May 2007 Examinations Managerial Level Paper P5 – Integrated Management Question Paper 2 Examiner’s Brief Guide to the Paper 11 Examiner’s Answers 12 The answers published here have been written by the Examiner and should provide a helpful guide for both tutors and students. Published separately on the CIMA website (www.cimaglobal.com/students) from mid-September 2007 is a Post Examination Guide for this paper, which provides much valuable and complementary material including indicative mark information. 2007 The Chartered Institute of Management Accountants. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recorded or otherwise, without the written permission of the publisher.

P5 2 May 2007

Business Management Pillar

Managerial Level

P5 – Integrated Management

24 May 2007 – Thursday Morning Session

Instructions to candidates

You are allowed three hours to answer this question paper.

You are allowed 20 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you are not allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time.

You are strongly advised to carefully read all the question requirements before attempting the question concerned (that is, all parts and/or sub-questions). The requirements for the questions in Sections B and C are contained in a dotted box.

ALL answers must be written in the answer book. Answers or notes written on the question paper will not be submitted for marking.

Answer the ONE compulsory question in Section A. This has nine sub-questions on pages 2 and 3.

Answer ALL three compulsory questions in Section B on pages 4 and 5.

Answer TWO of the three questions in Section C on pages 6 to 8.

The list of verbs as published in the syllabus is given for reference on the inside back cover of this question paper.

Write your candidate number, the paper number and the examination subject title in the spaces provided on the front of the examination answer book. Also write your contact ID and name in the space provided in the right hand margin and seal to close.

Tick the appropriate boxes on the front of the answer book to indicate which questions you have answered.

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May 2007 3 P5

SECTION A – 20 MARKS [the indicative time for answering this section is 36 minutes]

ANSWER ALL NINE SUB-QUESTIONS Question One 1.1 The scope and amount of discretion given to a person to make decisions by virtue of the

position he/she holds in the organisation is referred to as

A accountability.

B responsibility.

C delegation.

D authority. (2 marks)

1.2 Which ONE of the following provides a common understanding of a project for all its

stakeholders by defining the project’s overall boundaries?

A Project lifecycle

B Project milestones

C Project scope

D Project schedule (2 marks)

1.3 Which ONE of the following leads to high buyer power?

A High capital requirements

B Low switching costs

C Economies of scale

D Limited substitute products (2 marks)

Instructions for answering Section A: The answers to the nine sub-questions in Section A should ALL be written in your answer book. Your answers should be clearly numbered with the sub-question number and ruled off so that the markers know which sub-question you are answering. For multiple choice questions you need only write the sub-question number and the letter of the answer option you have chosen. You do not need to start a new page for each sub-question.

P5 4 May 2007

1.4 Which ONE of the following is the term used in project management to assess how achievable various project options are?

A Feasibility analysis

B Risk analysis

C Contingency analysis

D Resource analysis (2 marks)

1.5 Explain briefly the characteristics of the positioning view of strategy.

(3 marks) 1.6 An organisation is experiencing conflict up and down the hierarchy, between the

executive team in head office and regional offices. What type of conflict is this? (2 marks)

1.7 Name the technique used in network analysis that allows the uncertainty about the times of each activity to be considered.

(2 marks)

1.8 In critical path analysis what is the spare time for an activity called? (2 marks)

1.9 Identify each of the different team roles, as defined by Belbin, from the following descriptions:

(i) Imaginative and very good at coming up with original ideas and suggestions.

(ii) Gives attention to detail and is concerned with meeting deadlines.

(iii) Supports other members of the team and helps to promote harmony. (3 marks)

(Total for Section A = 20 marks)

Reminder All answers to Section A must be written in your answer book. Answers to Section A written on the question paper will not be

submitted for marking

End of Section A Section B starts on page 5

May 2007 5 P5

SECTION B – 30 MARKS [the indicative time for answering this Section is 54 minutes]

ANSWER ALL THREE QUESTIONS - 10 MARKS EACH Question Two T is the owner manager of a small business that designs and produces high quality garden furniture. The business started out as a hobby using T’s creative design and carpentry talents, and he has been surprised by his success. Over the last year the business has experienced unplanned growth and by chance T has just won a contract to supply a local chain of DIY stores.

The local Chamber of Commerce has recently sent him an invitation to attend a number of seminars entitled “Formal Strategic Planning for Small Businesses”. However, T is doubtful that the content of the seminars will be of any relevance to him and feels he cannot afford time away from his business. His view is that it is best to let the strategies and developments for his business emerge.

Question Three A number of volunteers were so moved by news coverage reporting on the difficulties facing earthquake victims in F country that they organised a sponsored walk to raise funds for the appeal. Two of the volunteers visited some of the worst hit areas and this prompted them to set up their own charity. Their first major project is to rebuild and provide equipment for a school in one of the villages that has been devastated by the disaster. They hope to have the school up and running in twelve months’ time.

A number of people have been enlisted to help with the project, including some local businesses as well as family and friends. The volunteers realise this will be a more complex project than organising a sponsored walk and therefore will require a much more professional approach to ensure that they achieve their objectives. They have limited experience of managing projects and are trying to determine the purpose of the different phases and activities. P, one of the volunteers, has been given the task of finding out about the first stage, initiating the project, and specifically, how to put together a project initiation document.

