Ch 8 - Performance Measurement Mix Flashcards
Measurement is the process of assessing how well a company succeeds by economic acquisition of resources and their effective deployment. Whats important when designing a measurement mix?
Ensure it can be used in the control process and not be a burden or misleading.
How do performance measures control people. Neely suggested 4 ways
1) Confirm priorities - know priority if its measured
2) Compel progress - pushed to do well
3) Check position - helps mgrs to monitor progress
4) Communication position
CSFs and link to performance measurement
Orgs need to ensure PM ties in with strategy
- ID CSFS (which are determined by strategy) e.g cost leader CSFs may be lower labour costs than rival
- These turned into KPI’s
- A good mix will reflect CSFs and KPI’s
- IS system needed to be put in place to ensure monitoring
Fin and Non Fin measures what are they. Why non fin needed ?
Need both. non fin needed to focus on factors that CAUSE profits to be earned.
Balanced Scorecard model of performance measurement that came about in response to ST nature of fin measures. What are the headings and outline for each heading?
Vision and Strategy
Fin Perpective - how we appear to shareholders
Customer - to achieve vision how do we appear to customer
Internal Bus Processes - to satisfy customer and shareholder - what process must we excel at
Learning and Growth - to achieve our vision how can we sustain our ability to change and improve
Balanced Scorecard model of performance measurement that came about in response to ST nature of fin measures. Kaplan Strategy mapping was used to help implement. What are the steps
1 ID Overall objectives
2) Determine main way to create value given objective
3) ID fin strategies
4) Clarify customer strategies (supporting overall strategy)
5) ID how bus processes will support
6) Id skills and competencies needed
- All connected showing cause and effect
Benefits and drawbacks of BSC
Avoids ST measures
Divsions set success measures for them related to whole ORG
to assist stakeholders evaluating the firm
Drawbacks No single view - ROCE No relation between BSC and shareholder analysis Measure may give conflicting signals Shift in culture required?
Lynch and Cross developed a model to understand and define the links between objectives and performance measures and different levels in an org. Objective cascade down while measures and information flow up. What are the levels. 2) What goes on each side 3) wha is issue if any
LEvels
1) Vision (how to achieve LT success and comp advantage)
2) Market and Financial (BU’s include CSFS in market measure and financial)
3) Customer satisfaction , Flexibility, productivity (Bus operating systems, used to meet customer needs)
4) Quality, Deliver, Cycle Time, Waste (day to day op measures, can be used to monitor status of 2 and 3)
Sides
Left external typically non financial
Right Internal efficiency / typically financial measures
Issue
focus on shareholder and customer but need to consider other stakeholders too
Fitzgerald and Moons building bloock model was designed to helpdeisng and analysis of performance management systems. Describe
A) Dimensions - The goals of the business Downstream / Past are 1) Profit 2) Competiveneness Upstream future 3) Quality - defects and errors 4) Resource Utilisatation - productivity / idle time etc 5) flexibility - ability to change / response, custoemr waiting time 6) Innovation
B) Standards
1) Ownership
2) Achievability
3) Equity / Fairness
C) Rewards
Clarity
Motivation
Controllability
Benchmarking schemes help firms understand how well they are carrying out key acts and how it performs compared to other. What are they 3 types - Weber
1) Internal
2) Competitor
3) Process
Benchmarking schemes help firms understand how well they are carrying out key acts and how it performs compared to other. What are the steps and issues to be aware of
Steps
- Id what is wrong with Co
- ID best practise elsewhere
- Prep site visit
- Gather / evaluate / communicate results
Issues Sharing info Defining best practise Costly BAckward view demotivation if compared (staff)
BSC and Peformance Pyramid are useful for range of reason however fin measures still VIP for divisions / mgrs and SBUS. What are good fin measures
EVA, SVA and Triple Bottom Line
BSC and Peformance Pyramid are useful for range of reason however fin measures still VIP for divisions / mgrs and SBUS. What is EVA
Estimate of true economic profit after making adjustment to GAAP accounting
Div Profit +/- adjustments - CoC charge - EVA
BSC and Performance Pyramid are useful for range of reason however fin measures still VIP for divisions / mgrs and SBUS. What is SVA and what is the Rappaport model
SVA
- Shareholder Value Analysis (variation of EVA). Aim of org is to add value to shareholder wealth.
- MGMT need to ensure strategues max wealth by increasing the PV of returns they recieve from the shares.
Rappaport Model
7 value drivers to max future cash flows and reduce cost of capital. (Mgrs should set targets in each)
Sales growth rate
Life of Project
Operating profit margin
Working Capital
Cost of Capital
Asset Investment
Taxation
What are benefits and drawback of EVA/ SVA Systems
Benefits
Adjusments mean cash flow measure
Cost of financing brought home
consistent with NPV so may ensure congruence between Sbus for maxing shv
Draws Subjective accouting measures Ignores no Bscore measures eg brand/ staff / rep Confusing for some e.g fin measures resistance might be likely costly
