47047bosfinal p5 cp8

8
PERFORMANCE
MEASUREMENT AND
EVALUATION
LEARNING OUTCOMES
After studying this chapter, you will be able to:
❑ Discuss, Traditional and Non-traditional approaches to Performance
Measurement
❑ Calculate/ Determine which Non-financial measures are appropriate to
analyze specific aspects of an entity’s performance and risk profile.
❑ Explain the role of performance measurement and control systems in
value creation, strategy implementation and monitoring performance to
improve strategies
❑ Describe, Calculate, and Interpret, Non-financial Performance Indicators
(NFPIs) and suggest methods to improve the performance indicated
❑ Analyze past performance and suggest ways for improving Financial and
Non-financial performance
❑ Explain the causes and problems created by short-termism and financial
manipulation of results and suggest methods to encourage a long- term
view
❑ Explain and Interpret the Balanced Scorecard, The Performance
Pyramid, The Performance Prism, The Building Block Model
❑ Analyze performance in Not for Profit organizations
© The Institute of Chartered Accountants of India

8.2 STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION
CHAPTER OVERVIEW
RESPONSIBILITY ACCOUNTING
Responsibility accounting is the collection, summarization, and reporting of financial information
where individual manager is held accountable for certain costs, revenue, or assets of the firm. The
information is about the decision centers throughout the organization. It can also be called
profitability accounting or activity accounting.
Responsibility accounting is apt where top management has delegated authority to make
decisions. The idea behind responsibility accounting is that each manager’s performance should
be judged by how well he or she manages those items under his or her control.
Performance measurement is directly linked to the organisational structure of a business. A
distinction can be made between two categories of organisational structure for performance
appraisal:
▪ Functional organisation structures.
▪ Divisionalised organisation structures.

PERFORMANCE MEASUREMENT AND EVALUATION 8.3
Functional Organizational Structure

A functional organizational structure forms when a business departmentalizes, according to the
basic business functions such as production and operations, marketing and finance. Small and
medium-sized businesses frequently implement this organizational structure, which often includes
a production and operations department, a finance department, and a marketing department. In a
functional organizational structure pricing, product mix and output decisions will be made by
central management. Consequently, the functional managers in a centralized organization will
have far less independence than divisional managers.
Divisional Organizational Structure

An organization with a division organizational structure has various divisions operating
autonomously as business under a broad corporate framework according to geographical a reas,
markets, or products and services.

Generally, this type of organizational structure leads to a decentralization of the decision -making
process. Using this structure, division heads are free to set selling prices, choose which market to
sell in, make product mix and output decisions, and select suppliers.
The formation of separate divisions may lead to the delegation of different degrees of authority; for
example, in some organizations a divisional manager may, in addition to having authority to make
decisions on sources of supply and choice of markets, also have responsibility for making capital
investment decisions. Performance measurement systems depend on the degree of
decentralization involved. There are four recognized levels of decentralization as follows:
Cost or Expense Centres
Cost or Expense Centres are responsibility centres where the manager of such a centre or division
is responsible for the costs associated with that centre and hence the main focus is cost
minimisation. This level of decentralisation occurs normally in functional organisation types.
Revenue Centres
Revenue Centres are responsibility centres where the manager is totally concerned with raising
revenue with no responsibility for costs. The key measures used in appraising performance would
be monitoring sales variances from budget.
Profit Centres
Profit Centres are responsibility centres where the manager of such a centre or division has
responsibility for both revenue and costs for the assets assigned to the division. Thus,
performance is measured in terms of the difference between the revenues and costs that relate to
a profit centre.
Investment Centres
Investment Centres are responsibility centres where the manager has responsibility for not just the
revenues and costs relating to the centre, but also the assets that generate these costs and
revenues and the investment decisions relating to disposal and acquisition of assets.
DIVISIONAL PERFORMANCE MEASURES

A good performance measure should
▪ Provide incentive to the divisional manager to make decisions which are in the best interests
of the overall company (goal congruence).
▪ Only include factors for which the divisional manager can be held accountable.
▪ Recognise the long-term objectives as well as short-term objectives of the organisation.

