5. Business Measures

Question 1

Balanced Scorecard

P. 55

Answer 1

Organizational metrics into four perspectives:

1. Financial
2. Customer
3. Internal Business Process
4. Learning and Growth

Question 2

Key Performance Indicators

P. 56

Answer 2

Financial and nonfinancial metrics that reflects an organization’s key business drivers (KBD), also cretical success factors (CSF)

• Quantitative and measurable
• Goal based
• Strategy based
• Time based

Question 3

SMART (KPI)

P. 56

Answer 3

• Specific
• Measurable
• Achievable yet aggressive
• Relevant
• Time bounded

Question 4

Customer Loyalty Metrics

P. 59

Answer 4

• Customer referrals
• Customer abandonment rate (customer churn)
• Customer retention rate
• Customer renewal rate
• Repeat customer
• Share of wallet (loyalty of other product)

Question 5

Lagging Indicators

P. 60

Answer 5

Indicator follows an event, after the fact.

Question 6

Leading Indicators

P. 60

Answer 6

Indicator predicts or infers a future event.

Question 7

Common Financial Measures

P. 62

Answer 7

• Percent profit margin (net profit / net sales)
• Percent gross margin (gross profit / net sales)
• Percent operating margin (operation profit / net sales)
• Percent net margin (net profit / net sales)

Question 8

Net Present Value

P. 64

Answer 8

PV= F (1 + i)^ -n

F- Amount to be received n periods from now
i- Annual interest rate expressed as a decimal

Question 9

ROI

P. 65

Answer 9

Income - Cost / Cost (%)

Question 10

Cost-Benefit Analysis (CBA)

P. 65

Answer 10

SUM NPV all benefits anticipated / SUM NPV of all costs anticipated = benefit per dollar expended

Question 11

Cost of Quality (removed)

P. 67

Answer 11

• Appraisal costs (inspection)
• Prevention costs
• Internal failure costs
• External failure costs (while customer owns the product)

Question 12

Hard Dollars (cost savings)
P. 69

Answer 12

• A prior baseline of spending must be established
• The dollars must have been planned and in the budget
• Cost saving must affect bottom line

1. Cost take out
2. Revenue Growth
3. Working capital / cash flow

Question 13

Soft Dollars (cost avoidance savings)
P. 70

Answer 13

1. Budget impacting
2. Non-budget impacting.
3. Cost avoidance results from productivity / efficiency.