Performance Measures

Vocabulary

balanced scorecard

method for organizations to consider financial performance and operational performance when evaluating an investment center within a company

cost center

department, unit, or section within a business that requires money to operate

decentralized organization

structure in which decision-making authority is spread among many decision makers rather than lying exclusively with the executives at the top of the business

delivery cycle time

measurement of the hours, days, or months from when a customer makes an order until the finished goods are shipped out by the company. Delivery cycle time is calculated as throughput time plus wait time.

investment center

business unit that is responsible for its own income, expenses, and assets and that can contribute directly to the profitability of the larger business

investment turnover

measure of a company's sales divided by the invested capital; used to determine how effective the asset is in generating sales

key performance indicator (KPI)

measurement that determines how well an investment center manager is meeting balanced scorecard goals in each perspective area

manufacturing cycle efficiency (MCE)

measurement of the relationship between value-added time to throughput time in the entire process of making a product

margin

profit from the sale of a good minus all of the expenses of selling and manufacturing the good, expressed as a dollar figure or percentage

minimum required rate of return

pricing model that values an investment center based on achieving a minimum gain over a set period of time

net operating income

amount of profit left after deducting all expenses but before accounting for interest and taxes

operating assets

cash, accounts receivable, inventory, buildings and equipment, and all other items a business owns that are used to run the business

operations performance measurement

combination of qualitative and quantitative evidence that shows progress toward achieving specific defined organizational goals

profit center

part of a business that has costs and revenues assigned to it and therefore has profits (or losses) that can be accounted for on a stand-alone basis

residual income

net operating income that an investment center generates above the minimum required return on its operating assets

responsibility accounting system

structure that ties together lower-level managerial decision-making authority with accountability for the decision outcome's effect on business

responsibility center

any part of an organization that is accountable for costs, profits, or investments within that organization

return on investment (ROI)

Measure that reflects the profit generated using the operating assets of a business as a formula-derived ratio

throughput time

manufacturing cycle measurement that details how long it takes to manufacture a product from the start of production until the product ships

value-added time

time spent that improves the outcome of a process, service, or product