Return on Investment
(ROI)
Residual Income (RI)
Pure Financial
Ecnonomic Value Added
(EVA)
Shareholder Value
Added (SVA)
Divisional
Performance Measures Balanced Scorecard
The Performance
Pyramid
Other Measures Building Block Model
The Performance Prism
Triple Bottom Line (TBL)
Return on Investment (ROI)

Instead of focusing purely on the absolute size of a division’s profits, most organizations focus on
the ROI of a division. ROI expresses divisional profit as a percentage of the assets employed in
the division. Assets employed can be defined as total divisional assets, assets controllable by the
divisional manager or net assets. ROI is a common measure and thus is ideal for comparison
across corporate divisions for companies of similar size and in similar sectors.
Goal Congruence
It is likely that divisional ROI can be increased by actions that will make the company as a Return
on Investment whole worse off and conversely, actions that decrease the divisional ROI may make
the company as a whole better off. In other words, evaluating divisional managers on the basis of
ROI may not encourage goal congruence. Consider the following example:

Division α Division β
Investment Project Available `20 lacs `20 lacs
Controllable Contribution `2.0 lacs `1.4 lacs
Return on the Proposed Project 10% 7%
Present ROI of Divisions 13% 5%
Overall Cost of Capital 8%
The manager of division α would be unwilling to invest the additional `20 lacs because the return
on the proposed project is 10%. and this would decrease the present ROI of 13%. On the other
hand, the manager of division β would wish to invest the `20 lacs because the return on the
proposed project of 7% is in excess of the present ROI of 5%, and it would increase the division's
ROI.
The managers of both divisions would make decisions that would not be in the best interests of the
company. The company should accept only those projects where the ROI > Cost of Capital (8%),
but the manager of division α would reject a possible return of 10% and the manager of division β
would accept a possible return of 7%.
ROI can therefore lead to a lack of goal congruence.
Residual Income (RI)
To overcome some of the dysfunctional consequences of ROI, the residual income approach can
be used. For the purpose of evaluating the performance of divisional managers, residual income is
defined as controllable contribution less a cost of capital charge on the investment controllable by
the divisional manager. For evaluating the economic performance of the division residual income
can be defined as divisional contribution less a cost of capital charge on the total investment in
assets employed by the division. If residual income is used to measure the managerial
performance of investment centres, there is a greater probability that managers will be
encouraged, when acting in their own best interests, also to act in the best interests of the
company. Returning to our previous example in respect of the investment decision for divisions X
and Y, the residual income calculations are as follows:
Division α `’lacs Division β `’lacs
Proposed Investment 20.00 20.00
Controllable Contribution 2.00 1.40
Cost of Capital (8%) 1.60 1.60
Residual Income 0.40 – 0.20
This calculation indicates that the residual income of division X will increase and that of division Y
will decrease if both managers accept the project. Therefore, the manager of division X would
invest, whereas the manager of division Y would not. These actions are in the best interests of the
company as a whole.

Residual income suffers from the disadvantages of being an absolute measure, which means that
it is difficult to compare the performance of a division with that of oth er divisions or companies of a
different size. For example, a large division is more likely to earn a larger residual income than a
small division. To overcome this deficiency, targeted or budgeted levels of residual income should
be set for each division that are consistent with asset size and the market conditions of the
divisions.
Example
The following data pertain to two divisions. W 1 and W 2, of a large Shipping Company.
W 1 (`) W 2 (`)
Profit 1,20,00,000 31,20,000
Investment 9,60,00,000 1,56,00,000
Cost of Capital at 10%
This example shows that RI is subject to a size effect but ROI is not. The larger size for the W 1
Division (which is more than 6 times that of the W 2 Division) overcomes its lower profitability, as
measured by ROI. Thus, RI is not a good way to compare divisions that differ greatly on size.
Workings
W 1 (`) W 2 (`) Remark
ROI 12.50% 20.00% W 2 division has the
(`1,20,00,000 / `9,60,00,000) (`31,20,000 / `1,56,00,000) higher ROI.
RI `24,00,000 `15,60,000 W 1 division has the
(`1,20,00,000 – 0.1 × `9,60,00,000) (`31,20,000 – 0.1 × `1,56,00,000) higher RI.
Economic Value Added (EVA)
In practice, many organizations use profit-based measures as the primary measure of their
financial performance. Two problems relating to profit in this area are:
▪ Profit ignores the cost of equity capital. Companies only generate wealth when they generate
a return in excess of the return required by providers of capital – both equity and debt. In
financial statements, the calculation of profit does take into account the cost of debt finance,
but ignores the cost of equity finance.
▪ Profits calculated in accordance with accounting standards do not truly reflect the wealth that
has been created, and are subject to manipulation by accountants.
EVA is a performance measurement system that aims to overcome these two weaknesses.
Economic Value Added is a measure of economic profit. Economic Value Added is calculated as
the difference between the Net Operating Profit After Tax (NOPAT) and the Opportunity Cost of
Invested Capital. This opportunity cost is determined by multiplying the Weighted Average Cost of
Debt and Equity Capital (WACC) and the amount of Capital Employed.

