Management Accounting: Performance, Capital Investment at Almarai

This report analyzes the performance management tools and capital investment appraisal techniques employed by Almarai, a large global food and beverage company. It begins by discussing various performance management tools, including Key Performance Indicators (KPIs), performance appraisals, 360-degree feedback, Management by Objectives (MBO), the Balanced Scorecard, and reward/recognition programs, as well as personal development plans, evaluating their pros and cons in the context of Almarai. The report then shifts to capital investment appraisal, examining techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), and Payback Period, detailing their methodologies, advantages, and disadvantages in assessing the fiscal viability of business proposals. The report provides a comprehensive overview of financial and performance management strategies relevant to large corporations like Almarai, offering insights into decision-making processes and strategic planning.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Assessment Task 3.....................................................................................................................2
Assessment Task 4.....................................................................................................................4
References..................................................................................................................................8

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Assessment Task 3
The following discussion shows different types of performance management tools and
techniques that can be deployed in large business organizations like Almarai for the
evaluation of their sustainability across a range of businesses and economic environments:
KPI and Metrics – Key Performance Measures (KPI) and metrics provides the Almarai with
the way of measuring the extent to which the companies, business units, projects or
individuals are performing in accordance with their strategic objectives and goals. This helps
in accurate performance conversations on the basis of the data along with better
organizational process to make decisions. Well-developed KPIs are considered as vital for
providing clearer picture on current performance level of the company (Kerzner2017). There
are certain pros and cons of KPI and metrics that Almarai needs to consider. KPI and metrics
provide large companies with accurate results of performance measurement in the form of
statistics, numbers and metrics. It also aligns everyone with the organizational goals. In case
of cons, this can only be used for short-term goals since it is not acceptable for long-term
goals.
Performance Appraisal – Beside KPIs, performance appraisal can be considered as the most
widely used tool to measure and manage performance in Almarai. In case the managements
of Almarai is able in using this method properly, this is an extremely powerful tool that aligns
the individual goals with organizational strategic objectives. Its major advantage is that it
provides a document of organizational performance for a specific time while the higher
management gets the chance to provide feedback on performance measured. This motivates
the whole organization. It has certain disadvantages since this can create negative experience
in case it is not done properly. It is a time consuming matter.

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360 Degree Feedback – This is a major tool to measure performance that provides the
insight on the present performance of the employees of Almarai. Individuals can obtain the
wide performance appraisal based on the view of senior management, supervisors, peers,
customers and others. This involves confidentially tallying individual performance and
presented to the senior managers or supervisors (Espinilla et al.2013). Its main advantage is
that this method provides the employees with an effective self awareness about their strengths
and weaknesses that motivates them in achieving the individual and organizational
objectives. This also identifies the training gaps of the employees. In case of disadvantages,
there can be much resentment in the team in case the feedback received is negative. This also
puts too much focus on employee weaknesses that is a major con (Espinilla et al.2013).
Management by Objective (MBO) – This is the procedure to define detailed objectives in
order to set out the processes to achieve every individual objective. This is appropriate for the
business organizations like Almarai where work needs to done on every step basis at a time.
This is an effective way of creating culture of work to achieve the common goals. This leads
to effective face to face communication between the employees and managers while this is
largely helpful in bringing improvement in management. At the same time, it needs to
mention that MBO is a difficult as well as time consuming matter that requires too much
paperwork. Moreover, that is a possibility that poor judgment is made in achieving
organizational objectives.
Balanced Scorecard – In the absence of any doubt, one of the most popular performance
management framework that Almarai can implement is the Balanced Scorecard (BSC). This
is a key strategy employment instrument that can help Almarai in monitoring progress
through measuring to what degree the organizational objectives have been achieved, in
clarifying organizational strategy while effective communicating of the priorities and
business objectives and in defining as well as managing the action plans for ensuring

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initiative are in place to achieve the business objectives (Hansen and Schaltegger2016). The
main advantage is that this will provide Almarai with the required structure to develop the
whole organizational strategy while making easy to make communication of these strategies.
This creates an alignment between the departments and divisions. However, balanced
scorecard is not so much effective in the absence of strong leadership. Sometimes this may
appear to be a rigid manner to manage organizational performance (Hansen and
Schaltegger2016).
Reward and Recognition Programmes – This can be considered as an important
programme and part of Almarai’s performance management program that helps to develop a
technique to rejoice the employees with high performance. This can be financial rewards such
as bonus and other recognition programs. This leads to continuous improvement in the
individual as well as organizational performance, while employees who do not get this may
become highly de-motivated.
Personal Development Plans – This is considered as an effective tailored action plan on the
basis of the awareness and reflection of individual’s performance and needs along with
developing future performance goals for supporting personal development. Almarai can use
this for identifying specific training needs so that the required action plans can be developed
in order to meet those goals (Eiseleet al.2013). This provides the opportunity to manager self-
benefits and personal growth since the employees become able in evaluating their
performance in every field of life. However, sometimes this can lead to lack of objectivity as
well as awareness (Eiseleet al.2013).
Assessment Task 4
For the purpose of appraising capital investment of the business plan in Almarai, four
types of investment appraisal techniques can be used; they are Net Present Value (NPV),

