194 Cost Management
Strategic Performance Measurement
Chapter 17 addresses the following learning objectives:
LO1 Discuss strategic decision making
LO2 Describe how financial and nonfinancial measures are used to evaluate organizations
LO3 Explain the balanced scorecard
LO4 Explain how the balanced scorecard is implemented
LO5 Discuss how the balanced scorecard affects strategic management and incentives
LO6 Discuss the future direction of cost accounting
These learning objectives (LO1 through LO6) are cross-referenced in the textbook to individual
exercises and problems.
© 2012 John Wiley and Sons Canada, Ltd. 195 Cost Management
17.1 Financial measures provide information measured in dollars or ratios of dollars.
Examples are ROI, operating margin, total sales, and so on. Nonfinancial measures
provide performance information about activities that cannot be measured in dollars.
Examples would be defect rates, market share, and employee retention rates.
17.2 Four potential perspectives for a balanced scorecard are financial, customer-related,
learning and growth, and internal business processes. These are related because success
in learning and growth and internal business processes should increase customer
satisfaction and finally financial performance.
17.3 Financial perspective: Operating margin, Cost per mile per ton transported
Customer perspective: Customer satisfaction surveys, market share, growth in return
customers, growth in new customers
Internal business perspective: Percent on-time deliveries, number of complaints about
food damage from loading and unloading
Learning and growthperspective: Driver safety records (number of tickets or accidents),
driver training hours, number of process improvements annually.
17.4 Core competencies are the organization’s strengths relative to competitors. The vision is
the purpose of the organization. The strengths should support the purpose and values of
17.5 The sales force may increase satisfaction by reducing car prices, or directing potential
customers to another dealership with lower prices to keep satisfaction ratings high. This
would hurt financial performance. In addition, sales representatives might not apply
pressure to close a sale when it might be appropriate to do so, because they may worry
about the customer satisfaction ratings.
17.6 Students answers will vary with this question but listed are some alternatives:
Financial Perspective: decreases in the wholesale prices from the suppliers, lower costs
for members in the form of larger discounts from the service providers for the
insurance and benefits.
Customer Perspective: increased number of customers at the independent stores
compared to prior years, percentage of repeat customers at the local independent
Internal Business Perspective: speed of delivering products purchased in bulk to the
independent stores, reduction in the length of time it takes to respond to member
concerns or issues.
Learning and Growth Perspective: increased services offered to the members, retention
of members, increased membership, percent of increase in membership over prior
17.7 To implement a balanced scorecard, first clarify vision, core competencies, and strategies.
Then these strategies are translated to the four perspectives of the balanced scorecard:
financial, customer, internal business, and learning and growth. The scorecard is refined
as it is communicated throughout the organization to link department and overall
© 2012 John Wiley and Sons Canada, Ltd. Chapter 17: Strategic Performance Measurement 196
organizational strategies and objectives. At the department level, performance targets and
action plans are established. Data is collected over time and performance is monitored
using the performance measures selected by departments. Employees are rewarded after
results are analyzed. The scorecard is refined for the next period.
17.8 Strategic decision making relates to decisions about the types of goods and services that
organizations produce and the long-term methods that are developed to better compete.
Strategic decision making relies on developing strategic operating plans and budgets that
take advantage of an organization’s core competencies. The balanced scorecard provides
a more formal method for managers to incorporate mission, vision, and core
competencies into their strategic decision making.
17.9 Information from /McDonald’sand WENDY’S web site as of February 2012 (vision,
mission, core values, or similar attributes) are referenced here, but cannot be
reproduced in this Manual without permission:
Similarities between McDonald’s and Wendy’s vision, mission, and core values:
Both companies focus heavily on people and their statements are quite broad describing
overall corporate values.Both companies include profits, high quality food, commitment
to their people, and giving back to the community in their value statements.
Differences between McDonald’s and Wendy’s vision, mission, and core values: A
difference is that McDonald’s presents formal statements labelled“mission and
values”Wendy’s does not present any statements having these titles, instead they give
“Dave’s Values”. McDonald’sis committed to continuously improving their operations
and enhancing the customers' experience. Wendy’s values do not mention customers
specifically but they emphasise respect and integrity.
17.10 Student answers to this question will vary depending on the companies chosen. Here is
an example of a response for Home Depot and Rona; however information from each
company’s website cannot be reproduced in this manual without permission. Neither
company include major strategies on their websites.
Similarities between Home Depot and RONA strategies: Both companies describe
values to provide excellent customer service, initiative, and respect for employees.
