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Free Questions › ACCA › Advanced Performance Management
Free ACCA Advanced Performance Management Practice Questions & Answers
400 exam-style Advanced Performance Management questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 1
What is the primary purpose of strategic planning in an organisation?
Select an option first.
Correct answer: B — To define long-term direction, allocate resources, and align activities with the organisation's mission and objectives
Explanation: Strategic planning establishes the long-term direction and resource allocation to achieve the organisation's overall goals. A is operational scheduling; C is compliance; D is treasury management — all short-term operational tasks.
Question 2
What does a 'mission statement' describe?
Select an option first.
Correct answer: B — The fundamental purpose of the organisation — why it exists and what it aims to achieve
Explanation: A mission statement articulates the organisation's core purpose, values, and reason for existence. Financial targets (A) are objectives; employee tasks (C) are operational; debt schedules (D) are financial management.
Question 3
Which of the following BEST describes a 'strategic objective'?
Select an option first.
Correct answer: B — A specific, measurable goal derived from the mission statement that guides long-term direction
Explanation: Strategic objectives are medium to long-term, measurable targets that translate the mission into actionable goals. A and D are operational; C is financial, not strategic.
Question 4
What is a 'Critical Success Factor' (CSF)?
Select an option first.
Correct answer: B — An area or activity in which the organisation must excel to achieve its strategic objectives
Explanation: CSFs are the limited number of areas where satisfactory results are essential for the organisation to achieve its strategic goals. A, C and D are financial measures unrelated to the concept of CSFs.
Question 5
What is a 'Key Performance Indicator' (KPI)?
Select an option first.
Correct answer: B — A measurable value that demonstrates how effectively an organisation is achieving its key business objectives and CSFs
Explanation: KPIs quantify performance against CSFs and strategic objectives, enabling management to monitor progress. A, C and D are unrelated to performance measurement.
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Question 6
What is the relationship between CSFs and KPIs?
Select an option first.
Correct answer: B — CSFs identify WHAT must be done well for strategic success; KPIs measure HOW WELL those critical areas are being performed
Explanation: CSFs define the critical areas of performance; KPIs are the metrics used to measure performance in those areas. The relationship is: strategy → CSFs → KPIs → performance data. A, C and D misstate the relationship.
Question 7
The Balanced Scorecard (BSC) was developed by:
Select an option first.
Correct answer: B — Kaplan and Norton
Explanation: The Balanced Scorecard was introduced by Robert Kaplan and David Norton in 1992 as a strategic performance measurement framework. A, C and D are other strategy academics but not the BSC developers.
Question 8
What are the four perspectives of the Balanced Scorecard?
Select an option first.
Correct answer: B — Financial, Customer, Internal Business Processes, Learning and Growth
Explanation: The BSC's four perspectives are: Financial (shareholder value), Customer (market position), Internal Business Processes (efficiency), and Learning & Growth (capability building). A, C and D mix unrelated frameworks.
Question 9
In the Balanced Scorecard, the 'Learning and Growth' perspective focuses on:
Select an option first.
Correct answer: B — Building the organisation's capabilities through people, systems, and organisational culture to support long-term strategy execution
Explanation: Learning & Growth underpins all other BSC perspectives — without developing people, systems, and culture, the processes, customer, and financial goals cannot be achieved. A is financial; C and D are operational.
Question 10
What does 'Return on Capital Employed' (ROCE) measure?
Select an option first.
Correct answer: B — The efficiency with which a company uses its total capital (equity + debt) to generate operating profit
Explanation: ROCE = EBIT ÷ Capital Employed (Total assets − Current liabilities or Equity + Long-term debt). It measures overall capital efficiency. A is ROE; C is inventory turnover; D is dividend yield.
Question 11
What is the formula for Return on Investment (ROI) in a divisional context?
Select an option first.
Correct answer: B — Controllable Profit ÷ Net Assets (or Capital Employed) × 100%
Explanation: Divisional ROI = Controllable Profit ÷ Controllable Net Assets × 100%. This measures how efficiently a division uses its assets. A is asset turnover; C is not a standard ratio; D is gross margin.
Question 12
What is 'Residual Income' (RI) in divisional performance measurement?
Select an option first.
Correct answer: B — Divisional profit minus an imputed interest charge on the capital employed by the division
Explanation: RI = Divisional profit − (Capital employed × Cost of capital). Unlike ROI, RI encourages managers to accept all projects earning above the cost of capital (no sub-optimisation problem). A, C and D are incorrect.
Question 13
What is the main advantage of Residual Income (RI) over Return on Investment (ROI)?
Select an option first.
Correct answer: B — RI avoids the dysfunctional behaviour where a divisional manager rejects positive-NPV projects because they would lower the division's ROI percentage
Explanation: ROI creates a dysfunctional incentive: a manager with a high existing ROI may reject new projects with returns above WACC (but below current ROI) to protect their ratio. RI uses an absolute measure and avoids this. A, C and D are incorrect or not the main advantage.
Question 14
What does 'Economic Value Added' (EVA) measure?
Select an option first.
Correct answer: B — The surplus economic profit generated above the cost of all capital employed — calculated as after-tax operating profit minus a capital charge
Explanation: EVA = NOPAT − (WACC × Capital Employed). It measures whether the company is genuinely creating value above its cost of capital. A positive EVA means value creation. A, C and D are incorrect.
Question 15
The formula for EVA is:
Select an option first.
Correct answer: B — NOPAT − (WACC × Capital employed)
Explanation: EVA = Net Operating Profit After Tax (NOPAT) − (Weighted Average Cost of Capital × Capital Employed). Both figures require adjustments from accounting data to economic measures. A, C and D are wrong.
