Chapter_26_for_Class - Chapter 26 Performance Management...

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 centers
2. Discretionary cost centers
3. Revenue centers
4. Profit centers
5. 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 Center
•
A responsibility center whose manager is
accountable for costs only and in which
the relationship between resources and
products or services produced is not well
defined
–
Cost-based measures cannot usually be used
to evaluate performance

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