Deck 13: Performance Measurement and the Balanced Scorecard

Question 1

The four dimensions of the balanced scorecard are: the financial perspective; the monetary perspective; the customer perspective; and the learning and growth perspective.

Answer 1

False

Question 2

An internal business process perspective of a balanced scorecard system addresses the question 'What do we need to do to develop our employees?'

Answer 2

False

Question 3

The economic value added (EVA) is a method of measuring how effectively a company achieves the objective of creating shareholder value.

Answer 3

True

Question 4

A key performance indicator that measures which direction a firm should be taking is termed a strategic KPI.

Question 5

Non-financial indicators of performance are easier to measure than financial indicators.

Question 6

Participation by responsible managers in the setting of budgets enhances the probability of effective planning and control within an organisation.

Question 7

Non-financial measures of performance assess items such as customer satisfaction and employee morale.

Question 8

Agricola Ltd is a diversified entity that has several central departments to service its various operating divisions. These include payroll, accounting and finance, and legal departments. As the divisions have no alternative but to use these 'in-house' services, the charges are referred to as 'uncontrollable' charges.

Question 9

An operating KPI measures whether a business is moving in the right direction.

Question 10

In the context of performance measurement, drivers are the indicators that measure the items that will cause a change in the outcome measures.

Question 11

Which of the following is an example of a performance measure that is appropriate for an investment centre but not a profit centre or cost centre?

A) Quality of service
B) Income from operations
C) Rate of return on investment
D) Gross profit margin

Question 12

The financial perspective of a balanced scorecard contains driver measures such as return on assets and return on shareholders' equity.

Question 13

It is primarily the non-financial measures in the internal business process and learning and growth perspectives of the balanced scorecard that drive future financial performance.

Question 14

The rate of return on investment is an appropriate performance measure for an investment centre.

Question 15

A driver KPI measures factors that will cause a change, whereas an outcome KPI measures the result of a change.

Question 16

A major strength of financial measures is that they provide a standardised measure in monetary terms, whereas non-financial measures are difficult to measure and therefore are rarely used in performance assessment systems.

Question 17

Economic value is the economist's way to measure profit.

Question 18

The equation for calculating economic value added (EVA) is as follows:
EVA = before-tax profit + interest - (cost of capital x total capital employed).

Question 19

A manager is responsible for all costs of producing product X but does not set the selling price. This means the manager is responsible for a cost centre.

Question 20

A balanced scorecard is a measurement system that incorporates financial measures that tell the result of actions already taken and operational measures that are the drivers of future financial performance.

Question 21

For each of the following industry-specific KPIs indicate whether it is a financial, customer, internal process or learning and growth perspective.

A) (1) internal process, (2) learning and growth, (3) financial, (4) customer
B) (1) financial, (2) customer, (3) internal process, (4) learning and growth
C) (1) financial, (2) internal process, (3) customer, (4) learning and growth
D) (1) customer, (2) learning and growth, (3) financial, (4) internal process

Question 22

Which of the following factors under management's control distinguishes an investment centre from a profit centre?

A) Selling prices
B) Output quantity
C) Controllable costs
D) Investment in assets

Question 23

Which of the following examples would not normally be considered a strategic KPI?

A) The amount invested in capital investments
B) Setting the level of debt used to fund assets
C) Comparing actual to budgeted sales
D) Determining the amount to be budgeted for research and development

Question 24

The store manager of the Red Shoe has asked the store's staff to make a record of customer requests for stock that is unavailable. Determining the percentage of stock that is unavailable when customers ask for it would normally be considered to be a:

A) financial perspective.
B) customer or financial perspective.
C) process or customer perspective.
D) learning and growth perspective.

Question 25

The Demons fast food outlet provides intensive training for new staff, and ongoing training for existing staff. A focus of the ongoing training is to improve customer satisfaction. The training is considered to be a:

A) financial perspective.
B) customer perspective.
C) process perspective.
D) learning and growth perspective.

Question 26

An objective or outcome of performance assessment in an organisation is not to:

A) reward good performance.
B) encourage behaviour consistent with an entity's goals.
C) allow an entity to understand the goals of a manager.
D) provide feedback on each centre's contribution to the achievement of an entity's goals.

Question 27

Over the past two years, the Orange Bank has closed numerous country branches and significantly reduced staff numbers. In the same period, the bank has posted record profits and paid its top executives significant salary increases. However, the bank has also received a significant increase in customer complaints. In an attempt to redress the situation, the bank has decided to improve its image, and one major focus is to determine the average waiting time for calls to be answered. Which of the following would best describe this KPI?

A) Strategic and outcome
B) Strategic and driver
C) Operating and outcome
D) Operating and driver

Question 28

The Friendly Bank has been offering online banking facilities for several months, and wants to determine whether customer usage has increased over the period since the inception of the facilities. Which of the following KPIs would be the most appropriate to achieve the bank's outcome?

A) Site response time
B) Sessions per active online customer
C) Profit per customer
D) Percentage decrease of in-house banking

Question 29

Benefits of the balanced scorecard include:

A) I and II
B) I, II and III
C) II, III and IV
D) I, II, III and IV

Question 30

The finance director of AKP Ltd has observed that outstanding debtors have significantly increased in the past two months. An examination of possible causes has determined that part of the problem may be the new computerised invoicing system, which, due to input errors, has sent a number of accounts to wrong addresses. The director has asked the credit department to determine how many accounts have been sent to wrong addresses. This indicator would be classified as:

A) strategic and outcome
B) operating and driver
C) strategic and driver
D) operating and outcome

Question 31

Of the following statements regarding strengths and weaknesses of measures, which statement does not apply to non-financial measures?

