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Road Map Session 3: Session 3: Long Term Strategic Decision Making – Relevance of Full Cost Long Term Strategic Decision Making – Relevance of Full Cost Allocation, Apportionment and Absorption Allocation, Apportionment and Absorption Predetermined Overhead Rate Predetermined Overhead Rate Introduction to ABC Introduction to ABC Session 4: Session 4: ABC/M ABC/M
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Financial Information for Financial Information for Management, Planning and Management, Planning and
ControlControl
Road MapRoad MapSession 1: Session 1:
Basics of Financial Information for Basics of Financial Information for Management, Planning and ControlManagement, Planning and Control
Short Term Tactical Decision Making – C-V-P Short Term Tactical Decision Making – C-V-P RelationshipsRelationships
Session 2:Session 2:Relevant Costs for Decision MakingRelevant Costs for Decision MakingTime and SpaceTime and Space
Road MapRoad MapSession 3: Session 3:
Long Term Strategic Decision Making – Long Term Strategic Decision Making – Relevance of Full CostRelevance of Full Cost
Allocation, Apportionment and AbsorptionAllocation, Apportionment and AbsorptionPredetermined Overhead RatePredetermined Overhead Rate Introduction to ABCIntroduction to ABC
Session 4:Session 4:ABC/MABC/M
Road MapRoad MapSession 5: Session 5:
Basics of ControlBasics of ControlPerformance MeasuresPerformance MeasuresStrategic Cost Management BasicsStrategic Cost Management Basics
People behave in People behave in the way their the way their
performance is performance is measuredmeasured
Sujoy Auto Industries Sujoy Auto Industries LimitedLimited
Sujoy Auto Industries LimitedSujoy Auto Industries Limited SAIL is an Auto AncillarySAIL is an Auto Ancillary SAIL wanted to re-orient shared services from SAIL wanted to re-orient shared services from
Cost Centers to Profit CentersCost Centers to Profit Centers It was felt that Production departments unduly It was felt that Production departments unduly
trouble Maintenancetrouble Maintenance Maintenance department performed following Maintenance department performed following
activitiesactivities Preventive maintenancePreventive maintenance Break-down maintenanceBreak-down maintenance Special Projects (Reconditioning, Installing new Special Projects (Reconditioning, Installing new
machines, shifting machines etc)machines, shifting machines etc)
Activity Analysis was performed and the Activity Analysis was performed and the following composite man-hour Charging rates following composite man-hour Charging rates were arrived atwere arrived at Preventive maintenance Rs. 65.40Preventive maintenance Rs. 65.40 Break-down maintenance Rs. 42.80Break-down maintenance Rs. 42.80 Special Projects Rs.153.00Special Projects Rs.153.00
Production departments were given the Production departments were given the authority to decide maintenance scheduleauthority to decide maintenance schedule
Performance was evaluated on the basis of Performance was evaluated on the basis of departmental profitabilitydepartmental profitability
Sujoy Auto Industries LimitedSujoy Auto Industries Limited
Couple of months after implementationCouple of months after implementation Call requirement for both preventive and break-Call requirement for both preventive and break-
down maintenance reduced substantiallydown maintenance reduced substantially Profitability of the production departments Profitability of the production departments
enhanced substantiallyenhanced substantially Surplus resources in maintenance department Surplus resources in maintenance department
identifiedidentified Surplus resources are released or redeployedSurplus resources are released or redeployed Effective Net Saving realisedEffective Net Saving realised
Sujoy Auto Industries Limited - Sujoy Auto Industries Limited - ResultsResults
Four months later vehicles fitted with Four months later vehicles fitted with spares procured from Sujoy started spares procured from Sujoy started returning returning Electroplating quality Electroplating quality
OEMs started rejecting spare parts for OEMs started rejecting spare parts for want of precisionwant of precision
Internal rejection down graded OEM parts Internal rejection down graded OEM parts to Secondary Marketsto Secondary Markets
Sujoy Auto Industries Limited - Sujoy Auto Industries Limited - ResultsResults
Analysis brought out the following:-Analysis brought out the following:-Very low preventive maintenance at Very low preventive maintenance at
ElectroplatingElectroplatingPrecision corrections were not reset by Precision corrections were not reset by
experts (done by line workmen)experts (done by line workmen)Higher life of pressing dies (Rework was Higher life of pressing dies (Rework was
delayed)delayed)Loss of precisionLoss of precision
Sujoy Auto Industries Limited - Sujoy Auto Industries Limited - ResultsResults
Why this has happened?Why this has happened?Negative branches of the shift was not Negative branches of the shift was not
thought offthought offService level agreements were not drawnService level agreements were not drawnPerformance measure was introduced without Performance measure was introduced without
test runtest run
Sujoy Auto Industries Limited - Sujoy Auto Industries Limited - ResultsResults
What is the impact of not aligning What is the impact of not aligning the control system to the strategy?the control system to the strategy?
