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Chartered Institute of Internal Auditors - Past paper pack

IIA Advanced Diploma Past Paper Pack

Strategic Management

M1

Monday 26 November 2012Afternoon session

Time allowed – 3 hours and 10 minutes

DO NOT OPEN THIS PAPER UNTIL INSTRUCTED BY THE INVIGILATOR

Candidate information and instructions

There is one question in Part A and four questions in Part B.Answer the question in Part A and any three questions in Part B on the answer sheets provided.

There are 100 marks available in this paper.Organisations marked with an asterisk, *, are fictitious. No similarity with any real organisation is intended nor should it be inferred.Start each question on a separate answer sheet.

Do not identify yourself in answering any questions.Enter your candidate number, the paper number, the question number and the page number within the answer at the top of each answer sheet used.Any plans/notes that are made for each question should only be made on official IIA exam paper. Separate answer sheets should be used for each question plan.Clarity and logic of your answers, effective presentation and good use of English will be taken into account by the examiners when marking this paper.

Past Paper PackChartered Institute of Internal Auditors13 Abbeville Mews, 88 Clapham Park Road, London SW4 7BX March 2013


PART A

There is one compulsory question in this section.

QUESTION ONE

The Apple Tree Brewery* (ATB) is a long established and reputable cider maker that employs 600 people at its head office, main brewery and manufacturing facility near Hereford in the West Midlands. ATB also has a second, smaller brewery near Taunton in Somerset that employs 150 staff. ATB owns a number of popular, well known brands of cider and also brews Peary*, a cider made from apple wine and pears.

ATB has always promoted itself as a high quality manufacturer and as a family firm with old fashioned values producing a traditional product. The owners also invested in farms producing apples and pears in Herefordshire, Worcestershire and Somerset, and these are still owned by ATB. The organisation also has long term contracts with other privately owned farms for the supply of their apple and pear harvest to ATB. In a competitive industry dominated by large multinational drinks manufacturers, ATB remains in the mid-range of UK producers.

ATB primarily sells its output to the UK market and has gradually been increasing its exports to Ireland, but it conducts very little business with other countries. ATB’s customer base is broad, with products available in pubs, restaurants, high end supermarkets and more specialist retailers. The most recent significant new customer of ATB is Trusted*, a national charity that works to maintain historical sites in the UK and Ireland. Trusted has agreed to sell ATB’s products in its restaurants and gift shops. This success has delighted ATB’s board and they hope that this initiative will lead to further brand awareness and positive publicity.

However, business is not as successful as it once was and overall forecasts for sales volumes and profitability over the next five years are worrying the board. A number of contributory factors have been identified, including: demand for traditional cider is falling competitors are promoting cider as a trendy drink for the 18 to 30 age bracket Peary is little known in the UK and Ireland, although competitors promote similar

’pear flavoured’ ciders. ATB expects to have an over-supply of fresh apples and pears from its farms and

contracts over the next few years due to climate change and improved farm management

campaigns against alcohol and new tax initiatives including minimum pricing of units of alcohol are affecting the whole of the UK drinks’ market

ATB has always sold its products through shops and has no online presence ATB has recently begun to experiment with a variety of non-alcoholic drinks

based upon apples and pears. Some board members believe that these represent the best hope for the future for the company and that its alcoholic products should be allowed to gradually decline.

The board has decided that strategic change is required and has embarked upon analysis of ATB’s existing strategy, its core competencies and potential areas for market share growth and improved profitability.

A small project team established to coordinate this activity has struggled to make

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progress. As a senior member of ATB’s small internal audit function you have been seconded to the project in a consultancy role and are tasked with bringing drive and focus to the project team’s work.

The project team has undertaken some scenario planning, performed a PESTLE analysis and reviewed ATB’s competitive environment using Porter’s Five Forces. This activity has not led to a successful conclusion in respect of the organisation’s strategy.

You believe that ATB should now consider an internal analysis of its resources and capabilities to underpin a more effective strategy and need to persuade the project team and the board of this approach. Prepare a briefing paper in which you: a. Explain the scope of the proposed internal analysis and discuss why

this approach may better support strategy development for ATB than the previous analytical exercises. 15 marks

b. Describe four different analytical tools or models that the project team could employ to help devise and implement an internal analysis-based strategy to achieve sustainable competitive advantage at ATB. 15 marks

The board agrees that ATB has not employed IT effectively to secure competitive advantage. The IT team has always been seen as a service department running the back-office administration system, with the IT manager reporting to the finance director.

Draft a proposal to the board in which you:

c. Outline five ways in which IT could help ATB improve its strategic competitiveness. 10 marks

SYLLABUS REFERENCE

3.1 The role of strategy within an organisation3.3 The determinants of business strategies3.4 Value creation and strategic analysis4.3 Internal analysis8.4 Resource or corporate based strategies8.8 Information systems management

MARK SCHEMEMark schemes are not definitive and valid relevant points not listed will receive equal credit.

