Using Exam Variance Analysis to prepare for the CMA, CIA, and CPA Exams
This continues a series of posts that looks at preparing for an exam using some of the same concepts that you might study for the CMA, CPA, or CIA exams.
In management accounting, variance analysis is the process of looking at the differences between the actual and budgeted results for a period. Common uses of variance analysis are in manufacturing expenses, i.e. direct material, direct labor, and overhead. When teaching variance analysis, I emphasize that we should not ignore variances that are favorable (positive) because we should look to see what that department is doing differently that led to the positive variance.
Actual vs Expected (“budgeted”) Results
When preparing for an exam, we can look at the difference between an actual result and an expected (or “budgeted”) result with practice questions. We recommend for most exams that you should be getting at least 80 – 85% of practice questions correct in order to be ready for the exam. So, when you answer practice questions, you can measure your actual result against your “budgeted” result and analyze where you need further study.
Answering Practice Questions
When you are answering practice questions, you should pay attention to how well you know each topic and how easily you can answer the questions. There are different ways that you can achieve a “passing” score, and you are in the best position to know how you did it. What do I mean by that? Let us say that you answer 10 questions and your goal is to get at least 8 correct. When doing the questions, there are 6 questions that you know for sure, and four questions that you mostly guessed on. If you got lucky in your guessing, you might get 8 or 9 of the 10 questions correct. But, in reality, you really only knew 60% of the questions, and the 60% score is the one that really matters.
Therefore, when you look at your results on a quiz or mock exam, you, and only you, are in the best position to make an assessment of your knowledge. Candidates often ask us if they are ready for the exam based on a mock exam score. That is an impossible question for us to answer; we don’t know how many questions you got right because you knew the answer and how many you got right because you guessed. On a mock exam, there’s a big difference between scoring 90% with 10 lucky guesses (you are probably ready for the exam) and scoring 90% with 25 lucky guesses (you are probably not ready for the exam).
Assessing Your “Total Variance”
Being honest in your assessment of your “total variance” is one of the best things you can do while studying for the exam. What are some of the strategies you have used in assessing your true variance when reviewing practice questions?
Brian Hock, CMA, CIA
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CMA, CIA, and CPA Exam Preparation Using Exam Content: Capital Budgeting
This is the first in a series of posts that looks at preparing for an exam using some of the same concepts that you might study for the CMA, CPA, or CIA exams.
Capital budgeting is the process that a company goes through when it makes large capital investments or investments into long-term projects. As individuals, we do not have much need for capital budgeting, but one example of personal capital budgeting is the decision to pursue a professional certification.
Usually, when we make a decision to get a certification, we are focusing on the increased salary that we expect to receive as a result of having that certification. While that is obviously a great benefit (cash inflow), it is not the only element of capital budgeting that is part of this decision. There are also cash outflows associated with taking an exam.
When I teach capital budgeting, I always emphasize that we need to take into account the non-monetary qualitative factors (both positive and negative) involved in a decision. For example, how the project would impact employee morale, whether the project would have any public relations implications, and if the project is congruent with the company goals and objectives. These qualitative factors are difficult to put into an analysis but may be just as important as the quantitative factors (i.e. the cash).
Some of the cash outflows and qualitative considerations connected with pursuing a professional certification are:
- The cost of the exam registration fees, including any re-takes (CMA Exam Costs, CIA Exam Costs, CPA Exam Costs)
- The cost of study materials (CMA Study Materials, CIA Study Materials, CPA Study Materials)
- The amount of time that you will spend preparing, which is an opportunity cost because while you are studying you will not be spending time with your family, exercising, reading, sleeping, working another job, etc.
Some of the cash inflows and other qualitative benefits that you will receive include:
- The increase in your salary that is the direct result of gaining the certification
- An increase in respect and reputation within your organization
- An increase in confidence that comes with passing an internationally recognized professional exam.
The tools that a company uses to determine whether or not a project is beneficial include the payback method and the net present value method. Both of these can also be applied to making a decision about getting a professional certification.