How the people behave in tangent How the people behave in tangent with the strategy and not in tandem?with the strategy and not in tandem?
Why is it important to gear the Why is it important to gear the organisation to a control system?organisation to a control system?
Who stole my steel?Who stole my steel?
1For long time “tons/hour”
has been the primeoperational measurement
in the steel industry
2Most people behavein line with the waythey are measured
3Departments try to
maximise theirperformance as
measured by “tons/hour
3Departments try to
maximise theirperformance as
measured by “tons/hour”
4In most departments
some items require lesstime per ton than others
7To maximise their
performance of “tons/hour in a given measurement period,
departments tend to produce the fast items at the expense
of the slow ones
3Departments try to
maximise theirperformance as
measured by “tons/hour”
5Non-productionresults in zero
tons/hour
8To maximise their performance
of “tons/hour”, departmentstend to produce for stock
even when there is no marketrequest for the short or
medium horizon
3Departments try to
maximise theirperformance as
measured by “tons/hour”
6Every additional
setup reduces themeasured
“tons/hour”
9To maximise their performance
of “tons/hour” departmentstend to pull ahead orders thatenable increasing a batch size
7To maximise their
performance of “tons/hour” in a given measurement period,
departments tend to produce the fast items at the expense
of the slow ones8
To maximise their performanceof “tons/hour”, departments
tend to produce for stockeven when there is no market
request for the short ormedium horizon
9To maximise their performance
of “tons/hour” departmentstend to pull ahead orders thatenable increasing a batch size
10Plant produces
items through a processhaving many
divergent points
11To maximise their performance
of “tons/hour” departmentstend to take actions
that result in “stealing”
Goal conflict!Goal conflict!Local Optima Local Optima
leading to overall leading to overall sub-optimisation!!sub-optimisation!!
Impact of Control Measures on Impact of Control Measures on Organisational BehaviourOrganisational Behaviour
Specific challenging goals consistently lead to Specific challenging goals consistently lead to better performance than the general goal of better performance than the general goal of doing one’s best. Specific goals direct action doing one’s best. Specific goals direct action more reliably than vague or general goals. more reliably than vague or general goals.
People behave in the way their performance is People behave in the way their performance is measuredmeasured
Managers’ reactions to control measures were Managers’ reactions to control measures were affected both by their own personality and by affected both by their own personality and by more general and organisational normsmore general and organisational norms
Impact of Control Measures on Impact of Control Measures on Organisational BehaviourOrganisational Behaviour
It is unlikely that one set of budgets can, at the It is unlikely that one set of budgets can, at the same time, meet both planning and motivational same time, meet both planning and motivational requirements.requirements.
Dysfunctional consequences of control Dysfunctional consequences of control measures arise when performance measures measures arise when performance measures motivate managers to engage in behaviour that motivate managers to engage in behaviour that is not organisationally desirable. (Lack of goal is not organisationally desirable. (Lack of goal congruence)congruence)
CYA, NIMBY CYA, NIMBY Pseudo-participationPseudo-participation
If companies do not choose If companies do not choose performance measures performance measures
wisely, they run the risk of wisely, they run the risk of paying managers to do the paying managers to do the
wrong things!wrong things!
