Chapter 11 Performace Evaluation and the Balanced Scorecard A Decentralized splitting operations into different units a Advantages i Freees top management time ii Supports Use if Expert Knowledge iii iv Provides Training v b Disadvantages Improves Motivation and Retention Improves customer relations i Duplication of Costs ii Problems of achieveing goal congruence c Responsibility Centers manager is accountabile for specific activities is a part or subunit of an organization whose i Cost Center Controlling Cost ii Revenue Center Genreating Sales Revenue iii Profit Center Producing Profit through generating sales and iv controlling costs Investment Center Producing Profit and managing the divisions invested capital provide top management with the primary goal B Performance Evaluation Systems of performance evaluation systems a Goals of Performance Evaluation System i Promoting Goal Congruence and Coordination ii Communicating Expectations iii Motivating Unit Managers iv Providing Feedback v Benchmarking the practice of comparing the units achievements against other other companies subunits other companies in the same industry the best practices in the industry or the subunits past performance b Balanced Scorecard financial performance measures past actions and operational performance measures future performance when judging a companies subunits recognizes that managers must consider both i 4 Perspectives of Balanced Scorecard 1 Financial a How do we look to shareholders b Increasing profit 2 Customer a How do customers see us b Customes Concerns i Products price ii Products quality iii Sales Service Quality iv Products delivery time 3 Internal Business a At what business process must me excel to satisfy customer and financial objectives b Factors i Innovation ii Operations iii Post Sales Service c Efficent And Effective operations 4 Learning Growth a Can we continue to improve and create value b Employee Capabilities c Information Systems Capabilities d Companyes Climate for action C Managers Evaluation a Cost Center Performance Reports i Management by exception 1 only investigating certain variances a exceeding certain cost b exceeding certain percentage of budget ii Revenue Center Performance Reports 1 Highlight flexible budget and sales volume variance iii Profit Center Performace Report 1 D Mangers Evaluation of Investment Centers Include both revenue and expense Investmetn Centers are usually large dividions of a company a b Measure 2 factors i How much income the division is generating ii How efficiently the division is using the assets c Return On Investment ROI income relative to size of assets i ROI Operating Income Total Assets ii Sales Margin every 1 in sales focuses on profitability iii Capital Tuenover Sales Total Assets how much operating income the division makes for d Residual Income residual income above and beyond managements expectations ilooks to see if division has created any excess or i RI Operating Income Marginal Acceptable Income MAI 1 MAI Target rate of return total assets e Economic Value Added EVA calculates RI by specifically targeting i The Income available to the stakeholders ii Assets used to generate income for the stakeholders iii Minimum rate of return required by these stakeholders weighted Average cost of capital WACC EVA AfterTax Operating income Total Assets Current Liabilities WACC iv differences between RI and Eva 1 EVA uses after tax operating income because this is not available to investors 2 Total assets are reduced by current liabilities because owed to short term creditors will not be used by investors 3 WACC replaces managers target rate of return 4 Incorporates all components of RI from perspective of investors and long term creditors
View Full Document
Unlocking...