Kế toán, kiểm toán - Chapter 14: Contemporary approaches to measuring and managing performance

Chapter 14Contemporary approaches to measuring and managing performance1The purposes of performance measurementCommunicate the strategy and plans of the business and align employee’s goalsTrack performance against targetsIdentify problem areasEvaluate subordinates’ performance and as a basis of rewardsGuide senior managers in developing future strategies and operations2Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProblems with conventional performance measuresThey are not actionableFinancial measures emphasise only one perspectiveFinancial performance measures provide limited guidance for future actionsMay encourage actions which decrease shareholder and customer value3Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithContemporary performance measurement systemsInclude non-financial and financial measuresHave a strategic orientation—directly measure areas that provide competitive advantageUse external benchmarksEmphasis continuous improvement4Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithNon-financial measures for operational controlNon-financial measures reflect the drivers of future financial performanceMore actionableMore understandable and easier to relate to5Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithNon-financial measuresCustomer satisfactionMeasured by survey administered to customersDefect measuresMeasurement of faults in a product that occur during manufacturing processSupport a high quality strategyQualityPeriodic inspections or testing of productscontinued6Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithNon-financial measuresProductivityThe ratio of outputs produced per unit of inputcontinued7Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithNon-financial measuresStock statusAccident report/safety reportsMultiskillingMachine down timeNumber of hours, or percentage of total production hours that machines are unable to operateDelivery on time8Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProblems with non-financial performance measuresWide choice of non-financial measures available Their development can be ad-hoc and undirectedManagers must necessarily make trade-offsSome measures lack integritySome measures not easily translated into financial outcomes9Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithMeasuring performance with a balanced scorecardA performance measurement system that identifies and reports on performance measures for each key strategic area of the businessThe Kaplan and Norton model translates an organisation’s mission and strategies into objectives and performance measuresFour perspectivescontinued10Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithMeasuring performance with a balanced scorecardFinancial perspectiveReflects perspective of the shareholderSummarises the financial outcomes of decision and actionsMeasures include various cost and product measures, return on investment, cash flow measures, shareholder value measurescontinued11Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithMeasuring performance with a balanced scorecardCustomer perspectiveMeasures of the company’s success in achieving customer valueOutcome (lag) measures include customer profitability, market share, number of new customersLead indicators include on-time delivery, number of defectscontinued12Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithMeasuring performance with a balanced scorecardInternal business processesObjectives relate to specific processes that contribute to achieving customer and financial objectivesProcesses critical to delivering products to customers and achieving financial strategiesProduct design, operations, marketing, sales, customer service processesMeasures of cost, product quality, time-based measures, new product developmentcontinued13Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithMeasuring performance with a balanced scorecardLearning and growth Focuses on the capabilities of the organisation to achieve superior internal processes that create both customer and shareholder valueTo deliver long-term growth and improvementMeasures focus on employee capabilities, information systems capabilities and organisational climateEmployee satisfaction, training, skills, employee suggestionscontinued14Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith15Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithMeasuring performance with a balanced scorecardLag indicatorsMonitor progress towards the organisation's objectivesDifficult to monitor directlySummary financial measures, market share, customer satisfactionLead indicatorsMeasures that driver the outcomes and provide information that is actionable and managementRelate to the processes and activities of the business16Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithMeasuring performance with a balanced scorecardMeasures in the balanced scorecard provide balance betweenShort-term and long-term objectivesFinancial and customer measures, and measures of business processes and learning and growthOutcome measures and drivers of those outcomes Objective and easily quantified measures and subjective performance measures17Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithLinking non-financial measures to financial performanceImprovements in non-financial measures will not result in improved profits if:Management has selected the wrong critical success factors Management fails to utilise freed up resourcesThe performance measurement system is incorrectly designedcontinued18Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithLinking non-financial measures to financial performanceDu Pont chartIdentifies the linkages between key performance drivers, key performance indicators and financial performance measures19Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithBenchmarkingA process of comparing the products, functions and activities in an organisation against external businesses Identify areas for improvementImplement a program of continuous improvement20Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSteps in the benchmarking processIdentify the functions/activities to be benchmarked, and performance measuresSelect benchmarking partnersData collection and analysisEstablish performance goalsImplement plans21Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithForms of benchmarkingInternal benchmarking Benchmarking operations that are internal to the larger business groupCompetitive benchmarkingBenchmarking with other companies within the same industryIdentify the strengths and weaknesses of competitorscontinued22Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithForms of benchmarkingIndustry benchmarkingComparing against companies that have similar interests and technologies within an industryPerformance measures and practices may be directly comparableBest-in class or process benchmarking Benchmarking against the best practices that occur in any industry23Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithBenchmarking against competitor cost structuresCosts can be inferred by using publicly available information, such a sales volume, market share , product mixIndustry-sponsored databasesStockbroking firmsSpecialist benchmarking consulting firms24Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithInadequate performance measurement systemPerformance is acceptable on all dimensions, except profitCustomers do not buy, even when prices are competitiveNo one notices when performance reports are not suppliedCont.continued25Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithInadequate performance measurement systemSignificant time is spent debating the meanings of measuresMeasures have not changed for some timeThe business strategy has changed26Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithAn effective performance measurement systemLinked to strategy and goals of the organisationSimpleRecognise controllabilityEmphasises the positiveTimelyCont.continued27Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithAn effective performance measurement systemIncludes benchmarkingEmbraces participation and empowermentIncludes only a few performance measuresLinks to rewards28Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDesigning measures for continuous improvementContinuous improvement can be built into performance measurement systems bySelecting relevant performance targetsDefining and re-defining the measureMaking the performance target more challenging29Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithBehavioural implications of changing performance measuresResistance to changeIndividuals consider targets unfair or unachievableIndividuals’ pay is involvedChanges are most likely to succeed ifSupported across the entire organisationNot seen as an ‘add on’ to an inadequate performance measurement system30Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith