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Unformatted text preview: Chapter 18 - Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard CHAPTER 18: STRATEGIC PERFORMANCE MEASUREMENT: COST CENTERS, PROFIT CENTERS, AND THE BALANCED SCORECARD QUESTIONS 18-1 Performance evaluation can be thought of as the process by which managers at all levels in the firm gain information about the performance of tasks within the firm and judge that performance against pre-established criteria as set out in budgets, plans, and goals. In management accounting there are two types of performance evaluation -- management control and operational control. Management control refers to the evaluation by upper-level managers of the performance of mid-level managers. Operational control refers to the evaluation of operating level employees by mid-level managers. 18-2 Strategic performance measurement is an accounting system used by top management for the evaluation of business unit managers. It is used when the conditions are such that responsibility can be effectively delegated to business unit managers, and there are adequate measures for evaluating the performance of the managers. It is important for effective management because it helps the decentralized firm evaluate managers of decentralized business units of the firm. 18-3 An effective performance evaluation system must consider both the individual and team aspects of work and performance in the firm. In management accounting, we focus on the individual aspects primarily in strategic performance measurement systems. However, strategy-focused firms will also develop methods to evaluate teams using techniques such as bonuses based on team performance and balanced scorecards (Chapter 2) based on performance measures that are commonly controlled within the team. 18-4 The systems for management control are of two types -- formal and informal. Formal systems are developed from explicit management guidance, while informal systems arise from the unmanaged, and sometimes unintended, behavior of managers and employees. Informal systems reflect the managers' and employees' reactions and feelings that arise from the positive and negative aspects of the work environment, for example, the positive feelings of security and acceptance of an employee in a company that has a successful product and generous employee benefits. Formal and informal control systems can be implemented at both the level of the individual manager or that of a team of managers or employees. Strategic performance measurement is a type of formal control system at the individual level. 18-1 Chapter 18 - Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard 18-5 The three organizational designs are centralized, decentralized, and team- oriented. A centralized firm reserves much of the decision-making at the top management level. In contrast, a decentralized firm delegates a significant amount of responsibility to lower level managers. Both the centralized and amount of responsibility to lower level managers....
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- Winter '12
- Beef Barn, strategic performance measurement