STRATEGIC COST MANAGEMENT ;

BALANCE SCORECARD
REPORTERS

Carmela Diaz Roshel Alabado

Israel Lachica
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LEARNING OBJECTIVES

• Understand the four major management functions.

• Be familiar with three competitive strategies
• Define the Balance Scorecard
• Understand the four Perspective of the Balance Scorecard
• Know the features of a good balance scorecard
• Compute the delivery cycle time, the throughput time, and the
Manufacturing Cycle Efficiency

Sources : Management Accounting, Cabrera

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4 Management Functions

1.Strategic Management
2.Planning and Decision Making
3.Control
4.Preparation of Financial Statement

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STRATEGIC
MANAGEMENT

This involves the development of sustainable competitive position in which the

firm’s competitive advantage provides continued success. Strategy represents
a set of goals and specific action plans that if achieved, provide the desired
competitive advantage. Strategic management involves identifying and
implementing these goals and action plans.

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i

PLANNING AND
DECISION MAKING

This involves budgeting and profit planning, cash flow management and other
decision related to the firm’s operation such as
a. Lease or buy a facility
b. introduction of new product line

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CONTROL

Control which involves two functions, operational and management control.

a. Operational Control involves monitoring the activities of operating-level

managers and employees (e.g, production supervisors and different department heads) by
mid-level managers (e.g, plant managers, product managers, regional managers).

b. Management Control involves the evaluation of mid-level managers

by upper – level managers (e.g. controller or the CFO , CEO , etc)

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PREPARATION OF
FINANCIAL STATEMENT

This involves compliance by management with the reporting requirements of

relevant groups (SEC, BIR, Banko Sentral , etc). This functions has recently
received a renewed focus as accounting scandals have shown how important
accurate financial information is for investors.

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STRATEGIC COMPETITIVE ANALYSIS

There are at least three competitive strategies that an entity may chose from
when developing a sustainable competitive position, these are
a. Cost Leadership
b. Differentiation
c. Focus

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STRATEGIC COMPETITIVE ANALYSIS

There are at least three competitive strategies that an entity may chose from
when developing a sustainable competitive position, these are
a. Cost Leadership
b. Differentiation
c. Focus

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COST LEADERSHIP

This is a competitive strategy in which a firm succeeds by producing products

or services at the lowest cost in the industry. A cost leader in one who
a. make sustainable profit at lower prices
b. has a relatively large market share and avoids niche or segment
markets
c. focuses almost exclusively on cost reduction

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Potential Weakness of Cost Leadership

A potential weakness of the cost leadership strategy is the tendency to cut

cost that could undermine demand for the product or service, for example by
deleting key features. The entity who a cost leader can remain competitive
only as long as the, consumer sees that the product or services is (at lease
nearly) equivalent to competing products that cost somewhat more

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DIFFERENTIATION

This is a competitive strategy in which a firm succeeds by developing and

maintaining a unique value of product, as perceived by consumers. This
perception therefore enables the firm to charge higher prices and outperform
the competition without reducing cost significantly.

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Potential Weakness of Differentiation

A weakness of this strategy is the entity’s tendency to undermine its strength

by attempting to lower cost or by ignoring the necessity of having a continuous
and aggressive marketing plan to reinforce the perceived difference

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FOCUS

This competitive strategy in which a firm succeeds by targeting its attention to

a specific segment of a market, for example by type of customers, segment of
the product line , or geographical area.

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Potential Weakness of Focus

A potential disadvantage of the focused strategy is that the niche may

suddenly disappear because of change in consumer taste or technological
change in the industry.

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What is balanced scorecard model?

It is a business The word balanced implies

performance scorecard that it takes a balanced
and well-rounded
approach to measuring a
business performance

To align business The Balance Scorecard

activities to the vision of looks at financial and
the business, and monitor non Financial
business performance Performance measures
against strategic goals to gauge business

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 VISION AND
STRATEGY

Objectives Measures Initiatives Target Actual

Performance Performance

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 FINANCIAL
VISION AND
STRATEGY

Objectives Measures Initiatives Target Actual

Performance Performance
Operating Income from Manage cost and P40,000,000 P42,000,000
productivity gain unused capacity
Increase
Shareholders Operating income from Build strong customer P30,000,000 P68,400,000
Value growth relationship

Revenue Growth Build strong customer 6% 6.48%

relationship
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 CUSTOMER

VISION AND
STRATEGY

Objectives Measures Initiatives Target Performance Actual Performance

Increase Market Share Market Share in Identify future needs of 5% 7%
communication network customer
segment

Identify new target customer 5% 6%

New Customers segment
Increase Customer Increase customer focus of 90% of customers give top 87% of customers give top
Satisfaction Customer Satisfaction Survey sales organization two ratings two ratings

