CPAR :MS 9009b_ BALANCED SCORECARD AND OTHER PERFORMANCE MEASURES BATCH OCTOBEER 2021

MS9009b – BALANCED SCORECARD AND OTHER PERFORMANCE

MEASURES
TOPIC OUTLINE

Financial Perspective

Customer Perspective
Balanced Scorecard
Internal Business Process Perspective

BALANCED SCORECARD AND Learning and Growth Perspective

OTHER PERFORMANCE
MEASURES DCT & MCT

MCE
Other Performance
Measures Cycle Time and Velocity

Productivity

LECTURE NOTES
BALANCED SCORECARD
 Balanced scorecard is a tool that consists of an integrated set of performance measures that are
derived from the company’s objective and strategies.
 The balanced scorecard translates an organization’s mission and strategy into operational objectives
and performance measures for four different perspectives.
 The performance measures on the balanced scorecard provide MOTIVATION and FEEDBACK for
improvement.
Characteristics of Balanced Scorecard
(a) It should be possible, by examining a company’s balanced scorecard, to infer its strategy and the
assumptions underlying that strategy.
(b) The balanced scorecard should emphasize continuous improvement rather than just meeting present
standards or targets.
(c) Some of the performance measures on the balanced scorecard should be non-financial.
(d) The scorecards for individuals should contain only those performance measures they can actually
influence.
(e) The ultimate objectives of the organization are usually financial, but better financial results cannot be
attained without improving customer’s perceptions of the company’s products and services. In order
to improve customer’s perceptions of products and services, it is usually necessary to improve
internal business processes so that the products and services are actually better. And in order to
improve the business processes, it is necessary that employees learn.
PERSPECTIVE OF BALANCED SCORECARD
Financial: The financial health of any enterprise is critical to long-term survival. Typical
measures used by for-profit companies include revenue growth, operating income,
return on equity, and other measures of interest to owners.
Customer: The customer perspective compares the enterprise’s service to the competition’s
service. Specific metrics vary by industry but most focus on time, quality, and
service levels. Metrics common to most industries include customer satisfaction
and enterprise responsiveness. Other metrics are more industry-specific. Cellular
telephone companies track customer growth and churn. Manufacturing companies
track on-time delivery, and percent of orders delivered as ordered (i.e. without
back order or substitution). Consumer products companies monitor percent of

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CPAR :MS 9009b_ BALANCED SCORECARD AND OTHER PERFORMANCE MEASURES BATCH OCTOBEER 2021

repeat customers and percent of sales from products introduced in the past five
years.
Internal process: This perspective helps the enterprise understand the efficiency and effectiveness
of internal business processes and supporting technologies. Many companies focus
on the time to take an order, on-board a new hire, or complete other internal
processes. Manufacturing companies often track setup time, cycle time, first pass
yield, and the time to introduce a new product. Companies attempting to
streamline internal processes track the percent of paperless processes and the
number of self-service processes.
Learning and growth: This perspective considers the degree to which the enterprise can evolve and
improve the way it supports its goals. Organization capacity monitors people,
culture, organization, and the infrastructure to support them. Typical measures
include employee satisfaction/engagement, time to hire, first-year turnover,
regretted (sometimes unwanted) turnover, and training/education received.
NOTES:
(a) Customer, internal business process and learning and growth perspectives are called LEAD
ACTIVITIES because they are the components needs to be done to generate revenue. The financial
perspective describes the financial consequence of the former perspectives.
(b) Financial perspective is the perspective which every cause and effect be linked.
(c) Learning and growth perspective is the critical success factor because without innovation and growth,
the company cannot sustain the needs of the customer, thus no revenue.
OTHER PERFORMANCE MEASURES
DELIVERY CYCLE TIME - This is the total elapsed time between when an order
is placed by a customer and when it is shipped to the
customer. Part of this time is wait time that occurs
before the order is placed into production.
THROUGHPUT TIME - This is the total elapsed time between when an order
is initiated into production and when it is shipped to
the customer. It consists of process time, inspection
time, move time and queue time. The only element
that adds value is processing time. Inspection time,
move time and queue time do not add value and
should be minimized.

Receipt of order from

customer Start of Production Delivery to customer

Process Time, Inspection Time, Move Time, Queue Time

Wait Time
Throughput Time

Delivery Cycle Time

MANUFACTURING CYCLE EFFICIENCY
MCE
- MCE is the ratio of value added time to total
throughput time. It represents the percentage of time
an order is in production in which useful work is being
done. The rest of the time represents non-value
added time.
Value Adding Time
=
Throughput Time

PRODUCTIVITY -
Measures the relationship between actual inputs used
(both quantities and costs) and actual outputs
produced.
 Partial Productivity – compares the quantity of output produced with the quantity of an
individual input used.

Partial Quantity of Output Produced

=
Productivity Quantity of Input Used
 Total Factory Productivity – the ratio of quantity of output produced to the costs of all inputs
used based on current period prices.
Total Factor Quantity of Output Produced
=
Productivity Costs of ALL Inputs Used

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CPAR :MS 9009b_ BALANCED SCORECARD AND OTHER PERFORMANCE MEASURES BATCH OCTOBEER 2021