Transfer PricingTransfer Pricing
Briefly…Briefly…
Objectives of Transfer Pricing Objectives of Transfer Pricing SystemSystem
To enable divisional manager make sound To enable divisional manager make sound decisions (ensure that the goal congruence is decisions (ensure that the goal congruence is encouraged)encouraged)
To report a divisional profit that is a reasonable To report a divisional profit that is a reasonable measure of the managerial performance of the measure of the managerial performance of the divisiondivision
To ensure that the divisional autonomy is not To ensure that the divisional autonomy is not undermined.undermined.
To provide a mechanism whereby profits of the To provide a mechanism whereby profits of the company as a whole is shared out between company as a whole is shared out between individual profit centresindividual profit centres
Variants of Transfer PricingVariants of Transfer PricingMarket Price based TP Market Price based TP
Full market price or Full market price or Market price discounted by any costs saved Market price discounted by any costs saved
by making internal transfersby making internal transfersFull Cost Plus (Standard or Actual)Full Cost Plus (Standard or Actual)Marginal Cost Plus (Standard or Actual)Marginal Cost Plus (Standard or Actual)
Market Price as TP - benefitsMarket Price as TP - benefitsStimulates competitive characteristics of Stimulates competitive characteristics of
the free marketthe free marketBoth transferor and transferee behave as Both transferor and transferee behave as
if they are dealing in a free marketif they are dealing in a free marketFair price Fair price Profits achieved are more realistic and Profits achieved are more realistic and
comparablecomparable
Market Price as TP - flawsMarket Price as TP - flaws If the market price is temporary – distress If the market price is temporary – distress
sale, adverse economic conditions or sale, adverse economic conditions or dumpingdumping
Disincentive to use spare capacityDisincentive to use spare capacityFinding the equivalent market price is Finding the equivalent market price is
difficult.difficult.
Cost based TP -benefitsCost based TP -benefitsTP can be fixed in advanceTP can be fixed in advanceMotivates the divisional managers to Motivates the divisional managers to
increase output and reduce expenditure increase output and reduce expenditure levelslevels
Fair division of profits among divisionsFair division of profits among divisions
Cost based TP - flawsCost based TP - flawsAgreement between transferor and Agreement between transferor and
transferee may be difficulttransferee may be difficultDepends on cost behaviour and can be Depends on cost behaviour and can be
used only in ranges within which costs are used only in ranges within which costs are linearlinear
Can encourage dysfunctional behaviour Can encourage dysfunctional behaviour No motivation to control costsNo motivation to control costs
Resolving TP conflictsResolving TP conflictsMarginal Cost plus a fixed feeMarginal Cost plus a fixed feeDual TPDual TPNegotiated TPNegotiated TP
Akhurdi Division and Akhurdi Division and Baramati DivisionBaramati Division
Resolving a TP conflictResolving a TP conflict
Divisional Profits and ROCEDivisional Profits and ROCE
Akhurdi Division
Baramati Division
Contribution from outside sales 15,000,000 2,500,000 Contribution from internal transfers 3,750,000 Total contribution 18,750,000 2,500,000 Fixed Costs 5,000,000 2,250,000 Profit 13,750,000 250,000 Capital Employed 66,250,000 12,500,000 ROCE 20.75% 2.00%
Current scenario - Current Current scenario - Current Transfer pricing systemTransfer pricing system
Does the Rs.300 price facilitate correct decisions from Does the Rs.300 price facilitate correct decisions from both the managers?both the managers?
Is there any motivational problems with the current Is there any motivational problems with the current transfer price?transfer price?
From the overall company perspective, is the profit From the overall company perspective, is the profit made by Baramati division “correct”?made by Baramati division “correct”?
Is there a capacity constraint in Akhurdi division?Is there a capacity constraint in Akhurdi division? So what is the relevant cost of the transfers?So what is the relevant cost of the transfers? Will that be fair for Division A?Will that be fair for Division A? Why?Why? So what do you suggest?So what do you suggest?
