability. Data will need to be captured from performing an
November 2010
analysis of the internal position of PRC Company, its resources and competences,
and conclusions from value chain analysis.
Information on the business environment and how this is likely to change, identifying
key trends. This information will need to be collected through the process of external
environment analysis (for example using the PESTEL framework and competitor
analysis using Porters five forces framework).
The internal appraisal for PRC Company should highlight:
Strengths, which are the particular skills or distinctive/core competences which the
company possesses and which will give it an advantage over its competitors. These
are the things the company should seek to exploit. In identifying strengths, it is
important that it highlights not just what PRC Company is good at, but how it is better,
relative to the competition.
Weaknesses, which are the shortcomings in the company and which can hinder it in
achieving its strategic aims. For example, lack of resources, expertise or skill.
Strengths and weaknesses should relate to industry key factors for success and help PRC
Company to assess how capable it is in dealing with changes in its business environment.
Opportunities relate to the events or changes outside the company, i.e. trends in its
external business environment which are favourable to the company. For example,
what opportunities exist in the business environment, what is the capability profile of
the competitors, are they better placed to exploit these opportunities? The events or
changes identified will provide some strategic focus to the decision-making for
managers in the company.
Threats relate to events or changes outside the company, i.e. trends in its business
environment which are unfavourable and that must be defended against. The
company will need to introduce strategies to overcome these threats in some way or
it may start to lose market share to its competitors.
The external appraisal will assist PRC Company in identifying opportunities which can be
exploited by the companys strengths and also to anticipate environmental threats against
which the company must protect itself. In other words, strategies should be developed to
minimise weaknesses, or develop strengths, taking advantage of opportunities or
counteracting problems from environmental changes.
Using the SWOT analysis should help PRC Company to focus on future choices and gain a
better understanding of the extent to which it has the internal capability to support the
changes. It will also facilitate the identification and generation of possible future strategic
options for PRC.
November 2010
Answer to Question Five

Conflict is essentially a disagreement and is when one party is perceived as preventing or
interfering with the goals and actions of another. It can occur in a variety of forms and at
different levels in an organisation. Whist conflict can be considered as an inevitable feature of
organisation life, in the case of LS Company it is having negative outcomes.
In LS Company, the poor communications and cooperation between the staff in the Marketing
and Sales Department and the Finance Department is an example of horizontal conflict. This
type of conflict occurs between groups of staff or between departments at the same level in
the organisation hierarchy.
The sources of the conflict may be due to the fact that the priorities and goals of the
departments are different. The staff in each of the two departments will want to focus on their
own goals, which they may view as being mutually exclusive. This is illustrated by the fact that
both departments are blaming each other for the poor sales performance. The Finance
Department is seen by the marketing and sales staff as controlling and only taking a short
term and cost based view. At the same time, the Finance Department staff think that the poor
sales performance is because the marketing and sales strategy is ineffective, and that the
marketing and sales staff have been complacent.
It is likely that another possible source of conflict is due to the difference in the perceptual
differences (cognitive and emotional) of staff working in the different functional departments.
The staff in the two departments will probably have different skills and attitudes, and perhaps
the consequence of this is a lack of understanding of the nature and challenges of each
others work, and suspicion and lack of trust between staff.
In contrast, the threat of industrial action from the trade union is an example of vertical
conflict. This type of conflict occurs between individuals or groups who are at different levels
in the organisation hierarchy, and can often arise because of status and power. The grounds
for handling vertical conflict is normally formalised by rules and regulations.
The source of conflict is because senior management will be looking to reduce costs in the
Production Department, as a result of diminishing sales orders, whilst the employees and the
union want to protect workers' jobs. The workers in the Production Department, may,
individually feel powerless, with little say in the decisions about their future and job security.
Standing together in a union will provide them with strength that equalises their power with
senior management in this conflict. The union will exert pressure through the threat of
industrial action to try to make senior management reconsider the proposal to cut jobs in the
Production Department.
Both types of conflict in LS Company are dysfunctional and destructive since both
management and staff time and effort will be wasted in addressing the conflicts. The lack of
communication and cooperation between the Finance Department and Marketing and Sales
Department, and the threat of industrial action will both impact negatively on the performance
of staff, and hence on the company.
November 2010
SECTION B
Answer to Question Six

