strategic cost management
TRANSCRIPT
Strategic Cost Strategic Cost ManagementManagement
ByBy
Augustin AmaladasAugustin Amaladas
Prof. Augustin AmaladasProf. Augustin Amaladas
Strategic ManagementStrategic Management
• Traditional Management accounting is based Traditional Management accounting is based on comparing actual results against pre set on comparing actual results against pre set standard (Typically budget), identifying and standard (Typically budget), identifying and analysing variances and taking remedial analysing variances and taking remedial action to ensure that future outcomes action to ensure that future outcomes confirm with budgeted outcomes.confirm with budgeted outcomes.
• Existing activities are not reviewed.Existing activities are not reviewed.• They are based on cost containment rather They are based on cost containment rather
than cost reduction.than cost reduction.• But strategic management is focuses on But strategic management is focuses on
cost reduction and continuous improvement.cost reduction and continuous improvement.
Value analysis/value Value analysis/value engineeringengineering
• Aims at the assigned target cost by Aims at the assigned target cost by – A)identifying improved product designA)identifying improved product design– Eliminating unnecessary functions that Eliminating unnecessary functions that
increases product cost and for which increases product cost and for which customers are not willing to pay for it.customers are not willing to pay for it.
Requires functional analysisRequires functional analysis
The value for each element is determined The value for each element is determined which customer is willing to pay.which customer is willing to pay.
Value analysis/Value analysis/value engineeringvalue engineering
• Cost of each function of a product is Cost of each function of a product is compared with the benefits perceived compared with the benefits perceived by the customers.by the customers.
• If the cost of the function exceeds the If the cost of the function exceeds the benefit to the customer, the function is benefit to the customer, the function is either eliminated, modified to reduce the either eliminated, modified to reduce the cost or enhanced in terms of its cost or enhanced in terms of its perceived value so that its value perceived value so that its value exceeds the cost.exceeds the cost.
2.Business process 2.Business process reengineeringreengineering
• Examining business process and Examining business process and making substantial changesmaking substantial changes
• Redesign of how work done through Redesign of how work done through activities.activities.
• Collection of activities that are linked Collection of activities that are linked together in a coordinated manner to together in a coordinated manner to achieve a specific objectiveachieve a specific objective
• Example: See next slideExample: See next slide
Material handlingMaterial handling
Scheduling production
Storing material
Processing business orders
Inspecting materials
Paying suppliers
Aims of reengineeringAims of reengineering
• Improve the key business processesImprove the key business processes
• Simplification, cost reduction, Simplification, cost reduction, improved quality and enhanced improved quality and enhanced customer satisfaction.customer satisfaction.
ProcessProcess
• Sending production schedule direct to Sending production schedule direct to the nominated suppliers and ask the the nominated suppliers and ask the suppliers to deliver according to the suppliers to deliver according to the production schedule.production schedule.
• Inspection done for quality in the Inspection done for quality in the supplier’s centre.supplier’s centre.
• Benefit: permanent reduction of storage Benefit: permanent reduction of storage cost, handling cost, inspection costcost, handling cost, inspection cost
ReengineeringReengineering
• Features: 1. radical and dramatic changesFeatures: 1. radical and dramatic changes
in the processesin the processes
2. Abandoning current practices and 2. Abandoning current practices and reinventing completely new methods of reinventing completely new methods of performing business processes.performing business processes.
3. Focus on major changes rather than 3. Focus on major changes rather than marginal change.marginal change.
4.It also involves adopting JIT system4.It also involves adopting JIT system
3.TQM3.TQM
• All business functions are involved in a process All business functions are involved in a process of continuous quality improvementof continuous quality improvement
• Moved from statistical monitoring of Moved from statistical monitoring of manufacturing processes to customer oriented manufacturing processes to customer oriented process of continuous improvementprocess of continuous improvement
• High quality but on timeHigh quality but on time• Earlier belief is that quality increases cost but it Earlier belief is that quality increases cost but it
has saved many companies because of quality.has saved many companies because of quality.• Better to produce product at cheaper rate first Better to produce product at cheaper rate first
rather than wasting resources by making rather than wasting resources by making substandard product and spending on rework, substandard product and spending on rework, rejection, scraped or return to customersrejection, scraped or return to customers
• How is it done?How is it done?