Required: Explain the reasons why T is right to be doubtful about the relevance of formal strategic planning for his business.

(Total for Question Two = 10 marks)

Required: To help P, describe what is involved in the initiation stage of a project and explain what should be included in the project initiation document for the school project.

(Total for Question Three = 10 marks)

P5 6 May 2007

Question Four M is Chairman and Managing Director of Y Company which he started 15 years ago, specialising in the manufacture of hospital uniforms. The company has been very successful and, through a series of acquisitions, has diversified into the manufacture of a range of corporate and other uniforms, employing 3,500 people. M is a major force in the company. His management style is very autocratic and he is unwilling to involve others in decisions about the future strategic direction of the company. Recently, M announced to the Board that he is intending that Y Company becomes listed on the stock exchange.

D, the Finance Director of the company has become increasingly concerned about the decisions being made by M and the fact that he has put pressure on her to participate in some questionable accounting practices. She has had to cover up M’s substantial remuneration package, which M has awarded to himself. D is also aware that M has accepted bribes from foreign suppliers and of insider dealing relating to a number of the acquisitions. There is a lack of appropriate control systems and accountability in the company.

D has discussed her concerns with other members of the Board, all of whom work for Y Company, including the Marketing Director, Production Director and HR Director. However, they seem willing to overlook the wrongdoings of M and never challenge the decisions made by him. The opportunity to do so is limited since the Board meets on an irregular and infrequent basis.

At the last Board meeting M set out his plans to close the existing factories and move operations to L country where he has been in secret negotiations with representatives of the government. The main objective is to benefit from low cost labour, since the country has very little employment legislation to protect workers and has a poor human rights record.

(Total for Section B = 30 marks)

End of Section B

Section C starts on page 7

Required: Explain the corporate governance and ethical issues facing Y Company.

(Total for Question Four = 10 marks)

May 2007 7 P5

SECTION C – 50 MARKS [the indicative time for answering this section is 90 minutes]

ANSWER ANY TWO QUESTIONS FROM THIS SECTION – 25 MARKS EACH Question Five B Local Council is responsible for providing public services, serving the local community. A new Chief Executive has recently been appointed with the explicit brief of improving the performance of the Council, which is currently in the spotlight for being inefficient and not focused enough on the needs of the local residents.

Over the last three months the Chief Executive has undertaken a review and is not impressed with what he has found. He has identified a number of weaknesses and problem areas which need to be remedied. The culture of the Local Council needs to change radically to become a more performance oriented one.

The initial findings from the review suggest that B Local Council is typified by a very bureaucratic culture, where power is determined by position and status. The managers in the Council defend their territory and are unwilling to share information and cooperate with other departments. Staff are only allowed to undertake the specific activities included in their job description. Many say they have had no training and that opportunities for career progression are limited. They receive no feedback on their performance but work under close supervision in what appears to be a “them and us” culture between management and staff.

The review also identifies that morale is low. Staff feel they are not encouraged to participate in decision making and any ideas they have are stifled as a result of the chain of command. A significant number of staff have told the new Chief Executive that if they could get another job, they would leave the Council. Discussions with the HR Manager reveal that both absenteeism and staff turnover are high, despite competitive salaries and other excellent working conditions and benefits such as free car parking, a subsidised canteen and sports facilities.

The Chief Executive has identified a number of significant changes that need to be made to improve the performance of B Local Council. He is surprised that there is currently no staff performance appraisal in place and is keen that an effective system should be designed and implemented.

Required: (a) Analyse the problems in B Local Council, and discuss what the Chief Executive could

do to improve performance. You should include reference to appropriate theories to support your analysis.

(13 marks)

(b) Explain the key issues that should be considered in the design and the implementation of an effective staff performance appraisal system for B Local Council.

(12 marks)

(Total for Question Five = 25 marks)

P5 8 May 2007

Question Six C Company operates in the leisure and entertainment industry. The company has achieved significant growth over the last five years through the acquisition of bars, restaurants, coffee shops and, more recently, road side hotels. The company is organised on a functional basis and the senior management team has maintained tight control over the operations of the different business areas, making decisions centrally.

Despite its successes in making acquisitions, a number of key performance indicators are concerning the Board. It has recently undertaken a benchmarking study and discovered that the costs of the company are significantly higher than other operators in the industry. Decision making takes longer and the company is slower than its competitors to respond to new trends in the industry. It is also difficult to determine the revenue contributions of the different business activities.

Complaints have been made by managers working in the bars, restaurants, coffee shops and hotels that they need to be much more responsive to the needs of their customers but they have no authority to make decisions. Any suggestions they make have to go up the hierarchy, and so take far too much time. They also feel that the senior managers in Head Office are too removed from the business activities, each of which has different needs and priorities.

The Board is undertaking a major review of the strategy and organisational structure of the company. The HR Director is insistent that the problems facing the company are not so much to do with the strategic direction, but more about the unsuitable structure and mechanistic design. She believes that the functional structure is no longer appropriate. Her proposal is that the structure should change and that a more organic organisational design with decentralisation would help to improve performance.