Payback Method and Net Present Value
- Payback method. Based on the expected raise from gaining a certification, you can calculate how many years you will need to work to earn back the costs of taking the exam.
- Net present value. To calculate the net present value of a certification, you would need to determine a required rate of return. I am not sure how you would determine a required rate of return, but it could be based on how much you value your time. It would also be possible to calculate the Internal Rate of Return and see if that IRR is acceptable to you. But, however you calculate it, is the return acceptable to you?
Have you considered any other cash flows or qualitative factors in your decision to prepare for a professional certification? I’d be glad to hear from you in the comments about what they were.
Brian Hock, CMA, CIA
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In my twenty years of helping candidates pass their certification exams, I have come across many myths and misconceptions that can cause candidates to spend more time and/or more money than they need to. These myths are often perpetuated through the marketing that companies use to differentiate themselves from their competitors. Unfortunately, this marketing can be very misleading as you research the best materials to use to study.
Myth #1: More material means better material
There are not a lot of materials that you need to prepare properly; all you need is a way to learn and way to practice. Usually, this means a textbook (but can also include videos if the videos cover the entire syllabus) and practice questions from past exams. The quantity of pages, number of questions, hours of videos, etc. is not as important as whether or not that material is complete, relevant, and prepares you to pass the exams. You generally do not need multiple question banks, either, because the question banks from each provider are usually very similar, including the same previously-released exam questions.
Myth #2: More expensive material means better material
While it is usually true that “you get what you pay for,” it is true only if what you are paying for adds value for you. When a material provider pays to receive “status” from the examiner or has an affiliate agreement with another site that “recommends” them (more on this next), these are costs that are passed on to you but do not add any value. If someone “approves” or “recommends” certain materials, be certain to find out the criteria for that recommendation. Any non-quality-based recommendation adds no value to you.
Myth #3: Review comparison sites are really unbiased
For many professional exams, there are websites that claim to offer unbiased reviews of the different providers. What is not very well known is that most of these sites receive commissions from the material providers listed on them, meaning that the reviews are not objective. Usually, the company that is rated the highest is the one that pays the highest commission to the review site. On some sites this relationship is disclosed (though often not very prominently), but on many sites it is not disclosed at all.
As an example, one of the review sites for CMA materials used to list HOCK as their #1 provider with five stars. When the owner of the site asked HOCK to join an affiliate commission program but we chose not to participate, we lost 2 stars overnight and went from first place to third place in their rankings. The change had nothing to do with the materials, but rather the review site could make money recommending other providers who would pay a commission.
Besides the undisclosed financial relationship, these sites often have incorrect and/or outdated information because they write a review and then it sits online, unchanged sometimes for years. These sites also give no mechanism for the course providers to provide updated information or to respond to the reviews if there are inaccurate or incorrect statements.
You may have noticed that there are a lot of these review comparison sites for CMA, CPA, and CIA materials that do not include HOCK. This is usually because we refused to pay a commission to the person who runs the site. I am certain that we have lost business over the years because of this decision, but I also know that it has allowed us to keep our prices more affordable for you, because we do not need to include a 20% or 25% commission mark-up in our price. What you pay for HOCK materials goes to value-added activities, and not to expensive marketing relationships.
Myth #4: Pass rates are accurate and honest
Many course providers post a pass rate for candidates who use their materials. I have written about this in the past (https://www.hockinternational.com/why-pass-rates-useless-why-we-dont-publish-them/), but these pass rates mean almost nothing because there is no straightforward and consistent way to calculate them. Which candidates are included? Or excluded? How do we determine a “pass?”
For example, if a candidate buys materials from Provider X and fails, but after purchasing Provider Y materials they pass the exam, is that candidate a “pass” for Provider X, Provider Y, or both? Does Provider X still include the first failure in their pass rate? Provider X could claim a 100% pass rate for that one student because they eventually did pass, but a 50% pass rate would be more accurate and honest.
