5.

3 Challenge

Definition

Challenge – to dispute the truth or validity of something.

Exam context: The candidate may be required to challenge information presented
or decisions made, where this is clearly justified, in a professional and courteous
manner.
Activity 4 Challenging

You are Bruce Robins, an HR consultant engaged by GMT Co to review the design
of the company's staff satisfaction survey. The chair has provided you with the
following quotes from members of staff:
"What annoys me is that last year the chief executive officer (CEO) introduced an
annual staff survey. Although they promised anonymity, the survey required us to
give details of our age, ethnicity, length of service and the department in which we
are employed. I was called to a meeting last year by the production manager, who
implicitly threatened me and made comments such
as, "If you don't like working here, why not look for another job?" It was made very
clear to me that this meeting was private and was to be kept confidential."
"I felt the staff satisfaction survey was designed in a way which dissuaded negative
feedback. Key issues known by management to be of concern for staff were
deliberately omitted from the survey questions. Also, the way the results were
presented by managers
and the visual graphics used seemed to concentrate only on positive factors. For
example, more emphasis was placed on how well staff regarded their own
performance and that of their team members, compared with questions about
confidence in the leadership of the company."

Required:

Draft a letter to the chair which challenges the CEO's ethical and professional
behaviour relating to the design, conduct and reporting of the staff satisfaction
survey. (16 ma

Professional skills marks are available for demonstrating scepticism skills in challenging
the CEO's behaviour and conveying any concerns in an appropriate manner. (4 ma
*Please use the notes feature in the toolbar to help formulate your answer.
Letter to the Chair of GMT Co
Date: xx/xx/20X7
Dear Chairman
I am writing to you following my review of the staff satisfaction survey designed by
the CEO. Professionally and ethically, there are some issues relating to how the staff
satisfaction survey has been conducted, which I would like to highlight.
 Lack of integrity – Unfortunately it appears that staff may have been misled in that
assurances were given that the survey responses would be anonymous, but the
personal information required gives the impression to staff that management can
identify the respondents of the survey.
Lack of objectivity – Key areas of concern to staff have been omitted from the
survey and the survey dissuaded staff from giving negative feedback, particularly
about confidence in management. From a statistical perspective, the results were
presented in a subjective way using graphs which may have misrepresented the true
findings, focusing more on the aspects which staff found most positive.
Professional competence and due care – The design of the survey and the way in
which results were presented may be viewed as somewhat unprofessional. This
could have been avoided if more care had been taken with its design.
Confidentiality – One matter of serious concern is that some employees were
identified and interviewed by senior managers because of their apparent negative
responses to the survey. This action appears to have breached the fundamental
principle of confidentiality.
Professional behaviour – The CEO appears to have designed the system
to identify potential troublemakers who have then been threatened by management.
This may be viewed as unprofessional behaviour by management and is likely to
lead to distrust.
I trust you find the above informative. Please do not hesitate to contact me should
you require any further advice.
Yours faithfully
Bruce Robins
HR consultant
1.6.1 Assess
6.1 Assess

Definition

Assess – to judge the amount, value, quality or importance of something.

Exam context: The candidate may be required to assess organisational issues or

the implications of decisions made (e.g. assess the role and value of non-executive
directors). An assessment often requires a discussion of the advantages and
disadvantages of something, before reaching a conclusion.
Activity 5 Assessing

You are Dina Domino, a consultant for the Delta Manufacturing Group (DMG). You
have been provided with the following summary of the company's recent
performance:

Financial Performance: ($m) 20X8 20X7 20X6 20X5

Sales revenue 6.95 7.40 6.80 4.75

Financial Performance: ($m) 20X8 20X7 20X6 20X5

Cost of sales 4.97 4.85 4.25 2.62

Gross profit 1.98 2.55 2.55 2.13

Overheads 1.12 1.51 1.41 1.30

Profit before tax and finance costs 0.86 1.04 1.14 0.83

Finance costs 0.69 0.38 0.37 0.14

Tax expense 0.02 0.06 0.08 0.15

Profit for the year 0.15 0.60 0.69 0.54

Other Data:

Number of employees 127 135 143 150

Staff turnover (%) 10% 7% 5% 4%

% of orders delivered late 10% 8% 7% 5%

Customer complaints as a percentage of total orders 3.4% 2.4% 2.0% 1.5%

Employee satisfaction survey score (100% max) 61% 65% 68% 72%

Investment in manufacturing equipment as a percentage of sales revenue 7% 8% 8% 10%

R&D expenditure as a percentage of sales revenue 3% 5% 5% 6%

Carbon emissions in kg per $1,000 sales revenue 80 75 65 60

Required:

Draft a consultancy report for the directors of DMG which assesses the
(12 marks)
company's performance between 20X5 and 20X8.

