Copyright © 2013 Nelson Education Ltd. PowerPoint Presentations for Cornerstones of Cost Accounting First Canadian Edition Adapted by George Gekas Ryerson University

THE BALANCED SCORECARD: STRATEGIC-BASED CONTROL Copyright © 2013 Nelson Education Ltd.

Activity-Based versus Strategic- Based Responsibility Accounting Copyright © 2013 Nelson Education Ltd. The Responsibility Accounting Model Four essential elements: 1. Assigning responsibility 2. Establishing performance measures or benchmarks 3. Evaluating performance 4. Assigning rewards Financial-based responsibility accounting model emphasizes financial performance of organizational units and evaluates and rewards performance using static financial-oriented standards

Activity-Based versus Strategic- Based Responsibility Accounting Copyright © 2013 Nelson Education Ltd. An activity-based system adds a process perspective to the financial perspective of the functional based responsibility accounting system A strategy-based responsibility accounting system translates the strategy of the organization into operational objectives and measures

Copyright © 2013 Nelson Education Ltd. The Balanced Scorecard is a strategic- based performance management system that typically identifies objectives and measures for four different perspectives 1.The Financial Perspective 2.The Customer Perspective 3.The Process Perspective 4.The Learning and Growth Perspective Activity-Based versus Strategic- Based Responsibility Accounting

Copyright © 2013 Nelson Education Ltd. Responsibility Assignments Compared

Activity-Based versus Strategic- Based Responsibility Accounting Copyright © 2013 Nelson Education Ltd. Performance Measures Compared

Activity-Based versus Strategic- Based Responsibility Accounting Copyright © 2013 Nelson Education Ltd. Performance Evaluation Compared

Activity-Based versus Strategic- Based Responsibility Accounting Copyright © 2013 Nelson Education Ltd. Rewards Compared

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd. The Balanced Scorecard Permits an organization to create a strategic focus by translating an organization’s strategy into operational objectives and performances measures for four different perspectives: 1.The financial perspective 2.The customer perspective 3.The internal business process perspective 4.The learning and growth (infrastructure) perspective

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd. What is strategy? Strategy is defined as*: choosing the market and customer segments the business unit intends to serve, identifying the critical internal and business processes that the unit must excel at to deliver the value propositions to customers in the targeted market segments, and selecting the individual and organizational capabilities required for the internal, customer, and financial objectives * Kaplan and Norton, The Balanced Scorecard, 37.

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd.

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd. Financial Perspective

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd. Customer Value: The difference between realization and sacrifice, where realization is what the customer receives and sacrifice is what is given up

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd. Customer Perspective

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd. Process Perspective

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd. Responsiveness The time it takes a company to respond to a customer order Cycle Time The length of time it takes to produce a unit of output from the time materials are received until the good is delivered to finished goods inventory Velocity The number of units of output that can be produced in a minute, hours, or a given period of time See Cornerstone 15-1

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd. MCE = Processing time/(Processing time + Move time + Inspection time + Waiting time + Other non-value- added time ) In this equation, processing time is the efficient or ideal time it takes to convert materials into a finished good. The other activities and their times are viewed as wasteful and the goal is to reduce those times to zero. Manufacturing Cycle Efficiency (MCE) See Cornerstone 15-2

Basic Concepts of the Balanced Scorecard Copyright © 2013 Nelson Education Ltd. Learning and Growth Perspective

Linking Measures to Strategy Copyright © 2013 Nelson Education Ltd. Single-Loop Feedback Emphasizes effectiveness and implementation and the variances may result from strategic standards and actual implementation Double-Loop Feedback Emphasizes both effectiveness of strategy implementation and validity of the assumptions built in the strategy Hypothesis testing makes possible to adapt and change strategy Strategy Map Graphically illustrates cause-effect linkages of strategy and operating activities

Strategic Alignment Copyright © 2013 Nelson Education Ltd.

Strategic Alignment Copyright © 2013 Nelson Education Ltd. Objectives, targets, initiatives, and allocation of resources must follow strategy and be aligned to it Scorecard objectives need to be articulated and communicated to all employees Linkages must be established between personal and organizational goals to achieve goal congruence Performance expectations need to be established

15-23 End of Chapter 15