Strategic Performance Measurement: Balanced Scorecard & Quality Costs, Summaries of Financial Accounting

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UNIVERSITASUNIVERSITAS BINA NUSANTARABINA NUSANTARA

SUBJECT MATTER EXPERT

STRATEGIC PERFORMANCE MEASUREMENT

MANAGERIAL ACCOUNTING

Lea Sulaiman Saputra, S.Kom., M.M.

LEARNING OUTCOMES

• (^) LO3: Prepare master budget, flexible budget dan Balanced ScoreCard

THE BALANCED SCORECARD – FROM STRATEGY TO PERFORMANCE MEASURES Financial Has our financial performance improved? Customer Do customers recognize that we are delivering more value? Internal Business Processes Have we improved key business processes so that we can deliver more value to customers? Learning and Growth Are we maintaining our ability to change and improve? What are our financial goals? What customers do we want to serve and how are we going to win and retain them? What internal business processes are critical to providing value to customers? Vision and Strategy

THE BALANCED SCORECARD Management translates its strategy into performance measures that employees understand and influence. Customer Learning and growth Internal business processes Financial Performance measures

INTERNAL BUSINESS PROCESS MEASURES Source: Garrison, Nooren, Brewer, Cheng, Yuen. (2021). Managerial Accounting. 17th edition. Mcgraw- hill/Irwin. ISBN: 978-1-260-57568- 2.

CUSTOMER MEASURES Source: Garrison, Nooren, Brewer, Cheng, Yuen. (2021). Managerial Accounting. 17th edition. Mcgraw- hill/Irwin. ISBN: 978-1-260-57568- 2.

THE BALANCED SCORECARD – FINANCIAL V. NONFINANCIAL MEASURES The balanced scorecard framework rejects the notion that improving process-oriented measures automatically leads to financial success Including a financial perspective serves the purpose of holding organizations accountable for translating improvements in nonfinancial performance to “bottom- line” results If favorable trends in a company's learning and growth, internal business processes, and customer measures do no translate to financial results, the balanced scorecard is designed to force the organization to re-examine its strategy for differentiating itself from competitors.

QUALITY OF CONFORMANCE When the overwhelming majority of products produced conform to design specifications and are free from defects. Costs incurred to prevent defects or that result from defects in products are known as quality costs. Many companies are working hard to reduce their quality costs.

INTERNAL AND EXTERNAL FAILURE COSTS Internal Failure Costs Incurred as a result of identifying defects before they are shipped External Failure Costs Incurred as a result of defective products being delivered to customers

EXAMPLES OF QUALITY COSTS Prevention Costs

• Quality training
• (^) Quality circles

Statistical process control activities Appraisal Costs

Testing and inspecting incoming materials

Final product testing

Depreciation of testing equipment Internal Failure Costs

Scrap

Spoilage

Rework External Failure Costs

Cost of field servicing and handling complaints

Warranty repairs

• (^) Lost sales

USES OF QUALITY COST INFORMATION Help managers see the financial significance of defects. Help managers identify the relative importance of the quality problems. Help managers see whether their quality costs are poorly distributed.

LIMITATIONS OF QUALITY COST INFORMATION Simply measuring and reporting quality cost problems does not solve quality problems. Results usually lag behind quality improvement programs. The most important quality cost, lost sales, is often omitted from quality cost reports.

OPERATING PERFORMANCE MEASURES – PART 2 Source: Garrison, Nooren, Brewer, Cheng, Yuen. (2021). Managerial Accounting. 17th edition. Mcgraw-hill/Irwin. ISBN: 978-1-260-57568-2.

OPERATING PERFORMANCE MEASURES – PART 3 Overall Equipment Effectiveness (OEE) Measures the productivity of a piece of equipment in terms of three dimensions— utilization, efficiency, and quality.