Or, if a candidate uses materials from three providers and passes on their first attempt, who claims that “pass?” One way that you can see the inaccuracy of pass rates is by looking at all of the providers who publish pass rates. Every company claims a pass rate that is significantly higher than the exam’s published pass rate by the examining body. If these claimed pass rates were true, the real pass rate for the exam would as high as the claims made by the providers.
Myth #5: You must attend a class
For many years I taught live classes, and I know that a good class can be very helpful. However, the materials that a company sells should be sufficient to pass the exam with self-study. If you are going to study in a classroom, please make certain that the class will be value-added. See this post that I wrote previously listing some questions you should ask a classroom provider (https://www.hockinternational.com/questions-live-taught-classes/).
In addition, pay attention to the number of hours in the class. Some classes (including online classes) can include a large number of hours of instruction, which may be used to “justify” a higher price. No matter how good the teacher is, however, you need to spend time yourself studying and practicing questions. Not all of your study hours need to be instructor-led and if the class goes on too long, you are not getting any value from many of those hours.
For the CMA exam, both HOCK and the ICMA recommend 150 hours of study per part, and our videos are currently only 24 hours for Part 1 and 25 hours for Part 2. I have been teaching CMA since 2000 and we use those videos as the basis for our “You Pass or We Pay Guarantee.” If I am able to teach the content that you need in 25 hours per part, you do not need to be in a classroom for 100 hours per part.
Myth #6: Personal counselors are personal and needed
Some companies offer a personal counselor or similar service. While this sounds good, we believe that personal counselors are of limited added value to your studies. There is a specific syllabus for the exam, and every candidate must learn the material on the syllabus. You are able to determine in what areas you need additional study by looking at the statistics in your practice questions. If you have 94% for a topic, you know that topic well. If you have 43% for a topic, you do not know that topic well and you need to keep studying it. Maybe the counselor helps keep you motivated because they contact you every one or two weeks, but a good study plan can also keep you keep on track.
Besides statistics, only you know how well you understand a topic, regardless of the statistics. Are you guessing on the questions a lot? Are you confident in your knowledge as you read questions and answer them? Those are indicators about your preparedness that only you know. The counselor can’t tell you what your understanding and confidence level is.
In the end, interacting with a personal counselor adds time to your study process because the time you take talking to them or trying to meet specific administrative reporting tasks is time that you could be studying and learning the material instead.
Myth #7: There are shortcuts to passing the exam
Occasionally, a company will claim to have materials that reduce the time that you need to spend studying or have a shortcut to focus on “the right topics” for the exam. While that would be nice, there are no shortcuts! There is a syllabus for the exam and you need to learn all of it. Some common shortcuts include mnemonic devices or memory tricks, which may seem like they are working when you practice with questions that you become familiar with in the practice software, but on the exam you will have questions that you have never seen before. If you have only memorized a handful of key terms or phrases, you will not be able to answer questions on the exam that are different than the practice questions.
Using such shortcuts may reduce the amount of time you spend preparing for your first attempt on the exam, but you will spend the full amount of time later when you need to prepare to take the exam again. Not only do the shortcuts not save you any time, they cost you money as well when you don’t pass on the first attempt.
I hope that it is not too late for you to avoid some of these myths and misconceptions that could make your studies more expensive or take more time than necessary. You won’t find any shortcuts or marketing gimmicks at HOCK; instead, we will prepare you effectively and efficiently to pass the exams on your first attempt with comprehensive materials and support that give you all of the tools that you need – no more, and no less.
Brian Hock, CMA, CIA
In this video, HOCK international President Brian Hock offers some tips for how to set up a study schedule for effective and efficient studying.
Some of the suggestions discussed in the video include:
- Set aside time when studying is the only thing you do.
- Make studying a priority in your schedule.
- Study at a time of the day when you are alert and focused.
- Use smaller blocks of time for studying rather than longer blocks.
There is one question that you must be able to answer correctly in order to pass a professional exam. If you can answer this question correctly, you will pass the exam. If you cannot answer this question correctly, it is very unlikely that you will pass. Watch the video to find out the question!
So, before you start preparing for any question that is going to be on the exam, make certain you can first answer the question of why you are studying. Why are you studying?
