Accounting Business Reporting for Decision Making

CHAPTER 14 Performance measurement 567

The directors of the company have decided to spend some time thinking about their strategy and

performance. They believe that the balanced scorecard framework will help them achieve their goals by

linking their vision, goals and processes to performance measures. The directors have determined that

their vision is: ‘To be known as the name synonymous with hats of quality, fun and distinctive appeal’.

They now need to develop goals, and the relevant measures and drivers, to support that vision (see

table 14.1).

TA BLE  14.1 Fun Hats Company — balanced scorecard measures and drivers

Goals Measures Drivers

1. Financial perspective
   Improve
   shareholder value

Economic value added •   Divisional profit

Market profitability •   Contribution   margin  per  product    and 

contribution per customer group

Cash    flow •   Debtors    turnaround

Increase    market

share

Market share •   New     markets    obtained

•    New     customers  obtained

2. Customer
   Increase customer
   
   satisfaction

Customer satisfaction measure •  Number of   customer   complaints

•    Customer   satisfaction    survey

New products Percentage of sales from new

products

•    Number of   new     products

New customers Percentage of sales from new

customers

•    Number of   new     customers

3. Internal operations
   Decrease customer
   response time

Customer response time •     Number of   steps  from     customer   order

to delivery

•    Delivery   time

Improve quality Spoilage and rework

(in dollars)

•    Defective  units   produced

•    Time   spent   on   rework

Quality training    and  documentation•  Update manuals

•    Number of   employees  undertaking quality

training

Reduce stock

levels

Raw materials inventory

(in dollars)

•    Number of   suppliers

•    Number of   supplier   agreements

Finished goods inventory (in dollars) •  Warehouse  utilisation

4. Innovation and improvement
   Empower
   workforce

Employee satisfaction survey •   Employee   benefits,   facilities  and  challenges

Employee suggestions •   Number of   employee   suggestions

Employee performance •   Number of   employees  receiving   bonuses

Enhance training

and development

Develop skills and knowledge •   Number of   employees  attending   training

The measures and drivers are used to monitor the progress towards the goals, and they should be

communicated throughout the entity. The measure is sometimes referred to as a key performance out-

come (KPO) and helps convey how successfully managers have achieved the stated goal. Drivers are

more operational in nature and help ascertain what will influence the measure. For example, the number

of new customers obtained will help drive the market share measure. The measures and drivers are

two types of key performance indicator (KPI), which is a performance measure that is critical to the