Strategic Performance Measurement: Measuring, Monitoring, and Motivating Performance

John Wiley & Sons, 2005
Chapter 16: Strategic Performance Measurement

Eldenburg & Wolcotts Cost Management, 1e Slide # 1
Cost Management
Measuring, Monitoring, and Motivating Performance

Prepared by
Gail Kaciuba
Midwestern State University
Chapter 16
Strategic Performance Measurement
Learning objectives
Q1: What is strategic decision making?
Q2: How are financial and nonfinancial measures used to
evaluate organizational performance?
Q3: What is a balanced scorecard?
Q4: How is a balanced scorecard implemented?
Q5: What are the strengths and weaknesses of the balanced
scorecard?
Q6: What is the future direction of cost accounting?
Q1: Overview of Management Decision Making
Organizational
Vision
Core
Competencies
Operating
Plans
Actual
Operations
Organizational
Strategies
Q1: Strategic Decision Making
Managers determine performance
objectives to monitor the results of actual
operations.
Performance objectives are specific goals.
Measurements of the performance
objectives are compared to managements
expectations.
Adjustments are made to either change
operations or adjust the long-term
strategies.
Q2: Financial Performance Measures
Financial measures provide information in
dollars or ratios of dollars.
These measures come from the accounting
information system.
Traditionally these often were the only
measures used.
Examples include:
division revenue,
division profit margin or return on sales, and
variances of actual operating results from the
budget.
Q2: Nonfinancial Performance Measures
Nonfinancial measures cannot be measured
in dollars.
Examples include:
Defect rates,
Customer satisfaction levels,
Number of days from a candidates interview to
his or her start date,
Average service time, and
Employee satisfaction levels.
Q3: Balanced Scorecard
The balanced scorecard is a method of
organizing the financial and nonfinancial
performance measures used to monitor
operations.
The chosen measures are carefully related
to the organizations vision and long-term
strategies.
The balanced scorecard serves as a means
of communicating the organizations
strategies throughout the organization.
Q3: Balanced Scorecard (BSC) Perspectives
A balanced scorecard usually consists of four categories of
measures, with 4 ~ 5 specific measures per category.
The four common categories are called the balanced
scorecard perspectives.
1. The financial perspective measures progress towards the
organizations financial goals.
2. The customer perspective evaluates the organizations
performance from the viewpoint of customers.
3. The internal business process perspective assesses the
organizations ability to produce and deliver goods and
services.
4. The learning and growth perspective measures the
organizations ability to change and develop improved
strategies.
Q3: The BSC Translates Strategy to a Series of
Cause and Effect Relationships
Long-Term
Strategy
Internal
Perspective
Customer
Perspective
Learning &
Growth
Financial
Perspective
How do shareholders
view organization?
How do customers
view organization?
How do employees
view organization?
How can organization grow and improve?
Performance measurements
for each perspective can be
used to determine
appropriate operational and
strategic changes.
Q3: The Financial Perspective
Examples of possible performance measures
for the financial perspective include:
Profit margin

Return on equity

Sales growth

Operating income

Residual income
Q3: The Customer Perspective
for the customer perspective include:
Market share

Results from customer satisfaction surveys

Number of new customers

Number of customer complaints

Customer reorder rates
Q3: The Internal Business Process Perspective
The internal business process perspective
contains three stages:
In the innovation cycle, customer
preferences are determined and the
products are designed.

In the operations cycle, goods and services
are produced and delivered to the customer.

The post-sales service cycle supports the
customer after the sale.
Q3: The Internal Business Process Perspective
for the:
Innovation cycle include the number of new
technologies developed and new product
development time.

Operations cycle include defect rates and the
percent of on-time deliveries.

Post-sales service cycle include the accounts
receivable turnover ratio and warranty repair
times.
Q3: BSC Example
The School for Future Artists is a private, for-profit, high school for
students that are gifted in painting, drawing, and sculpture. Its mission is
to train students in techniques and give them the confidence to be
innovative, while at the same time preparing them to earn a living.
Students are admitted to the school after a review of their portfolios. Half
of the students are given full scholarships and the parents of the other half
pay the expensive tuition. Parents who are paying tuition are given the
opportunity to pay reduce tuition if they become shareholders. The School
also receives donations from successful alumni. Identify some
performance measures the School might use for the financial perspective
on its balanced scorecard.
Operating income
Return on equity
Donations as a percent of total
revenues
Variances between actual and
budgeted expenditures
dollar amount of state and
federal grant money received
this year
Q3: BSC Example
Identify some performance measures the School for Future Artists might
use for the customer perspective on its balanced scorecard.
Percent of graduates who
eventually complete masters
degrees in fine arts or related
fields
Percent of graduates who
eventually become art
professors
Number of graduates who
were involved in art
expositions this year
Number of graduates who
received federal or state grants
this year
Number of families with 2 or
more children at the school
Responses to satisfaction
surveys given to students and
parents
Q3: BSC Example
use for the 3 categories of the internal business processes perspective on
its balanced scorecard.
Innovation cycle
Number of new courses developed
Course development time
Operations cycle
Percent of students who graduate
Art supply costs per student
Post-sales service cycle
Accounts receivable turnover ratio
Results of alumni satisfaction surveys
Q3: BSC Example
use for the learning and growth perspective on its balanced scorecard.
Teacher turnover
Number of training workshops attended by teachers this year
Results of teacher satisfaction surveys
Teacher and student use of newly purchased kiln equipment
Number of management efficiency and leadership conferences
attended by administrators this year

Q4: Balanced Scorecard Implementation
A BSC implementation includes the
following stages:
Clarify vision, competencies, and strategies.
Analyze the four BSC perspectives to develop
objectives and measures.
Communicate the components of the BSC
throughout the organization.
Establish performance targets and action plans.
Collect and analyze scorecard data.
Investigate variances and reward employees.
Provide feedback and refine the scorecard.
Q5: Balanced Scorecard Strengths
The greatest strength of the BSC is the
communication of strategies throughout the
organization.
The BSC forces top management to clarify
the vision and strategies of the organization.
The BSC links employee rewards to
performance objectives that are linked to
the organizations vision and strategies, so
short-term and long-term strategies are
more likely to be in alignment.
Q5: Balanced Scorecard Potential Weaknesses
If based on inappropriately defined visions
and strategies, the BSC provides the wrong
incentives for managers.
Sometimes performance measures are
chosen because the data is easy to obtain,
rather than because they are linked to the
vision and strategies.
If performance measure targets are
unattainable, employees may not buy in to
the BSC initiative.
Q6: Future Direction of Cost Accounting
Information technology advances free
accountants from preparing detailed reports.
More time is available to concentrate on
providing the best information possible to
support management decision making.
Accountants increasingly need to become
aware of and understand emerging
management tools (such as the balanced
scorecard).

Strategic Performance Measurement: Measuring, Monitoring, and Motivating Performance

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John Wiley & Sons, 2005

Chapter 16: Strategic Performance Measurement

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