Section C continues on the next page

Required: (a) Explain the purpose of organisational structure and explain why it is an important

concept for C Company. (10 marks)

(b) Evaluate the extent to which the HR Director’s proposal will help to resolve the problems facing C Company and recommend what would be an appropriate organisational structure.

(15 marks)

(Total for Question Six = 25 marks)

May 2007 9 P5

Question Seven Over the years, D, an entrepreneur, has had a number of business successes in the retail sector. She is keen to move on to bigger things and has identified an opportunity to develop a Shopping Centre.

Having secured the interest of several potential investors, identified a suitable site, had an architect draw up plans and received planning permission, D is eager that construction work on the Shopping Centre should start as soon as possible. She appointed G, who has an impressive record of managing successful projects, to be project manager. However, D is already interfering in the management of the project and is in conflict with G. She is frustrated by the time G seems to need in the planning phase, and is irritated by his insistence on formalising the project management process. D is now putting pressure on G to miss out elements in the first stages of planning the project, and to get started on the construction work for the Shopping Centre.

(Total for Section C = 50 marks)

End of Question Paper

Required: (a) Explain the potential problems that the Shopping Centre project could face without

good project planning. (10 marks)

(b) Explain the contribution of different project management tools and techniques that could help G in planning the project.

(15 marks)

(Total for Question Seven = 25 marks)

P5 10 May 2007

LIST OF VERBS USED IN THE QUESTION REQUIREMENTS A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for each question in this paper. It is important that you answer the question according to the definition of the verb.

LEARNING OBJECTIVE VERBS USED DEFINITION

1 KNOWLEDGE

What you are expected to know. List Make a list of State Express, fully or clearly, the details of/facts of Define Give the exact meaning of

2 COMPREHENSION What you are expected to understand. Describe Communicate the key features

Distinguish Highlight the differences between Explain Make clear or intelligible/State the meaning of Identify Recognise, establish or select after

consideration Illustrate Use an example to describe or explain

something

3 APPLICATION How you are expected to apply your knowledge. Apply

Calculate/compute To put to practical use To ascertain or reckon mathematically

Demonstrate To prove with certainty or to exhibit by practical means

Prepare To make or get ready for use Reconcile To make or prove consistent/compatible Solve Find an answer to Tabulate Arrange in a table

4 ANALYSIS How are you expected to analyse the detail of what you have learned.

Analyse Categorise

Examine in detail the structure of Place into a defined class or division

Compare and contrast Show the similarities and/or differences between

Construct To build up or compile Discuss To examine in detail by argument Interpret To translate into intelligible or familiar terms Produce To create or bring into existence

5 EVALUATION How are you expected to use your learning to evaluate, make decisions or recommendations.

Advise Evaluate Recommend

To counsel, inform or notify To appraise or assess the value of To advise on a course of action

May 2007 11 P5

The Examiner for Integrated Management offers to future candidates and to lecturers using this booklet for study purposes, the following background and

guidance on the questions included in this examination paper. Section A – compulsory Question one consists of 9 objective test sub-questions designed to cover breadth of the Integrated Management syllabus. Section B – compulsory Question two examines candidates’ understanding of the process of formal strategic planning and their ability to apply their knowledge to the scenario in order to explain why the approach may not be relevant for a small business. It is taken from syllabus Section A, and addresses the learning outcome “Explain the process of strategy formulation". Question three requires candidates to be familiar with what is involved in the initiation stage of a project and what should be included in a project initiation document. It is taken from syllabus Section B, Project Management, and addresses the learning outcome “Identify the characteristics of each phase in the project management process". Question four is designed to assess candidates’ understanding of the principles of corporate governance and ethical issues. It is taken from syllabus Section A, The Basis of Strategic Management and Section C, Management of Relationships and addresses the learning outcomes "Explain the purpose and principles of good corporate governance" and "Explain the importance of business ethics and corporate governance to the organisation and its stakeholders". Section C – two questions from three Question five is taken from syllabus Section C, Management of Relationships. Requirement (a) tests candidates’ ability to analyse a case study in order to identify performance problems. It requires them to apply their knowledge of relevant theory in order to identify problems and then to go on to explain how performance could be improved. It addresses the learning outcome “Analyse the relationship between mangers and their subordinates". Requirement (b) assesses candidates’ appreciation of the key issues that should be considered in the design and implementation of an effective staff performance appraisal system. It also addresses the learning outcome “Analyse the relationship between managers and their subordinates". Question six is taken from syllabus Section A, The Basis of Strategic Management. Requirement (a) is designed to examine candidates' understanding of the purpose of organisational structure and why it is an important concept. It addresses the learning outcome “Evaluate different organisational structures". Requirement (b) tests candidates’ ability to evaluate how changes to organisational structure and design can resolve problems in the context of a specific scenario, recommending what would be an appropriate organisational structure. It also addresses the learning outcome “Evaluate different organisational structures". Question seven is taken from syllabus Section B, Project Management. Requirement (a) examines candidates’ understanding of the problems that could be encountered in a project without good project planning. It addresses the learning outcome “Apply suitable structures and framework to project to identify common management issues". Requirement (b) requires candidates to evidence their understanding of the contribution of different project management tools and techniques that can be used when planning a project. It addresses the learning outcome “Distinguish the key tools and techniques that would need to be applied in the project process, including evaluation of proposals".