Cost plus a reasonable FCCost plus a reasonable FC Proportion of capacity utilised for BaramatiProportion of capacity utilised for Baramati
20%20% Reasonable proportion of FC to be borne by Reasonable proportion of FC to be borne by
BaramatiBaramati Rs.1000000Rs.1000000
So the ideal transfer price can beSo the ideal transfer price can be Rs.150 per unit plus Rs.10,00,000 paRs.150 per unit plus Rs.10,00,000 pa
But, what if the demand from But, what if the demand from outside market exceed the outside market exceed the capacity? capacity?
Proposal for new branchProposal for new branch- Company’s perspective- Company’s perspective
Selling Price 500 Less: Direct Material 50
VC of Aye 150 Direct Labour 30 Variable OH 20 Total Variable Cost 250
Contribution 250 Additional Contribution from 5000 1,250,000 Additional FC for the Establishment 500,000 Incremental profit from the proposal 750,000
Will Baramati Division “like” the Will Baramati Division “like” the proposal?proposal?
Selling Price 500 Less: Direct Material 50
TP of Aye 300 Direct Labour 30 Variable OH 20 Total Variable Cost 400
Contribution 100 Additional Contribution from 5000 500,000 Additional FC for the Establishment 500,000 Incremental profit from the proposal -
Revised TP mechanismRevised TP mechanismAkhurdi Division
Baramati Division
Contribution from outside sales 15,000,000 6,250,000 Contribution from internal transfers - - Total contribution 15,000,000 6,250,000 Lump sum payment 1,000,000 -1,000,000 Fixed Costs -5,000,000 -2,250,000 Profit 11,000,000 3,000,000 Capital Employed 66,250,000 12,500,000 ROCE 16.60% 24.00%
If companies do not If companies do not choose performance choose performance
measures wisely, they measures wisely, they run the risk of paying run the risk of paying managers to do the managers to do the
wrong things!wrong things!
Share Capital& Reserves
Long TermLiabilities
FixedAssets
CurrentAssets - Current
liabilities
Liabilities - Financing Side
Assets - Investment Side
Balance Sheet BlocksBalance Sheet Blocks
CE
Profit & Loss Account BlocksProfit & Loss Account BlocksSales (NSR)
Less: Cost of GoodsSold
Less: Dividend
Less: Interest= PBIT
Less:Taxation= PBT
= PAT
= Retained Earnings
Share Capital& Reserves
Long TermLiabilities
FixedAssets
CurrentAssets - Current
liabilities
Liabilities Assets
ROI (ROCE) =
PBIT/CE
ROI (ROCE) =
PBIT/CE
ROI - The most popular and convenient
measure of economic performance
Which division will “attract” more capital?Which division will “attract” more capital?
Division A Division BPresent ROI 25% 9%
What is the “hurdle rate” of investment for the two divisions?
What are the chances of identifying investmentsthat can give > 25% ROI?What are the chances of identifying investmentsthat can give > 9% ROI?
Which division will “Which division will “attractattract” more ” more capital?!capital?!
Which division will “dispose” more profitable Which division will “dispose” more profitable assets?assets?Division A Division B
Present ROI 25% 9%
What is the “hurdle rate” for divestment decision for the two divisions?
Which division will “Which division will “disposedispose” more ” more profitable assets?!profitable assets?!
ROI (ROCE) has ROI (ROCE) has the potential of the potential of
leading the leading the managers to take managers to take
sub-optimal sub-optimal decisions!decisions!
XVI: Geezer LimitedXVI: Geezer LimitedROCE as a performance ROCE as a performance
measurementmeasurement
As MD of Geezer As MD of Geezer which of the which of the
proposals you proposals you would recommend?would recommend?