DISCUSSION EXERCISES
STRAIGHT PROBLEMS:
BALANCED SCORECARD
1. Balanced scorecards contain a number of factors that are important to the success of a business.
These factors are often divided into four categories: financial, customer, learning and growth, and
internal operations.
Consider the twelve factors that follow.
1. Market share 7. Number of repeat sales
2. Earnings per share 8. Levels of inventories held
3. Manufacturing cycle efficiency 9. Number of vendors used
4. Machine downtime 10. Cash flow from operations
5. Number of patents held 11. Employee training hours
6. Employee suggestions 12. Gross margin
REQUIREMENT: Determine the proper classification (financial, customer, learning and growth, or
internal operations) for each of the twelve factors listed.
OTHER PERFORMANCE MEASURES
2. EARTH CORP. keeps careful track of the time required to fill orders. The times required for a
particular order appear below:
Hours
Wait time 10.4
Process time 1.1
Inspection time 0.1
Move time 2.4
Queue time 9.3
REQUIREMENTS:
(a) Determine the throughput time. Show your work!
(b) Determine the manufacturing cycle efficiency (MCE). Show your work!
(c) Determine the delivery cycle time. Show your work!
3. VENUS CORP.’s management reports that its average delivery cycle time is 26.7 days, its average
throughput time is 10.0 days, its manufacturing cycle efficiency (MCE) is 0.22, its average move time
is 0.6 day, and its average queue time is 6.7 days.
REQUIREMENTS:
(a) What is the wait time? (c) What is the inspection time?
(b) What is the process time?
4. MARS CORP. produces puzzles in its Colorado manufacturing plant. The company is currently
evaluating ways to improve productivity. The accountant of the firm's parent organization suggested
that management implement a new compensation plan based on throughput performance measure as
an incentive to increase productivity. To demonstrate how such a measure might work, the
accountant gathered the following production data for a recent month:
Total units attempted 6,000,000
Good units manufactured 4,800,000
Processing time (total hours) 800
Value-added processing time 600
REQUIREMENTS:
(a) How many defective units were produced? (d) Compute process quality yield.
(b) Compute manufacturing cycle efficiency. (e) Compute hourly throughput.
(c) Compute process productivity.
5. MERCURY INC. manufactures toy cars. It divided its production line into different manufacturing cells.
One cell in the assembly department installs the motor in the toy cars. The maximum capacity of the
cell is 5,000 units per month. There are 2,500 production hours available per month.
REQUIREMENTS:
A. The theoretical cycle time (minutes per unit) is
B. The theoretical velocity (units per hour) is
C. If the cell uses 2 minutes of move time, 5 minutes of wait time, and 3minutes of inspection
time, what is the manufacturing cycle efficiency?
6. SATURN CORP. manufactures power tools. Because all its managers have engineering backgrounds,
they prefer nonfinancial information for their decision-making models. Therefore, they require the
accountants gather data to assist in the examination of nonfinancial results of operations. The
following information relates to the manufacture of a paver:
2012 2013
Units produced and sold 7,000 6,000
Direct labor hours 13,000 11,000
Direct materials used (kilos) 28,000 25,000
Direct labor rate per hour P20 P30

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CPAR :MS 9009b_ BALANCED SCORECARD AND OTHER PERFORMANCE MEASURES BATCH OCTOBEER 2021

Direct materials cost per kilo P40 P44

REQUIREMENTS:
A. What is the partial productivity for direct materials for 2012?
B. What is the partial productivity for direct manufacturing labor for 2013?
C. What is the total factor productivity for 2013?
MULTIPLE CHOICE: (THEORIES)
1. The balanced scorecard
A. incorporates financial and nonfinancial measures in an integrated system.
B. is based on financial measures.
C. is based on nonfinancial measures.
D. does not use financial or nonfinancial measures.
2. The customer perspective of the balanced scorecard approach
A. is the most traditional view of the company.
B. evaluates the internal operating processes critical to the success of the organization.
C. evaluates how well the company develops and retains its employees.
D. evaluates how well the company is performing from the viewpoint of those people who buy its
products and services.
3. Swedish Cruise Lines (SCL), which operates in a very competitive marketplace, is considering four
categories of performance measures: (1) profitability measures, (2) customer-satisfaction measures,
(3) efficiency and quality measures, and (4) learning and growth measures. The company assigns
one manger to each ship in its fleet to oversee the ship's general operations. If SCL desired to adopt
a balanced-scorecard approach, which measures should the firm use in the evaluation of its
managers?
A. 1. D. 1, 2, 4.
B. 1, 2. E. 1, 2, 3, 4.
C. 2, 3.
4. Improved effectiveness and efficiency of a product is considered a ____ performance measurement?
A. subjective C. quantitative
B. financial D. qualitative
5. Which type of financial measure better predicts the direction of future cash flows?
A B C D
Non-Financial Measures Yes Yes No No
Financial Measures Yes No No Yes
6. Which of the following is a measure of throughput?
A. Processing time/Total time C. Good units/Processing time
B. Good units/Total time D. Total units/Total time

7. In the calculation of manufacturing cycle efficiency, which of the following activities results in value-
added time?
A. Moving. D. Waiting.
B. Processing. E. All of the above.
C. Inspection.
8. It is the relationship between outputs and inputs.
A. Cycle time C. Productivity
B. Gross profit ratio D. Inventory turnover
9. Which of the following questions would the internal business perspective of the balanced scorecard
attempt to answer?
A. How does the company continue to improve, learn, and grow?
B. How do customers view the company?
C. Which business processes must the company excel in?
D. How does the company create value for its stakeholders?
10. Which of the following statements about a balanced scorecard is incorrect?
A. A primary purpose of a balanced scorecard is to give managers a way to forecast future
performance.
B. In a balanced scorecard, measurements should be directly linked to organizational strategy and
values.
C. A balanced scorecard can be used at multiple organizational levels by redefining the categories
and measurements.
D. Using the balanced scorecard approach, an organization evaluates managerial performance
based on a single ultimate measure of operating results, such as residual income.

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