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CIMA P3 paper: time to toughen up

Maryla Stevenson offers some top advice on passing the extremely tough Risk Management paper

January 2016

• Pass rate: 47%
• Technical difficulty: 10/10
• Weighting of calculations: 0–10%
• Weighting of discursive elements: 90%
• Exam technique: 10/10

The syllabus:
The P3 syllabus builds on core knowledge that students have garnered from various earlier P and E papers. Although there are also new topics and techniques to learn, the application of the syllabus is virtually limitless. Under the new and old syllabus, P3 has always been an exam that has drawn heavily from examples of risk management in the real world. As a result, it is difficult to draw distinct boundaries around a subject area. Once a topic has been learnt, it is critical to think of how it affects real organisations.
P3 is broken down into five key areas:

A: Identification, classification and evaluation of risk (20%) Students of P3 will be familiar with the CIMA risk management cycle. This first area of the syllabus, effectively covers the first three parts of this cycle, from risk identification through to broad risk strategies using TARA. It also begins to look at what makes a good control system, such as understanding what ‘control environment’ is or what one would expect to see on a risk report.
Finally, the ethical dilemmas associated with risk management are evaluated.
While these topics are not hard for students to understand, their application can be difficult. For example, PQs may be given a lengthy scenario (a couple of paragraphs) that requires them to identify the three most significant risks, or suggest the most appropriate risk response. Students often find it difficult to ‘settle’ on an answer and are surprised by the number of questions they ‘flag’ (see below for more on this). Question practice is the key to becoming confident with such questions, on the day on the exam.

B: Responses to strategic risk (20%) This section of the syllabus is very broad:
• Business unit control including topics such as balanced scorecard, transfer pricing (which has moved from P2), lean systems, big data and all aspects of performance management systems (including performance related pay).
• The risks (and responses) regarding IT development and IT systems.
• The risks of unethical behaviour and applying CIMA’s Ethical Code.
• The risks associated with poor governance structures and how Corporate Governance Codes aim to reduce those risks.
Students will be familiar with many of the topics listed above from previous studies. However, it is likely that application to a scenario again will be required. For instance, it is not enough to know what the balanced scorecard is. Students may need to choose the four most appropriate measures suggested by an organisation implementing the balanced scorecard, that may help control performance against key objectives.

C: Internal controls to manage risk(20%) This syllabus area evaluates the appropriateness of control systems in managing the organisation, through looking at:
• Management accounting controls systems.
• How controls operate in the real world: HR, sales, warehouses, shops, treasury, IT, etc.
• Performance target setting.
• It also looks to evaluate the essential features of internal controls systems.
• The measures used to minimise fraud.
• The role of the risk manager.
• Purpose and features of good internal control systems in the achievement of the organisation’s objectives.
• The role of internal audit.
• The effectiveness of the internal audit process.
Students are most likely to get their worst score in this syllabus area (and not in financial risk as most expect!). Students do not tend to have “first-hand” experience in this area, especially audit.

D: Managing risks associated with cash flows (20%) This covers financial risk:
• Political financial risk.
• Credit risk.
• Interest rate risk.
• Currency risk.
This area of the syllabus can be technically difficult. However, students should not spend a disproportionate amount of time learning the calculations. Discursive questions in this syllabus area and the next, outweigh the number of numerical questions.

E: Managing risks associated with capital investment decisions (20%) This covers risks associated with capital investment appraisal:
• WACC.
• Certainly equivalents.
• Real options.
• Sensitivity analysis around project NPVs, for instance, what changes would make the project no longer financially viable.
• APV.
Although the above may involve calculations, this area of the syllabus includes discursive topics such as stakeholder conflict management and post completion audits.
Students should be familiar with the calculations new to them in this syllabus area. However, they should be equally prepared to get a question requiring an IRR or NPV calculations similar to ones they would have seen at P2.

Sitting the P3 exam:
The P3 exam, as with all the other exams at this level, is a mixture of multiple choice, multiple response and drag-and-drop style questions (among others). From student feedback, it would appear that a significant proportion of questions are ‘select all that apply’. Note that there should be no ‘fill-in-the-blank’ style questions where students are required to type in text.
Exam technique is critical to passing P3. So pay attention to the following advice when taking any CIMA OT exam:
• Read the scenario carefully.
• Read the instructions carefully.
• Timing – students need to remember that they have 1.5 minutes per question.
• Answer everything – there is no negative marking in the P3 exam.
• Study the entire syllabus – literally anything could form the basis of a question.
The P3 exam is almost a year old. Here are comments from students who have experienced the exam and passed:
“Be prepared to ‘flag’ a lot of questions”. This is a challenging exam – students have said they ‘flag’ about 10 questions before they come to the first they can answer confidently. Flagging questions shows you are doing your own bit of risk analysis and treatment! It is not a sign of weakness in your ability – it’s displaying your ability to make intelligent choices. View the questions like different sushi on offer on a conveyor belt in a restaurant – they will come around again and you can try again.
“Ensure you know the ‘wordy’ bits of the syllabus”. On average, students say they answer only eight questions requiring calculations.
“You will never know…” Students complain they do not feel a sense of ‘comfort’ in this exam, that they have got an answer right. From lower level exams, under the old system, they were able to justify their answer. This can no longer be done. Some are finding this disconcerting, stifling their ability to reach a decision on an answer. Having confidence to choose what you think is the most likely answer, and then to move on, is critical to passing. Students must practise exam questions and review the specimen paper carefully (several times) to develop this skill.
• Maryla Stevenson, P3 tutor, Kaplan Financial

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