C H A P T E R

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

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

3. 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. Define Performance Measures and Balanced Scorecard

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 Outcome Measures Measures of desired outcome performance in activities critical to an organization’s strategic goals. Leading MeasuresMeasures that support desired performance in other business activities.

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

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

8. Leading Performance Measures What three things does life cycle costing do? Focuses on all costs incurred throughout the life of the product. Helps to ensure that no costs are omitted when evaluating performance and value. 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. The percentage share one company receives of the total sales revenues in the economy for a particular product or service. A company must determine if its efforts are being rewarded with increased market share and customer profitability.

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

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

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

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

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

17. Linking It All Together • Management does not have to track all of these performance measures. • Management does need to identify the vision and strategy that supports progress toward company goals. • 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. Define Leading indicators Measures that indicate the potential success of future business activities. Lagging indicators Measures that indicate the success of past business activities.

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

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

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

22. Future ofFinancial Accounting Content Focus Nonfinancial Systems Current Services Financial Documents Service Reliability Relevance