1. BPP LEARNING MEDIA CIMA P2 Advanced Management Accounting For exams in 2016 江西财经大学会计学院 吉伟莉 499159596@qq.com

2. BPP LEARNING MEDIA Chapter 10 Management control and risk —Nature of risks —Sensitivity analysis —Probability —Decision trees —Value of information —Risk management —Ethics and CSR —Information and Big Data

3. —Risk is a condition in which there exists a quantifiable dispersion in the possible outcomes from any activity —Uncertainty means possible outcomes and/or chances of each occurring are unknown —Risk classification: —Fundamental (Uncontrollable by individuals) —Particular (Controllable by individuals) —Speculative (Good or harm) —Pure (Harm only) Nature of risks

4. Sensitivity analysis —Analyses risk surrounding project. —Examines NPV responsiveness to changes in variables. —= (NPV of project ÷ PV of cash flow affected) × 100% Sensitivity analysis 1 CIMA P1 Performance Operations SEPTEMBER 2014

5. Margin of error approach —Calculate project’s NPV. —Determine extent to which key variables might change before a –ve NPV occurs. Sensitivity analysis 2 CIMA P1 Performance Operations SEPTEMBER 2014

6. Weaknesses —Key variables considered in isolation – unrealistic. —Ignores probabilities. Sensitivity analysis 3 CIMA P1 Performance Operations SEPTEMBER 2014

7. Expected values —Where p= probability of outcome occurring. —Where x = value of that outcome. —Long-term weighted average of all possible outcomes. Probability 1 CIMA P1 Performance Operations SEPTEMBER 2014

8. Bayes strategy —Optimum decision is one with highest expected value. Data tables —Show effects of a range of values of one/two variables. Probability 2 CIMA P1 Performance Operations SEPTEMBER 2014

9. Maximin —Playing it safe. Maximax —Best outcome whatever the likelihood. Minimax regret —Opportunity loss. Probability 3 CIMA P1 Performance Operations SEPTEMBER 2014

10. Standard deviation to measure risk —Lower standard deviation = lower risk. s = = Probability 4 CIMA P1 Performance Operations SEPTEMBER 2014

11. Decision trees 1 Evaluating the decision CIMA P1 Performance Operations SEPTEMBER 2014

12. Decision trees 2 CIMA P1 Performance Operations SEPTEMBER 2014

13. Value of perfect information —Calculate EVs of all options to see which is best. —See what decision would be made with perfect information. —Value of PI = EV of action you would take with information less EV without the information. —Shows how much information is worth paying for. Value of information CIMA P1 Performance Operations SEPTEMBER 2014

14. —Abandonment (not investing in high risk/high cost operations) —Control (contingency planning, physical measures, awareness, commitment) —Acceptance (bear full cost if risk materialises) —Transfer (to suppliers, customers, insurers, state) —Sharing (insurers, joint venture partners) —Diversification (portfolio management) —Hedging (incurring risks in opposite direction) Risk management

15. Ethics and CSR 1 Ethics —The moral principles by which people act or do business. —Two ethical values are pertinent for business: ordinary decency and distributive justice. Examples of ethical problems: —Extortion by officials, bribery, unfair competition, product safety, honesty in advertising, environmental impact.

16. Ethics and CSR 2 Social responsibility —It is commonly expected that business will provide benefits to society generally. —Not just by economic activity or to specific stakeholder groups. —Legislation and social and political pressure now promote this.

17. Ethics and CSR 3 Areas of social responsibility —Impact of operations on the natural environment —Human resource management policies: hiring, firing, etc. —Non-reliance on contracts with adverse political connotations: sustainable business practices in developing countries, etc. —Charitable support and activity in the local community —Above-minimum (legal) standards of workplace health and safety, product safety and labelling, and so on

18. Ethics and CSR 4 Employment —Equal opportunities and employment protection legislation can sometimes hamper a businesses’ ability to adjust the size of their workforce and control labour costs. Environmental and externalities —Extensive legislation is designed to protect the natural environment and other forms of amenity such as health and family life.

19. Ethics and CSR 5 Two approaches to ethics – compliance and integrity Compliance: Ethos: conform with imposed standards Objective: keep to the law Originators: lawyers Methods: reduced employee discretion Behavioural assumptions: people solitary, self interested Standards: the law Education: the law, compliance system

20. Ethics and CSR 6 Two approaches to ethics – compliance and integrity Integrity: Ethos: choose ethical standards Objective: enable legal and responsible conduct Originators: management Methods: leadership, education, systems Behavioural assumptions: people are social beings with values Standards: ethical values and the law Education: values, the law, compliance systems

21. Ethics and CSR 7 CIMA’s code of ethics —Integrity is more than not telling lies; professional accountants must not be party to anything which is deceptive or misleading. —Objectivity is founded on fairness and avoiding bias, prejudice and partiality. —Professional competence and due care.

22. Ethics and CSR 8 CIMA’s code of ethics continued —Confidentiality Employers/clients entitled to expect that confidential information will not be revealed without permission or if there is a legal/professional right/duty to do so. —Professional behaviour protects the reputation of the professional and the professional body. —CIMA’s Code of Ethics is based on the International Federation of Accountants (IFAC) Code of Ethics.

23. —Information is required for planning, controlling, recording and processing transactions, performance measurement and decision making —Strategic information assists strategic planning, deciding on the objectives of the organisation and how to achieve those objectives Information and Big Data 1

24. —Tactical information is used to decide how the resources of the business should be employed, and to monitor how they are and have been employed —Operational information is used to ensure that specific operational tasks are planned and carried out as intended Information and Big Data 2

25. Good information —Accurate —Complete —Cost-beneficial —User-targeted —Relevant —Authoritative —Timely —Easy to use Information and Big Data 3

26. Evaluation of information systems —Cost-benefit analysis —Balanced scorecard —Effect on competitive position —Business case (financial/marketing/operational) —User requirements —Must consider technical and operational viability Information and Big Data 3

27. Information and Big Data 9 —Big Data refers to the mass of data that society creates each year. —It extends far beyond the traditional financial and enterprise data created by companies. —Sources of Big Data include social networking sites, internet search engines, and mobile devices. —‘Big Data’: Characteristics (four V’s) —Volume —Velocity —Variety —Veracity

28. Information and Big Data 10 —Use of ‘Big Data’ is risk management: —Risk forecasting —Increased data volume eg customer credit checks —Risk identification —Real time information available eg supply chain management —Risk reduction —Increased range of data eg identifying customer preferences in global markets