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ACCT 102 Management Accounting

Objectives • Understanding the objectives and basic structure of a balanced scorecard • Able to
Objectives
• Understanding the objectives and basic
structure of a balanced scorecard
• Able to create a meaningful and value-
adding balanced scorecard
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The Balanced Scorecard Performance measures are based on four perspectives: • Financial • Customer •
The Balanced Scorecard
Performance measures are based on four perspectives:
• Financial
• Customer
• Internal business process
• Learning and growth
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October 2011

The Balanced Scorecard • A balanced scorecard is a performance measurement and reporting system that
The Balanced Scorecard
• A balanced scorecard is a
performance measurement and
reporting system that strikes a balance
between financial and operating
measures, links performance to
rewards, and gives explicit recognition
to the diversity of organizational goals
e.g. Missions and Vision.
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The Balanced Scorecard Examples of Performance Measures: • Financial: profits, cash flows, return on investment,
The Balanced Scorecard
Examples of Performance Measures:
Financial: profits, cash flows, return on investment,
Economic Value Added (EVA)
Customer: customer satisfaction, customer retention,
market share, new customers
Internal: quality, response time, process efficiency,
new product development, cost management
Learning and growth: employee satisfaction/morale,
employee retention, employee productivity
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ACCT 102 Management Accounting

The Balanced Scorecard • Financial performance measures capture financial impact of current and past decisions
The Balanced Scorecard
Financial performance measures capture
financial impact of current and past
decisions
Non-financial performance measures may
be leading indicators of future financial
performance
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Exhibit The Balanced Scorecard Auto Manufacturer (e.g. Jaguar and Land Rover) 10-13 Profit Financial Contribution
Exhibit
The Balanced Scorecard
Auto Manufacturer (e.g. Jaguar and Land Rover)
10-13
Profit
Financial
Contribution per car
Number of cars sold
Customer
Customer satisfaction
with options
Internal
Number of
Time to
Business
options available
install option
Processes
Learning
and Growth
Employee skills in
installing options
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October 2011

The Balanced Scorecard: From Strategy to Performance Measures Performance Measures Financial Has our financial
The Balanced Scorecard: From
Strategy to Performance Measures
Performance Measures
Financial
Has our financial
performance improved?
What are our
financial goals?
Customer
Do customers recognize that
we are delivering more value?
What customers do
we want to serve and
how are we going to
win and retain them?
Vision
and
Strategy
Internal Business Processes
Have we improved key business processes
so that we can deliver more value to
customers?
What internal busi-
ness processes are
critical to providing
value to customers?
Learning and Growth
Are we maintaining our ability
6 to change and improve?
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The Balanced Scorecard Auto Manufacturer (e.g. Jaguar and Land Rover) Profit Contribution per car Number
The Balanced Scorecard
Auto Manufacturer (e.g. Jaguar and Land Rover)
Profit
Contribution per car
Number of cars sold
Results
Customer satisfaction
with options
Satisfaction
Increases
Strategies
Increase
Number of
Time to
Time
Options
options available
install option
Decreases
Increase
Skills
Employee skills in
installing options
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ACCT 102 Management Accounting

The Balanced Scorecard Auto Manufacturer (e.g. Jaguar and Land Rover) Profit Contribution per car Results
The Balanced Scorecard
Auto Manufacturer (e.g. Jaguar and Land Rover)
Profit
Contribution per car
Results
Cars sold
Number of cars sold
Increase
Customer satisfaction
with options
Satisfaction
Increases
Number of
Time to
options available
install option
Employee skills in
installing options
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The Balanced Scorecard Auto Manufacturer (e.g. Jaguar and Land Rover) Results Profit Profits Increase If
The Balanced Scorecard
Auto Manufacturer (e.g. Jaguar and Land Rover)
Results
Profit
Profits
Increase
If number
of cars sold
and contribution
per car increase,
profits
increase.
Contribution per car
Contribution
Increases
Cars Sold
Number of cars sold
Increases
Customer satisfaction
with options
Number of
Time to
options available
install option
Employee skills in
installing options
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October 2011

The Balanced Scorecard Auto Manufacturer (e.g. Jaguar and Land Rover) Profit Results Contribution per car
The Balanced Scorecard
Auto Manufacturer (e.g. Jaguar and Land Rover)
Profit
Results
Contribution per car
Contribution
Increases
Number of cars sold
Customer satisfaction
with options
Satisfaction
Increases
Number of
Time to
Time
options available
install option
Decreases
Employee skills in
installing options
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Key Performance Indicators for a Balanced Scorecard Key performance indicators (KPIs) should address • Missions
Key Performance Indicators for a
Balanced Scorecard
Key performance indicators (KPIs) should address
• Missions and Vision of the organization
• Management principles and objectives (i.e. Execution of
strategy)
• Critical success factors of the organization and operations
• Key objectives of the subsidiary/division/department/employee
• Balance of lead and lag measures (i.e. measures that lead to
future success and measures that reflect historical
performance)
Number of KPI s should be kept at a controllable number.