A) Takes into account the human element
B) Readily available
C) Less susceptible to manipulation
D) Setting inappropriate targets can result in ineffective and inefficient performance

Question 32

The Petrol House service station has introduced a balanced scorecard. The company wants to measure the amount of repeat business from customers. Which of the following measures would be most representative of this objective?

A) Profit per new customer
B) Percentage of a day's sales per customer
C) Percentage of a day's sales to new versus existing customers
D) Profit per existing customer

Question 33

Which of the following statements regarding performance assessment is incorrect?

A) Measures should focus on the areas over which a manager has no capacity to influence the outcome.
B) Assessment should be to reward good performance.
C) Negative and positive feedback should be given within a reasonable timeframe.
D) Measures should assist the entity in achieving the objectives of the entity.

Question 34

The Orange Bank measures each business unit's contribution to the bank's total revenue on a monthly basis. Which of the following classifications would best describe this KPI?

A) Strategic and outcome
B) Strategic and driver
C) Operating and outcome
D) Operating and driver

Question 35

In assessing the performance of a manager of a profit centre, which of the following would be an appropriate measure?

A) Net profit margin
B) Income from operations
C) The centre's budget with actual performance
D) All of the above

Question 36

The Big Bed Furniture chain has identified as one of its major KPIs the average number of items bought per customer visit. In identifying this KPI, which of the following perspectives is Big Bed most likely to be targeting?

A) Financial
B) Customer
C) Process
D) Learning and growth

Question 37

Fast Forward Pty Ltd. has been expanding into new markets in recent months. The CEO wishes to know what the sales revenue is from these new markets. This KPI is considered to be a:

A) financial perspective.
B) customer perspective.
C) process perspective.
D) learning and growth perspective.

Question 38

Which of the following would not be categorised as an outcome KPI?

A) Increase in profit from last year
B) Increased customer numbers resulting from an advertising campaign
C) Implementing staff training to increase output
D) Increased return on shareholders' equity

Question 39

In asking the question 'What do we need to do within the core processes of our business in order to develop our employees?' an entity is looking at which main perspective of a balanced scorecard system?

A) Learning and growth perspective
B) Internal business process perspective
C) Customer perspective
D) Financial perspective

Question 40

A business introduced employee training for all production staff, and discovered that product quality improved, which resulted in an increase in sales and ultimately profit. Based on this information, which of the following statements would be the least correct?

A) Employee training is a learning and growth perspective.
B) Improved product quality is an internal process perspective.
C) Increased sales was the real driver of the increased profits.
D) Increased sales and profits are the outcomes of improved employee skills.

Question 41

The balanced scorecard:

A) demonstrates how an entity can improve outcome measures.
B) provides a view of a firm's performance from four perspectives.
C) includes driver measures.
D) all of the above.

Question 42

Kaplan and Norton's Balanced Scorecard has principally been applied to for-profit organisations. In such applications, the scorecard's four perspectives (financial, customer, learning and growth, and internal business) are highly appropriate. However, Kaplan and Norton also acknowledge the applicability of the Balanced Scorecard to not-for-profit organisations; they state, though, that the four traditional perspectives may need to be altered in such situations.
Required:
Suppose you were the manager of a not-for-profit shelter for the homeless. Suggest at least three perspectives you would need to consider in developing performance evaluation metrics for your organisation. For each perspective, identify two or three specific performance measures you would include in your organisation's Balanced Scorecard.

Question 43

People constantly use information to evaluate their environment and help them make important decisions. One such evaluation method used by corporations is called the 'Balanced Scorecard'.

Question 44

Sallie's Cleaning service is a large commercial cleaning service with two divisions. The Office Division services businesses by cleaning their offices once a day during non-business hours. The Residential Division offers cleaning services to individuals in their homes, usually on a weekly basis, although other arrangements can be made.
Sallie's competition is very aggressive, especially for the Office Division. In the past the division managers have been evaluated primarily on sales volume. Although the divisions operate as independent businesses, the corporate president would like to increase the accountability of the division managers by making them also responsible for expenses. Since the company has no manufacturing operations and capital investments are minimal, the president does not intend to account for assets assigned to the divisions.

Question 45

Levels within an organisation are often categorised according to the types of responsibilities placed on managers. When a responsibility centre is considered an investment centre,

Question 46

The economic value added (EVA) method of assessing performance involves:

A) solely after tax profit.
B) only the cost of capital.
C) solely total capital employed.
D) all of the above.

Question 47

The balanced scorecard:

A) has equal financial and non-financial measures.
B) includes financial and non-financial measures.
C) is the same as triple bottom line reporting.
D) reports on corporate governance.

Question 48

Levels within an organisation are often categorised according to the types of responsibilities placed on managers. When a responsibility centre is considered a cost centre,

Question 49

For each responsibility centre described below, indicate the type of responsibility level that is the most appropriate. Select one (or more) of the following levels. If you select more than one level, explain your reasoning. Responsibility levels are:
CC = Cost centre PC = Profit centre IC = Investment centre