Lecture Management accounting: An Australian perspective: Chapter 14 - Kim Langfield-Smith

After completing this chapter, you should be able to: understand the various purposes of performance measurement systems and the role of these systems in enhancing customer value and shareholder value; understand why conventional financial measures are not sufficient for managing an organisation; describe the characteristics of contemporary approaches to performance measurement;...
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Lecture Management accounting: An Australian perspective: Chapter 14 - Kim Langfield-Smith Chapter 14 Contemporary approaches to measuring and managing performanceCopyright 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-SmithThe purposes ofperformance measurement Communicatethestrategyandplansofthe businessandalignemployee’sgoals Trackperformanceagainsttargets Identifyproblemareas Evaluatesubordinates’performanceandas abasisofrewards Guideseniormanagersindevelopingfuture strategiesandoperationsCopyrightª2003McGrawHillAustraliaPtyLtd, 2Problems with conventionalperformance measures Theyarenotactionable Financialmeasuresemphasiseonlyone perspective Financialperformancemeasuresprovide limitedguidanceforfutureactions Mayencourageactionswhichdecrease shareholderandcustomervalueCopyrightª2003McGrawHillAustraliaPtyLtd, 3Contemporary performancemeasurement systems Includenonfinancialandfinancial measures Haveastrategicorientation—directly measureareasthatprovidecompetitive advantage Useexternalbenchmarks EmphasiscontinuousimprovementCopyrightª2003McGrawHillAustraliaPtyLtd, 4Non-financial measures foroperational control Nonfinancialmeasuresreflectthedrivers offuturefinancialperformance Moreactionable MoreunderstandableandeasiertorelatetoCopyrightª2003McGrawHillAustraliaPtyLtd, 5Non-financial measures Customersatisfaction Measuredbysurveyadministeredtocustomers Defectmeasures Measurementoffaultsinaproductthatoccur duringmanufacturingprocess Supportahighqualitystrategy Quality Periodicinspectionsortestingofproducts continuedCopyrightª2003McGrawHillAustraliaPtyLtd, 6Non-financial measures Productivity Theratioofoutputsproducedperunitofinput Number of units produced Labour productivi ty Number of direct labour hours Number of units produced Total factor productivi ty Cost of all inputs to production continuedCopyrightª2003McGrawHillAustraliaPtyLtd, 7Non-financial measures Stockstatus Accidentreport/safetyreports Multiskilling Machinedowntime Numberofhours,orpercentageoftotal productionhoursthatmachinesareunableto operate DeliveryontimeCopyrightª2003McGrawHillAustraliaPtyLtd, 8Problems with non-financialperformance measures Widechoiceofnonfinancialmeasures available Theirdevelopmentcanbeadhocand undirected Managersmustnecessarilymaketradeoffs Somemeasureslackintegrity Somemeasuresnoteasilytranslatedinto financialoutcomesCopyrightª2003McGrawHillAustraliaPtyLtd, 9Measuring performancewith a balanced scorecard Aperformancemeasurementsystemthat identifiesandreportsonperformance measuresforeachkeystrategicareaofthe business TheKaplanandNortonmodeltranslatesan organisation’smissionandstrategiesinto objectivesandperformancemeasures Fourperspectives continuedCopyrightª2003McGrawHillAustraliaPtyLtd, 10Measuring performancewith a balanced scorecard Financialperspective Reflectsperspectiveoftheshareholder Summarisesthefinancialoutcomesofdecision andactions Measuresincludevariouscostandproduct measures,returnoninvestment,cashflow measures,shareholdervaluemeasures continuedCopyrightª2003McGrawHillAustraliaPtyLtd, 11Measuring performancewith a balanced scorecard Customerperspective Measuresofthecompany’ssuccessin achievingcustomervalue Outcome(lag)measuresincludecustomer profitability,marketshare,numberofnew customers Leadindicatorsincludeontimedelivery, numberofdefects continuedCopyrightª2003McGrawHillAustraliaPtyLtd, 12Measuring performancewith a balanced scorecard Internalbusinessprocesses Objectivesrelatetospecificprocessesthat contributetoachievingcustomerandfinancial objectives Processescriticaltodeliveri ...