EVA = NOPAT – WACC × Capital

Where- NOPAT means net operating profit after tax. This profit figure shows profits before taking
out the cost of interest.
Two approaches to adjusting for interest are taken.
▪ Start with operating profit, then deduct the adjusted tax charge. The tax charge should be
adjusted because it includes the tax benefit of interest. Since interest is a tax -deductible item,
having interest in the income statement means that the tax charge is lower. Since we are
taking the cost of interest out of the income statement, it is also necessary to remove the tax
benefit of it from the tax charge. To do this, multiply the interest by the tax rate, and add this
to the tax charge, or
▪ Start with profit after tax, and add back the net cost of interest. This is the interest charge
multiplied by (1 – rate of corporate tax).
Example
The following information is available for the division X of Xu ltd:
Net operating profit before interest and taxes 7,500
Depreciation expenses 2,500
Change in net working capital 1,250
Capital expenditure 1,000
Invested capital 12,500
WACC 8%
Tax Rate 30%
EVA can be calculated as NOPAT minus the capital charge on invested capital. In this case,
NOPAT is equal to net operating profit before interest and taxes `7,500 minus taxes `2,250
(`7,500 × 30%), which is equal to `5,250. EVA is then equal to `4,250 (`5,250 – `12,500 × 8%).
Illustration
XYZ Ltd. provides you with the following financial information as at 31st March 2018.
( ` in lakhs)
Share Capital 981.46
Reserves and Surplus 1,313.62
Long Term Debt 144.44
Trade Payables 20.38
Additional information provided is as follows:
(i) Profit before interest and tax is ` 2,202.84 lakhs

(ii) Interest paid is `13.48 lakhs.

(iii) Tax rate is 30%
(iv) Cost of equity = 12.42% and cost of debt = 6.53%.
Required
CALCULATE Economic Value Added of XYZ Ltd.
Solution
EVA = NOPAT – WACC × Capital Employed
Capital Employed
= `981.46 L + `1313.62 L + `144.44 L
= `2,439.52 L
 981.46 + 1,313.62   144.44 
WACC =   12.42% +    6.53%
 2,439.52   2,439.52 
= 11.68% + 0.39%
= 12.07%
NOPAT = [PBIT- Interest - Tax] + Interest (net of tax)
` in lakhs
PBIT 2,202.84
Less: Interest (13.48)
PBT 2,189.36
Less: Tax @ 30% (656.81)
PAT 1,532.55
Add: Interest (net of tax) [13.48 × (1 - 0.30)] 9.44
NOPAT 1,541.99
EVA = NOPAT – WACC × Capital Employed
= `1,541.99 L– 12.07% × `2,439.52 L
= `1,247.54 L
Shareholder Value Added (SVA)
A variation along the same concept as EVA. The main aim of the organisation is to add value to
shareholder wealth.
In 1980’s Alfred Rappaport proposed a technique for value measurement. This approach is
called Shareholder Value Analysis. SVA focuses less on process than Porter’s and acts more as a
final gateway in decision making, although it can be used at multiple levels within a firm, SVA is
described as