Recently a number of candidates have been contacting us because they have been having trouble staying motivated with their studies because they do not know when they will be able to take their exam. Here is a recent email that we received:
“I have been preparing to take the CIA Part 1 exam. However, due to the current coronavirus situation and the delay that it has caused, I have lost some motivation to study. Given the current situation, I would like to know what I can do to stay motivated when I do not know when I will be able to take the exam.”
Watch the video to see what Brian Hock is recommending to do.
We have written several exam tips about creating a study schedule and the importance of following your schedule, both in terms of studying when you’re supposed to and also knowing that there are times when it is OK not to be studying. No matter how good your plan is and how dedicated you are to your studies, every once in a while there will be a day or event that requires an exception to your study schedule. Here are some examples:
- After months of cold weather, it is finally a beautiful Spring day and your friends are all going to the concert in the park.
- Your new smartphone that you ordered has arrived and you want to get it set up and try all the new features.
- One of your family members just had a baby and everyone in your family is going to visit.
- Your favorite movie series just came out with a new movie.
On days like these, don’t waste your time trying to study when you know studying won’t be effective. Instead, spend a short amount of time doing practice questions or flash cards, find a time in the next couple of days to make up the time, and then go enjoy yourself. You will be much happier and your studies will be a lot more productive.
Of course, every day should not be an exception, but when you’re studying for several months there will be a few times when you adjustments are necessary. Enjoy your special event and then come back to your studies the next day when you can be focused on learning instead of wishing you were somewhere else.
Once you have made the decision to study for the CMA or CIA exam and received your materials, it is easy to be overwhelmed by the amount of information that you need to learn. This makes the question “How should I study?” an important question.
Understand the goal
Remember that your main goal is to pass the exam. To achieve that goal, there is a syllabus of material that you need to learn. The syllabus tells you what you need to study, and by process of elimination, what you do not need to study. You should not get distracted by reading outside of the textbook or searching for other sources that are not written specifically for the exam you are studying.
The two main study tips that I offer for preparing for an exam are:
- Remember that preparing to pass the exam is a marathon, not a sprint. This means that you need to have a long-term plan when you start studying. You should plan on studying 1-2 hours at a time, three to five times a week, for several months. It is OK if you miss one session occasionally.
- Making a specific study schedule will help reduce the stress of the study process. Without a schedule, you always have studying hanging over your head. If you know that you will study Tuesday evening, Thursday evening, Friday morning and Sunday afternoon, it makes it a lot easier for you the rest of the time because you know that it is OK to not be studying.
How many hours do I need to study?
The not very helpful answer to how many hours you need to study is that you need to study “enough.” How much is enough is determined by several factors:
- Your experience in the areas that are being tested.
- Your education in the areas being tested.
- Your level of fluency in English.
- How well you study when you study.
- What preparation materials you use.
As a general starting point, most people need to study around 120-150 hours per part for the CMA Exams, and about 60-80 hours for CIA Part 1, 50-70 hours for CIA Part 2, and 120-140 hours for CIA Part 3.
The most important thing you can do to prepare for the exam is to study! Having a schedule will, by itself, not help you pass the exam. Reading motivational quotes and books will not help you pass the exam. You must actually have productive and quality study time, and reading the book and watching TV at the same time does not count.
If you have our Textbook, Questions, and Videos, this is how I would study:
- Skim through the textbook for a topic and look at the main points and examples.
- Watch the video(s) about this topic.
- Do the practice questions in ExamSuccess for this topic.
- If you are uncertain about any particular concept within this topic, read the detail that is in the textbook to help you understand the topic and/or re-watch the video(s).
- Ask us questions! If there is something that you do not understand, ask us. We are here to help you and we can almost always help you more quickly than you can figure out an answer yourself.
- After you understand the topic and can answer the questions, you should start using the flash cards. This will put that topic’s cards into rotation so that you can review the topic on an ongoing basis as you continue into the next topics.
If you do not have the videos, replace step #2 with carefully reading the textbook and working through all of the examples and questions in the book.
Do I need the Videos?
