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1 First Edition : May 2018 Published By : Directorate of Studies The Institute of Cost Accountants of India CMA Bhawan, 12, Sudder Street, Kolkata 700 016 Copyright of these study notes is reserved by the Institute of Cost Accountants of India and prior permission from the Institute is necessary for reproduction of the whole or any part thereof. Work Book Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION FINAL GROUP IV PAPER 20 INDEX Sl.

2 No. Section A : Strategic Performance Management Page No. 1 Conceptual Framework of Performance Management 1 14 2 Performance Evaluation & Improvement Tools 15 35 3 Economic Efficiency of the Firm Performance Analysis 36 45 4 Enterprise Risk Management 46 - 57 Section B : Business Valuation 5 Business Valuation Basics 58 77 6 Valuation Models 78 106 7 Valuation of Assets and Liabilities 107 - 150 8 Valuation in Mergers and Acquisitions 151 175 Work Book : Strategic Performance Management & Business Valuation Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1 Study Note 1 Conceptual Framework of Performance Management Section A 1.

3 Explain the concept of Performance Management . Answer: Performance management is a continuous process of identifying, measuring and developing the performance of the human resources in organisations by linking each individual s performance and objectives to the organization s overall mission and goals. The definition has two key elements: (a) Continuous process: Performance management is ongoing. It involves a never-ending process of setting goals and objectives, observing performance, and giving and receiving ongoing coaching and feedback.

4 (b) Link to mission and goals: Performance management requires managers to ensure that employees activities and outputs are congruent with the organisation s goals and, consequently, help the organisation gain a competitive business advantage. It is the process of identifying, measuring, managing and developing the performance of the human resources in an organisation. Performance management focuses mainly on the achievement of results. It differentiates the aspects, such as being engaged and producing results- which means, being busy should not necessarily be indicating that the results are being produced.

5 2. Distinguish between Performance Management and Performance Appraisal . Answer: The points of differences between Performance Management and Performance Appraisal are listed below: Performance Management Performance Appraisal 1 It is a comprehensive approach. It is a narrow and limited approach. 2 It is a flexible process. It is a monolithic system. 3 It is usually not directly linked to pay. It is often linked to pay. 4 Here, documentation is kept to a minimum. It involves complex paperwork. 5 It is owned by line managers.

6 It is owned by the HR department. 6. It focuses on values, behaviours and objectives. It focuses on quantified objectives. 7. Here, the use of rating is less common. Here, rating is frequently used. 8. It focuses on the present and on the future. Its focus is on the past. 9. It is a strategic tool. It is an operational tool. 10. The approach is holistic. The approach is individualistic. 11. It is a process. It is a system. Work Book : Strategic Performance Management & Business Valuation Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2 3.

7 List the components of Performance Management. Answer: The key components of Performance Management are stated below: (i) Performance Planning: Performance planning is the first crucial component of any performance management process. It forms the basis of performance appraisals. Performance planning is jointly done by the appraiser and the reviewer at the beginning of a performance session. During this period, the employees decide upon the targets and the key performance areas which can be performed over a year within the performance budget, which is finalized after a mutual agreement between the reporting officer and the employee.

8 Organizations using Balance Score Card (BSC), drill Key Performance Indicators (KPIs) down the hierarchy so that each employee is responsible for definite results (called Key Result Areas or KRAs). (ii) Performance Appraisal and Reviewing: The appraisals are normally performed twice in a year in an organization in the form of mid reviews and annual reviews which is held at the end of the financial year. In this process, the appraise first offers the self-filled up ratings in the self-appraisal form and also describes his/her achievements over a period of time in quantifiable terms.

9 After the self-appraisal, the final ratings are provided by the appraiser for the quantifiable and measurable achievements of the employee being appraised. The entire process of review seeks an active participation of both the employee and the appraiser for analyzing the causes of loopholes in the performance and how it can be overcome. (iii) Feedback on the Performance followed by personal counselling and performance facilitation: Feedback and counselling are given a lot of importance in the performance management process.

10 This is the stage in which the employee acquires awareness from the appraiser about the areas of improvements and also information on whether the employee is contributing the expected levels of performance or not. The employee receives an open and a very transparent feedback and along with this the training and development needs of the employee is also identified. The appraiser adopts all the possible steps to ensure that the employee meets the expected outcomes for an organization through effective personal counselling and guidance, mentoring and representing the employee in training programs which develop the competencies and improve the overall productivity.