Coverage Remember/ Understand

Apply / Analyse

Evaluate/Create

Total marks

Part a – Internal Analysis of resources and capabilitiesup to 1 mark for an explanation of 10 areas (max) that the analysis needs to address and understand (10 marks max). Option for up to 1 mark for format/introduction

2 6 2 10

1 mark for 5 relevant points 3


discussing why the approach may be better than the previous analysis

5 5

Total part a 2 6 7 15

Part b –different analytical tools or models Appropriate professional introduction – 1 mark 1 1Identification of a tool/model 1 mark plus explanation about it and why it is undertaken, a maximum of 3 marks for a full answer. Expectation is 4 tools/models at 1+2 marks each.

4 6 2 12

Conclusion bringing the answer to a professional close – 2 marks 2 2

Total part b 4 7 4 15

Part c – IT to improve competitiveness1-2 marks for each relevant, professional point made, up to a maximum of 10 points

2 4 4 10

Total part c 2 4 4 10

Total 8 17 15 40

a. Internal Analysis

Briefing paper format and appropriate introduction.

The internal analysis of resources and capabilities takes an “inside-out” approach when looking at the competitive environment. The starting point is ATB’s internal environment. This is an alternative perspective to a review of the competitive environment that employs an analytical tool such as the Porter’s 5 Forces framework, which takes the industry structure “outside-in” as its starting point.

The scope of the internal analysis will involve research into and an understanding of:

Resourcesthe inputs that enable ATB to carry out its activities, split into:

o TangibleThe physical assets that ATB possesses:

Physical resourcesThe state of these resources such as age, condition, capacity, location determines their usefulness, to add value these resources must be capable of responding flexibly to changes in the marketplace,these resources include:

Buildings

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Machinery Materials Production capacity

Financial resources Capital Cash Debtors/creditors Availability of finance from banks, financial institutions

or shareholders

Human resourcesthe mix, skills and location of the workforce.

o IntangibleIntellectual and technological resources that define ATB’s ability to innovate and the speed that innovation can occur:

Patents and copyrights Brands Goodwill Human resources

Tacit knowledge Specialist skills

eg the master cider brewer or taster Reputation and history

Competenciesthe existence of resources is important but they do not provide any benefit to ATB but how it employs and deploys these resources provides ATB with competenciessplit into:

o Threshold competenciesactivities and processes needed to meet customer requirements and therefore for ATB to continue to existeg can we harvest apples, make cider, bottle and distribute it

o Core competenciesactivities that underpin competitive advantage and are difficult for competitors to imitate or obtain, derive from:

Architecture Networks Internal relationships

eg owned farms supply chain External relationships

eg apple contracts with suppliers Reputation

eg quality of cider is only known from long term experience Innovation

eg new product development

The internal analysis approach may better support strategy development because:

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It emphasises ATB’s own set of resources and capabilities as a determinant of strategy and competitive advantage

It does not emphasise industry selection and positioning. This can lead to all organisations in the same industry pursuing similar strategies.

The key question is what drives ATB’s performance, is it the industry context in which ATB finds itself or are there factors contained within ATB which more readily account for how it performs. Given that ATB is an old player with niche skills and products in a market dominated by multi-national faceless drinks companies then it is more likely to be the latter predicate.

It reflects better today’s rapidly changing environment. The 5 forces framework assumes relatively stable markets and does not address significant and discontinuous change in the competitive environment, for example the impact of the internet on how ATB conducts its business.

The 5 Forces approach ignores some other forces relevant to ATB. Academia has argued that there should be a 6th Force; the Government. With the probability of legislation concerning alcohol sales this aspect is critical to strategic development at ATB.

Organisational knowledge is important. It is widely assumed that everyone already knows what the analysis will say but there will be surprises in the findings. ATB will not achieve competitive advantage through physical resources but through the way that things are done and accumulated experience and knowledge.

b. Analytical tools Appropriate introduction.

The tools or models that the project team should undertake to devise and implement a resource and capability based strategy to achieve sustainable competitive advantage could include:

Value Chain AnalysisThis is a technique to assess ATB’s resources and in so doing determine its strengths and weaknesses. It looks at:

o The activities to go into making a product or serviceo Ascertaining how much value each activity addso Calculation of the margin of the producto How we can enhance the added value of each activity

The activities will need to be split into 2 categories: Primary Activities

the collection of activities that aid in the creation and delivery of a product:o Inbound logisticso Operationso Outbound logisticso Marketing and saleso Service

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Support Activitiesthe activities to ensure that primary activities are carried out efficiently and effectively:

o Procuremento Technology Developmento Human resource managemento Firm Infrastructure

For example, the analysis needs to identify in detail the components of the value chain in selling a bottle of cider to a customer. What are the costs of growing and harvesting the apples? What are the components of the value chain, production, marketing, bottling, packaging, warehousing and distribution?

The Value NetworkWhile value chain activities represent the cornerstone of competitive advantage they are not a set of independent activities but they are linked to each other. An understanding of linkage will help ATB by focussing on the relationship between internal activities and their dependence on external activities.

Linkages between primary and support activities are typically obvious but linkages between one primary activity and another may not be so clear.

For example, an external apple pressing plant making juice for delivery to ATB may become aware of substantial downtime in ATB’s bottling plant because of poor servicing and maintenance while the customer is unaware of this issue.

