Performance Management Pt. 1 Flashcards
T/F: feedback tied to self-interest is most effective
True
Financial measures of performance include:
financial scorecards (including the balanced scorecard), costs of quality, return on investment, return on assets, return on equity, residual income, and economic value added
Nonfinancial measure of performance can be shown in two ways
external benchmarks: productivity measures - productivity is a measure of efficiency and uses the relationships derived from actual performance in comparison to similar organizations over time
internal benchmarks: techniques to find and analyze problems - includes a variety of techniques to find and analyze problems or measure performance
What are two examples of external benchmarks?
total factor productivity ratios (TFP) - reflects the quantity of all output produced relative to the costs of all inputs used; can be used to compare actual cost per unit production levels to budgeted production levels
partial productivity ratios (PPR) - reflects the quantity of output produced relative to the quantity of individual inputs used; can be used to compare the actual levels of a production input needed to produce a given output, which may be used for a comparison with budgeted input level; it is the most frequently used productivity measure
What are 3 examples of internal benchmarks?
control charts - used in statistical quality control (SQC); it is used to plot a comparison of actual results by batch or other suitable constant interval to an acceptable range; it shows whether there is a trend toward improved quality conformance or deteriorating quality performance
pareto diagrams - used to determine the quality-control issues that are most frequent and often demand the greatest attention; it demonstrates the frequency of defects from highest to lowest frequency
cause-and-effect (fishbone) diagrams - provides a framework for managers to analyze the problems that contribute to the occurrence of defects; production processes that lead to the manufacture of an item are displayed along a production line; manages use the diagram to identify the sources of problems in the production process by resource and take corrective action
once the most frequently recurring and costly defects/problems are identified by the Pareto diagram, a cause-and-effect diagram may be used to further analyze the defect
T/F: financial scorecards take many forms
True; includes budget vs actual (and other variance reports) as well as overall analysis of business performance
What are the 4 financial measures (performance objectives) for responsibility segments (aka strategic business units [SBUs])?
cost SBU - managers are held responsible for controlling costs
revenue SBU - managers are held responsible for generating revenues
profit SBU - managers are held responsible for producing a target profit (accountability for both revenues and costs)
investment SBU - managers are held responsible for return on the assets invested o produce the earnings generated by the SBU
the effectiveness of each SBU is often subdivided into additional areas of accountability: product lines, geographic areas, and customer
SBUs are highly effective in organizing performance requirements and in establishing accountability for financial responsibility
What is contribution margin?
it measures the excess of revenues over variable costs (or the contribution to fixed costs) for a company/division
controllable fixed costs are costs that managers can influence in less than one year (advertising and sales promotion); managers have control over variable costs and controllable fixed costs, but common costs are not controllable
What is a balanced scorecard?
it gathers info on multiple dimensions of an organization’s performance defined by critical success factors necessary to accomplish the firms strategy; critical success factors are classified as: financial, internal business processes, customer satisfaction, and advancement of innovation and HR development (learning and growth)
typically, the scorecard describes the classifications of critical success factors, the strategic goals, the tactics, and the related measures associated with strategic and tactical goals
Fact: quality is broadly defined by the marketplace as a product’s ability to meet or exceed customer expectations
the cost of quality includes costs associated with activities related to conformance with quality standards and opportunity costs or activities associated with correcting nonconformance with quality standards
What are conformance costs?
the costs of ensuring conformance with quality standards are classified as prevention and appraisal costs
prevention costs - incurred to prevent the production of defective units; this includes: employee training, inspection expenses (for raw material coming in), preventive maintenance, redesign of product, redesign of processes, and search for higher-quality suppliers
appraisal costs - incurred to discover and remove defective parts before they are shipped to the customer or the next department; this includes: statistical quality checks, testing, inspection (for completed products to be shipped), and maintenance of the lab
What are nonconformance costs?
the costs of nonconformance with quality standards are classified as internal and external costs; they are often difficult to compute because most of these costs are in the form of opportunity costs (lost sales or reputation damage)
internal failure - costs to cure a defect discovered before the product is sent to the customer; this includes: rework, scrap, tooling changes, costs to dispose, cost of the lost unit, and downtime
external failure - costs to cure a defect discovered after the product is sent to the customer; this includes: warranty costs, cost of returning the good, liability claims, lost customers, and re-egineering an external failure