Professional skills marks are available for demonstrating evaluation skills in assessing (4 marks)
 DMG's performance.

*Please use the notes feature in the toolbar to help formulate your answer.
To: Board of Delta Manufacturing Group (DMG)
From: Dina Domino
Date: xx/xx/20X8
Report on DMG's performance

The following is an evaluation of the performance of DMG between 20X5 and 20X8.
Revenue
The financial data shows revenue reaching a peak in 20X7, before declining by 6% between
20X7and 20X8. The decline in revenues is a cause of concern as a continued decline could
lead to the company making losses and becoming insolvent. There are several possible
reasons for this decline, relating to non-financial performance. This is discussed in more detail
below.
Gross Profit Margins
Although 20X7 was a record year for revenues, increased cost of sales meant that gross profit
declined significantly. The gross profit margin has declined every year in the period under
consideration (see Appendix below):
Possible reasons for the declining margin include the high staff turnover and the increased
number of complaints. The high staff turnover may have led to lower productivity because new
factory workers had to learn the skills required. It is also possible that the high level of customer
complaints led to increased returns of faulty goods that require remedial work or replacement.
Net Profit Margins
The net profit margin has decreased considerably (see Appendix below).
Overhead costs have fallen in line with revenue; in 20X8 these costs represented 16% of
revenue compared with 21% the previous year. Although reducing costs can be applauded if
the reductions are due to the elimination of waste, they could also be the result of cuts to
services that customers and staff value. They may therefore have contributed to the increase in
staff turnover and the increase in complaints from customers.
The main reasons for the decline in net margin appear to be a combination of the lower gross
profit margin and much higher finance costs.
It has to be assumed that the company has increased its borrowings. This is leading to a
situation in which the ability to repay interest on those borrowings is becoming increasingly
precarious, as shown by the interest cover ratio.
Overall Financial Performance
Overall, the performance is characterised by declining revenues, declining profit margins and
higher interest payments. If these trends continue unchecked, the company will not survive as a
going concern.
Non-Financial Performance
It is clear that capital budgeting and investment is slowing from 10% to 7% of revenue over the
period. The R&D budget is also falling; 3% of revenue in 20X8 compared with 6% in 20X5.
Such reductions in investment may have been made to reduce capital employed. However,
they will have an adverse impact on long-term performance. Failure to invest sufficiently in R&D
will lead to a failure to develop new products, which may lead to a loss of customers. This may
explain some of the loss of revenues.
The number of late deliveries has doubled since 20X5 and the number of complaints from
customers has increased from 1.5% of orders to 3.4%. It is not clear what has caused this, but
it may be related to the reduction in overhead costs.
 Rising staff turnover and declining employee satisfaction is also evident between 20X5 and
20X8. This may be related to the reduction in overheads. It may also be the case that staff are
unhappy at the decline in investment in R&D and in manufacturing machinery and see this as a
threat to the viability of the company.
It is clear that DMG has a growing carbon footprint. Carbon emissions have risen by one third
since 20X5. This could further erode the reputation of the company and lead to a loss of
customers. There may also be fines if the carbon emissions exceed legal limits. It also can be
argued that DMG has a duty to a wider group of stakeholders, such as the local communities,
who will suffer because of poorer air quality.

Appendix: Ratios
20X8 20X7 20X6 20X5

Gross profit margin 28.5% 34.4% 37.5% 44.8%

Net profit margin 2.2% 8.1% 10.1% 11.4%

Interest cover 1.3 2.7 3.1 5.9

7.1 Presentation Formats

7.1.1 Briefing Paper

FAO (For Attention Of):
Subject:
Sub-headings where appropriate.
Short paragraphs (three or four sentences each).
Bullet points where appropriate (followed by full sentences).

