DeCIsIOn ManageMent

Transcription

DeCIsIOn ManageMent

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financial management Dec/Jan 2008/09
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Buy line: is new
legislation on
advertising putting
traditional retail offers
under threat?
46
Fund fairer: have FSA
regulations to make
with-profits policies
more transparent
helped stakeholders?
www.cimaglobal.com
34
Archetype: how a South
African rail network firm
won a CIMA award for
its innovative activitybased costing system
December/January 2008/09 £4.50
financialmanagement
Technical matters
Costing systems
Risk management
Fund management
Defined-benefit pensions
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Firm foundations
Derek Crane, MD
of Pacific Alliance,
on the lure of Chinese
real-estate investments
Study notes
Paper P2 Management Accounting –
Decision Management
Paper P4 Organisational Management
and Information Systems
Paper P9 Management Accounting –
Financial Strategy
>inbusiness
Photograph: Peter Searle
2008 was remarkable
for the best and
worst reasons, but
cima members are
best placed to lead
organisations in 2009
There is no doubt that 2008 will
go down in history as a
tumultuous year. Records being
broken at the Olympics and
Paralympics in Beijing, Barack
Obama’s US election victory and
the recognition of the urgent
need to shape a global response
to climate change are a few of
the top stories of the past 12
months, but all are dwarfed by
the scale and impact of the
global financial crisis.
Politicians, business leaders
and commentators are
speculating about the effects of
the G20 summit on financial
reform that took place in
Washington in November. Some
saw it as a once-in-a-lifetime
opportunity to remake the global
financial architecture and usher in
an era of “regulated capitalism”.
What is certain is that accounting
and standard-setting were firmly
on the agenda. In particular,
some European heads of state
and corporate leaders in the US
demanded that stability should
be written into the remit of the
International Accounting
Standards Board – a measure
that the IASB saw as conflicting
with its central role of promoting
transparency and comparability.
Whatever the long-term
outcome, it appears inevitable
that a new paradigm is emerging,
based on less risk and more
regulation and state control.
The downturn gives
organisations an opportunity to
embed ethics and a responsible
attitude to risk into their strategy.
Bolting ethics on to existing
behaviour is no more effective
than a tick-box compliance
culture. Regulation is suddenly
fashionable again, so
organisations that cut back on
their ethical performance will be
out of step and, potentially,
exposed to hefty fines.
Corporate ethics should never
be a casualty of a financial
downturn if you care about
professionalism, your workforce,
or the future of the planet. And
there are pragmatic, selfinterested reasons for good
ethical behaviour as well:
research by the Institute of
Business Ethics shows that firms
which take ethics seriously
prosper. That was also the
message to the audience of 200
senior decision-makers at our
recent debate on “Is global
ethics a myth?” from high-profile
panellists including leading
political economist Noreena
Hertz. A webcast of this debate
is available on CIMA’s web site
(see First in, page 6).
Glynn Lowth
CIMA president
The reasons behind some of
the recent failures are complex,
but we know that in many
financial services firms risk
managers had a lower status than
deal-makers, bonuses were not
aligned with corporate strategy
and risks were not factored
accurately into pay. We’ll continue
promoting our reports and guides
– such as Enterprise Governance:
Getting the Balance Right,
Report Leadership and Improving
Decision Making – because they
provide invaluable analysis and
tools to help businesses tackle
these vital issues. All of them can
be found on the “Leading in a
downturn” area of our web site.
The year ends on a high note
for CIMA as we launch our
updated qualification, which will
first be examined in 2010. We
are the only professional
accountancy body to review our
qualification fully every four years.
More than 4,500 stakeholders
contributed to our research to
ensure that it remains the most
relevant qualification for financially
qualified business leaders. Of
course, members will be affected
by the downturn, but I am
confident that our membership
will grow in 2009 because we are
the best equipped to lead our
businesses out of recession.
“
The downturn
gives all
organisations an
opportunity to
embed ethics
and a responsible
attitude to risk
into their strategy.
Regulation
is fashionable
again CIMA is the Chartered Institute of Management Accountants, 26 Chapter Street, London SW1P 4NP.
Tel: +44 (0)20 7663 5441 President Glynn Lowth FCMA Deputy president Aubrey Joachim FCMA
Vice-president George Glass FCMA Chief executive Charles Tilley FCA
financial management
Contents
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14
14 One2one
Derek Crane is “not
sure you can ever
be fully comfortable
with risk”, but he’s
clearly in his element
handling alternative
investments in China
with Pacific Alliance.
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22 Condemned
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Jul 1, 2007 to
June 30, 2008
152,429
04 Letters
Combating fraud; the global
financial crisis; climate change.
06 First in…
All the latest news affecting
accountants in business,
including regulations updates.
Plus: the results of the CIMA
Financial Management Awards.
18 Opinion
How to secure funding to expand
your business in the recession.
39 Career
development
Which industries and sectors
are still eager to recruit wellqualified financial professionals?
42 Technical
matters
Delving into the detail of
management accounting.
42Costing systems.
44Risk management.
46Fund management.
49Defined-benefit pensions.
53 Study notes
Your guide to entering, taking and
passing the CIMA qualification.
53Student one2one:
Surath Chandrasena.
54Exam tips: paper P4
Organisational Management
and Information Systems.
Management Accounting –
Financial Strategy.
Decision Management.
60Exam notice: information for
candidates and passed finalists.
62 Institute
update
CIMA news and a diary of events.
69 So you want
to be…
Interim finance director.
72 … Last out
Bizarre communications from
the wonderful world of business.
26 The
probity
probe
A festive
questionnaire
to test your
“ethical style”. 30 Hearts and
minds How to
engage all staff in
your company’s
green initiatives.
34 Freight
accompli Why
South Africa’s freight
rail network won a
2008 CIMA Financial
Management Award.
>letters
Please send letters to: Financial Management, Caspian Publishing,
198 King’s Road, London SW3 5XP. E-mail: nc1@caspianpublishing.co.uk
Pull out the stops
Your timely and informative article
on corporate fraud (“Feeling the
pinch”, October) explores some
of the options open to staff who
uncover cases of embezzlement.
My own experience while
working for CapGemini’s finance
and employee transformation
team and in other consulting
organisations is that the adage of
prevention being better than cure
holds true.
It goes without saying that
nearly all companies have
documented policies for
expenses and handling corporate
resources. What distinguishes
good-practice organisations is
that they enforce and monitor
compliance with such policies by
focusing on prevention rather
than on playing detective.
This compliance could be
facilitated by ensuring that all
expenses are submitted
electronically and that the
expense policies are
incorporated into the expense
software, thereby eliminating
most non-compliant claims at
the point of submission.
From my experience, I believe
that many organisations also
need to improve the way in
which they communicate their
travel policies and actively solicit
feedback to improve them,
perhaps through some sort of
web portal for employees. If
people feel that their concerns
are being heeded, it can increase
their acceptance of, and
compliance with, most policies.
Noel Cullen FCMA
Back to basics
Given our current economic
problems, I think we should be
asking what accountants can do
to help ease the global financial
crisis. Can we help to prevent a
future crisis of a similar nature?
First, we have to go back to
the basics of accounting – ie, all
assets and liabilities must be
priced into the accounting
system. “Footnote” accounting
should cease to exist. If all
assets and liabilities had been
priced into the system, then
illiquidity should have shown up
in the accounts and served as an
early-warning signal that
businesses were in trouble.
Second, accountants should
focus on evaluating economic
and business policies, and their
impact on the accounting
system, rather than accepting
policies as a given. Auditors must
not only audit transactions; they
should also audit policies and
their impact on operations.
Third, accounting practices
have to be global. The time has
come for the International
Accounting Standards Board to
make this happen.
Merrill Cassell FCMA
Heated debate
At last. Craig Griffiths (Letters,
October) has given us the truth.
All the amazing efforts and great
expense lavished on reducing
carbon emissions are a total
waste. They simply provide a
new (and politically correct)
industry with a means of making
huge profits and satisfying the
politicians who have jumped on
the bandwagon.
It is no coincidence that the
United Nations has falsified the
data on temperature records to
suit its own purposes. The mass
of scientific professionals will
never speak out against this as
long as their salaries are safe.
For example, why ignore the
historical data for the 10001100AD period, when
temperatures were 3ºC higher
than they are now, with no
industrial revolution? And the
apparent increases caused by
the closure of many Siberian
(cold) weather stations in the
nineties? And so on.
Sun spots, oceanic activity
and other natural causes are
responsible for between 90 and
95 per cent of carbon changes
– and what happens to the
carbon dioxide in the upper
atmosphere, without which we
would cook to death?
Alan Orme FCMA
Post taste
I read with interest the results of
the CIMA membership survey,
which appeared in the November
issue. The right to use the letters
ACMA or FCMA was seen by
members as the second-most
important reason for maintaining
their membership. It is strange,
considering this, that the
magazine does not print the
applicable membership
endorsement on the address
transmittal slip.
Ronald Stott FCMA
All the latest news affecting accountants in
business, including regulations updates
>firstin…
From left:
Andrew Neil,
Noreena Hertz, Jon
Snow, James Caan,
Margareta Pagano
and Nina Barakzai.
CIMA panel puts
ethics to the test
Noreena Hertz:
“Trust has been
seriously eroded.”
Experts clashed over the question
“Is global ethics a myth” at a CIMA debate
chaired by broadcaster Jon Snow in London.
Andrew Neil, publisher of Press Holdings
Group, argued that the financial crash had
been caused by firms that had claimed to be
ethical. “In the US they do things better and
I think a number of bankers will go to gaol for
a long time,” he said. “In the UK nothing will
happen to them and, sooner or later, they’ll
all start doing the same things again.”
As a Scot, Neil was particularly upset
by Bank of Scotland’s demise. “It’s the only
Scottish institution that predates the Act of
Union and it has all been swept away in a
month. That is unethical,” he said.
Noreena Hertz, a globalisation expert, was
more optimistic, arguing that the crisis would
encourage regulators to penalise unethical acts.
“Trust has been seriously eroded, so the press
and public will be more vigilant. Organisations
must be concerned about being tarred with
the same brush as banks,” she said, citing
legal cases in New York and the Netherlands
challenging firms’ actions overseas. “Those that
show good ethics will win not only our hearts
and minds, but also our wallets,” she predicted.
Speaking from personal experience,
entrepreneur and investor James Caan said
that it was short-sighted for a firm to sacrifice
its ethics to win business anywhere in the
world. “If you do this, you’ll pay the price
in customers, employees and government
action. I hope we come out of the crunch
with much stronger ethical values,” he said.
Caan blamed the credit rating agencies for
the crisis, while Neil blamed the banks, but
Nina Barakzai FCMA, global privacy officer at
Towers Perrin, took a different view. “Everyone
is blaming everyone else, but we must all
make our own choices,” she said. “It’s easy to
say someone else told you to do it, but ethics
has a shared language across the world via
common professional standards. If you ignore
these, you can’t say it’s someone else’s fault.”
Margareta Pagano, business editor of the
Independent on Sunday, agreed. “The
regulations were in place, but no one would
stand up and declare ‘this is unethical’,”
she argued. “One lesson from this should be
that people will learn that they must stand up
and say if unethical things are going on.”
A webcast of the event can be downloaded
from www.cimaglobal.com/globalethics.
Businesses warned to prepare for corruption clampdown
A new Law Commission report that sets out recommendations
to clarify UK legislation on bribery has increased pressure on
companies to monitor their operations and ensure compliance.
The report, “Reforming bribery”, notes that “bribery has
been contrary to the law at least since Magna Carta declared:
‘We will sell to no man… either justice or right.’ However, it
has proved hard to define in law. The current law is outdated
and in some instances unfit for purpose.”
It proposes replacing a patchwork of offences with four new
ones: paying a bribe, receiving a bribe, bribing a foreign official
and negligently failing to prevent bribery by an employee or agent.
The recommendations should be seen as a warning to UK firms
that corruption at home and overseas will not be tolerated, according
to Andrew Gordon, head of investigations for PwC’s forensic services.
“Taken together with the more aggressive enforcement promised, they
would go a long way towards stamping out bribery and showing that the
UK takes the issue extremely seriously,” he said. “There’s a big
difference between an anti-bribery policy and an anti-bribery
programme. UK businesses would be wise to look carefully at
their operations to ensure that they are fit for purpose.”
Gordon highlighted corporate gifts, entertainment and expenses
as risk areas and warned firms to consider both the actions of their
employees and the activities performed on their behalf by joint-venture
partners and agents. “It will be interesting to see whether the Serious
Fraud Office follows the US Department of Justice,” he said.
The Department of Justice deals robustly with firms where there
has been negligence or deliberate law-breaking, but is more lenient
to those that can show they had appropriate controls in place.
The Serious Fraud Office’s new director, Richard Alderman,
has promised a more US-style approach to investigations,
including faster case evaluations, incentives for firms to
report corruption and penalties for any failure to do so.
www.cimaglobal.com
Headline
The UK government has launched a
campaign to help small firms take control of their
cash flow and has developed a series of guides
in collaboration with the Institute of Credit
Management. Each guide offers a checklist and
tips on issues ranging from negotiating terms
to chasing payments. They are available at
www.creditmanagement.org.uk/berrguides.htm.
IFAC’s professional accountants in business
committee has issued an information paper
designed to help accountants in both the public
and private sectors to plan, execute and control
their organisations’ service delivery. “Developments
in performance measurement structures in publicsector entities” is based on a worldwide survey. The
paper is free to download from www.ifac.org/store. A new study of 74 IFAC member bodies from
58 countries shows that there has been regulatory
progress in many areas of governance, reporting
and auditing, and in the usefulness of financial
statements. The results of the study were
presented at IFAC’s annual council meeting in
November by Charles Tilley, CIMA’s chief executive,
who had chaired the research project group. A
copy of his presentation can be downloaded from
www.snipurl.com/6t5s7 and further information is
available on IFAC’s Financial Reporting Supply
Chain web page (www.ifac.org/frsc).
CIMA wins award
for qualification
in Islamic finance
CIMA has won the KLIFF Islamic Finance
Award 2008 for its certificate in Islamic
finance. The institute, which was the first
chartered accountancy body to offer a global
qualification in Islamic finance, accepted the accolade
at a gala dinner during the fifth Kuala Lumpur Islamic
Finance Forum 2008 (KLIFF) in November. The award recognises organisations that
have contributed significantly to the development of the Islamic finance industry.
Chandra Mohan Balasubramaniam FCMA, divisional president of CIMA Malaysia,
received the award from Tan Sri Nor Mohamed Yakcop, Malaysia’s minister of finance II.
“We believe that there is a demand from the global business community for knowledge
and skills in Islamic finance,” Balasubramaniam said. “We have tailored the content of the
certificate not only to equip students with foundation knowledge of Islamic finance, but
also with reference to international products, standards, regulations and best practices.”
The qualification, launched in April, has four modules: Islamic commercial law; Islamic
banking and insurance; Islamic capital markets and instruments; and accounting for Islamic
financial institutions. It is available as a series of study guides, revision kits and a microsite.
CIMA also recently completed a deal with Jordan-based TAGITraining to translate and
deliver the certificate in Arabic throughout the Arab-speaking world. The contract was
signed in Amman by Robert Jelly, CIMA’s director of education, and Mustafa Nasereddin,
executive director of TAGITraining. The company will also translate and deliver CIMA’s
certificate in business accounting in Arabic. “This is a historic moment for the institute as we offer the first of our qualifications in a
language other than English,” Jelly said. “Islamic finance is a rapidly growing market and
we have taken the lead in offering businesses and governments the knowledge and skills
necessary to meet demand. We plan to launch further qualifications in Islamic finance
early in 2009.”
Loans given the green light
The Carbon Trust has doubled the maximum
of its interest-free energy-efficiency loans
from £100,000 to £200,000 and increased
the overall annual amount available for loans
by 45 per cent to £31m. Whereas in the
past loans were usually offered towards part
of the cost of new equipment, some projects
will now be eligible for loans for a greater
proportion or even the total project cost.
“There has never been a better time for
companies to see if their operations are as
energy-efficient as they could be,” said
Jeremy Salisbury, head of marketing at
maintenance equipment distributor
Brammer. “Preparing an application for a
share of that fund should be a priority for
almost any SME manufacturer.”
OECD joblessness
to increase by 24%
The number of unemployed people in OECD
countries will rise by about eight million to
42 million over the next two years, according
to the latest OECD Economic Outlook.
The OECD predicts that US output will
fall in the first half of 2009 before gradually
picking up as the effects of the credit
squeeze abate, the housing market bottoms
out and lower interest rates start to take
effect. US GDP is projected to fall 0.9 per
cent next year and Eurozone GDP is forecast
to fall 0.6 per cent. The downturn is expected
to be particularly severe in those economies
most vulnerable to the credit crisis or housing
slumps, including Hungary, Iceland, Ireland,
Luxembourg, Spain, Turkey and the UK.
An interactive world map illustrating OECD
annual GDP growth forecasts for 2008-10 is
at www.oecd.org/oecdeconomicoutlook.
>firstin
The 2008 Cima Financial
Management awards
2
3
1
4
5
1 S
mall to medium-sized
employer of the year.
Winner: Everest. From
right: Gyles Brandreth,
guest speaker; Ray Perry,
director of brand at CIMA;
the Everest team.
2 Innovation in management
accounting, sponsored by
EM Finance. Winner:
Transnet Freight Rail. From
right: Gyles Brandreth;
David Howell, managing
director of EM Finance; the
Transnet Freight Rail team.
3 Large employer of the
year, sponsored by Hays
Accountancy & Finance.
Winner: Tesco. From left:
Teresa Thorrington-Allen,
director, senior finance, at
Hays Accountancy &
Finance; Jenni Bradshaw,
treasury project analyst,
Tesco; Gyles Brandreth.
4 Part-qualified of the year,
sponsored by FSS. Winner:
Jie Zhang, commercial
analyst at BP. From left:
Jie Zhang; Sarah Wiseman,
consultant at FSS;
Gyles Brandreth.
5 Tutor of the year. Winner:
Zoe Robinson of Kaplan
Financial. From left: Zoe
Robinson; John Windle,
director of operations at
CIMA; Gyles Brandreth. >
11
>firstin
6
6 C
orporate social
responsibility award.
