The RRR Group (RRR) provides roof repair, refurbishment and renewalservices to individual customers on a nationwide basis. RRR operates alarge number of regional divisions, each of which offers a similar rangeof services.

RRR expects divisional management to prepare its own annual budgetby focusing on the achievement of a net profit figure set at grouplevel. This budget is currently used for planning and reporting.

Table A shows actual results for Alpha division for the yearsending 30 November 20X7 and 30 November 20X8, together with datarepresenting an average of a number of similar competitor companydivisions.

RRR has given Alpha division a budgeted profit requirement of $20mfor the year to 30 November 20X9. The management of Alpha division hasprepared the strategy shown in Table B as the framework for theachievement of the budget profit requirement for the year to 30 November20X9.

RRR plc has, however, decided that in line with current 'beyondbudgeting' philosophy, each division should follow a number of adaptiveprocesses including the following:

(1)Setting 'stretch goals' aimed at relative improvement and avoiding dysfunctional decision-making.

(2)Evaluation and rewards at each division based on relative improvement contracts (with hindsight).

(3)Action planning that focuses on a strategy to achieve continuous value creation for the group.

As an incentive to the overall achievement of goals and thecreation of 'value', a set of KPI's (key performance indicators) will beintroduced in 20X9 and used on the basis of the data in Table C.

Divisional staff will be paid a bonus as a percentage of salarybased on the overall weighted percentage score deduced from the analysisas per table C.

Required:

(a)Evaluate the extent to which the budget ofAlpha division for the year ending 30 November 20X9 is achievable andconsistent with the 'beyond budgeting' philosophy detailed above.

Note: Your answer should include specific examples from the data contained in the question to illustrate your discussion.

(14 marks)

(b)Apply the KPI performance appraisal processshown and explained in Table C, using actual data for 20X7 and 20X8 inorder to show the bonus (as a % of salary) that would have been achievedby Alpha division for the year ending 30 November 20X8;

(12 marks)

(c)Discuss potential benefits that may bederived from the application of the KPI appraisal and bonus approach,both for Alpha division and throughout the RRR Group.

(4 marks)