Revision Notes for ACCA Paper P3 Business Analysis Dear All Welcome to the online revision course.

The questions I have chosen are focussed at the June 2009 exam and duplicate what I would expect to do on classroom based revision course. I apologise in advance, we have had a technical hitch with some of these. The original recordings have turned out to be unusable. So, rather than leave you with no questions we have had to record them in a lower quality format. I am sorry you wont be able to see me as easily (that may not be a bad thing anyway!!!) but at least you can see what I am doing. The most important thing is to practice these questions before you watch the videos. I would suggest that you do most as essay plans but you MUST practice some under exam conditions (I would suggest ONA as a good one to do). On the following pages I have reproduced most of the questions. Some of them are not allowed to be published due to copyright issues. For these ones I have included a link to the ACCAs website where they can be found (with the answers) I would suggest you watch the videos in the following order Exam technique ONA (Strategic analysis and choice) Lakeside Business School (Stakeholders and change) Lawson Engineering (Internal analysis and performance) Bonar Paint (Strategic analysis and choice) Mediterranean Restaurant (Marketing) CCT (Quality) Clothing company (Project management) Institute of Information System Architects (Exam format) It would also be useful to go back and have another go at NMS (particularly part c) Hair Care and John Dixon All of which we did on the tuition part of the course I hope you will find the course useful David

ONA This was Q1 on the December 2007 exam Link is http://www.accaglobal.com/pubs/students/study_exams/qualifications/ac ca_choose/acca/professional/ba/past_papers/p3_2007_dec_qp.pdf

Lakeside Business School (Paper 3.5, 12/04, amended) The senior management team at Lakeside Business School is facing a new challenge. As one of the major faculties within Lakeside University, it has a wide undergraduate and postgraduate portfolio and as one of the new universities Lakeside is anxious to improve its position in the national higher education league tables. The problem concerns electronic learning and the challenge it presents to both staff and students. Electronic or elearning is being encouraged by a number of factors affecting the education environment. The Business School is tasked with increasing its student numbers while, at the same time, facing reduced funding from central government to support such expansion. E-learning, which reduces face-to-face contact with lecturers, offers a means of using staff more effectively. As a result, it increases the independent learning time available to students and provides much more flexibility to the students as to when they choose to learn. There are a number of disadvantages however. The design and maintenance of e-learning provision requires considerable investment in electronic hardware and software, technician support and academic staff time in converting their material into electronically accessible modules. Commitment to, and conviction about the benefits of e-learning is far from total for both staff and students. The university has committed significant funds to staff development for e-learning, but only the more computer literate members of staff have taken advantage of the courses available. As a consequence, the impact of e-learning is very varied some modules are at the cutting edge, while others remain largely taught by traditional methods. Student representatives at course committee meetings have already commented critically on this variation. Students themselves vary considerably in their familiarity with and use of electronic learning. Attendance at traditional lectures has dropped significantly as a result of the lecture material being easily accessible on the relevant module's website. The Business School's senior management team is being pressed by the university authorities to commit to the university's e-learning system. However, they are very wary of imposing e-learning on their staff in the face of known resistance. The impression given to current and prospective students, in an increasingly competitive and international marketplace, is far from impressive. The current partial and unsystematic use of elearning is becoming a significant competitive disadvantage. Required (a) What approaches could the senior management team use to reconcile the different stakeholders and their views of e-learning? (13 marks) Asses the usefulness of the balanced scorecard in resolving the problem. (12 marks) (Total = 25 marks)

(b)

Lawson Engineering (3.5, 12/05, amended) Joe Lawson is founder and Managing Director of Lawson Engineering, a medium sized, privately owned family business specialising in the design and manufacture of precision engineering products. Its customers are major industrial customers in the aerospace, automotive and chemical industries, many of which are globally recognised companies. Lawson prides itself on the long-term relationships it has built up with these high profile customers. The strength of these relationships is built on Lawson's worldwide reputation for engineering excellence, which has had tangible recognition in the form of a significant number of patents for its highly innovative products and the award of several prestigious international awards for product and process innovation and quality performance. This in turn reflects the commitment to recruiting highly skilled engineers, facilitating positive staff development and investing in significant research and development. Its products command premium prices and are key to the superior performance of its customers' products. Lawson Engineering has also established long-term relationships with its main suppliers, particularly those making the exotic materials built into their advanced products. Such relationships are crucial in research and development projects, some of which take a number of years to come to fruition. Joe Lawson epitomises the 'can do' philosophy of the company, always willing to take on the complex engineering challenges presented by his demanding customers. Lawson Engineering now faces problems caused by its own success. Its current location, premises and facilities are inadequate to allow the continued growth of the company. Joe is faced with the need to fund a new, expensive, purpose-built facility on a new industrial estate. Although successful against a number of performance criteria, Lawson Engineering's performance against traditional financial measures has been relatively modest and unlikely to impress the financial backers Joe wants to provide the necessary long-term capital. Joe has become aware of the increasing attention paid to the strategic importance of an organisation's resources. He has asked you, as a strategy consultant, to advise him on this concept. Required (a) Using models where appropriate, provide Joe with a report on the significance of the company's resources for its future success and in its search for financial support. (15 marks) How useful would it be for Joe to use a balanced scorecard to better assess the overall performance of Lawson Engineering? (10 marks) (Total = 25 marks)