P5 12 May 2007

The Examiner's Answers for Integrated Management SECTION A Answer to Question One 1.1 D 1.2 C 1.3 B 1.4 A 1.5 Competitive advantage stems from the firm’s position in relation to its environment. Aligns internal resources with external opportunities and threats. “Outside in” view of the firm, adapting strategy to fit with its external environment. 1.6 Vertical conflict. 1.7 PERT (Project evaluation and review technique). 1.8 Float (or Slack). 1.9 (i) Plant (ii) Completer/finisher (iii) Team Worker

May 2007 13 P5

SECTION B Some of the answers that follow in Section B and Section C are fuller and more comprehensive than would have been expected from a well-prepared candidate. They have been written in this way to aid teaching, study and revision for tutors and candidates alike. Answer to Question Two The formal approach to strategic planning usually results in a consciously thought out or deliberately intended strategy. It assumes that strategy making is a rational process with strategies based on careful analysis of the opportunities and threats posed by the external environment, and consideration of the organisation’s strengths and weaknesses, relative to other players in the industry. Whilst there can be benefits to adopting such an approach, the formal process may not be suitable for a small business such as T’s for the following reasons. • A formal approach can be very expensive, time consuming and complicated for small

businesses. T is right to be concerned about the opportunity cost, not only in terms of attending the seminars, but also in terms of spending time on planning which could take him away from the main operations of his business.

• Formal planning may also be considered too static and a process that tends to be infrequent. In a rapidly changing environment it could be argued that the outcomes on which formally planned strategies are based often become quickly outdated, with the result that the intended strategy fails.

• T may be worried that such a process will just end up as a bureaucratic process with systems and targets unhelpful to a small business. The formal approach could get in the way of T’s interest and creative talent, since it could be conceived as a rigid approach bound up in processes, undermining T’s core competencies.

• One of the aims of formal strategic planning is to achieve goal congruence between different business areas and stakeholders. However in the case of a small business the goals are likely to be inseparable from the goals of T as the owner manager. In a small business, such as that run by T it could be argued that the formal approach is not appropriate because the success is more dependent on the ideas of T. It is unlikely that T will have the economic rationality in his approach to running the business which is more often associated with businesses governed by external shareholders.

• Even if new options are identified from formal planning T is likely to consider narrow product/market choices because his business is essentially based on his own specific knowledge and skills arising from his hobby. Despite winning the contract from the DIY stores, as a small business it is doubtful that T will have the resources to invest in new strategic ventures and may be unwilling to share or delegate control to others. Indeed T may not have aspirations for growth.

• T says that he prefers to let his strategy emerge. This approach arises from ad-hoc, unanticipated or uncontrollable circumstances. It is often referred to as developing from patterns of behaviour in response to unexpected events. In the case of the scenario T won by chance the order from the local chain of DIY stores. This was not a consciously thought out nor a deliberately intended strategy.

Whilst there are many valid reasons why T might not see the seminars of any benefit to him, some of the strategic planning frameworks/models might be helpful in making future decisions about the business. For example, it would be sensible for T to monitor the environment and conduct an informal analysis of his strengths, weaknesses, opportunities and threats to help him to stay ahead of the game.

P5 14 May 2007

Answer to Question Three Project initiation is usually classed as the first stage of the project planning process and is an important stage in project management since it involves developing the initial project plans. It sets out the vision for the project and the establishment of goals and objectives. It is at this stage that the members of the project team will need to determine the scope and objectives of the project, undertaking feasibility analysis. The Project Initiation Document (PID) will be created which sets out the project success criteria. The PID is sometimes referred to as the project charter, project brief or project authorisation document. The purpose of the PID is to provide a base document against which progress and change through the life of the project can be assessed. It will help in the school building project by setting out the initial project plans and defining the terms of reference for the project and ensuring that coordination and control systems for the project are in place. The document will provide the background, for example, why the project is necessary, with some justification for rebuilding and equipping of the school as opposed to raising money for some other project in the earthquake zone. An overview of the project in the PID will provide information on the key dates, the project objectives, specifying exactly what the project should deliver. The objectives can be defined in terms of the ‘triple constraints of the time they should take, what they should cost and the quality that should be delivered. In this case the desired outcomes are the construction and equipping of a new school building in twelve months. Any constraints should also be acknowledged such as budget or available resources (that is people, money and equipment needed). Since fundraising is part of the project, the amount of funds that must be raised to fund the school project should be estimated. The PID will help the project team to convey the scope of the project in terms of what is to be included and can be achieved by defining the principal deliverables. The document can be used so that the project team is in general agreement about the nature of the project. To avoid confusion and argument between people during the life of the project it will also be worth determining anything that is not included. Otherwise there is a danger that the project could get too big and out of hand as the volunteers think up other things they might want to do to help the disaster area. Whilst the project team is made up of volunteers the PID should set out the roles, responsibilities and signatory powers of the different members during the project, along with other issues associated with control. The communications, types of meetings and reports should also be explained in the document.