Winner: Aesseal. From
left: Charles Tilley: CIMA
chief executive; Victoria
Tomlinson, accountant at
Aesseal; Gyles Brandreth.
7 Outstanding contribution
to business performance,
sponsored by
Hewitson Walker. Winner:
Paul Walsh, group chief
executive of Diageo. From
left: Nigel Lynn, managing
director of Hewitson
Walker; Paul Walsh.
8 Outstanding examination
performance. Winner:
Surath Chandrasena.
From left: (accepting on
behalf of the winner)
7
8
11
9
10
12
12
Radley Stephen, business
development and
communication manager,
CIMA Sri Lanka Division;
Glynn Lowth, president of
CIMA; Gyles Brandreth.
9 Recruitment consultancy
of the year. Winner: Hays
Accountancy & Finance.
From left: Richard Hearn,
head of channel
marketing at CIMA;
Teresa Thorrington-Allen,
director, senior finance,
at Hays Accountancy &
Finance; Gyles Brandreth.
10 TOPCIMA success
award. Winner: Joanne
Milton. From left:
Joanne Milton; Glynn
Lowth; Gyles Brandreth.
11 Finance team of the year,
private sector, sponsored
by Badenoch & Clark.
Winner: Capgemini UK.
From right: Gyles
Brandreth; Nick Eaves,
executive director of
Badenoch & Clark’s
accounting and finance
division; the Capgemini
UK team.
12 Finance team of the year,
public sector, sponsored
by InsightMSC. Winner:
East Midlands Ambulance
Service NHS Trust. From
right: Gyles Brandreth;
Peter Morley, director of
InsightMSC; the East
Midlands Ambulance
Service NHS Trust team.
Risk is part of our
business model.
One of our main challenges
is to keep ahead of strategic
and government risk
14
What does Pacific Alliance do?
We manage alternative investments. The
group was founded in 2002 with $10m
(£6.5m) and by the time I joined in 2007 it
had grown to $2.5bn. We now have $4.5bn
in funds, invested mainly in two key areas:
Greater China and Vietnam.
What does your role involve?
As group COO I am responsible for
operational functions and support operational
aspects of investor relations, fund structuring
and development, corporate governance, risk
management and financial control. I’m also
effectively group CFO and manage functions
such as IT and HR. I oversee investor
relations in the areas of operations and risk
analysis and reporting, and I ensure that we
have the infrastructure to match the growth
of existing and new products.
Photographs (including cover): Richard gleed
In which areas do you typically invest?
Wherever we see an opportunity to unlock
the underlying value of an asset, including
real estate, non-performing loans, distressed
assets, listed securities and private equity.
What kinds of funds do you operate?
We have a mixture listed on the Alternative
Investment Market in London, plus limitedpartnership (LP) funds. The structures differ in
terms of regulatory requirements and investor
relations; each has its own complexities and
qualities. We tend not to deal directly with
retail investors; generally we work with
groups of institutions, banks representing
wealthy individuals, hedge funds, pension
funds and funds of funds
How are you coping in the credit crunch?
It’s been a challenging year because of the
uncertainty and volatility in the markets. Our
funds have distinct strategies that have been
affected differently by the downturn. Credit
availability is not an issue, as we never used
much. The drop in listed markets has resulted
in the postponement of some IPO exits in
private equity, but most companies exposed
to the Chinese consumer sector, where our
private equity fund focuses, are performing
well, so this is less important. We have
focused on protecting each fund, while
remaining able to take advantage of new
opportunities. Investors are affected by the
economic problems, but we are still seeing
demand. We’ve continued to raise money for
our listed funds: since August 2007 we’ve
raised about $750m (as at July 2008) for our
Pacific Alliance opportunity fund LP.
How do you see the economic problems
developing over the coming year?
It’s a difficult question. Everyone is asking:
“Where is the bottom?” The credit crisis has
been much deeper than most initially thought.
I don’t think we’ve reached the bottom yet,
but this raises opportunities in other areas –
for example, distressed assets. We expect
it to be difficult for the next nine to 12
months. It depends what governments do to
curb inflation and stimulate growth, but rising
inflation creates problems and opportunities:
as one door closes another opens.
Can China continue providing investment
opportunities at its current rate?
China is a huge market with significant growth
potential. For example, it has massive
urbanisation and infrastructure development.
Shanghai and Beijing are tier-one cities, but
the urbanisation of tier two-cities is also
significant. So, while demand for real estate in
the largest cities may slow down, it is likely to
outstrip supply in tier-two and tier-three cities.
The internal market is also growing, so this
will continue. China is far from fully developed.
One2ONE
Derek Crane ACMA
Managing director and COO,
Pacific Alliance Group, Hong Kong
What other key issues are affecting you?
Government policy in emerging markets is
key to our future performance. It’s a question
not only of inflation and credit but also of
policies including tax treaties and the flow of
currency. We have to stay up to date with
legislation – this can change quickly in China,
for example. But risk is part of our business
model. One of our main challenges is to keep
ahead of strategic and government risk.
How does a management accountant
end up so comfortable with risk?
I’m not sure that you can ever be fully
comfortable with risk. You have to try to
maintain it at a level that you can manage
and that is acceptable for the rewards. From
day one in my first job I was exposed to unit
trusts and pension funds. As you get more
involved in this industry, your grasp of risk
and different types of instrument increases.
You also gain skills in the areas of risk
common to any business; liquidity; capital
management; corporate governance etc.
Each country has its own risks, so you try
to get to grips with these and you gradually
build up a broad understanding.
Why did you become an accountant?
When I finished my A-levels in 1990 I
thought about going to university, but knew
that a professional qualification would be
my best route into business. So I joined
Cornhill Insurance’s trainee scheme and
qualified with CIMA in 1994.
Why did you leave?
The company was based in Surrey and I
wanted to work in the City. I found a role
managing the financial control
team at a reinsurance run-off
specialist. This was a technical
accounting role, which was
financial management 15
useful because, although I’d done some of
that in my training, I hadn’t worked in this kind
of department before. It gave me experience
in tax work, statutory accounts and financial
reporting. This side of accountancy is on the
syllabus but it’s possible to become qualified
without much practical work on it. You need to
understand financial and statutory accounts
and pull them all together if you’re to cope
with an M&A or aim to become a group CFO.
Quick CV
1990-95
Crane leaves school with A-levels in
business studies and computer science,
and is recruited by Cornhill Insurance as a
trainee accountant. In 1994 he qualifies
with CIMA and is promoted to the role of
superintendent of special projects.
1995-97
Becomes financial controller at Figre, a
subsidiary of Compre Administrators.
1997-2000
Joins ICAP in a management accounting
role, relocating to Hong Kong in 1999
to become financial controller for its AsiaPacific operations.
2000-01
Serves as chief financial officer of hedge
fund Jones Wertheimer Capital and related
overseas companies.
2002-06
Relocates to Jersey to become director
of investment solutions for UBS.
2006-07
Returns to ICAP (and Hong Kong) as CFO.
2007-
The Pacific Alliance Group recruits Crane
as managing director and COO.
16
When did you relocate to Hong Kong?
I wanted to do more analytical work, so I
moved into a management accounting role at
ICAP, a money and securities broker. I was
focusing on budgeting, forecasting, monthly
reports and so on, but there was still an
element of financial reporting because I was
working in the Asia-Pacific team and had to
prepare accounts for the group board drawn
from the local teams.
After 18 months I was asked to go to
Hong Kong to become financial controller for
the Asian business. I was still only 27 and it
was a great chance. It was soon after Hong
Kong had been handed back to China. We
had 11 direct subsidiaries and a handful of
associates, so it was a big role. It gave me
more contact with senior managers and other
areas of the business, because there were
fewer people doing similar roles than in
London. For me, it was a wonderful way to
experience different cultures and countries.
Was it a problem not speaking Chinese?
Most people in Hong Kong speak English,
but if you’re doing a lot of work in China it
helps to know some Mandarin. I’m having
lessons but I’m not a natural linguist and it’s
slow progress. My children (aged three and
five) speak it much better than I can.
Despite loving Hong Kong, you next
moved to the Channel Islands. Why?
In 2000 I took the chance to become
CFO of a start-up hedge fund in Hong
Kong. It was a big decision because
I liked my job, but such opportunities
don’t come along every day. But the
market turned in 2001, particularly in
Asia, and we couldn’t raise the
money we needed from Europe
and the US. After a year we
closed the fund and I was
jobseeking when there were
lots of redundancies in
Hong Kong. I had to decide
whether I would take any
job to stay there or whether
I should put my career first.
I chose the latter and took
a job with UBS in Jersey. I
arrived there in January
and thought: “Oh, my
God!” It was so cold
and windy there –
very different from Asia.
But you stuck it out, despite the climate.
With hindsight it was certainly the right move.
When I visited friends in Hong Kong I saw it
change. The city took a battering from the
economic downturn and the Sars outbreak,
so it wasn’t the place it had been in 1997-99.
My role at UBS was first on the investment
banking side, working in financial control and
administration for proprietary private equity
funds. I saw a chance to increase my work
developing private equity opportunities for
clients. It meant I could work end to end –
from helping to develop and structure
products to administering them. I worked
closely with the team in Zurich and the
number of people involved rose from two to
15. We ended up with about 12 funds
administering $8bn. I became head of fund
administration for this branch and we also
started administering real-estate funds. We
launched UBS’s global property fund with a
target of $4bn. When I left it had reached
$3bn and it’s now more than $10bn. It also
meant that I was, in effect, running a business
within the larger organisation, gaining
experience in areas such as pitching for new
business, marketing and staff development
as well as more technical roles.
But the lure of Hong Kong was too strong.
I enjoyed my job, but I wanted to be in Hong
Kong and ICAP invited me back as CFO for
Asia. I was asked to do a total overhaul,
involving risk analysis, financial control
and corporate governance.
What next at Pacific Alliance?
We’ve done well to date, the business is
growing and we’re looking to launch
more funds, so there are still big
challenges ahead. We’ve
opened two more offices in
China since I joined, so
there’s plenty to do. In the
long term, who knows?
I’m fundamentally an
accountant, but my
career has been so
varied there’s nothing in
my field I’ve wanted to
do that I haven’t done.
But there are many
areas of the business I
haven’t yet had in-depth
exposure to; so many
things still to learn.
>opinion
Expend and expand
The downturn offers numerous growth opportunities
for firms that are bold enough to take them, writes
Paul Strzelecki, who offers his tips for securing flexible
finance when few investors are willing to provide it.
getty images
Companies tend to react
to recessions in one of two
ways: they can sit tight, retrench
and simply wait for the upturn;
or they can see it as a chance
to revamp their products,
services and balance sheets –
and to take market share from
their less active rivals.
The best time to launch a
new concept is in a downturn.
When times are tough, people
want to buy good
products. Apple, for
example, launched the
iPod weeks after the
September 11 terrorist
attacks in 2001. And IBM decided to
market its first personal computer during
the US recession of 1981.
The current economic conditions create
a number of opportunities for companies to
benefit from this kind of approach. There is
no better time to make acquisitions than
when share prices are deflated, too. But
forward-thinking companies still face the
considerable challenge of putting in place
financing for their plans. Traditional funding
methods such as bank loans and share
placements have become rarer. Even the
less conventional sources of funding – hedge
funds, for instance – have largely disappeared.
The time is surely right to consider more
innovative financing. We have seen a lot of
innovation here in recent years, including
venture leasing, private capital investing in
public entities or factoring. But now there is
a shortage of flexible
options and a need
18
for relationships between firms
and providers of capital that go
beyond single deals.
A more flexible option is an
equity line of credit, also known
as a standby equity distribution
agreement (Seda), where a
company can sell its equity up
to an agreed limit – which can
be tens of millions of pounds –
as and when it needs capital.
It is a low-cost, low-risk option
and, for growing
companies, it reduces
the dilution impact on
existing shareholders
compared with a traditional
stock placement. By providing a guarantee
not to become a significant shareholder in a
company or short-sell its stock, the investor
can address reasonable concerns about
destabilising the share price. This way dealing
in the stock is invisible in the market, which
helps everyone.
Also, because the commitment is
guaranteed, companies can use a Seda as
collateral to support a convertible debt if a
single large sum of cash is needed quickly.
This can be particularly valuable if the
company is hunting for acquisitions.
For investors advancing the money,
particularly where there is an ongoing
relationship, it is vital to understand the
fundamentals of the company and evaluate
the drivers of its future growth. When
seeking financing, company presentations
should not focus solely on the financials;
they should really articulate what the
organisation is all about, what makes it
When times are tough,
people want to buy good
products – Apple launched the
iPod weeks after September 11
unique and what its vision is for the future.
In short, companies need to sell their story.
But I am constantly surprised by the number
that do this badly.
Start-up and other early-stage firms tend
to excel at it. They have little to sell but a
vision and are happy to make bold growth
projections. But, once they go public, they
seem to forget their roots, focusing on
financials rather than their products and
services. Large listed companies can be
the biggest culprits of all, totally ignoring the
requirement to inspire potential investors.
Here are some tips for companies seeking
finance that want to stand out in a crowd:
n Be clear about the basics. Explain who
you are and what you do, and describe
your main products, markets, customers
and competitors.
n Remember that most investors will not be
experts in your business or sector. It is
down to you to educate them.
n Don’t simply sell; ask for opinions.
Investors often have a huge amount of
business experience, so tap into it.
n Be clear about what you need the money
for and how this will support growth –
have a game-changing plan.
n Tell the whole truth. Investors need to trust
your business, so fuzziness and white lies
will be counterproductive.
n Find advisers who can facilitate and broker
relationships with investors. If they merely
sit there quietly and drink the coffee,
change them. You need BlackBerrys, not
gooseberries, in this game.
The issue here is that investors can help
a company to meet its objectives only if
they understand them. In hard times, those
organisations that are wise enough to
seek advice and share information are
most likely to survive and thrive. In addition,
I would argue that innovative financing is a
competitive advantage. If you’re not using it,
your rivals probably are.
Paul Strzelecki is chief executive of
Yorkville Advisors UK.
22
The UK has strengthened
its legislation against sharp
marketing practices, writes
Neil Hodge. But it’s so wideranging that even reputable
advertisers should ensure that
they aren’t breaking the law.
Condemned
Corbis
sells
Two regulations have come into force that will give UK
consumers and businesses greater protection from misleading
advertising and clamp down on other dishonest marketing activities.
Both enable courts to fine companies, their directors and managers
up to £5,000 for breaching the rules. The most serious violations
could even lead to a two-year prison sentence.
The first piece of legislation – the Consumer Protection from Unfair
Trading Regulations 2008 – aims to prevent firms from deceiving the
public with advertising campaigns or unduly pressuring them into
buying their products. It lists 31 practices that will always be
considered “unfair”. These include saying that a product is “free”
when it isn’t; telling a consumer that if he does not buy the product or
service the trader’s livelihood will be in jeopardy; and claiming that a
product has a quality mark when it doesn’t.
“For the first time, the manner in which a sale is being achieved is
as relevant a concept as the content of an advert or pitch,” says
Susan Hall, a partner at law firm Cobbetts. “This means that the hard
sell so beloved of the typical used-car salesman will now become a
criminal offence. Many of the 31 unfair practices will be obvious
23
Ad nauseam: firms’ recent
brushes with the Advertising
Standards Authority
Johnson & Johnson. The pharmaceutical giant claimed that
its RoC Complete Lift face cream would give middle-aged
women younger-looking skin – a claim backed up by a twomonth clinical study. But an independent expert found that the
research was flawed because it lacked objective measures,
records and corroborating photography. In September the
Advertising Standards Authority (ASA) banned the advert and
warned Johnson & Johnson to consult the Committee of
Advertising Practice before making any more commercials.
alamy
Fiat. The Italian car-maker had its wrists slapped when the
ASA ruled that two adverts had given the impression that the
company’s low-emission vehicles were cheaper than they are.
The press adverts for four different models of Fiat cars claimed
that they would be exempt from the congestion charge from
October and that they required road tax of only £35 a year. But
the headline prices for the four models in question – the Bravo,
Grande Punto, 500 and Panda – were for bottom-of-the-range
models. Consequently, the ASA ruled “that three of the four
headline prices featured next to the images were for models
that had higher CO2 emissions figures” than the 120g/km
required to qualify for exemption from the congestion charge
and the £35 road tax band.
24
Young’s Seafood. Frozen-food producer Birds Eye complained
about a television advert for battered fish fillets shown by rival
firm Young’s Seafood. The advert had implied that its products
were low in saturated fat, rather than the fact that they were
40 per cent lower in saturated fat than they had been in 2006.
The ASA said that, for a product to be low in saturated fat under
EU regulations, it should have no more than 1.5g of saturated
fat per 100g of food. Because the fillets in question still
contained more than three times that amount, the ASA
concluded that the advert was misleading.
Lingering doubts: reports suggest that “Bogof”
deals will still be allowed under the new legislation,
but advertisers would welcome clarity.
through common sense, but some may come as something of
a surprise to unwitting businesses. For example, the tenth item
on the list prohibits the presentation of consumers’ legal rights as
a ‘distinctive feature’ of a trader’s offer. This means an end to the
promotion of rights to return defective products as a bonus feature
of a product. Elsewhere, paid-for editorial content in newspapers
and magazines (known as advertorial) must be made clearly
distinguishable from genuine editorial, while bogus closing-down
sales are banned.”
The second law – the Business Protection from Misleading
Marketing Regulations 2008 – bans adverts that mislead traders
and it places strict controls on comparative adverts. It also prohibits
companies from presenting imitations or replicas of products bearing
a protected trademark, or of taking unfair advantage of the reputation
of competitors’ trademarks, brand names or country-of-origin
information. Trading Standards and the Office of Fair Trading may
apply to the courts for injunctions to prevent any breach of the
regulations. But, despite calls from consumer bodies, the legislation
does not create any private right of action against traders by
businesses or consumers.
“These new laws represent a more joined-up approach to
protection and get rid of some of the grey areas in the earlier
legislation,” Hall says, but she warns that “it’s not only the deliberately
unscrupulous companies that will be affected. A number of changes
may cause serious legal headaches for careless businesses.”