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 VISION AND
STRATEGY
Internal Business
Process

Objectives Measures Initiatives Target Performance Actual Performance

Improve Manufacturing Percentage of process with Organized R&D /

Capability advance controls Manufacturing teams to 75% 75%
implement advance controls

Reduce delivery time to Order Delivery Time Reengineer order delivery

customers process 30 days 30 days

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 VISION AND
STRATEGY
Learning and
Growth

Objectives Measures Initiatives Target Performance Actual Performance

Develop Process Skill Percentage of Employees Employee Training Program

trained in process and quality 90% 92%
management

Empower Workforce Percentage of frontline Have supervisors act as

workers empowered to coaches rather than decision 85% 90%
manage processes Makers

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 Better Strategic Planning

7 Benefits of a Improved Strategy Communication & Execution

Balance Scorecard
Better Alignment of projects and initiatives

Better Management Information

Improved Performance Reporting

Better Organizational Alignment

Better Process Alignment

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Definition of terms

Delivery Cycle Time – The amount of time from when order is received from a customer to when
the completed order is shipped is called delivery cycle time

Throughput time- The amount of time required to turn raw materials into complete products is
called throughput time. As shown in the diagram throughput time is made up of process time,
inspection time, move time and queue time.

Manufacturing Cycle Efficiency = Value added time

Throughput (manufacturing cycle) time

Value added time = Process Time

Non Value added time = Anything other than process time

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Customer
Place
Order

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Customer Order Received by
Place Manufacturing
Department
Order

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Customer Order Received by Machine Setup
Place Manufacturing Begins the order
Department
Order

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Customer Order Received by Machine Setup Order Complete
Place Manufacturing Begins the order Or Finished
Department
Order Goods Produced

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Customer Order Received by Machine Setup Order Complete Order Delivered to
Place Manufacturing Begins the order Or Finished the Customer
Department
Order Goods Produced

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Customer Order Received by Machine Setup Order Complete Order Delivered to
Place Manufacturing Begins the order Or Finished the Customer
Department
Order Goods Produced

Waiting Time

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Customer Order Received by Machine Setup Order Complete Order Delivered to
Place Manufacturing Begins the order Or Finished the Customer
Department
Order Goods Produced

Waiting Time Process Time

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Customer Order Received by Machine Setup Order Complete Order Delivered to
Place Manufacturing Begins the order Or Finished the Customer
Department
Order Goods Produced

Waiting Time Process Time

Manufacturing Cycle Time

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Customer Order Received by Machine Setup Order Complete Order Delivered to
Place Manufacturing Begins the order Or Finished the Customer
Department
Order Goods Produced

Waiting Time Process Time

Receipt Time Manufacturing Cycle Time

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Customer Order Received by Machine Setup Order Complete Order Delivered to
Place Manufacturing Begins the order Or Finished the Customer
Department
Order Goods Produced

Waiting Time Process Time

Receipt Time Manufacturing Cycle Time Delivery Time

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Customer Order Received by Machine Setup Order Complete Order Delivered to
Place Manufacturing Begins the order Or Finished the Customer
Department
Order Goods Produced

Waiting Time Process Time

Receipt Time Manufacturing Cycle Time Delivery Time

Customer Response Time

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Customer Order Received by Machine Setup Order Complete Order Delivered to
Place Manufacturing Begins the order Or Finished the Customer
Department
Order Goods Produced

Waiting Time Process Time

Receipt Time Manufacturing Cycle Time Delivery Time

Customer Response Time

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Illustrative Problem

Rusi Company keeps careful track of the time relating to orders and their production. During the
most recent quarter, the following average times were recorded for each unit or order

Days

Wait time -------------------------- 17.0

Inspection Time ------------------ 0.4
Process Time --------------------- 2.0
Move Time ------------------------ 0.6
Queue Time ---------------------- 5.0
Goods are shipped as soon as production is completed

Required:
1. Compute the throughput time, or velocity of production
2. Compute the manufacturing cycle efficiency (MCE)
3. What percentage of the production time is spent in non-value added activities
4. Compute the delivery cycle time. 49
Solution
1. Throughput time = Process Time + Inspection Time + Move Time + Queue Time
= 2.0 days + 0.4 days + 0.6 days + 5.0 days
= 8.0 days

2. Only the process time is value added time , therefore the computation of the MCE would be as
follows
Value added time 2.0days
MCE = Throughput time = 8.0 days = 0.25 days

Thus, once put into production, a typical unit is actually being worked on only 25% of the time

3. Since the MCE is 25% the complement of this figure , 75% of the total production time, is spent
in Non-Value added activities.

4. Delivery Cycle Time = Wait time + Throughput time

= 17.0 days + 8.0 days
= 25.0 days
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THANK YOU!