This analysis will lead to optimisation and/or co-ordination decisions and could lead on to outsourcing, make or buy and partnering.

Activity MapsManagers may find it difficult to identify clearly the strategic capabilities of ATB. One way of looking at the problem is by means of an activity map showing how different activities are linked.

This can be achieved using computer software or manually by drawing network diagrams.

The general lessons to be drawn from these maps include: Consistency Reinforcement Difficulty of imitation Trade offs

BenchmarkingA technique to attempt to understand how ATB’s internal processes compare with those of other organisations.

There are different approaches including:

Historical benchmarkingcomparison with ATB in previous years

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Industry/Sector benchmarkingcomparison with other companies in the same sector

Best-in-class benchmarkingcompares performance with organisations known to be best ignoring the industry sector

The importance of benchmarking is not so much the detailed mechanics of comparison but the impact that these comparisons have on behaviours.

SWOT AnalysisStrengths, Weaknesses, Opportunities and Threats

While a SWOT analysis can be used in the general environment alongside PESTLE and Porter’s 6 Forces Framework it can also be usefully conducted once an analysis of the internal environment has been completed.

Knowledge of ATB’s resources and value chain helps indicate where strengths and weaknesses reside.

While it is a powerful tool, there can be problems in using a SWOT analysis at this stage which include:

The production of long lists of strengths but with no weighting Strengths and weaknesses may not be readily translated into opportunities

and threats. A strength embodied in the resources and capabilities of ATB may be moving in an opposite direction to how the market is moving.

ConclusionThe results of this analysis of ATB will then be taken into the next phase of the project to consider where ATB can grow market share and improve profitability by looking at the resources and capabilities in terms of:

Durability Transparency Transferability Replicability

There may be benefits in playing to the strengths of its brands rather than competing on price with the multi-nationals. Further examination of the feasibility of the following are desirable:

Market penetration Market development Product development Diversification Joint ventures – eg with the National Trust Strategic Alliances

c. IT to improve strategic competitiveness

Appropriate introduction.

The outline of the proposal to the board concerning how IT can help ATB improve its competiveness could include:

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Knowledge creation and information management are prime potential sources for improved competitiveness because:

o Organisational knowledge, the collective experience accumulated within ATB is one of the competencies of the organisation

o As the business becomes more complex the need for people to share this knowledge becomes more difficult

o It is less likely that ATB will achieve competitive advantage through physical resources and more likely through the way that they do things based upon accumulated knowledge.

o Information technology systems are now providing sophisticated ways of sharing knowledge which takes the scope of IT systems out of the traditional transaction processing environment

IT can impact on many of the core capabilities, including:

o Ensuring that products are valued by customers by: Lower prices through reducing costs with automation Pre-purchase information delivered by internet or social

networking Different/Faster or easier purchasing processes including:

Online ordering E-commerce

Improved after sales service

o Maintaining competitive performanceIf customers value the products due to automation this will quickly spread across all competitors and will tend to define a new standard of service expected by customers.Any organisation that cannot meet these higher standards will tend to fall out of the market.This is also true across different markets. Even though customers may not regularly need some of these services when buying cider there will be an expectation that ATB has, for example, a web presence.

o Market knowledgethe importance of market knowledge to competitiveness applies in all sectors but in particular to retail to the public. Market knowledge results from competencies in analysing differences between customer needs and expectations, fashions and trends and producing products to fulfil those needs.

This involves huge amounts of raw research data that needs sophisticated IT systems to process and data mining systems and techniques to undertake the analysis.

IT advances have provided the opportunity to transform the way in which organisations build their relationships with others in their value network.This includes:

o Communication with suppliers, customers, publico Payment systemso Logisticso E-procuremento E-commerce

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o Web advertisingo Social network advertising

Sharing of information via new IT processes has important implications on how the internal business model works. It enables managers and stakeholders to bypass traditional gatekeepers who gained their power from their control of information.

Modern IT enables important change for managers responsible for strategy.These changes include:

o Automation can transform ATB and should be seen to provide new capabilities, not just to speed up existing processes.

o IT is not a support function but is a resource and capability alongside all other departments

o IT can enable the sharing of information but cannot replace all forms of knowledge sharing such as social contact.

Appropriate professional conclusion bringing answer to a reasoned close.

EXAMINERS’ COMMENTS

Parts (a) and (b) of this question required a briefing paper for the project team explaining and discussing the case for an internal analysis of ATB’s resources and capabilities, as well as describing four analytical tools that could be employed to assist in this process. Part (c) required a separate proposal to the board covering how IT could help ATB’s strategic competitiveness.

The question was adequately answered by nearly half the candidates with a very wide range of differing content and styles. The marking of this question was purposely flexible and good marks could be earned with a number of different approaches to the discussions and proposals. It was very pleasing to see that there were a small number of very good answers.

At the other end of the scale there were a number of less effective attempts, which was disappointing to report. A few of these answers indicated gaps in knowledge or less thorough preparation although, perhaps surprisingly, the majority of the poor scripts seemed to demonstrate time pressures. We clearly do not know if candidates answered questions from section b of the paper first, but it certainly looked as if better marks could have been earned on this question if candidates had allocated more time to them.

The main observation is that a lot of candidates did not utilise the scenario context sufficiently or attempt to apply their arguments to Apple Tree Brewery, a cider maker with a guaranteed supply chain of apples and pears. As a result, many answers tended to be overly theoretical and offered the current hot topic of ‘e-commerce’ as the only possible way that the business can go. A great number of candidates majored on a strategy of direct customer e-selling with a modern web site and automated market research collated from customers visiting the site (etc).

This approach misses the point that very few items in a typical UK or Irish shopping basket, including alcoholic beverages, are sold direct by the manufacturer. Rather, the supermarkets provide the e-commerce experience and breaking into a market where a customer is required to buy individual items from different sites is going to be very difficult indeed in practice. Even the largest UK cider makers with factories in similar locations to ATB do not offer direct selling restricting their web sites to brand

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awareness. We would not expect candidates for this examination to necessarily know this, but it does highlight a rather unworldly approach in some of the answers we assessed.

A further point of note, and reinforcing the need to make use of the scenario context, is that apples are perishable. Many candidates wrote at length about the need to re-work the supply chain but the effectiveness of this can be heavily influenced by the weather over the course of the growing year.

The oversupply of apples and pears obviously worried a number of candidates. These candidates typically wanted to sell off the farms and replace the existing contracts, arguing that the waste reduced profits. The better answers tended to major on this area seeing the extra supply as an opportunity with a number of good ideas being suggested, the best of which, was to start a new business making other products such as fruit pies. We do not know if you can make pies from cider apples but this sounded a great, innovative idea!

The third part of the question took in IT and how it may benefit the organisation. Again, there were a complete range of suggestions with some good ones focused on the scenario and industry. A similar problem occurred with some answers to this part with candidates not always relating answers to the scenario or focusing too much on e-selling. It was pleasing to find one (and only one) script that discussed the use of IT to effectively support corporate buyers, pubs and restaurants with brand information.

In summary, despite a number of very effective answers, we felt that too many candidates missed opportunities to score more effectively on this occasion by not utilising the information within the scenario context to better effect.

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PART B

There are four questions in this section. Answer any three questions.

QUESTION TWO

As the head of internal audit, you have been asked by the chief executive officer (CEO) of Interesting Publications Plc* to evaluate the organisation’s governance framework.

The company has traditionally been heavily involved in commissioning and printing educational books. In recent years sales of such publications have declined and, as a result, there has been some exploration in the production of online publications. However this is a very competitive market and success has been mixed.

Having concerns about the structure and operation of the single tier board, and its overall effectiveness, the chairman and CEO are keen to develop a refreshed strategy for the company, but this has been delayed by board indecision. Recent meetings have seen significant disputes between board members, particularly between two long-standing members with strong but conflicting views but also with a new member who feels that her views are consistently undermined by one of the non-executive directors.

You have also been provided with the results of a recent staff survey by the CEO. The feedback from the directors included a number of consistent themes, with concerns raised about poor structure and excessive length of board meetings, together with inconsistent implementation of board decisions.

You have been asked by the chairman and CEO to prepare a briefing paper for the chairman in which you:

a. Discuss the importance to the organisation of resolving board conflict and advise the CEO on how he could seek to address the situation. 12 marks

b. Describe how the board should provide leadership to the organisation. 8 marks

SYLLABUS REFERENCE

1.1 The effectiveness of the structure and functions of the board and its subcommittees

1.2 The performance and effectiveness of the board and its sub-committees


Question/Part Remember/Understand

Apply/Analyse

Evaluate/Create

Total marks

a. Importance in resolving conflict.

4 marks for discussing why important; and8 marks for advising on how to manage and resolve the conflict.

4 8 12

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b. How to provide leadership.

8 marks explaining how to provide leadership.

8 8

Total 4 16 20

a. Importance in resolving the conflict.

Discuss the importance in resolving the conflict: To set purpose and vision:

- to agree an effective strategy for the company with the engagement of all members.

To make effective decisions:- To prevent wasted energy of members and resources;- To use the Boards experience and expertise wisely to provide guidance and insight into the running of the company; and- To inspire management.

Challenge the Executive. Ability to identify and take opportunities for the company. Risks faced if the above is not achieved: loss of market share, business

failure.

Advice on how to manage and resolve conflict: Formalise a chairman’s statement on conduct of the Board and Committees;

- to set the tone at the top. Review the role and remit of the Board (and reconcile to terms of reference); Review structure of the Board and its Committees:

- review role and remit of Board and Committees; and- having a clear agenda in order to conduct business effectively.

Training:- Induction for new members;- Identification of general training needs of all members; and- Potential training on use of parliamentary procedures.

Critical skills evaluation:- Identification of Board members skills and experience.

Board performance management matrix:- Set annual goals; and- Evaluate performance against targets set.

Plan away day / social events:- Use to get members to know each other and to interact effectively and

comfortably. Arrange plan of formal and regular communication between the Board and

the Company. Draft and communicate a code of conduct for the company.

b. How to provide leadership.

Formally define the roles:- Chairman / Executive Directors / Non-Executive Directors.