The EU unfair commercial practices directive – from which the
Consumer Protection from Unfair Trading Regulations are derived –
aims to achieve a “high common level of consumer protection”
throughout Europe. Before the member states incorporated the
directive into their national laws there was a patchwork approach to
consumer protection legislation across the continent, according to
Clare Frith, a solicitor at Eversheds. Divergent laws inevitably caused
disparities in the level of protection and hindered cross-border trade.
But today there’s still no guarantee that regulations are the same
across the EU. Firms could fall foul of up to 27 different national laws
because of differences in interpretation and enforcement, she warns.
The new UK regulations have a much wider reach than their
predecessors. For example, they have introduced protection
specifically for “vulnerable consumers”. Nick Johnson, a specialist in
marketing law at Osborne Clarke, says that children and old people
won’t be the only groups covered by this term. It could mean that a
non-English-speaking tourist looking to buy foreign currency in the UK
is likely to be protected. It could also refer to emotionally vulnerable
people – preventing funeral directors from pressuring bereaved families
into buying the most expensive coffin, for example.
The legislation applies controls to online advertising for the first
time, too. Until 2008 the Advertising Standards Agency rules
governing the industry had never applied to web-based marketing
activities. But now companies need to take as much care that their
online campaigns comply with the law as they do with radio and TV
advertising. Paid-for product placement in TV programmes was
prohibited before this year, but not online. Brands such as Orange,
Procter & Gamble, Microsoft and Paramount took advantage of this
by signing deals for their brands to appear in KateModern, the
popular soap opera on the Bebo social networking site.
“The new regulations are likely to require that Bebo is up-front
about such deals now, perhaps in the opening or closing credits,”
says Stephen Groom, media lawyer at Osborne Clarke.
The online clampdown doesn’t stop there: anyone blogging on
behalf of a business or conducting other types of word-of-mouth or
“buzz” marketing without making it clear that they’re doing this for
commercial purposes will now find themselves on the wrong side
of the law. The directors of businesses that make “persistent and
unwanted solicitations” by e‑mail, phone or other remote media
also run the risk of prosecution.
But the legislation may put an end to certain marketing methods
that have become standard practice, particularly in the UK. For
example, an exhortation to “buy now while stocks last” is potentially
risky, as it has become a criminal offence to state falsely that a
product will be available for a limited time. “Buy one, get one free”
offers (Bogofs) could fall foul of the law, too.
“Among the list of banned practices is the description of a product
as ‘free’ or similar if the consumer has to pay anything other than
the ‘unavoidable cost of responding to the commercial practice’ and
collecting the item or paying for its delivery,” Frith says. “This aims to
prevent firms from advertising goods as free when payment is actually
required. Clearly, on a strict interpretation of the regulations, offers
such as Bogofs are prohibited. But it has been reported that the
Department for Business, Enterprise and Regulatory Reform does not
intend to pursue those firms that offer genuine Bogofs – at least for
the time being. Advertisers would welcome clarity on the issue.”
The Business Protection from Misleading Marketing Regulations
are more specific in targeting “lookalike products”, according to
Johnson. “Supermarkets’ own-brand lookalikes have long been
the bane of the big brands, with cola, crisps and biscuits all being
the subject of claims,” he says. “Now it is an offence to promote a
lookalike product so as to ‘deliberately mislead’ consumers
into believing that the product is made by another manufacturer.”
And adverts that highlight the performance of a company’s
products against those of its competitors must be fair and make likefor-like comparisons, warns David Boon, a solicitor in the employment
contracts and disputes practice at Thomas Flavell & Sons.
“It is still lawful to use a competitor’s brand name in an advert, as
long as the rules are followed,” he says. “But now is a good time to
check your contracts with advertising agencies, which are notoriously
poorly written. Also ensure that your sales teams and in-house
advertising people are fully up to speed with the new regime.”
Neil Hodge is a business journalist specialising in regulatory
matters. Further information about unfair commercial practices
can be found at www.isitfair.eu.
25
CIMA professionals are dutybound to observe the highest
standards of integrity, but few
ethical issues are black and
white. Danielle Cohen and
Helenne Doody invite you to
test yourself in their festive quiz.
The probity
photolibrary
probe
26
Eighty-five per cent of companies have suffered at least one
fraud in the past three years. That’s according to a recent worldwide
poll of 900 senior executives – one of many surveys that have
attempted to estimate the scale and cost of fraud to business and
society. While it is difficult to obtain a complete picture, they do all
indicate that fraud remains a serious problem. And the risk may be
growing with globalisation, increasingly competitive markets, rapid
developments in technology and times of economic difficulty.
These studies have made the following key findings:
nFraud losses are not restricted to a particular sector or country.
nOrganisations may be losing as much as seven per cent of their
annual turnovers as a result of fraud.
nCompanies recover only a small percentage of their losses.
nFraudsters often work in a company’s finance function.
A high proportion of frauds are committed internally. According to
PwC’s 2007 global economic crime survey, as many as half of the
people who commit fraud against companies are employees, a quarter
of whom are in senior management positions. Fraud is more likely in
organisations where there is a weak internal control system, poor
security over company property, little fear of detection and exposure,
or unclear policies on what constitutes acceptable behaviour. The key
elements of fraud prevention and detection, therefore, are establishing
strong internal controls and a sound ethical culture.
Embedding an ethical culture can be a challenge. Companies are
made up of people with different views of right and wrong. People’s
ethical choices can depend on cultural factors – religion, for example
– and they are the subject of philosophical debate. Should you do what
is best for the greatest number of people or put duty at the forefront
and adhere strictly to rules? Sometimes a trade-off has to be made
among stakeholders’ needs, which inevitably creates grey areas.
So, when it comes to the
crunch, what would you do?
Answer the following questions
as honestly as you can to learn
more about your ethical style.
1
You go for an end-of-year
celebratory lunch with
colleagues from your
department. Company policy is to
allow an hour for lunch, but you all
get talking and it goes on for two
and a half hours. When you return
to the office your boss asks you
where you’ve been. Do you:
A: tell your boss what you were
up to.
B: explain that you took a long
lunch break and offer to make up
the time, but don’t mention what
you were doing.
C: say that you were in a
meeting – after all, it was only
one lunch and you have been
working late a lot recently.
2
Someone you manage
takes her team out for
drinks to thank them for
their hard work over the year.
Although it’s company policy
not to reimburse unofficial
entertainment, when you sign
off her expenses you see that
she has put a claim in for the
bar bill. Do you:
A: refuse to sign the expenses –
this is against the rules.
B: sign off her expenses, but
remind her she shouldn’t have
done it and tell her that it must
not happen again.
C: say nothing and sign off her
expenses. It is not a lot of money
to a company this size and her
team worked hard.
3
As the holiday season is
around the corner, you
want to telephone a cousin
who lives abroad and rarely gets
to see you. Because of the time
difference, it’s hard for you to
contact her outside of your
working hours. Do you:
A: leave it until your day off. You
aren’t meant to make personal
calls from work.
B: make the call from your desk,
but do it during your lunch break.
C: call your cousin during office
hours and enjoy a nice long chat.
What’s one phone call, after all?
4
You are out late at the
office Christmas party
and need to get a taxi
home. A colleague is going in the
same direction as you, so you
share a cab. On the way back
you offer him money for your
share of the fare but he refuses,
saying that he will charge it to
expenses. Do you:
A: remind him that this is
against company policy and
insist that he takes your share
of the fare anyway.
B: tell him you don’t think that
the taxi really counts as
company expenses, but it’s
up to him.
C: enjoy the free ride. If his boss
doesn’t check his expense
claims, it’s hardly your problem.
5
You work in a company’s
accounts department and
process a director’s
expenses for a weekend golf trip.
Later you overhear him talking
about it and realise that it wasn’t
a work trip. Do you:
A: go straight to your manager
and explain what you think the
director has done.
B: decide to keep a closer eye
on his expenses from now on.
C: ignore what you have heard.
It is none of your business if he
chooses to claim false expenses.
27
If you answered mainly A, you always stick to the letter of the law,
whatever the consequences. Your strict application of the rules may
guarantee consistency, but be careful that it’s not at the expense of
compassion. Sometimes it’s appropriate to make exceptions. Flexibility
engenders a culture of trust, which can be as important as enforcing
the rules when it comes to embedding ethics. On the other hand, the
law – and many companies – take a zero-tolerance approach. When
faced with a grey area, your professional judgement is key.
6
You transfer some personal
customer information on
to a computer memory
stick so that you can work on it
over the weekend. When you go
to start work the next day, you
realise that you don’t have it
with you. Do you:
A: contact your manager
immediately to let her know that
there has been a breach of
customer confidentiality.
B: decide that it’s not worth
disturbing your manager at the
weekend, but tell her first thing
on Monday if it doesn’t turn up.
C: decide not to say anything. It
won’t look good for you and it’s
unlikely that anyone will find it.
7
photolibrary
At the end of the year
some of your firm’s goods
are sold to the public for
cash in warehouse sales. Just
before the end of the year you
find that the proceeds are not
put through the books and that
they are instead used to fund
the annual staff raffle. Do you:
A: put an immediate stop
to the sales and the raffle.
B: establish a new process to
ensure that money from the
sales goes through the books
and look into alternative ways of
funding the raffle.
C: let the sales continue.
You won the raffle last year.
28
8
You are getting ready to
send your seasonal
greetings cards to your
friends and relatives. You have
left it rather late, though, and
you aren’t sure that they will all
arrive in time if you wait until the
end of the working day to send
them. Do you:
A: wait until the end of the day to
go and buy some stamps and
post the cards. They’ll arrive late,
but it’s your fault for leaving
things to the last minute. You
shouldn’t use company
resources for personal tasks.
B: take only the most urgent
cards to the company mailroom
to ensure that they arrive on time.
C: dump all 200 cards in the
outgoing mail bag without a
second thought. The mail room
staff owe you a favour for turning
a blind eye to their dodgy
expense claims for all these years.
9
You are pleasantly
surprised when a customer
sends you a new plasmascreen television for Christmas.
Its value is above the threshold
that staff are allowed to accept,
but you know that two other
senior managers have accepted
similar gifts from the same
customer. Do you:
A: thank the customer but return
the gift, explaining that you’re not
allowed to take it.
B: ask around the company to
find out if there is a policy of
being allowed to accept large
gifts if you declare them.
C: keep the TV. If you were to
send it back, the other managers
might lose out, too, and then you
really wouldn’t be popular.
If you answered mainly B, you are aware of the rules but apply
them flexibly and are influenced by your emotions. While this is
sometimes appropriate, beware of coming across as inconsistent or
ambivalent. Flexibility can be a sign of a strong ethical culture in an
organisation, demonstrating mutual trust between managers and
employees. But some actions are clearly fraudulent and should not be
tolerated. What may at first appear to be a relatively small
transgression could turn out to be bigger next time, so beware of
allowing precedents to be set and be clear where your boundaries lie.
If you answered mainly C, you take a very relaxed view of ethics
that seems to be based on the consequences for you personally,
rather than on the consistent application of ethical standards. You
might see yourself as flexible but you are taking this too far. Your
behaviour is not contributing to an ethical culture in your organisation
and you aren’t setting a good example. When making decisions,
consider how others would view your actions. If they knew, would
you feel proud or embarrassed?
However you answered, your ethical style dictates how you
respond to everyday dilemmas. Internal fraud is on the rise and
companies need to manage the risk this poses. Professional and
corporate codes of conduct are essential for providing a consistent
moral compass, but they rely on an ethical organisational culture to
embed them. Being aware of your own ethical style could help to
prevent your company from becoming another fraud survey statistic.
Danielle Cohen is ethics manager and Helenne Doody is a
sustainability specialist at CIMA.
Further information
CIMA will soon be publishing an updated
second edition of “Fraud risk management:
a guide to good practice”. This covers the key
components of an effective anti-fraud strategy,
including establishing a sound ethical culture.
For more details about the guide, visit
www.cimaglobal.com/fraud.
For the institute’s code of ethics, visit
www.cimaglobal.com/codeofethics.
The green gameplan in association with the Carbon Trust
The real impact comes
where you can get people
to think differently. If one person
changes their behaviour, it may well
influence their colleagues
30
For a firm to succeed with its environmental initiatives,
it has to win its employees over to new ways of thinking
and acting. Anne Petrie hears from four blue-chip
firms that have worked hard to engage their people.
photolibrary
Hearts and minds
Having a detailed plan for
cutting your organisation’s
carbon emissions is all very well,
but even the best-laid plans will
go adrift without the full backing
of your workforce. And this
support is worth hard cash. UK
businesses could save nearly
£2.5bn over the next year by
implementing cost-effective
energy-efficiency measures,
according to research by the
Carbon Trust.
“In the current economic
climate it’s never been more
important for businesses of all
sizes to act on climate change.
With savings of up to 20 per cent
to be made on energy bills
through no-cost or cost-effective
measures, it makes perfect
business sense to empower
employees to do their bit at work
and at home,” explains Hugh
Jones, director of solutions at
the Carbon Trust.
“You can put in an energyefficient boiler or install lowenergy light bulbs and those will
make a difference, but many of
the measures that have the
biggest impact and achieve the
greatest savings require buy-in
across your workforce.”
Jones suggests that all firms
can encourage teams to think
twice before printing documents,
to turn off PCs and lights at the
end of the day, to recycle and to
consider the carbon footprints of
the method of travel they use
and the products they source.
And those at the top should
lead by example, according to
Alan Charnley, managing director
of Xerox for the UK and Ireland.
“I shouldn’t expect my people to
do what I’m not prepared to do
myself,” he says.
Stressing the financial benefits
of going green can also pay
dividends and highlighting
savings that employees can
make at home – on domestic fuel
bills, for example – will help, too.
“Even if you have employees
who aren’t that interested in
the planet, you can get them
engaged in green initiatives by
allocating resources or driving
business efficiencies,” says
Richard Gillies, director of
Marks and Spencer’s “Plan A”
sustainability programme. “It’s
important not to get too preachy
about some of the green issues
when you can get stakeholders
on board simply by applying
good business practice.”
Ernst & Young
“Given the nature of our business,
there are lots of policies and
processes we can have in place
that make a difference, but there’s
also a real reliance on people to
engage with them and do things
differently,” says Nicky Major,
director of corporate responsibility
at Ernst & Young. “It’s got to be a
combination of the two.”
The areas in which E&Y has
the biggest environmental impact
are waste generation, staff travel
and energy consumption. It
holds three “environment weeks”
a year, during which employees
are encouraged to concentrate
on one of these aspects.
“Waste week”, for example,
concerns simple issues such as
printing, where costs can really
mount up. “If you can change
attitudes about something little,
then you naturally get people to
start thinking on a wider level,”
Major says. More than 90 per
cent of E&Y’s office waste is now
reused or recycled.
She adds that, when it
comes to reducing E&Y’s carbon
footprint through business travel,
“we consider ways to avoid
travelling altogether and then, if it
is really necessary, how it can be
done in a more environmentally
friendly way”.
To encourage energy
efficiency, the firm highlights the
benefits that employees can
gain at home. “We can say to
people: ‘You can save a lot of
money by reducing your energy
consumption – particularly now,
when the cost of energy is going
up so much. If you turn your
31
photolibrary, istockphoto
The green gameplan in association with the Carbon Trust
32
thermostat down by one degree
at home, you can save ten per
cent on your heating costs.’
If they save some money and
really start thinking about it, that
has knock-on effects elsewhere.”
Encouraging staff to switch off
lights and electrical equipment,
combined with the introduction
of more movement-activated
lighting, helped E&Y to reduce
its annual energy consumption
by nine per cent in 2006-07.
“It’s really about the whole
person. You can’t engage
someone in work and not at
home, or vice versa,” Major says.
“The real impact comes where
you can get people to think
differently. If one person changes
their behaviour, it may well
influence their colleagues.”
While large firms can establish
processes to encourage
behaviour change that might
not be an option for an SME, she
points out that small firms can
rely on a sense of community
to ensure that energy-saving
initiatives are successful.
Xerox
One of only five companies
to have received a corporate
leadership award from the US
government, Xerox has a long
history of acting to reduce its
carbon footprint. In its worldwide
operations it has cut its
greenhouse gas emissions by
more than 18 per cent since
2002, when it also set a goal of
a 25 per cent reduction by 2012.
“When you get that type of
recognition, it reinforces people’s
attitudes,” says Alan Charnley.
The company encourages
individuals and teams to come
up with initiatives aimed at
tackling climate change. One
such scheme is called the “Ecobox”. Customers can deposit
any recyclable materials in a
box that Xerox leaves on their
premises. “We’ll come along,
take that away and ensure that
the contents are recycled in the
appropriate way,” Charnley says.
Xerox runs an annual
competition called the Earth
Awards, which recognises
teams that have improved
operational performance while
acting to protect the
environment through innovative
initiatives. It also celebrates the
annual Earth Day (April 22) with
co-ordinated activities around the
world. At its Cincinnati site, for
example, employees worked with
Nike to collect old athletic shoes
to recycle them into sports playing
surfaces,
while staff at
one of its New York
offices planted trees and
joined in roadside clean-ups.
Environmental awareness is
a key part of Xerox’s corporate
social responsibility agenda –
it’s even covered in performance
appraisals. “Developing a culture
that says sustainability is part of
the way you want to do business
is crucial,” Charnley says. “It may
sound trite, but this really is a
race without a finish.”
Deloitte
When Deloitte’s 2007 staff survey
showed that they were unclear
about what their firm was doing
to meet environmental concerns,
it responded by launching a
“champions network”.
Mary Rhead-Corr, director of
CSR at Deloitte, explains: “We
asked people from each location
who were passionate about
green issues to volunteer. It is
a fluid network of people who,
depending on the issue of the
day or the new initiative being
rolled out, can help us to deliver
green initiatives or tell us whether
there is a logistical problem
about issues such as removing
waste bins from people’s desks.”
Deloitte seeks feedback from
employees on environmental
issues using a dedicated green
mailbox, which usually receives
20 to 30 enquiries a week. These
have varied from ideas for
replacing plastic cups with
ceramic mugs to proposals for
turning car parking spaces into
bicycle spaces (all but
17 of its parking spaces
in London have since
been converted).