Current ROCE of GeezerCurrent ROCE of Geezer
Profit 3,300,000 Capital Employed:Fixed Assets 7,800,000 Net Current Assets 3,750,000 Total 11,550,000 ROCE 28.57%
ROCE of Geezer on taking each ROCE of Geezer on taking each proposalproposal
Which will you recommend as MD?
A B C DProfit 3,220,000 3,450,000 3,200,000 3,540,000 Capital Employed:Fixed Assets 7,800,000 7,800,000 7,200,000 9,240,000 Net Current Assets 3,450,000 4,150,000 3,750,000 3,750,000 Total 11,250,000 11,950,000 10,950,000 12,990,000 ROCE 28.62% 28.87% 29.22% 27.25%Recommend Yes Yes Yes No
Current ROCE 28.57%
NPV for each proposalNPV for each proposal
Which will you accept as chief accountant?
Trans-action Year
Cash inflows
Cash outflows
Net Cash flow DCF factor NPV
A 1 300,000 -80,000 220,000 0.86957 191,304 2 to 4 -80,000 -80,000 1.98541 -158,833
Yes 32,471 B 1 150,000 -400,000 -250,000 0.86957 -217,391
2 to 4 150,000 150,000 1.98541 297,812 Yes 80,421
C 350,000 350,000 1.00000 350,000 1 -450,000 -450,000 0.86957 -391,304
No -41,304 D -1,800,000 -1,800,000 1.00000 -1,800,000
1 to 5 600,000 600,000 3.35216 2,011,293 Yes 211,293
Goal conflictGoal conflict
Geezer will recommend A, B and C only;Geezer will recommend A, B and C only; C will be rejected by GAP Limited.C will be rejected by GAP Limited. D will not come to the notice of GAP at all.D will not come to the notice of GAP at all.
A B C DPerformance Appr. Yes Yes Yes NoInvestment Appr. Yes Yes No Yes
Is there a solution?Is there a solution?
EVAEVA…….. Economic Value Added.. Economic Value AddedWhat it is?What it is?How is it superior?How is it superior?How to compute?How to compute?
Economic Value AddedEconomic Value Added
Rs.4. Divisional PBIT 1500Less: Taxes 500Net Operating Profit after Tax (NOPAT) 1000Less: Capital Charges (Invested capital x Cost of Capital) 750EVA 250
EVA… answer to the three EVA… answer to the three questions...questions...
Can be calculated at divisional levels, thus Can be calculated at divisional levels, thus providing line of sight for divisional providing line of sight for divisional managersmanagers
Are flows, not stocks, and thus are Are flows, not stocks, and thus are amenable to performance evaluation over amenable to performance evaluation over periods of timeperiods of time
Promote the creation of share-holder Promote the creation of share-holder wealth.wealth.
EVA… The terms to be EVA… The terms to be defined...defined...
NOPATNOPAT Operating profits net of tax and measures the profits the Operating profits net of tax and measures the profits the
company/division has generated from its ongoing operationscompany/division has generated from its ongoing operations Capital ChargesCapital Charges
Capital invested x Wt. Ave. Cost of CapitalCapital invested x Wt. Ave. Cost of Capital Capital InvestedCapital Invested
Share holders funds + Interest bearing debt (both short term and Share holders funds + Interest bearing debt (both short term and long term)long term)
Fixed Assets + Working CapitalFixed Assets + Working Capital WACCWACC
Cost of Debt (after tax) + Cost of equityCost of Debt (after tax) + Cost of equity
Let’s get back to the two Let’s get back to the two divisions...divisions...
