DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO

Enterprise Pillar

26 February 2014 - Wednesday Session

Instructions to candidates
You are allowed three hours to answer this question paper.
You are allowed 20 minutes reading time before the examination begins
during which you should read the question paper and, if you wish, highlight
and/or make notes on the question paper. However, you will not be allowed,
under any circumstances, to begin using your computer to produce your
answer or to use your calculator during the reading time.
You are strongly advised to carefully read ALL the question requirements
before attempting the question concerned (that is all parts and/or subquestions).
ALL answers must be submitted electronically, using the single Word and
Excel files provided. Answers written on the question paper and note paper
will not be submitted for marking.
You should show all workings as marks are available for the method you use.
The pre-seen case study material is included in this question paper on pages
2 to 6. The unseen case study material, specific to this examination, is
provided on pages 8 to 9.
Answer the compulsory questions in Section A on page 11. This page is
detachable for ease of reference.
Answer TWO of the three questions in Section B on pages 14 to 19.
Maths tables and formulae are provided on pages 21 and 22.
The list of verbs as published in the syllabus is given for reference on
page 23.
Your computer will contain two blank files - a Word and an Excel file.
Please ensure that you check that the file names for these two documents
correspond with your candidate number.

E3 Enterprise Strategy

E3 Enterprise Strategy

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The Chartered Institute of Management Accountants 2014

Pre-seen case study

Introduction
The Games is an international multi-sport event that is held within a region of the world every four
years. It attracts competitors from 10 different countries within the region and is held at a different
time from the Olympic Games. The Games are held in each of the countries in turn within the region.
The next Games are scheduled to take place in Country C in October 2015. There are 25 sports
included within the Games ranging from archery through to weightlifting. The Games were first held in
1979 and this is the first time that Country C has hosted them.
Games Co-ordinating Committee (GCC)
The Games Co-ordinating Committee was established in 1979 to set out the framework within which
the individual country organisations should work in delivering the Games. Membership of the GCC is
drawn from all the countries within the region which take part in the Games. Its aim is to promote the
Games throughout the region of the world in which the Games take place. It is also responsible for
setting out the mission under which the Games are established in each country.
Mission of the GCC
The mission of the GCC is to:

Encourage and promote ethical competition in sport;

Encourage and co-operate with public and private organisations in the preparation for and
staging of the Games;
Achieve high levels of sustainability for the infrastructure of the Games and the environment
in which they take place;
Promote sport and healthy lifestyles amongst young people;
Promote the Games values of excellence, unity and achievement.

The mission of the GCC is untouchable in the sense that all who are involved in the Games, in
whatever role, must adopt and promote it.
Organisation of the Games within Country C
In 2010, the Parliament in Country C passed an Act creating GAMESCO, a company limited by
guarantee to organise and deliver the Games on time and within budget. GAMESCO also has
responsibility for disposal of assets after the Games and selling any surplus land which is not retained
for sporting purposes.
The Minister of Sport in Country C and the elected Mayor of the city in which the Games are due to
take place are the only two members of GAMESCO. Governance of the Games is carried out entirely
by GAMESCO. In carrying out this role, it co-ordinates the activities of all people and organisations
engaged in preparing for and operating the Games and it is responsible for the subsequent liquidation
of all the Games assets.
The Government of Country C believes that the Games will provide a major boost to Country C by
providing commercial opportunities for enterprises such as hotels and retail outlets and enabling the
re-generation of the current dilapidated land on which the Games will take place. It is expected that
the prosperity of Country C and, in particular, the whole area in which the Games will take place, will
increase.
Mission, Vision and Values of GAMESCO
The Board of GAMESCO is committed to meeting the mission of the GCC. It has established its own
mission and values as follows:
Mission:
To deliver the Games successfully on time and on budget in accordance with the expectations of our
stakeholders and in accordance with the mission of the GCC.
GAMESCO is responsible for preparing, operating and winding up the Games, all within its budget.
Country Cs Government provided capital to GAMESCO for building work to proceed. However,
Country Cs Government is clear that it does not intend to support the Games beyond the funding it
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has already invested. This places a large responsibility on GAMESCO to ensure that its overall
expenditure does not exceed the revenue it generates from its activities and the government grants it
has received.
Values:
GAMESCO will work tirelessly towards achieving the mission set out by the GCC. In striving to
achieve the GCCs mission, GAMESCO will act fairly and responsibly with all its stakeholders, in
particular its employees and partners, in order to generate trust and transparency.
GAMESCOs organisational structure
GAMESCO has a Board of Directors comprising: Chairman, Chief Executive, Directors for Finance,
Sponsorship, Operations, Marketing, Commercial Activities, Estates, Communications, Human
Resources, Information Systems, Venues, Athletes Services, a representative from each of the
Minister of Sport and the Mayor, a sports representative drawn for each of the sporting activities
which will be competed for during the Games and a representative of the GCC.
GAMESCOs financial structure and budget
Country Cs currency is C$. GAMESCOs financial structure is different from most commercial
organisations. Under the Act of Parliament which set the company up, a provision was made that
GAMESCO would not be subject to corporate tax.
Revenue is generated by a mixture of government grants, sponsorships, ticket sales for the Games,
rental of accommodation and broadcasting and other commercial fees. All capital works relating to the
Games themselves, such as the athletics stadium, the cycling velodrome, the gymnastics arena and
the swimming pool, are funded by government grants. However, construction of buildings for
commercial activities such as cafes and restaurants is funded by the commercial organisations
themselves and is not the responsibility of GAMESCO. The budget for the expected final cost of the
Games is shown at Appendix 1.
Project management
An overarching supervisory consortium of experts in project management has been engaged by
GAMESCO as an outsourced service. The role of the consortium is to prepare and monitor
construction work on the whole of the Games Park site. The Games Park site will accommodate such
buildings as the athletics stadium, the cycling velodrome, the gymnastics arena and the swimming
pool. In addition, the consortium will ensure that utilities are installed, plans for construction works are
approved, construction work progresses according to schedule and that contractors are able to
access the site when building work takes place.
GAMESCO employs independent project management teams with project managers responsible for
each major building construction on-site. These project managers report directly to the consortium on
the progress of the construction project for which they are responsible. An Information Systems
Project Manager has been appointed by GAMESCO, whose role is to co-ordinate the provision of
information systems on the site and to liaise with all the project managers on their information
systems requirements for the construction projects for which they are responsible.
A project management team has also been established to market the Games. All GAMESCOs
marketing staff, with the exception of the Marketing Director, are attached to this project team.
Service provision
Professional architects, engineers and building companies are all engaged in developing the Games
Park. In addition, land on which buildings will be erected must be clear of pollution. Utility services,
such as water and electricity supplies to all venues involved with the Games are in the process of
being provided.
On the Games Park site itself, there will be a number of fast-food outlets, cafes and restaurants as
well as ice cream parlours, sweet stores and souvenir shops. There will need to be provided hygiene
facilities such as toilets. All of these will remain on-site for the duration of the Games and will be
demolished afterwards. Some parks and gardens will be constructed within the Games Park. The
parks and gardens will not be demolished but remain as amenities for the local population after the
Games have finished.

