c h a p t e r 10 continuous improvement in management accounting continuous improvement in...
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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