CPA PM Elective key terms

A performance framework that translates strategy into objectives across financial, customer, internal process, and learning and growth perspectives, linked by cause-and-effect assumptions so that non-financial drivers are connected to financial outcomes.

A one-page diagram showing how investments in people and capabilities improve internal processes, which in turn drive customer value and ultimately financial results, making the causal logic of a strategy explicit and testable.

A small set of measures chosen because they track progress on objectives that matter most to strategy execution, are actionable by a named owner, and are reported frequently enough to support timely decisions.

The idea that managers should be evaluated mainly on revenues, costs, or results they can influence, so that uncontrollable factors such as market swings or allocated head-office charges do not distort judgments about their performance.

An organisational unit whose manager is held accountable for a defined set of inputs or outputs, classified as cost, revenue, profit, or investment centre depending on whether expenses, sales, or invested capital fall within their authority.

A ratio dividing divisional operating profit by the assets or capital employed in the division, widely used to compare units but criticised because it can encourage managers to reject projects earning above the cost of capital yet below the division's current return.

Divisional profit reduced by a capital charge equal to invested capital multiplied by a required rate of return, so that any project earning more than that rate increases the measure and goal-congruence problems of ROI are reduced.

A residual-income variant that adjusts accounting profit and capital for items such as capitalised research, goodwill amortisation, and operating leases, aiming to approximate economic profit and align managerial incentives with shareholder value creation.

The price charged when one division supplies goods or services to another within the same group, affecting divisional profit, sourcing decisions, and tax allocation; market price, cost-plus, and negotiated approaches are common.

A technique that models how total revenue, fixed costs, and variable costs interact as volume changes, used to compute break-even points, target profit volumes, and margin of safety under stated assumptions of constant prices and linear costs.

Sales revenue minus all variable costs, expressed in total or per unit, representing the amount each sale contributes toward covering fixed costs and then generating profit; central to short-term pricing and product-mix decisions.

A future cash cost that differs between the alternatives being compared; past sunk costs and costs identical under every option are excluded from the decision analysis because they cannot change the preferred choice.

The benefit forgone by using a scarce resource in one way rather than its best alternative use, such as contribution lost when a constrained machine hour is committed to a particular order.

A costing method that assigns overhead to products or customers through activities and cost drivers, giving more accurate costs where products differ in complexity, batch size, or the support resources they consume.

Any factor that causes a cost to change in total, such as machine hours, number of setups, or order lines; identifying drivers is essential for accurate allocation, behaviour modelling, and cost reduction effort.

A management approach that identifies the bottleneck limiting throughput, exploits it fully, subordinates other operations to it, and then elevates capacity, using throughput per bottleneck unit to guide product mix and investment.

A constraint-focused measure set in which throughput equals sales revenue minus truly variable material costs, and inventory and operating expense are treated as period costs rather than assets to be built up.

A budget restated for the actual volume or activity level achieved, allowing variance analysis to separate the effect of volume changes from the effect of price, efficiency, and spending differences.

A system that records predetermined costs for materials, labour, and overhead, then compares them with actual costs to produce variances that direct management attention to operations deviating from expectations.

The process of decomposing the gap between planned and actual results into named components, such as price and quantity effects, so that managers can identify causes, assign responsibility, and take corrective action.

A budgeting approach in which each activity or cost pool must be justified from a nil base each cycle, rather than being rolled forward from last year's figure, typically used to challenge discretionary spending.

A forecast continually updated by adding a new period as the earliest one expires, keeping the planning horizon constant and reducing reliance on a single annual budget for steering the business.

A method that builds next period's budget by adjusting the prior period's figures for expected changes, which is simple and stable but tends to perpetuate past inefficiencies and slack.

The deliberate understatement of budgeted revenue or overstatement of budgeted cost by a manager seeking easier targets, a behavioural consequence of using budget attainment as the primary basis for evaluation and reward.

A set of principles replacing fixed annual budgets and central control with rolling forecasts, relative targets, devolved decision rights, and adaptive resource allocation, intended to make planning responsive to fast-changing conditions.

The sum of a project's expected future cash flows discounted at the required rate of return, less the initial outlay; a positive figure indicates the investment should add value to the firm.

The discount rate at which a project's net present value equals zero, often compared with a hurdle rate; it can mislead when cash flow signs alternate or when mutually exclusive projects differ greatly in scale.

The time required for cumulative cash inflows to recover the initial investment, valued for its simplicity and liquidity focus but criticised for ignoring cash flows after the cut-off and the time value of money.

The blended required return on a firm's debt and equity, weighted by target capital structure and adjusted for tax, commonly used as the discount rate for projects of average risk.

The value of managerial flexibility to defer, expand, contract, or abandon an investment as uncertainty resolves, which conventional discounted cash flow analysis omits and which can justify early-stage or staged funding.

A technique that changes one input at a time to see how much a decision outcome such as NPV or profit responds, identifying which assumptions most deserve further investigation or hedging.

An examination of several internally consistent combinations of assumptions, such as recession, base, and growth cases, to show the range of possible outcomes rather than a single point estimate.

A pricing-led cost discipline that starts from a competitive market price, subtracts the required profit margin, and then drives design and supply-chain costs down to meet the resulting allowable cost.

Accumulating all costs associated with a product or asset from design through disposal, including running, maintenance, and end-of-life costs, so that decisions reflect total ownership economics rather than purchase price alone.

Charging different prices to different customers or segments for essentially the same offering where demand elasticities differ; lawful only within competition and consumer-protection rules and where resale can be restricted.

The practice of varying price and inventory availability by segment and time to maximise yield from perishable capacity, widely used in airlines, hotels, and event ticketing.

A structured, entity-wide process for identifying, assessing, prioritising, and responding to risks across strategic, operational, financial, and compliance categories, with defined appetite and reporting to the board.

A widely referenced model describing internal control as five components - control environment, risk assessment, control activities, information and communication, and monitoring - supporting reliable reporting, effective operations, and compliance.

A preventive control that separates authorisation, custody of assets, record keeping, and reconciliation among different people so that no single individual can both perpetrate and conceal an error or fraud.

A governance structure in which operational management owns risk, a risk and compliance function provides independent oversight, and internal audit gives independent assurance to the board and senior management.

A progression from descriptive reporting of what happened, through diagnostic and predictive modelling, to prescriptive recommendations, with each stage demanding better data quality, skills, and governance.

Statistical and machine-learning methods that estimate future outcomes such as demand, default, or churn from historical patterns, whose usefulness depends on data quality, model validation, and awareness of bias.

The presentation of quantitative information in charts, dashboards, or other graphics chosen to reveal patterns and comparisons quickly, while avoiding distortion through misleading scales or excessive decoration.

The tendency to let irrecoverable past spending influence a current decision, contrary to the relevant-cost principle, often visible when managers keep funding failing projects to justify earlier outlays.

The alignment of individual managers' incentives and decisions with the organisation's overall objectives, achieved through measure design, reward structures, and control mechanisms that discourage dysfunctional behaviour.