mcs 11th session
TRANSCRIPT
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Reward
Yes
measurements
revised revised actual No
vs plan feedback/communication
Goals &strategies
StrategicPlanning
ResponsibilityCenter
performance
Rules
ReportActual vs
plan
Performancesatisfactory
Otherinformation
Budgeting
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Framework for Designing Performance Measurement Systems
STRATEGY
What count,get measured
What getsmeasured,gets done
What getsdone, getsrewarded
What gets
rewarded,really counts
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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
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PLUSPerformanceMeasurement
systems
Financial
measures
Non financialmeasures
limitations
Keyperformance
indicators
BalanceScorecard
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Balance
Scorecard
Financial CustomerInternal
Business
Innovation
& learning
S T R A T E G Y
GOAL
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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.
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Performancemeasurements
Outcome &
driver
Financial &
non financial
internal &external
Lagging &leading
indicators
A balancebetween
external andinternal measures
Non financialimpact tofinancial
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PERSPECTIVE MEASURES
Innovation andlearning
perspective
Manufacturingskills
Internal businessperspective
First-pass yieldOrder cycle time
Customerperspective
Customersatisfaction
survey
Financialperspective
Sales revenuegrowth
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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
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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
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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
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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.
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Measurement Practices
Types of Measures
Quality of Measures
Relationships of Measures toCompensation
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Two Levers of Control
Interactive Control System Diagnostic Control System
BusinessStrategy
StrategicUncertainties
CriticalPerformance
Variables
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new strategy
Strategic uncertainties
Chosen strategyCritical success
factors
Design and
operation ofmanagementcontrol systems
Environmentalchanges
Strategyssuccessful
implementation
Learningorganization
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