EPM exam UPDATED ACTUAL Exam
Questions and CORRECT Answers
What are the limitations of financial metrics? - CORRECT ANSWER - Short-term
orientation, results orientation, lagging indicators; they don't identify causes of performance nor
appropriate corrective action
What are the benefits of non-financial metrics? - CORRECT ANSWER - Leading
indicators; process-oriented, reflect the quality of the process; enablers, identify causes of
business performance and inform corrective decisions
What are the limitations of non-financial metrics? - CORRECT ANSWER - They tend to
be proxy measures and represent things that are difficult to quantify; may be subjective and
susceptible to manipulation
What are the attributes of a useful performance metric? - CORRECT ANSWER -
Relevance, faithful representation, cost effectiveness, robustness, understandability
What are the four balanced scorecard perspectives? - CORRECT ANSWER - Financial;
customer - pick the customers we want to target, define our value proposition;
Internal processes - our core competencies which allow us to create and deliver value to our
customers;
Learning and growth - investment in human, organisation and information capital
What are some benefits of using a balanced scorecard? - CORRECT ANSWER - Using a
strategy map facilitates the development and communication of strategic goals; cascading aligns
the goals of work-units, teams and individuals with organisational goals; KPIs facilitate effective
performance monitoring; leading and process-based metrics facilitate early and more effective
corrective action
What are some common issues with balanced scorecards? - CORRECT ANSWER - Not
getting the balance right between financial and non-financial metrics; using too many metrics;
, selecting metrics that are not useful, susceptible to manipulation, not objective, not
understandable; there may be excessive subjectivity and bias linking rewards systems to
balanced scorecards;
What are the common mistakes with balanced scorecards according to Ittner & Larcker? -
CORRECT ANSWER - Not linking measures to strategy; not validating the links between
actions and outcomes, important so we know the relative importance of selected measures; not
setting the right performance targets, focusing on some non-financial measures may lead to
negative returns; measuring incorrectly, we want measures to have validity and reliability
What are different types of reward systems? - CORRECT ANSWER - Extrinsic reward -
cash, equity;
Intrinsic reward - autonomy, master, performance;
Flat rate;
Quota - get a bonus when a certain level of performance is reached;
Piece rate - reward goes up linearly with performance;
Tournament - people compete with each other to get the top reward
What is a tournament type incentive? - CORRECT ANSWER - Where people compete
with each other to get the top spot; it was championed at GE in the 1980s but was dropped when
excessive competition began to reduce collaboration; it is used to identify and promote the most
capable, and to enhance human effort and ingenuity by appealing to our innate competitive spirit
What do Bonner, Hastie, Sprinkle & Young think about performance measures? - CORRECT
ANSWER - Quota schemes have the highest probability of producing positive effects, link
pay to performance and provide a specific and achievable goal; tournament schemes may be
better than flat-rate schemes, since pay is contingent, but excessive competition may promote
dysfunctional behaviour
What do Jensen & Murphy think about performance measures? - CORRECT ANSWER -
Incentive schemes should be designed so that the pay-for-performance link is linear; quotas
increase the temptation of gaming; bonus banks should be used to give incentive schemes some
downside potential
Questions and CORRECT Answers
What are the limitations of financial metrics? - CORRECT ANSWER - Short-term
orientation, results orientation, lagging indicators; they don't identify causes of performance nor
appropriate corrective action
What are the benefits of non-financial metrics? - CORRECT ANSWER - Leading
indicators; process-oriented, reflect the quality of the process; enablers, identify causes of
business performance and inform corrective decisions
What are the limitations of non-financial metrics? - CORRECT ANSWER - They tend to
be proxy measures and represent things that are difficult to quantify; may be subjective and
susceptible to manipulation
What are the attributes of a useful performance metric? - CORRECT ANSWER -
Relevance, faithful representation, cost effectiveness, robustness, understandability
What are the four balanced scorecard perspectives? - CORRECT ANSWER - Financial;
customer - pick the customers we want to target, define our value proposition;
Internal processes - our core competencies which allow us to create and deliver value to our
customers;
Learning and growth - investment in human, organisation and information capital
What are some benefits of using a balanced scorecard? - CORRECT ANSWER - Using a
strategy map facilitates the development and communication of strategic goals; cascading aligns
the goals of work-units, teams and individuals with organisational goals; KPIs facilitate effective
performance monitoring; leading and process-based metrics facilitate early and more effective
corrective action
What are some common issues with balanced scorecards? - CORRECT ANSWER - Not
getting the balance right between financial and non-financial metrics; using too many metrics;
, selecting metrics that are not useful, susceptible to manipulation, not objective, not
understandable; there may be excessive subjectivity and bias linking rewards systems to
balanced scorecards;
What are the common mistakes with balanced scorecards according to Ittner & Larcker? -
CORRECT ANSWER - Not linking measures to strategy; not validating the links between
actions and outcomes, important so we know the relative importance of selected measures; not
setting the right performance targets, focusing on some non-financial measures may lead to
negative returns; measuring incorrectly, we want measures to have validity and reliability
What are different types of reward systems? - CORRECT ANSWER - Extrinsic reward -
cash, equity;
Intrinsic reward - autonomy, master, performance;
Flat rate;
Quota - get a bonus when a certain level of performance is reached;
Piece rate - reward goes up linearly with performance;
Tournament - people compete with each other to get the top reward
What is a tournament type incentive? - CORRECT ANSWER - Where people compete
with each other to get the top spot; it was championed at GE in the 1980s but was dropped when
excessive competition began to reduce collaboration; it is used to identify and promote the most
capable, and to enhance human effort and ingenuity by appealing to our innate competitive spirit
What do Bonner, Hastie, Sprinkle & Young think about performance measures? - CORRECT
ANSWER - Quota schemes have the highest probability of producing positive effects, link
pay to performance and provide a specific and achievable goal; tournament schemes may be
better than flat-rate schemes, since pay is contingent, but excessive competition may promote
dysfunctional behaviour
What do Jensen & Murphy think about performance measures? - CORRECT ANSWER -
Incentive schemes should be designed so that the pay-for-performance link is linear; quotas
increase the temptation of gaming; bonus banks should be used to give incentive schemes some
downside potential