Differences between Home Depot and RONA strategies:Home Depot’s values include
respect for all people, giving back to the community, taking care of people and creating
shareholder value whereas Rona’s values are not a specific on these topics. Rona’s values
include unity which is not included in Home Depot’s values.
17.11 As the business environment becomes increasingly competitive and dynamic, demand
will increase for relevant and useful information to help organizations succeed.
Accountants will need to conduct research using many different sources of information
from web sites, libraries, journals, people, and others. They will also need to develop
new internal sources of information that managers can use for decision making.
17.12 Accounting techniques continuously evolve. Sometimes new methods are developed,
such as the Balanced Scorecard for strategic management, and sometimes new
© 2012 John Wiley and Sons Canada, Ltd. 197 Cost Management
accounting rules are implemented, such as those issued by the Canadian Institute of
Chartered Accountants (CICA) and implementation of IFRS. Other times technological
developments facilitate accounting practices. For example, prior to 1990 very few
businesses used the reciprocal method (Chapter 8) to allocate support department costs
because computers required a great deal of time and memory to perform linear
programming. Several spreadsheet programs now offer linear programming capabilities,
so now the reciprocal method is commonly used. It is also likely that new accounting
techniques will be developed to match technological advances over time. Accountants
need to understand their industry and new technologies to help their organizations choose
the most efficient accounting and production methods.
17.13 Two kinds of biases affect managers in their choice of nonfinancial performance
measures. First, managers tend to pick measures with whichthey are more familiar.
Second, they may pick measures with whichthey know they will be successful. For
example, the manager of a car wash may choose number of cars washed instead of
average revenue per car washed in an area that is growing in population.
17.14 When it is difficult to accurately measure customer satisfaction, more weight should be
placed on measures such as market share and number of returns or complaints.
Measurement error introduces uncertainty about the actual performance that is being
measured. Market share is a more precise measure as would be number of returns or
17.15 Performance targets are the goals that an organization or unit sets for specific types of
performance. For example, a firm may set a profit margin goal of 2% for a particular year
as a performance target. Targets increase the organization’s focus on results and assist
managers in monitoring progress.
17.16 A strategy map presents a visual summary of the strategic objectives for each of the
perspectives of the balanced scorecard. These maps are a one-page picture of the most
important parts of organizational strategy. Strategy maps are also used to communicate
the objectives and strategic plans throughout the organization.
© 2012 John Wiley and Sons Canada, Ltd. Chapter 17: Strategic Performance Measurement 198
17.17 Which of the following is considered an adequate performance measure in the internal
process perspective of the balanced scorecard?
a) Customer complaints
b) Number of repeat orders
c) Revenue per employee
d) Revenue per product
17.18 A well-designed performance measurement system will include which measures?
a) Measures related to the goals of the organization.
b) Measures primarily focusing attention on immediate short-term concerns.
c) Reasonably objective and easily quantified measures.
d) both a) and c).
e) all of a), b) and c).
17.19 Which of the following is an advantage of a balanced scorecard for evaluating a
a) It covers a range of activities over the short term.
b) It covers a range of activities over the long term.
c) It forces a company to consider the range of activities that lead to success, not
just short-term financial criteria.
d) It is subject to manipulation.
17.20 Which of the following is considered an adequate performance measure in the learning
and innovation perspective of the balanced scorecard?
a) Cycle time
b) Employee turnover
c) Number of new customers
d) Revenue growth
17.21 Which of the following is a disadvantage of a balanced scorecard for evaluating a
a) It forces a company to consider the range of activities and results that lead to success,
not just short-term financial criteria.
b) It suggests to management that customers, learning and innovation, internal processes,
and income are all important.
c) It is subject to manipulation.
d) It covers a range of activities over both the long and short term.
© 2012 John Wiley and Sons Canada, Ltd. 199 Cost Management
17.22 Balanced Scorecard Measures for Financial Perspective - China Express
From the data given, the following measures could be used for the financial perspective:
Operating margin = $10,450,200 - $9,927,690 = $522,510
Return on investment = $522,510/$4,180,080 = 12.5%
Residual income = $522,510 – (0.15*$4,180,080)
= $522,510 - $627,012 = ($104,502)
Economic value added = $391,883 – (0.12*$4,180,080)
= $391,883 - $501,610 = ($109,727)
17.23 Financial and Nonfinancial Measures
G. F (Could be N if measured in units)
17.24 Balanced Scorecard Measures for Customer Perspective - Flowing Wells High
A. Customer satisfaction because parents are considered the customers and school
administrators are measuring how satisfied parents are with the high school’s
B. This is an internal business related measure because it measures the performance of the
C. Customer satisfaction related because the administrators could consider future employers
as customers. Changes in employment rate after graduation measures (with noise) the
satisfaction of employers with Flowing Wells students. Economic conditions and other
factors affect this rate, so it is an imperfect measure.