(b)

Bonar Paint (Paper 3.5, 6/07, amended) Introduction Bonar Paint is a medium-sized paint manufacturer set up by two brothers, Jim and Bill Bonar. Turnover has been static for some years and both brothers are now wanting to retire from the business. The brothers have created a loyal workforce and feel that this loyalty will be strengthened if they sell the business to the three senior managers: Roy Crawford, production manager; Tony Edmunds, sales and marketing manager and Vernon Smith, chief accountant. The three managers recognise that this is a major opportunity for them to change the direction and growth of the company, but one that will involve the raising of significant loan and equity finance to buy the business. Equally significant are the equity stakes of 100,000 from each of them, which the banks will require to show the senior managers personal commitment. Company product range and processes Bonar Paint makes high quality specialist paints for a range of industrial customers. Its major customers include car manufacturers, steel makers and the oil companies investing heavily in offshore oil rigs. Bonar Paint also supplies many smaller industrial customers. Raw materials are sourced from large chemical companies. Jim Bonar has the necessary chemical expertise and Bill has the complementary sales skills to meet the specialised paint needs of their demanding customers. Bonar Paint has a good reputation for product innovation and its product range of over 200 paints include paints able to tolerate harsh and demanding conditions. The small research and development team, headed by Jim, has an excellent track record of meeting the technical demands and timescales for developing new high performance paints. New paints are normally developed in response to customer demand and, consequently, there is no formal process for new product development. Replacing Jims technical skills and leadership will undoubtedly create problems for the senior management buyout team. Jim and Bill have taken all the key strategic decisions to date with little reference to the senior management team. Bonar Paints product innovation success has come at a price. Its product range is far too extensive to sustain with the majority of the paints produced infrequently and in small batches. As a consequence customers often experience long lead times when ordering a particular paint. This results in higher than necessary stock levels, much of which is unlikely to be bought. Paints are supplied directly to each and every customer. Unfortunately, its management information systems fail to show the profitability or otherwise of individual paints and the future demand for the paint. There is little communication between sales and the research and development part of the business. Roy Crawford has consistently argued for the benefits of reducing the product range and increasing the size of the batches produced. Such a policy would give him more control over production, and lower costs. Higher volumes would also justify investment in new production technology, which would bring labour

savings with fewer and less skilled workers needed to operate the new machinery. There has been little recent investment in new plant or machinery. Simplifying the product range would also improve quality and reduce expensive warranty claims when paints fail to perform in a hostile environment. Such claims require extensive investigation to determine where the responsibility lies. Competitive environment Tony Edmunds, as sales and marketing manager, is very resistant to any attempt to reduce the product range. Such a move, he feels, would upset customers and lead to their defection to competitors. The UK paint industry is very fragmented at the top end of the industry are large international paint manufacturers with significant brands and supplying both industrial and domestic paint customers. They produce in high volumes and offer a comprehensive but limited range of paints. At the bottom end of the industry are many small and medium-sized paint makers. Many have chosen to produce own label paints of the large Do-ItYourself (DIY) retailers. Specialist paint makers, such as Bonar Paint, are finding it increasingly difficult to survive with neither the sales volumes nor brands to compete with their larger competitors. The industry as a whole is seen as mature and lacking in innovation. There is increased environmental concern about the toxic by-products of lead-based paints and the development of less toxic water-based paints is only slowly emerging. Even more worrying is the increased usage of plastics and other materials, which do not require painting. The DIY market is dominated by the same large international paint makers and the market for industrial paint is vulnerable to the usage of alternative materials and entry into the UK market by large European paint makers. Future strategy Each of the prospective buyout managers has a different view of how Bonar Paints should develop after the buyout takes place. Roy Crawford sees his proposed reduction of the product range and increased investment in new production technology as a means of reducing costs, improving margins and focusing on getting a larger share of their current large industrial paint customers needs. Product innovation should only come when there is a clear and profitable need for a new paint. He argues for a critical review of their smaller customers, believing them to be unprofitable. Tony Edmunds, however, sees an extension of the customer base as a necessary step in securing the future of the firm. The product range should be extended to meet the needs of the professional painters and decorators looking for high performance paints for use in both domestic and industrial applications. Tony also feels they should begin to make their paints available to the general public. He has seen the success of factory shops in other industries, whereby manufacturers sell unwanted and outdated stock to customers at heavily discounted prices at an outlet on the firms premises. Such as shop would be relatively simple and inexpensive to set up and bring Bonar Paints products to a wider public.