ACCT 102 Management Accounting

Summary of the Measures and Their Purposes Internal Business Learning & Financial Customer Process Growth
Summary of the Measures and Their Purposes
Internal
Business
Learning &
Financial
Customer
Process
Growth
Performance Measures
F1
F2
C1
C2
IBP1
IBP2
LG1
LG2
Objectives / Critical Success Factors
Employee Satisfaction **
Customer Satisfaction **
Innovative Products **
Profitable Growth
Focus on delivery of quality
products to valued customers
Responsibilities to Society
Quality
Response Time
Cost
Sales Growth **
** = Also a critical success factor
F1 = residual income (or EVA TM ) Improvement
F2 = sales growth
C1 = turnover percentage from key customers
C2 = percentage of delivery accuracy
IBP1 = production defect rate
IBP2 = percentage goods returned to sales
LG1 = employee productivity
LG2 = employee satisfaction index
Division’s
Critical
Management
Missions
Objective
Factors
Principles
& Vision
Some Performance Indicators (Details of the following measures are not required in the exam. They
Some Performance Indicators
(Details of the following measures are not required in the exam. They
may be useful for your future work )
Financial
• Economic Value Added (EVA)
• EVA = NOPAT – WACC x Capital Employed
NOPAT = Net Operating Profit After Taxes
WACC = Weighted Average Cost of Capital
Capital Employed = Equity + Long term Debts
• Earning Before Interest, Tax, Depreciation & Amortisation
(EBITDA)
• A proximity measure of cash generation from operation
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October 2011

A Balanced Scorecard Example for a Business Division of a Media Product Manufacturer Mea sures
A Balanced Scorecard Example for a Business Division of a Media Product Manufacturer
Mea sures
Ta rgets
Review
Objectives
Frequency
Financial
F1
EVA improvement
Th is year’s E VA – Pre vious year ' s E VA
15%
Annually
Pre vi ous year ' s EVA
Profitability
and effective
use of funds
F2
Sales growth
Th is yea r’s sales d ollar – P revious year ' sal es d ollar
P reviou s year ' sales d ollar
15%
Annually
Sales growth
Custo mer
C1
Turnover
percentage fro m
key customers
Loss o f number o f custo mers with ann ual
revenue of more than $10 m.
0%
Frequently
Quality of
(Minimum
products and
Quarterly)
services
Customer
satisfactio n
Sales and
marketing
effort
C2
Delivery accuracy
O
n-time delivery per order
100%
Frequently
Customer
(Minimum
satisfactio n
Quarterly)
Coordinating
effort
Interna l Business Process
IB P1
Defects per
D
efects per million units
3
Monthly
• Quality
million units
• Cost
IB P2
Percentage of
goods returned
Ac tual sales value of goods returned
Sales value before goods returns
0.3%
M onthly
• Production
quality
On time
delivery
Lea rning and Gro wth
LG1
Employee
Sales dollar per man-hour
$30 0 per
man-hour
Annually
Employee
pro ductivity
training and
productivity
Employee
satisfactio n
LG2
Employee
Survey’s index score
Index score
Six months
Employee
satisfaction index
85
satisfaction
Strategic Linkage between measures and perspectives
Some Performance Indicators Customer • Customer Satisfaction Index • Collection of measures through survey and
Some Performance Indicators
Customer
• Customer Satisfaction Index
• Collection of measures through survey and
codification of measures
Learning & Growth
Valued - Added per Employee =
Revenue – External Purchased materials, supplies and services
Number of Employees
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ACCT 102 Management Accounting

Some Performance Indicators Manufacturing Process / Internal Business Process • Delivery Cycle Time (See Textbook
Some Performance Indicators
Manufacturing Process / Internal Business Process
• Delivery Cycle Time (See Textbook Exhibit 12-10)
time period between acceptance of an order and final delivery of
the product
= Wait Time + Throughput Time
• Throughput Time (Manufacturing Cycle Time)
= Process Time + Inspection Time + Move Time + Queue Time
• Manufacturing Cycle Efficiency (MCE)
Value- added Time
Throughput (Manufacturing Cycle)Time
Process Time
=
Process Time
+
InspectionTime
+
Move Time
+
Queue Time
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Incentives • If you pay peanuts, you get monkeys! • Dangling Carrot 19
Incentives
• If you pay peanuts, you get monkeys!
• Dangling Carrot
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October 2011

Value-added Time vs Non Value-Added Time Value Added Time Non Value-Added Time • Wait Time
Value-added Time vs Non Value-Added Time
Value Added Time
Non Value-Added Time
Wait Time
• Process Time
Inspection Time
Move Time
Queue Time
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Performance Measures in the Media and Software Division of Kao (Singapore) Private Limited

Journal of Accounting Education, Vol.21, Issue 2, 2nd

 

2003 , p.

157 184

Quarter

-

Emphasise the need to

Address Critical Success Factors (CSF)

Industry

Tempo (Short-term & Immediate concerns)

Competitiveness

Environment

Operation

Map KPIs to CSF and Mission & Vision

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