MANAGEMENT ACCOUNTING PERFORMANCE MEASUREMENT OVERVIEW
Content • MISSION • GOALS AND OBJECTIVES
• CRITICAL SUCCESS FACTORS • KEY PERFORMANCE INDICATORS
MISSION • Mission describes an organisation’s basic purpose • Mission explicitly states what organization is trying to accomplish • It includes four elements: • Purpose • Strategy • Policies and standards of behaviour
MISSION (cont’d) Elements of mission Purpose
Detail
Strategy
Nature of its business Products/services an organization offers The competences and competitive advantage
Reason that lead to the existence of the company
MISSION (cont’d) Elements of mission Policies and standards of behaviour Values and
Detail
Guidelines to help staff to carry out the mission effectively and efficiently
Basic and unstated beliefs and moral principles of the people
MISSION STATEMENT • Mission statement should be brief, flexible and distinctive • Mission statement should emphasize on serving the customer • Elements to be considered in formulating the mission statement: • The parties that organization need to serve and satisfy
• Requirements that organization need to fulfil
EXAMPLES OF MISSION STATEMENT (cont’d) • To organize the world’s information and make it universally accessible and useful (Google) • To give people the power to share and make the world more open and connected. (Facebook) • To connect the world’s professionals to make them more productive and successful. (Linkedin)
EXAMPLES OF MISSION STATEMENT (cont’d) • To enrich people’s lives with programmes and services that inform, educate and entertain. (BBC) • To make unique sports cars that represent the finest in Italian design and craftsmanship, both on the track and on the road. (Ferrari)
• To be one of the world’s leading producers and providers of entertainment and information, using its portfolio of brands to differentiate
GOALS AND OBJECTIVES • From the mission, goals and objectives are derived • Goals and objectives should support the organization’s mission • Goals is the intentions behind decisions or actions, the states of mind that drive individuals or collective of individuals called organizations to do what they do (Henry Mintzberg)
GOALS AND OBJECTIVES (cont’d) • Objectives is usually more precise and detailed as compared to goals • It should be quantifiable over a specified period of time
EXAMPLES OF OBJECTIVES • Financial objective – grow shareholder value, grow earnings per share, increase revenue, manage cost, maintain profitability • Customer objective – best value for cost, reliable products/services, understand customer needs and preferences • Internal objective – most innovative products/services, improvement or focus on research and development
EXAMPLES OF OBJECTIVES • Customer service – great customer service, investment in customer management, improvement on customer retention, development of customer database • Operational excellence – reduction in waste, invest in Total Quality Management, reduce the rate of error, improvement and maintainance on the workplace safety
CRITICAL SUCCESS FACTOR (CSF) • Refers to the main activities that will determine whether or not an organisation achieves its objectives • CSF is a key factors and processes that organization need to be excellent at if they want to be successful • It is crucial for an organization to measure how well they are performing in this main areas
SOURCES OF CSF • There are 4 general sources of CSF: • Industry • Company • External environment • Temporal organisational factors
TWO UNIQUE TYPES OF CSF • Monitoring CSFs • Building CSFs
MONITORING CSFS • Have short term focus • Involve the evaluation on the existing situations • Example: • Production costs • Actual performance vs budget • Staff turnover rate
BUILDING CSFS • Have longer-term focus • It is oriented at the future situations
• It is more likely relevant at senior executive level rather than at operational level
KEY PERFORMANCE INDICATOR • Key performance indicator (KPI) are the measures that indicate whether or not the CSFs are being achieved • An effective KPI should be able to demonstrate how well the company is performing in their key factors and processes (CSF) • KPI must me measurable
EXAMPLE OF CSF AND KPIFOOD MANUFACTURER CSF • new food product development
KPI • % of new product revenue/total revenues
• Effective delivery • % of delivery on time/total deliveries per system annum • Effective advertising.
• High score on brand awareness or loyalty
EXAMPLES OF KPI FOR SERVICES • Number of customer • Market share • Number of new customer/total customer
• Average $ of purchases per customer
• Average time to serve customer during peak • Number of customer period lost/total customer • Time to respond to • % of repeat customer order business from • Time taken to resolve
EXAMPLES OF KPI FOR QUALITY • Number of customer complaints per 1,000 • Orders filled • Customer satisfaction surveys • Percent on-time delivery • Returns • Warranty claims • Defective units supplied to customers as a % of total units supplied
EXAMPLES OF KPI FOR COST • % of costs to revenues • % of amount of material in final product to amount of material purchased • Cost of a particular activity against standard cost