5. Non-Financial Performance Measures and Balanced Scorecard Flashcards
What is PMS? (performance measurement system)
It is a key aspect of responsibility accounting. It is used to go beyond the measurement of financial measures.
What some disadvantages of conventional financial performance measures?
Not actionable
Limited guidance for future actions
May encourage actions which decrease shareholder and customer value
Financial measurements emphasis one perspective
What are some advantages of PMS?
More actionable
Reflect the drivers of future financial performance
More understandable and easy to relate to
What are some ways the measure PMS?
Customer satisfaction Quality (% of defects) Safety stats Machine downtime Labour productivity On time delivery No. of employees trained
What are some problems with non-financial performance measurements?
Wide choice of measurements available
Their development can be undirected
Managers have to make trade offs between some measurements
Some lack integrity
Not easily translated to financial outcomes
What is a balanced score card?
It is a strategic responsibility accounting system that translates an organisations mission and strategy into operational objectives with 4 perspectives
What are the 4 perspectives of the balanced score card?
Financial
Customer
Internal business process
Learning and growth (infrastructure)
What are the 3 strategies of the financial perspective?
Revenue growth
Cost reduction
Asset utilization
What is the strategy for customer perspective?
This is the revenue component of the financial objectives. It defines and selects the customer and market segments in which the company chooses to compete
What are the 3 components of the process perspective?
Innovation
Operations
Post sales service
What is benchmarking?
This is another approach for measuring performance. This uses best practices as the standard to evaluate the organisations performance
What are some forms of benchmarking?
Internal Competitive Industry Best-in-class Process
What are some warning signs of inadequate SPMS?
Performance is acceptable on all dimensions except profit.
Customers measures have not changed for some time
The business strategy has changed
Buy product, even when prices are competitive
Managers are not concerned
Too much time is spent debating
How should the SPMS be designed?
Linked to strategy and goals of the organisation Simple Not too many measures Recognise controllability Emphasize positive Timely Relate to benchmarking Linked to rewards Participative to promote motivation and empowerment
What is the role of Kaizen standards?
Kaizen means continuous improvement