Example 1 Briefing Paper

FAO: The Board of Nordland State Railways (NSR)

Subject: Strategic Objectives
To develop an organisation's strategic objectives, it is necessary to identify the key stakeholder(s) and the
likely objective(s) of each. In the private sector this is relatively straightforward, as shareholders would be
the key stakeholder and hence maximisation of shareholder wealth (via share price growth and dividend) the
key objective.
However, as a state-owned railway NSR has multiple key stakeholders and each stakeholder is likely to
have different objectives:

Stakeholder Possible Objective

 Example 1 Briefing Paper

Government Minimising costs

Passengers Low fares, punctuality, frequent and extensive service

Employees Good remuneration, social working hours

Society Low environmental impact

Freight customers Low charges, punctuality, frequent and extensive service

Prioritising these objectives may be difficult as the achievement of one objective may directly affect another.
For example:
 Operating an extensive service (e.g. to reach isolated rural communities) is not likely to be consistent with
minimising costs.
 Can NSR effectively serve both freight customers and passengers when relatively slow freight trains are
likely to delay passenger services?
 Passengers may demand all-night services, particularly at weekends, but staff wish to avoid working
antisocial hours.
Although the most powerful stakeholder may be the government, this does not permit the board to
exclusively focus on cost efficiency. It is recommended that the board consult with all stakeholders to
develop a set of strategic objectives acceptable to all.

7.1.2 Report/Business Case

To:
From:
Date:
Subject:
Introduction
Short paragraph (two or three sentences).
Sub-headings
Short paragraphs (three or four sentences each).
Bullet points where appropriate (followed by full sentences).
Conclusion/recommendation
Short paragraph (two or three sentences).

Example 2 Report

To: The Board of Directors

From: A Consultant
Date: June 20X8
 Example 2 Report

Subject: Risk Management

Introduction
As requested by the board, please find below my report relating to risk management. The report argues
that risk management should be given priority at the board level.
The Risk Management Function
A risk can be defined as a potential event which, if it materialises, can have a positive or negative effect
on an organisation. Traditionally, risk management was a function
performed by a risk management department that focused purely on operational risks (e.g. health and
safety), with the board having little knowledge or interest in the activities of that department. More
recently, it has become accepted that risk management should be given priority at the board level, with
the board adopting a structured approach to managing the full spectrum of risks affecting the
organisation.
Sources of Risk
The full range of risks to which an organisation is exposed clearly depends on the environment in which
it operates, but may include:
 Regulatory risk – for example, fines for causing environmental damage, regulatory interference in
mergers and acquisitions or changes in health and safety legislation.
 Reputational risk – for example, media exposure of poor corporate social responsibility practices (e.g.
paying suppliers very slowly).
 Currency risk – not only applies to businesses that import and/or export but, to some degree, affects all
businesses that have to compete against foreign rivals.
Role of the Board
Procedures need to be put in place for identifying the risks that the organisation faces and controls need
to be implemented to stop operational managers taking on inappropriate risks. In addition, the board
also has a role in defining the risk appetite of the company. This means determining whether the
company is a risk-seeker (i.e. prepared to take on risky ventures if the potential rewards are high) or
more risk averse (i.e. avoiding activities that are too risky).
The risk appetite should take into account the appetites of the key stakeholders of the company, in
particular the shareholders and the creditors. Potential conflicts may need to be resolved, as
shareholders tend be risk seeking whereas creditors tend to be risk-averse.
Conclusion
For the reasons described above, I recommend that risk management is an activity that the board needs
to lead and be proactive in implementing. This can no longer be considered an area to be delegated to
lower levels of the organisation.

7.1.3 Letter
Name and position of recipient
Date
Dear Mr(s)
Introductory sentence(s).
Short paragraphs (three or four sentences each). Concluding sentence(s).
 Yours sincerely
Signature
Name/position of sender

Example 3 Letter

Mr Roger Nelson
Chief Executive, Princely Holidays
Date: XX December 20X8
Dear Mr Nelson
I am writing to you following my evaluation of the short-listed candidates for your succession.
The person specification set out some very clear criteria for the role, specifically the requirement for
previous experience at executive level in a similar organisation. The ability to manage complex
relationships with multiple stakeholders will also be a key factor, as will the leadership qualities needed to
drive organisational change.
Candidate A
Candidate A clearly has a significant amount of experience as a chief executive, having worked at this level
since 2000. As a chief executive of a multinational fast-food company, he will have significant experience of
managing a highly complex business environment with multiple stakeholder influences.
Additionally, his most recent experience at chief executive level is in the travel business, working for
Beautiful Beaches. Notably, he led the privatisation of Beautiful Beaches in 20X3, giving a proven track
record in managing cultural change.
Candidate B
Candidate B also has a number of positive attributes. Currently, she is not working in the travel industry,
but for a very large manufacturing company; this clearly requires many key leadership skills. Although she
has not worked as a chief executive for quite as long as Candidate A, she has previously worked in the
travel industry as finance director for Total Travel. Therefore, she will have an excellent knowledge of the
financial management requirements of Princely Holidays.
Her focus on KPIs and developing strategies for revenue growth and operational efficiency would be very
valuable. However, her experience is not sufficiently focused upon the change leadership requirements of
Princely Holidays. There is also limited evidence of managing stakeholder relationships in a complex
environment.
Recommendation
Both candidates have a wide range of skills and experience and both would bring very positive attributes to
Princely Holidays. Overall, my recommendation would be to appoint Candidate A. He has all of the
necessary industry experience together with experience managing complex stakeholder relationships and
leading cultural change.
Yours sincerely
Wendy Coleman
Management consultant
 Exam advice

"Yours sincerely" is the more personal ending. In more formal correspondence, or where the
actual name of the recipient is not known, the letter should begin "Dear Sir/Madam" and
"Yours faithfully" should precede the signature.