D Customer satisfaction because the administrators consider employers as customers, and
their satisfaction surveys would reflect a potential measure of the customer perspective.
E. This is not a customer perspective measure because it reflects many other factors in
addition to satisfaction of employers with graduates.
© 2012 John Wiley and Sons Canada, Ltd. Chapter 17: Strategic Performance Measurement 200
F. This measure reflects the performance of the high school but not the customer
perspective, even though customers are probably interested in this rate.
G. This measures internal performance.
H. This measures internal performance
I. This measures the learning and growth perspective
17.25 Learning and Growth Perspective - Sparkman Corporation
A. Because so many years are spent in drug development, the results of current research,
development, and testing will affect future financial performance, not current
performance. If nonfinancial measures are used to reward employees, progress toward
blockbuster drugs will be better monitored and rewarded.
B. Following is an example of an objective. Students may have thought of others.
Objective: To increase new drugs that have been developed, patented, tested and
are now on the market compared to drugs in the first phase of research.
C. Two measures are:
• The number of new drugs that are on the market divided by total number of
• The trend (growth rate) in number of new drugs that are on the market.
17.26 Balanced Scorecard Measures for Four Perspectives
© 2012 John Wiley and Sons Canada, Ltd. 201 Cost Management
17.27 Strategic Plans, Balanced Scorecard Measures for Not-for-Profit Organization -
A. Vision is the purpose of the organization. For Students Care, the purpose is to send
scholarship money to orphans in Africa. Core competencies are the organization’s
strengths relative to competition. Students Care is a campus based organization run by
students to raise funds for students. This is likely an advantage for raising funds from
students compared to organizations managed by non-students. Strategies are the student’s
long-term goals and include choosing an organizational structure – the number, types,
and duties of officers – and the nature of the events that the organization will sponsor.
Operating plans are the plans that students make for raising and disbursing funds over the
next semester or year. These would include number and times of meetings, types of
activities for each meeting, and fund raising events. Operating plans for this organization
might include targets for the amount of funds the students hope to raise.
B. Below are examples of advantages and disadvantages for each measure. Students may
think of others.
Tracking volunteer hours per week:
Advantages: This measure is easy to track. If students are putting in good effort,
funds are likely to increase as hours increase. Volunteers have incentives to
put in more hours if they know that measure is being tracked.
Disadvantages: Students could spend lots of hours raising funds, with little
results. They may count activities that are only peripherally connected to
fundraising as part of their hours spent. Does not provide incentives to
increase the overall amount of funds raised.
Dollars collected per volunteer hour:
Advantages: This measure focuses on the amount of funds raised instead of the
time spent in fund raising, so students have incentives to focus on projects that
result in more funds being raised. Students would be less likely to count
peripheral hours as time spent on fund-raising activities, so the measure might
be more accurate.
Disadvantages: This measure does not track the amount of time students spend in
fund raising activities, and so they may minimize time spent, but maximize
dollars per hour, but spend very few hours fund raising. It does not provide
incentives to increase the overall amount of funds raised.
C. Learning and growth measures should reflect both organizational and employee efforts to
increase knowledge and develop skills. It is likely to be more difficult to find activities
that might increase these within volunteer organizations because student time is limited
and measuring changes in knowledge and skills are also difficult. Tracking hours
students spend at workshops would be easy to measure and monitor and would not
involve the organization’s time to set up. A disadvantage is that the quality of the
workshops and the effort of students attending the workshop affect the benefits that the
organization receives. It could be possible that some of the workshops address issues that
are not relevant to Students Care.
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17.28 Balanced Scorecard Measures the Customer Service Quadrant – Carleton
A and B. Below are possible answers to these questions; students may think of others.
1. Student customer satisfaction rating:
Calculation: student customer satisfaction rating can be calculated or determined
by having the students complete a survey indicating their level of satisfaction.
The survey could be posted on the website to measure whether or not the
students are reading the website. The survey can include questions that will be
answered on a scale of very satisfied to very dissatisfied and it could also
include some open ended questions to allow students to make other
suggestions. The calculation would include a simple average of the student
Advantage: an advantage of tracking satisfaction this way is that the
administration could determine if the students are using the website. The scale
questions are quick and easy to answer which would entice more students to
complete the survey. The open ended questions would allow students to voice
their opinions on other issues.
