1. C H A P T E R 10 Continuous Improvement in Management Accounting Continuous Improvement in Management Accounting

2. Learning Objective 1 Explain the fundamentals of building a Balanced Scorecard.

3. Define Performance Measures and Balanced Scorecard Performance Measures: A general term used to describe all measures designed to capture information about performance related to a particular activity or process. Balanced Scorecard: A new management model designed to link together performance measures for financial, customer, internal process, and learning/growth perspectives that are unique to an organization's particular strategy.

4. Discuss Balanced Scorecard The Balanced Scorecard is a guiding theory of management. It is a direct view of an organization’s strategies, plans, and management processes. It is unique to each organization.

5. Customer Satisfaction Management must look at two performance measures to understand what customers want so that the company may be able to increase its market share, revenue, and long-term profits. Customer Satisfaction Leading Measures Measures that support desired performance in other business activities. Outcome Measures Measures of desired outcome performance in activities critical to an organization’s strategic goals.

6. Match These Leading Performance Measures Purchase cost to customer Delivery cost to customer Setup cost to customer Maintenance and repair cost to customer Cost Quality Returns by customers Quality rankings by other agencies Customer survey response Time—reliable delivery Time—fastest delivery Percentage of on-time deliveries Number of production interruptions Average response time for service call Time to complete contract Production cycle time

7. Match These Outcome Performance Measures Retention rates Number of defecting customers Costs to retain customers Customer retention rates Market share Acquisition rates Number of new customers Costs to recruit customers Percent of total number of customers Percent of total dollars spent by customers Percent of total units sold to customers Customer acquisition rates

8. Leading Performance Measures What three things does life cycle costing do? 1. Focuses on all costs incurred throughout the life of the product. 2. Helps to ensure that no costs are omitted when evaluating performance and value. 3. When evaluating customer satisfaction, an organization also needs to measure performance of its product or service in terms of all its costs for its customers. 1. Focuses on all costs incurred throughout the life of the product. 2. Helps to ensure that no costs are omitted when evaluating performance and value. 3. When evaluating customer satisfaction, an organization also needs to measure performance of its product or service in terms of all its costs for its customers.

9. Outcome Measures of Customer Satisfaction Name two ways to measure market share. 1. The percentage share one company receives of the total sales revenues in the economy for a particular product or service. 2. A company must determine if its efforts are being rewarded with increased market share and customer profitability. 1. The percentage share one company receives of the total sales revenues in the economy for a particular product or service. 2. A company must determine if its efforts are being rewarded with increased market share and customer profitability.

10. Increasing Market Share A company can increase its market share two ways: Retaining current customers Acquiring new customers

11. Internal Processes Innovation processes Operations processes Service-after-sale processes What processes within the organization must take place to satisfy the customer completely?

12. Define Innovation Process Measures Internal Processes InnovationOperations Service- after-sale Measures involve identifying new products and services, and then creating and bringing those products to market.

13. Define Innovation Process Measures Internal Processes InnovationOperations Service- after-sale Measures involve all the activities a customer generally experiences, including receipt of customer order, creation of product, and delivery of product or service.

14. Define Innovation Process Measures Internal Processes InnovationOperations Service- after-sale Two types: Billing and collection of payments Commitments to warranty products

15. Innovation Process Measures Internal Processes InnovationOperations Service- after-sale Two types: Billing and collection of payments Commitments to warranty products Measures involve all the activities a customer generally experiences, including receipt of customer orders, creation of product, and delivery of product or service. Measures involve identifying new products and services, and then creating and bringing those products to market.

16. Learning and Growth Learning and growth takes place through: 3. Conducting a well-run organization 1.Effective communication. 2.Alignment of goals. 3.Integration of team efforts across departments. 4.Clearly defined planning, controlling, and evaluating processes. 2. Strengthening information systems 1.Increasing the quality of the systems. 2.Making the systems accessible. 3.Producing relevant, accurate, and timely information. 1. Developing employee productivity 1.Performance evaluation. 2.Retention rates. 3.Employee satisfaction.

17. Linking It All Together u Management does not have to track all of these performance measures. u Management does need to identify the vision and strategy that supports progress toward company goals. u All measures must link together to eventually support the ultimate goals of the company. u Management does not have to track all of these performance measures. u Management does need to identify the vision and strategy that supports progress toward company goals. u All measures must link together to eventually support the ultimate goals of the company.

18. Linking It All Together To evaluate whether the company is linking its performance measures with its goals, management must look at leading versus lagging indicators. To evaluate whether the company is linking its performance measures with its goals, management must look at leading versus lagging indicators. Leading indicators Measures that indicate the potential success of future business activities. Leading indicators Measures that indicate the potential success of future business activities. Lagging indicators Measures that indicate the success of past business activities. Lagging indicators Measures that indicate the success of past business activities. Define

19. There Is No “Quick Approach” Management must have a clear knowledge of both financial and management accounting concepts. 1st Management must identify the organization’s strategy in relation to its industry. 2nd Management must identify what cost, quality, and time issues are important to remain competitive. 3rd Measures must be developed, tested, and then implemented. HB

20. Learning Objective 2 Anticipate that both management accounting and financial accounting are poised for important changes.

21. Accounting for Tomorrow 2The accounting profession is continually changing and improving. 2Even financial accounting is being pressured to provide more relevant and more timely information than is now contained in annual reports. 2These pressures include: 2Providing nonfinancial data in public reports. 2Providing reports that emphasize the relevance of information to important investing, lending, and regulatory decisions. 2Providing access to information systems throughout the year. 2The accounting profession is continually changing and improving. 2Even financial accounting is being pressured to provide more relevant and more timely information than is now contained in annual reports. 2These pressures include: 2Providing nonfinancial data in public reports. 2Providing reports that emphasize the relevance of information to important investing, lending, and regulatory decisions. 2Providing access to information systems throughout the year.

22. Future of Financial Accounting Service Content Focus Current Services Nonfinancial Financial ReliabilityRelevance Documents Systems