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1、Chapter 8 Performance Management and EvaluationFall2007CrossonUseonlywithpermissionofSusanCrossonLearning Objectives:ManagementResponsibility,Accountability,andPerformanceResponsibilitycentersandperformancemeasuresEnd-to-endaccountabilitywiththebalancedscorecardLinkingexecutivecompensationandperform
2、anceUseonlywithpermissionofSusanCrossonResponsibility, Accountability, and PerformanceResponsibilityaccounting:Aninformationsystemthatclassifiesdataaccordingtoareasofresponsibilityandreportseachareasactivitiesbyincludingonlytherevenues,cost,andresourcecategoriesthattheassignedmanagercancontrol.Organ
3、izationalchart:lLineandstaffrelationshipslResponsibilitycenters-5kindsUseonlywithpermissionofSusanCrossonExampleUseonlywithpermissionofSusanCrossonResponsibility Centers and Measures of Performance CostCenters-costsDiscretionaryCostCenters-costsRevenueCenters-revenuesProfitCenters-incomestatementInv
4、estmentCenters-balancesheetandincomestatement:ROI,RI,EVAUseonlywithpermissionofSusanCrossonCost Centers Aresponsibilitycenterwhosemanagerisaccountableforonlycontrollablecoststhathaveawell-definedrelationshipbetweenthecentersresourcesandproductsorservicesExample:Factory,directlytraceabletoproductsors
5、ervicesMeasures:lCompareActualtoMasterandFlexibleBudgetslComputeDM,DL,OHvariancesSCM:SupplyChainManagement(AP,AR,Sales,Inventory,Purchasingsystems)LookandlistenSE4.CompletethefollowingperformancereportforcostcenterCforthemonthendedDecember31.ActualResultsVariance FlexibleBudgetVariance MasterBudgetU
6、nitsproduced800?20(U)100CentercostsDirectmaterials$84$?$80$?$100Directlabor150?40(F)200Variableoverhead?20(U)240?300Fixedoverhead280?250?250Totalcost$?$44(U)$?$120(F)$850PerformancemeasuresDefect-freeunitstototalproduced:75%?N/A90%Averagethroughputtimeperunit12minutes?N/A10minutesSE4.SolutionComplet
7、ethefollowingperformancereportforcostcenterCforthemonthendedDecember31.ActualResultsVariance FlexibleBudgetVariance MasterBudgetUnitsproduced800?=8020(U)100CentercostsDirectmaterials$84$?=4U$80$?=20F$100Directlabor150?=10F?=16040(F)200Variableoverhead?=26020(U)240?=60F300Fixedoverhead280?=30U 250?=0
8、250Totalcost$?=774 $44(U)$?=730 $120(F)$850PerformancemeasuresDefect-freeunitstototalproduced:75%?=15%FN/A90%Averagethroughputtimeperunit12minutes?=2UN/A10minutesUseonlywithpermissionofSusanCrossonDiscretionary Cost CentersAresponsibilitycenterwhosemanagerisaccountableforcostsonlyandinwhichtherelati
9、onshipbetweenresourcesandproductsorservicesisnotwelldefined.Example:HR,IT,Accounting,andotherAdministrativesupportMeasures:lCompareActualtoMasterBudgetlComputevariancesERM:EnterpriseResourceManagement(PR,HR,Financialsystems)UseonlywithpermissionofSusanCrossonRevenue CentersAresponsibilitycenterwhose
10、managerisaccountableprimarilyforrevenueandwhosesuccessisbasedonitsabilitytogeneraterevenueExample:catalog,phoneore-commercesalescenterMeasures:lCompareActualtoMasterBudgetlComputesalesrelatedvariancesCRM:CustomerRelationshipManagementUseonlywithpermissionofSusanCrossonProfit CentersAresponsibilityce
11、nterwhosemanagerisaccountableforbothrevenuesandcostsandfortheresultingoperatingincome.Examples:retailstoreMeasures:lVariablecostingincomestatementorTraditionalincomestatement-page360lCompareactual,flexible,andmasterbudgetedincomestatementslComputevariancesCRM,SCMSE 5.Complete the following performan