TQMTQM
• Management accounting can provide Management accounting can provide reports and measures that motivate and reports and measures that motivate and evaluate managerial efforts to improve evaluate managerial efforts to improve qualityquality
• The reports are divided intoThe reports are divided into• 1.prevention cost1.prevention cost• 2.appraisal cost2.appraisal cost• 3.Internal failure cost3.Internal failure cost• 4.external failure cost4.external failure cost
Cost of quality reportCost of quality report1.Prevention costs1.Prevention costs
Percentage of salesPercentage of sales
Quality trainingQuality training
Supplier reviewsSupplier reviews
Quality engineeringQuality engineering
Preventive Preventive maintenancemaintenance
Cost of quality reportCost of quality report
2. Appraisal costs2. Appraisal costs Inspection of material Inspection of material receivedreceived
Inspection of WIP and Inspection of WIP and completed unitscompleted units
Testing equipmentTesting equipment
Quality auditsQuality audits
Cost of quality reportCost of quality report
3. Internal failure cost3. Internal failure cost ScrapScrap
ReworkRework
Down due to quality Down due to quality problemsproblems
retestingretesting
Cost of quality reportCost of quality report
4. External failure 4. External failure costscosts
ReturnsReturns
RecallsRecalls
Warranty repairsWarranty repairs
Handling customer Handling customer complaintscomplaints
Foregone Foregone contribution from lost contribution from lost salessales
How Zero defects policy How Zero defects policy determined?determined?
• Do not use percentages as a unit of Do not use percentages as a unit of measurementmeasurement
• Use parts per million (PPM)Use parts per million (PPM)
• It creates pressure for action and trend in It creates pressure for action and trend in defect rates.defect rates.
• Quality reports are useful to top management Quality reports are useful to top management where as non financial quality measures where as non financial quality measures provide more timely and appropriate target provide more timely and appropriate target measure for quality improvement.measure for quality improvement.
Statistical toolsStatistical tools• Quality control chart used to Quality control chart used to
distinguish between random and distinguish between random and non-random variations in operating non-random variations in operating processes. We use X+1SD: X+2SD processes. We use X+1SD: X+2SD
days
usage
Operation-A
_X+1SD
_X+2sd
Statistical quality control chart
_X _
X-1sd_X-2d
Control chart-explanationsControl chart-explanations
• The control limits are based on a series of past The control limits are based on a series of past observations of a process when it is under control observations of a process when it is under control and working efficiently.and working efficiently.
• The Past observations are used to estimate the The Past observations are used to estimate the population mean and the population standard population mean and the population standard deviation.deviation.
• If control limits are say X+2sd , so that all If control limits are say X+2sd , so that all observations are outside the range are observations are outside the range are investigated.investigated.
• X+/- 2sd covers 95.45% of the population X+/- 2sd covers 95.45% of the population therefore 4.55% of future operations would result therefore 4.55% of future operations would result from pure chance when process is under control.from pure chance when process is under control.
ProblemsProblems
• Page-958 views 22.2 in DruryPage-958 views 22.2 in Drury
4.Value chain analysis4.Value chain analysis
• Performance of one activity affects Performance of one activity affects the performance and cost of other the performance and cost of other activities.activities.
• It gives link performance of one and It gives link performance of one and its effects on the other.its effects on the other.
• There are interdependent exist There are interdependent exist between activities and greater between activities and greater amount of coordination requiredamount of coordination required
5.Product life cycle costing5.Product life cycle costing
• Traditional management accounting Traditional management accounting control procedures have focused control procedures have focused primarily on the manufacturing stage of primarily on the manufacturing stage of a product’s life cycle.a product’s life cycle.
• Pre-manufacturing costs such as R&D, Pre-manufacturing costs such as R&D, design, post manufacturing design, post manufacturing abandonment and disposal costs are abandonment and disposal costs are treated as period cost .They are not treated as period cost .They are not incorporated in the product cost incorporated in the product cost calculation.calculation.
Product life cycle costing-Product life cycle costing-continuationcontinuation
• Life cycle costing estimates and Life cycle costing estimates and accumulates costs over the entire accumulates costs over the entire product life cycle so that the profit product life cycle so that the profit earned will cover the entire life cycle earned will cover the entire life cycle cost.cost.
