Chapter 21 - Chapter 9 Performance Management and Evaluation

1、Chapter 21Old Edition 23 Performance Management and EvaluationLearning Objectives:Management Responsibility, Accountability, and PerformanceResponsibility centers and performance measuresEnd-to-end accountability with the balanced scorecardLinking executive compensation and performanceBalanced Score

2、cardEnd-to-end AccountabilityOne type of a Managers DashboardKey Performance Objectives, Measures and Targets LinkedThe Balanced ScorecardDeveloped by Robert S. Kaplan and David P. NortonA framework that links the perspectives of an organizations four basic stakeholder groups with the organizations

3、mission and vision, performance measures, strategic plan, and resources.Classic Balanced Scorecard PerspectivesFinancial (investors)Learning and growth (employees)Internal business processesCustomersCommunityGovernmentTo succeed, an organization must add value for all groups in both the short and lo

4、ng term Balanced Scorecard FrameworkIdeally, everyone in the organization should be able to see how their actions contribute to the achievement of organizational goals from multiple perspectives.Strategic Planning and the Balanced ScorecardFor each perspective, develop its scorecard based on the org

5、anizations mission/vision and resourcesObjective/GoalMeasureTargetBalanced Scorecard FrameworkAll perspectives are linked and balanced in the scorecardObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetOrganizationsMission/VisionFinancialCustomerInternal Business

6、 ProcessLearning and GrowthScorecard ProcessPerformance objectives are linked and balanced in planning processPerformance measures are specified for organizational unitsQuantifiable targets are set for organizational units Actual performance is measured and organizational units are held accountable

7、An organizational unit may be a department, a product line, a location, a curriculum, an individual, or a courseA Corporate Scorecard Example ObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetOrganizationsMission/VisionFinancial CustomersInternal Business Proces

8、sesLearning and Growth: EmployeesGovernmentCommunityObjectiveMeasureTargetObjectiveMeasureTargetHarley Davidsons“Fulfills dreams through the experience of motorcyclingCorporate Mission/VisionSample Corporate Scorecard for Harley Davidson: ObjectiveMeasuresTargetSustain or grow key indicatorsROI, EVA

9、, Cash flowObjectiveMeasuresTargetQuality products# of defectsCycle timeObjectiveMeasuresTargetLife-long customersMarket shareRepeat customersObjectiveMeasuresTargetGreat place to work# accidentsGrievance resolution timeFulfills dreams through the experience of motorcyclingFinancial CustomersInterna

10、l Business ProcessesLearning and Growth: EmployeesGovernmentCommunityObjectiveMeasuresTargetGood neighborCommunity service hoursObjectiveMeasuresTargetTimely complianceOn time filingsBalanced Scorecard and TeamworkSE 1Cause-and-Effect Chain Illustration for a BankLearning and GrowthPerspectiveIntern

11、al-BusinessPerspectiveCustomerPerspectiveFinancialPerspectiveNumber of Training Hours Employees ReceiveEmployee Scores on in-house tests about sales, service, and product knowledge Number of Successful Referrals and/or Cross-salesCustomer Satisfaction Ratings on Quarterly SurveysCustomer Retention R

12、ate: percent of last years customers still with bankImproved Loan, Deposits, and Non-Interest IncomeIf employees receive training in sales effectiveness, customer service, product profitability, and local bank knowledge, then better customer service and higher quality interactions with existing clie

13、nts can take place. Bank employees will be better able to ascertain the needs of customers, thereby making higher quality referrals and cross-sell proposals to customers, and customers will be more satisfied and choose to continue banking with bank. Increased referrals or cross-sales increases non-i

14、nterest income and provides the basis for growth in deposit and loan balances.Causal Chain Explanation:Linking executive compensation and performancePerformance-based payProfit sharing Cash bonusStock options, ESOPsYou get what you measureResponsibility, Accountability, and PerformanceResponsibility