Set the tone:- develop management statement outlining vision of purpose, culture, values and behaviours.

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Emphasise the importance of agreeing the strategy and direction of the company;

Challenge the Company, Directors and Senior Management:- Clear line of sight;- Regular reporting framework for Directors; and- Provide insight from experiences in business and elsewhere.

Create performance culture:- regular evaluation of performance.

Maintain knowledge of business and environment in which organisation operates – management presentations and training, as appropriate.

Stakeholder engagement and management plan.


The question was completed by approximately 80% of candidates who sat the paper, with the majority of these answering both question parts.

The question asked for a briefing paper to be prepared, and it was positive that most candidates presented the paper as such. There were also a large proportion of introductions and conclusions provided as part of candidate responses, enabling appropriate marks to be awarded for presentation and formatting. Overall, few candidates submitted any form of answer plan.

In response to part (a), candidates demonstrated a sound understanding of governance structures, processes for managing board and committee business and decision making, and the key drivers for poor board performance in this instance. However, in some instances candidates missed out on marks for not sufficiently relating their answers to the question context. There were also a large proportion of candidates that failed to distinguish between why it might be important to resolve the conflict as required by the first aspect of the question and how to manage that conflict, simply answering how the conflict might be managed. High scoring candidates provided informed discussion on three or four consequences of the conflict, and presented a variety of options, clearly explained, concerning how the CEO and board could potentially resolve the conflict. It was important for sufficient examples to be provided in order to attract high marks.

In relation to part (b), there were some strong responses as to how leadership may be provided, and interestingly many candidates referred to the importance of linking leadership to awareness of risk tolerance and practices. Some candidates would have benefitted from linking their responses more directly to leadership by the board and subcommittees, as per the question, and not just covering leadership in a more generic manner. There were also a number of candidates who produced more narrative in this question part and performed better than in part (a), despite this question part being worth less marks overall. Of those who performed less well, a number did not refer to the importance of setting and agreeing corporate strategy, establishing the tone and culture of the organisation, perhaps through a code of conduct, or in how the board presents itself.

QUESTION THREE

You work for a UK central government department that has reduced its total staff head count by 15% over 18 months in response to demand for cost savings and efficiencies. Head office, specialist skilled staff and management grades have faced

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the bulk of these staff losses as the department is committed to providing excellent front line service.

The board has recently reviewed the organisational structure to find the best solution to help ensure that the remaining staff can be most effectively deployed to meet the department’s overall strategy, objectives and mandate. Having examined suitable alternatives in the private and public sectors, the board is considering a move from the current functional structure to a matrix management approach across the whole department.

As an internal audit manager tasked with commenting on the intended approach, you have been asked to draft a paper to the board in which you:

a. Discuss the respective advantages of functional and matrix management structures. 7 marks

b. Explain what activities should be undertaken to make the transition from the current to the proposed revised organisational structure. 7 marks

c. Analyse the likely impacts that the proposed structural changes could have on staff. 6 marks

SYLLABUS REFERENCE

6.2 Anticipating and responding to change7.3 Cross-functional integration7.6 Options for optimising structures and management systems to implement

strategies



Apply/Analyse

Evaluate/Create

Totalmarks

a.

Appropriate paper format with an introduction

Summary of functional and matrix structures

Discussion of advantages of functional and matrix structures (up to 3 for each).

0.5

0.5-1

5-6

0.5

0.5-1

5-6

b.

Explanation of ways to transition from one organisational structure to another.

1-2 marks per point, depending on quality and depth of

7 7

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explanation

c. Analysis of potential impacts to staff

1-2 marks per point, depending on quality and depth of analysis

6 6

Total 1-1.5 5.5-6 13 20

a. Appropriate paper format with a brief introduction.

Functional management is a structure that groups work according to shared technical or professional activities e.g. Finance, Marketing, Human Resources, and Internal Audit (etc).

Matrix management is a structure whereby staff with similar skills are pooled together with one manager but then ‘lent’ out to other parts of the organisation to a different manager who then manages the employee during the period that they are working on a piece of work or project. They are then returned to the functional ‘resource’ pool.

Advantages

Functional Matrix

Everyone within the organisation knows where to go when they need advice etc.

People are assigned to roles according to the need of the project or piece of work.

Single management chain and clear lines of responsibility.

Staff get to understand and work in different parts of the organisation, with the motivational benefits that ensue.

Communication within the organisation goes through the management chain.

Maximises staff utilisation.

Offers some stability and certainty to staff.

Flexible and responsive to demands and priorities, good in a changing environment.

Offers a (potential) career path to staff as they progress in their profession.

Encourages a delivery focus and robust project planning and control.

b. Transition options include:

Obtain board approval for strategy and change. Brief Minister. Review current organisational business plans and staffing skills;

locations and existing work demands. Identify risks and issues, consider mitigating actions. With HR assistance, consult with managers, staff and trade

unions/staff representative groups and liaise with communications team in case of media interest.

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Assess the ability of departments to transition to matrix management, their needs and likely timetables (These may be different).

Consider training needs (staff and management) and prepare training plans and resources.

Review options for big bang or phased approach (by grade or by function) and determine which is appropriate to minimise disruption to the organisation.