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Security for the Games will be tight. It is proposed that GAMESCO will engage a highly reputable
security services contractor to provide security at all the Games venues, around the perimeter as well
as within the grounds of the Games Park. It will be essential for the security contractor to engage
sufficient staff to carry out this very large security service.
Staffing
While GAMESCO does employ its own staff, the majority of people working on-site are contractors. At
present most of the activity being undertaken on-site is construction work. GAMESCO does employ
its own Human Resource Management, Information Technology support and accounting staff.
Senior staff and project managers are contracted for the duration of the Games and in some cases
beyond. They are paid at a competitive rate. However, most staff are employed on temporary
contracts on a month-to-month basis and generally receive relatively low pay compared with unskilled
labour in Country C which has a high level of unemployment.
When the Games begin, it is expected that most ancillary staff on-site, who will direct spectators to
venues and facilities, will be volunteers. Many of these volunteers will take annual leave from their
places of work in order to carry out this task.
Sponsorship
A major source of revenue for GAMESCO is sponsorship deals with major business organisations
and this is therefore crucial to the successful staging of the Games. Sponsors are required to provide
a guarantee of a minimum payment of C$ 1 million to GAMESCO. For this, sponsors become official
partners of the Games and acquire marketing rights. This enables sponsors to build their brands and
customer relationships, increase their revenue and enhance their own commercial reputation.
Sponsorship can be divided into two types, direct and indirect.
Direct sponsorship - gold sponsorship
There are two levels of direct sponsorship, gold and silver. Gold is the highest level of sponsorship
and gives sponsors major marketing rights. Gold sponsors are drawn from businesses such as
electronic equipment suppliers, soft drink manufacturers and fast-food chains which can provide
products and services to support the staging of the Games, in addition to providing a financial
contribution. Gold sponsors are also expected to promote the Games by engaging in the development
of sporting events across the region of the world in which the Games take place. For this, gold
sponsors are entitled to use the Games logo on their products and services.
Gold sponsors are required to engage in a range of activities to support the mission of GCC at the
Games. See page 2 for details of the mission of the Games.
Direct sponsorship - silver sponsorship
Silver sponsors are only required to make a financial contribution to the staging of the Games.
However, they too, are able to use the Games logo.
Indirect sponsorship
A form of indirect sponsorship which takes place when the Games are in progress is hospitality.
Hospitality sponsorship relates to large businesses hiring facilities on-site in the Games Park to
entertain their own customers and clients while the Games are in progress. These facilities mainly
consist of hospitality rooms and boxes. Clearly the hospitality rooms and boxes in prestige venues,
such as the athletics stadium, the cycling velodrome, the gymnastics arena and the swimming pool,
will command a higher price on days when popular Games events are being held and also when
medals are being awarded.
Brand Leases
One significant area of revenue generation is the opportunity for GAMESCO to lease its brand to all
organisations engaged in supplying products and services to the Games. It is a condition of all goods
and service suppliers that they must display the Games brand in all the venues in which they operate
and in doing this, they incur a leasing charge which is directly payable to GAMESCO. In addition, any
other organisation wishing to use the Games brand must also pay a leasing charge to GAMESCO for
permission to do so.

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Marketing
GAMESCO has carried out considerable press and television advertising and intends to increase this
as the Games draw closer in order to stimulate public enthusiasm and ticket sales. Television rights to
broadcast the Games have been agreed and GAMESCO has invested in stocks of merchandise
which it has distributed to retailers around Country C.
Games Village
The athletes will be accommodated in the Games Village which is located in the Games Park. The
Games Village will consist of several purpose built blocks of accommodation which provide hotel
services in respect of individual bedrooms with en-suite toilet and shower facilities. The Games
Village will also have its own catering and laundry facilities, using locally contracted staff. The daily
cleaning of the rooms will also be contracted out to a local company.
The Games Village will provide a regular bus shuttle service for the use of athletes to and from the
city centre in which the Games are being held and also to and from the airport.
After the Games, the Games Village will be converted into apartments to house local people.
Drug testing and medical facilities
A specific building will be constructed to enable appropriately qualified experts to carry out
internationally approved drugs tests on athletes. The drug testing facility will be located close to the
medical centre which will be specifically built for treating the athletes. If any spectator requires
medical attention beyond basic first-aid, he or she will be taken to the nearest hospital as will any
athlete if he or she requires treatment which cannot be provided at the medical centre. After the
Games have finished, it is expected that the medical centre will be converted into a health clinic which
will provide services to local residents.
Business opportunities and legacy
Much has been made in Country C about the huge opportunities for local businesses and the legacy
of the Games. There is a range of contracts and work being done or still to be undertaken by
businesses in Country C. These include construction, land re-generation, the provision of utility
supplies and catering facilities before and during the Games. After the Games have finished, there will
still be much work particularly for construction companies in re-instating land and undertaking
buildings alteration work.
Construction works including hotels and shopping facilities are now planned to be built on derelict
land and all will be within easy reach of the Games Park. The hotels and shopping facilities are
particularly attractive to developers as it is expected that the regeneration of the land, parks, gardens
and sports facilities which remain after the Games will attract visitors and tourists.
A major legacy is that many new homes and amenities will become available after the Games. For
example, the athletes accommodation in the Games Village will replace much sub-standard
accommodation in which many local people are currently housed. The Government thinks that the
Games, which will be televised across the region and in other parts of the world, will showcase the
country in general, attracting visitors and businesses not just for the duration of the Games but
afterwards as well.
In addition to the economic benefits, the Government hopes that the Games will inspire the public in
Country C to take more physical exercise which it anticipates will bring health benefits to the
population. Some of the facilities which will be constructed for the Games, such as the cycling
velodrome, the gymnastics arena and the swimming pool, will become available for public use after
the Games, enhancing the amenities for the local population.

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APPENDIX 1
Budget for the expected final cost of the Games

C$million
Preparation of the Site and Infrastructure
Power and utilities
Preparatory construction work
Structural work including access roads
Landscaping
Other preparation and infrastructural works
Total preparation of site and infrastructure

550
370
760
250
185
2,115

Venues
Athletics stadium
Swimming Pool
Cycling velodrome
Gymnastics arena
Venues operations control centre
Other Games Park venues
Total venues

500
260
50
45
20
100
975

Transport
Transport capital projects
Transport operating costs
Total transport

300
350
650

Games Park Operations and Security

Games Park Operations
Security for Games Park construction
Security during games
Insurance
Total Games Park operations and security

220
240
70
80
610

Games Village and Media Centre

Games Village construction
Media Centre construction
Total Games Village and Media Centre

750
300
1,050

Total expected final cost before contingency

5,400

Contingency

540

Total expected final cost

5,940

End of Pre-seen Material

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SECTION A 50 MARKS
[You are advised to spend no longer than 90 minutes on this question]