15、 accounting:An information system that classifies data according to areas of responsibility and reports each areas activities by including only the revenues, cost, and resource categories that the assigned manager can control.Organizational chart: Line and staff relationshipsResponsibility centers-5

16、 kindsExampleResponsibility Centers and Measures of Performance Cost Centers-costsDiscretionary Cost Centers-costsRevenue Centers-revenuesProfit Centers-income statementInvestment Centers-balance sheet and income statement: ROI, RI, EVACost Centers A responsibility center whose manager is accountabl

17、e for only controllable costs that have a well-defined relationship between the centers resources and products or servicesExample: Factory, directly traceable to products or servicesMeasures: Compare Actual to Master and Flexible Budgets Compute DM, DL, OH variancesSCM: Supply Chain Management (AP,A

18、R, Sales, Inventory, Purchasing systems)Discretionary Cost CentersA responsibility center whose manager is accountable for costs only and in which the relationship between resources and products or services is not well defined.Example: HR, IT, Accounting, and other Administrative supportMeasures:Com

19、pare Actual to Master BudgetCompute variancesRevenue CentersA responsibility center whose manager is accountable primarily for revenue and whose success is based on its ability to generate revenueExample: catalog, phone or e-commerce sales center Measures:Compare Actual to Master BudgetCompute sales

20、 related variancesProfit CentersA responsibility center whose manager is accountable for both revenues and costs and for the resulting operating income.Examples: retail store Measures: Variable costing income statement or Traditional income statement-page 338Compare actual, flexible, and master budg

21、eted income statementsCompute variancesInvestment CentersA responsibility center whose manager is accountable for profit generation and can also make significant decisions about the resources the center uses.Examples: A division, product-line, companyMeasures:Compare actual, flexible, and master bud

22、geted income statements and balance sheetsCompute ROI, residual income Value/Cost analysisE 12.Momence Associates is evaluating the performance of three divisions: Maple, Oaks, and Juniper. Using the following data, compute the return on investment and residual income for each division, compare the

23、divisions performance, and comment on the factors that influenced performance. MapleOaksJuniperSales$100,000$100,000$100,000Operating income$10,000$10,000$20,000Assets invested$25,000$12,500$25,000Desired ROI 40%40%40%E 12. Solution Momence Associates is evaluating the performance of three divisions

24、: Maple, Oaks, and Juniper. Using the following data, compute the return on investment and residual income for each division, compare the divisions performance, and comment on the factors that influenced performance.MapleOaksJuniperSales$100,000$100,000$100,000Operating income$10,000$10,000$20,000As

25、sets invested$25,000$12,500$25,000Desired ROI 40%40%40%ROI=Operating Income/Assets InvestedMaple= $10,000/$25,000= 40%Oaks= $10,000/$12,500= 80% Residual Income=Operating Income-(Desired ROI x Assets Invested)Maple= $10,000-(40% x $25,000)= $0Oaks= $10,000-(40% x $12,500)= $5,000SE 2.Identify each o

26、f the following as a cost center, a discretionary cost center, a revenue center, a profit center, or an investment center.1.The manager of center A is responsible for generating cash inflows and incurring costs with the goal of making money for the company. The manager has no responsibility for asse

27、ts.2.Center B produces a product that is not sold to an external party.3.The manager of center C is responsible for the telephone order operations of a large retailer.4.Center D designs, produces, and sells products to external parties. The manager makes both long-term and short-term decisions.5.Cen

28、ter E provides human resource support for the other centers in the company.SE 2.SolutionIdentify each of the following as a cost center, a discretionary cost center, a revenue center, a profit center, or an investment center.1.The manager of center A is responsible for generating cash inflows and in

29、curring costs with the goal of making money for the company. The manager has no responsibility for assets. P2.Center B produces a product that is not sold to an external party. C3.The manager of center C is responsible for the telephone order operations of a large retailer. R4.Center D designs, prod

30、uces, and sells products to external parties. The manager makes both long-term and short-term decisions. I5.Center E provides human resource support for the other centers in the company. DCE 5.Identify the most appropriate type of responsibility center for each of the following organizational units.