12、ce report for profit center P for the month ended December 31.Master BudgetActual VarianceSales$120?$ 20(F)Controllable variable costsVariable cost of goods sold?25 10(U)Variable selling and administrative expenses515 ?Contribution margin$100$100$ ?Controllable fixed costs60 ? 10(F)Profit center inc
13、ome ?$ 50$ 10(F)Performance measuresNumber of orders processed?5020(F)Average daily sale$4.00?.66(F)Number of units sold?10040(F)SE 5.Complete the following performance report for profit center P for the month ended December 31.Master BudgetActual VarianceSales$120?=140$ 20(F)Controllable variable c
14、ostsVariable cost of goods sold?=1525 10(U)Variable selling and administrative expenses515 ?=10UContribution margin$100$100$ ?=0Controllable fixed costs60 ?=50 10(F)Profit center income ?=40$ 50$ 10(F)Performance measuresNumber of orders processed?=305020(F)Average daily sale$4.00?=4.66.66(F)Number
15、of units sold?=6010040(F)UseonlywithpermissionofSusanCrossonInvestment CentersAresponsibilitycenterwhosemanagerisaccountableforprofitgenerationandcanalsomakesignificantdecisionsabouttheresourcesthecenteruses.Examples:Adivision,product-line,companyMeasures:lCompareactual,flexible,andmasterbudgetedinc
16、omestatementsandbalancesheetslComputeROI,residualincome,andEVAvarianceslTimetomarketanalyseslValue/CostanalysesERM,SCM,CRMUseonlywithpermissionofSusanCrossonReturn On InvestmentE12. MomenceAssociatesisevaluatingtheperformanceofthreedivisions:Maple,Oaks,andJuniper.Usingthefollowingdata,computetheretu
17、rnoninvestmentandresidualincomeforeachdivision,comparethedivisionsperformance,andcommentonthefactorsthatinfluencedperformance.MapleOaksJuniperSales$100,000$100,000$100,000Operatingincome$10,000$10,000$20,000Assetsinvested$25,000$12,500$25,000DesiredROI40%40%40%E12.SolutionMomenceAssociatesisevaluati
18、ngtheperformanceofthreedivisions:Maple,Oaks,andJuniper.Usingthefollowingdata,computethereturnoninvestmentandresidualincomeforeachdivision,comparethedivisionsperformance,andcommentonthefactorsthatinfluencedperformance.MapleOaksJuniperSales$100,000$100,000$100,000Operatingincome$10,000$10,000$20,000As
19、setsinvested$25,000$12,500$25,000DesiredROI40%40%40%ROI=OperatingIncome/AssetsInvestedMaple=$10,000/$25,000=40%Oaks=$10,000/$12,500=80%ResidualIncome=OperatingIncome-(DesiredROIxAssetsInvested)Maple=$10,000-(40%x$25,000)=$0Oaks=$10,000-(40%x$12,500)=$5,000UseonlywithpermissionofSusanCrossonEconomic
20、Value AddedE13. Leesburg,LLP,isevaluatingtheperformanceofthreedivisions:Lake,Sumter,andPoe.Usingthefollowingdata,computetheeconomicvalueaddedbyeachdivisionandcommentoneachdivisionsperformance.LakeSumterPoeSales$100,000$100,000$100,000After-taxoperatingincome $10,000$10,000$20,000Totalassets $25,000$
21、12,500$25,000Currentliabilities$5,000$5,000$5,000Costofcapital15%15%15%E13.SolutionLeesburg,LLP,isevaluatingtheperformanceofthreedivisions:Lake,Sumter,andPoe.Usingthefollowingdata,computetheeconomicvalueaddedbyeachdivisionandcommentoneachdivisionsperformance.LakeSumterPoeSales$100,000$100,000$100,00
22、0After-taxoperatingincome $10,000$10,000$20,000Totalassets$25,000$12,500$25,000Currentliabilities$5,000$5,000$5,000Costofcapital15%15%15%EVA= After-tax operating income - Cost of capital(TA-CL)Lake: $10,000 15%($25,000-$5,000) = $7,000Sumter: $10,000 15%($12,500-$5,000) = $8,875 Useonlywithpermissio