Requirement (a)
The theory of competitive advantage of nations, proposed by Michael Porter, examines why
organisations may achieve competitive advantage over their rivals by virtue of being based in
a particular country. It tries to isolate the national attributes that further the competitive
advantage of an industry. Often referred to as Porters Diamond, the theory helps to explain
why some nations tend to produce firms with sustained competitive advantage in particular
industries using specific sources of advantage that can be substantial and hard to imitate. In
essence it seeks to explain:
Why do certain nations house so many successful international firms

How do these firms sustain superior performance in a global market
Porter concluded that it is specific industries within nations that seem to be able to use their
national backgrounds and conditions to lever world-class competitive advantage, rather than
the entire nation having a particular competitive advantage. In the case of the new entrants in
D Country it would appear that PP Country has achieved national competitive advantage in
the consumer electronics industry.
To explain how this can be achieved, Porter suggests a diamond of four interacting
determinants within a nation that assist the country to be more competitive in international
markets. These are factor conditions, home demand conditions, related and supporting
industries, firm strategy structure and rivalry.
Taking each determinant in turn:
Factor conditions refer to the factors of production that go into making a product or
services. Different nations have different stocks of factors which can be categorised
as human resources; physical resources; knowledge; capital; infrastructure. It is not
sufficient to have an abundance of the factors, rather it is the efficiency with which
they are deployed that is important.
Porter also distinguishes between basic factors, which he claims are unsustainable
as a source of competitive advantage, and advanced factors. The latter are likely to
be those creating advantage in the electronics industry in PP country, based on well
developed knowledge and expertise in R &D and technology design.
Home demand conditions refer to the nature of the domestic customer becoming a
source of competitive advantage. Dealing with sophisticated and demanding
customers with high expectations in an organisation's home market will help drive
innovation and quality, which in turn will help train an organisation to be effective in
other countries. Although economies of scale are relevant, it is not necessarily about
the quantity of home demand but the information that the home market gives
organisations and the pressure to innovate. If the customer needs are expressed in
the home market earlier than in the world market, the firms benefit from the
experience. This may be the case for the consumer electronics companies from PP
Country
Related and supporting industries mean that local clusters of related and mutually
supportive industries can be a source of competitive advantage. In other words,
competitive success in one industry is linked to success in related industries. Having
a domestic supplier industry can be preferable to a good foreign supplier as proximity
to managerial and technical people along with cultural similarity can facilitate free and
open information flows. Clusters of industries offering expertise and world class
service can be vital. In the case of new entrants, it is likely that they enjoy the support
November 2010
of producers of component and related products and accumulated expertise in

consumer electronics. Porter proposes that a nations competitive industries are
clustered, where a cluster is a linking of industries through relationships which are
either vertical (buyer-supplier) or horizontal (common customers, technology, skills).
Internationally, competitive suppliers and related industries represent a critical
resource for international success.
Firm strategy, industry structure and rivalry are related to the fact that nations are
likely to secure competitive advantage in industries that are more culturally suited to
their normal management practices and industrial structures. For example, industries
in different countries have different time horizons, funding needs, infrastructures.
Fierce domestic rivalry and competition will drive innovation, force down costs and
develop new methods for competing. This can enhance global competitive
advantage. If there is little domestic rivalry, organisations may be happy to just rely on
home markets, as is probably the case for S Company, whereas tough domestic
rivalry teaches an organisation about competitive success.
The value of Porters Diamond is that it can be used to identify the extent to which the
organisation can build on home based advantages to create competitive advantage in relation
to others on a global front.
Requirement (b)
In order to assist in the decision on whether to pursue a market development strategy in NN
Country, the team could use the PEST framework to assess the external factors in NN
country. This would involve undertaking an analysis of the political/legal, economic, socialcultural and technological factors which could be used to help determine potential
opportunities but also threats for selling consumer electronic products in NN country.
Taking each element of the PEST framework in turn:
It will be important to assess the nature of the political environment in NN country to

