mcs 11th session

5/24/2018 MCS 11th Session

1/18


2/18


3/18

Reward

Yes

measurements

revised revised actual No

vs plan feedback/communication

Goals &strategies

StrategicPlanning

ResponsibilityCenter

performance

Rules

ReportActual vs

plan

Performancesatisfactory

Otherinformation

Budgeting


4/18

Framework for Designing Performance Measurement Systems

STRATEGY

What count,get measured

What getsmeasured,gets done

What getsdone, getsrewarded

What gets

rewarded,really counts


5/18

Limitations of Financial Control System

It may encourage short-term actions,

It may not undertake useful long-term actions toobtain short-term profits,

Using short-term profit as the sole objective can

distort communication between business unitmanager and senior management,

Tight financial control may motivate manager tomanipulate data


6/18

PLUSPerformanceMeasurement

systems

Financial

measures

Non financialmeasures

limitations

Keyperformance

indicators

BalanceScorecard


7/18

Balance

Scorecard

Financial CustomerInternal

Business

Innovation

& learning

S T R A T E G Y

GOAL


8/18

Balance Scorecard ( continued ) In creating balance scorecard, executive must

choose a mix of measurement that :

1. Accurately reflect the critical factors that willdetermine the success of the companysstrategy,

2. Show the relationships among the individual measures

in a cause-effect manner, indicating how nonfinancial measures affect long-term financial results,

3. Provide a broad-base view of the current status of thecompany.


9/18

Performancemeasurements

Outcome &

driver

Financial &

non financial

internal &external

Lagging &leading

indicators

A balancebetween

external andinternal measures

Non financialimpact tofinancial


10/18

PERSPECTIVE MEASURES

Innovation andlearning

perspective

Manufacturingskills

Internal businessperspective

First-pass yieldOrder cycle time

Customerperspective

Customersatisfaction

survey

Financialperspective

Sales revenuegrowth


11/18

Customer-Focused KeyVariables

Bookings

Backorders

Market share

Key account orders

Customer satisfaction

Customer retention

Customer loyalty

Key Variables Related toInternal Business Process

Capacity utilization

On-time delivery

Inventory turnover

Quality

Cycle time


12/18

Implementation of Performance MeasurementSystem involves :

Define strategy

Link between strategy and operational action

For single industry should be developed at the corporate level

For multi business should be developed at the business unitlevel.

Define measures of strategy

Organization focus on few critical measures.

Integrate measures into management system

Must be integrated with organizations formal and informalstructures, culture, and human resources.

Review measures and results frequency


13/18

Define strategy Define measuresof strategy

Integrate

measures into themanagement

system

Review measuresand resultsfrequency

-whether thestrategy is being

implementedcorrectly,

-how successfully itis working

-keep measuresaligned to ever

changing strategies

-improvemeasurement

Implementation of a Performance Measurement Systems Cycle


14/18

Difficulties in implementing PerformanceMeasurement Systems :

Poor correlation between non financial measures andresults,

Fixation on financial results,

Measures are not updated, Measurement overloaded,

Difficulty in establishing trade-offs.


15/18

Measurement Practices

Types of Measures

Quality of Measures

Relationships of Measures toCompensation


16/18

Two Levers of Control

Interactive Control System Diagnostic Control System

BusinessStrategy

StrategicUncertainties

CriticalPerformance

Variables


17/18

new strategy

Strategic uncertainties

Chosen strategyCritical success

factors

Design and

operation ofmanagementcontrol systems

Environmentalchanges

Strategyssuccessful

implementation

Learningorganization


18/18

mcs 11th session

Documents