Q1c Dec 2010

Dear P5 Tutor,

I found the model answer sound confusing to me.

Dec 2010 Q1c,
For each of the two critical success factors given in the question, identify two performance indicators (PIs)
that could support measurement of their achievement and explain why each PI is relevant to the CSF.

Profitability in operations – performance indicators are:
– Industry average margin – collect data on competitor companies to set an appropriate benchmark. This will require care
to ensure that appropriate comparator companies are chosen, for example, those with a production budget similar to
FP’s of $18 million per film.
– Costs – the costs should be broken down into categories such as those for artists, production technicians and marketing. The cost structure for each film should be compared internally, to others that FP produces and also externally, to available figures for the industry.

Both PI mentioned above seem do not explain why they are relevant to the CSF which is profitability.
Here is my answer.
– Industry average margin- FP should compare their profit margin with industry average. If FP margin is below industry average, actions need to be taken to improve the margin in order to strengthen its profitability

– Costs – Profit is derived from revenue minus cost. The lower the cost, the higher the profitability. Cost control or cost reduction are important to strengthen its profitability.

Please correct me and suggest better answer if possible.
Thanks a lot.