Page 1 - CIMA MCS Workbook August 2018 - Day 2 Suggested Solution

Day 2 Suggested Solution

SUGGESTED SOLUTIONS

CHAPTER EIGHT

EXERCISE ONE (BUDGETING)
BRIEFING NOTES

1. Proposed new system of performance appraisal for gym managers

Advantages

The current system only looks at revenue so there is no incentive for managers to consider costs.
Under the proposal, costs are also incorporated, which should result in better costs control. This is
a critical part of the company’s business strategy.

Given increased competition in the industry, it is vital that members are retained, so getting
managers to look at numbers more explicitly (rather than simply via revenue) should encourage
them to take steps to boost retention.
Disadvantages

In common with the existing system, the new system fails to incorporate any measures of quality
or member satisfaction. While appraising on the basis of member numbers will help towards
retention, it would be useful to include other quality-related KPIs based such as member turnover
rates, the results of satisfaction surveys, percentage of equipment out of order, number of
complaints over cleanliness, etc.

Many of the costs listed in the new proposal are not directly under the control of the managers,
such as head office costs, lease costs, amortisation and part of staff costs (their own salaries!). If a
bonus is lost due to one of these costs increasing, then managers will consider the system to be
unfair and demoralising. Key staff may even leave as a result. This could be critical given the
stated need for highly trained, experienced, motivated staff.

Changing the appraisal to be a purely annual event could result in underperformance and
demotivation, for example if a manager has reached month 10 and believes they have little
chance of achieving the annual target, then they may stop working hard for the last two months
of the year.

Targets based on typical gyms plus 10% may be considered unfair, for example if a gym has only
recently opened and has yet to build up its membership. Targets need to be tailored to individual
gyms.

Similarly, if you are the manager of a high performing but typical gym, then the system
automatically increases the targets by 10% each year.

Some managers may find the need to hit two targets confusion and contradictory - for example, if
a gym manager feels that increasing prices would boost revenue at the expense of a slight fall in
numbers.

Managers may also feel undervalued if not included in the target setting process.

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