L2 - Performance Measurements 1

Question 1

Define the the concepts of Management Control Systems

Answer 1

Management – an organization consists of a group of people who work together to achieve certain goals. Management control is the process by which managers ensure that the people they supervise implement the intended strategies.
Control – an organization must be controlled. Devises must be in place to ensure that its strategic intentions are achieved.
Systems – a system is a prescribed and usually repetitious way of carrying out an activity or a set of activities.

Question 2

What are the six Management Control Activites?

Answer 2

Planning what the organization should do.
Coordinating the activites of several parts of the organization. (Teamwork)
Communicating information. (Goals & Resources)
Evaluating information.
Deciding what, if any, action should be taken.
Influencing people to change their behaviour.

“PCCEDI”

Question 3

What are the different uses of performance measurement systems?

Answer 3

Operational use (Control)
○ Operational planning
○ Process monitoring
○ measure performance
○ Diagnostic use

Incentive use (Incentives)
○ Target setting
○ Incentives
○ Rewards
○ Influence behavior

Exploratory use (Self Development)
○ Priority setting
○ Double loop learning
○ Policy development
○ Strategy Management
○ Learning & improvement
○ Interactive use
Communication
Legitimization

They should all be balanced, we can’t just use one and ignore the others.

Question 4

Discribe the evolution of performance measurement

Answer 4

• From Productivity management and financial indicators…
• … to Integrated performance management and financial + non-financial indicators
• Relevance lost – a cornerstone in the development
• BUT
• The ultimate goal of performance measurement should be learning rather than control.
• Increased control does not lead anywhere by itself.
• Use of performance measurements can, and indeed does, lead to dysfunctional behaviours and poor overall performance.
• From command and control to learning system (cf. Ahrens & Chapman (2004), Simons (1994).

Question 5

What are the differences between Traditional management accounting and Strategic Management Accounting?

Answer 5

Function: Implementing srategy VS Support strategy development
Support decisions for: Production decisions. Customer/ Market decisions and pricing VS Configuration of an effective value system
Time perspective: Short-term decisions VS Long-term decisions
Unit of analysis: A part of the firm VS Value system (Creating Value)
Conditions: Fixed external conditions VS External activites can be controlled and restructured
Nature of data: Standardised, reliable, structured, recurrent, simple VS Unstandardised, unrealiable, unstructured, occasional, complex
Type of objects: Produc, project, activities, departments, customers etc. VS Traditional object + competitor, competing products, customers, suppliers etc.
Type of measures: Financial and non-financial transformation data VS financial and non financial strategic data
Focus: Costs VS profit, investments and ROI
Costs are prymary seen as: A function of resoruce consumption in a fixed system VS a function of structures and process design

Question 6

What are three important dimensions when measuring and monitoring performance

Answer 6

• Financials/use of resources (e.g. SEK/ patient visit)
• Performance (e.g. number of patient visits)
• Quality (e.g. sick leave)

Question 7

What are the perspectives of a BSC according to the simple model (1992)? And what are the different timeframes of the four

Answer 7

financial perspective (yesterday)
Customer perspective (today)
Internal process perspective (today)
Learning and growth perspective (tomorrow)

Question 8

What are the key principles for a BSC?

Answer 8

1. BSC starts with the strategy (link performance measures to the strategy and only include measures that are connected to strategy)
2. Strategy is everyone’s assignment (holistic approach and balance between perspectives, finance/non-fin., leading/ lagging + see the bigger picture)
3. Link unit scorecards with the organisations scorecard
4. Set motivational, both individual and team based, targets
5. Feedback processes encourage learning

Question 9

Give an example of the Cause-and-effect relationship of perfomance measures

Answer 9

1. Learning and growth perspective (employee learning and knowledge) - key aspect
2. Internal process perspectives (process quality + production cycle time) - efficiency focus
3. Customer perspective (Customer loyalty + just-in-time delivery)
4. Financial perspective (ROCE)

Question 10

Why do firm measure their intangible assets?

Answer 10

Internal measurement
* To help organizations create (formulate) their strategy
* Assess strategy execution (translating business strategy into action)
* Monitoring effects from actions
* Focusing attention (‘what gets measured gets managed’)
* Improve the management of intangible resources
* Weighing possible courses of action
* Enhancing the management of the business as a whole
* Use performance measures as a basis for compensation

External reporting of performance measurement
* To communicate measures to external stakeholders
* Attract resources

Question 11

Describe the development of the performance measure field and emerging themes

Answer 11

1900-1940: Productivity management
1930-1970: Budget Control
1970-2000: Integrated Perfomance Measures
1990-2020: Integrated performance Management

Everything leading to the fact that the ultimate goal of performance measurement should be learning rather than control.