“Since we’ve got 12,000
people across 27 locations,
giving everyone a common place
to air their thoughts has been
really helpful,” Rhead-Corr says.
In some cases Deloitte found
that the only way it could increase
the amount of recycling done by
employees was to impose a new
regime. “People had been asking:
‘What are we doing about
recycling in the offices?’ But
actually delivering that by
removing waste bins could be
viewed as quite Draconian. That’s
in place now, but on the day that
we brought in the measure there
was quite a lot of resistance.”
New initiatives are already
making a difference to the firm’s
global carbon footprint. For
example, Deloitte Netherlands
has issued all staff with a
corporate privilege card that
incentivises business travellers
to use rail services rather than
go by car. This has resulted in
a carbon dioxide emissions
reduction of 200 tonnes over
the past year. And a campaign
raising people’s awareness of the
impact of wasting paper has led
Deloitte’s US office to cut the
amount of printer paper it buys
by 11 per cent.
Staff are offered carbon
calculators to work out their
own footprints. Advice on
offsetting travel is also available.
“We have a workforce of very
well educated people, and I’m
not in the business of changing
their beliefs,” Rhead-Corr
stresses. “But the firm will do
what it can to support what they
are doing at home, although
that’s a by-product rather than
the main goal. A lot of the
measures we took came about
because we realised that they
were important to our people.”
Marks and Spencer
Engaging employees is a vital
part of Plan A, the sustainability
strategy that M&S drew up in
2007. “One of the most important
things is to have an overarching
plan to give individual activities
context, covering the whole
spectrum of ecological and social
and health issues,” says Richard
Gillies. “Otherwise, people get a
bit lost in the details.”
He says that communicating
effectively with employees is
about telling “a mix of macro
and micro local stories. They’re
always being told that small
steps, such as switching
computer screens off after
work, make a big difference,
but sometimes that can be
quite hard to believe,” Gillies
says. “The big stories might be
about our sustainable factories
in the Far East or the conditions
that our chickens are kept in.
These things don’t really affect
individual employees but they
do give them confidence that
their organisation is doing
something that will genuinely
make a difference.”
Getting support from staff in
the stores is particularly important,
he points out. “They are very
involved with recycling waste and
reusing things they use every day,
such as hangers and carrier bags.
That is something they can do
with every transaction.”
There has been an 80 per
cent reduction in the number of
bags used by customers since
the company introduced a 5p
charge – a much bigger saving
than it had anticipated. More
than 140 million hangers have
been recycled this year, which is
almost double the number before
Plan A was introduced.
M&S uses more than 65kWh
of electricity per square foot of
store space. It aims to reduce
this by 51 per cent by 2012. It
clearly has some way to go from
the four per cent cut it achieved
last year. Although some of the
improvement will result from the
introduction of more efficient
technology, much of it relies
on a change in behaviour.
“Whatever systems you
change, you always have to rely
on the compliance, commitment
and engagement of your staff.
We are finding with Plan A
initiatives that we get a much
higher level of commitment than
we did previously,” Gillies says.
“We receive a lot of ideas from
our staff and a large proportion
of these are initiated at store level
and run locally.”
Every store now has an
employee who has volunteered
to be a champion of Plan A.
“Some of them go way, way
beyond what we here at
corporate HQ could have
Greener than most: the M&S lingerie
eco-factory in Thulhiriya, Sri Lanka.
expected of them,” Gillies says.
“You’ve got them going out to
schools in their own time,
engaging with local charity
groups and taking their recycling
to their own homes in some
cases where facilities are not
available for trade waste. It is
hugely exciting to see our people
doing such things.”
All these initiatives, like many
of the examples of good
environmental policies discussed
in the media, are taking place in
large firms. But, while FTSE-100
companies may have more
resources to put into green
projects, there is no reason why
smaller organisations cannot
implement better practices just
as well. In fact, small and
medium-sized firms may find it
easier to engage their staff, since
bosses and employees are likely
to work far more closely. In the
economic downturn, it may also
be easier to convince everyone of
the need for bottom-line returns
that simple energy-saving
measures can achieve.
Environmental change is not
just a headline cost for large
organisations or a headache for
the boss. Climate change affects
everyone, although those who
are poorest in the world are likely
to be affected most. As previous
interviewees in this series of
articles have pointed out,
demand for change is coming
from the workforce as much as
from the management.
Harnessing and facilitating this
willingness to change not only
unites staff in a common cause,
but also shows them and your
external stakeholders – suppliers,
investors and customers – that
your entire corporate body is
working together to increase
efficiency and save resources.
The environment is no longer
the preserve of hippies and green
campaigners. School lessons on
climate change mean that
children are questioning their
parents about what they do
at work and at home and the
things they buy. Older people are
worrying about the world they
are leaving their grandchildren
and higher costs are forcing
everyone to be more frugal with
fuel. If everyone in your firm
hasn’t got the message yet, what
do you intend to do about it?
Anne Petrie is the assistant
editor of Business Voice.
Further information
The Carbon Trust: www.carbontrust.co.uk.
33
Thousands of
trains travel over
TFR’s network every
month and the same
consignment can move
on three or four trains
before it reaches its
destination
34
Freight accompli
Getty images
A major South African railway network has won a
CIMA Financial Management Award for its innovative
activity-based costing system. Luis Gillman explains
how he and his team developed it.
Transnet Freight Rail (TFR) is South Africa’s sole provider
of railway freight services. The company moves about 180
million tonnes of goods over its 17,000km of track every year
and has an annual turnover of R16.5bn (£1bn). It has
successfully developed what I have termed a network
activity-based costing system (NABC) from scratch over
the past three years.
NABC is based on the standard principles of activitybased costing, but it has been necessary to apply them
specifically to costing in a network. Many other systems
strive to obtain historical operational data, whereas NABC
recreates simulated data from the company’s outputs –
ie, it “reverse-engineers” the inputs.
Networked industries – for example, telecoms, shipping
and postal services – are particularly difficult to cost and
produce profitability and efficiency reports for because of the
shared nature of their operations. A further complication is
that it is often very hard, if not impossible, to recreate
historical network transactions because there are often
millions of them – if not billions, in the case of a telecoms
network. All these transactions flow through the same
network but each takes its own individual route.
A number of railway costing systems depend on extensive
operational data, which is often very difficult or impossible to
obtain. This data is not necessary in NABC, since it obtains
what it needs from the existing invoicing figures and relatively
static master data – ie, the service routes. Even if this data is
available, railways then have the tough task of spreading
costs over the whole network.
NABC provides a novel method of recreating and
simulating all this operational data from invoicing
information, using only a limited set of operational master
data. This allows for the creation of a complete set of
almost infinite activity data, which otherwise would not be
feasible to track. The system uses this readily recreated
activity data as a basis for better allocations of costs to
smaller sections of the network, which are used together
with the already created activities for rate determination.
These determined rates are then used for costing services.
NABC has given us a practical and economical solution to
costing network businesses and producing profitability
and efficiency reports. This is because the system can
self‑generate rates and activities from an invoicing file.
As a result, once the initial master data (which can readily
be updated annually) has been established, little updating
is required to make the system self-sustaining and
comparable from period to period. The detailed recreation
of rates and activities allows users to reconcile both
regional and customer views of profitability at extremely
high levels of detail, making the system a crucial tool for
network management.
Thousands of trains travel over TFR’s network every
month. Other railway costing systems have tried to trace
such movements and accurately reproduce what occurs on
the network. Assuming that this could be done, you would
then have the difficult task of reconciling these consignments
back to billable freight. This is made onerous by the fact that
the same consignment can move on three or four trains
before it reaches its destination. Then you have the further
complication of empty returning trains running on the
network with no direct billable freight. To compound matters,
in order for any costing system to be credible, the data has
to be accurate and applied consistently across the network.
Taking account of these complications and the immense
information systems required to reconcile and monitor all
movements, we set out to create a practical model for
determining all these individual consignments and their
concomitant activities on the network. The key to developing
our NABC was to use the invoice file – ie, the output of the
entire network – to derive the inputs. By its very nature, the file
accurately reflects the individual consignments travelling over
the network. Knowing these outputs, we merely had to recreate
the steps giving rise to them in retrospect. The advantage of
using outputs to recreate network movement is that the invoice
file’s revenues (and, by implication, the activities) always
reconcile back to the financial statements.
Once the invoicing file was uploaded, we had to link
the outputs to the individual activities that made up those
outputs. The inputs were recreated using the railway’s service
codes, which divide each route into geographical sub-routes
35
transnet
36
(nodes) and stipulate how a consignment moves over the network.
Any one consignment will use only a small portion of the total number
of nodes (about 4,000 in TFR’s case), since it won’t travel over the
entire network. The service codes don’t change too often because
the train routes are relatively stable, which enhances the system’s
reliability. With the data from the service routes and invoicing file, we
were able to work out wagon kilometres, gross tonne kilometres and
other key activities across the network. We could then devise a
process for allocating revenues using the activities we’d determined.
The next step was to allocate cost centres to “buckets” of costs
and then to “cost collectors”. Railways may have thousands of cost
centres, each covering different buckets of costs – eg, overheads,
staffing and energy. Much effort is required in determining where each
of the cost centres undertakes their work and which cost categories
they fall into. The expenses, which were already divided into general
ledger items such as depreciation were, therefore, placed in various
categories that were relevant to TFR’s operations. The buckets were
then allocated across the network using the various activities
determined above. We were able to allocate costs at a micro
level of detail to each of the cost collectors and nodes.
The activities were, therefore, used both to allocate costs from cost
centres to nodes and to calculate rates for activity-based costing.
Without the use of these derived activities, every cost centre would
have had to be divided among the 4,000 or so cost collectors on a
percentage basis using estimates, resulting in arbitrary and probably
inaccurate allocations. This would have made the costing system hard
to control and keep consistent, since the exact split among the nodes
would be difficult to estimate. For example, how would you break up
the costs of a train driver cost centre to, say, 120 of the 4,000 nodes
if you couldn’t use activities to apportion these costs?
Once we’d allocated costs and activities to every node, our next
step was to determine rates and efficiencies at each level of the
network – eg, the rate of marshalling a wagon at a specific
marshalling yard. We can now use NABC to work out efficiencies
using the determined costing rates at each section of the network.
This provides a method of comparing efficiencies among business
units and periods. Since the system creates activities on a consistent
basis across the network, we use these activities as a basis for
performance management. For example, we can compare how
many wagon kilometres were done in a specific section against
what should have been done.
Since individual service codes – eg, a consignment movement
between Johannesburg and Cape Town – comprise a series of
activities occurring at different locations, these activities multiplied
by the rate equal the consignment cost at each point on the network.
The sum of the individual nodes for a specific consignment can be
added together to give the total cost for that consignment.
Consignment costs can then be cascaded upwards into reports by
customer, sector, industry and so on. And, since every leg of the
consignment is linked to a specific geographical point, these locations
can then be cascaded upwards into area, regional or “corridor” reports.
NABC has allowed us to integrate and report on the marketing/
customer view and the geographical view. Both individually and in
combination, these views are essential for a railway company –
and indeed other networked businesses. As well as the revenue
and cost view, generated activities can be overlaid.
Given that activities are recreated across the whole network and
costs are allocated to detailed areas of the network and to
customers, we can extract reports at any level of the network at the
highest level of detail. This makes the system useful to any network
where the inputs may not be readily available. Data can be extracted
from over tens of millions of lines, allowing for any required
permutation of report by customer and/or region.
Without NABC, it would be very hard to track network
movements and concomitant activities and to apply these to their
costs in order to determine costing rates. A bottom-up recreation
of activity would be almost impossible to achieve in certain industries
because of the sheer number of transactions, so it’s desirable to use
the output of network operations, which is accurate and complete, to
recreate the activities making up the input rather than building these
activities from the historical inputs. Once activities are recreated,
rates can self-generate and costs can be allocated fairly to regions
and individual services, which may span many regions. At all times
NABC reconciles back to the financial cost and revenue view of the
business. The data produced can then be subdivided to produce a
matrix of geographical and customer reports, measuring efficiencies
at any geographical point for any customer.
As can be seen, NABC provides a practical solution for dealing
with the complexity of network costing, profitability and efficiency
measurement. It affords managers at all levels a masterful tool to
help them with pricing, capital evaluation, performance management
and strategy.
Luis Gillman ACMA is a senior manager at TFR (luis.gillman@
transnet.net). He thanks his whole team (and particularly
Johan Naude) for their work on the company’s NABC.
Further information
A CIMA Mastercourse entitled “The art of
activity-based management” will be held
in London on May 11. For details, visit
www.cimamastercourses.com.
>careerdevelopment
There has been
little or no decline
in the salaries being
offered for the vacancies
that are out there
Silver linings
photolibrary
Toby Fowlston explains how talented CIMA professionals can enhance
their careers during the downturn – if they are prepared to be flexible.
While the credit crunch has undoubtedly
made life difficult, the economy is a long way
from being in meltdown and plenty of job
opportunities remain for accountants in
certain industries. Some sectors are holding
their own; others are even thriving.
The outlook for financial services is bleak,
of course, as the inter-bank market freeze
continues. This has precipitated a slump in
consumer confidence, so it’s not surprising
that there have also been recruitment
slowdowns in property, retail and advertising.
But the telecoms industry is continuing to
hire. While BT did recently cut a large number
of jobs, this was mainly on the contracting
side. Some media organisations are still
recruiting, and there are also jobs available in
mining and petrochemicals (although the
falling oil price may yet change that).
The pharmaceuticals industry is usually
resistant to the worst effects of recession.
Other “insulated” sectors include healthcare,
wealth management, professional services,
low-cost retail businesses and industries
such as tobacco and gambling. These are
likely to continue hiring through the downturn.
There are plenty of opportunities for highquality CIMA professionals in legal practices,
too. Some law firms have announced job
cuts, but this has not been across the board.
There is certainly evidence to suggest that
the hourly rates charged by lawyers are
increasing, which creates opportunities for
those working alongside them. Few people
will be surprised to know that there is plenty
of work to be had in the fields of insolvency
and corporate restructuring.
Recruitment activity has remained relatively
stable in the public and voluntary sectors.
A squeeze on the funding of central
government departments has had a knockon effect on recruitment in Whitehall, but
39
>careerdevelopment
Average starting salaries for newly
qualified CIMA members in industry,
commerce and professional services
£55,000
£50,000
£45,000
£40,000
£35,000
£30,000
£25,000
£20,000
£15,000
£10,000
2006
2007
2008
Source: Robert Walters salary surveys.
regulatory bodies such as the Financial
Services Authority are still seeking top-tier
candidates. I expect to see a review of
government spending and predict steady
growth in the first half of 2009.
In general, strong candidates are still very
much in demand. There will always be a need
for good financial managers during any
recession. This is not least because
companies still have to set budgets every year
and monitor their financial position closely.
They will also need suitably qualified
professionals to keep a particularly close eye
on costs. Top performers in all but the hardesthit industries are still highly sought-after for this
sort of work. They are still receiving job offers
and some are even getting counter-offers.
But candidates – particularly medium-level
performers – do need to realise that, while
the recruitment market is not as bad as the
doom-mongers may have us believe, it has
changed. CIMA members and students have
to be aware of the new reality and be
prepared to adapt to it. They must start
thinking more strategically. Newly qualified
members might once have been able to say
that they wanted to work only for an
investment bank in equity research for a
40
minimum salary of £60,000. That is not
realistic today, but there are some recent
graduates who still need a swift reality check.
Candidates can help themselves by
demonstrating their flexibility and reviewing
the areas in which they are prepared to work.
That could include forsaking the glamorous
sectors for the more solid and stable areas,
where demand for their skills will continue.
For example, there will still be a wealth of
opportunities in the conservative disciplines
of compliance, regulation and risk control.
Those opportunities could even increase in
number as the regulators consider taking a
bigger role in the field.
It’s also an ideal time to learn new skills
and make yourself more marketable to
prospective employers. Candidates could,
for example, consider an MBA from one of
the better business schools or study for
securities qualifications.
Happily, there has been little or no decline
in the salaries being offered for the vacancies
that are out there. It is taking longer to place
people, but companies are still having to pay
for talent. That should continue, at least in the
short term. Part of the reason is that people
are reluctant to move from their existing roles,
fearing that they will be the victims of a “last
in, first out” policy when redundancy
programmes strike. This is an understandable
fear. But, while it may be tempting to sit tight
during the downturn, top performers would
be foolish to ignore good opportunities when
they present themselves.
In fact, the downturn itself could be seen
as an opportunity. Those who survive, and
even thrive, will be in a wonderful position
when the recovery begins. For a start, the
experience that accountants can gain from
operating successfully in the current climate
should prove invaluable later in their careers.
What everyone should remember is that,
while it might be hard to see light at the end
of the tunnel now, the recovery will come at
some point. When it does, companies will
have to hire from a diminished talent pool,
because many potential candidates will have
taken alternative career options. At some
point there will be a recruitment frenzy, and
those in post now could find a wealth of
opportunities awaiting them. Employers will
also have to pay top dollar to get them.
Toby Fowlston is head of commerce
permanent business at Robert Walters.
>technicalmatters
44
46
49
Risk management
Fund management
For more articles on management
accounting, careers and development,
see www.cimaglobal.com/insight.
42
Costing systems
A new study has found that the accuracy of the
time estimates provided by employees is far from
perfect, which may affect the use of time-driven
ABC. Eddy Cardinaels and Eva Labro report.
Managers base key decisions on the data
reported by product costing systems. To
prevent them from making bad ones, it’s
crucial that these figures are accurate. Our
CIMA-sponsored study focused on the
accuracy – or otherwise – of time estimates
that employees provide for the various tasks
they perform. These estimates are important,
since they are the basis of many firms’
costing systems.
The research considered how the
measurement error of time estimates
is affected by the following variables:
nThe level of aggregation in the definition
of costing system activities – ie, how many
activities are included in one cost pool.
nThe timing of the notification – ie, whether
the respondents are aware before they
start working on an activity that a time
estimate will be required.
nTask coherence – ie, whether the time
estimate error is smaller when employees’
activities present themselves in a
structured and systematic sequence.
nWhether the time estimate is provided
in percentages or in absolute time units.
In terms of aggregation, our findings
suggest that there is a trade-off between the
level of aggregation and measurement error.