ANSWER THIS QUESTION

Question One
The Gymnastics Arena Project
The construction of the Gymnastics Arena commenced in February 2014 and is forecast to be
completed by 1 March 2015. This new arena will host a five day competition, in which over 200
gymnasts from the 10 participating countries will compete in several gymnastic events.
Project management of the Gymnastics Arena
The project is being managed by X, a GAMESCO senior manager. All of the project managers
involved in the Games are aware that the projects they are responsible for must adhere to the
mission, vision and values of GAMESCO (Pre-seen pages 2 and 3). GAMESCO expects that all
projects will meet the sustainability expectations as set out in the mission statement of the Games Coordinating Committee (GCC). This is in respect of using processes and materials that are nonpolluting, energy conserving and make minimal use of natural resources. The GCC expects that the
infrastructure will be for long-term use and that its disposal or demolition will not be harmful to future
generations or the environment. GAMESCO considers the safety of all of its employees and
outsourced contractors to be a key project management consideration.
The Project Team
The project team was set up in July 2013 to produce the project budget and to prepare the Project
Initiation Document (PID). The project team consists mainly of senior managers from the key
contractors involved in the construction of the Gymnastics Arena. These project team members will
work on the project for the period in which their contracting companies are involved in the project.
They will be involved in team meetings and project reviews throughout the duration of the project. The
project team contains GAMESCO staff who are responsible for the accounting, procurement and
human resource activities relating to the project. Although many of these GAMESCO project staff will
work solely on the Gymnastics Arena during its construction, they will also work closely with their own
functional teams within the GAMESCO organisation.
At a project team meeting held in January 2014, X presented the finalised PID to the whole project
team. This showed the detailed project plan and work breakdown structure, identifying the scope of all
of the key activities which must be completed, the timescales required, the budget and the quality
expectations for the project.
Construction Work on the Gymnastics Arena
The Gymnastics Arena is situated on what was derelict land which has not been used for over 15
1
years. The local authority which owns the land had not previously been allowed to develop it as it had
been a habitat for local wildlife.
Construction work began on 10 February 2014, with the ground works carried out by contractor V, an
internationally renowned company. V is responsible for undertaking the ground works before the main
concrete foundations for the Gymnastics Arena are laid. V has many years of expertise in this type of
work and has also worked upon many similar construction projects around the world.
The ground works to be undertaken by V were budgeted to take 20 working days (excluding weekends) requiring 8,000 hours of work (40 workers at 10 hours per day). This was budgeted to be
invoiced at an hourly rate of C$200. This rate covers labour, machinery and overhead costs and
profit. The final contract with V is based on actual time spent. This means that V charges for the
number of hours actually worked in preparing the ground.
1

A local authority is a public sector organisation which has administrative responsibilities within a geographical
area.

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After V had completed 10 days of work on site, the time sheets and invoice submitted by V recorded
that 4,000 hours had been incurred on the project. However, at the end of these 10 days of work on
site, V had only completed 40% of the work budgeted for the total job. Additionally Vs invoice was
based on its current hourly rate of C$205. The senior managers of V have assured X that the ground
works could be completed on schedule at the end of 20 working days on site, but in order to achieve
the planned completion date, it will require an additional 8 workers (in addition to the budgeted 40
workers). All of the workers would need to work at the planned 10 hours per day for the remaining 10
days which would be invoiced at the hourly rate of C$205.
Project Status Review February 2014
X is preparing for the first project status review meeting. He has asked the Project Accountant to
present a range of project performance information to the project team members, to assess the
project performance for the ground works undertaken by V up to the end of the first 10 days of work
completed. Throughout the duration of the project, the Project Accountant will regularly report on a
range of variances based upon the comparison of work performed with work planned, using the
Earned Value Management (EVM) method. This is in order to continually evaluate the progress of the
schedule of work, control the cost of the project and provide information in the form required by the
Project Manager.
The Project Accountant is responsible for monitoring and reporting on the Gymnastics Arena project
budget and cost information and for communication of this information to the project team members.
She also reports directly to the Chief Accountant within the main GAMESCO central finance function.
Legacy of the Gymnastics Arena
On completion of the Games in 2015, the Gymnastics Arena will become the property of the local
authority. GAMESCO has stated that it wishes the Gymnastics Arena to be converted into a sports
and leisure complex for the local community after the Games are completed, in line with the mission
of the GCC. This was part of an overall legacy pledge made by the Government of Country C at the
bidding stage for the Games, to encourage the future development of sport in the country.
The local authority, together with a number of local architects, have recently developed some initial
plans for the proposed sports and leisure complex which will contain a gymnasium, indoor sports halls
and tennis courts. These new facilities will require re-development and construction work after the
Games have finished, which will mean that the new complex will not be ready until the end of 2017.
Many local construction companies in Country C have already expressed an interest in this work and
the local authority has stated that this will provide extensive employment opportunities for the city,
both during the re-development phase and afterwards for staff employed by the new sports and
leisure complex.
Some local residents are not happy with the proposed development, and want the Gymnastics Arena
to be developed into a shopping centre to benefit the whole community. Environmentalists want the
Gymnastics Arena to be demolished and the site to be returned to a natural habitat for wildlife.

End of unseen material

The requirement for Question One is on page 11

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Required
(a) Discuss the role of effective Project Management in securing the successful
achievement of GAMESCO's objectives contained in its mission and value statements.
(8 marks)
For the Gymnastics Arena Project:

(b)

(i)

Calculate the following project performance information for the ground works being
undertaken by V, using the following Earned Value Management formulae:
1. The Baseline (Original) Budget
2. The Budgeted Cost of Work Scheduled (BCWS) for the first 10 days of work
completed
3. The Actual Cost of Work Performed (ACWP) for the first 10 days of work
completed
4. The Budget Cost of Work Performed (BCWP) for the first 10 days of work
completed
5. The Cost Variance (CV) of the first10 days of work completed
th
6. The Cost Estimated to Complete the work (ETC) after the 10 day
7. The Cost Estimate at Completion (EAC)
8. The Final Cost Variance in absolute and percentage terms for the
completed work
9. The Schedule Variance (BCWP-BCWS)
(9 marks)

(ii)

Discuss the role of the Project Accountant in the successful final delivery of the
project on schedule and on budget. Your answer should include a discussion of the
relevance to the project team members of the information provided in your answer
to part (b)(i) above.
(9 marks)

(iii) Recommend, with justification, THREE aspects of project performance, other

than cost, which must be regularly measured to ensure the successful delivery of
the Gymnastics Arena project.
Additionally, for EACH of your recommended three aspects of project performance
you should identify ONE relevant performance indicator.
(9 marks)

(c)

(i)

Evaluate the current levels of power and interest of THREE stakeholder groups
using Mendelow's Power/Interest matrix with respect to the proposed legacy
strategy of converting the Gymnastics Arena into a sports and leisure complex after
the Games.

Note: You should NOT select the local authority as one of your three stakeholder groups
(9 marks)
(ii)

Recommend, with justification, what actions could be used by the local authority
to manage EACH of the three stakeholder groups evaluated in your answer to part
(c)(i), before the Games commence.
(6 marks)
(Total marks for Question One = 50 marks)

(Total for Section A = 50 marks)

End of Section A, Section B starts on page 14

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SECTION B 50 MARKS
[You are advised to spend no longer than 45 minutes on each question in this section]

ANSWER TWO OF THE THREE QUESTIONS 25 MARKS EACH

Question Two
G is a multinational company that designs, manufactures and sells consumer electronic products,
such as portable media players (PMP), tablet computers (TAB), smartphones, personal computers
(PC) and computer software packages.
G has its own retail outlets and also sells its products in other stores as well as online. The G brand
and logo is recognised internationally and G has successfully applied a brand extension strategy for a
number of years. Every time G launches a new product it publicises this widely to generate a high
degree of enthusiasm amongst the public and its potential customers. Gs product launches are highly
effective: thousands of customers queue outside the stores, some even camping outside for several
days, just to experience a product launch by G. Customers perceive Gs products to offer higher
value than those marketed by its competitors, but they are also more expensive. This has proved to
be a highly profitable strategy to date for G and has been difficult for competitors to copy.
G is organised into four strategic business units (SBUs), each responsible for a particular product
group.
The PC SBU - G was one of the first developers of personal computers in the 1980s and its unique
software and quality design was popular with early PC customers. Gs first product was the G PC with
its own unique software and operating system. Despite Gs early success in the PC market, it has
failed to maintain its market share in recent years. PCs with software developed and sold by Gs
main rivals now dominate the PC market. However, the PC market is highly profitable and has huge
potential for growth but competition is intense.
The PMP SBU - The G PMP products have experienced massive growth in the market but now sales
are stagnant and predicted to decline. The PMPs can be used as external data storage devices and
through the use of Gs own developed software, can be used to transfer music, photos and games. G
continuously rolls-out extension strategies, updating its PMP products with more features, colours,
larger memory and faster processors. The cumulative effect is that these updates have increased the
life cycle of its PMP products and its long-term sales potential, beyond that forecast a few years ago.
Gs PMP products have a high share of the PMP market and are popular amongst a wide range of
customers.
The Smartphone SBU - The G smartphone products include all of the features that the G PMP
products have as well as telephone technology. Gs retail outlets are becoming more and more
focussed on its G smartphone customers and potential new customers. The smartphone products
also have a high market share and are growing in popularity.
The TAB SBU - The G TAB has a high share of the rapidly growing tablet computer market.
However, the G TAB is beginning to lose its initial high market share advantage as other
manufacturers have launched their own tablet products with increasingly sophisticated features.
G recognises that the combination of its overall competitive strategy and the strength of its brand
must be maintained across its business portfolio in order to maintain and grow its market share.

The requirement for Question Two is on the opposite page

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Required
(a)

Explain the benefits of a 'brand extension strategy' for G. Your answer should include a
definition of the term 'brand extension'.
(5 marks)

(b)

Evaluate G's separate product SBUs, using the Boston Consulting Group Growth/Share
matrix.
(10 marks)

(c)

Discuss the impact that G's generic competitive strategy has had on the management of
its product portfolio.
(10 marks)
(Total for Question Two = 25 marks)