Disadvantage: a disadvantage to this form of measurement is that not all students
will take the time to complete the survey. Students may feel that the open
ended questions will take too much time and they won’t bother to answer
them. This would lead the administration to believe that there are no other
concerns when in fact students just are not taking the time to complete the
survey. Open ended questions also require a lot of time to analyze the
2. Employee customer satisfaction rating:
Calculation: This measure assumes that a survey had been designed and that
customer responses have been obtained. If the survey includes numerical
ratings of employee customer satisfaction, then the measure could be a simple
average of the customer responses. The ratings could also be broken down by
individual survey question.
Advantage: An advantage is that managers can learn quickly whether
anemployee customer satisfaction problem exists. Also, this is a direct
measure of customer satisfaction—customers are asked about their
experiences at the university.
Disadvantage: A disadvantage is that the sample of customers who complete the
survey might not be representative of the average customer. Also, the survey
might not be designed to elicit the best information.
3. Customer satisfaction rating:
Calculation: customer satisfaction rating can be calculated or determined by
having the customers complete a survey indicating their level of satisfaction.
The survey can include questions that will be answered on a scale of very
satisfied to very dissatisfied and it could also include some open ended
© 2012 John Wiley and Sons Canada, Ltd. 203 Cost Management
questions to allow customers to make other suggestions. The calculation
would include a simple average of the customer responses.
Advantage: an advantage of tracking satisfaction this way is that the
administration could determine if the customerssatisfied with services
provided. The scale questions are quick and easy to answer which would
entice more customers to complete the survey. The open ended questions
would allow customers to voice their opinions on other issues.
Disadvantage: a disadvantage to this form of measurement is that not all
customers will take the time to complete the survey. Customers may feel that
the open ended questions will take too much time and they won’t bother to
answer them. This would lead the administration to believe that there are no
other concerns when in fact customers just are not taking the time to complete
the survey. Open ended questions also require a lot of time to analyze the
17.29 Balanced Scorecard Measures for the Stewardship of Financial Resources –
Full details of the stewardship of resources section of the balanced scorecard at Carleton
University can be found on their website at http://www5.carleton.ca/finance-admin/strategic-
A and B. Below are possible answers to these questions; students may think of others.
1. Annual, actual financial operating results for university compared to budgeted
Calculation: The calculation of this measure would be performed by subtracting
actual results from budgeted results for all line items. The results would be
indicated as either positive or negative and the administrators can determine
which line items need more controls.
Objective: Provide effective stewardship of university resources
Negative actual results compared to budgeted results would indicate what
areas of finance need to be controlled tighter in future periods. If there are
areas of great concern they could put the university at risk financially.
2. Successful delivery of Capital Programs:
Calculation: to calculate this measure subtract the number of capital programs
deliveredon time and on budget last year from the number of capital programs
deliveredon time and on budget this year and divide the result by the number
of capital programs deliveredon time and on budget last year.
Objective: Provide effective stewardship of university resources
If capital programs are not delivered on time and on budget the university will
not be able to deliver service planned to utilize those programs and will be
short of funds for other programs.
© 2012 John Wiley and Sons Canada, Ltd. Chapter 17: Strategic Performance Measurement 204
3. Assign tasks and track accomplishments:
Calculation: This measure can be calculated developing an action plan with
specific tasks, people assigned to each task. Regular meetings would then be
held to track the accomplishment of each task. To calculate this measure
divide the number of tasks assigned by the total number of task identified on
the action plan and divide the number of tasks accomplished by the number of
tasks identified on the action plan.
Objective: Provide effective stewardship of university resources
By assigning task and tracking accomplishments the action plan has a better
chance of being completed. This will enable continuous improvement in the
stewardship of resources only if the action plan is well thought out and has the
4. Employee satisfaction rating (I’m encouraged to make suggestions):
Calculation: to calculate this measure subtract the number of approved ideas
implemented this year from the number of approved ideas implemented last
year and divide the result by the number of approved ideas implemented last
Objective: Provide effective stewardship of university resources
This measure tracks the number of approved ideas implemented but this may
not be a good measure of employee satisfaction. If employees do not receive
recognition or reward for their ideas they may actually have a lower level of
satisfaction as a result of increased implementation of suggestions.
5. Emergency response strategy refined
Calculation: to calculate this measure,determine the percentage completion this
year less the percentage completion last year.
Objective: Manage risks that affect the university
This measure is based on estimates of percentage of completion which is
subject to bias. Failure to have a completed and updated emergency response
strategy but the university at risk of not being able to effectively and
efficiently respond when an emergency arises.