New costing systems are designed to use less
aggregation – ie, more cost pools – in order to
increase the accuracy of the reported product
costs. This works fine in cases where hard
data from software systems such as activity
time logs are available to management
accountants. But, where such
information is not available, staff
are asked to fill out time surveys.
In these cases, the very act of
disaggregating a costing system
by defining more activities may
reduce accuracy. This can be
attributed to the cognitive
limitations of the process – ie, the
level of estimation error gets higher
when the number of tasks to be
estimated increases. We suggest that
caution should be exercised when costing
systems are being disaggregated.
Management accountants are well aware
that disaggregating a costing system into
finer cost pools requires a big investment in
system development and consultancy fees.
Our research suggests that they should also
be aware that the resulting new system may
not be as accurate as they might hope.
Our results show that prior notification –
ie, telling people in advance that a time
estimation exercise is coming up – improves
the accuracy of their estimates. It has been
argued that, when people allocate some
of their mental resources to the conscious
timing of each activity, their performance of
those tasks is adversely affected. We found
no evidence of such an intrusive cognitive
effect among our survey sample (clerical
staff). The performance of those who were
forewarned was not significantly different from
that of staff who were retrospectively notified.
We recommend, therefore, that management
accountants should try to warn employees
beforehand that time estimates will be
required from them.
Our findings indicate that the level of
task coherence alone has no effect on
measurement error. Although a costing
system designer has no influence over
the coherence of the tasks performed
by employees, the factor does have an
important effect when taken in conjunction
with costing system parameters such as
the level of aggregation and the timing of
notification – both of which are under
management accounting control. First, we
have found that the combination of high
disaggregation and low task coherence –
ie, many activities presenting themselves in
a random sequence – results in the highest
level of estimation error. We would advise
management accountants to focus
investments on improving the measurement
systems in these circumstances, because
this should lead to significantly lower
estimation errors. Our findings also show that
in situations where tasks present themselves
in an incoherent order, prior notification that
time estimates will be required is especially
important in reducing error.
We have found that employees tend to
dramatically overestimate the time they work
when they’re asked to provide their estimates
in hours and minutes. This presents a huge
problem when using the time-driven activitybased costing (TDABC) method (see panel,
right). Proponents of this approach claim that,
by using estimates in absolute time units
rather than percentages, TDABC overcomes
the problem of allocating unused capacity to
products by using only practical capacity
costs rather than full capacity costs. But our
results call this assertion into question:
77 per cent of our respondents consistently
overestimated by an average of 37 per cent.
They indicated that they felt much more
confident giving estimates in percentages
rather than absolute time units. This lack
of confidence may lead people to question
the costing data that emerges and ultimately,
What is timedriven activitybased costing?
CIMA’s official terminology defines
TDABC as “an approach to ABC based
on time required for each unit of activity.
The method avoids the use of interviews
with operating managers in order to
estimate the percentage of time spent on
different areas of work. It is claimed that
TDABC based on ‘time per transactional
activity’ is simpler to install and update
and can highlight unused capacity.”
The approach was developed by
Robert Kaplan and Steven Anderson in
2004. They claim that this is a simpler
version of ABC, where time is the sole
cost driver. The method uses duration
drivers instead of transactional drivers.
The time spent inactive is not taken into
account, which, according to Kaplan and
Anderson, overcomes a particular
problem with traditional ABC, where the
costing system often allocates full
capacity to cost objects. The problem is
that traditional ABC uses a percentage
response mode – ie, when employees
are surveyed, they tend to allocate 100
per cent of their time over a set of
activities, with only few admitting to
spending some of their time at work idle.
By using absolute time units such as
minutes, the TDABC approach aims to
overcome this problem.
to refuse to use such data in the decisionmaking process.
The findings of our research have direct
implications for costing practice. Given the
widespread use of time estimates in costing
products and services, decision-makers who
use the figures should be aware of the extent
of measurement error that affects the
accuracy of their costing systems. There is
a need for costing system designers to find
ways to reduce the size of such errors. This
can be achieved by:
nFinding the right balance between the
levels of aggregation and the levels of
measurement error.
nImproving the design of the costing
systems so that task coherence is
balanced with other costing system
parameters such as the level of
aggregation and prior notification.
nNotifying employees beforehand that
their time estimates will be required.
nExerting caution when applying TDABC,
which requires people to give estimates
in absolute units rather than percentages.
nInvesting in automated (online) time
measurement systems. This should pay
off most in terms of increased accuracy
when tasks are presented in an incoherent
sequence and activities are disaggregated.
Eddy Cardinaels is associate professor of
accounting at Tilburg University. Eva Labro
is a lecturer in accounting at the London
School of Economics. This article is based
on their paper “On the determinants of
measurement error in time-driven costing”,
The Accounting Review, Vol 83, No 3, 2008
(www.snipurl.com/5emu5). For an executive
summary of their research report, visit
CIMA’s web site at www.cimaglobal.com/
researchexecsummaries.
Further information
A CIMA Mastercourse entitled
“Time-driven activity-based
costing” will be held in London
on June 5. For details, visit
www.cimamastercourses.com.
43
>technicalmatters
Risk management
moviestore collection
Catherine Cotter recommends that finance departments take the
initiative in integrating risk management with performance management.
44
A recent study by IBM found that 62 per
cent of companies with annual revenues
exceeding $5bn had encountered a material
risk event over the past three years – and
that, of those, 42 per cent hadn’t been well
prepared for it. Its survey of more than 1,200
CFOs and other senior finance professionals
found that the situation was only slightly
better for smaller firms: 46 per cent had
experienced a material risk event, 39 per
cent of which were poorly prepared for it.
The research revealed that globally
integrated finance organisations had
outperformed their counterparts in both
revenue growth (18 per cent compared with
ten per cent) and stock price growth (22 per
cent to 17 per cent) over the past five years.
Globally integrated finance organisations are
defined as entities that, at a minimum,
mandate standards throughout the whole
enterprise, along with a standard chart of
accounts, common data definitions and
common processes. Fewer than 15 per cent
of companies have done this.
Why do globally integrated finance
organisations perform better? For finance and
operational executives, improved analytics,
performance management processes and
data management are crucial in the
management of both performance and risk.
The four tenets of globally integrated finance
organisations – global standards, a standard
chart of accounts, common data definitions
and common processes – underpin this
improvement. Only once these are in place
can finance move into areas of real value.
Successful enterprises are starting to take
a broader view of risk management and
incorporating it into performance
management to provide better decision
support. The study confirmed this correlation:
firms that were better at managing risk were
nearly four times more likely to be effective
at measuring and monitoring business
performance, too. At a basic level, the simple
risk/reward equation means that all
performance is linked intrinsically to risk.
Despite the fact that all risk ends up being
reflected in a firm’s valuation, an astounding
proportion of companies do not plan for risk.
Just over half of the organisations in the
survey ran any sort of formalised risk
management programme. Only 45 per cent
believed that they were skilled at managing
risk and only 25 per cent said they conducted
risk-adjusted forecasting and planning.
Managing risk – especially an extended
risk portfolio that includes factors beyond
finance, compliance and accounting – may
seem at first beyond the remit of finance
professionals. But the study found that 61
per cent of organisations were increasingly
looking to finance for leadership in this area.
This stands to reason: in publicly traded
companies, CFOs are the only top executives
to be called upon quarterly to provide an
aggregate picture of the business. As an
increasing number of jurisdictions require
CFOs to sign off the financial statements, the
CFO is personally vested in knowing where
risk resides and whether it’s being managed
properly. At a management accounting level,
finance professionals have the chance to
enhance their decision support role by
incorporating risk management.
So, what can finance professionals do to
improve risk management? The research
suggests two types of actions to help firms
understand the trade-offs among revenue,
profit and risk: developing a more holistic
view of risk; and integrating risk into planning,
budgeting, reporting and forecasting.
The first action – taking a holistic view –
requires identifying material risks, both
financial and non-financial, that might have
gone undetected. The study found that 87
per cent of risk types were non-financial – for
Despite the fact that
all risk ends up being
reflected in a company’s valuation, an astounding proportion of
companies do not plan for risk
example, strategic, operational, geopolitical,
environmental and legal. Of these, the most
frequently mentioned were strategic risks
involving decisions about markets, products,
M&A activity etc. The research also
underlined the importance of the finance
function in managing these risks: it revealed
that enterprises with highly effective risk
management systems were three times more
likely to have finance teams that contributed
to managing this wider range of risks.
Although expanding the view of risks is a
positive approach, managers need a way to
avoid being swamped by an endless stream
of risks. Here, the finance function can apply
performance management techniques to
focus managers on the risks with the biggest
potential impact on the organisation’s value
drivers and strategy. Finance professionals
are uniquely placed to determine and guide
the overall risk profile – owing largely to their
influential role at both strategic and tactical
level, their operations expertise and their
ultimate accountability to shareholders (and,
increasingly, regulators). They can apply this
broad understanding of the enterprise to
combine strategic and tactical risks into an
enterprise-wide risk profile, for example, by
identifying risk interrelationships and their
potential compounding effects.
The second action is to integrate risks into
the performance management processes of
planning, budgeting, reporting and forecasting
– ie, placing risk in the context of performance.
Risk management and performance
management are two sides of the same coin.
One deals with the known universe; the other
deals with measuring and bounding
uncertainty. Both have the same objective.
The finance function can incorporate risk
management into performance management
in the following ways:
nIntegrate risk scenario analysis into
planning activities.
n Factor risk mitigation costs into budgets.
nReport key risk indicators alongside key
performance indicators.
nIncorporate the upside and downside of
risks in rolling forecasts.
Finance professionals may be ideally
placed to help put risk in the context of
performance, but where do you start? It is
true that many organisations feel uncertain
about how to manage risk. You will want to
take stock of the situation before determining
your priorities. Answering the following
questions may help you to get started:
nWhat risks most threaten the
fundamentals of the organisation?
nHow will you determine if the business’s
exposure to risk is acceptable? If it is
above that level, how will you reduce it?
nHow can you link contingency planning
and risk management actions to the root
causes of major risks?
nWhat are the impacts of internal and
external threats across business units,
functions and regions?
nHow do you prioritise risks?
nHow do you correlate risks within and
across “silos”? What are the potential
compounding effects of risk?
nWhat potential risk scenarios have you
developed for the organisation?
nHow have you adapted budgets to reflect
potential risk? Which of your risk
responsibilities should reside at corporate
level as opposed to business-unit level?
Once you have started to improve your
risk management, a good way of tracking
progress is to monitor forecast accuracy to
assess whether surprises are minimised.
Enterprises seeking to place risk in context
with performance have a lot to gain. Those
that do it well should find themselves better
able to negotiate today’s challenges and react
quickly to the threats they will inevitably face.
Catherine Cotter ACMA is a managing
consultant, financial management, at IBM
Global Business Services.
The researchers’
recommendations
Finance professionals are uniquely
qualified to help orchestrate risk-adjusted
performance management. An effective
way to embed risk management into the
organisation is to use the same
techniques and disciplines that they use
to measure performance.
The first step towards achieving this
requires taking a more holistic view of the
enterprise’s risk profile; the second
consists of integrating risk management
into the performance management
processes of forecasting, planning,
budgeting and reporting.
The research, “Balancing risk and
performance with an integrated finance
organization”, was conducted by IBM
Global Business Services’ financial
management practice and IBM’s Institute
for Business Value, with help from the
Wharton School, Pennsylvania University,
and the Economist Intelligence Unit.
45
>technicalmatters
Fund management
Ian Dewing and Peter Russell present the findings of their research
into the corporate governance of UK with-profits life insurance funds.
The UK has the largest insurance industry
in Europe and the third-largest in the world.
More than £400bn is invested in with-profits
life insurance. In 2001 the newly established
Financial Services Authority (FSA) undertook
a wide-ranging review of insurance regulation
in the UK. It recognised that the controls
were weak and set out plans to strengthen
them. The key event that triggered the FSA’s
actions was the crisis at the Equitable Life
Assurance Society in 2000 after a House of
Lords judgment ruled that its bonus policy
was illegal, creating a significant additional
liability for the society. Equitable put itself up
for sale and, when no buyer was found, it
stopped taking new business.
The Equitable affair led to a number of
high-level investigations that identified actuarial
issues of particular concern, including the high
levels of discretion retained by insurers over
investments, bonuses and smoothing. To
address these issues, the FSA introduced a
requirement for all firms operating with-profits
funds to publish principles and practices of
financial management (PPFMs). Insurers are
now required to manage with-profits funds
in accordance with the PPFMs and confirm
annually in a formal report to policyholders
that they have done so. In addition, there must
be an element of independent judgment in
confirming their compliance. Often this is
provided by a “with-profits committee” of nonexecutive directors or independent members.
The FSA requires firms to give information
on the following topics in their PPFMs:
nAmounts payable.
n The investment strategy.
n Business risks.
n Charges and expenses.
n Arrangements of the “inherited estate”.
nEquity between with-profits policyholders
and shareholders.
Our CIMA-sponsored study explored how
PPFMs were being used both internally in
firms and externally by consumers,
policyholders, independent financial advisers,
auditors and the FSA. We also investigated
how they were being used for benchmarking.
reuters
The objectives of PPFMs
46
According to the Financial Services Authority, the PPFMs system is intended to achieve
the following three goals:
nTo secure an appropriate degree of protection for actual and potential with-profits
policyholders by requiring firms to define and make available their principles and
practices of financial management.
nTo strengthen the governance of with-profits business by requiring insurers to
manage their with-profits business in line with the principles and practices defined in
their PPFMs.
nTo make the management of with-profits business more transparent, thereby enabling
actual and potential with-profits policyholders, through their advisers, to have a better
understanding of the way in which funds are managed.
The research involved reviewing the PPFMs
and governance arrangements of mutual,
proprietary and conglomerate UK life insurers.
We also interviewed actuaries, accountants
and other stakeholders.
Our main finding was that PPFMs – and
the later, more “consumer friendly” PPFMs –
were of little or no use to consumers,
policyholders and independent financial
advisers. This was the opposite of what the
FSA had intended.
Our findings with regard to three aspects
of running with-profits funds – internal
management, external governance and
benchmarking – were as follows.
Internal management
An important concern emerging from our
study was the independence of members of
with-profits committees. For example, one
insurer’s with-profits committee included
executive directors at group level as nonexecutives of the insurance subsidiary. It can
be argued that only genuinely independent
members without any other connection to
the firm are able to safeguard the interests of
with-profits policyholders properly.
Our interviewees agreed that PPFMs had
made a big contribution to improving internal
governance. This was achieved initially by
the practical step of writing everything down
and consolidating it in a single publication.
For those respondents who were involved
in fund management, PPFMs were vital
documents to which they referred regularly.
Other benefits included the insurers’
implementation of new management
information systems to monitor and report on
compliance with PPFMs. The new with-profits
committees also challenged actuaries to
communicate complex mathematical issues
in a meaningful way to board and committee
members without actuarial experience.
External governance
We found that there was no common
approach to directorial “sign-offs”. Some
PPFM reports had no signatures, while others
had a range of signatures or a statement of
collective approval by the board.
There were variations with regard to the
basis for the board’s opinion on compliance
with PPFMs, too. For example, some reports
were structured using terms related to FSA
governance themes and some used terms
more closely related to those used in policy
contracts, while others were structured in a
“frequently asked questions” format.
Overall, our interviewees agreed that
PPFMs were of little use to consumers,
and that the wording and format of board
statements and with-profits actuaries’ reports
could usefully be standardised. But the
consensus was that they provided real
benefits to policyholders because of the
internal governance response by firms to
the external compliance requirements.
Our auditor interviewees pointed out that
PPFMs were an important tool in reviewing
the “realistic” balance-sheet approach to
the preparation of the statutory accounts.
PPFMs also form part of the information used
by the FSA to supervise insurers.
Benchmarking
We were surprised to find that PPFMs were
not being benchmarked either by the firms
themselves or by stakeholders such as
independent financial advisers or the FSA.
This represents a missed opportunity to
Our main finding was
that PPFMs were of
little or no use to consumers,
policyholders and independent
financial advisers
gather important comparative information. A
big benefit of benchmarking PPFMs would be
to identify and disseminate best practice. It
also represents a missed opportunity for
management accountants – a source of
benchmarking expertise – to get involved.
Despite these disappointing findings, our
accountant interviewees generally believed
that the implementation of PPFMs had led
to improved decision-making and
accountability because they had introduced
new internal governance mechanisms, such
as with-profits committees.
PPFMs and related reforms to the
governance framework of with-profits funds
represent a significant innovation by the FSA
to protect the interests of with-profits
policyholders. With the regulation of financial
services firms being called into question as
a result of the credit crunch, PPFMs have
undoubtedly contributed to an improvement
in the governance of with-profits funds.
Although we found that PPFMs weren’t
used routinely for benchmarking, the practice
would probably benefit firms, consumers,
policyholders, independent financial advisers,
auditors and the FSA. If a PPFM
benchmarking exercise were to be conducted
by the with-profits industry, it could be seen
as making a positive contribution to the FSA’s
“Treating customers fairly” initiative by
providing consumers and policyholders with
new and useful comparative information.
Benchmarking data may also encourage
firms to adopt best practice.
Our interviewees identified other factors
contributing to the improved governance
of with-profits funds. These included:
nMaking insurers’ boards collectively
responsible for their decisions.
nThe introduction of “realistic” reporting.
nAn emphasis on independent reviews.
nThe application of business rules.
nAn emphasis on corporate governance
for firms generally.
PPFMs may not be useful to policyholders
in the ways that the FSA had originally
envisaged, but their real benefit is improved
internal governance. Indeed, such a
framework might benefit other industries
and sectors that are subject to a high degree
of public interest by, say, requiring the
provision of information and the application
of independent judgment to safeguard the
interests of key long-term stakeholders.
Ian Dewing and Peter Russell are
senior lecturers in accounting at Norwich
Business School.
The researchers’
recommendations
nMore attention needs to be paid to
ensuring the independence of
with‑profits committee members –
possibly by making them subject to
election by policyholders.
nThe diversity of PPFMs and
associated documentation should be
reduced and standardised.
nThe benchmarking of PPFMs would
clarify individual firms’ arrangements
for ensuring independence in their
with-profits governance structures.
nA review of cost allocation practices
in with-profits funds to identify best
practice would be a useful and
informative exercise.