• It helps management to understand the It helps management to understand the cost consequence of developing and cost consequence of developing and making a product and identify areas for making a product and identify areas for cost reduction.cost reduction.
Tradition vs life cycle Tradition vs life cycle reportingreporting• Most of the reporting on a perod –by- Most of the reporting on a perod –by-
period basisperiod basis
• Profits are not monitored over the life of Profits are not monitored over the life of the productthe product
• LCR traces costs and revenues over LCR traces costs and revenues over various calendar periods.various calendar periods.
• Hurdles: tracing all costsHurdles: tracing all costs
• inadequate feed back information inadequate feed back information
Product life cycle phases-Product life cycle phases-relationship between costs committed and costs incurredrelationship between costs committed and costs incurred
Per
cent
age
of c
osts
and
com
mitt
ed
Product life cycle
Cost committed
Po
st sales an
d se
rviceA
nd a
ban
don
me
nt p
hase
Produ
ct p
lannin
g
And des
ign p
hase
Product manufacturin
g
And sales phase
Costs incurre
d20%
40%
60%
80%
100%
ExplanationsExplanations1.80% of the costs are 1.80% of the costs are committed during the committed during the planning and design stageplanning and design stage
2.Majority of costs are 2.Majority of costs are incurred at the manufacturing incurred at the manufacturing stage but they have aready stage but they have aready become locked in at the become locked in at the planning and design stage and planning and design stage and difficult to alter.difficult to alter.
3.The pattern of cost 3.The pattern of cost commitment and incurrence commitment and incurrence will differ based on the will differ based on the industry and specific product industry and specific product introduced.introduced.
1.Cost management can be 1.Cost management can be most effectively exercised most effectively exercised during planning and design during planning and design stage and not at the stage and not at the manufacturing stage.manufacturing stage.
2.Later stage more focus on 2.Later stage more focus on cost containment than cost cost containment than cost management.management.
3. Aeroplanes manufacturing-3. Aeroplanes manufacturing-high costs at planning and high costs at planning and development but huge development but huge abandonment costs at nuclear abandonment costs at nuclear waste and other toxic waste and other toxic chemicals.chemicals.
problemsproblems
• Advanced cost and management Advanced cost and management Accounting-by Saxana and Vasist –Accounting-by Saxana and Vasist –Prob.16.48-P.16.59Prob.16.48-P.16.59
• Prob.16.49-P.16.61Prob.16.49-P.16.61
• Cost and management accounting by Cost and management accounting by Drury-prob.22.18-P979-981Drury-prob.22.18-P979-981
Activity Based Activity Based CostingCosting• Historical developmentHistorical development• Traditionally cost Traditionally cost accountantsaccountants had arbitrarily had arbitrarily
added a broad percentage of expenses onto the added a broad percentage of expenses onto the direct costsdirect costs to allow for the indirect costs. to allow for the indirect costs.
• However as the percentages of indirect or However as the percentages of indirect or overhead costs had risen, this technique became overhead costs had risen, this technique became increasingly inaccurate because the indirect costs increasingly inaccurate because the indirect costs were not caused equally by all the products. For were not caused equally by all the products. For example, one product might take more time in example, one product might take more time in one expensive machine than another product, but one expensive machine than another product, but since the amount of direct labor and materials since the amount of direct labor and materials might be the same, the additional cost for the use might be the same, the additional cost for the use of the machine would not be recognised when the of the machine would not be recognised when the same broad 'on-cost' percentage is added to all same broad 'on-cost' percentage is added to all products. Consequently, when multiple products products. Consequently, when multiple products share common costs, there is a danger of one share common costs, there is a danger of one product subsidizing another.product subsidizing another.
