performance measurement. 2 performance measures recently introduced or being considered for...
DESCRIPTION
3 Use of Divisional Performance Measures in UK companies (source: Francis And Minchington, 2000) Ability to stay within budget Used Being considered Not being considered Not aware of 99 1%0% Target profit 94%3%2%1% Return on capital employed (ROCE) 71%6%18%5% Target cash flow 70%7%17%6% Value Drivers 28%18%35%19% Balanced Scorecard Approach 24%21%29%26% Shareholders Value Analysis (SVA) 15%13%53%19% Economic Value Added (EVA®) 10%18%46%26% Residual Income (RI) 6%2%56%36%TRANSCRIPT
Performance Measurement
2
Performance measures recently introduced or being considered for introduction
Balanced Scorecard Approach
Economic Value Added (EVA®)
Value Drivers
Shareholders Value Analysis (SVA)
Economic profit
Cashflow return on investment
Target cashflow
Return on capital employed (ROCE)
Target profit
3
Use of Divisional Performance Measures in UK companies (source: Francis And Minchington, 2000)
Ability to stay within budget
Used
Beingconsidered
Not being considered
Not aware of
99 1% 0% 0%
Target profit 94% 3% 2% 1%
Return on capital employed (ROCE)
71% 6% 18% 5%
Target cash flow 70% 7% 17% 6%
Value Drivers 28% 18% 35% 19%
Balanced Scorecard Approach
24% 21% 29% 26%
Shareholders Value Analysis (SVA)
15% 13% 53% 19%
Economic Value Added (EVA®)
10% 18% 46% 26%
Residual Income (RI) 6% 2% 56% 36%
4
Financial and non-financial measures commonly used in assessing performanceWORKING CAPITALCashflowCreditor daysDebtor days
GENERAL PRODUCTIONCapital utilizationInventory
DEMANDMarket shareOrders on hand
CAPITAL MARKETAsset value per shareDividend coverDividend per shareEarnings per sharePrice/earnings ratio
PROCESSManufacturing lead timeper cent rework and rejectper cent yield on productionSchedule adherenceSet-up time
PRODUCTPrice (both low-price and low-cost supplier)Product quality Returns Incidence of defects (PPM) Warranty claims Field service requests
(FINANCIAL) RETURNCapital turnoverWorking capital turnoverProfit to turnoverReturn on capital employedProfitTotal shareholder returnsProfit per employeeEconomic value addedSales per employee
LABOURDirect labor productivityIndirect labor productivityEmployee turnoverEmployee satisfaction Involvement with decisions Recognition for doing good job Support level from staff fnctions Encouragement to be creative
Employee retention
CUSTOMERCustomer AcquisitionSatisfactionComplaintsRepeat ordersRetention & loyaltyOn-time delivery (OTD)Account shareProfitability
LENDER SECURITYGearingInterest cover
SUPPLIERSNumber of suppliersSupplier lead time
INNOVATIVENESSNew product frequencyNew product time to market
5
Financial control Financial control involves the use of
financial measures to asses organization and management performance
Variance analysis is the oldest and most widely used forms of financial control
Financial indicators used for asses performance depend on the type of responsibility center
6
Responsibility centers and financial indicators Using segment margin reports Transfer pricing
International transfer pricing Domestic transfer pricing
Return on investment Using Residual Income Using economic value added (EVA®)