Management Planning and Control Systems AKADMS 4570

1
Management Planning and Control Systems AK/ADMS
4570
Performance Measurement Systems

• Designed using Input-Process-Output method

• Predetermined Inputs-Processes-Outputs

• Measure actual Inputs-Processes-Outputs

• Compare actual results with plans

• Take action if needed

2
Performance Measurement Systems

• Monitor achievement of Plans

• Evaluate Strategy Implementation

• Assess effectiveness (outputs)

• Determine Efficiency (output/input)

3
Strategic Profitability Analysis
Competitive effectiveness component this is a
key factor for companies pursuing a
differentiation strategy.
Operating efficiency component this is a key
factor for companies pursuing a
low-cost/high-volume strategy.
4
Evaluation of Effectiveness (competitive
position)
Review the profit plan assumptions
1) Market 1 Size externally driven
2 Share segments chosen
marketing policies
5
Evaluation of Effectiveness (competitive
position)
Review the profit plan assumptions
2) Revenue 1 Price discounts offered
competition and demand
2 Mix segments and products
marketing strategies
6
Evaluation of Efficiency (operative advantage)
Review the profit plan assumptions
3) Variable Costs 1 Efficiency change in
inputs used
2 Spending change in cost of inputs
7
Evaluation of Efficiency (operative advantage)
Review the profit plan assumptions
4) Non-Variable Costs 1 Volume batches
measure
2 Efficiency use of inputs
3 Spending input price
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Activity Based Variance Analysis Budget Actua
l Number of batches 500 490 Supplies used per
batch 1.50 litres 1.40 litres Cost of supplies
/litre 80 80.50 Total supplies
cost 60,000 55,223 Volume variance effect
of ? in of batches (500 490) 1.50 80
1,200 (F) Efficiency variance effect of
efficient use of inputs 490 (1.50 - 1.40
litres) 80 3,920 (F) Spending
variance effect of ? in input prices 490 1.40
(80 80.50) 343 (U)
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Strategic Profitability Analysis
(Review the profit plan assumptions)
1) Effectiveness (competitive position) 1
Market size and share 2 Revenue price
and mix
2) Efficiency (operative advantage) 1 Variable
Costs efficiency and spending 2
Non-variable Costs global spending
and volume
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Uses of Performance Measurement Systems

• Belief ? goals

• Boundary ? off-limits early warning

• Diagnostic ? management by exception

• Interactive ? review assumptions
• cause-effect
  relationships
• strategy validity

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Quiz Time

• 20 minutes
• Remain silent
• Do not cheat
• Classes re-start in 30 minutes
• Get ready to discuss the case of Purity Steel
  Corporation