The short answer is that no, you do not need the videos to pass the exam. Many people prepare successfully without the videos. While we think that the videos make your studying more efficient (and perhaps more enjoyable), all of the information in the videos is also in the textbook. What the videos do is to bring my many years of teaching experience directly to you, making the topics much more alive than you just reading out of the book. If you have not yet watched a sample of the videos on our web site, I would encourage you to do so. You will see that our videos are dynamic learning tools that bring the topics to life, helping you learn and understand the materials more than other exam prep videos on the market.
Reviewing – a critical step
Any one individual topic on the exam is not difficult by itself. If you could study one topic and have a test over just that topic, you could do very well on each test. Some of the difficulty on any professional exam is the amount of materials that you need to retain at the same time. You have to remember everything you study, starting from the first day through the last day, which is likely several months later.
In order to help you retain information as you move through the materials, you should:
- Use the flash cards on an ongoing basis as you move through the material.
- Spend 30-60 minutes every week reviewing 15-25 ExamSuccess questions from topics you have already completed.
How do I know when I have studied enough?
While it can be difficult to know when you have studied enough, some things you can consider when you assess your readiness for the exam are:
- When you are answering questions, do you confidently know what the answer is, or are you sort of guessing or hoping that you’ll get it correct?
- Can you explain why the incorrect answers are incorrect?
- When you go through the flash cards, are you able to answer each question quickly and correctly?
- Were you able to score at least 80% on the mock exam?
What should I do the last few weeks before the exam?
After you have spent several months studying, you may get to the point where you have studied everything and there are still 2-3 weeks before your exam. For the last few weeks before the exam, I recommend that you:
- Continue using the flash cards
- Practice multiple-choice questions from all of the topics on the exam. By this time you may have done some of the questions a few times, so you may have partially memorized some of the answers. To make reviewing these questions worthwhile, you can a) make certain that you understand why the incorrect answers are incorrect, and b) think about what could be added or changed that would make the question more difficult, and how you would solve that more difficult question.
- Skim through the textbook and look at the main topics and the examples. For the examples, read through them and make certain that you understand not only what is being done, but also why it is being done.
- Relax! I know it is difficult when the exam is getting closer and closer, but you will perform better on the exam if you are well rested. This means that you need to be certain to sleep enough for the three nights before the exam and eat well so that you are not hungry during the exam. If you exercise regularly or have a hobby that you enjoy doing, continue to do them even during your last weeks of preparation.
On exam day
Finally, here are some tips for the day of your exam.
- Be sure to get a good night’s rest the night before your exam. Eat and drink enough so that you will not be hungry or thirsty during your exam.
- Allow plenty of extra time to travel to your testing site – there are no excuses for a flat tire, the bus being late, or bad traffic. It is much better to arrive early and be calm than end up having to rush in with stress from traveling.
- Because the test center could be warmer or cooler than you might expect, dress in layers so that you can adjust what you are wearing to be comfortable.
- Watch the tutorial at the beginning of your test session to be certain that you know how the exam computer works and that your keyboard and mouse work properly.
- After all of your months of preparation, remember that you are prepared to pass the exam. It is time for you to relax and answer the questions calmly and efficiently using the knowledge that you learned during your studies.
If you have any questions while you are studying with HOCK, please do not hesitate to contact us – we are here to help.
We all know that as we gain experience at work, our work becomes easier and we are able to perform our tasks more efficiently. Just as experience contributes to our success at work, experience also contributes to our success on an exam. This does not mean taking an exam just to take it and fail it; there are other ways experience can help you pass an exam.
1. Your experience with the topics on the exam
While most candidates want to pass exams as quickly as possible, you still need to spend time preparing for the exam. Even if you have significant experience with the topics that are on the exam, you still need to spend time learning how these topics are tested. A very good example of this is ratio analysis, because different companies may calculate the same ratio in different ways. What is included in “income” for ratios that use income? What is included as the amount of “investment” in the ROI calculation? As you can see, even if you have a lot of experience with ratios, you still need to learn how the ratios are calculated for the exam.