The 1970s and 1980sThe 1970s and 1980s
• The concepts of ABC were developed in The concepts of ABC were developed in the manufacturing sector of the United the manufacturing sector of the United States during the 1970s and 1980s. During States during the 1970s and 1980s. During this time, the Consortium for Advanced this time, the Consortium for Advanced Manufacturing-International, now known Manufacturing-International, now known simply as CAM-I, provided a formative role simply as CAM-I, provided a formative role for studying and formalizing the principles for studying and formalizing the principles that have become more formally known as that have become more formally known as Activity-Based Costing.[1]Activity-Based Costing.[1]
cost management systemscost management systems
• Robin Cooper and Robert Kaplan, proponent of Robin Cooper and Robert Kaplan, proponent of the Balanced Scorecard, brought notice to these the Balanced Scorecard, brought notice to these concepts in a number of articles published in concepts in a number of articles published in Harvard Business ReviewHarvard Business Review beginning in 1988. beginning in 1988. Cooper and Kaplan described ABC as an approach Cooper and Kaplan described ABC as an approach to solve the problems of traditional cost to solve the problems of traditional cost management systems. These traditional costing management systems. These traditional costing systems are often unable to determine accurately systems are often unable to determine accurately the actual costs of production and of the costs of the actual costs of production and of the costs of related services. Consequently managers were related services. Consequently managers were making decisions based on inaccurate data making decisions based on inaccurate data especially where there are multiple products.especially where there are multiple products.
• Instead of using broad arbitrary percentages Instead of using broad arbitrary percentages to allocate costs, ABC seeks to identify cause to allocate costs, ABC seeks to identify cause and effect relationships to objectively assign and effect relationships to objectively assign costs. Once costs of the activities have been costs. Once costs of the activities have been identified, the cost of each activity is identified, the cost of each activity is attributed to each product to the extent that attributed to each product to the extent that the product uses the activity. In this way the product uses the activity. In this way ABC often identifies areas of high overhead ABC often identifies areas of high overhead costs per unit and so directs attention to costs per unit and so directs attention to finding ways to reduce the costs or to charge finding ways to reduce the costs or to charge more for costly products.more for costly products.
• They initially focused on manufacturing They initially focused on manufacturing industry where increasing technology and industry where increasing technology and productivity improvements have reduced productivity improvements have reduced the relative proportion of the direct costs of the relative proportion of the direct costs of labor and materials, but have increased labor and materials, but have increased relative proportion of indirect costs. For relative proportion of indirect costs. For example, increased automation has reduced example, increased automation has reduced labor, which is a direct cost, but has labor, which is a direct cost, but has increased depreciation, which is an indirect increased depreciation, which is an indirect cost.cost.
• Like manufacturing industries, financial Like manufacturing industries, financial institutions also have diverse products and institutions also have diverse products and customers which can cause cross-product customers which can cause cross-product cross-customer subsidies. Since personnel cross-customer subsidies. Since personnel expenses represent the largest single expenses represent the largest single component of non-interest expense in component of non-interest expense in financial institutions, these costs must also financial institutions, these costs must also be attributed more accurately to products be attributed more accurately to products and customers. Activity based costing, and customers. Activity based costing, even though originally developed for even though originally developed for manufacturing, may even be a more manufacturing, may even be a more useful tool for doing this useful tool for doing this
cost drivercost driver
• Direct labor and materials are relatively easy to Direct labor and materials are relatively easy to trace directly to products, but it is more difficult to trace directly to products, but it is more difficult to directly allocate indirect costs to products. Where directly allocate indirect costs to products. Where products use common resources differently, some products use common resources differently, some sort of weighting is needed in the cost allocation sort of weighting is needed in the cost allocation process. The measure of the use of a shared process. The measure of the use of a shared activity by each of the products is known as the activity by each of the products is known as the cost drivercost driver. For example, the cost of the activity . For example, the cost of the activity of bank tellers can be ascribed to each product by of bank tellers can be ascribed to each product by measuring how long each product's transactions measuring how long each product's transactions takes at the counter and then by measuring the takes at the counter and then by measuring the number of each type of transaction. number of each type of transaction.
LimitationsLimitations
• Even in activity-based costing, some Even in activity-based costing, some overhead costs are difficult to assign to overhead costs are difficult to assign to products and customers, for example the products and customers, for example the chief executive's salary. These costs are chief executive's salary. These costs are termed 'business sustaining' and are not termed 'business sustaining' and are not assigned to products and customers because assigned to products and customers because there is no meaningful method. This lump of there is no meaningful method. This lump of unallocated overhead costs must unallocated overhead costs must nevertheless be met by contributions from nevertheless be met by contributions from each of the products, but it is not as large as each of the products, but it is not as large as the overhead costs before ABC is employed.the overhead costs before ABC is employed.