47
>technicalmatters
A DB scheme is a burden that should be managed the same way as
any other significant risk, write Richard Cousins and Chris Massey.
With unprecedented turbulence on the
stock markets affecting the financial health of
pension funds, cash-strapped companies are
urgently seeking ways to reduce their pension
risks. The provision of defined-benefit (DB)
pensions for employees has been declining in
the UK for many years, leaving businesses
with fast-maturing schemes.
A DB scheme promises to pay members
guaranteed pensions from their retirement
until they die. These pensions will be based
on either future salary or inflation increases
until retirement and may rise with inflation
thereafter. The schemes are established
under trust. The trustees invest the assets to
pay pensions as and when they fall due.
The ultimate risk of paying pensioners’
benefits if the investments generate
insufficient returns falls to the business. It is,
therefore, exposed to a number of risks –
namely: inflation, salary increases, pensioner
longevity and asset underperformance.
Trustees are making increasingly prudent
assumptions of the risks and becoming more
assertive with employers when negotiating
their contribution to DB funds.
While the appetite for risk will vary among
organisations, most would benefit from
implementing a robust risk management
framework (see diagram).
Over the past 18 months many employers
have considered reducing their exposure to
pension risk via a “buy-out” deal with an
insurance provider. A pension buy-out occurs
when an insurer takes on full responsibility for
a firm’s pension liabilities, releasing the trustees
and the employer from their obligations.
Before considering the potential tailored
solutions that emerge from the risk
management framework process, it’s worth
first considering why a company shouldn’t
simply enter a buy-out arrangement. There
has been a lot of talk about the opportunity
for a good deal in the bulk annuity market in
the past year, particularly for pensioners.
Insurers have been swamped with quotation
requests and there’s a feeling of “buy now,
while stocks last”. In reality, most of these
quotes will not translate into deals, but the
situation typifies the all too reactive approach
that affects many schemes in the quest to
manage risk. A few large buy-outs are likely
to be completed in the coming months, but
such deals are drying up. This naturally raises
the question of whether buy-outs are the right
answer for all schemes. In our view, they
aren’t – and there are developments in the
insurance market that will make bulk
annuities less attractive in the near future.
Bulk annuity policies certainly have some
attractions. They are as follows:
nThey remove the key interest rate, inflation
and longevity risks in a single transaction.
nA buy-out offers a reduction in the total
liabilities on the employer’s balance sheet,
which makes it more attractive to analysts
and investors.
nCompetition and innovation have created
more pricing opportunities recently.
nTrustees and regulators are generally
comfortable with buy-outs.
nIn 2007 in particular, market conditions
resulted in relatively low annuity premiums
when typical pension scheme asset
values were relatively high.
These benefits appear compelling, but on
closer examination there are significant
issues to consider concerning risk, cost and
market conditions.
nRisk. The insurance of pensioners involves
transferring assets to the insurer, which
leaves a depleted asset portfolio to cover
the longer-term liabilities that have higher
interest, inflation and longevity risk. In
addition, the insurance framework is
relatively free of risk and hungry for capital.
Insurers naturally charge for the cost of
capital and it is often hard to demonstrate
that a buy-out of pensioners enhances
A risk management framework
6 Management information
Report regularly to the board
and other stakeholders
Define trigger points for activity
Design management
information processes
5 Execution
Establish implementation and
project management teams
Communicate with the board
trustees and members
Negotiate terms – pricing
and security
1 Governance
Define responsibilities
Delegate responsibilities
Clarify information requirements
Manage relationship
with trustees
Keep control
Allocate capital effectively
Reduce pension shocks
Respond to market
opportunities
2 Risk appetite
Establish cash flow constraints
Define financial goals and tolerances
Review the attitudes of investors
and the board
Consider business mix and risk
Assess debt/equity structures
3 Risk quantification
Measure pension risks using
the “value at risk” system
Assess pension impact, cash flow,
P&L and reserves credit rating
4 Solution assessment
Conduct a risk and financial
impact assessment
Conduct a comparative study
of all solutions
Consider current market pricing
Design tailored solutions
Source: PricewaterhouseCoopers.
49
>technicalmatters
alamy
Few businesses have
implemented the kind
of proactive, co-ordinated
processes required to handle their exposure effectively
50
shareholder value. Also, trustees remain
concerned about the security, experience
and long-term commitment of smaller new
insurers, which can make transactions
with such firms lengthy and complex.
nCost. Inflation hedging is relatively costly
at present and this is starting to feed
through into bulk annuity premiums. Buyouts can have significant P&L implications
in terms of settlement costs and reduced
expected return on assets, which would
be particularly unwelcome for many
employers in the current economic
climate. Also, significant cash payments
are often required from sponsoring
employers, which are again unwelcome
and can have adverse tax implications.
nMarket conditions. Pension scheme
asset values are shrinking and insurance
premiums are increasing, mainly because
of rising inflation and a growing resistance
among insurers to cutting their margins to
previous levels. Also, there are significant
capacity problems for the insurance
market when it comes to insuring large
schemes, while employers with smaller
schemes may find it hard to obtain
quotations in a swamped market.
Lastly, it’s worth noting that bulk annuities
are a one-time-only decision. This means that
there is little flexibility to unwind such a
transaction if circumstances change.
With these issues in mind, let’s return to
the risk management framework. Having
considered the stakeholders’ positions and
quantified the risks, companies need to
assess the many techniques that could be
implemented to manage the situation.
There are well-established methods of
reducing inflation and interest rate risk by
changing investment strategy. These go by
various names – eg, liability-driven
investment or swap overlay – but in essence
they use a combination of bonds and
derivatives to match asset cash flows more
closely with benefit payments. Insurers use
the same techniques. But, if the
company works with the
trustees to implement this
strategy, they can decide
exactly how much risk
they want to take off
the table and control
the timing of the
change in investment
strategy to suit
market conditions.
This leaves the
problem of longevity
risk. Some credible
longevity insurers and swap
counterparties exist, but this
market has not yet gained
momentum. There are new products in
development that will bring this market to life
and trustees will be able to select the
amount of longevity risk they wish to
transfer to a number of providers. Expect
significant developments in this area over
the next 12 months.
The combination of changes in investment
strategy and the selective use of longevity
insurance products will give many schemes
the chance to reduce their overall risk to
acceptable levels economically while retaining
flexibility to change strategy if circumstances
change. This approach can also be
structured to control the cash, tax and P&L
impact of a risk reduction programme to
acceptable levels.
To reduce liability in schemes and on
balance sheets, there are options available
that are designed to be attractive to
members, encouraging them to take their
benefits away from the scheme. An example
of such an offer that many companies have
made in recent years is enhancing the
transfer value. Members who have left their
scheme, but retain a pension deferred to
retirement, have a statutory right to transfer
to another scheme or money-purchase
insurance arrangement. Under an
enhancement exercise, they are offered an
addition to this statutory transfer value to
make the terms more attractive. Employers
need to ensure that exercises are properly
communicated and members are
offered appropriate financial
advice. These processes
add cost, but this is a
small price to pay for
removing volatility risk.
Lastly, an important
area in which to
exercise control is the
timing and level of
cash contributions from
the business into the
scheme. For many
schemes, the basis of
calculation of the liabilities is
more prudent than that adopted
for accounting purposes, with
trustees seeking more cash than employers
can either afford or wish to provide. This
typically leads to negotiations between the
employer and trustees, and it is important for
the employer to consider alternative
contingent assets that will offer trustees
security in place of cash.
While many business leaders have woken
up to the need to manage pension risk, few
have implemented the kind of proactive,
co‑ordinated processes required to handle
their exposure effectively. As many
companies struggle to realign their risks and
allocate their thinly spread capital
appropriately, implementing a robust risk
management framework is critical.
Richard Cousins and Chris Massey are
partners at PricewaterhouseCoopers.
54
Paper P4
Organisational Management
and Information Systems
56
aper P9
P
Financial Strategy
58
aper P2
P
Decision Management
>student
ONE2ONE
I would
like to set up
an organisation
to aid the
development
of rural
communities,
with a special
emphasis on
education
and training
>study notes
Surath chandrasena
student, bangalore university
Congratulations – you are the only student
in CIMA history to have won a local or
global prize for each of the six papers at
managerial level. What are the secrets of
your success?
My mantra is “study smart”. I have found study
techniques that work for me, which means I
can save time and study more effectively. In
particular, I use MindMaps and SQ3R. But that
doesn’t mean I don’t have to put in the hard
work as well. I also think it’s important to make
constant improvements to the way I present
my answers.
I don’t attend classes, so it’s essential
that I can access the right resources. I try to
understand the intricacies of the topics I’m
studying by reading articles and case studies.
What is your current job?
I am a full-time student. As well as pursuing
the CIMA qualification, I’m in the final year of
my degree in business management at
Bangalore University.
Why did you choose to study for the
CIMA qualification?
I knew the importance in business of having a
good understanding of the numbers, but I
didn’t see myself being limited to the finance
function. CIMA is an ideal choice for me, as its
focus is on business. It also offers greater
flexibility and broader scope compared with
other professional qualifications. When I started
CIMA in Sri Lanka I was also considering going
overseas for my higher education. CIMA again
proved to be the best choice, because I knew I
would be able to continue it in most countries.
Have you faced any particular challenges
studying for CIMA outside the UK and
how have you overcome these?
Sri Lanka has a large number of CIMA
students and many well-established tuition
providers, so when I started the CIMA
certificate in business accounting it was fairly
easy to find a tuition provider who could give
me all the support I needed. But when I came
to Bangalore the situation was very different.
I had difficulty finding a provider and, in the
end, I decided to study on my own.
I use my visits to Sri Lanka to consult
lecturers and to collect notes and study
materials. I also rely on the internet for articles,
research and case studies. The toughest
challenge has been managing my time
between my degree and my CIMA studies.
This is especially difficult because the exams
of the two courses are usually only days apart.
What do you intend to do once you have
passed all your exams?
I would like to return to Sri Lanka to find a job
that enables me to apply the knowledge I have
gained while studying and to obtain a broad
range of experience. I intend to take TOPCIMA
at the same time as my degree, so I can start
work immediately afterwards and gain the
experience I need to become a member. I also
plan to lecture part-time so that I can share my
knowledge with new students. I hope this will
also facilitate my continuous professional
development. I then plan to continue my
education by starting a postgraduate
programme for investment professionals.
What are your long-term aims and do
you have a dream job?
My long-term ambition is to run my own
company, probably a professional services
provider. I believe Sri Lanka has many talented
professionals whose skills are yet to be fully
utilised by global businesses. I would also
like to set up an organisation using social
entrepreneurial principles to aid the
development of rural communities, with a
special emphasis on education and training.
>studynotes
Organisational MANAGEMENT
and information systems
Iryna McDonald describes how an organisation can optimise its
performance by structuring resources along four operational dimensions.
Students often associate the concept of
operations with manufacturing alone, but the
processes that transform a set of inputs into
outputs are also integral to service industries.
To compete successfully, organisations need
to understand their markets and how they
can best serve customers’ needs, which in
turn depends on how they organise the
delivery of their services. So it’s essential to
structure employees’ activities and even to
design facilities in a way that aids the
efficiency and effectiveness of the business
and ensures that its approach to operations
is aligned with the overall corporate strategy.
Operations management is mainly
concerned with how resources are used to
produce goods or services. Depending on
the nature of the organisation, the
transformed resources could be materials,
information or even customers. For example,
changing the physical properties of a metal is
a fundamental part of car manufacturing;
information processing is one of the business
practices of a marketing company; and
customer processing could be achieved by a
beauty treatment. In addition, a company
needs to have facilities, such as buildings and
equipment, as well as people who maintain,
plan and manage the operations.
The balance between facilities and staffing
can vary according to the nature of the
business. Take the case of Ikea, a chain of
stores that specialises in selling furniture and
household goods. Its
business model
requires the company
to have large
premises, because most of the items it sells
are quite bulky. But, instead of occupying
city-centre locations where land is expensive,
Ikea uses sites on the outskirts of towns.
Customers are required to assemble the
furniture themselves, thereby helping the
company to offer “value for money”.
Fast-food retailer Pret A Manger believes
that the secret of success is to focus
continually on quality not only in food but in
every aspect of its operations. The firm goes
to some length to ensure that all its produce
is fresh and free of additives. Every shop
receives ingredients first thing every morning
and food is prepared throughout the day on
the premises. Pret A Manger relies heavily on
its people, too: the quality of its customer
service compared with that of other fast-food
outlets allows it to charge premium prices.
It is evident from these examples that the
firms’ operations are similar in that they
transform input resources into output
products and services, but they do differ in a
number of dimensions – namely: volume,
variety, variation in demand and visibility.
n The volume dimension involves the
systematisation of work, whereby standard
processes are set out in an operations
manual. The implication of such structuring
is that it gives a lower unit cost, since fixed
overheads such as rent are spread over a
large number of products.
n The variety dimension requires an
organisation to be flexible and match its
services to customers’ needs. For retailers
aiming to keep up with changing fashions
it is essential to have both well-established
Pret A Manger believes
the secret of success is to focus
on quality not only in food but
in every aspect of operations
54
supplier contacts and skilled staff who can
enact changes promptly.
n The variation dimension considers how
demand patterns and seasonality influence
sales volumes. Staff may be overstretched
in high season and the shops feel crowded,
whereas low season gives rise to
opportunity costs. Capacity planning is
essential, therefore, for optimising turnover.
n The visibility dimension concerns how
many of a firm’s operations are exposed to
the customer. For example, a retailer may
decide to open a shop or to sell products
online depending on the level of customer
contact necessary to clinch the deal.
Companies are using technology to
achieve higher volumes while preserving the
accuracy, precision and repeatability of their
processes. Many car manufacturers use
automated assembly lines on which robots
work together. Wide-area networks and web
technology allow all branches of a company
to access, say, a customer database held on
a central server. Electronic point of sale
(Epos) and barcoding technology speed up
operations, automated check-outs allow
retailers to establish how many products are
on the shelves and ID chips help to track the
movement of items. Ikea has a bespoke
distribution system that calculates the
optimum routes for delivery drivers and
records the customers’ signatures to prove
receipt. All information is transferred to a
central system for efficient processing, which
leads to significant cost savings from smaller
stock holdings.
But technologies differ in the flexibility and
economies they can deliver. For example,
economies of scale usually associated with
mass production may be less relevant when a
company adopts a just-in-time (JIT) approach
and seeks economies of scope through
smaller machines that can handle a range of
products. The high degree of dependency
between each stage of the JIT manufacturing
process exposes problems quickly, which are
alamy
PAPER P4
solved by staff on the shopfloor rather than
by a central administration. No stock is held,
because overproduction unnecessarily ties
up funds, increases machine and labour
waiting times and leads to the multiple
handling of surpluses.
Despite the complexities of using JIT,
many companies see it as a way to
differentiate themselves by being flexible in
meeting demand. While it is often impossible
to use such “pull control” to its fullest extent,
it has been widely adopted in service
industries. Pret A Manger’s policy is to make
a smaller volume of sandwiches directly in a
branch, reflecting the preferences of local
customers. If a product sells out, a notice is
placed on the shelf reminding people that it
could be made promptly on request. This
helps to reduce losses of perishable stock.
Although JIT helps companies to handle
the variety aspect of operations, it does
present problems in the variation dimension.
Capacity utilisation often decreases because
any stoppage will affect subsequent stages of
the production process. For example, a delay
in receiving goods from the supplier will lead
to a hold-up in processing. The general aim
should be to reconcile the supply of a
product or service with the level of demand.
Almost all goods have some demand
seasonality – for example, woollen knitwear is
more likely to be sold in the winter – so a
manufacturer needs to be careful in
choosing from the three following options
available for handling such variations. The
first, capacity planning, requires the same
number of staff and equipment to be
deployed throughout the year, with finished
goods being transferred to inventory in
anticipation of future demand. A company
with a “chase demand” plan will vary the
number of employees or amount of resources
it uses to reflect fluctuations in demand. It is
usually adopted by operations that cannot
store their output – eg, call centres. And a
demand management plan aims to shift
demand from peak times to quieter periods
by using customer incentives.
In practice, most organisations use a
mixture of the three approaches. For
example, Ikea stores have a large warehouse
where items await collection; over the busy
Christmas period opening hours are
extended to accommodate more customers;
and price reductions are used to shift
products that have gone out of fashion.
Another consideration in servicing
customers’ needs is the degree to which a
company’s operations are visible. Although
more face-to-face interactions with customers
provide a deeper understanding of their
specific requirements, they are also costly.
For example, Yo! Sushi
restaurants are famous
for their unusual layout:
the chefs and equipment
are located in the centre
of the restaurant and,
once a meal is ready, it is
placed on a conveyor belt
separating the cooking
and dining areas. The
company uses this unique
process design to make
the experience of eating
out more exciting, having
recognised that its
customers enjoy seeing how their food is
made and are prepared to pay a premium for
that. To address the high costs of customer
contact, other companies may use a mix of
high- and low-visibility operations, such as
selling products online as well as in store.
In deciding how to structure the
company’s operations it is essential to strike
the right balance among the requirements of
the four dimensions. Management
accountants need to assess the costs and
benefits associated with each option. For an
organisation aiming to keep its costs down,
for example, high volume and low variety,
variation and visibility would constitute the
optimal structure. But, whichever
combination is chosen, the company’s
resources need to be organised accordingly.
Iryna McDonald is a tutor specialising in
management level papers at FTC Kaplan.
P4 further reading
B Perry, Organisational
Management and Information
Systems CIMA Official Learning
System (2008 edition), CIMA
Publishing, 2007.
>studynotes
MANAGEMENT ACCOUNTING –
Financial strategy
Many students find intangible assets hard to handle. William Parrott
explains three methods of calculating the total value of a firm’s intangibles.
Basic valuation techniques are
examined in almost every P9 paper
and candidates generally fare poorly on
such questions. In particular, they often
fail to make any attempt to value
intangible assets. Some even seem to
believe that, if there are no intangibles
shown in a financial statement, there
are none to value. In some respects
this is not surprising, because the
previous time they were asked to
consider intangibles was when they
took P7 (Financial Accounting and Tax
Principles), which would have been
quite a while ago for some. As a result,
they often find it hard to imagine the
wide variety of intangibles that may
exist. This, of course, makes valuing
them all the more difficult.