Additionally, some topics that are new require time to “settle” in our minds. For example, many candidates have difficulty with internal controls on the CMA exam. There are no formulas and no calculations, but there a lot of key ideas that can be applied to any part of a business. For internal controls, I advise candidates spend a bit of time each day going slowly the textbook and questions. You will be able to understand and retain a lot more by studying internal controls one hour a day for seven days than by studying five hours a day for two days.
2. Your experience answering questions
If you were to take a 100-question mock exam before you start studying, you would probably miss 15-20 questions just because you did not read the question correctly. As you practice answering past exam questions, you can be certain that you will be able to read and understand questions correctly on the exam. You will know to look for and how to react to words like “always,” “never,” “most likely,” and other similar phrases. It is much better that you go through that learning curve while you are doing practice questions than while taking your exam.
3. The experience of your teacher and/or materials provider
In the same way that you benefit from experience on the job or while studying, materials providers also benefit from experience, and that experience is something that good providers can pass on to you. The more a provider interacts with students, the more they know what topics are usually challenging. The more feedback that they have from students, the better the provider knows what changes need to be made to their materials and their classes so that they better prepare candidates for the exam.
For live-taught classes, the more experience that a teacher has preparing students for the exam, the more effective their classes will be. A teacher with a lot of real-world experience may not be able to effectively teach a course for an exam, because they could over-emphasize topics familiar to them or skip over topics that they are not as comfortable with. You want to be certain that the people who are helping you prepare for an exam are experienced in helping candidates pass that exam.
At HOCK, all we do is help people pass exams. Our team members are 100% working on exam-related issues – whether it writing, editing, or improving the materials, or answering your questions; everything we do is focused on helping you pass your exams!
In summary, while it is natural to want to take the exam as quickly as possible, you need to be certain that you spend the necessary time to get the experience needed – from studying, from answering questions, and from your materials or course provider – to pass the exam.
Brian Hock, CMA, CIA
The Theory of Constraints addresses the issue that, in any process, there is a step that has a lower capacity than the others. No matter how many units are produced in the other steps, the process is always limited by the step with the lowest capacity. Therefore, when planning a process it is important to make certain that the slowest step will be able to produce quickly enough to meet the production schedule.
I can also apply this concept to my classes. Every class will have one student who is the weakest. As the teacher, I need to identify and work individually with that student, after which there will then be a different weakest student. I need to keep identifying the weakest students and working with them until the weakest student in the class is going to pass the exam. If the weakest student will pass the exam, then the group pass rate will be 100%, which is always my goal.
This same idea can also be applied to preparing for an exam outside of a class. When you are studying, you need to work so that you know 70% of your weakest topic. If there is a topic you don’t know at least 70% of, go back and study it again, until there is another weakest topic. Then study that topic. When you know at least 70% of every topic, and some topics at 80% or more, you are ready to pass your exam.
Remember that you do not need to know everything about every topic that is covered on the exam; knowing everything is simply unrealistic. But, what you need to do is make certain that your understanding of your weaker topics is enough to allow you to pass. Furthermore, it is not possible for every topic on the syllabus to be tested. This means that you can occasionally take a small topic and just accept that you will not know it. Of course, you can’t say that about 25% of the exam topics and still expect to pass.
When you have a topic that is difficult for you, try to identify the main and/or basic elements of that topic. Looking at the past exam questions will help you see what has been tested in the past. Make certain that you are able to get the basic questions correct, even if some of the advanced elements are unclear to you.
For exams that have essays or problems on them, it is critical that you know at least enough to get some points on each problem. You never want to get a 0 on an essay or problem, even if it is only 5% of the exam. Every point counts, so even getting a couple of points out of five on one problem could be the difference between passing and failing the exam. Even for complicated topics, you can usually get partial credit for showing a basic understanding of the concepts or process being tested.
If you have used a similar method in your studies, please feel free share your strategies in the comments. I hope that you will be able to use the Theory of Constraints and similar strategies to help you prepare to pass your exams!
Brian Hock, CMA, CIA