23、nofSusanCrossonWhat Do You Know?Responsibility CentersTypes:E5,LookandlistenSE2CostCenter:C2ProfitCenter:E9,E10InvestmentCenter:P8,LookandlistenSE7,SE8,SE9.LookandlistenSE2.Identifyeachofthefollowingasacostcenter,adiscretionarycostcenter,arevenuecenter,aprofitcenter,oraninvestmentcenter.1.Themanager
24、ofcenterAisresponsibleforgeneratingcashinflowsandincurringcostswiththegoalofmakingmoneyforthecompany.Themanagerhasnoresponsibilityforassets.2.CenterBproducesaproductthatisnotsoldtoanexternalparty.3.ThemanagerofcenterCisresponsibleforthetelephoneorderoperationsofalargeretailer.4.CenterDdesigns,produc
25、es,andsellsproductstoexternalparties.Themanagermakesbothlong-termandshort-termdecisions.5.CenterEprovideshumanresourcesupportfortheothercentersinthecompany.SE2.SolutionIdentifyeachofthefollowingasacostcenter,adiscretionarycostcenter,arevenuecenter,aprofitcenter,oraninvestmentcenter.1.Themanagerofcen
26、terAisresponsibleforgeneratingcashinflowsandincurringcostswiththegoalofmakingmoneyforthecompany.Themanagerhasnoresponsibilityforassets.P2.CenterBproducesaproductthatisnotsoldtoanexternalparty.C3.ThemanagerofcenterCisresponsibleforthetelephoneorderoperationsofalargeretailer.R4.CenterDdesigns,produces
27、,andsellsproductstoexternalparties.Themanagermakesbothlong-termandshort-termdecisions.I5.CenterEprovideshumanresourcesupportfortheothercentersinthecompany.DCE5.Identifythemostappropriatetypeofresponsibilitycenterforeachofthefollowingorganizationalunits.1.Apizzastoreinapizzachain2.Theticketsalescente
28、rofamajorairline3.TheSouthAmericansegmentofamultinationalcompany4.Asubsidiaryofabusinessconglomerate5.Theinformationtechnologyareaofacompany6.Amanufacturingdepartmentofalargecorporation7.Aneyeclinicinacommunityhospital8.Thefood-servicefunctionatanursinghome9.Thefood-preparationplantofalargerestauran
29、tchain10.ThecatalogorderdepartmentofaretailerE5.SolutionIdentifythemostappropriatetypeofresponsibilitycenterforeachofthefollowingorganizationalunits.1.ApizzastoreinapizzachainP2.TheticketsalescenterofamajorairlineR3.TheSouthAmericansegmentofamultinationalcompanyI4.AsubsidiaryofabusinessconglomerateI
30、5.TheinformationtechnologyareaofacompanyDC6.AmanufacturingdepartmentofalargecorporationC7.AneyeclinicinacommunityhospitalP8.Thefood-servicefunctionatanursinghomeC9.Thefood-preparationplantofalargerestaurantchainC10.ThecatalogorderdepartmentofaretailerRE10.Theincomestatementinthetraditionalreportingf
31、ormatforGreenProducts,Inc.,fortheyearendedDecember31,isasfollows.GreenProducts,Inc.IncomeStatementFortheYearEndedDecember31Totalfixedmanufacturingcostsforyearwere$16,750.Alladministrativeexpensesareconsideredtobefixed.Usingthisinformation,prepareanincomestatementforthecompanyfortheyearendedDecember3
32、1,usingthevariablecostingformat.SalesLessCostofGoodsSoldGrossMarginLessOperatingExpenses:SellingExpenses:VariableFixedAdministrativeExpensesOperatingIncome$296,400112,750$183,650$69,82036,98027,410$49,440E10.SolutionTheincomestatementinthetraditionalreportingformatforGreenProducts,Inc.,fortheyearend
