Performance Measures

Question 1

How can KPIs be useful?

Answer 1

KPIs provide targets for teams to shoot for, milestones to gauge progress, and insights that help people across the organization make better decisions

Question 2

How are KPIs different from financial analysis?

Answer 2

They may include important non-financial measures that will result in improved performance

KPIs are not intended to replace a detailed review of an entity’s financial situation and regular reviews should still be performed

Question 3

Provide examples of KPIs specific to an eye care company

Answer 3

• number of patients
• sales of prescription eyewear
• sales of sunglasses
• CM of prescription eyewear
• CM of sunglasses
• time spent with each patient

Question 4

To be a good KPI, the indicators you choose should be focused on..

Answer 4

A driver of business success that has the potential to change over time

Question 5

Why do you not want to have too many KPIs?

Answer 5

Because collecting data takes time and resources, and too many KPIs may cause you to lose focus and not give them the same level of attention.

Depending on the computer systems you choose for your business there may be opportunities to automate the collection of data

Question 6

What factors should you consider when identifying an appropriate KPI?

Answer 6

• key success factors for the organization and/or industry
• mission, vision, stated goals, user needs
• measures must be SMART (specific, measurable, achievable, results-focused and time-bound)
• give the specific performance measure (not just customer satisfaction but # of complaints that can be quantified)
• avoid generic performance measures (must be case-specific)

Question 7

Need to ensure balance between ________ and ________ measures

Answer 7

Financial and nonfinancial (if appropriate given case facts)

Question 8

Given examples of financial performance indicators

Answer 8

• ROI
• Revenue per employee
• Sales by region/ division
• Cost per job (total, average materials cost, average labour cost)
• gross margin
• covenant/ ratio calculations

Question 9

Give examples of non-financial performance indicators

Answer 9

• customer satisfactions (number of complaints)
• product/ service quality (defect %, # of returns)
• safety (# days worked since last accident)
• labour retention (# employees leaving)
• market share
• returning customers

Question 10

What is the difference between financial and nonfinancial performance indicators?

Answer 10

Financial - tangible, concrete dollar measures (or calculated using dollar items) that are objective and easier to measure

Nonfinancial - intangible, non-dollar measures that are typically more subjective in nature but are still measurable (even if difficult to quantify)

Question 11

Key performance measures (for-profit)

Answer 11

• Financial indicators – revenue growth, productivity, asset utilization
• Customer indicators – customer selection, customer acquisition, customer service and retention, customer growth
• Internal business process indicators – supplier management, production management, distribution management
• Learning and growth indicators – innovation, human capital, information capital
• Regulatory indicators – environmental observance, legal compliance, community observance

Question 12

Performance measurement of responsibility centres

Answer 12

• A responsibility accounting system can improve goal congruence by assigning decision-making rights to responsibility centres, which are then held accountable for achieving organizational goals.
• Common types of responsibility centres are:
  o Revenue centre – e.g., actual vs. budgeted revenue, revenue growth
  o Cost centre – e.g., actual vs. budgeted costs, cost per unit
  o Profit centre – e.g., actual vs. budgeted profit, growth in net income
  o Investment centre – e.g., return on assets, growth in return on assets