Exam 20: Performance Measurement Systems Glossary Photo Credits

A balanced scorecard contains both quantitative and qualitative measures of performance.

The primary purpose of the balanced scorecard should be to communicate and implement corporate strategy.

A successful balanced scorecard is a random selection of readily available measures of performance.

Which of the following is not a commonly used theory of incentive and behavior?

The balanced scorecard uses only lagging indicators of performance to communicate to employees the impacts and values of their actions.

Syed Ali, an accountant, was recently hired by LOGAN INDUSTRIES, Inc. As part of his first task, Feingold was asked to develop a balanced scorecard for the company. He developed the following measures: On-time deliveries Customer retention Customer profitability Product innovation Market share Return on assets Number of defectives Employee satisfaction Employee training Ali knows that some of these indicators are what are called leading indicators and others are lagging indicators. However, he does not know enough and has approached you to help him. Required (a) Re-arrange the above indicators to reflect whether they are lead or lag indicators. Also identify the cause-effect relationships that may exist. (b) Why is it important for managers to differentiate between leading and lagging indicators? (c) Classify the above indicators under the different perspectives of the balanced scorecard. (d) How many measures under each perspective of the balanced scorecard should a company use? Why? (e) Briefly discuss the major benefits of the balanced scorecard. (f) Identify and briefly discuss three types of costs associated with the balanced scorecard.

Which of the following is measured in the organizational learning and growth area of a balanced scorecard?

Balanced scorecards are primarily used by mid and upper-level management personnel.

Market share would most likely be found in the customer value section of a balanced scorecard.

Prepare a brief report on the Balanced Scorecard with particular emphasis on the following aspects: ● What are leading and lagging indicators? ● Why are leading indicators important? ● What is the relationship between leading and lagging indicators (cause-effect relationships)? ● What are the different dimensions of the Balanced Scorecard? ● What are some examples of indicators pertaining to the different dimensions of the Scorecard? David Palmer, manager of the Paper Products Division of a Graham Corporation, is a strong believer of outcome measures. During one of his management meetings, he impressed upon his management team that financial measures are the most important, and that his managers should only focus on improving those measures. Nina Meyers, a recent CMA who was at the meeting filling in for her superior, was not too impressed with Palmer's exclusive focus on financial measures. As the meeting was about to end, she nervously pointed out to Palmer that his focus on outcome measures could be detrimental to the performance of the company. Meyers: Excuse me, Mr. Palmer, but I think it is wrong to place exclusive emphasis on financial outcome measures. Instead, the emphasis must be on what are known as lead indicators, which provide information about the likely outcome of managerial decisions. Palmer: I commend you for your knowledge on recent developments. However, I have more than 20 years' experience in this field and I think I know what I am doing. After all, ultimately financial results are what we want. Meyers: I do not dispute that the ultimate result may largely be the financial returns to our shareholders. However, unless we pay attention to the drivers of the results, we will not understand the problems that exist in our processes. I can bring you up to date on a new performance measurement system known as the Balanced Scorecard if you like. Although Palmer was not too impressed at being challenged, he instructed Meyers to write him a report on the Balanced Scorecard. Required:

Stock appreciation rights (SARs):

Which of the following statements about customer satisfaction is false?

A manager receiving a deferred reward is less likely to invest in new technology because of the impact on earnings of the company of such an investment.

Companies that have achieved the most success using balanced scorecards have utilized a top-down management approach in its design.

Measurement of average cycle time would be found in the financial performance section of a balanced scorecard.

Which of the following is not a financial performance measure?

Poor financial performance can often be traced to lapses in leading indicator performance.

A balanced scorecard contains only qualitative measures of performance.

In a balanced scorecard, which of the following would be a measure of the business and production process performance?

Customer satisfaction is the degree to which an organization's products and services meet customers' needs.