33、edDecember31,isasfollows.GreenProducts,Inc.IncomeStatementFortheYearEndedDecember31Totalfixedmanufacturingcostsforyearwere$16,750.Alladministrativeexpensesareconsideredtobefixed.Usingthisinformation,prepareanincomestatementforthecompanyfortheyearendedDecember31,usingthevariablecostingformat.SalesLes
34、sVariableCostofGoodsSoldLessVariableSellingExpensesLessVariableAdministrativeExpensesContributionMarginLessFixedCostsandExpenses:FixedOverheadFixedSellingExpensesFixedAdministrativeExpensesOperatingIncome$296,400$112,750-16,750$69,820$0$130,580$16,750$36,980$27,410$49,440P8. MicanopyCompanymakesrepl
35、icasofIndianartifacts.ThebalancesheetfortheArrowheadDivisionshowedthatthecompanyhadinvestedassetsof$300,000atthebeginningoftheyearand$500,000attheendoftheyear.Duringtheyear,theArrowheadDivisionsoperatingincomewas$80,000onsalesof$1,200,000.1.ComputetheArrowheadDivisionsresidualincomeifthedesiredROIis
36、20percent.2.Computethefollowingperformancemeasuresforthedivision:a.Profitmarginb.Assetturnoverc.Returnoninvestment3.ComputeMicanopyCompanyseconomicvalueaddediftotalcorporateassetsare$6,000,000,currentliabilitiesare$800,000,after-taxoperatingincomeis$750,000,andthecostofcapitalis12percent.Useonlywith
37、permissionofSusanCrossonBalanced ScorecardEnd-to-end AccountabilityOne type of a Managers DashboardKey Performance Objectives, Measures and Targets LinkedUseonlywithpermissionofSusanCrossonThe Balanced ScorecardDevelopedbyRobertS.KaplanandDavidP.NortonAframeworkthatlinkstheperspectivesofanorganizati
38、onsfourbasicstakeholdergroupswiththeorganizationsmissionandvision,performancemeasures,strategicplan,andresources.UseonlywithpermissionofSusanCrossonClassic Balanced Scorecard PerspectivesFinancial(investors)Learningandgrowth(employees)InternalbusinessprocessesCustomersTo succeed, an organization mus
39、t add value for all groups in both the short and long term UseonlywithpermissionofSusanCrossonOther Balanced Scorecard PerspectivesCommunityGovernmentFinancial(investors)Learningandgrowth(employees)InternalbusinessprocessesCustomersTo succeed, an organization must add value for all groups in both th
40、e short and long term Balanced Scorecard FrameworkIdeally, everyone in the organization should be able to see how their actions contribute to the achievement of organizational goals from multiple perspectives.Lead indicatorsLag indicatorsStrategic Planning and the Balanced ScorecardFor each perspect
41、ive, develop its scorecard based on the organizations mission/vision and resourcesObjective/GoalMeasureTargetBalanced Scorecard FrameworkAll perspectives are linked and balanced in the scorecardObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetOrganizationsMissi
42、on/VisionFinancialCustomerInternal Business ProcessLearning and GrowthUseonlywithpermissionofSusanCrossonScorecard ProcessPerformanceobjectivesarelinkedandbalancedinplanningprocessPerformancemeasuresarespecifiedfororganizationalunitsQuantifiabletargetsaresetfororganizationalunitsActualperformanceism
43、easuredandorganizationalunitsareheldaccountableAn organizational unit may be a department, a product line, a location, a curriculum, an individual, or a courseUseonlywithpermissionofSusanCrossonCorporate Scorecard Example: Who are the Stakeholders?FinancialCustomersInternalBusinessProcessesLearninga
