Cost Management

ACCOUNTING AND CONTROL

HANSEN & MOWEN

131

CH
AP

TE

13
The Balanced Scorecard:
Strategic-Based Control

132

Activity-Based versus Strategic-Based

Responsibility Accounting

The
Theactivity-based
activity-based
system
system adds
adds aaprocess
process
perspective
perspective to
tothe
the
financial
financialperspective
perspectiveof
of
the
thefunctional-based
functional-based
AAstrategy-based
responsibility
strategy-based
responsibilityaccounting
accounting
responsibility
system.
responsibility accounting
accounting
system.
system
system translates
translates the
the
strategy
strategyof
of the
the
organization
organizationinto
into
operational
operational objectives
objectives
and
and measures.
measures.
133

Activity-Based versus Strategic-Based

Responsibility Accounting

The
TheBalanced
Balanced
Scorecard
Scorecardisisaastrategicstrategicbased
basedperformance
performance
management
managementsystem
system
that
that typically
typicallyidentifies
identifies
objectives
objectivesand
and
measures
measuresfor
for four
four
different
different perspectives.
perspectives.

The financial
perspective
The customer
perspective
The process
perspective
The learning and
growth perspective

134

Activity-Based versus Strategic-Based

Responsibility Accounting

Responsibility
ResponsibilityAssignments
AssignmentsCompared
Compared

135

Activity-Based versus Strategic-Based

Responsibility Accounting

Performance
PerformanceMeasures
MeasuresCompared
Compared

136

Activity-Based versus Strategic-Based

Responsibility Accounting

Performance
PerformanceEvaluation
EvaluationCompared:
Compared:
ABC
ABCversus
versusStrategic-Based
Strategic-Based

137

Activity-Based versus Strategic-Based

Responsibility Accounting

Rewards
RewardsCompared
Compared

138

Basic Concepts of the Balanced Scorecard

Strategy is choosing the market and

customer segments the business unit
intends to service, identifying the critical
internal and business processes that the
unit must excel at to deliver the value
propositions to customers in the targeted
market segments, and selecting the
individual and organizational capabilities
required for the internal, customer, and
financial objectives.

139

Basic Concepts of the Balanced Scorecard

Process value analysis is fundamental to activitybased responsibility accounting, focuses on

accountability for activities rather than costs, and
emphasizes the maximization of systemwide
performance instead of individual performance.
Process value analysis is concerned with:
(1) Driver analysis
(2) Activity analysis
(3) Performance measurement

1310

Basic Concepts of the Balanced Scorecard

Strategy
StrategyTranslation
TranslationProcess
Process

1311

Basic Concepts of the Balanced Scorecard

Summary
Summaryof
ofObjectives
Objectivesand
andMeasures:
Measures:
Financial
FinancialPerspective
Perspective

1312

Basic Concepts of the Balanced Scorecard

Summary
Summaryof
ofObjectives
Objectivesand
andMeasures:
Measures:
Customer
CustomerPerspective
Perspective

Only financial measure among core objectives

1313

Basic Concepts of the Balanced Scorecard

Customer
Customervalue
value isis the
the difference
differencebetween
between
realization
realizationand
andsacrifice,
sacrifice,where
whererealization
realization
isis what
whatthe
thecustomer
customer receives
receivesand
andsacrifice
sacrifice
isis what
whatisis given
givenup.
up.

1314

Basic Concepts of the Balanced Scorecard

The
Thetime
timeitit takes
takesaa
company
company to
torespond
respondto
to
aacustomer
order
isis and
Cycle
time
customer
order
Cycle
time
and
referred
as
velocity
are
referredto
to
as
velocity
aretwo
two
Cycle
responsiveness.
operation
Cycle time
time (manufacturing)
(manufacturing) isis
responsiveness.
operationmeasures
measures
the
of
thelength
lengthof
oftime
timeitit takes
takes to
to
ofresponsiveness.
responsiveness.
produce
produce aa unit
unit of
of output
output from
from the
the
time
timematerials
materials are
are received
receiveduntil
until
the
good
isisunits
delivered
to
finished
the
good
delivered
to
finished
Velocity
is
the
number
of
of
Velocity is the goods
number
of
units
of
inventory.
goods
inventory.
output
that
an
be
produced
in
output that an be produced
inaa
given
givenperiod
period of
of time.
time.

1315

Basic Concepts of the Balanced Scorecard

Conversion Cost Example

A company has the following data for one of its
manufacturing cells:
Theoretical velocity: 40 units per hour
Productive minutes available (per year): 1,200,000
Annual conversion costs: $4,800,000
Actual velocity: 30 units per hour

1316

Basic Concepts of the Balanced Scorecard

Conversion
ConversionCost
CostComputations
Computations

1317

Basic Concepts of the Balanced Scorecard

Summary
Summaryof
ofObjectives
Objectivesand
andMeasures:
Measures:
Process
ProcessPerspective
Perspective

1318

Basic Concepts of the Balanced Scorecard

Summary
Summaryof
ofObjectives
Objectivesand
andMeasures:
Measures:
Learning
Learningand
andGrowth
GrowthPerspective
Perspective

1319

E
IV

O
BJ
EC
T

Linking Measures to Strategy

Strategy
StrategyMap:
Map: Testable
Testable Strategy
StrategyIllustrated
Illustrated

1320

E
IV

O
BJ
EC
T

Strategic Alignment
ABM
ABMImplementation
ImplementationModel
Model

1321

End of
Chapter 13

1322