Intangibles are assets that do not have
a real physical presence. Brands, patents,
goodwill, the knowledge of a firm’s workforce
and even its corporate strategy are all assets
that aren’t tangible but still add value. It’s
virtually impossible to create an exhaustive list
of potential intangible assets, but it should be
noted that some – eg, a firm’s patents and
trademarks – are more “tangible” than others
– eg, its strategy and knowledge base.
Indeed, where an intangible asset has a
recognisable description, is capable of being
owned, is transferable, is subject to legal
existence and protection – and where there is
tangible evidence of its existence – it can be
valued separately from the business as a
whole. The valuation of these separately
identifiable intangibles is outside the scope
of this article, but it is useful to be aware that
certain components of a company’s total
intangibles are easier than others to value.
Ethical issues can also arise. For example,
it’s generally accepted that the skills,
knowledge and capabilities of employees
have a value to their company. But the
56
calculation of this value would seem to
suggest that the company owns its staff,
which may be distasteful to some people.
The measurement of the total value of
intangibles has always been problematic.
The task is made harder by the fact that
values can change rapidly. For instance, the
image and hence value of a brand can be
seriously harmed by a product scandal of one
sort or another. Equally, the value attributable
to a firm’s workforce could be reduced
significantly by the loss of key people.
But the fact that it’s hard doesn’t mean
that it shouldn’t be attempted. The three
following methods can be used to calculate
the total value of a firm’s intangible assets:
nMarket capitalisation and tangible
asset value.
n Calculated intangible value (CIV).
n Intangible to tangible asset ratio.
Method 1: market capitalisation and
tangible asset value
The market capitalisation of a company is its
total value, reflecting the value of both its
tangible and intangible assets.
The book value of its tangible net
assets can be taken from the financial
statements. The difference between
the market capitalisation and the
tangible net assets should provide
a value for the intangibles.
One problem with this approach
is that the value of the tangible assets
in the financial statements may be out
of date. So the method can be refined
to reflect the cost of replacing its
property, plant and equipment. But
replacement costs are themselves
often hard to determine.
If the company in question is not
listed, the total equity value could be
calculated using another approach –
the dividend valuation model or the
price/earnings ratio method, for example.
Method 2: calculated intangible value
The CIV method calculates the value of the
intangibles as the present value of the firm’s
earnings that are in excess of the earnings
expected given the returns provided by
a similar company. The industry average
returns could be used if no data is available
from a similar company.
A weakness of this approach is that any
similar company will be making its return on
both tangible and intangible assets, so in
effect the CIV is a measure of the additional
intangible assets the company has over
those of a similar company
Method 3: intangible to tangible asset ratio
A ratio of intangible assets to tangible assets
from a similar company or an industry
average ratio can be applied to the tangible
assets of a company to calculate an
intangible asset value.
This method makes the rather simple
assumption that similar firms will have the
PAPER P9
Valuation has been described
as an art rather than a science,
and this is particularly true in
the case of intangible assets
same relative level of intangible assets. This
is clearly unlikely to be the case in reality, as
no two companies are the same.
These three methods will generate a range
of potential values for the intangible assets,
from which the most appropriate figure can
be chosen. This is a subjective decision that
will need to take account of many factors.
The reason for the valuation is an important
consideration, which may have an impact on
what is thought to be an appropriate value
and indeed on how it should be calculated.
For instance, if the valuation is being done
with a view to selling the business, the
appropriate value may be set towards the top
of the range calculated. Alternatively, a value
for inheritance tax purposes would have to be
produced in the light of the relevant statutes
and case law.
Consider the data provided on Lolly Co in
the panel below and the following extra data:
n Lolly Co has 200 million shares, which are
currently trading at £12.50 per share.
n The current replacement cost of the
tangible non-current assets is thought
to be £2,900m.
n The industry average pre-tax return on the
book value of net tangible assets is 13 per
cent, while that of Lolly Co is 16 per cent.
n The average cost of capital for Lolly Co’s
industry is 15 per cent.
n The current tax rate is 30 per cent.
n The tangible non-current assets of a
similar company have a value of £3,700m
and its intangibles have a value of £770m.
Now let’s work out the value of its
intangible assets using the three methods
that I have outlined.
Method 1
Lolly Co’s market capitalisation can be
calculated as £12.50 x 200m = £2,500m.
The book value of its net assets equals its
share capital and reserves (or total assets
less external liabilities), which in this case
is given as £1,709m. So the value of its
intangible assets under
method 1 is £2,500m –
Lolly Co’s financial position on June 30, 2008
£1,709m = £791m.
(£m)
The difference between
Assets
the book value of Lolly Co’s
Non-current assets
property, plant and equipment
Property, plant and equipment (book values)
2,450
and the replacement cost of its
tangible non‑current assets is
Current assets
£2,900m – £2,450m = £450m.
Inventories
80
So, if we adjust for this
Receivables
1,875
replacement cost, the value
Cash
144
of Lolly Co’s intangible assets
4,549
would be £791m – £450m
Equity and liabilities
= £341m.
Equity
Method 2
Share capital and reserves
1,709
The value of Lolly Co’s net
Non-current liabilities
tangible assets is £4,549m –
Loan stock
1,350
£1,490m = £3,059m.
Current liabilities
1,490
Its pre-tax return on the
4,549
book value of net tangibles in
excess of the industry average are, therefore
(16% – 13%) x £3,059m = £92m.
Its excess post-tax earnings are, therefore
£92m – (£92m x 30%) = £64m.
The total value of Lolly Co’s intangible
assets equates to the present value of its
post-tax earnings at the cost of capital,
which is £64m ÷ 15% = £427m.
Method 3
The ratio of intangible assets to tangible
non‑current assets for a similar company
is £770m ÷ £3,700m = 21%.
Applying this ratio to Lolly Co’s tangible
non-current assets, we get £2,450m x 21% =
£514m for the value of its intangibles.
It’s clear, then, that we’ve calculated a wide
range of values for Lolly Co’s intangibles. This
isn’t surprising, given the difficulty of making
an appropriate estimate. In the absence of any
extra information, it may be appropriate to
choose a mid-range value of about £450m.
The very nature of intangible assets means
that their valuation will always be a problem.
Valuation has been described as an art rather
than a science and this is particularly true
when it comes to intangibles. But, at its
simplest, an intangible asset value can be
calculated by looking at the difference
between a company’s total equity value
and the value of its net tangible assets.
Will Parrott is a tutor at Kaplan
Financial. He taught both the first and
joint-fourth prize-winning students in
the May 2008 P9 paper.
P9 further reading
For case studies on the
valuation of separately
identifiable intangible assets,
visit www.snipurl.com/5ey46.
>studynotes
Management ACCOUNTING –
Decision management
Ian Janes offers his guide to a problem area for P2 candidates: the
approaches that managers can take when faced with “risky” decisions.
Several decision-making techniques are
available to a manager facing a range of
possible outcomes from a course of action.
Generally, the technique chosen will depend
largely upon the manager’s level of
knowledge about the likelihood of their
occurrence and also upon the number of
areas of uncertainty concerned (a topic that
I will address in a future article).
In discussions about decision-making
problems, the words “risk” and “uncertainty”
are often used interchangeably, but students
need to be aware of the key difference
between them. “Uncertainty” refers to
situations where we cannot predict with
statistical confidence whether events will
occur or not. “Risky” decisions concern
situations where we can predict whether
events will occur or not, based on past
records or other statistical calculations.
If the probabilities of the various outcomes
are known, and are likely to be repeated over
and over again, then we can use expected
values to inform our decision.
Consider the example of a market
stallholder, Mr Jenkins. He trades a highly
perishable commodity that can be sold on
the retail market for £5 per carton. Each
carton costs him £2.50 to buy from the
wholesale market and is suitable for sale
at his retail market for only 24 hours after
purchase. After this, it’s sold for farm animal
food at £0.50 per carton.
Jenkins has kept records of the
commodity’s sales over the past 100
days (see table 1).
For problems such as this, it can be
useful to construct a table where each “x”
denotes the daily forecast net margin for
1 Jenkins’ 100-day sales record
Daily sales (cartons)
100
200
300
58
Days sold
30
50
20
2 Combining decisions and possible outcomes
Uncertain event
Outcome 1
Outcome 2
Outcome 3
And so on
Decision 1
x
x
x
x
Course of action
Decision 2 Decision 3
x
x
x
x
x
x
x
x
And so on
x
x
x
x
3 Daily forecast net margin (£)
Outcome
(demand in cartons)
100
200
300
each combination of decision and outcome
(see table 2).
Jenkins has three possible courses
of action and there are three possible
outcomes according to previous records,
so nine combinations are possible in this
case (see table 3). For example, if he buys
300 cartons but sells only 200, his cost will
be: 300 x £2.50 = £750. His income will be:
(200 x £5) + (100 x £0.50) = £1,050.
This would leave a net margin of £300.
Maximax and maximin
Jenkins’ decision on how many cartons to
take to market could, of course, be made
without reference to his previous records
of daily sales.
If, like the ever-bullish Del Trotter from
Only Fools and Horses, he always gets
drawn to the best possible outcome (the
maximax criterion) in the belief that this
time next year he’ll be a millionaire, he will
take 300 cartons to market every day,
because the net margin could be £750.
In effect, this “risk seeker” will ignore the
possibility of a £150 loss.
If, on the other hand, he has Rodney
Trotter’s outlook – ie, whatever choice
Action (order size at £2.50 per carton)
100
200
300
250
50
-150
250 500
300
250
500
750
is taken, the worst possible outcome will
happen (the maximin criterion) – he will seek
sanctuary in the 100-cartons-a-day option.
This offers a steady £250 net margin, with
no loss apparently possible.
Expected values
Of course, the point about having access to
past daily demand figures is that it can inform
your decision through the use of probabilities.
Because the action of taking the cartons to
market is a repeated event, we can conclude,
albeit rather simplistically, that there is:
nA 30 per cent (0.3) chance that daily sales
will be 100 cartons.
The expected value of taking 100 cartons
to market, therefore, is calculated as follows:
(0.3 x 250) + (0.5 x 250) + (0.2 x 250) = £250.
So the expected value of 200 cartons is:
(0.3 x 50) + (0.5 x 500) + (0.2 x 500) = £365.
And the expected value of 300 cartons is:
(0.3 x -150) + (0.5 x 300) + (0.2 x 750) = £255.
Therefore, if Jenkins uses expected values
as the basis for his decision, he will choose
PAPER P2
“You know it makes
sense, Rodney.”
Del Trotter advocates
the maximax approach.
movie store collection
the middle path of ordering 200 cartons for
his day’s trading.
This decision reflects the “risk-neutral”
nature of using expected values, in that the
technique weighs up the balance of the
probabilities. In other words, all possible
outcomes – profits and losses in this
example – are taken into account and
contribute to the expected value according
to the likelihood of their occurrence.
Perfect information
Clearly, what any market trader really wants
is certain knowledge, in advance, of the level
of demand on any given market day. This is
rarely possible in practice, but sellers will use
their experience of market conditions,
possibly even the weather or day of the
week, to make that judgment.
Nonetheless, P2 exams usually pose a
question along the lines of: “How much
would the trader be prepared to pay for
certain knowledge of the daily demand?”
The value of this perfect information can
be expressed as the expected value with
perfect information minus the expected
value without perfect information.
The effect of perfect information, in terms
of the nine possible outcomes in Jenkins’
table, is to make redundant the six incorrect
choices, leaving only the three correct ones.
(This naturally assumes rational behaviour
from the trader.) So, if Jenkins is told that
the demand will be for 100 cartons, he will
order 100 cartons, earning £250. There’s a
30 per cent chance that this will happen:
0.3 x £250 = £75.
If told that demand will be for 200 cartons,
Jenkins will order 200 cartons, earning £500.
There’s a 50 per cent chance that this will
happen: 0.5 x £500 = £250.
If told that demand is for 300 cartons,
Jenkins will order 300 cartons, earning £750.
There’s a 20 per cent chance that this will
happen: 0.2 x £750 = £150.
Therefore, the expected profit with perfect
information is: £75 + £250 + £150 = £475.
This exceeds the expected profit without
perfect information by: £475 – £365 = £110.
So it’s worthwhile for Jenkins to pay up to
£110 a day for perfect information about the
level of demand for his product.
It’s clear from these approaches that
decision-making criteria exist which reflect
the individual’s attitude to risk. A risk seeker
would use maximax, a risk avoider would
use maximin and the risk-neutral decisionmaker would use expected values. In effect,
they are concerned with the most likely
outcome, as the expected value is calculated
by weighing up the possible outcomes by
their probabilities and summing the result.
The value of perfect information, which
will eliminate the possibility of making the
incorrect choice, is the increase in the
expected value of the action once that
information has been made available.
Ian Janes is senior lecturer in accounting
at Newport Business School.
P2 further reading
J Avis, L Burke and C Wilks, Management Accounting – Decision
Management CIMA Official Learning System (2009 edition), CIMA
Publishing, 2008.
C Drury, Management and Cost Accounting, International Thomson
Business Press, 2000.
C Horngren, A Bhimani, G Foster and S Datar, Management and
Cost Accounting, FT/Prentice Hall, 2002.
>study notes
EXAM NOTICE
Visit www.cimaglobal.com regularly for updates.
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or airmail on January 15, 2009 for TOPCIMA
and strategic level papers, and on January 22
for managerial level papers.
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“My communication preferences”.
CIMA cannot give out results on the
telephone or to personal callers at any office.
Attendance slips
You will have received an attendance slip for
each exam you sat. You should keep them
for four months as your receipt of attendance.
Question papers and post-exam guides
Visit www.cimaglobal.com/studyresources to
download copies of the exam papers.
Suggested answers are free to download via
the “My CIMA” area of the web site.
Post-exam guides for each subject are
available for three to four months after the
exams. These are essential reading for
unsuccessful candidates and for those
studying a new subject. They contain:
n The exam questions.
n The rationale for each question.
n Suggested approaches.
n The outline marking scheme.
n The examiners’ comments.
Script reviews and administrative reviews
After the November exam results are released
CIMA will be offering a script review service
for the three strategic level subjects and
TOPCIMA. The service is available only if you
received between 40 and 49 marks in the
paper for which you want a script review.
An administrative review service is also
available for all managerial and strategic level
papers. Visit www.cimaglobal.com/
scriptreview for more information about these
services and how to apply for a review.
May 2009 exams
The next exams will take place on May 19, 20
and 21. Online exam entry for these will be
available at www.cimaglobal.com/examentry
60
from February 2. The standard closing date for
entry is noon on March 16. If you enter after
this date it will be accepted only as a late entry
and you will have to pay a late entry fee. The
deadline for late entries is noon on March 23.
You must pay your exam fees online
when you enter for them. The 2009 fees are
£65 for managerial level papers, £70 for
strategic level papers and £92 for TOPCIMA.
Advance notice on examinable legislation
International accounting standards and
international financial reporting standards are
examinable topics in papers P7 and P8.
For the May and November 2009 exams,
the following standards will be examinable in
P7: IASs 1 (revised), 2, 7, 8, 10-12, 16-18, 23,
24, 36-39; and IFRSs 3 (revised) – only in
respect of the definition and valuation
principles of goodwill, including the
requirement for impairment reviews – 5 and 8.
The following standards will be examinable
in P8: IASs 1*, 7, 18, 19, 21, 27-29, 31-33, 37
– only in the context of environmental costs –
and 39; and IFRSs 1, 2, 3*, 5 – only in respect
of subsidiaries held for disposal – 7 and 8.
P7 and P8 candidates should also check
the International Accounting Standards Board
web site (www.iasb.org). This provides useful
summaries of all standards, as well as details
of current developments.
Computer-based assessments at
certificate level
Visit www.cimaglobal.com/certificateentry
for full information about how to enter for a
computer‑based assessment.
If you wish to sit managerial level papers in
May 2009, you must have completed all of
your certificate level subjects by March 1.
Queries
Visit www.cimaglobal.com or get in touch
with CIMA Contact or your nearest office
(see panel, right).
* NB: the references to IAS1 and IFRS3 with regard
to paper P8 apply to these standards extant in
2008 before their recent revisions. Neither of the
revised standards will be examinable in P8 until
2010 at the earliest.