Question 16
What is 'shareholder value analysis' (SVA)?
Select an option first.
Correct answer: B — A framework (developed by Rappaport) linking managerial decisions to their impact on shareholder wealth, focusing on cash flows rather than accounting profits
Explanation: SVA (Rappaport) identifies the value drivers (revenue growth, operating margin, investment, WACC, competitive advantage period) that determine the present value of future cash flows and hence shareholder value. A, C and D are incorrect.
Question 17
Which of the following is a 'value driver' in Rappaport's shareholder value model?
Select an option first.
Correct answer: B — Revenue growth rate and operating profit margin — both directly affect the free cash flows discounted to determine shareholder value
Explanation: Rappaport's seven value drivers include: revenue growth rate, operating profit margin, tax rate, working capital investment, fixed capital investment, cost of capital, and competitive advantage period. A, C and D are not value drivers in this model.
Question 18
A company's mission is 'to be the world's most trusted provider of sustainable energy solutions'. This is an example of:
Select an option first.
Correct answer: C — A mission statement articulating the organisation's purpose and direction
Explanation: The statement articulates why the organisation exists and what it strives to achieve — the hallmark of a mission statement. A, B and D are more specific and operational.
Question 19
Which of the following BEST describes the difference between a 'goal' and an 'objective' in strategic management?
Select an option first.
Correct answer: B — Goals are broad, aspirational statements of intent; objectives are specific, measurable, time-bound targets derived from goals
Explanation: Goals: broad aspirational direction (e.g., 'become market leader'). Objectives: specific, measurable (e.g., 'achieve 25% market share by 2027'). A, C and D misstate the distinction.
Question 20
What is a 'SMART' objective?
Select an option first.
Correct answer: B — An objective that is Specific, Measurable, Achievable, Relevant, and Time-bound
Explanation: SMART objectives have five qualities: Specific (clear), Measurable (quantifiable), Achievable (realistic), Relevant (aligned with strategy), and Time-bound (deadline set). A, C and D are not definitions of SMART.
Question 21
Which of the following tools is used for macro-environmental analysis in strategic planning?
Select an option first.
Correct answer: B — PESTEL analysis — examining Political, Economic, Social, Technological, Environmental, and Legal factors
Explanation: PESTEL analyses the external macro-environment that the organisation cannot control. SWOT (A) is broader (internal + external). Porter's Five Forces (C) analyses industry structure. Ansoff (D) is a growth strategy tool.
Question 22
What does Porter's Five Forces model analyse?
Select an option first.
Correct answer: B — The competitive forces within an industry that determine its attractiveness and profitability
Explanation: Porter's Five Forces: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, and rivalry among existing competitors. Together they determine industry profitability. A is SWOT; C and D are unrelated.
Question 23
What is a 'SWOT analysis'?
Select an option first.
Correct answer: B — A strategic framework assessing internal Strengths and Weaknesses alongside external Opportunities and Threats
Explanation: SWOT analysis combines internal assessment (Strengths, Weaknesses) with external factors (Opportunities, Threats) to inform strategic choices. A, C and D are unrelated.
Question 24
In the Balanced Scorecard 'Customer' perspective, which of the following would be a typical measure?
Select an option first.
Correct answer: B — Customer satisfaction index and net promoter score
Explanation: The Customer perspective focuses on how the organisation is perceived by customers — satisfaction, retention, acquisition, and market share. A is financial; C is internal processes; D is learning and growth.
Question 25
Which Balanced Scorecard perspective asks 'How do we look to our shareholders'?
Select an option first.
Correct answer: C — Financial
Explanation: The Financial perspective measures how the organisation looks to shareholders through metrics like ROCE, EVA, revenue growth, and profit margins. A, B and D serve different stakeholders/purposes.
Question 26
What is the primary purpose of a 'performance management system'?
Select an option first.
Correct answer: B — To provide a framework for setting objectives, measuring performance against them, providing feedback, and taking corrective action
Explanation: A performance management system encompasses goal-setting, measurement, feedback, and control — linking individual and departmental performance to organisational strategy. A, C and D are administrative functions.
Question 27
What does the term 'strategy map' refer to in the context of the Balanced Scorecard?
Select an option first.
Correct answer: B — A visual diagram showing the cause-and-effect relationships between objectives across the four BSC perspectives — how learning and growth drives processes, which drives customer satisfaction, which drives financial results
Explanation: A strategy map (Kaplan & Norton) shows the logical chain from Learning & Growth → Internal Processes → Customer → Financial, illustrating how non-financial drivers lead to financial outcomes. A, C and D are unrelated.
Question 28
What is 'benchmarking'?
Select an option first.
Correct answer: B — Comparing an organisation's processes, metrics, and performance against best-in-class competitors or industry standards to identify gaps and improvement opportunities
Explanation: Benchmarking compares performance against external reference points (best practice) to drive improvement. A is partially correct but too narrow; C and D are wrong.
Question 29
Which of the following types of benchmarking compares processes against organisations in completely different industries?
Select an option first.
Correct answer: C — Functional benchmarking
Explanation: Functional benchmarking compares similar functions (e.g., logistics, HR) across different industries to gain insights from best practice regardless of sector. Internal (A) = within the same organisation. Competitive (B) = same industry rivals. Process (D) is sometimes used as a synonym for functional.
Question 30
What is 'transfer pricing' in the context of divisional performance?
Select an option first.
Correct answer: B — The internal price at which one division of an organisation sells goods or services to another division within the same organisation
Explanation: Transfer pricing determines the internal charge between divisions for inter-divisional transactions, affecting each division's reported profit and performance metrics. A, C and D are external transactions.
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