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Question Three
B is an innovative manufacturer and online retailer of disposable eco-friendly packaging and catering
products. Bs product range includes hot and cold drinking cups, food containers, bags and
disposable cutlery. Bs employees have a wide range of experience in manufacturing, developing
innovative products, product branding and marketing.
All of Bs sales are generated through e-commerce. Its customers are spread throughout the world
and range from small independent catering outlets to multinational food retailers.
Bs website states Our aim is to create high performance sustainable products, through research and
development of new materials using cutting edge technologies. Our priority is to understand our
clients needs and work with them to provide innovative solutions to their environmental packaging
requirements.
In the last five years, the increasing focus upon sustainability by many international businesses has
resulted in rapid growth in Bs sales. This has, in turn, put pressure on Bs business information
systems, which were developed several years ago. The Board of Directors is concerned that
weaknesses in its current information systems have led to information duplication and inaccurate
processing and analysis of data throughout the business. Further pressure on Bs information
systems could reduce Bs ability to compete effectively in an increasingly competitive market.
B is now considering different solutions for a new information system to suit the needs of its growing
business. The Board of Directors is currently considering replacing its existing information systems
with an integrated knowledge management information system (KM IS). Although B has its own IT
department, the Board of Directors is not confident that its current IT departments employees have
sufficient understanding or experience of knowledge management information systems to undertake
the development work themselves.
B is currently considering a proposal submitted by an internationally renowned systems development
and IT management company, Z, to design a new KM IS especially for Bs business. Z proposes to
design a system to manage Bs global financial information, inventory, order management and
customer database, all within an integrated KM IS. The new KM IS will provide B with a real-time
view of its business and supply chain, and provide a single platform which will integrate and manage
its business knowledge. The systems development process is forecast to take one year and will
require significant involvement from Bs staff at all levels across the business.
Having reviewed the initial proposal presented by Z, the Board of Directors is highly impressed with
the design of the proposed new KM IS and with Zs obvious expertise in designing, implementing and
managing knowledge management information systems on behalf of its clients.
The Board of Directors is now considering outsourcing to Z both the development and implementation
of the KM IS, as well as the day to day management of the new KM IS after its implementation.

The requirement for Question Three is on the opposite page

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Required
(a)

Evaluate the benefits and difficulties for B of implementing and operating a knowledge
management information system (KM IS).
(13 marks)

(b)

Discuss the advantages and disadvantages to B of outsourcing the two aspects of the
proposed new KM IS to Z in relation to:
(i)

its development and implementation, and

(ii)

its day to day management.

(12 marks)
(Total for Question Three = 25 marks)

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Question Four
C is a local authority based in Country M. A local authority (LA) is a public sector organisation which
has administrative responsibilities within a geographical area. C is responsible for the provision of a
wide range of public services within its local area, which include schools, leisure, policing, waste
management, road maintenance and social housing. The majority of Cs income comes from central
government funding. It also generates income from local taxes paid by individuals and businesses.
Many of the major strategic decisions of the LA are made by its elected members, who are not staff,
as they are elected by the public. The elected members are advised by the staff.
In the last four years, the global economic downturn has resulted in severe pressure on public sector
service provision in Country M. During this period, the central Government of M has cut its funding to
all LAs. All LAs have had to make difficult decisions on how to reduce their expenditure with as little
effect as possible on the levels and quality of service provision. The Government funding cut will
require a fundamental culture change in C, from a traditional bureaucratic top-down culture to one in
which decision making and leadership is delegated. Currently within C, management and decision
making is often complicated and lengthy, having to go through many different levels of authorisation.
Many of Cs employees work on a part-time basis. Also, many staff have only ever worked for C or
within the public sector. Over the last decade, C has grown significantly in terms of the number of staff
it employs and the range of services it offers.
C appointed a new Chief Executive in 2013, who most recently had worked within the private sector.
Since his arrival he has attempted to make a number of changes to the organisational culture and
structure of C, in order to meet the demands he foresees will be made on the organisation over the
next two years.
Within the last few months, all LAs in Country M have been informed by central Government that they
must reduce their overall expenditure from current levels by 12% over the next two years. The central
Government of Country M also wants to encourage a transformation in public service provision so that
LAs work collaboratively with private sector companies to deliver services that meet the needs of the
local population while increasing their efficiency.
The new Chief Executive has recently communicated to his senior management team a four-point
plan to assist in the delivery of meeting the central Governments target of 12% expenditure
reductions over the next two years:
1.

Securing efficiencies through joint working with private sector partners (for example, in the
delivery and management of re-cycling and waste management facilities).

2.

Producing management and staff savings through redundancies.

3.

Increasing income from services provided (for example, increasing the prices of car parking
charges and school meals).

4.

Reducing services (for example, the closure of a number of local libraries and local authorityrun leisure centres).

Many of the staff of C are concerned about possibly being made redundant. In addition, there are
concerns within C and within Cs local community regarding the effect that possible cuts in
expenditure will have upon the local community which C serves. The Chief Executive of C is aware of
these concerns but also realises that C must make some very difficult decisions if it to achieve the
Government targets. He also considers that if the process of change is to be delivered successfully
then staff and community involvement will be important.

The requirement for Question Four is on the opposite page

March 2014

18

Enterprise Strategy

Required
(a)

Explain the key drivers of change for C.

