Performance evaluation Flashcards
What is the term feedback used to describe?
The process of reporting back control information to management and the control information itself.
What are the steps in the feedback loop?
(0 - Set objectives) 1 - Plan, target or budget 2 - Operations 3 - Measure outputs 4 - Feedback of information 5 - Compare actual results with plan 6 - Control action
What can management do by comparing actual and planned results?
- Take control action
- Decide to do nothing
- Alter the plan or target
What are the features of effective feedback?
- ‘Exception principle’ should be applied so only significant differences between the target and actual results are highlighted for investigation
- Controllable costs and revenues should be separately identified
- Reports should be made available to managers in a timely fashion
- Information should be concise and sufficiently accurate for the purpose intended
- Reports should be communicated to the manager who has responsibility and authority to act on the information.
What are the three ways of using budgetary information to evaluate managerial performance identified by Hopwood?
Budget constrained - Managers’ performance is measured on ability to meet budget
Profit conscious - Managers’ focus is on increasing the effectiveness of a unit’s operations. Goal is to generate a positive return to shareholders
Non-accounting - Managers’ focus is non-financial. Measures such as feedback from colleagues is how performance is measured.
How might budget bias be introduced?
- Put slack into budgets (underestimate revenue or overestimate costs)
- Inflate budget to ensure spending is protected
What is divisionalisation?
The division of a business into more or less autonomous regional or product-centred businesses, each with its own revenues, expenditures and investments.
Generally leads to decentralisation of decision-making process.
What are the advantages of decentralisation?
- Senior managers are freed from detailed involvement in day to day operations and can devote more time to strategic issues
- Quality of decisions may improve
- Increased responsibility should motivate managers
- Decisions can be taken more quickly
- Valuable training for future senior managers
What are the disadvantages of decentralisation?
- It can be difficult to co-ordinate the activities of the organisation as the organisation divides into a number of self-interested segments
- Senior managers are less involved with day to day activities so the link between the top and bottom of the organisation becomes weaker
- Performance management becomes more difficult
- Some duplication of roles
What is responsibility accounting?
Decentralisation of authority, with the performance of the decentralised units or responsibility centres measured in terms of accounting results.
What are the four main types of responsibility centre?
- Cost centre
- Revenue centre
- Profit centre
- Investment centre
How can performance of investment centres be measured?
Using profit earned in relation to the amount of capital invested.
ROI or RI.
What should the amount of capital employed attributed to an investment centre consist of?
Only DIRECTLY attributable non-current assets and working capital (net current assets).
What do shared service centres do?
Consolidate the transaction-processing activities of many operations within a company, e.g. HR, payroll, accounting and IT may be carried out in a shared service centres.
What is the aim of a shared service centre?
To achieve significant cost reductions while improving service levels through the use of standardised technology and processes and service level agreements.