May 2007 15 P5

Answer to Question Four Corporate governance concerns the ownership and control of profit making organisations and the relationship between owners and managers. A number of reports have been produced to address the risk and problems resulting from poor corporate governance. In the UK the most significant reports include the Cadbury, Hempel and Greenbury reports. The recommendations are merged into a Combined Code which comprises the purpose and principles of good corporate governance for listed companies. There are a number of corporate governance issues facing Y Company particularly if it became listed on the stock exchange. • It is problematic for one person to hold both the role of Chairman and Managing Director

since this can result in too much concentration of power being in the hands of one person, and the greater dangers of the misuse or abuse of power. As illustrated in the scenario, it is difficult for other directors to challenge M’s decisions. M, through his dominance and associated behaviours, combining chairperson and chief executive roles contravenes much of the recent thinking on corporate governance. This advocates that the separation of the two roles is essential for good control.

• It is evident from the scenario that Board meetings are ineffective, they are held on an

irregular and infrequent basis with M wielding his power over other directors. It would seem that he has forced through decisions that are in his own personal interest, and could be detrimental to the company. One of the core principles of the Combined Code is that listed companies should be led by effective Boards, which meet regularly and membership should be a balance of executive and non executive directors so that no individuals or small groups can dominate decision making. It would be appropriate for non executive directors to be appointed to the Board of Y Company to provide independent judgements on decisions.

• It seems that there is a lack of adequate control, accountability and audit in the company.

The Board is responsible for presenting a balanced and understandable assessment of the company’s financial position. It is responsible for maintaining a sound system for internal controls to safeguard the company’s assets and shareholders’ investment. Y Company should establish through an audit committee formal and transparent arrangements for considering how to apply the principles of financial reporting and internal control. Non executive directors should satisfy themselves on the integrity of financial information and that controls are robust.

• M has determined his own remuneration package, which he is keen to keep covered up.

Good corporate governance practice states that no director should be involved in determining his/her own remuneration. Non executive directors should be responsible for determining a policy on the remuneration of executive directors and specific remuneration packages for each director, a proportion of which should be linked to corporate and individual performance. It is good practice to include a report on the remuneration policy for directors in the annual accounts.

The above points would help support the Finance Director who has been placed in an awkward situation regarding the questionable accounting practices and M's remuneration. Ethical issues arise when one person’s values conflict with those of others. M appears to be making decisions that are not within acceptable standards of honesty and integrity. In his position he should be setting the moral tone for Y Company, but in this case it seems that M is abusing his power. This is illustrated by M's lack of ethical behaviour regarding the acceptance of bribes, insider dealing, and the secret negotiations to move manufacturing to a country where workers could be exploited. Other members of the Board may have different ethical values regarding the potential exploitation of labour and the loss of jobs but seem to be unwilling or unable to challenge M.

P5 16 May 2007

The Finance Director could be encouraged to ‘whistle blow’, a practice in which she could expose the misdeeds of M, preventing further wrongdoings and to preserve ethical standards. That said, because of the lack of legal protection, the Finance Director could risk losing her job. It is apparent from the scenario that she doesn’t have the support of other colleagues on the Board.

May 2007 17 P5

SECTION C Answer to Question Five Requirement (a) B Local Council is facing a wide range of problems which the new Chief Executive will have to overcome if he is to be successful in improving the performance of the organisation. The problems are derived from a number of interrelated factors, including the bureaucratic culture of the organisation and the attitude and leadership style of managers who defend their territory. Herzberg’s two factor theory is a useful framework to analyse some of the other problems and to identify ways to improve staff motivation in order that the Local Council can move towards a performance culture. The two factor theory suggests that the work situation can be divided into two types. One set of factors, if absent, can lead to dissatisfaction and are usually related to job context. These factors tend to be extrinsic to the job itself and are referred to as hygiene or maintenance factors and whilst these are unlikely to motivate staff, if they are not right can cause dissatisfaction and de-motivation. The other set of factors are those which if present can motivate individuals to superior effort and performance. They tend to be related to the job itself, in other words are intrinsic factors and are referred to as motivators or growth factors. Hygiene factors include the factors surrounding the job such as pay, working environment, company policy and interpersonal relationships. Whilst B Local Council offers competitive salaries and excellent working conditions, there are some hygiene factors that could trigger dissatisfaction and consequently impact on performance. For example, the Chief Executive needs to look at the necessity for close supervision of work and how to address the poor relationships suggested by the "them and us" culture. It is likely that managers will need to adapt their leadership style to a more democratic approach. If the Chief Executive wants to build a performance culture it is not enough to focus only on the hygiene factors. He will need motivated staff, hence should give some attention to potential motivating factors such as those relating to recognition, challenging work, responsibility and advancement. This is not an easy task since it will require some fundamental changes to the organisation, such as restructuring to reduce the chain of command. It needs to move from its present bureaucratic culture to a performance oriented one. The Chief Executive needs to ensure that each member of staff understands the overriding objectives of the local council: that is providing services to local residents as efficiently and effectively as possible. This should provide a common focus for the combined efforts of both management and staff. The Chief Executive could consider job design, to improve the performance of staff, so for example job enlargement and job enrichment could be used. He could explore the design of job roles to widen the scope of jobs, providing more interesting and challenging work for staff. The benefit to employees would be the development of new skills and being given responsibility through empowerment. This would require a more participative leadership style, with junior staff given greater responsibility for their own area of work and encouraged to participate in decision making. He could also look at how improved prospects for career development could be achieved. This might mean providing opportunities for lateral moves to enable staff to gain new experiences and competencies. Training programmes for staff could help in customer service to help change attitudes and behaviours as well as improving skills.