• Although some may argue that costs Although some may argue that costs untraceable to activities should be untraceable to activities should be "arbitrarily allocated" to products, it is "arbitrarily allocated" to products, it is important to realize that the only important to realize that the only purpose of ABC is to provide purpose of ABC is to provide information to management. information to management. Therefore, there is no reason to assign Therefore, there is no reason to assign any cost in an arbitrary manner. any cost in an arbitrary manner.
The Four Steps to ABC The Four Steps to ABC Implementation Implementation
1.1. Identify activitiesIdentify activities—perform an in-—perform an in-depth analysis of the operating depth analysis of the operating processes of each responsibility processes of each responsibility segment. Each process may consist segment. Each process may consist of one or more activities required of one or more activities required by outputs.by outputs.
Assign resource costs to Assign resource costs to activitiesactivities• this is sometimes called "tracing." Traceability refers to this is sometimes called "tracing." Traceability refers to
tracing costs to cost objects to determine why costs were tracing costs to cost objects to determine why costs were incurred. DoD categorizes costs in three ways: incurred. DoD categorizes costs in three ways:
– DirectDirect—costs that can be traced directly to one output. —costs that can be traced directly to one output. Example: the material costs (varnish, wood, paint) to build a Example: the material costs (varnish, wood, paint) to build a chair. chair.
– Indirect—Indirect—costs that cannot be allocated to an individual costs that cannot be allocated to an individual output; in other words, they benefit two or more outputs, but output; in other words, they benefit two or more outputs, but not all outputs. Examples: maintenance costs for the saws that not all outputs. Examples: maintenance costs for the saws that cut the wood, storage costs, other construction materials, and cut the wood, storage costs, other construction materials, and quality assurance.) quality assurance.)
• General & AdministrativeGeneral & Administrative—costs that cannot reasonably —costs that cannot reasonably be associated with any particular product or service be associated with any particular product or service produced (overhead). These costs would remain the same produced (overhead). These costs would remain the same no matter what output the activity produced. Examples: no matter what output the activity produced. Examples: salaries of personnel in purchasing department, salaries of personnel in purchasing department, depreciation on equipment, and plant security depreciation on equipment, and plant security
Identify outputsIdentify outputsyy
• Identify all of the outputs for which Identify all of the outputs for which an activity segment performs an activity segment performs activities and consumes resources. activities and consumes resources. Outputs can be products, services, or Outputs can be products, services, or customers (persons or entities to customers (persons or entities to whom a federal agency is required to whom a federal agency is required to provide goods or services provide goods or services
Assign activity costs to Assign activity costs to outputsoutputs
1.1. activity costs to outputs using activity activity costs to outputs using activity drivers. Activity drivers assign activity drivers. Activity drivers assign activity costs to outputs based on individual costs to outputs based on individual outputs’ consumption or demand for outputs’ consumption or demand for activities. For example, a driver may activities. For example, a driver may be the number of times an activity is be the number of times an activity is performed (transaction driver) or the performed (transaction driver) or the length of time an activity is performed length of time an activity is performed (duration driver).(duration driver).
• Activity-Based Costing encourages Activity-Based Costing encourages managers to identify which activities managers to identify which activities are value-added—those that will best are value-added—those that will best accomplish a mission, deliver a service, accomplish a mission, deliver a service, or meet a customer demand. It or meet a customer demand. It improves operational efficiency and improves operational efficiency and enhances decision-making through enhances decision-making through better, more meaningful cost better, more meaningful cost information information
6.Activity based costing/Target 6.Activity based costing/Target costingcosting
• Mechanism for determining selling Mechanism for determining selling prices.prices.
• It is a cost management tool.It is a cost management tool.
• TATA tries to manufacture a car at Rs. TATA tries to manufacture a car at Rs. 1 ,00,000. – is a typical example for 1 ,00,000. – is a typical example for target costing.target costing.
Stages of target costingStages of target costing
• 1. Determine the target price which 1. Determine the target price which customers will be prepared to pay for the customers will be prepared to pay for the productproduct
• 2.Deduct a target profit margin fro the 2.Deduct a target profit margin fro the target price to determine the target costtarget price to determine the target cost
• 3. Estimate the actual cost of the product3. Estimate the actual cost of the product• 4.If estimated actual cost exceeds the 4.If estimated actual cost exceeds the
target cost , investigate ways of driving target cost , investigate ways of driving down the actual cost to the target costdown the actual cost to the target cost
Target costing-ContinuesTarget costing-Continues
• Customer oriented approachCustomer oriented approach
• Used by Japanese copanies and Used by Japanese copanies and recently adopted by Europe and the recently adopted by Europe and the USA.USA.