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Internal Rate of Return (IRR), Profitability Index (PI) and Payback Period. These are
discussed below in detailed manner.
NPV – Wealth creation with the assistance of present and future resources for the production
of goods and service is the primary objective of the companies and therefore, cash inflows
require to surpass the present value of all expected cash flows. NPV is achieved through
discounting all cash outflows as well as inflows characteristically to capital investment
projects by a selected percentage (Žižlavský2014). The utilized discount rates are the
weighted average cost of capital (WACC). A positive NPV indicates that a return that is
higher than the financing costs is generated by the capital investment project; and this leads
to the increase in shareholder’s wealth. A negative NPV implies that Almarai should not
undertake the project as the return is lower than the funding cost (Žižlavský2014). The main
advantage of NPV is its ability to consider the basic fact that the future value of money is
lower than today’s value of money. In every period, another period’s capital costs discount
the cash flows. Another advantage is its ability to take into account the inherent risk and cost
of capital while projecting the upcoming. The key drawback is the presence of some
presumption related to a company’s cost of capital. Too low cost of capital supposition can
lead to gross investments while too high cost of capital supposition can lead to skipping good
investments (Žižlavský2014).
IRR – This technique is very similar to the NPV techniques and it involves in discounting the
capital investment project’s cash flows. But, this method involves in discounting the cash
flows twice. IRR can be referred as percentage discount rate that is utilized in the appraisal of
capital investment and this makes the project and its future cash inflows equal
(SzűcsnéMarkovics2016). The derived IRR is a percentage that can be considered as the rate
of return of the capital investment project. Then, this can be compared to the WACC of the
company for assessing the viability of the project. For accepting the project, it is needed to

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surpass the WACC of the project by the IRR (SzűcsnéMarkovics2016). In case of advantage,
IRR contemplates the time value of money and there is not any difficulty to understand and
visualize it by the supervisors. There is not any requirement in it to discover the required rate
of return while managers can make rough estimation about required rate of return. In case of
cons, it needs to mention that IRR ignores the economies of scale while impractical implicit
assumptions are used in it. This ignores the mutually exclusive projects while it has major
dependency on continuous projects (SzűcsnéMarkovics2016).
PI – The main use of this technique can be seen for the assessment of capital spending
chances in the profitability index. PI can be considered as an expected upcoming cash
inflow’s present value divided by the initial investment (Lane and Rosewall2015). This
method is widely used for evaluating a capital investment projects on the basis of the
calculation of the value per unit of investment (Lane and Rosewall2015). The only aspect that
differentiates both NPV and PI is that NPV method deducts the initial investment from the
projected cash inflows but the initial outlay is utilized as a divisor in case of PI. In general,
the capital investment project is acceptable in case the PI value is greater than 1 (Lane and
Rosewall2015). In case of advantages, PI considers the time value of money as well as
examination of all cash flows of whole life. This determines the precise rate of return of a
project; and this leads to right results in the presence of different investments of projects. In
case of cons, it is not easy to comprehend interest rate or discount rate in PI while it is not
easy to compute the profitability index of two projects of dissimilar useful lives (Lane and
Rosewall2015).
Payback Period – This is the simplest method for capital investment appraisal and it helps in
providing a length of time (Lane and Rosewall2015). Payback period is the time that a capital
investment project takes for generating sufficient cash inflows to break even as well as
recover the required cash outlay for initiating the project(Lane and Rosewall2015). The main

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advantage of this technique is that it is very easy to both calculate and comprehend because
people with no financial background can understand this. It needs to be mentioned that the
payback period is typically shown in years that it considers the cash inflows from the capital
investment project for equalling the cash outflows (Lane and Rosewall2015). Simplicity is
considered as the major advantage of payback period because several projects can be easily
compared in this that creates the scope to consider the project with shortest payback time.
However, this does not consider the time value of money while ignores the profitability of the
projects. Payback period also does not take into account the return on investments of the
projects (Lane and Rosewall2015).

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References
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Eisele, L., Grohnert, T., Beausaert, S. and Segers, M., 2013. Employee motivation for
personal development plan effectiveness. European Journal of Training and
Development, 37(6), pp.527-543.
Espinilla, M., de Andrés, R., Martínez, F.J. and Martínez, L., 2013. A 360-degree
performance appraisal model dealing with heterogeneous information and dependent
criteria. Information Sciences, 222, pp.459-471.
Hansen, E.G. and Schaltegger, S., 2016. The sustainability balanced scorecard: A systematic
review of architectures. Journal of Business Ethics, 133(2), pp.193-221.
Kerzner, H., 2017. Project management metrics, KPIs, and dashboards: a guide to measuring
and monitoring project performance. John Wiley & Sons.
Lane, K. and Rosewall, T., 2015. Firms’ investment decisions and interest rates. Firms’
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Australia 39, p.1.
SzűcsnéMarkovics, K., 2016. Capital budgeting methods used in some European countries
and in the United States. Universal Journal of Management, 4(6), pp.348-360.
Žižlavský, O., 2014. Net present value approach: method for economic assessment of
innovation projects. Procedia-Social and Behavioral Sciences, 156, pp.506-512.