C H A P T E R 10

Continuous Improvementin Management AccountingContinuous Improvementin Management Accounting

Learning Objective 1

Explain the fundamentals of building a Balanced Scorecard.

Define Performance Measures and Balanced Scorecard

Performance Measures:A general term used to describe all measures designed to capture information about performance related to a particular activity or process.

Balanced Scorecard:A new management model designed to link together performance measures for financial, customer, internal process, and learning/growth perspectives that are unique to an organization's particular strategy.

Discuss Balanced Scorecard

The Balanced Scorecard is a guiding theory of management.

It is a direct view of an organization’s strategies, plans, and management processes.

It is unique to each organization.

Customer Satisfaction

Management must look at two performance measures to understand what customers want so that the company may be able to increase its market share, revenue, and long-term profits.

Customer SatisfactionCustomer Satisfaction

Leading Measures Measures that support desired performance in

other business activities.

Outcome MeasuresMeasures of desired

outcome performance in activities critical to an

organization’sstrategic goals.

Match These Leading Performance Measures

Purchase cost to customerDelivery cost to customerSetup cost to customerMaintenance and repair cost to customer

Cost

Quality

Returns by customersQuality rankings by other agenciesCustomer survey response

Time—reliable delivery

Time—fastest delivery

Percentage of on-time deliveriesNumber of production interruptions

Average response time for service callTime to complete contractProduction cycle time

Match These Outcome Performance Measures

Retention ratesNumber of defecting customersCosts to retain customers

Customer retention rates

Market share

Acquisition ratesNumber of new customersCosts to recruit customers

Percent of total number of customers

Percent of total dollars spent by customers

Percent of total units sold to customers

Customer acquisition rates

Leading Performance Measures

What three things does life cycle costing do?

1. Focuses on all costs incurred throughout the life of the product.

2. Helps to ensure that no costs are omitted when evaluating performance and value.

3. When evaluating customer satisfaction, an organization also needs to measure performance of its product or service in terms of all its costs for its customers.

1. Focuses on all costs incurred throughout the life of the product.

2. Helps to ensure that no costs are omitted when evaluating performance and value.

3. When evaluating customer satisfaction, an organization also needs to measure performance of its product or service in terms of all its costs for its customers.

Outcome Measures of Customer Satisfaction

Name two ways to measure market share.

1. The percentage share one company receives of the total sales revenues in the economy for a particular product or service.

2. A company must determine if its efforts are being rewarded with increased market share and customer profitability.

1. The percentage share one company receives of the total sales revenues in the economy for a particular product or service.

2. A company must determine if its efforts are being rewarded with increased market share and customer profitability.

Increasing Market Share

A company can increase its market share two ways:A company can increase its market share two ways:

Retaining current customersRetaining current customers

Acquiring new customersAcquiring new customers

Internal Processes

Innovation processesOperations processes

Service-after-sale processes

What processes within the organization must take place to satisfy the customer completely?

Define Innovation Process Measures

InternalProcesses

Innovation OperationsService-

after-sale

Measures involve identifying new products and

services, and then creating and

bringing those products to market.

Define Innovation Process Measures

InternalProcesses

Innovation OperationsService-

after-sale

Measures involve all the activities a customer

generally experiences, including receipt of

customer order, creation of product, and delivery of

product or service.

Define Innovation Process Measures

InternalProcesses

Innovation OperationsService-

after-sale

Two types:• Billing and

collection of payments

• Commitments to warranty products

Innovation Process Measures

InternalProcesses

Innovation OperationsService-

after-sale

Two types:• Billing and

collection of payments

• Commitments to warranty products

Measures involve all the activities a customer

generally experiences, including receipt of customer orders,

creation of product, and delivery of product or

service.

Measures involve identifying new products and

services, and then creating and

bringing those products to

market.

Learning and Growth

Learning and

growth takes place

through:

3. Conducting a well-run organization1. Effective communication.2. Alignment of goals.3. Integration of team efforts across departments.4. Clearly defined planning, controlling, and

evaluating processes.

2. Strengthening information systems1. Increasing the quality of the systems.2. Making the systems accessible.3. Producing relevant, accurate, and timely

information.

1. Developing employee productivity1. Performance evaluation.2. Retention rates.3. Employee satisfaction.

Linking It All Together

Management does not have to track all of these performance measures.

Management does need to identify the vision and strategy that supports progress toward company goals.

All measures must link together to eventually support the ultimate

goals of the company.

Management does not have to track all of these performance measures.

Management does need to identify the vision and strategy that supports progress toward company goals.

All measures must link together to eventually support the ultimate

goals of the company.

Linking It All Together

To evaluate whether the company is linking its performance measures with its goals, management

must look at leading versus lagging indicators.

To evaluate whether the company is linking its performance measures with its goals, management

must look at leading versus lagging indicators.

Leading indicatorsMeasures that indicate the potential success of future business activities.

Leading indicatorsMeasures that indicate the potential success of future business activities.

Lagging indicatorsMeasures that indicate the success of past business activities.

Lagging indicatorsMeasures that indicate the success of past business activities.

Define

There Is No “Quick Approach”

Management must have a clear knowledge of both financial and management accounting concepts.

1st

Management must identify the organization’s strategy in relation to its industry.

2nd

Management must identify what cost, quality, and time issues are important to remain competitive.3rd

Measures must be developed, tested, and then implemented.HB

Learning Objective 2

Anticipate that both management accounting and financial accounting are poised for important changes.

Accounting for Tomorrow The accounting profession is continually changing

and improving.

Even financial accounting is being pressured to provide more relevant and more timely information than is now contained in annual reports.

These pressures include:

Providing nonfinancial data in public reports.

Providing reports that emphasize the relevance of information to important investing, lending, and regulatory decisions.

Providing access to information systems throughout the year.

The accounting profession is continually changing and improving.

Even financial accounting is being pressured to provide more relevant and more timely information than is now contained in annual reports.

These pressures include:

Providing nonfinancial data in public reports.

Providing reports that emphasize the relevance of information to important investing, lending, and regulatory decisions.

Providing access to information systems throughout the year.

Future ofFinancial Accounting

ServiceService

ContentContent

FocusFocus

CurrentServices

Nonfinancial

Financial

Reliability Relevance

Documents

Systems