7AC006 Managing Financial Performance

Week 7

Michael Smith BSc MSc ACA FHEA

Senior Lecturer
Business School
 Learning Outcomes Week 7
You will understand:
• The main types of Performance measurement
systems.

• Their appropriateness in given environments.

• The latest academic thinking in the area of

budgets.
Traditional Performance Measurement
Shortcomings
• Reliance on accounting information and variance
from this.
• Use of subjective assumptions in financial data
• Absence of potentially relevant external data
• Absence of non-financial data
Alternatives to Traditional
Performance Measurement
• Benchmarking
• Balanced Scorecards*
• Product life cycle costing
• Target Costing
• Throughput accounting
• Value Chain Analysis
• * to be discussed in detail.
Balanced Score Card
• Introduced by Kaplan and Norton 1992
• Aim to reduce short-termism.
• Key components
• 1) 4 aspects (financial, customer, internal business
process, learning/innovation.
• 2) Each aspect has approx. 4 objectives.
• 3) Each objective has a single agreed KPI.
Potential Benefits of Balanced
Scorecard
• Unlike standard budget monitoring it links long
term strategy directly to performance
measurement.
• Can be used to both measure performance of
divisions and drive strategic change through KPIs
linked to bonus/compensation.
Discussion of how environment
impacts choice of what to measure.
• Competitors
• Macro economic
• Strategic goals
• Short term needs
• uncertainty
Academic Articles
• Kaplan RS and Norton DP (1992) The Balanced Score Card-Measures that
drive performance, Harvard Business Review (Jan/Feb).

• Jensen M.C (2001) Corporate budgeting is broken let’s fix it. Harvard
Business Review November pp94-101

• Kilhn L.A (2007) Financial Consequences in foreign subsidiary manger

performance evaluation. European Accounting Review 16 (3) pp 531-54

• Libby T and Lindsey RM (2010) Beyond budgeting or budgeting reconsidered:

a survey of North American budgeting practice. Management Accounting
Research 12(1) pp56-75
Recap of learning outcomes
You should now understand

• The main types of Performance measurement

systems.
• Their appropriateness in given environments.
• The latest academic thinking in this area
Key Text Chapters for this week
• Accounting for non-accounting students. J.R Dyson 8th Edition 2010 Prentice Hall
(e-version available) Chapter 20

• Managerial accounting in decision making and performance. R Proctor 4th (e-

version available). Chapters 16 and 17

• Management Accounting for Decision Makers. P Atrill 7th Edition 2012 (e-version
available). Chapter 10
Managing Financial Performance