The process of analyzing how decisions affect the net present value of cash to shareholders. The
analysis measures a company’s ability to earn more than its total cost of capital…With in business
units, SVA measures the value the unit has created by analyzing cash flows over time. At the
corporate level, SVA provides framework for evaluating options for improving shareholder value by
determining the tradeoffs between reinvesting in existing businesses, investing in new businesses
and returning cash to stockholders. (Rappaport, 1986, 1998)
Rappaport suggested that future cash flows should be discounted at a suitable cost of capital and
that shareholder value would be increased if this measure were to increase. According to
Rappaport, the following seven factors- he calls them “value driver”- affect shareholder value:
▪ Rate of Sales Growth
▪ Operating Profit Margin
▪ Income Tax Rate
▪ Investment in Working Capital
▪ Fixed Capital Investment
▪ Cost of Capital
▪ Life of the Project
It is important to remember that value is not just a financial concept. Shareholders can attach non-
financial value, e.g. social responsibility of the company.
TBL expands traditional accountancy reporting systems, looking at social and environmental
performance, rather than simply financial performance. This can be used to help encourage each
division and manager within the organisation to act in a socially responsible manner. TBL
incorporates the three dimensions-
▪ Environmental- measures the impact on resources, such as air, water, ground and waste
emissions (Baumgartner & Ebner, 2010, p.79).
▪ Social- relates to corporate governance, motivation, incentives, health and safety, human
capital development, human rights and ethical behaviour.
▪ Economic- refers to measures maintaining or improving the company’s success.
Linking of Financial and Non-Financial Measures of Performance
The main objective of profit-making organizations is to maximize shareholder value. Hence,
performance measures should be based on the value created by each division. Regrettably,
using accounting measures such as ROI or EVA as performance measures can ins pire
managers to become short-term oriented. The incorporation of non-financial measures created
the need to link financial and non- financial measures of performance. In particular, there was a
need for a balanced set of measures that provide both short-term performance measures and

also leading indicators of future financial performance from current actions.

The requirement to link financial and non-financial measures of performance and to
identify key performance measures provided the impetus for
▪ Kaplan and Norton's ‘Balanced Scorecard’
▪ Cross and Lynch’s ‘The Performance Pyramid’
▪ Fitzgerald and Moon's ‘Building Block Model’
▪ Andy Neely and Chris Adams’s ‘The Performance Prism’
Linking CSFs to KPIs and Corporate Strategy
It is easy to understand why Critical Success Factors (CSF) are often misunderstood as a
synonymous or similar term to Key Performance Indicators (KPI). In reality, these two terms are
actually very different and understanding the difference between these two terms is a vital step
in implementing Business Performance Measurement.
Critical Success Factors are elements tied to the strategy of business and they represent
objectives that businesses are trying to achieve, as a corporation, as a department, or as a
business unit. They are derived from the strategic goals, and are in essence, an attempt to go
one level deeper into the high-level strategic goals, and lay them out as a list of categorized
objectives that will collectively drive the company’s strategy forward.
According to Rockart (1979), the following sources should be considered when identifying
CSFs:
▪ Industry Structure
▪ Competitive Strategy
▪ Environmental Factors
▪ Temporary Influences
To put it very simply, Critical Success Factors represent the ‘what’ – what are the things the
company needs to do in order to achieve its goals.
Key Performance Indicators, on the other hand, are a consequence of critical success factors –
they represent the ‘how’. Having outlined ‘what’ businesses want to achieve, a company must
subsequently define sets of measures and associated targets in such a way that achieving
those targets will translate into successful completion of a CSF.
For example, for an IT Department, a Critical Success Factor could be restoring normal service,
and in order to achieve that, a logical KPI would be the Average Turnaround Time, with a target
of 4 hours. The Average Turnaround Time and its target of 4 hours is the KPI that represents
‘how’ the IT department achieved its Critical Success Factor.
Ideally, each critical success factor should have a KPI associated with it. A single Critical
Factor can also have more than one KPI, if need be. The KPI targets are more formally called
thresholds, and the thresholds must be ascertained with a great deal of industry analysis, as