31、1.A pizza store in a pizza chain2.The ticket sales center of a major airline3.The South American segment of a multinational company4.A subsidiary of a business conglomerate5.The information technology area of a company6.A manufacturing department of a large corporation7.An eye clinic in a community

32、hospital8.The food-service function at a nursing home9.The food-preparation plant of a large restaurant chain10.The catalog order department of a retailerE 5.SolutionIdentify the most appropriate type of responsibility center for each of the following organizational units.1.A pizza store in a pizza

33、chain P2.The ticket sales center of a major airline R3.The South American segment of a multinational company I4.A subsidiary of a business conglomerate I5.The information technology area of a company DC6.A manufacturing department of a large corporation C7.An eye clinic in a community hospital P8.Th

34、e food-service function at a nursing home C9.The food-preparation plant of a large restaurant chain C10.The catalog order department of a retailer RThe income statement in the traditional reporting format for Green Products, Inc., for the year ended December 31, 20 x7, is as follows.Green Products,

35、Inc.Income StatementFor the Year Ended December 31, 20 x7Total fixed manufacturing costs for 20 x7 were $16,750. All administrative expenses are considered to be fixed.Using this information, prepare an income statement for the company for the year ended December 31, 20 x7, using the variable costin

36、g format.SalesLess Cost of Goods SoldGross MarginLess Operating Expenses: Selling Expenses:VariableFixedAdministrative ExpensesOperating Income$296,400 112,750 $183,650$69,82036,980 27,410$49,440The income statement in the traditional reporting format for Green Products, Inc., for the year ended Dec

37、ember 31, 20 x7, is as follows.Green Products, Inc.Income StatementFor the Year Ended December 31, 20 x7Total fixed manufacturing costs for 20 x7 were $16,750. All administrative expenses are considered to be fixed.Using this information, prepare an income statement for the company for the year ende

38、d December 31, 20 x7, using the variable costing format.SalesLess Variable Cost of Goods SoldLess Variable Selling Expenses Less Variable Administrative ExpensesContribution MarginLess Fixed Costs and Expenses: Fixed OverheadFixed Selling ExpensesFixed Administrative ExpensesOperating Income$296,400

39、 $112,750- 16,750 $ 69,820 $ 0$130,580$ 16,750$36,980 $27,410$49,440Chapter 21 HomeworkP2P 3SE 4. Complete the following performance report for cost center C for the month ended December 31.Actual ResultsVarianceFlexible BudgetVarianceMaster BudgetUnits produced800?20(U)100Center costsDirect materia

40、ls$84$?$80$?$100Direct labor150?40(F)200Variable overhead?20(U)240 ?300Fixed overhead 280 ? 250 ?250Total cost$ ?$44(U)$ ?$120(F)$850Performance measuresDefect-free units to total produced:75% ?N/A90%Average throughput time per unit12 minutes ?N/A 10 minutesSE 4. Solution Complete the following perf

41、ormance report for cost center C for the month ended December 31.Actual ResultsVarianceFlexible BudgetVarianceMaster BudgetUnits produced800?=8020(U)100Center costsDirect materials$84$?=4U$80$?=20F$100Direct labor150?=10F?=16040(F)200Variable overhead?=26020(U)240 ?=60F300Fixed overhead 280 ?=30U 250 ?=0250Total cost$ ?=774$44(U)$ ?=730$120(F)$850Performance measuresDefect-free units to total produced:75% ?=15%FN/A90%Average throughput time per unit12 minutes ?=2UN/A 10 minutesE 13. SolutionLeesburg, LLP, is evaluating the performance of three divisions: Lake, Sumter, and Poe. Using the follo