17.30 Balanced Scorecard Perspectives, Performance Objectives, and Measures - Holiday
I. a, e
II. c, d, h, i, k
III. b, f
IV. g, j
b. 3, 14
© 2012 John Wiley and Sons Canada, Ltd. 205 Cost Management
i. 2, 8, 14, 15
j. 5, 12
17.31 Future Direction of Accounting Information - Future Career
A. The answer to this exercise will depend on the student’s planned career path. The
purpose is to encourage students to tie the concepts of financial and nonfinancial
measures to their future careers. They should be able to list several financial and
nonfinancial measures for any type of work.
B. Again, the answer will depend on students’ planned career paths. Students should be
able to list methods, such as flexible budgets and benchmark targets, which would be
relevant for predicting future operations for their employer or clients.
C. All students should list continuing professional education such as increasing the technical
knowledge and ability to manipulate data using data bases and spreadsheets. Some
students will consider annual education needs for CICA and tax updates. Others might
identify learning related to skills that will become more important after the entry level,
such as people management.
D. As technology enables organizations to quickly manipulate data, the need for innovative
data collection and analysis becomes a more central part of work. Bookkeeping
responsibilities are now maintained by information systems, but the integrity of the
systems needs to be continually monitored and improvements continuously made.
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17.32 Balanced Scorecard and Implementation –Dr. Mark Moreland
A. The financial perspective is similar across organizations. Because this is a service
industry, any financial measures relating to cost will likely measure the cost of clinical
The customer perspective will relate to the dental patients and possibly also to insurance
companies, who pay for dental services. The customer perspective is important to
dentists because return business is probably most of their business.
Internal business processes would include the ease with which patient appointments are
booked, effective scheduling of staff, and effecting accounting practices, especially for
billing and managing accounts receivable.
Learning and growth would pertain to the dentists, who need to participate in continuing
professional education to keep their licenses and dental procedures current, and staff
members such as hygienists who are an important part of the patient care team.
B. Patients could be surveyed either before they leave the office or by mail after the
appointment date. The performance measure could be average patient satisfaction. In
addition, the clinic may want to use waiting time as an important measure of customer
satisfaction. If patients have to wait extended amounts of time, they will feel frustrated
and may find a new clinic. Other measures could include tracking the proportion of
patients who return for additional services, the number of patient complaints, and the
number of return visits for problems with the original work.
C. Financial perspective:
• Operating margin reflects the overall profitability of the dental clinic
and reflects changes in both revenues and costs. Tracking operating margin will
alert the dentists to potential problems with revenues or costs before the problems
become too large.
• Bad debts or insurance adjustments. Some patients may not have the
ability to pay and if the percentage of patients with these types of problems
increases, operating margin will fall. Bad debts and insurance adjustments can
also indicate problems with services or with billing processes.
Customer perspective is addressed in Part B.
Internal business processes:
• Days in accounts receivable. This measure is important because some
customers may be very slow to pay, or unable to pay. The clinic needs to know
immediately if there is a problem with receivables because it affects cash flows.
• Patient throughput, that is, the rate at which patients are treated.
Throughput could be measured as an average number of patients treated per day,
per week, or other time period. This measure reflects the use of fixed assets, such
© 2012 John Wiley and Sons Canada, Ltd. 207 Cost Management
as the dental chairs and equipment. Also, staff members are likely paid by salary,
so the more patients the dentist can see, the more profits the clinic receives.
Learning and growth
• Number of continuing professional education hours would be a good
measure for the dentists, so that they can be reminded to increase hours if they fall
behind. Retaining licensure in this industry is extremely important.
• Training hours for staff members could be measured to keep staff up
to date with the latest technology for this field.
17.33 Balanced Scorecard, Financial and Nonfinancial Measures - Dyggur Equipment
D. F and I
F. F and I
G. F and C
H. C and I
I. C and I
T. L and I
U. I and C
2. I and C
3. I and C
17.34 Strategy, Balanced Scorecard Measures and Process - Dyggur Equipment
A. Advantages of weekend service: Because heavy equipment is expensive to purchase,
contractors probably prefer to use it as often as possible during the week. Therefore,
having weekend service would be an attractive alternative for them. It is possible that
Dyggur will attract new customers with this strategy.
© 2012 John Wiley and Sons Canada, Ltd. Chapter 17: Strategic Performance Measurement 208
Disadvantages: If Dyggur currently operates services during the week, customers may
have all of their repairs and maintenance done on the weekend instead of during the week
so that there will be excess capacity during the week, and service employees may need
extra compensation to work weekends.
B. Contribution margin per day might be a good financial performance measure because it
takes into consideration both sales and variable costs.
Nonfinancial measures could include average service time per vehicle, or a measure of
labour time used that should encourage speedy service. In addition, a measure that tracks
the number of customers with problems or complaints related to service should provide
incentive for employees to spend enough time on each vehicle to prevent problems.