44、ndGrowthGovernmentCommunityA Corporate Scorecard Example ObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetOrganizationsMission/VisionFinancial CustomersInternal Business ProcessesLearning and Growth: EmployeesGovernmentCommunityObjectiveMeasureTargetObjectiveMe
45、asureTargetUseonlywithpermissionofSusanCrossonHarleyDavidsons“FulfillsdreamsthroughtheexperienceofmotorcyclingCorporate Mission/VisionSample Corporate Scorecard for Harley Davidson: ObjectiveMeasuresTargetSustainorgrowkeyindicatorsROI,EVA,CashflowObjectiveMeasuresTargetQualityproducts#ofdefectsCycle
46、timeObjectiveMeasuresTargetLife-longcustomersMarketshareRepeatcustomersObjectiveMeasuresTargetGreatplacetowork#accidentsGrievanceresolutiontimeFulfillsdreamsthroughtheexperienceofmotorcyclingFinancial CustomersInternal Business ProcessesLearning and Growth: EmployeesGovernmentCommunityObjectiveMeasu
47、resTargetGoodneighborCommunityservicehoursObjectiveMeasuresTargetTimelycomplianceOntimefilingsUseonlywithpermissionofSusanCrossonWhat Do You Know?Balanced ScorecardE15ScorecardforReviewProblemBuild a Balanced Scorecard for Winter Wonderland Resort ObjectiveMeasureTargetObjectiveMeasureTargetObjectiv
48、eMeasureTargetObjectiveMeasureTargetFinancial/Funding Sources: Customers:Internal Administrative ProcessesLearning and Growth:GovernmentCommunityObjectiveMeasureTargetObjectiveMeasureTarget“MissionStatementUseonlywithpermissionofSusanCrossonIntroducing StrategyValueChainBalancedScorecardUseonlywithp
49、ermissionofSusanCrossonStrategic PositioningMichael Porter Cost Leadership Differentiation (Focus)UseonlywithpermissionofSusanCrossonUpstreamManufacturing/OperationsDownstreamValue Chain AnalysisA Detailed Look at StrategyUseonlywithpermissionofSusanCrossonThe Balanced Scorecard:The Strategy Map-a c
50、ausal value chainInternalExternal2.Operations/Processes1.People3.CustomerRelationships5.EnvironmentalImpact4.FinancialResultsShort-termLong-termCause-and-Effect Chain Illustration for a BankLearning and GrowthPerspectiveInternal-BusinessPerspectiveCustomerPerspectiveFinancialPerspectiveNumber of Tra
51、ining Hours Employees ReceiveEmployee Scores on in-house tests about sales, service, and product knowledge Number of Successful Referrals and/or Cross-salesCustomer Satisfaction Ratings on Quarterly SurveysCustomer Retention Rate: percent of last years customers still with bankImproved Loan, Deposit
52、s, and Non-Interest IncomeIf employees receive training in sales effectiveness, customer service, product profitability, and local bank knowledge, then better customer service and higher quality interactions with existing clients can take place. Bank employees will be better able to ascertain the ne
53、eds of customers, thereby making higher quality referrals and cross-sell proposals to customers, and customers will be more satisfied and choose to continue banking with bank. Increased referrals or cross-sales increases non-interest income and provides the basis for growth in deposit and loan balan
54、ces.Causal Chain Explanation:UseonlywithpermissionofSusanCrossonBalanced Scorecard feeds back to StrategyValueChainBalancedScorecardUseonlywithpermissionofSusanCrossonLinking executive compensation and performancePerformance-basedpaylProfitsharinglCashbonuslStockoptions,ESOPslRestrictedstockYou get what you measureUseonlywithpermissionofSusanCrossonHomeworkP3
