Management Accounting chapter 16

Balanced scorecards (BSC)

Performance measurement systems or business models that tie together knowledge of strategy, processes, activities, and operational and strategic performance measures

Incentive system

Communicates strategy, motivates employees, and reinforeces achievement of organisational goals

Leading indicators

Measures that identify future nonfinancial and financial outcomes to guide management decision making

Lagging indicators

Measures of the final outcomes of earlier management plans and their execution

Financial performance

How should we appear to our shareholders?

Customer performance

How should we appear to our customers?

Business and production process performance

At what business practices must we excell?

Learning and growth performance

How should we sustain our ability to change and improve

Organisational learning and performance

Employee training/education/satisfaction/turnover, innovativeness, opportunities for improvement

Business and production process performance

New service development, employee productivity and error rates, service costs, process improvements, supplier relations

Customer performance

Customer satisfaction/retention/loyalty/risk, market share

Financial performance

Net interest margin, revenue growth, customer profitability, overall return on assets

Pay for performance

At least some portion of a manager’s income is not guaranteed but depends on a measure of organizational performance

Expectancy theory

People are motivated to act in ways that they expect to provide them with desired rewards and to prevent the penalties they wish to avoid (psycology)

Agency theory

An employee contract with an employer to perform certain work, and the employer wants to be sure that the work is duly and well performed (financial economics)

Relative performance

Evaluation compares an individual’s performance to that of others

Absolute performance

Evaluation compares individual performance to set objectives or expectations

Formula-based performance

Computes rewards earned for specific achievements

Subjective performance

Uses non-qualified criteria not captured by formulas

Financial performance

Reflects the achievement of financial goals such as cost control, revenue growth, earnings, or residual income

Non-financial performance

Gets managers to focus on the leading indicators of profit

Cash bonus

Most liquid and immediate

Share awards

Usually not redeemable right away

Share appreciation rights

Confer a bonus to employees based on increases in stock price for a predetermined number of shares

Share options

Give an individual the right to purchase a number of shares at a specified price over a specified time period