C. After a year’s worth of data has been collected, operations can be analyzed and
correlations developed to determine an optimal average service time per vehicle, or
operating practices that help insure high quality service. For example, if quality
problems are higher than preferred, a service inspector could be hired that would review
all of the procedures used to service the vehicle with the service employee before the
vehicle is returned to the owner. Problems that are uncovered during the review could be
remedied if the balanced scorecard measures provide enough appropriate information
© 2012 John Wiley and Sons Canada, Ltd. 209 Cost Management
17.35 Cumulative Exercise (Chapter 3): Wait time, strategy map, breakeven point,
business risks - Urgent Care Clinic
[Note: This problem requires knowledge of breakeven analysis from Chapter 3.]
A. Below is an example of a strategy map. Students might think of other strategic objectives
or make different linkages.
B. Nurse practitioner cost per day = $65 per hour * 8 hours per day = $520
Breakeven point = $520/($55-$2) = 9.8, or 10 patients per day
C. Below are examples of business risks. Students may think of other risks.
• If the information about patients turned away is inaccurate, the clinic may not
break even by hiring the nurse.
• If patient visits do not increase above the current 10 who are turned away, the
nurse practitioner might have a lot of time without specific duties and have
• Patients might insist on seeing a physician when the services of a nurse
practitioner are appropriate for the type of care needed.
D. More information is needed to make the decision, for example information about
competitors such as clinics in local pharmacy stores, information about population
growth or decline in the area, whether the general standard of living is increasing or
© 2012 John Wiley and Sons Canada, Ltd. Chapter 17: Strategic Performance Measurement 210
decreasing, and whether most of the new patients have insurance that will help cover
17.36 Mission Statement, Strategy, Balanced Scorecard Implementation - Squeezers Juice
and Tea Company
A. Here is a possible mission statement: Squeezers Juice and Tea Company produces the
highest quality organic juices. We strive to satisfy customers who want organic juices
and teas with outstanding taste.
The preceding statement attempts to capture the essence of the company in as few words
as possible. It used information in the problem to determine the company’s core values.
B. The business’ strategies are to be the high quality, high priced juice and tea seller. The
core competencies include knowledge of the specific exotic juice and tea drinks that sell
well and knowledge of suppliers of unusual gourmet organic ingredients.
C. There are many possible performance objectives for each of the four balanced scorecard
perspectives. Below are examples.
• Maintain and improve operating margins.
• Increase revenues.
• Control costs
• Increase market share.
• Decrease product returns and complaints.
• Increase customer satisfaction.
Internal business processes
• Maintain high standards of cleanliness and quality.
• Monitor and increase throughput of product while maintaining quality.
• Continue to appeal to celebrities (could be considered internal business
processes – advertising, or customer perspective)
Learning and growth:
• Locate new suppliers continually.
• Reduce employee turnover to decrease threat of competitors getting
information about the beverage recipes.
D. There are many possible answers to this question. Below are examples.
Financial perspective objective measures: To measure improvements in operating
margin, operating margin is monitored. To measure increase in revenues, changes in
revenues are reported.
© 2012 John Wiley and Sons Canada, Ltd. 211 Cost Management
Customer perspective objective measures: To measure increases in market share, market
share is monitored and reported. To measure decreases in product returns and
complaints, number of products returned and number of complaints are tracked and
Internal business perspective objective measures: To monitor cleanliness and quality,
indices would need to be developed. To measure changes in throughput, the
throughput rate would need to be monitored.
Learning and growth perspective objective measures: To measure efforts in adding
suppliers, the number of suppliers or number of new suppliers should be tracked and
monitored. To measure efforts at reducing employee turnover, the turnover rate can
be tracked and monitored.
E. Operating margins and revenues are usually tracked by the accounting system, but
change in revenue may need to be calculated. Market share may not be tracked.
Squeezers may need to begin collecting such data by gathering information from industry
publications or by hiring a consulting company to conduct surveys. Product returns and
customer complaints are probably not tracked, so a new system will need to be put into
place to measure this. Managers may need to explore different types of indices for
cleanliness and quality, although the health department probably inspects on a regular
basis. However, health department standards may be too low for Squeezers. There is
probably no way to measure the number of celebrities using Squeezer products.
However, the company could keep track of the number of times that Squeezer products
appear in TV programs or movies. Employees may need to report such information so
that it can be tracked. It is likely that some instances will be missed, so this measure may
include considerable measurement error. Purchasing probably has information about
suppliers and can track these numbers. Human resources can begin to track turnover
rates if they do not already do so.