7.1.4 Presentation Slides

Slide Title
Sub-headings where appropriate.
Bullet points.
Accompanying notes (if required)
Short paragraph (three or four sentences each).

Example 4 Presentation Slide

Notes
Strategy – Non-executive directors (NEDs) should have wide business experience, which
should help the board develop strategy by bringing new ideas to the table.
Hold executives to account – Their independence makes NEDs ideally placed to hold the
executive directors to account. This includes monitoring the performance of executives and
 Example 4 Presentation Slide

balancing the power of the board.

Risk oversight – NEDs have a duty to ensure that the system of risk management and
internal controls are adequate.
People role – NEDs have responsibilities relating to the management of the executive
directors. These include tasks such as membership of the remuneration committee,
appointing and removing executives.

7.2 Writing Skills

7.2.1 During Your Studies

The following tips may help improve your business English:
 Read a good business journal or newspaper regularly. This will increase
your business vocabulary, as well as improve your commercial acumen.
High-quality newspapers usually have good business sections and many
are available online (e.g. www.ft.com and www.economist.com).
Exam advice

A professional writing style will impress markers and help earn marks.

 Increase your business vocabulary by following business issues in the

news and checking the meaning of any terms you don't understand
(e.g. https://articles.bplans.com/business-term-glossary). Increasing your
vocabulary will help you to write more interesting and professional-
sounding answers, rather than using the same words repeatedly.
 Attempt the specimen and past exams available in the ACCA CBE
Practice Platform.
 Set aside enough time to read and fully familiarise yourself with the pre-
seen information, which will be released two weeks before the exam
session. Even if you are already familiar with the industry, you should
familiarise yourself with the information in the pre-seen, as some facts may
have been simplified for the purposes of the SBL exam.

7.2.2 Planning
Plan your answers. This will ensure that:
 Your solution will be presented in a logical way that is easy for the reader
(and the marker) to follow. This will make your arguments clearer and
more powerful.
 Your answer focuses on the requirements of the question rather than
veering away from these.
 Your answer includes all the important points you wish to make.
Here is one approach to planning:
 1. Read the requirements and summarise, in your own words, what you have
to do. Make sure your summary is faithful to the original requirements.
2. Brainstorm. Think of ideas that might be relevant. These may be based on
your reading of the case study and possibly some technical knowledge
that you have. Write them down.
3. Select the good ideas from your brainstorming exercise. Take into account
the number of marks available in deciding how many points are needed.
Two marks are usual for a well-developed point, and if eight marks are
available, then three points will be enough to earn more than a pass mark
on this part.
4. Prioritise the points selected. Some points will be more important or more
significant than others, so put these at the top of the list.
5. Write your answer. Remember to write three or four sentences per
paragraph; each paragraph would deal with a specific point.
6. Do not copy extracts from the exhibits or pre-seen; no marks will be
awarded for this. Instead, refer briefly to the facts in the exhibits before
analysing, interpreting or discussing them.

7.2.3 Good Opening and Closing Lines

The opening and closing lines of your answers are particularly important. The first
sentence makes a first impression on the marker and the last sentence will be
freshest in the marker's memory.
Here are some examples from previous ACCA exams of opening and closing lines
that could be adapted to specific circumstances.

Opening Lines Closing Lines

 In summary, the directors need to be

 This briefing paper identifies
the benefits of....
 This section of the report
considers....
 This report addresses....
 I write in response to your
request to explain....
 Thank you for your recent
letter on the subject of xxx.
 This statement is issued by
the board of XYZ to address
several issues that have been
raised by....
aware of....
 Considering all factors, xxx appears
to be the most suitable course of
action.
 Overall, xxx appears to be
(unsuitable/ very risky) and the
company should look for an
alternative (course of action/ option).
 In conclusion, xxx is a better option
than yyy because....
 I very much hope the issues covered
in this letter meet your approval.
Please do not hesitate to contact me
if you wish to discuss this further.