Management Accounting Lecture 8

1. Management AccountingLecture 8 Performance Management GW FP&C Lecture 8 Perfomance Management

2. Lecture 8 Reading Assignment Textbook: Ryan, “Finance & Accounting for Business” 2nd Ed., Cengage 2008 Pages Recommended Reading: Horngren et al, “Cost Accounting – A Managerial Approach” 13th Ed., Pearson 2009 Chapter 13 GW FP&C Lecture 8 Perfomance Management

3. Lecture 8 Reading Assignment (cont’d) Recommended Reading: Enterprise Risk Management The Corporate Sustainability Model for Airline Business By Ayse Kucuk Yilmaz http://www.eurojournals.com/ejsr_22_3_01.pdf The Upside How to Turn Big Threats into Growth Breakthroughs By Oliver Wyman (pages 23-26) http://me.marsh.com/research/sa/OLIVER%20WYMAN.pdf Pages 24-25 GW FP&C Lecture 8 Perfomance Management

4. Lecture 8 Reading Assignment (cont’d) Recommended Reading: Key Success Factors Airline Data and Analysis By AirlineFinancials.com http://www.airlinefinancials.com/Airline_Data_Analysis_.php Airline Industry Key Success Factors By Richard M. McCabe, PhD http://gbr.pepperdine.edu/064/airlines.html Table 3 for Comparative Analysis of the Eight Airlines GW FP&C Lecture 8 Perfomance Management

5. Lecture 8 Reading Assignment (cont’d) Recommended Reading: Balanced Scorecard Southwest Airlines’ Balanced Scorecard http://www.computerworld.com/s/article/78512/ROI_Guide_Balanced_Scorecard Regional Airlines’ Balanced Scorecard http://www.balancedscorecard.org/Portals/0/PDF/Regional_Airline.pdf GW FP&C Lecture 8 Perfomance Management

6. Performance Management Enterprise Risk Management Key Success Factors Benchmarking Balanced Scorecard GW FP&C Lecture 8 Perfomance Management

7. Enterprise Risk Management GW FP&C Lecture 8 Perfomance Management

8. Key Success Factors GW FP&C Lecture 8 Perfomance Management

9. Benchmarking GW FP&C Lecture 8 Perfomance Management

10. Balanced Scorecard GW FP&C Lecture 8 Perfomance Management

11. Strategy • Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives • A thorough understanding of the industry is critical to implementing a successful strategy GW FP&C Lecture 8 Perfomance Management

12. Five Aspects of Industry Analysis • Number and strength of competitors • Potential entrants to the market • Availability of equivalent products • Bargaining power of customers • Bargaining power of input suppliers GW FP&C Lecture 8 Perfomance Management

13. Basic Business Strategies • Product Differentiation – an organization’s ability to offer products or services perceived by its customers to be superior and unique relative to the products or services of its competitors • Leads to brand loyalty and the willingness of customers to pay high prices • Cost Leadership – an organization’s ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control • Leads to lower selling prices GW FP&C Lecture 8 Perfomance Management

14. Implementation of Strategy Many companies have introduced a Balanced Scorecard to manage the implementation of their strategies GW FP&C Lecture 8 Perfomance Management

15. The Balanced Scorecard • The balanced scorecard translates an organization’s mission and strategy into a set of performance measures that provides the framework for implementing its strategy • It is called the balanced scorecard because it balances the use of financial and nonfinancial performance measures to evaluate performance GW FP&C Lecture 8 Perfomance Management

16. Balanced Scorecard Perspectives • Financial • Customer • Internal Business Perspective • Learning and Growth GW FP&C Lecture 8 Perfomance Management

17. The Financial Perspective • Evaluates the profitability of the strategy • Uses the most objective measures in the scorecard • The other three perspectives eventually feed back into this dimension GW FP&C Lecture 8 Perfomance Management

18. The Customer Perspective Identifies targeted customer and market segments and measures the company’s success in these segments GW FP&C Lecture 8 Perfomance Management

19. The Internal Business Prospective • Focuses on internal operations that create value for customers that, in turn, furthers the financial perspective by increasing shareholder value • Includes three sub processes: • Innovation • Operations • Post-sales service GW FP&C Lecture 8 Perfomance Management

20. The Learning & Growth Perspective Identifies the capabilities the organization must excel at to achieve superior internal processes that create value for customers and shareholders GW FP&C Lecture 8 Perfomance Management

21. The Balanced Scorecard Flowchart GW FP&C Lecture 8 Perfomance Management

22. BalancedScorecardIllustrated GW FP&C Lecture 8 Perfomance Management

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26. Strategyand the Balanced Scorecard,Illustrated GW FP&C Lecture 8 Perfomance Management

27. Common Balanced Scorecard Measures GW FP&C Lecture 8 Perfomance Management

28. Balanced Scorecard Implementation • Must have commitment and leadership from top management • Must be communicated to all employees GW FP&C Lecture 8 Perfomance Management

29. Features of a Good Balanced Scorecard • Tells the story of a firms strategy, articulating a sequence of cause-and-effect relationships: the links among the various perspectives that describe how strategy will be implemented GW FP&C Lecture 8 Perfomance Management

30. Features of a Good Balanced Scorecard • Helps communicate the strategy to all members of the organization by translating the strategy into a coherent and linked set of understandable and measurable operational targets GW FP&C Lecture 8 Perfomance Management

31. Features of a Good Balanced Scorecard • Must motivate managers to take actions that eventually result in improvements in financial performance • Predominately applies to for-profit entities, but has some application to not-for-profit entities as well GW FP&C Lecture 8 Perfomance Management

32. Features of a Good Balanced Scorecard • Limits the number of measures, identifying only the most critical ones • Highlights less-than-optimal tradeoffs that managers may make when they fail to consider operational and financial measures together GW FP&C Lecture 8 Perfomance Management

33. Balanced Scorecard Implementation Pitfalls • Managers should not assume the cause-and-effect linkages are precise: they are merely hypotheses • Managers should not seek improvements across all of the measures all of the time • Managers should not use only objective measures: subjective measures are important as well GW FP&C Lecture 8 Perfomance Management