17.37 Balanced Scorecard Measures – Dave’s BBQ
A. The advantages of using a combination of measures for the finance and customer
perspectives is that no one measure is likely to capture all important aspects of these
perspectives. A combination of measures allows managers to track multiple attributes,
which might also be associated with specific strategies or performance objectives for
Disadvantages are that more measures need to be tracked, and employees could feel
confused about the specific measures to which they should pay most attention.
B. There are many possible answers to this question; here is an example. Because the health
department ratings affect customer perceptions and volumes so strongly, some measure
of cleanliness might influence customer satisfaction. For example, a manager might
make a spot inspection daily, or weekly using standards similar to the health
department’s, and give each outlet a rating. An advantage of this measure is that outlets
© 2012 John Wiley and Sons Canada, Ltd. Chapter 17: Strategic Performance Measurement 212
will maintain a high degree of cleanliness and the health department should always find
that the outlets meet its standards. A disadvantage is that employees may spend too
much time cleaning when they could be doing other activities that affect customer
satisfaction, such as filling salt and pepper shakers or giving customers more attention.
C. There are many possible answers to this question; here are two examples. Another
performance measure could be the number of return customers. Fast food businesses rely
heavily on repeat customers and increasing the number of returning customers is likely to
increase revenues and profitability. This measure may be difficult to track, though;
cashiers might ask each customer if they had eaten at a Dave’s BBQ outlet before, but
customers might not respond honestly. Another performance measure might be the
percent change in sales at the store where the employee works. This data is already
tracked, and it would encourage employees to focus their efforts on encouraging
customers to spend more money.
17.38 Participative Strategic Planning Process and Benefits, Manager Behaviour -
A. Several different functional areas should be discussed during the strategic planning
process. This would include product research and development, production, distribution,
marketing, and administrative support areas.
B. Below are six factors that should be considered in a thorough strategic planning process
to move a company such as Quantum Computers to another level of product
development. Students may think of others.
• Define the mission of the organization. State the fundamental, unique purpose
that sets the company apart from other firms of its type and identify the scope of
its operation in product and market terms.
• Develop organizational objectives. State the specific aims that management seeks
to achieve for the organization within a stated period of time. Objectives improve
the effectiveness of the organization by providing direction, serving as standards
for evaluating performance, and motivating members of the organization.
Objectives can be short and long range, and internal and external.
• Evaluate current and projected risks and opportunities in the firm’s environment
and business culture, including trends in the competitive, economic, demographic,
social, technological, and regulatory areas.
• Assess the organizations’ strengths and weaknesses compared to those of other
organizations. Identify the firm’s core competencies. Strengths, weaknesses,
opportunities, threats (SWOT) analysis is a strategic planning tool that forces
managers to identify internal strengths and weaknesses and assess them in relation
to external opportunities and threats.
• Determine the total company resource constraints, including human, physical, and
• Formulate strategy. Select an appropriate strategy to take advantage of existing
and expected external environmental conditions and the firm’s internal strengths
© 2012 John Wiley and Sons Canada, Ltd. 213 Cost Management
C. Quantum Computers can derive the following benefits from a participatory strategic
planning process. Students may think of others.
• Exchange of ideas between participating managers leads to greater creativity,
resulting in a better plan.
• Participation fosters increased teamwork, cohesiveness, communication, and
cooperation among departments and managers.
• Communication will be improved, leading to better understanding of the overall
mission and strategy and the potential contributions of each area to the
organizational mission. This should contribute to improved goal congruence
between operating areas and the overall goals of the firm.
D. The managers who participate in the three-day offsite strategic planning meeting are
more likely to do/feel the following. Students may think of others.
• Feel that they have been part of the process and be positive about the plan
• Be more motivated and committed to making the plan succeed because they had
the opportunity to express their opinions and insights.
• Be more enthusiastic in communicating the plan to their subordinates.
17.39 Balanced Scorecard, Strengths and Weaknesses - Brewster House
A. The following are potential benefits and costs of the balanced scorecard for Brewster
House. Students may think of others.
Benefits: Balanced scorecard performance measures could help Brewster House improve
the quality and efficiency of its operations, by helping managers, employees, and
volunteers focus on key indicators. If the organization operates more efficiently,
donors are more confident that their donations are effective. In addition, a balanced
scorecard could be used to help communicate the objectives and expectations of the
organization to volunteers and donors.