establish, for example, the governments policies and attitudes towards competition.
In addition, information should be collected on the political stability of NN country. If
there is political instability and unrest then this could pose a threat rather than an
opportunity for a market entry strategy.
Information should also be collected on the nature of the economic climate such as
the rate of economic growth, level of tax rates, interest rates, exchange rates, levels
of consumer disposable income and the percentage of household income spent on
consumer electronic products. All of these factors could impact on the demand for S
Companys products.
The assessment should investigate whether the social factors are encouraging for S
Company, for instance in terms of the customer attitudes, values and beliefs of
people in NN country and the extent to which they would be likely to buy electronic
products from a foreign company. This links to issues related to the branding and
whether the design and functionality of the products would need to be adapted in any
way to meet local market and customer needs. Information on social factors would
also help in determining the cultural context of NN country, for example, to gain an
understanding of any potential cultural differences in the buyer behaviour of
customers.
Technological factors would need to be explored relating to the communications

infrastructure and any technological issues that might impact on the way the
consumer electronic products are sold and associated distribution issues. This also
links to a point made under the previous heading, but related to technology
advancement in NN country, which could have consequences for the design and
functionality of electronic products.
November 2010
Answer to Question Seven

Requirement (a)
Many of the tools and techniques needed to manage large and complex projects can be
effectively carried out using project management software. Most PC based packages contain
facilities which assist in planning activities, work scheduling facilities, the ability to view
relationships between tasks, resource management and progress monitoring and control.
Project management software could assist the project manager of the new sporting facility in
a number of ways:
Budgeting and cost control. This is critically important for V as a regional authority
as public funds are being spent on this project and therefore costs must be managed
to ensure that spending is kept within budget. PM software will allow the project
manager to continually compare actual costs against budget for individual resources
and activities and for the whole project.
Multiple project handling. It is likely that this project will need to be broken down
into smaller projects to make them more manageable. This project is complex, with a
number of sports facilities being constructed by specialist contractors. Therefore, it
would be useful to break the project down into separate sub-projects that can be
planned and monitored separately.
Planning. PM software will allow the PM to define the activities that need to be
performed. It will maintain detailed task lists and create critical path analyses. It will
allow the project manager to plan several thousand activities, allocating resources,
setting start and completion dates and calculating expected times to complete.
Scheduling. PM software will build Gantt charts and network diagrams based on the
task and resource lists and associated information. Any changes to the lists will
automatically recreate a new schedule for the project.
Resource planning. A critical issue in project planning is resource planning, that is,
ensuring the project has the correct level of manpower, equipment and material at the
right place at the right time. Again, in a complex project such as the sporting facility
this will be critical as a vast amount of material and manpower will be required on the
different individual projects going on at the same time.
Resource histograms. These give the project manager a visual display of the usage
and availability of the resources needed during the life of the project. This
demonstrates clearly to the project manager where there may be resource shortages
and will allow reallocation to take place or will indicate to the project manager where
additional resources may need to be obtained to ensure critical activities are
achieved.
Reporting. The project manager will have to regularly report to the various
stakeholders on the progress of the project. PM software allows the project manager
to generate progress reports, budget reports, resource reports, work breakdown
structure reports and financial reports. These can be presented in a variety of formats
to suit the needs of the different stakeholder groups.
Requirement (b)
The main stakeholders of the project are:
The Board of V (as the project sponsors)
The local residents
The three local businesses investing in the project
The staff
The contractors and equipment suppliers
The end customers and users of the sporting facility (such as residents of the town
and local school children)
All of the stakeholders identified will have different expectations from the project and the
project manager must understand these differences and attempt to manage them. The project
manager needs to understand the different levels of power and interest of the different groups
as this will determine the most appropriate strategy for managing each stakeholder group.
November 2010
Strategies for managing stakeholder expectations