well as internal analysis. KPI targets should be Specific, Measurable, Achievable, Relevant and
Time Constrained.
In order to truly achieve effective measurement of business performance, the KPIs must be
selected and designed in a way that ensures that the CSF is delivered if the KPI meets the
threshold, and the CSFs in turn must be designed and constructed in a way that ensures that
the company’s strategic vision is delivered if the CSFs are met.
The objectives, CSFs, and KPIs together represent a chain of links that together deliver a
company’s strategic goal, by breaking down that strategic vision in to a set of quantifiable
targets, such as the Average Turnaround Time with a minimum of 4 hours in the case of the IT
Department.
The CSFs should also be reviewed and evaluated with respect to the company’s high-level
strategic goals. Having KPIs set up without a well governed feedback and monitoring process
can result in a company aimlessly chasing targets which don’t ultimately deliver the company’s
strategy.
Setting up KPIs is a step in the right direction, but the benefit of KPIs is only truly realized when
they are implemented in the right way, and understanding their linke d relationship with CSFs
and objectives is paramount to this effect.
Balanced Scorecard
In today’s business environment information becomes a vital element and to gain competitive
advantage over the peers, it cannot be denied. In this era of information age competition, a
company cannot survive just by injecting huge capital investment in new technology for physical
assets only or by excellent management of financial assets and liabilities. In this information age
both manufacturing and service organisation needs new capabilities for competitive success.
Merely investing in and managing physical, tangible assets is not enough but an organisation must
be able to mobilise and exploit its intangible or invisible assets which in turn becomes a decisive
factor.
Intangible assets enable an organisation to:
▪ Maintain and further development in customer relationships to retain loyalty of existing
customers and to serve new market/ customer segments effectively and efficiently.
▪ Introduce products and services as per the desire of targeted customer and market
segments.
▪ Produce customised high-quality products and services economically with short gestation
periods.
▪ Mobilise employee skills and motivation for better and consistent deliberation in process
capabilities, quality, and response times.
▪ Deploy information technology, data bases and effective management information systems.

The balanced scorecard is a method which displays organisation’s performance into four
dimensions namely financial, customer, internal and innovation. The four dimensions acknowledge
the interest of shareholders, customers and employees taking into account of both long-term and
short-term goals.
Kaplan and Norton classified performance measures into four business ‘perspectives’:
(i) The financial perspective
(ii) The customer perspective
(iii) The internal business perspective
(iv) The learning and growth perspective
Financial Perspective: “How Do We Look To Shareholders?” In this step manager of a division or
a unit, links its business objectives to the corporate strategy of the company as a whole. Financial
performance measures indicate whether the company’s strategy implementation and execution are
contributing to its revenue and earnings. To identify key performance measures in this perspective,
managers, during strategic planning ask “How do we look to shareholders?”
Corporate strategy and strategic initiatives are examined from the financial perspective to see
feasibility of these initiatives of being met. The financial objectives chosen at the onset of the
balanced scorecard implementation should serve two purposes:
▪ To provide definite performance that was expected at the time of strategies selection.
▪ To provide a focus for objectives and appropriate measures in each of the other three
perspectives.
Customer Perspective: “How Do Customer View Us?” In this stage, companies identify
customers and market segments in which they compete and also the means by which they provide
value to these customers and markets. Managers identify the lead indicators which make a
particular business unit or product different from that of others. Lead indicator may vary from
customer to customer or market segment. If for example, a customer values on-time delivery then
on-time delivery becomes a lead indicator. Examples of lead indicators may include any number of
customer considerations, including:
▪ On-time delivery
▪ On-site service
▪ After sales support
▪ Defects per order
▪ Cost of the product
▪ Free shipments etc.
By delivering quality as per the customer demand and need, business units can improve outcome
measures such as customer satisfaction, retention, acquisition and loyalty.