Costs: Setting up a balanced scorecard could require the organization to establish new
records, which could take time away from the organization’s primary activities. In
addition, the measures chosen by the accounting students may not be the best set of
measures. Some of them might result in unintended consequences, for example the
shelter may lose some of its volunteers if they believe that they cannot meet the
organizations’ performance measure targets, or if they do not agree with those
objectives and targets. Volunteers may also object to having their performance
B. There are many potential answers to this question. Below are examples.
Financial perspective: Total amount of cash available (government and private grants
and subsidies, and donations) per month compared to cash costs per month. If the
shelter is using a chequebook approach to financial operations, a spreadsheet or
© 2012 John Wiley and Sons Canada, Ltd. Chapter 17: Strategic Performance Measurement 214
bookkeeping software could be set up to track this information. It is highly likely that
it is already being tracked, though.
Customer perspective: Several choices can be considered for this perspective. If the
Brewster House director views homeless people as customers, she may want to ask a
random sample of the people staying overnight to complete a survey or answer some
simple interview questions. If she views donors as customers because Brewster
House helps them provide a social good for the community, then the director might
want to survey donors about their satisfaction with services. These surveys would
require the director to write the survey instrument, run a pilot study to determine
whether the instrument gathered all of the necessary information for evaluation, and
then develop the final instrument, use it, and evaluate the results.
Internal business perspective: The director may want to monitor the percentage of funds
used for administration compared to the percentage of funds used for providing
shelter. This ratio is monitored by external agencies, such as the Better Business
Bureau, and donors pay attention to these types of ratios when making decisions
about their donations.
Learning and growth perspective: The director and the volunteer staff would probably
all benefit from further training. The director may want to learn more about fund
raising or the business of running an organization. The volunteers may want to learn
more about dealing with homeless people who are also mentally ill. Separate
measures of training hours per employee/volunteer could be tracked.
C. Student answers will vary. The memo should be written in language that would be easily
understood by a non-accountant manager, and it should include:
• Overview of major issues and recommendation
• Explanation of the purpose and use of a balanced scorecard
• Examples of a few key measures that might be used by Brewster House and
how those measures might help the organization meet its objectives
• Description of the costs and benefits of a balanced scorecard for Brewster
• Explanation of how factors were weighed in reaching a recommendation
• Major limitations or risks of the recommendation
• Identification of next steps
© 2012 John Wiley and Sons Canada, Ltd. 215 Cost Management
17.40 Cumulative Exercise (Chapters 4 and 7): ABC, ABM, customer profitability, keep or
drop - Children’s Clothing Manufacturer
[Note: This problem requires application of knowledge from Chapters 4 and 7.]
Customers 150 25
Revenues $ 750,000 $ 1,350,000
Direct costs (DL and DM only) $ 375,000 $ 625,000
Deliverycosts $ 41,400 $ 21,000
Returns 510 250
Change orders 136 2
Deliveries 345 35
Revenue per customer $ 5,000 $ 54,000
Revenue less direct costs per customer $ 2,500 $ 29,000
Distributioncosts per customer $ 276 $ 840
Number ofreturns per customer 3.4 10.0
Change orders per customer 0.9 0.1
Number ofdeliveries per customer 2.3 1.4
B. Because we do not have information about the cost of returns or change orders, we need
to examine the contribution per customer. For the Family Store customer, the new
customer would need to bring in a contribution of $2,500 less the distribution costs of
$276, or $2,224. A replacement for the Discount Retailer customer would need to bring
in $29,000 less $840 in distribution costs, or $28,160.
C. A differentiated strategy would work if there are enough new discount stores to bring in a
total contribution of $333,600 ($750,000 – $375,000 – $41,400). If new discount stores
averaged $28,160, it would take 11.8, or 12 new stores, to make up for the 150 family-
D. To reduce the number of change orders, the company could encourage customers to
choose standard rather than customized products or to place larger orders of customized
products. One way to encourage this change would be to charge higher prices for
customized orders by charging a change order fee or increasing prices for customized
products. Alternatively, the company could create two lines of clothing—one for
Discount Retailers and another for Family Stores. The company may be able to
significantly reduce or eliminate customized orders by selling a premium line to Family
Stores. The company could also increase the lead time required for smaller-volume
orders, allowing the company to more efficiently schedule smaller batches of product.
© 2012 John Wiley and Sons Canada, Ltd. Chapter 17: Strategic Performance Measurement 216
17.41 Strategies and Balanced Scorecard Measures for a Country - New Zealand
A. There are many possible answers to this question. Here are several ideas for increasing
the number of college graduates:
• The government could offer scholarships to students who might not attend
college because of financial need.
• The government could pressure colleges to reduce their admissions standards
so that more students were accepted to their programs.
• The government could launch an advertising campaign aimed at promoting
• The government could provid