Global contact details
n CIMA Contact
E: cima.contact@
cimaglobal.com
T: +44 (0)20 8849 2251
F: +44 (0)20 8849 2450
n Australia office
Level 3, The Plaza
Building, Australia
Square, 95 Pitt Street,
Sydney, New South
Wales 2000
E: sydney@
cimaglobal.com
T: 1800 679 996
(toll-free within Australia)
or: +61 (0)2 9776 7982
F: +61 (0)2 9262 5979
n CIMA Botswana
Physical: Plot 50676,
Second Floor, Block B,
BIFM Building,
Fairgrounds Office Park,
Gaborone
Postal: PO Box
403475, Gaborone
E: gaborone@
cimaglobal.com
T: +267 395 2362
F: +267 397 2982
n CIMA China office
Unit 1905, Westgate
Tower, 1038
Nanjing Road (W),
Shanghai 200041
E: infochina@
cimaglobal.com
T: +86 (0)21 5228 5119
F: +86 (0)21 5228 5120
n Hong Kong Division
Suites 1414-1415,
14th Floor, Jardine
House, Central
Hong Kong
E: hongkong@
cimaglobal.com
T: +852 2511 2003
F: +852 2507 4701
n India liaison office
DBS Corporate Centre,
Second Floor, Raheja
Chambers, 213 Nariman
Point, Mumbai 400 021
E: india@cimaglobal.com
T: +91 (0)22 5630 9200
n Malaysia Division
Lots 1.03b and 1.05,
Level 1, KPMG Tower,
First Avenue,
Bandar Utama,
47800 Petaling Jaya,
Selangor Darul Ehsan
E: kualalumpur@
cimaglobal.com
T: +60 (0)3 7723 0230
F: +60 (0)3 7723 0231
n Poland contact point
Warsaw Financial
Centre, ul E Plater 53,
Warsaw 00-113
T: +48 (0)22 528 6890
F: +48 (0)22 528 6701
E: thierry.lovane@
cimaglobal.com
n Republic of
Ireland Division
45-47 Pembroke Road,
Ballsbridge, Dublin 4
E: dublin@
cimaglobal.com
T: +353 (0)1 6430400
F: +353 (0)1 6430401
n CIMA Singapore
51 Goldhill Plaza
#08-02,
Singapore 308900
E: singapore@
cimaglobal.com
T: +65 6535 6822
F: +65 6534 3992
n CIMA South Africa
Physical: First Floor,
South West Wing,
198 Oxford Road, Illovo,
Johannesburg 2196
Postal: PO Box 745
Northlands 2116
E: johannesburg@
cimaglobal.com
T: +27 (0)11 788 8723
or: 0861 CIMASA/
0861 246272
F: +27 (0)11 788 8724
n Sri Lanka Division
356 Elvitigala Mawatha,
Colombo 05
E: colombo@
cimaglobal.com
T: + 94 (0)11 250 3880
F: + 94 (0)11 250 3881
n CIMA Zambia
Physical: Plot Number
6053, Sibweni Road,
Northmead, Lusaka
Postal: Box 30640,
Lusaka
E: lusaka@
cimaglobal.com
T: +260 (0)1 290 219
F: +260 (0)1 290 548
n CIMA Zimbabwe
Physical: Sixth Floor,
Michael House,
62 Nelson Mandela
Avenue, Harare
Postal: PO Box 3831,
Harare
E: harare@
cimaglobal.com
T: +263 (0)4 708600/
250475 CIMAZIM
F: +263 (0)4 708600/
250475
>instituteupdate
e-mail your opinions to
CIMA’s new address and
help to shape the future
The institute’s research team
is committed to facilitating
strategic studies that directly
benefit members and students
around the world, writes Simon
Davies, CIMA’s customer and
insight manager.
Our work includes analysing
and impartially interpreting
members’ opinions to support
the institute’s business and
strategic developments. We aim
to ensure that CIMA acts on all
the research it undertakes and
uses the findings to inform its
business decisions.
At present, when we conduct
member research you receive an
e-mail from cmi@cimaglobal.com.
But in 2009 we will switch to
the e-mail address yourvoice@
cimaglobal.com.
CIMA wants to hear the views
and opinions of all its members,
students and employers. These
are important to us and we hope
that this dedicated e-mail
address will increase your
opportunities to understand and
take part in our activities.
We appreciate the time that
people take to get involved in our
research programme and
we hope that our new address
will encourage more
participation. Thank you for
supporting the institute by
responding to our research.
Elections to council 2009
Retirements by rotation
Notice is given that, as the term
of office of the council members
in CIMA electoral constituencies
1, 2, 3, 4, 5, 6, 7, 11 and 12
expires at the end of the annual
general meeting in June 2009,
elections will be held in February
2009. Nominations for
candidates (fellows) to fill the
vacancies may be made by any
six or more members (three of
whom must be fellows) whose
registered addresses are in the
constituency concerned.
Nomination forms for
candidates for election may be
obtained from Erica Lee, head of
secretariat at CIMA (call 020
8849 2506 or e-mail erica.lee@
cimaglobal.com). Forms may
also be downloaded from the
web site at www.cimaglobal.com/
council2009, where further
62
details regarding the ballot
process and the role of a council
member may be found.
Nominations must be
received on the prescribed
form by the chief executive at
26 Chapter Street, London
SW1P 4NP by noon on
Wednesday January 7, 2009
(faxes are acceptable, but must
be followed by the signed
original). If more than one
candidate is nominated for a
vacancy, a postal and online
ballot will be conducted.
Casual vacancy: CIMA
electoral constituency 12
(South East England)
Stephanie Clackworthy has been
elected to council for her first
term as a member of council, to
serve until the close of the 2009
annual general meeting.
Council gives green
light to 2010 syllabus
At its October meeting, CIMA’s council approved proposals for
the next generation of its professional qualification: the chartered
management accounting qualification 2010.
The new syllabus was developed in conjunction with the University
of Bath, following extensive research and contributions from more
than 4,500 stakeholders. It will be launched formally at the CIMA
lecturers’ conference in Warwick on December 15.
The first exams under the new qualification will be held in May
2010. A dedicated section of the CIMA web site explaining the new
structure will be available for members, students, tutors and
employers after the official launch.
Presidential engagements
Dec 4
CCAB lunch meeting
Dec 9
ICSA Guildhall banquet
Dec 11
CIMA council dinner
Dec 12
CIMA council meeting
Dec 17
Accounting for Sustainability event, London
Dec 18
FEE general assembly, Brussels
Jan 13
Chartered Institute of Taxation luncheon, London
Jan 15
Investors in People re-accreditation, London
Jan 16
Appointments committee meeting
Jan 21
East Anglia branch meeting and dinner
Jan 31
South East Ireland branch meeting and dinner
Jan 31North West student conference
(vice-president attending)
Past
events
Cima global events
President’s dinner
CIMA-TARC student conference 2008
October 18,
Kuala Lumpur
250 students attended
and became “CIMA
apprentices” in a
business game called
“Origami in space”.
CIMA business breakfast
October 10, Auckland
More than 180 senior executives, including members
from the Auckland business community, attended this
major event in the CIMA New Zealand calendar.
CIMA ethics debate: is global ethics a myth?
November 19, London
Chaired by journalist and broadcaster Jon Snow, this
dynamic debate was fuelled by lively discussion from
five high-profile panellists.
Glynn Lowth hosted the institute’s
89th annual president’s dinner in
London on October 23. The event
brought together 200 of CIMA’s most
valued stakeholders. The guest
speaker was Nigel Turner, chief
executive of BMI (pictured), who
spoke about the impact that CIMA
has had on his career.
66
Polish press breakfast
November 5, Warsaw
CIMA signed an agreement with the Consortium of the
Economic Education Institutions of Poland to translate
the CIMA certificate of business accounting into Polish.
The event, held jointly with the British Polish Chamber of
Commerce, looked at what the credit crunch means for
eastern Europe and how CIMA can lead in a downturn.
CIMA Botswana annual awards and dinner dance
October 9 and 10, Botswana
More than 160 guests attended the CIMA Botswana
branch’s annual awards to recognise high-achievers
in the November 2007 and May 2008 exams at
strategic level and TOPCIMA. The honourable G
Moyo, assistant minister of finance, was guest of
honour. The next day the branch’s annual dinner dance
attracted 360 guests. H E Dikgang Moopeloa, the
South African high commissioner, was guest of honour.
Inaugural CIMA Ireland advocacy network event
October 10, Dublin
To mark the appointment of CIMA advocates in 24
Irish business schools, a launch event was held at
Trinity College. Professor Brendan Kennelly was the
after‑dinner speaker and CIMA Ireland’s case-study
competition was launched at the same event.
Coming
events
Visit www.cimaglobal.com/events for updates and a full list of events.
CIMA Mastercourses – your catalyst for business change: www.cimamastercourses.com.
India
The Times
education exposition
Until January
Mumbai, Delhi, Kolkotts,
Pune, Bangalore
and Ahmedabad
CIMA is one of the key
sponsors of The Times
education exposition
organised by The Times
of India group.
india@cimaglobal.com
Malaysia
Workshop on
career profile and
online membership
applications
January 10
3 to 5pm
CIMA Malaysia Division,
Bandar Utama, Selangor
Open to all passed
finalists, managerial and
strategic level students.
CIMA open days
January 16-18,
10am to 5pm
CIMA Malaysia Division,
Bandar Utama, Selangor
This is an opportunity for
members of the public to
find out more about the
CIMA qualification.
karen.yeap@
cimaglobal.com
UK
The Prince’s
Accounting for
Sustainability forum –
“Accounting for
sustainability:
decision-making and
reporting in a resourceconstrained world”
December 17
London
This event will be
attended by
approximately 200
representatives from the
private sector; the
investment community;
the forum’s accounting
bodies network, which
includes CIMA; the public
sector; academia; and
non-governmental
organisations. Charles
Tilley, chief executive
of CIMA, is a member
of the project’s
supervisory board.
www.accountingfor
sustainability.org
Visit to the Bank
of England
January 15
6.30pm
Exeter
The Bank of England
is opening the front
door of its south-west
England office in Exeter
exclusively for CIMA
members and students.
Come and hear the
Bank’s view on the
financial world and enjoy
tea or coffee in the most
impressive crested
porcelain cups outside
Buckingham Palace.
Can management
accountants save
the world?
January 21
6.30pm
Norwich City Football
Club, Norwich;
and
February 11
6.30pm
Bedford
Financial managers
are increasingly finding
themselves at the centre
of corporate social
responsibility work in
public-sector, privatesector and not-for-profit
Most of CIMA’s local events are free.
organisations. Glynn
Lowth, president of CIMA,
will discuss the significant
role that management
accountants can play
in the adoption of
environmentally sound
practices using their
training and their
knowledge of business –
and how they can make
a significant contribution
to the health of the
environment as well as
the financial efficiency
of their organisations.
How should
businesses respond
to climate change?
January 22
6.30 for 7pm
Bristol
Companies are realising
that they must address
the impacts of a changing
physical environment, but
it is an even greater
challenge to change
the social environment
in which they operate.
This lecture introduces a
structured management
approach to help
organisations adapt to
environmental, social and
associated economic and
regulatory pressures –
and cut their greenhouse
gas emissions.
Innovation and
leadership in
challenging
environments: a
breakfast meeting
January 22
7.30 to 9.30am
Sir Daniel Gooch
Theatre, Steam (Museum
of the Great Western
Railway), Swindon
Innovation, calculated
Effective
transfer pricing
February 13
Edinburgh
A practical introduction
to transfer pricing: the
management and
operational issues.
Mastercourses (www.
cimamastercourses.com)
The 2010 chartered
management
accounting
qualification: the
new syllabus and
e-learning
February 19
6.45 for 7.15pm
Croydon
Paul Weymouth, head
of qualification product
development and learning
support at CIMA, will
explain the new 2010
CIMA professional
qualification, providing
insights into the syllabus
structure and content,
why it has come about,
and what it means for
you. Joe Martin,
e-learning relationship
manager at CIMA, will
then explain the institute’s
developments in
e-learning and the
products that are
available to assist your
studies. The evening will
benefit CIMA students at
all levels. The event is free
(refreshments on arrival).
CIMA CPD
spring academy
February 16-17
London
This programme will
include sessions on:
global change
management; Islamic
finance; strategic
thinking; ethics and
financial statement
fraud; enterprise
governance; and climate
change. There will also
be a global workshop
case study and a
session on making an
impact with numbers.
www.cimaglobal.com/
academies
US
Management
accounting section
(MAS) of the
American Accounting
Association research
and case conference
January 8-10
Tradewinds Island
Resort, St Petersburg,
Florida
The 2009 MAS
research and case
conference and doctoral
colloquium takes place on
January 8 and the
research and case
conference on the
following two days.
www.aaahq.org/mas
risks and leading by
example are vital for
business leaders to
ensure their companies
maximise opportunities
in challenging times.
When the market
improves again, will
you come out ahead
of your competitors?
Lean finance
February 10,
CIMA, London
Discover how to apply
Six Sigma methods to
the finance function to
reduce costs and
increase efficiency.
Mastercourses (www.
cimamastercourses.com)
67
>so you want to be…
Interim finance director
Dave Butler explains why quitting your permanent job to
go freelance can be a smart move even during a downturn.
On the move
Role: interim finance director.
Salary: £600 a day.
A UK software firm seeks a confident interim finance director to lead its
financial planning for six to nine months. It requires a highly capable individual
with experience of developing new financial structures in companies.
You will set up financial controls and procedures, forecast cash flows
and plan budgets. You will take responsibility for the growth strategy, which
will incorporate joint ventures, pricing policies and licensing agreements.
You will also manage a small team and report to the board of directors.
The successful candidate will be have technical expertise, excellent
interpersonal skills and commercial acumen. Immediate start required.
If you’re an experienced CIMA-qualified accountant seeking a new
challenge in 2009, an excellent salary and more flexible work, perhaps it’s
time to quit the world of PAYE and become an interim manager.
Life as an interim financial manager will
offer you a stimulating and challenging career
– the chance to work in different industries,
acquire new skills and embrace a more
independent and flexible way of working.
The types of interim projects on offer vary
widely. One month you could be helping a
start-up to establish its financial procedures
and the next you could be modernising an
existing financial system for a charity or
helping a large retail company to develop
new systems to cope with a change in
legislation. Or you might simply be filling in
for a finance director and running the
department in his or her absence.
While it’s impossible to predict the fallout
from the current financial crisis accurately,
it’s likely that there will be work available for
interim managers with specific financial skills.
Those experienced in handling change
Need to know
Job level: directorial.
Salary: £600 a day.
Essentials: technical expertise,
broad experience at senior
level, strong interpersonal skills,
business acumen and the ability
to hit the ground running.
management projects, business turnarounds
and mergers will be in demand because
companies don’t often have such qualified
people internally.
The common requirement across all
these assignments it that you must be able
to deliver results quickly. The very nature of
the role demands that you make an impact
on the organisation immediately and
demonstrate value for money. There is
no settling-in period when working as an
interim manager – indeed, this is part of the
attraction for some people. You will also be
accountable to the board of directors and be
expected to bring a fresh perspective to the
organisation, which may lead to lasting and
significant change.
Quitting a permanent job in the current
economic climate isn’t necessarily a risky
move. Although companies may have put
the squeeze on recruitment budgets for
permanent employees, they will still be
running projects that need to be completed.
Also, remember that you are more
employable than most: a CIMA-qualified
professional should be capable of working in
any industry and sector, including the public
sector, which is particularly buoyant now in
terms of interim contracts. Local and central
government organisations have increased
their use of interim managers by 30 per cent
over the past year, according to OGCbuying
Have you changed jobs? E-mail
nc1@caspianpublishing.co.uk
with news of your move.
Stanslous Paraffin ACMA has been
appointed managing director of Kingdom
Finance, a subsidiary of Kingdom Bank
Africa, based in Botswana. He was
previously FD at BotswanaPost.
Tony Wharton ACMA has become
finance manager for Geosan/
Construction Dynamics, based in Qatar.
He was previously the accountant for the
Dummer Cricket Centre in Hampshire.
solutions, the HM Treasury agency
responsible for the list of interim contractors
in the public sector.
Are there any disadvantages? You
should be prepared to travel widely, because
projects can come up anywhere, so you may
be away from home during the week. But you
can also plan your assignments carefully so
that you have enough time off in between to
have a satisfactory home life. Some interim
managers take prolonged periods off to
pursue hobbies, develop new skills or travel.
A career in interim management affords this
kind of flexibility, which simply isn’t feasible in
a permanent job.
Interim management suits individuals with
a real capacity for learning; people who get
a buzz out of taking on new challenges and
developing their skills and experience. So,
if this sounds like you, why not get in touch
with an interim provider to talk about the
opportunities that exist in this market?
Dave Butler is head of financial services
at interim provider Russam GMS
(www.russam-gms.co.uk).
For more career options, CIMA MY JOBS
provides an international perspective on
the job market with a range of features on
working abroad. To find out more, visit
www.cimaglobal.com/myjobs.
69
>...lastout
We rummage through in-box and postbag to bring you astonishing
insights from the business world. If you’ve been on the receiving
end of such wisdom and would like to pass it on, please send the
most obvious and the most obscure in corporate communications
to rp1@caspianpublishing.co.uk clearly labelled “Last out”.
They say
“percentage”; we say
“percentage points”
“2.5 per cent cut in
VAT not best way to
boost economy.”
PKF.
Jolly good show
“UK entrepreneurs determined to tough
it out.”
Grant Thornton.
Really useful research
“74 per cent of accountants
are comfortable using iPods
compared with 59 per cent
of the public who think
accountants can use iPods.
78 per cent of accountants
in Leeds have more than
50 Facebook friends
compared with the national
average of 44 per cent.”
CCH.
“… A 2.5 per cent VAT
reduction will be
swamped by
memories of 20 per
cent promotions and
they will see little
extra in their monthly
pay packets.”
BDO Stoy Hayward.
“The widely trailed
2.5 per cent VAT rate
reduction was duly
announced in the
pre‑budget report.”
Eversheds.
“The 0.5 per cent rise in
employee national
insurance contributions
from 2011 will also hit
high-earners.”
Grant Thornton.
Lone voices in the wilderness
“The 2.5 percentage point cut in VAT, from 17.5 per cent to
15 per cent, will come into effect on Monday.”
The Times, November 25.
“The cut in VAT to 15 per cent is ‘reckless bait’ that will do little to
stimulate consumer spending, despite representing the lion’s
share of cost of the government’s fiscal stimulus package.”
MacIntyre Hudson chartered accountants.
Anatomically confusing
The shapes of our bottoms seriously affect
our lives, sometimes casting big shadows
over the way ahead… We moved from
navel-gazing, about whether the credit crunch
would be followed by a downturn, to staring at the
bottom ahead of us and wondering whether
it will be V-shaped, W-shaped or U-shaped
David Young, chief executive of Shield Corporate Finance.
72
If you’ve been on Mars…
“London’s financial services industry is
experiencing one of its most difficult
periods for some years and this is causing
hiring activity in the sector to continue to
slow significantly.”
Morgan McKinley London
Employment Monitor.
They would say that, wouldn’t they?
“Conservatives have no solutions to today’s
problems – Clegg.”
Press release from the Liberal Democrats.
Zephyr of change
“We need to generate a tornado within our
organisations, a furious wind that blows away
the cobwebby, lacklustre habit of paying
mere lip-service to the idea that our
customers are why we are in business.”
Charteris via Da Vinci Public Relations.
Anxious third
“According to figures released today,
accounting and finance professionals
are facing huge levels of stress at work.
A worrying 31 per cent cite insecurity
over their job as a key cause of stress.”
The Badenoch & Clark “Happiness at
work” index.
Can you see a pattern emerging?
“The current bigredbox®
server appliance range
includes bigredbox®15,
bigredbox®30,
bigredbox®50,
bigredbox®75 and
bigredbox®100…”
Verbal Communications.

DeCIsIOn ManageMent

Transcription

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