(5 marks)

(b)

Evaluate the likely obstacles imposed by the current culture which the Chief Executive will
face when addressing the demands he foresees will be made on C in the next two years.
(8 marks)

(c)

Discuss the ethical aspects which must be considered by C when undertaking strategies
to achieve the central Government target to reduce its expenditure. You should use the
four-point plan as devised by the Chief Executive of C to illustrate your answer.
(12 marks)
(Total for Question Four = 25 marks)

End of Question Paper

Maths Tables and Formulae are on Pages 21 and 22

Enterprise Strategy

19

March 2014

This page is blank

March 2014

20

Enterprise Strategy

MATHS TABLES AND FORMULAE

Present value table

Present value of $1, that is (1 + r)-n where r = interest rate; n = number of periods
until payment or receipt.
Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

1%
0.990
0.980
0.971
0.961
0.951
0.942
0.933
0.923
0.914
0.905
0.896
0.887
0.879
0.870
0.861
0.853
0.844
0.836
0.828
0.820

2%
0.980
0.961
0.942
0.924
0.906
0.888
0.871
0.853
0.837
0.820
0.804
0.788
0.773
0.758
0.743
0.728
0.714
0.700
0.686
0.673

3%
0.971
0.943
0.915
0.888
0.863
0.837
0.813
0.789
0.766
0.744
0.722
0.701
0.681
0.661
0.642
0.623
0.605
0.587
0.570
0.554

Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

11%
0.901
0.812
0.731
0.659
0.593
0.535
0.482
0.434
0.391
0.352
0.317
0.286
0.258
0.232
0.209
0.188
0.170
0.153
0.138
0.124

12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
0.287
0.257
0.229
0.205
0.183
0.163
0.146
0.130
0.116
0.104

13%
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295
0.261
0.231
0.204
0.181
0.160
0.141
0.125
0.111
0.098
0.087

Enterprise Strategy

Interest rates (r)

4%
5%
0.962
0.952
0.925
0.907
0.889
0.864
0.855
0.823
0.822
0.784
0.790
0.746
0.760
0.711
0.731
0.677
0.703
0.645
0.676
0.614
0.650
0.585
0.625
0.557
0.601
0.530
0.577
0.505
0.555
0.481
0.534
0.458
0.513
0.436
0.494
0.416
0.475
0.396
0.456
0.377

14%
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270
0.237
0.208
0.182
0.160
0.140
0.123
0.108
0.095
0.083
0.073

6%
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.527
0.497
0.469
0.442
0.417
0.394
0.371
0.350
0.331
0.312

7%
0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508
0.475
0.444
0.415
0.388
0.362
0.339
0.317
0.296
0.277
0.258

8%
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
0.500
0.463
0.429
0.397
0.368
0.340
0.315
0.292
0.270
0.250
0.232
0.215

9%
0.917
0.842
0.772
0.708
0.650
0.596
0.547
0.502
0.460
0.422
0.388
0.356
0.326
0.299
0.275
0.252
0.231
0.212
0.194
0.178

10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
0.350
0.319
0.290
0.263
0.239
0.218
0.198
0.180
0.164
0.149

Interest rates (r)

15%
16%
0.870
0.862
0.756
0.743
0.658
0.641
0.572
0.552
0.497
0.476
0.432
0.410
0.376
0.354
0.327
0.305
0.284
0.263
0.247
0.227
0.215
0.195
0.187
0.168
0.163
0.145
0.141
0.125
0.123
0.108
0.107
0.093
0.093
0.080
0.081
0.069
0.070
0.060
0.061
0.051

17%
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208
0.178
0.152
0.130
0.111
0.095
0.081
0.069
0.059
0.051
0.043

18%
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191
0.162
0.137
0.116
0.099
0.084
0.071
0.060
0.051
0.043
0.037

19%
0.840
0.706
0.593
0.499
0.419
0.352
0.296
0.249
0.209
0.176
0.148
0.124
0.104
0.088
0.079
0.062
0.052
0.044
0.037
0.031

20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
0.135
0.112
0.093
0.078
0.065
0.054
0.045
0.038
0.031
0.026

21

March 2014

Cumulative present value of $1 per annum, Receivable or Payable at the end of each year for n years
1 (1+ r ) n
r

Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Interest rates (r)

1%
0.990
1.970
2.941
3.902
4.853
5.795
6.728
7.652
8.566
9.471
10.368
11.255
12.134
13.004
13.865
14.718
15.562
16.398
17.226
18.046

2%
0.980
1.942
2.884
3.808
4.713
5.601
6.472
7.325
8.162
8.983
9.787
10.575
11.348
12.106
12.849
13.578
14.292
14.992
15.679
16.351

3%
0.971
1.913
2.829
3.717
4.580
5.417
6.230
7.020
7.786
8.530
9.253
9.954
10.635
11.296
11.938
12.561
13.166
13.754
14.324
14.878

4%
0.962
1.886
2.775
3.630
4.452
5.242
6.002
6.733
7.435
8.111
8.760
9.385
9.986
10.563
11.118
11.652
12.166
12.659
13.134
13.590

Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

5%
0.952
1.859
2.723
3.546
4.329
5.076
5.786
6.463
7.108
7.722
8.306
8.863
9.394
9.899
10.380
10.838
11.274
11.690
12.085
12.462

6%
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
7.887
8.384
8.853
9.295
9.712
10.106
10.477
10.828
11.158
11.470

7%
0.935
1.808
2.624
3.387
4.100
4.767
5.389
5.971
6.515
7.024
7.499
7.943
8.358
8.745
9.108
9.447
9.763
10.059
10.336
10.594

8%
0.926
1.783
2.577
3.312
3.993
4.623
5.206
5.747
6.247
6.710
7.139
7.536
7.904
8.244
8.559
8.851
9.122
9.372
9.604
9.818

9%
0.917
1.759
2.531
3.240
3.890
4.486
5.033
5.535
5.995
6.418
6.805
7.161
7.487
7.786
8.061
8.313
8.544
8.756
8.950
9.129

10%
0.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145
6.495
6.814
7.103
7.367
7.606
7.824
8.022
8.201
8.365
8.514

17%
0.855
1.585
2.210
2.743
3.199
3.589
3.922
4.207
4.451
4.659
4.836
4.988
5.118
5.229
5.324
5.405
5.475
5.534
5.584
5.628

18%
0.847
1.566
2.174
2.690
3.127
3.498
3.812
4.078
4.303
4.494
4.656
4.793
4.910
5.008
5.092
5.162
5.222
5.273
5.316
5.353

19%
0.840
1.547
2.140
2.639
3.058
3.410
3.706
3.954
4.163
4.339
4.486
4.611
4.715
4.802
4.876
4.938
4.990
5.033
5.070
5.101

20%
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
4.327
4.439
4.533
4.611
4.675
4.730
4.775
4.812
4.843
4.870

Interest rates (r)

11%
0.901
1.713
2.444
3.102
3.696
4.231
4.712
5.146
5.537
5.889
6.207
6.492
6.750
6.982
7.191
7.379
7.549
7.702
7.839
7.963

12%
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
5.938
6.194
6.424
6.628
6.811
6.974
7.120
7.250
7.366
7.469

13%
0.885
1.668
2.361
2.974
3.517
3.998
4.423
4.799
5.132
5.426
5.687
5.918
6.122
6.302
6.462
6.604
6.729
6.840
6.938
7.025

14%
0.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
5.453
5.660
5.842
6.002
6.142
6.265
6.373
6.467
6.550
6.623

15%
0.870
1.626
2.283
2.855
3.352
3.784
4.160
4.487
4.772
5.019
5.234
5.421
5.583
5.724
5.847
5.954
6.047
6.128
6.198
6.259

16%
0.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833
5.029
5.197
5.342
5.468
5.575
5.668
5.749
5.818
5.877
5.929

FORMULAE
Annuity
Present value of an annuity of $1 per annum, receivable or payable for n years, commencing in one year, discounted at r% per
annum:

PV =

1
1
1
n
r
[1 + r ]

Perpetuity
Present value of $1 per annum, payable or receivable in perpetuity, commencing in one year, discounted at r% per annum:
PV =

1
r

March 2014

22

Enterprise Strategy

LIST OF VERBS USED IN THE QUESTION REQUIREMENTS

A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for
each question in this paper.
It is important that you answer the question according to the definition of the verb.
LEARNING OBJECTIVE
Level 1 - KNOWLEDGE
What you are expected to know.

Level 2 - COMPREHENSION
What you are expected to understand.

VERBS USED

DEFINITION

List
State
Define

Make a list of
Express, fully or clearly, the details/facts of
Give the exact meaning of

Describe
Distinguish
Explain

Communicate the key features

Highlight the differences between
Make clear or intelligible/State the meaning or
purpose of
Recognise, establish or select after
consideration
Use an example to describe or explain
something

Identify
Illustrate
Level 3 - APPLICATION
How you are expected to apply your knowledge.

Apply
Calculate
Demonstrate
Prepare
Reconcile
Solve
Tabulate

Level 4 - ANALYSIS
How are you expected to analyse the detail of
what you have learned.

Level 5 - EVALUATION
How are you expected to use your learning to
evaluate, make decisions or recommendations.

Enterprise Strategy

Analyse
Categorise
Compare and contrast

Put to practical use

Ascertain or reckon mathematically
Prove with certainty or to exhibit by
practical means
Make or get ready for use
Make or prove consistent/compatible
Find an answer to
Arrange in a table

Construct
Discuss
Interpret
Prioritise
Produce

Examine in detail the structure of

Place into a defined class or division
Show the similarities and/or differences
between
Build up or compile
Examine in detail by argument
Translate into intelligible or familiar terms
Place in order of priority or sequence for action
Create or bring into existence

Advise
Evaluate
Recommend

Counsel, inform or notify

Appraise or assess the value of
Advise on a course of action

23

March 2014

Enterprise Pillar

Strategic Level Paper

E3 Enterprise Strategy

March 2014

Wednesday Session

March 2014

24

Enterprise Strategy