It would require either the production, or buying in, of a range of the most popular paint colours used in home decoration. Finally, Vernon Smith is anxious that the internal control systems be improved to establish which paints are, or are not, making money. Investment in new paint ranges or technology should be resisted until the buyout has been successfully completed. In the longer term he feels that Bonar Paint is vulnerable because of its small size and that increasing size through merger and acquisition of similar sized firms is a sensible strategy. Vernon is also anxious that a fair valuation is made of the business and that the sales forecasts for 2007 and 2008, made by Bill Bonar, are realistic. Table 1: Financial information on Bonar Paint (000) 2004 Sales Cost of sales Gross profit Marketing Distribution Administration Research and Development Net profit Return on sales (%) Net assets Inventory Warranty costs Employees Product range (units) Customer analysis: Sales to large industrial companies Sales to small industrial companies Required The senior management team has asked for your advice in evaluating the current position of Bonar Paint and its attractiveness for a management buyout. (a) Using models where appropriate, provide the senior management team at Bonar Paint with an assessment of its strategic position and its attractiveness, or otherwise, for a management buyout. (20 marks) Roy Crawford has argued for a reduction in both the product range and customer base to improve company performance. 10,500 5,250 5,250 100 1,575 2,100 105 1,370 13.0 2,500 1,450 100 250 204 2005 10,250 5,400 4,850 100 1,650 2,150 100 850 8.3 2,350 1,750 150 264 210 2006 10,000 5,500 4,500 100 1,700 2,200 100 400 4.0 2,200 2,000 150 262 212 2007 (estimate ) 10,500 5,460 5,040 150 1,785 2,250 105 750 7.1 2,200 1,650 125 275 220 2008 (forecast ) 11,000 5,500 5,500 150 1,650 2,200 110 1,390 12.6 2,200 1,200 100 280 230

75% 25%

(b)

Assess the advantages and disadvantages to Bonar Paint of choosing such a strategy. (15 marks) Bonar Paint to date has had no formal strategic planning process. What are the advantages and disadvantages of developing a formal mission statement to guide Bonar Paints future direction after the buyout and what role could the mission statement play in the strategic planning process? (15 marks) (Total = 50 marks)

(c)

Mediterranean restaurant (Paper 3.5, 6/07, amended) Franois, Demetris, Jos and Giuseppe are a group of students from different Mediterranean countries, taking their MBA in a large UK city. As part of their course requirements, the group has to come up with an innovative business idea, research into the feasibility of that idea and then present their business plan to a panel. After considerable brainstorming they have come up with the idea of a themed restaurant based around Mediterranean cooking, menus and service provisionally called Casa del Mediterraneo and located in the city centre. Initial research has revealed suitable premises to rent, but also the severe competition they will face in a city that is very cosmopolitan and well provided for with restaurants serving cuisine from many parts of the world. The city has a student population of around 100,000 and this, together with a young working population, means that there is a very vibrant social life and a real willingness to sample food from different parts of the world. Required (a) Identify and evaluate the critical success factors and associated competences that the group should consider in developing their business plan for the restaurant. (15 marks) The group have now decided to convert their business idea into reality. (b) What elements should a marketing plan contain to achieve a successful launch of their restaurant? (10 marks) (Total = 25 marks)

CCT This was Question 3 on the pilot paper Link is; http://www.accaglobal.com/pubs/students/study_exams/qualifications/ac ca_choose/acca/professional/ba/past_papers/p3_2006_dec_ppq.pdf

Clothing company (Project management) This was Question 2 on the December 2007 exam Link is; http://www.accaglobal.com/pubs/students/study_exams/qualifications/ac ca_choose/acca/professional/ba/past_papers/p3_2007_dec_qp.pdf Institute of Information System Architects (Exam format) This was in the January 2009 students newsletter Link is; http://www.accaglobal.com/pubs/students/publications/student_accounta nt/archive/p3_casestudy_qs.pdf