Prepare a plan for transition and agree with various departments and stakeholders.

Prepare and deliver communications plan. Implement with continuous review/reporting and make changes when

necessary with appropriate approval and governance arrangements in place.

c. During any period of change the staff will be affected and this will vary depending on the individuals. The impacts are likely to include:

Uncertainty over the changes resulting in low morale. There may be periods of downtime between work/projects and staff

may be get concerned about their future, especially during a period of staff reductions.

Staff may have a conflict of loyalty or priorities between line managers that they have; alternatively they may take advantage and ‘play’ one manager off against the other.

Personal development and training needs may have to be suspended whilst staff get used to the change.

Poor performers may take advantage by changing managers and their weaknesses may not be identified resulting in waste or inefficiency.

Managers may feel undermined and their role and responsibilities reduced.

Some managers and staff may be enthused and motivated by the changes as they can appreciate the likely benefits to them or their activity.


We were pleased to see that this three part question was generally well answered, with a significant proportion of candidates achieving a good score and demonstrating a clear understanding of the relevant syllabus areas and subject matter.

Part (a) was answered clearly by all candidates.

Many candidates answered part (b) by describing a variety of change management theories rather than by applying the theory to the situation described in the question context. As a result, many failed to earn all of the available marks.

In part (c) high scoring candidates tended to cover both positive as well as negative impacts on the staff rather than limiting their answer to discontent, low morale, poor productivity (etc). Every initiative typically has positive as well as negative outcomes and it is important to seek to identify both in a question of this nature.

Finally, a number of candidates seemingly spent a higher proportion of their time on part (a) at the expense of their answers to parts (b) and (c). Whilst this helped ensure

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a high score for part (a), this was clearly at the expense of answers to the other question parts. It is essential to apply appropriate effort to each question part to help ensure an effective score across the whole question at the Advanced Diploma.

QUESTION FOUR

I-connect* is a successful UK organisation that provides an online social network for its members. It is about to become a listed company for the first time. As part of this process, the board has been strengthening the organisation’s assurance functions in order to demonstrably comply with the London Stock Exchange’s corporate governance requirements.

You are the newly appointed head of audit services and have been asked to develop the team’s strategy and associated strategic objectives at the behest of the audit and risk committee. As I-connect’s primary assurance function, audit services’ responsibilities also include counter fraud work and the provision of a whistle blowing service.

Prepare a paper for the committee in which you:

a. Describe six strategic objectives for the audit services team and justify their selection. 12 marks

b. Explain how the strategy for audit services should be agreed, approved and communicated to gain stakeholder buy in. 8 marks

SYLLABUS REFERENCE

4.5 Developing strategic objectives4.6 Agreeing, and gaining ownership of, the strategy


Rem/Under

Apply/Analy

Evalu/Create

Total marks

a. Format/background/introduction

Description of 5 strategic objectives of the Audit Services Department

Discuss how each of the above links to the Corporate Strategy:

1 max 1max

5max

5 max

2

5

5

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b. Identify key stakeholders and explain the process for agreeing the strategic objectives.

Explain how the strategy should be approved.

Explain how the strategy should be communicated

2max

2max

2max

2 max 4

2

2

Total 1 12 7 20

a. Appropriate formatting for a ‘paper’.

Introduction, briefly describing the anticipated strategy of the company and the way in which the audit services team can facilitate the achievement of corporate objectives.

I-Connect’s (“I-C’s”) strategy is to connect people through social networking. Although the service is provided to users fee free, I-C’s prime income source is through premium advertising space. I-C’s initial success has been based upon its vast appeal and audience, but future success will be dependent on capitalising on current membership to provide premium, targeted advertising.

The mission of the audit services team is to assist I-C in achieving its goals by supporting a standard of excellence in all of the organisation’s business, information technology and regulatory functions. This is accomplished by providing independent, objective assurance and other services that are designed to assist management in identifying significant risks and assessing mitigating controls. Audit services will provide objective assurance to the I-connect audit committee on such matters.

Describe 6 strategic objectives of the audit services team:

Deliver ongoing, professional assessments of the organisation’s framework of risk management, control and governance processes.

Provide assurance on whether key risks are adequately identified and mitigated by an economic, efficient and effective framework of appropriate mitigation.

Evaluate whether significant financial and operational information is accurate and reliable.

Establish whether resources are used efficiently and are adequately protected, value for money is promoted, and recommend alternative action where they have not.

Evaluate whether the organisation complies with external laws and regulations, together with internal policies.

Aid and promote innovation through assurance and consultation work.

Discuss how each of the above links to the corporate strategy:

Each of the above strategic objectives will assist the organisation in achieving its overall strategic objective of capitalising on current success. Placing an emphasis on innovation and enabling customers is key to ensuring the value add proposition from audit services.

