The BALANCED SCORECARD 1999 The Balanced Scorecard Collaborative
The BALANCED SCORECARD © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 1
Conventional performance measurement system • Conventional performance management system is looking at only financial performances which is reflected through profit, cash flow, balance sheet and the share price which is very short term. • How ever long term performances are determined by the customer satisfaction and retention, process efficiency and the organizational talent • Conventional financial performance system does not look at the performance of non financial areas but would have immense impact to the organization long term financial performances. © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 2
What is the specialty of Balance Scorecard system • Balance scorecard system ( Robert. S Kaplan 1992) look at both financial and non financial performance measurers for strategy execution and management process of the company. © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 3
What Is a Balanced Scorecard? A Measurement System? A Management System? A Management Philosophy? © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 4
Translating Vision and Strategy: Four Perspectives FINANCIAL Objectives “To succeed financially, how should we appear to our shareholders? ” Measures Targets Initiatives CUSTOMER “To achieve our Objectives vision, how should we appear to our customers? ” INTERNAL BUSINESS PROCESS Measures Targets Initiatives “To satisfy our shareholders and customers, what business processes must we excel at? ” Vision and Strategy Objectives Measures Targets Initiatives LEARNING AND GROWTH “To achieve our Objectives vision, how will we sustain our ability to change and improve? ” © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. Measures Targets Initiatives 5
Stages • • • Define Strategy Determine measures that reflect strategy Set up systems to collect data Align incentive system to achieving measures Review results frequently © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 6
Performance Measures Activity • A Business in the Service Sector collects information on competitiveness : • • • Customer Enquiries New Customers Existing customers Budget Actual 600 896 1200 1016 • • • Business won New Customers Existing customers Budget Actual 200 416 600 393 • Required : Assess its performance in terms of competitiveness © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 7
LEARNING CURVE © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 8
Learning Curve © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 9 9
Example Consider a product with the following data about the hours of labor required to produce a unit: Hours required to produce 1 -st unit: 100 Hours required to produce 10 -th unit: 48 Hours required to produce 25 -th unit: 35 Hours required to produce 75 -th unit: 25 Hours required to produce 200 -th unit: 18 As more and more units are produced, the hours of labor required to produce the most recent unit is lower and lower. © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 10 10
What happens when cumulative production doubles? The concept of a Learning Curve is motivated by the observation (in many diverse production environments) that, each time the cumulative production doubles, the hours required to produce the most recent unit decreases by approximately the same percentage. © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 11 11
Graph for Example © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 12
Reasons for Continual Decease in the Number of Hours Required to Produce the Most Recent Unit On the previous slide, we observed that, as more and more units are produced, the hours required to produce the most recent unit is lower and lower. What are some potential reasons why this occurs? • Efficiency of production • Efficiency of the labour due to specialization © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 13 13
The Functional Form of a Learning Curve To model the behavior described in the previous slides, we proceed as follows: Let y = Cumulative average time per unit or batch x = cumulative production Then, y = ax-b where a and b are parameters defined as follows: a = hours required to produce the 1 -st unit b = a value related to the percentage associated with the Learning Curve the learning index or coefficient, which is calculated as: log learning curve percentage ÷ log 2. So b for an 80 per cent curve would be log 0. 8 ÷ log 2 = – 0. 322 © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 14 14
Example Standard hours for manufacturing a Jacket is 1 labour hour. Based on the past experience 80% learning curve is applied for this nature of product in the company. Budgeted Jackets for the current batch is 100 units. 1. What is the cumulative average time for 100 th unit. 2. Calculate the total cumulative average hours for the current production? 3. Calculate the budgeted labour cost for the batch. Standard cost per labour hour is 6 USD. © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 15 15
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