EVA and NPVEVA and NPVInitial Investment: FA 1000
Wcap 1500Total 2500
Year PBDIT1 6002 6503 7004 7505 800
Depreciation SLM 20%WCAP is recovered at the end of the five yearsTax is assumed to be Zero.WACC is 10%
Capital Charge Year 1 Year 2 Year 3 Year 4 Year 5Tangible assets 1000 800 600 400 200WCAP 1500 1500 1500 1500 1500Invested Capital 2500 2300 2100 1900 1700Capital Charge 250 230 210 190 170EVA Year 1 Year 2 Year 3 Year 4 Year 5PBDIT 600 650 700 750 800Less: Depr. 200 200 200 200 200NOPAT 400 450 500 550 600Less: Cap. Ch 250 230 210 190 170EVA 150 220 290 360 430
EVA and NPVEVA and NPV
Cash flows
PV factors
PV of cash flows EVA
PV of EVA
(2,500) 1.0000 (2,500) 600 0.9091 545 150 136 650 0.8264 537 220 182 700 0.7513 526 290 218 750 0.6830 512 360 246
2,300 0.6209 1,428 430 267 1,049 1,049
Case XVII: Computing EVACase XVII: Computing EVA
Computing NOPATPBIT 2,500 Less: Tax (600) Less: Tax advantage of Interest [(Taxrate) x Int] (245) NOPAT 1,655
Computing NOPATPAT 1,200 Add: Tax advantage of Interest [(Int x (1-taxrate)] 455 NOPAT 1,655
Case XVII: Computing EVACase XVII: Computing EVAComputing Invested Capital (Operating Approach)Working Capital 3,800 Investment 3,500 Fixed Assets 9,200 Total 16,500 Opening Invested Capital 13,500 Average Invested Capital 15,000
Computing Invested Capital (Financing Approach)Short-term Debt 1,500 Long-term Debt 8,400 Share-holders Equity 6,600 Total 16,500 Opening Invested Capital 13,500 Average Invested Capital 15,000
Case XVII: Computing EVACase XVII: Computing EVA
Computing EVANOPAT 1,655 Less: Capital Charges (12% of Average Capital) 1,800 EVA (145)
Calculating Economic Value AddedOperating Income+ Interest Income+ Equity Income+ Other Investment Income - Income Taxes - Tax shield on interest expense=Net Operating Profit after Tax (NOPAT)
Short Term Debt+ Long term debt + Other Long term liabilities+ Share holders' equity= Invested Capital (IC)
Average IC = (IC Opening + IC Closing)/2
NOPAT- Capital Charges (Average IC x Cost of Capital)= EVA
Relationship between planning Relationship between planning and control functionsand control functions
Strategy Formulation
Activity Nature of end product
Goals, strategies and policies
Management Control
Implementation of Strategies
Task Control
Efficient and Effective performance of individualtasks
EVA:EVA: Bridging the Gap between Valuation and Performance Bridging the Gap between Valuation and Performance MeasurementMeasurement
Balanced Score Card Balanced Score Card (1992)(1992)
Marrying non-financial and Marrying non-financial and financial measures of financial measures of
performanceperformance
Why Balanced Scorecard?Why Balanced Scorecard?
Financial measures alone do not tell the Financial measures alone do not tell the whole storywhole storyNot consistent with business realitiesNot consistent with business realitiesDriving by rearview mirrorDriving by rearview mirrorTend to reinforce functional silosTend to reinforce functional silosMay sacrifice long term thinkingMay sacrifice long term thinkingNot relevant at many levels of the Not relevant at many levels of the
organizationorganization
Why Balanced Scorecard?Why Balanced Scorecard? Increasing importance of Intangible AssetsIncreasing importance of Intangible Assets
Developing Customer RelationshipDeveloping Customer RelationshipCustomer LoyaltyCustomer LoyaltyProduce customized high quality products in Produce customized high quality products in
short lead times and at low costshort lead times and at low costEmployee Skills, Organizational LearningEmployee Skills, Organizational Learning Information TechnologyInformation Technology
Why Balanced Scorecard?Why Balanced Scorecard? Changing ScenarioChanging Scenario
Cross Functional TeamsCross Functional Teams Extended familyExtended family
CustomersCustomers SuppliersSuppliers
Mass CustomizationMass Customization Global ScaleGlobal Scale InnovationInnovation
Shrinking Product Life CyclesShrinking Product Life Cycles Knowledge WorkersKnowledge Workers
The Four Pillars of Balanced The Four Pillars of Balanced ScorecardScorecard
Financial PerspectiveFinancial PerspectiveCustomer PerspectiveCustomer Perspective Internal Business PerspectiveInternal Business PerspectiveLearning and GrowthLearning and Growth
Translating Vision and Strategy Translating Vision and Strategy – Four Perspectives– Four Perspectives
Vision &
Strategy
Financial:To succeed financially how should we appear
to our shareholders?
