Presentation on theme: "Performance Evaluation Using the Balanced Scorecard"— Presentation transcript:
1 Performance Evaluation Using the Balanced Scorecard Chapter 12Performance Evaluation Using the Balanced Scorecard
2 IntroductionWhen you choose a restaurant for a meal, are you concerned with:The price of the meal?How long you have to wait to be seated?The quality of the food that is served?
3 IntroductionFactors other than financial performance may be needed to be successful.Is quality more important than cost?Is timeliness more important than meeting the budget?Is customer service more important than Return On Investment ?
4 The Balanced Scorecard Uses a set of financial and nonfinancial measures that relate to the critical success factors of the organization.Helps to keep management focused on ALL of a company’s critical success factors, not just its financial ones.Helps to keep short-term operating performance in line with long-term strategy.
5 The Balanced Scorecard The balanced scorecard approach integrates financial and nonfinancial performance measures.
6 The Balanced Scorecard Approach to Performance Measurement FINANCIAL PERSPECTIVEHow do we create value for ourstakeholders?INTERNAL BUSINESS PERSPECTIVEAt what business processes must we excel?StrategyCUSTOMER PERSPECTIVEHow do customers view us?LEARNING and GROWTH PERSPECTIVEHow do we continue to improve, learnand grow?
7 The Balanced Scorecard Financial PerspectivePrimary goal of every profit-making enterprise is to show a profit.However, here financial performance is seen in the larger context of the company’s overall goals and objectives relating to its customers and suppliers, internal processes, and employees.
8 The Balanced Scorecard Customer PerspectiveCritical success factors include increasing the quality of products and services, reducing delivery time, and increasing customer satisfaction.Measures of performance include the number of warranty claims and returned products, customer response time and the percentage of on-time deliveries, and customer complaints and repeat business.A second dimension deals with the increasing market share and penetrating new markets. Measures of performance include market share, market saturation, and new products introduced into the market place.
9 The Balanced Scorecard Internal Operations PerspectiveDeals with objectives across the company’s entire value chain—from research and development to post-sale customer service.Critical success factors improve quality throughout the production process, increasing productivity, and increasing efficiency and timeliness.
10 The Balanced Scorecard Learning and Growth PerspectiveLinks the critical success factors in the other perspectives and ensures an environment that supports and allows the objectives of the other three perspectives to be achieved.Improving employee moraleIncreasing information systems capabilitiesProduct innovations
11 The Balanced Scorecard The balanced scorecard approach requires looking at performance from four different but related perspectives: financial, customer, internal business process, and learning and growth.
12 A Focus on Quality QUALITY: Meeting or exceeding customers' expectationsProduct performs as it is intendedProduct must be reliable and durableThese features are provided at a competitive price
13 A Focus on QualityISO 9000: A set of guidelines for quality management focusing on design, production, inspection, testing, installing, and servicing of products, processes, and services. Originally developed by the ISO to control the quality of products sold in Europe.
14 The Costs of QualityTo facilitate the comparison of the benefits of providing high-quality products or services with the costs that result from poor quality. Four general categories of quality costs include:Prevention costsAppraisal costsInternal failure costsExternal failure costs
15 The Costs of Quality Prevention Costs Costs incurred to prevent product failure from occurring.Incurred early in the value chain and includes design and engineering, as well as training, supervision, and the costs of quality improvement projects.
16 Appraisal (detection) Costs The Costs of QualityAppraisal (detection) CostsIncurred in inspecting, identifying, and isolating defective products and services before they reach the customer.Includes costs of inspecting raw materials, testing goods throughout the manufacturing process, and final product testing and inspection.
17 Internal Failure Costs The Costs of QualityInternal Failure CostsIncurred once the product is produced and then determined to be defective, but before it is sold to customers.Includes the material, labor, and other manufacturing costs incurred in reworking defective products and the costs of scrap and spoilage.
18 External Failure Costs The Costs of QualityExternal Failure CostsIncurred after a defective product is delivered to a customer.Includes the cost of repairs made under warranty, replacement of defective parts, product recalls, liability costs arising from legal actions against the seller, and eventually lost sales.
19 Measuring and Controlling Environmental Costs The costs of producing, marketing, and delivering products and services—including post-purchase costs caused by the use and disposal of products—that may have an adverse effect on the environment.
20 Environmental Costing Environmental Prevention Costs:The costs of activities carried out to prevent the production of contaminants and/or waste that could cause damage to the environment.
21 Environmental Costing Environmental Detection Costs:The costs of activities executed to determinewhether products, processes, and other activitieswithin the firm are in compliance with appropriateenvironmental standards.
22 Environmental Costing Environmental Internal Failure Costs:The costs of activities performed to eliminateand manage contaminants and waste that have been produced but not discharged into the environment.
23 Environmental Costing Environmental External Failure Costs:The costs of activities performed after dischargingcontaminants and waste into the environment.
24 Productivity Measures Productivity is simply a measure of the relationship between outputs and inputs.How many loaves of bread are baked per bag of flour?How many cars are produced per labor hour?How many calculators are produced per machine hour?How many customers are serviced per shift?
25 Efficiency and Timeliness Measures Customer Response Time: the time it takes to deliver a product or service after an order is placed.Customer Places OrderCustomer Receives ProductOrder Ready for SetupOrder is Set UpProduct CompletedOrder Waiting TimeOrder Manufacturing TimeOrder Delivery TimeOrder Receipt TimeTotal Customer Response Time
26 Efficiency and Timeliness Measures Northern Lights Custom CabinetsManufacturer of approximately 30 custom cabinets each yearWait time = 12 hoursInspection time = 2 hoursProcessing time = 48 hoursMove time = 2 hours
27 Northern Lights Custom Cabinets Manufacturing Cycle Time: the amount of time it takes to produce a good unit of product from the time raw material is received until the product is ready to deliver to customers.Wait time + Processing time + Inspection time + Move time== 64 hours= 64 / 8 hours per work day= 8 days
28 Northern Lights Custom Cabinets Throughput: the number of good units that can be made in a given period of time.(Assume 50 weeks X 5 days = 250 work days)= 250 / 8 days manufacturing cycle time= units per year
29 Northern Lights Custom Cabinets Value-Added TimeProcessing time = 48 hours or 6 daysNon-Value-Added TimeWait time + Inspection time + Move time== 16 hours or 2 days
31 Efficiency and Timeliness Measures In a brewery, beer must sit in storage vats for a period of time while waiting to be bottled or packaged for delivery.Is this “wait time” value-added or non-value- added?
32 Marketing MeasuresMarketing Measures are linked to the financial, customer service, and learning and growth perspectives of the balanced scorecard.
33 End of Chapter 12 I knew I should have paid more attention to the scorecard!