• Recently call canters are trying to Recently call canters are trying to adopt this as Indian currency adopt this as Indian currency strengthened.strengthened.
Procedures:Procedures: 1.Market research to find the customer’s 1.Market research to find the customer’s
perceived value-tear down analysis-examining perceived value-tear down analysis-examining the competitors’ products-dismantling of the the competitors’ products-dismantling of the competitor's product.use value engineeringcompetitor's product.use value engineering
2.How customers differentiate the product from 2.How customers differentiate the product from the competitorsthe competitors
3.Target profit margin depends on planned 3.Target profit margin depends on planned return on investment and fix % of profits on return on investment and fix % of profits on salessales
4.Decomposed into a target profit for each 4.Decomposed into a target profit for each product.product.
5.Deduct the target profit from target price5.Deduct the target profit from target price6.Compare with the predicted actual cost.6.Compare with the predicted actual cost.7. If predicted cost>target cost then efforts are 7. If predicted cost>target cost then efforts are
made to close the gap.made to close the gap.
What is required?What is required?
• Team approachTeam approach• Team members include: 1.designers 2. Team members include: 1.designers 2.
engineers 3. Purchasing 4. manufacturing 5. engineers 3. Purchasing 4. manufacturing 5. marketing 6. management accounting marketing 6. management accounting personnelpersonnel
• The discipline of a team approach ensures The discipline of a team approach ensures that no particular group is able to impose that no particular group is able to impose functional preferences.functional preferences.
• Aim During product design process is that Aim During product design process is that elimination of product functions that add costs elimination of product functions that add costs which do not increase market price.which do not increase market price.
Role of suppliersRole of suppliers
• Suppliers are included in the design Suppliers are included in the design teamteam
• They can suggest standard They can suggest standard parts/alternative parts instead of parts/alternative parts instead of custom-design parts which will custom-design parts which will reduce the product cost.reduce the product cost.
If target costs not If target costs not achieved ?achieved ?
• Product should not be launchedProduct should not be launched
• Design teams should not be allowed Design teams should not be allowed to achieve target cost by eliminating to achieve target cost by eliminating desirable product functions.desirable product functions.
• Design teams use tear-down analysisDesign teams use tear-down analysis
• Value engineering is to achieve the Value engineering is to achieve the target cost.target cost.
ProblemsProblems
• 1. Illustration of target costing-1. Illustration of target costing-Management and cost accounting by Management and cost accounting by Colin Drury-page 948Colin Drury-page 948
7. Kaizen costing7. Kaizen costing
• It is a mechanism for reducing and managing It is a mechanism for reducing and managing costs.costs.
• Improvement to the process rather than applied Improvement to the process rather than applied during design stage.during design stage.
• Cost reduction through the increased efficiency of Cost reduction through the increased efficiency of the production process.the production process.
• To reduce the cost of components and the To reduce the cost of components and the products by a pre-specified amountproducts by a pre-specified amount
• It is heavily on empowerment of employeesIt is heavily on empowerment of employees• Workers are given more responsibilities to Workers are given more responsibilities to
improve the processes and reduce costs.improve the processes and reduce costs.
8.The balanced score card8.The balanced score card
• The most recent contribution to The most recent contribution to strategic management accountingstrategic management accounting
• Integrated framework of Integrated framework of performance measurementperformance measurement
• Balanced score card analysis by Balanced score card analysis by Southwest Airlines-Next pageSouthwest Airlines-Next page
Balanced score card analysis Balanced score card analysis by Southwest by Kaplan and by Southwest by Kaplan and NortonNorton
Balancedscore cardanalysis
2.CustomerHow do customer
See us?
3.InternalWhat must we excel
At?
4.LearningCan we continue to
Improve and Create value?
1.FinancialHow do we look
To shareholders?