Internal Business ProcessTo satisfy our Shareholders& customers what businessProcesses must we excel in?
Learning & GrowthTo achieve our vision,
how will we sustain ourability to change & improve?
CustomerTo achieve our vision,
how should we appear to our customers?
Vision &
Strategy
Financial
Internal Business Process
Customer
Learning & Growth
No BSC is complete No BSC is complete without financial without financial measuresmeasures
Represent the Represent the destination or the end destination or the end of your strategyof your strategy
Lag measures of Lag measures of performanceperformance
Common measuresCommon measures Return on EquityReturn on Equity Gross SalesGross Sales Revenue by Revenue by
SegmentSegment
Vision &
Strategy
Financial
Internal Business Process
Customer
Learning & Growth
Should answer two Should answer two questionsquestions Who are our Who are our
customers?customers? What is our value What is our value
proposition in serving proposition in serving them?them?
Operational Operational excellenceexcellence
Product LeadershipProduct Leadership Customer IntimacyCustomer Intimacy Common MeasuresCommon Measures
Customer loyaltyCustomer loyalty Market ShareMarket Share Customer retentionCustomer retention
Vision &
Strategy
Financial
Internal Business Process
Customer
Learning & Growth
Key processes we Key processes we must excel at to drive must excel at to drive value for customersvalue for customers ManageManage
OperationsOperationsCustomersCustomersInnovationInnovationRegulatory & Regulatory &
Social ProcessesSocial Processes Common measuresCommon measures
On time deliveryOn time delivery Product development Product development
life cyclelife cycle Patents pendingPatents pending
Vision &
Strategy
Financial
Internal Business Process
Customer
Learning & Growth
Often overlookedOften overlooked Represents the enablers of Represents the enablers of
the other three the other three perspectivesperspectives Human CapitalHuman Capital Information CapitalInformation Capital Organization CapitalOrganization Capital
Soft measures which can Soft measures which can drive hard resultsdrive hard results
Common MeasuresCommon Measures Employee satisfactionEmployee satisfaction Strategic Job Coverage Strategic Job Coverage
RatioRatio Internal Communication Internal Communication
RatingRating
Cause & Effect is Key to the BSC
E. L. & G. - Skills, Tools, CultureE. L. & G. - Skills, Tools, Culture
FinancialFinancial
Develop Innovative Products
Drive Customer Loyalty
Increase Profitability
And Realize the Vision
Increase Employee Productivity...
Internal Internal ProcessesProcesses
Customer
The Balanced Scorecard-The Balanced Scorecard-The Complete PictureThe Complete Picture
Long term Shareholder
Value
Productivity Strategy Growth Strategy
Improve CostStructure
Increase AssetUtilisation
Expand RevenueOpportunities
Enhance CustomerValue
FinancialPerspective
Price Quality Availability Selection Functionality Service Partnership Brand
Customer Value Proposition
CustomerPerspective
Regulatory & SocialProcesses
•Environment•Safety and Health•Employment•Community
InnovationProcesses
•Opportunity ID•R&D Portfolio•Design/Develop•Launch
Customer Management Processes
•Selection•Acquisition•Retention•Growth
Operations Management Processes
•Supply•Production•Distribution•Risk Management
Product/Service Attributes Relationship Image
Human Capital
Information Capital
Organisation CapitalCulture Leadership Alignment Teamwork
Learning and Growth Perspective
Internal Perspective
Cause-Effect RelationshipsCause-Effect Relationships
Learning &Growth
Employee Skills
Internal Business Process
Process Quality/Process Cycle Time
On-Time Delivery
Customer
Financial
ROCE/EVA
Customer Loyalty
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