The Board of V
These are likely to be key players according to the Mendelow matrix, as they will have a high
level of interest in the outcome and success of the project and they will also have a high
degree of power, particularly in allocation of financial resources. The project manager must
ensure that the Board of V is kept regularly updated on project progress, particularly in the
area of project budgeting. Weekly progress reports should be presented to the Board of V,
detailing progress on a number of key project activities and resources
Local residents
The residents who have expressed a concern about the location of the new sporting facility
clearly have a high level of interest in the project as they have already clearly expressed their
concern to the local newspaper. Their level of power is likely to be limited unless they are able
to create wider publicity and hostility to the facility in the town. Therefore, the project manager
must communicate effectively with this group of residents in order to allay their fears. The
project manager needs to present the positive sides of the project to the residents and offer
positive support and reassurance to their concerns. Regular communication through local
meetings should be carried out or a local resident representative could be assigned to the
project committee.
Local businesses investing in the project
These investors are likely to have a high level of interest in the project as they will want to
know that their money is being invested wisely and it will also be a positive boost to their local
standing. Their level of power is likely to be limited to the amount of funds they are committing
to the project. Again, the project manager must ensure that the local businesses are informed
regularly of project progress and budget progress to ensure that a continual and good working
relationship is maintained with these funding organisations. The project manager must make
sure that these funding organisations maintain their commitment to the project throughout its
life.
Staff
The staff who will have to relocate to the new facility are likely to have a high level of interest
in the project as it is going to affect the nature and location of their working lives. However,
their level of power will be limited as they are likely to be few in number and will have little
influence in the decision. The project manager must communicate with the staff members and
identify the benefits to them of the relocation of the facility. The project manager must
consider how to make staff positive towards the new facility as their negative attitude may
affect the attitude of users in the future, so it is important to ensure that staff have a positive
attitude towards the facility.
Contractors and equipment suppliers
These stakeholders are likely to have a high level of power in the project as it is largely down
to their level of work and commitment to the project as to whether it will be a success or not.
They are likely to have a limited interest in the project itself, other than the assurance that
they will be paid regularly for the work that they complete. Therefore, the project manager
must keep the contractors satisfied by ensuring that they are provided with regular and
accurate work schedules and plans to ensure that work is carried out efficiently and on time
and to the project plan. The contractors and suppliers must be involved at the early stages of
the project life cycle in determining the project schedule and resource planning and must be
involved in the continual and on-going revisions to schedule where necessary.
End customers and users of the facility
The end customer who will eventually use the facility once it is in operation is likely to have a
low level of power and interest in the project itself. The project manager must always bear in
mind that the end facility should be designed with the users in mind and must correspond to
their needs, but during the project itself the project manager will need to present little
information to this group, other than limited local bulletins and progress reports through local
newspapers or the regional authority web site.
November 2010

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The Chartered Institute of Management Accountants 2010

Explain why FX Company should undertake competitor analysis.

Discuss why it is important for FX Company to understand the concepts of

Section A continues on the opposite page

Section A continues over the page

Find rental office

Explain to V the difference between contingency/scenario plans and buffering in the

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(Total for Section A = 50 marks)

Section B continues on the opposite page

(Total for Section B = 50 marks)

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LIST OF VERBS USED IN THE QUESTION REQUIREMENTS

Communicate the key features

Put to practical use

Examine in detail the structure of

Counsel, inform or notify

Management Level Paper

Tuesday Afternoon Session

The Examiner's Answers

Answer to Question One

Answer to Question Two

Answer to Question Three

Critical Path = ACEFGH

Answer to Question Three

Answer to Question Four

There is a strong argument that if a companys strategies or core business conflict

have a positive impact on the corporate image of a company, attracting favourable

Socially responsible actions might include charitable donations and sponsorship by a

Doing business in a socially responsible manner could attract socially conscious

Answer to Question Five

Answer to Question Six

Answer to Question Seven

A further potential drawback concerns confidentiality of information given to the

It will be important to ensure contract compliance to the predetermined standards to

The bargaining phase

The closing phase of negotiation