P5 18 May 2007

To help strengthen the forces for change there may need to be some incentive for individuals to change their behaviour and improve performance. The Chief Executive could explore the introduction of recognition schemes since recognition is a motivator. This could be achieved, at one level, by encouraging managers to thank members of staff for their contribution, acknowledging extra effort and performance. A more formal recognition scheme could be introduced such as employee of the month. Another possibility would be the implementation of a financial reward system that recognises the contribution of employees who meet or exceed their performance targets. The proposed staff performance appraisal system could also be used to provide feedback and recognition on achievements. Research would have to be undertaken to ensure that the reward and recognition schemes are valued by staff before being introduced. It is important for the Chief Executive to appreciate that such significant changes cannot be achieved overnight, but quick wins would help signal his commitment to the changes needed to help B Local Council become more performance-oriented. Requirement (b) Performance appraisal systems can be used for a wide range of reasons, but essentially they assess employees’ performance, potential and development needs. The issues that need to be considered by the Local Council in designing and implementing an effective system include the following points: • First, it is important that the appraisal system is designed to be relevant to both the needs

of the Local Council and the individual. Since appraisal systems can fulfil a number of roles the primary purpose of the appraisal system must be determined and communicated. In view of the objectives of the Chief Executive, the staff appraisal system for B Local Council should be focused on performance, though in the longer term the system could be developed to link performance to rewards.

• The design of the appraisal must be viewed as fair and objective and the purpose of the

appraisal must be clearly expressed and understood by both appraisers and the appraisees. Effectiveness will be greater if all involved are clear about what the system is for and how it fits with other organisational activities, otherwise it can be perceived as a bureaucratic form filling activity. To help achieve this it would be worth including staff from different backgrounds in the Local Council to contribute to the design of the system. The greater the extent to which appraisees participate in the development of the system the more there is the chance of gaining their commitment.

• Appraisals are normally designed to measure an individual’s contribution to the

organisation in as objective a way as possible. There should be a consistent approach for appraisal across the different areas of the Local Council with a reasonable standardisation of criteria. The criteria used in the system to measure performance levels must be relevant, fair and objective, rather than subjective, to minimise the potential negative impact of managers who may be biased or allow personality differences to get in the way of assessing actual performance. Ideally, any performance measures should link to the key strategic objectives and priorities of B Local Council.

• The Chief Executive must ensure that senior managers in B Local Council are fully

committed to the introduction of the appraisal system. Otherwise there is the danger that staff will view it with some cynicism and as something that the Chief Executive has thrust upon them.

• If the system is to be effective then both those undertaking appraisals and those being

appraised will need to be properly trained to help with interviewing and assessment techniques and to avoid badly delivered feedback.

• Appraisal should be viewed as part of a continuous process of performance management,

and not as an annual event where the targets set can become irrelevant and out of date. Time is needed to prepare, so both parties can make a constructive contribution. In addition, sufficient time should be given to undertake appraisals so that they are not

May 2007 19 P5

regarded as something that "must be got over with as quickly as possible". The system must have a clear purpose and outcomes, so it is not just experienced as a friendly chat, but helps to focus on areas which will help them to improve their performance.

• To be effective the performance appraisal system for B Local Council should be viewed

as a problem solving participative and developmental activity rather than just a management tool of control. It is important that there are jointly agreed outcomes from the process and there is good follow up. Within the design of the system action plans should be included. Actions need to be agreed by both the appraiser and appraisee and monitored to make sure that they do take place. For example if training needs are identified, and the member of staff does not actually receive the training, this failure to follow up may lead to cynicism on the part of staff.

• Finally, it is important to ensure that the staff performance appraisal system in B Local

Council is not perceived as a bureaucratic form-filling exercise, but a system designed to help improve organisational and individual performance. However, it should not be overly time consuming or costly to administer.

P5 20 May 2007

Answer to Question Six Requirement (a) Organisational structure is an important aspect of organisational life since it should facilitate the successful implementation of strategy and achievement of objectives. The overall effectiveness of C Company will be affected by its structure since it can impact on productivity, economic efficiency and also morale and job satisfaction. The basic idea of organisational design is to formulate and establish a structure to facilitate the achievement of organisational goals. This involves: • how to divide work to be performed in an organisation into distinctive tasks and; • how to group the tasks to achieve goals.

Developing on these points, structure establishes the pattern of relationships within an organisation between individual job roles, groups and departments. It is the way in which work is divided up, resources allocated and controlled in order to achieve objectives. The structure of C Company will provide a framework that facilitates processes such as communication, co-ordination, leadership and decision making.

