Chapter 26
“Performance Management and
Evaluation”
Organizational Goals and the
Balanced Scorecard
•
Objective 1 –
SKIP this L.O.
–
Describe how the balanced scorecard aligns
performance with organizational goals, and
explain the role of the balanced scorecard in
the management cycle
Performance Measurement
•
Objective 2 –
SKIP this L.O.
–
Discuss performance measurement, and state
the issues that affect management’s ability to
measure performance
Responsibility Accounting
•Objective 3–Define responsibility accounting, and describe the role that responsibility centers play in performance management and evaluation
Responsibility Accounting
•
As part of their performance
management systems, many
organizations
–
Assign resources to specific areas of
responsibility
–
Track how the managers of those areas
use those resources
–
Evaluate managers at all levels
in terms of
their ability to manage their area of
responsibility in keeping with organizational
goals
Responsibility Accounting
(cont’d)
•
Is an information system
•
Classifies data
according to areas of
responsibility
•
Reports each area’s activities by
including
only
the revenue, cost, and
resource categories that the assigned
manager
can control
Responsibility Accounting
(cont’d)
•
Responsibility center
–
An organizational unit whose manager has
been assigned the responsibility of
managing a portion of the organization’s
resources
•
The activity of the responsibility center dictates
the extent of a manager’s responsibility
Types of Responsibility Centers
1. Cost centers2. Discretionary cost centers3. Revenue centers4. Profit centers5. Investment centers
Cost Center
•
A responsibility center whose manager is
accountable only for
controllable costs
that
have
well-defined relationships
between
the center’s resources and products or
services
•
Performance is usually evaluated by
comparing
an activity’s
actual cost
with its
budgeted cost
and
analyzing
the resulting
variances
Cost Centers (cont’d)
•
Examples
–
Assembly plants in manufacturing
organizations
•
Relationship between the costs of resources and
resulting products is well defined
–
Food services in hospitals and nursing homes
•
Clear relationship between costs of food and direct
labor and the number of inpatient meals served
Discretionary Cost Centers
(cont’d)
•
Examples
–
Administrative activities
•
Accounting
•
Human resources
•
Legal services
–
Research and Development
•
Might measure number of patents obtained and number of
cost-saving innovations developed
–
Service organizations
•
United Way might measure administrative activities by how
low their costs are as a percentage of total contributions
Revenue Center
•
A responsibility center whose manager is
accountable
primarily for revenue
and
