RQ14.12 Lag indicators manage the profitability of a business BMS207 CLINICAL BIOCHEMISTRY the process of determining static and…

FIND A SOLUTION AT Academic Writers Bay

1
Chapter 14 Solutions
RQ14.12 Lag indicators are measures of progress towards the organisation’s objectives (e.g. profit, ROI,
market share). They are measures of the outcome of past decisions and may therefore be
difficult to manage directly. In practice, lag indicators may sometimes be referred to as key
performance indicators (KPIs). Lead indicators are measures of the factors that drive outcome
measures and provide information, which is both manageable and actionable (for example,
scrap measures, number of products under development, throughput times, efficiency and
usage variances). In practice, lead indicators may sometimes be referred to as key performance
drivers (KPDs).
RQ14.15 Effective management of non-financial measures may not flow through to improved financial
performance for several reasons:


The measures may focus on the wrong critical success factors.
Management may fail to utilise freed up resources that result from improvements in areas
such as productivity and quality for other profitable activities.
There may be a lag between improvements in non-financial measures and subsequent flow
through to improvements in financial performance.
The performance measures selected may not be well designed. They may encourage
dysfunctional actions which maximise performance in those particular non-financial areas


at the expense of other important areas, or encourage manipulation or falsification of
performance.
RQ14.4
Customer satisfaction surveys
Number of customer complaints
Staff satisfaction, as measured by surveys
Staff turnover
Hours of staff training
Percentage of phone calls answered within
four rings
Number of customers transacting
 on-line
 on the telephone
 face-to-face over the counter
 using ATMs.
2
E14.23 Non-financial performance measures
1 Accounting firm: Length of time between client interview for tax return and its completion;
percentage of late lodgements of tax returns; number of audit queries not responded to within 14
days; number of late lodgement penalties for a period; amount of late lodgement penalties for a
period; number of client queries about completion time; and number of returning clients.
2 A company that manufactures electric garden equipment: number of product returns and number
of customer complaints.
3 A firm that designs advertising campaigns for sporting events: number of late campaign starts and
number of returning customers.
4 A company that sells children’s toys: number of returns and market share.
5 A taxi company: passenger order receipt time; waiting time; and number of passenger queries
about non-arrival of taxi.
E14.28 Balanced scorecard; strategy map: manufacturer
1 & 2 The objectives are in the strategy map. The increase in sales revenue can be achieved by
increasing the volume of sales, improving the marketability of the product and by improving the
quality of accessories such that a higher price can be put on the product. The firm needs to make
strategic decisions with regard to whether they wish to sell more products at low prices or have
high quality-high sales price products, or what balance to strike between two extremes. We will
assume a balance between top quality and price on one hand and low quality and price on the
other. We do not know whether there is to be an improved ROI but we can expect the objective
does not allow for a decrease in profitability! This will suggest a modest increase in quality with
improved margins and volumes of sales.
FINANCIAL
Improve profitability
Improve customer satisfaction
CUSTOMER
Offer innovative products
INTERNAL
BUSINESS
PROCESS
Improve
productivity
Improve time to
market
Improve quality
of products
LEARNING
AND
GROWTH
Increase
products in
development
Improve
employee
satisfaction
Train staff in
product
development
and customer
service
Develop
innovative
products
3
3
Perspective
Lag Indicator
Lead Indicator
(for continuous monitoring)
Financial
15% ROI
Sales revenue (target of 20%
increase p.a.)
Customer
20% market share
Number of customer
complaints (target of 20%
reduction p.a.)
Internal business
processes
Launch 100% of new
products on the same day
as the mobile phone is
launched
Number of products in design
(target of 10% increase p.a.)
Learning and growth
Improve score on staff
satisfaction by 20%
Employee turnover (target of
50% reduction p.a.)
P14.34 Performance measures for operational control: manufacturer
1
Categories of measures:
Area of
manufacturing
performance
Cycle time (days) a
Number of defective finished products b
Customer complaints c
Unresolved complaints c
Products returned b, c
Warranty claims b, c
In-process products rejected d
Average number of units produced per day, per employee a, e
Percentage of on-time deliveries f
Percentage of orders filled f
Inventory value/sales revenue g, h
Machine downtime (minutes) i
Bottleneck machine downtime (minutes) i
Overtime (minutes) per employee a, e
Average setup time (minutes) a
4
2
To:
From:
Management, Medical Systems Corporation
I M Student
Subject:Performance of Elizabeth plant during first quarter
Performance of the Elizabeth plant is evaluated in nine key areas:
(a) Production processing:
Cycle time and the average number of units produced per employee per day point to
consistency and high-level performance throughout the measurement period. Both exhibit
slight, favourable trends. Average setup time has reduced from 132 to 111 minutes, a
reduction of about 16 per cent.
(b) Product quality:
The number of defective finished products, number of products returned, and warranty
claims all show improvement over the period. All three measures suggest excellent
performance in quality control.
(c) Customer satisfaction:
Customer complaints range between six and nine over the six periods, but the number of
unresolved complaints improved during the period from two to zero. Products returned and
warranty claims are very low. There is scope for reducing the number of customer
complaints.
(d) In-process quality control:
The number of products rejected in process has increased. This speaks well for the inprocess inspection effort. The cause of these defective in-process units should be
investigated and corrected.
(e)
Productivity:
The number of units produced per day, per employee, exhibited a slight and favourable
trend. Overtime minutes per employee range from zero to 22. It is unclear whether this is
problematic, but it could relate to bottleneck downtimes.
(f) Delivery performance:
Both performance measures (percentages of on-time deliveries and orders filled) were very
high through the period, finishing at 100 per cent in period 6.
(g) & (h) Raw material and scrap; inventory:
Inventory value/sales revenue remained consistently low through the period (average of
1.58 per cent). There is no measure of scrap for the period.
(i)
Machine maintenance:
Machine downtime was low through the period (average of 92 minutes each two-week
period). Bottleneck machine downtime was low, except in period 5. The cause of that
incident should be investigated.
Overall evaluation:
The Elizabeth plant has performed at a very high level of efficiency and effectiveness in most
areas of its operations during the first quarter.
5
P14.36 Balanced scorecard; strategy map: service firm
1
Financial
Customer
Internal
business
process
Learning
and
growth
2
Performance Measures
Objectives
Lag Indicators
Lead Indicators
1. Financial
Increase profit
Improve cash flow
Profit per tour
Average cost for major
tours
Average value of each booking
Number of tours cancelled
Quality of tour operators
2. Customer
Increase market share
Improve customer
satisfaction
Market share
Customer satisfaction
survey
Number of bookings per week
Number of customer
complaints
Number of bookings cancelled
Number of repeat customers
3. Internal Business
Increase office cost
effectiveness
Increase innovative tours
Monthly operating costs
Number of tours on offer
Staff absenteeism
Number of tours under
development
Quality of relationships with
tour operators
4. Learning and Growth
Increase environmental
knowledge of employees
Number of employees
attending green training
courses
Number of customer
complaints
Number of employee
suggestions for tours
Improve profit Improve cash flow
Increase customer
satisfaction
Increase office
cost effectiveness
Develop innovative
tours
Increase environmental
knowledge of employees
Increase market
share

YOU MAY ALSO READ ...  Learning Styles Workshop Assignment
Order from Academic Writers Bay
Best Custom Essay Writing Services

QUALITY: 100% ORIGINAL PAPERNO PLAGIARISM – CUSTOM PAPER