Audit services also interact with key strategic projects and programmes during pre-implementation, this has the benefit of awareness of the new and emerging risks

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through any new ventures as well as facilitating the building in of risk mitigation strategies and controls in any new business ventures, and assisting the business in designing the control environment.

b. Introduction, briefly describing the importance of gaining stakeholder buy in:

Audit services is an independent function. The head of audit services reports directly to the audit and risk committee. Audit services has no affiliation with, or direct authority over, the business or regulatory divisions or activities it reviews, and the areas have no affiliation with, or authority over, audit services. This independence from management is essential for audit services staff to be objective in the performance of assignments. This does not relieve audit services from ensuring it has appropriate stakeholder buy in, however, and primarily this should be sought from the audit committee through validation of the annual plan and results of work throughout the year. Other stakeholders also include regulatory bodies which audit services should maintain a good relationship with. In addition to this, buy in from senior management is important for the audit plan, as it is throughout the year to aid the performance of the audit team on engagements as well as ensuring action plans are implemented and treated with an appropriate level of importance.

Identify the key stakeholders and describe the process for agreeing the strategic objectives:

In line with corporate governance best practice, audit services’ prime customers are I-C’s audit committee. Audit services has a global charter, which is reviewed and approved annually by the I-C’s audit and risk committee. The charter includes an overview of audit services mission, scope and responsibility, independence and authority, and standards of excellence. This includes the audit services strategic objectives.

There are number of outputs that are provided to the audit and risk committee. These include:

the annual audit plan; changes to the plan; significant issues in reviews undertaken, include summary of

scope and significant issues; reports on the status of open issues, including any high risk issues

that are past due dates for implementation and meet escalation criteria; and

the results of any special investigations, such as fraud investigations.

In addition to the audit committee, audit services provides information to, and consults regularly with, management. The primary objectives of the consultation is to (i) obtain input regarding risks, issues and organisational changes, which is information that is used to evaluate risks and ultimately develop audit services’ audit plan; (ii) conduct audit reviews or special projects, and deliver reports to management; (iii) gain commitment from local management to address any significant issues; and (iv) follow-up on open issues.

Describe the process of disseminating the strategic perspectives the organisation as a whole:

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Audit services has an intranet site, which includes coverage of the audit service teams, structure of the department, contact details, Charter, audit plan, feedback on projects, current activity and associated information, and a quick links section to promote professional development.

During the audit planning process senior stakeholders will also be engaged to gain their views on organisational changes, new risks and areas of pain for the company. Senior stakeholders will also be communicated with when any significant organisational changes are undertaken within audit services. Whilst areas of inclusion into the audit plan are ultimately at the discretion of audit services, senior stakeholder feedback will be an important factor of consideration.


Overall part (a) of this question was reasonably well answered. Most candidates were able to set out appropriate strategic objectives of audit, with common answers including delivery of audit plan, qualified and trained audit staff, and repetition of the counter fraud work described in the question. Candidates who were able to emphasise the importance of internal audit becoming the critical friend of executive management and aligning audit objectives to the overall achievement of organisation objectives tended to score most effectively. Part (b) was less well answered, with some candidates describing the process in which to agree the audit plan. Higher scoring candidates were able to make reference to audit committee agreement, senior management buy in, the use of internal social media or intranet, training and awareness campaigns, leveraging activity with other assurance functions and ensuring buy in from internal audit's own staff.

In conclusion, this question proved to be answered quite successfully by a number of the candidates. Given the subject matter this was not a surprise, although nevertheless we were very pleased at the final results.

QUESTION FIVE

“Everyone wants the project they are managing or working on to be successful, yet delays and cost overruns continue to be an unwelcome feature of many significant, high profile projects. If you’re running a project, what can you do to ensure your project has a better chance of delivering on time and on budget? Who is managing projects well and what are they doing differently?”

NAO Major Projects Report 2007

Analyse five key attributes of effective project management. 20 marks

SYLLABUS REFERENCE

8.1 Key product/service and corporate based business functions that implementand deliver the organisational strategy

8.3 Programme and project management

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Apply/Analyse

Evaluate/Create

Totalmarks

Appropriate introduction, potentially including a definition of project management

Five aspects of Project Management that are key to successful delivery. No more than 4 marks each up to maximum available.

1

5 Up to 7, based on depth of analysis

Up to 7, based on depth of analysis

1

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Total 6 7 7 20

The answer could start with an appropriate introduction that helps set the scene and highlights the relevance and importance of effective project management. It may usefully include a definition of Project management, such as:

"The body of knowledge and application concerned with the principles, techniques, and tools used in planning, controlling, monitoring, reviewing and delivering projects".

The main body of the answer should contain a professional analysis of five different key attributes of effective project management. This may include:

Building and maintaining the project team.The essence of any good project manager is to be a good team leader and, if necessary, be a good team player. Whilst decisions will remain their responsibility, they should encourage input from others or be prepared to work with them to help them achieve their goals too. Furthermore, by building a culture of teamwork into all aspects of the project, they will engender high self-esteem within the team, meaning that each can feel personally involved in ensuring the success of the project. Success in this enables positive answers to the following questions:

Is there confidence that the project is on track? Are roles and responsibilities clearly defined and understood? Is everyone happy?

Regular review meetings are essential, as there is the opportunity to review the project against its business case and to provide assurance that the development is on track.

PlanningProject managers coordinate the intricate timings and dependencies within a project. They are responsible for each detail and also for the overall quality of the final piece.A project manager needs to agree targets with the team and to track progress carefully. Without this the team members would have no idea as to where they were going or indeed when they were going to get there.