1.Financial1.Financialpotential score cardpotential score cardmeasures(Looking measures(Looking back)back)
Market shareRevenue growthOperating profitReturn on equity
Stock MarketPerformance
Growth in margin
Patient censesUnit profitability
Fund raisedFor capital
ImprovementCost per care% of revenue -new program
Revenue/cost Per available
Passenger mileMix of freightMix of full fareTo discountedAverage age
of fleetAvailable seat
Miles and related yields
Outstanding Loan balances
Deposit balancesNon interest income
Generic Health care Airlines Banking
2.Customer service2.Customer serviceand and satisfaction(Looking satisfaction(Looking from from the outside in) the outside in)
Customer satisfaction
Customer retentionQuality customer
ServiceSales from new
Products/services
Patientsatisfactory
SurveyPatient retentionPatient referral
RateAdmission or disCharge timeliness
Medical planawareness
Lost bag reportPer 10000 Passangers
Denied boarding Rate
Flight cancellation Rate
Customer complaIns.
Customer retentionNo. of new Customers
No.of products Per customer
Face time spent Between loan Officers and customers
Generic
Health careAirlines Banking
3. Internal 3. Internal operating operating efficiencyefficiency(Inside out)(Inside out)
Delivery time costProcess qualityError rates on
ShipmentsSupplier
satisfaction
Weekly patientComplaints
Patient loadsBreakthroughs
In treatments andMedicines
Infection ratesRe-admission
RateLength of stay
Load factors(% of seat occupied)
Utilisation factorOn time performance
Sales calls to Potential
Customers thank you callsCards to newCustomers
Cross selling statistics
Generic Health care Airlines Banking
4. Learning and 4. Learning and Growth(looking Growth(looking ahed)ahed)
Employee skillLevel
Training availaBility
Employee satisfactionJob retention
Over time workedVacation
Time taken
TraininghoursPer care giver
No. of peer viewed
Papers publishedNo.of grants
awardedReferring MDs
Employee turnoverrate
Employee Absenteeism
Work safety statisticsPerformance
Appraisals completedTraining programs
Hours per employee
Test results fromTraining knowledgeOf product offering,Sales, and service
Employee satisFaction survey
Generic Health care Airlines Banking
Soutern Airlines’ Balanced Scorecard frame Soutern Airlines’ Balanced Scorecard frame
workwork Strategic themeStrategic theme
Operating Operating efficiencyefficiency
ObjectivesObjectives
(achieve&cri(achieve&critical to tical to success)success)
MeasurementMeasurement
How success How success are measured)are measured)
Target(rateTarget(rate
Of Of improvemeimprovementneeded)ntneeded)
InitiativeInitiative
(Key (Key action)action)
FinancialFinancial ProfitabilityProfitability
More More customerscustomers
Fewer Fewer planesplanes
Market valueMarket value
Seat revenueSeat revenue
Plane least Plane least costcost
30% CAGR30% CAGR
20% CAGR20% CAGR
5% CAGR5% CAGR
CustomerCustomer Flight is on Flight is on timetime
Lowest Lowest pricesprices
FAA on time FAA on time arrival ratingarrival rating
Customer Customer ranking(Marketranking(Market))
11
11
Quality Quality managememanagementnt
Customer Customer loyalty loyalty programprogram
Internal Internal
learninglearning
Fast internal Fast internal
TurnaroundTurnaround
Ground crew Ground crew alignmentalignment
On ground timeOn ground time
On time On time departuredeparture
%ground crew %ground crew trainedtrained
% Ground crew % Ground crew stockholdersstockholders
30 minutes30 minutes
90%90%
Yr.1 70%Yr.1 70%
Yr.3 90%Yr.3 90%
Yr.5 100%Yr.5 100%
Cycle time Cycle time optimisatiooptimisationn
ESOPESOP
Ground Ground crew crew trainingtraining
Benefits and limitationsBenefits and limitations
• 1. single report but four different 1. single report but four different perspectiveperspective
• 2.Specific performance measure2.Specific performance measure
• Operational measurements togetherOperational measurements together
• Improves communications within Improves communications within organisationorganisation
ProblemsProblems
• Drury-27.17 page-1024Drury-27.17 page-1024
• Drury-23.18 page 1025Drury-23.18 page 1025
Activity Based costingActivity Based costing
• Learning objectives:Learning objectives:
• Explain why a cost accumulation system is required for Explain why a cost accumulation system is required for generating relevant cost information for decision making;generating relevant cost information for decision making;
• Describe the differences between activity-based and Describe the differences between activity-based and traditionaltraditional