Organisational structure also provides a hierarchy so that those occupying senior positions have the authority and power to see all activities are directed to achieving organisational objectives. The vertical aspect of the hierarchy is sometimes referred to as the scalar chain within which processes such as communication, leadership and decision making take place. This helps to show where power is held and accountability, in C Company’s case by senior management. The horizontal structure is made up, in its simplest form, from work groups and arranged according to the span of control and functional specialisation, in other words based on the work to be done. The formal structure can help or hinder the ultimate performance of the organisation. In the case of C Company the HR director is suggesting the functional structure is causing some of the problems facing the company and that an alternative structure needs to be considered. Some of the negative effects of a poorly designed structure include inadequate responses to new opportunities and external changes, rising costs, late and inappropriate decisions, conflict and lack of co-ordination and low motivation and morale of staff. A number of these appear to be present in C Company. An additional problem with the structure in C Company is that it is difficult to identify the revenue from the different business activities, such as that from the bars, restaurants, coffee shops and hotels. An organisation’s strategic situation should influence the structure. However, as Drucker stated, good organisational structure does not by itself produce good performance, but a poor organisational structure makes organisational performance impossible. Requirement (b) The proposal made by the HR Director to change the structure and move to a more organic organisational design with decentralisation is a sensible one in view of the problems being experienced by C Company. An organic structure would be more suited to the conditions of change facing C Company. A mechanistic structure often results in a rigid system that is unable to respond quickly, is slow to make decisions and lacks flexibility to deal with the kind of rapid change such as that currently facing C Company. Organic systems are more fluid structures appropriate to changing conditions. They are not hierarchical and much greater emphasis is placed on the expertise and the knowledge people can contribute to tasks, rather than based on status or position. Leadership is focused on consultation and involvement in problem solving. A looser organic structure encourages

May 2007 21 P5

communication which consists of information and advice rather than instructions and decisions. There is integration of efforts via lateral, vertical and diagonal communications channels. This would ensure that decisions are made by those with relevant knowledge – that is the local managers of the different business areas in C Company. Centralisation often creates a more mechanistic structure so the proposal for decentralisation fits well with the notion of moving to a more organic structure. Decentralisation can be defined as the process of delegating decision making authority from the centre to the constituent parts of the organisation and their managers. It is one of the most common ways to balance control and autonomy which occurs when authority is delegated to divisions or functions at lower levels in the organisation. The idea is that it can 'economise' on bureaucratic costs and avoid communications and co-operation problems because information does not have to be sent to the top of the organisation for decisions to be made. This enables decisions to be made closer to the operational level of work and increase responsiveness to local circumstance and different business needs. In C Company this would give each divisional business area greater autonomy and independence. Employees in the different business activities will have a better knowledge of ‘local’ conditions affecting their area of work, so will be capable of making more informed and well judged decisions. If problems do not have to be referred up the scalar chain of command to senior management in head office, this will allow decisions to be made more quickly and it will be easier to implement changes. Having greater involvement and participation in decision making should have motivational benefits for the staff working for C Company. It should result in better customer service, which should hopefully translate into better organisational performance. Support services, such as administration are more likely to be more effective if they are provided as close as possible to the activities that they are intended to serve. Decentralisation should also reduce the stress and burdens placed on senior management under a centralised structure, freeing up their time to concentrate on strategic issues facing the company’s developments, for example, future acquisitions and growth opportunities. The creation of ‘business unit' profit centres to which authority is delegated as a result of decentralisation, should improve the system of control. Targets for performance could be established for each division in C Company which would mean greater accountability at a local level. Areas of inefficiency could be more easily identified and remedied. The arguments for decentralisation presented are persuasive and should help C Company in becoming more adaptable and able to respond to the potentially different environmental pressures facing off-shore centres. However, senior management of the company will still need to maintain effective co-ordination and overall control of the activities of C Company. Whilst there is no ideal structure, certain structures are more conducive to achieving corporate objectives. Dynamic organisational goals and the external environment often preclude a static ideal structure. The HR director is suggesting that the functional structure is no longer suitable for the strategic development of C Company, given the different business activities it now operates in, crossing four areas. A divisional structure would be more appropriate since this attempts to relax the rigidities of a functional structure. The divisional form, sometimes referred to as departmentalisation, could be based on the different business activities. This would allow the different business areas such as the bars, restaurants, coffee shops and hotels to operate as autonomous units with clear accountability and responsibility.

P5 22 May 2007

In the decentralised structure envisioned by the HR director, the new business managers would be empowered to run their business units with minimal interference from Head Office. The benefits of the divisional structure is that the managers of the different divisions could focus on their particular business/market. It should also reduce the number of levels of management, speeding up decision making. This should lead to better co-ordination within business units enabling managers to identify with specific business needs and hence is more responsive and able to focus on their own strategic priorities. A divisional structure would emphasise profit centres and promote clearer accountability of the different business areas in C Company. Each division would have its own targets, revenues streams and profit and loss responsibilities which would enable the revenue contributions of the different divisions to be identified.