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http://www.businessdictionary.com/definition/control.html

http://www.businessdictionary.com/definition/tool.html

http://www.businessdictionary.com/definition/technique.html

http://www.businessdictionary.com/definition/principles.html

http://www.businessdictionary.com/definition/body-of-knowledge-BOK.html


Understanding the life-cycle for project management will help a project manager to understand how to apply the key skill of time management to it. Time management and the ability to organise yourself and others are vitally important.

CommunicationEffective project planning underpins all project management and helps answer the following questions:

Does each team member know all that is necessary to do their job? Are project requirements well documented? Is the business case for the project well defined and understood? Are the key stakeholders being given the appropriate opportunities

to review progress? Is there an audit trail of project decisions, issues, risks, changes?

The project manager will deal with a multiplicity of people and stakeholders that they have to bring together in order to achieve the project’s aims and objectives. If they do not communicate effectively, through face-to-face engagement, the written word or through presentations then they will not provide the information that staff need to fulfil their jobs; be that in sharing knowledge, discussing ideas, providing solutions or making executive decisions.

Without an effective communication strategy in place a project is likely to suffer.

BudgetingThe three key stages to a budget are preparing it, writing it and monitoring it. Whilst the finance department may well be ostensibly charged with doing these things for the project manager, an effective project manager has the ultimate responsibility for the budget and needs to be able to understand what they are being told about the budget. The project manager needs to know how to rationally and logically challenge budget over-runs that they become aware of as well as being able to sensibly monitor the budget as the project progresses.

Managing changeRequirements specified, costed and signed off at the outset of a project will often have to be adjusted to fit the changing business context. Project teams often uncover unexpected additional complexities, or opportunities, along the way.

Part of the project manager’s role is to coordinate change as efficiently and effectively as possible. This can involve de-scoping lower priority deliverables in exchange for incorporating new ideas within the existing budget. It means arranging for an additional budget with a corresponding adjustment to the project plan. Clear communication and a documented agreement are essential for ensuring that change is managed effectively.

AnalysisMore correctly referred to as impact analysis, this is a key skill required toward the final stages of a project, and reflects the ability to analyse the impact of changes brought about by the project. Changes to the specification of a project after it has begun are all too easily overlooked and it is essential to regularly revisit impact analysis to incorporate them.

Logging changes is not enough, it is also important to make a decision about how best to manage each resulting impact or risk. This should take the form of deciding on a contingency plan. However, it is preferable, where possible, to mitigate the

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impacts and risks in the short term by taking actions to reduce the probability or impact.

Problem solvingIt is almost inevitable that at times a project manager’s job will be stressful, if not highly stressful. Being able to work calmly under such conditions is an absolute pre-requisite for a successful project manager. A key point to reducing stress levels is the ability to move on from a setback. If something goes wrong or not according to plan, then an effective project manager should not waste time worrying about whose fault it might have been or get involved in a cycle of what could have been different. This can come later in the project evaluation. Instead, the effective project manager should move swiftly on to solving the problem or rectifying the situation.

A good project manager must consult with all key stakeholders before recommending a solution that works well for everybody.

Quality controlQuality is defined in ISO 9000:2000 as ‘the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs’.

An effective project manager will employ a traditional ‘Quality Assurance Cycle’ where deliverables get appropriately tested before roll out or implementation. Where possible, users and other key stakeholders should be closely involved throughout and should be given the opportunity to review progress. This helps builds project confidence. It also provides an opportunity to review the features and functions of the project deliverables before it becomes too expensive to change direction if the need arises.

Other appropriately defined and justified aspects will be credited accordingly, including consideration of managing a project’s time, budget, quality and scope dimensions in a collective manner, alignment of the project with the business’s strategic objectives and working effectively with independent assurance providers such as internal audit


Answers to this question were pleasing with just over 80% of candidates exceeding the pass rate. Of these, however, only a handful obtained a very high result, whilst at the opposite end of performance, there were very few poor answers. Less effective answers tended to mix up different attributes and discussed the same attribute in different parts of the answer, resulting in repetition and some confusion in places. Elsewhere, some candidates included just five or six brief lines on one attribute and then produced considerable volumes on another – each attribute had the same marks available. Quite a few candidates listed more than five attributes. Whilst we marked the best ‘five’ of these, candidates may have been better off producing more rounded answers to just five or utilising the time spent more effectively elsewhere on this paper. A few much less effective answers simply described the system development life cycle which picked up a few marks, but obviously failed to answer the set question.

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In terms of formatting, structure and layout, there are a few points worth noting. Some candidates produced lengthy introductions – in some cases running to up to two sides of narrative. These were simply excessive. There were also a number of instances where candidates produced no paragraphs, headings, bullet points or breaks in their answers and delivered ‘wall to wall’ text. Only a minority of candidates used plans to help structure their answer and to aid them in ensuring all aspects of the question were being addressed before launching into prose. Despite these concerns – a number of which are perennial – we were pleased at the overall results to this question, with the majority of answers professionally addressing the question and delivering well rounded, appropriate responses.

END

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