MD

Bars Restaurants Coffee Shops

Hotels

May 2007 23 P5

Answer to Question Seven Requirement (a) A project needs to be managed through its lifecycle, applying appropriate project management methods and skills, in order to avoid/minimise potential problems that could lead to project failure. A key part of the project management process involves defining clear objectives and setting realistic estimates in terms of budget and time and resources needed. Without this it is unlikely that an estimation of the baseline budget and project schedule can be constructed to present a realistic assessment of the time and funding required, and the resources needed for the successful execution of the Shopping Centre project. The outcome could be that the project ends up with unrealistic timescales and the different activities may not be sequenced logically, to make the most effective and efficient use of resources. This could also result in budget overspend and delays in various stages of the project. Ultimately the project may fail to be completed on time. As part of the planning stage, feasibility studies should be undertaken, along with an assessment of the risks associated with the Shopping Centre project. If these critical dimensions are not understood, the project manager will not have the opportunity to identify potential problems and determine the actions needed to deal with them nor develop contingency plans. Given the nature of the project, not undertaking social and environmental feasibility studies could lead to future problems and disruptions once construction starts for the Shopping Centre. For example, the impact on the local environment where the proposed Shopping Centre is to be built may not have been considered, and potential social issues in terms of whether the local community might object to the plans due to the disturbances during the building work. If the project objectives are not clearly defined and scoped, this can make it more vulnerable to changing client specification. Whilst it is not unusual for client requirements to change during the life of a project, if the project is to come in on time and within budget then D needs to be aware of what is feasible. When the objectives are changed during the life of a project there is usually a significant impact on project success and it is important that D is made aware of the consequences. It is at the early stages within the project that roles and responsibilities are defined for the project team. If they are not clearly defined this could lead to duplication of activities or activities missed. The result might be that members of the project team do not work effectively together, along with poor communications between the various stakeholders in the project. Finally it is at the planning stage that various control mechanisms would normally be put in place. Without developing an appropriate control system there is the strong possibility of poor cost control and overspend. Effective planning can minimise the potential problems outlined above. In summary, D is putting the smooth running of the project at risk by wanting to remove some elements of the planning stage. Requirement (b) There are a number of different tools and techniques that G could use to assist him in planning the Shopping Centre project. For example: • Work Breakdown Structure. This technique is a critical part of project planning involving

an analysis of the work required to complete the Shopping Centre project. The activities in the project are broken down into manageable components, referred to as work packages. The process defines the activities that must be carried out for each work

P5 24 May 2007

package. Each work package will have defined responsibilities and deliverables for the Shopping Centre project that G can delegate.

The analysis of activities for the Shopping Centre project can be undertaken at a number of levels, for example starting with the major phases then breaking them down into more detailed sub-activities. G would be able to develop a task list from the work breakdown structure to assist in planning, control and monitoring the various stages of the project. The work breakdown structure can, therefore, assist in identifying the people responsible for each activity or work package.

• Another widely used project planning tool is the Gantt Chart. This provides a visual way of illustrating the sequence of activities in a project. Complex project activities are converted into constituent tasks and a graphical and understandable picture is provided. Although it does not show dependencies and internal relationships, it is a helpful framework in the planning of construction projects, such as the Shopping Centre development. It will show the time taken for each activity and the resources required, hence can be used to monitor progress against the plan and assist project scheduling by planning the timescales for the project. It can also be used by G to communicate the responsibilities for tasks to the project team.

• A variation of the Gantt chart is the resource histogram which shows the resource

requirement usage and availability against a timescale. This will help G in the scheduling and rescheduling of resources for the Shopping Centre project.

• Network analysis, sometimes referred to as critical path analysis, is an important

technique in project planning, providing a diagram showing the sequence and dependencies between activities or deliverables on a project. Using a work breakdown structure, network analysis arranges each work package/task into a logical sequence and estimates the time to complete each. The outputs from the work breakdown structure analysis will help the identification of which tasks are dependent on others. Dependencies are critical to project planning. Simplistically this involves determining the sequence, that is if activity B can only begin when activity A is completed there is a dependency. For example planning permission must be sought for the Shopping Centre before construction work can commence. This is a crucial activity in project planning and the allocation of resources.

Having identified dependencies it is then possible to calculate the critical path, which is the longest sequence of consecutive activities. It identifies those activities which, if delayed beyond the allotted time, would delay the completion of the Shopping Centre project and how much float time there is on other tasks. In other words, by how much certain activities could slip before there is an impact on the expected time completion for the Shopping Centre project. This then enables the minimum possible time to be determined, and can be helpful in identifying where there is some slack time available within the project plan for any unforeseen circumstances. • Another project technique is PERT (project evaluation and review technique). This is a

development on network analysis that G might find helpful in project planning. The technique is designed to account for uncertainty in the project lifecycle. Each activity in the project PERT uses three time estimates:

• the optimistic time based on the duration the Shopping Centre project would take if conditions were ideal;

• the most likely/probable duration if conditions were normal or as expected; and; • the pessimistic estimate which is the duration it would take if a number of things went

wrong. These estimates are then converted into a mean time and standard deviation which means it is then possible to establish the duration of the Shopping Centre project using the expected times, but also to calculate a contingency time allowance.