Internal Business Perspective: “At What Must We Excel?” In this stage companies identify
processes and activities which are necessary to achieve the objectives as identified at financial
perspectives and customer perspective stage. These objectives may be achieved by reassessing
the value chain and making necessary changes to the existing operating activities. If maintaining
net earnings is the financial objective of a company and after sales service can increase c ustomer
retention, then internal business perspective needs to improve after sales services to satisfy
customer requirements to maintain net earnings. This objective may be achieved by providing for
example toll free customer help lines, setting up service centres in all major cities.
Learning and Growth Perspective: “How Do We Continue To Improve And Create Value?” In the
learning and growth perspective, Companies determine the activities and infrastructure that the
company must build to create long term growth, which are necessary to achieve the objectives set
in the previous three perspectives. Organisational learning and growth comes from three principle
sources:
▪ People i.e. employee capabilities
▪ Systems i.e. information system capabilities and
▪ Organisational procedures i.e. motivation, empowerment and alignment.
Since, the balanced scorecard is intended to improve long-term performance, managers may
invest in resources needed in the short-run but this should not affect business unit’s performance.
The ultimate result of using the Balanced Scorecard approach should be an improved long term
financial performance. Since the scorecard gives equal importance to the relevant non –financial
measures, it should discourage the short termism that leads to cuts in spending on new product
development, human resource development etc. which are ultimately detrimental for the future
prospects of the company.
The responsibility to devise and implement a Balanced Scorecard should be that of the managers
working with the business. Since every company is different, it shall need to work out for itself the
various financial and non – financial measures, which need to be focused upon for its own
development. Since the Balanced Scorecard is recommended as a management tool used both for
internal and external reporting purposes, it is again the manager’s responsibility to decide as to
what information needs to be disclosed and how any problems of confidentiality can best be
overcome.
The following are some reasons why Balanced Scorecards sometimes fail to provide for the
desired results;
▪ Managers mistakenly think that since they already use non – financial measures, they already
have a Balanced Scorecard.
▪ Senior executives misguidedly delegate the responsibility of the Scorecard implementation to
middle level managers.

▪ Company’s try to copy measures and strategies used by the best companies rather than
developing their own measures suited for the environment under which they function.
▪ There are times when Balanced Scorecards are thought to be meant for reporting purposes
only. This notion does not allow a Business to use the Scorecard to manage Business in a
new and more effective way.
It may be noted that the above-mentioned difficulties refer to the internal use of the Scorecard,
unless it is used internally successfully, it should not be used as a basis for external reporting.
The following figure summarises the ideas of a Balanced Scorecard:
(Source: Robert S Kaplan and David P Norton, The Balanced Scorecard: Translating Strategy into Action)

Strategy Mapping
The Strategy Map shows the objectives needed to execute the strategy . The balanced score card
is a part of system that translates strategy into action. Strategy maps can be created for not-for-
profit and public service entities, as well as for-profit enterprises.
Example of Strategy Mapping
(Source: CGMA Strategy Mapping Tool)

Balanced Scorecard in Practice

Qantas Airways Limited
For 2015/2016, the Qantas’s Board considered the following key measures of financial and
operational performance and the associated targets to be critical indicators of performance and
drivers of shareholder value. The table below summarises performance versus target against
each scorecard category.
Scorecard Measures Scorecard Actual Comment
Category/ Weighting Outcome
Strategic ‘At Target’
Objective (Range of
Outcomes)
Group Underlying 50% The Underlying PBT result of $1,532
Profitability Profit Before (0–100%) million for 2015/2016 exceeded the
Tax (PBT) ‘overdrive’ target set by the Board.
Therefore, this measure contributed a
maximum overdrive outcome of 100
per cent (out of 50 per cent) to the
STIP scorecard.
Qantas Deliver 20% Management’s commitment and focus
Transformation transformation (0–30%) on the Qantas Transformation program
and the Cost benefits Unit to date has delivered $1,655 million of
Agenda cost benefits. During 2015/2016 the Group
realised $557 million in cost and
revenue benefits through
transformation initiatives, exceeding
the full year target of $450 million
announced to the market in
February 2016. Qantas International,
Qantas Domestic and Jetstar Group
exceeded the unit cost target set.
People and People Safety 10% Management’s continued focus on
Operational measures (0–15%) Operational and People safety resulted
Safety Board’s in targeted improvements in People
assessment Safety metrics being achieved and
of Operational good Operational Safety for the year.
Safety Therefore, there was an at target
contribution under the People Safety
and the Operational Safety measures.
Customer Net Promoter 10% The Board recognised that
Score (NPS) (0–15%) Management’s continued investment in
Punctuality the customer has resulted in NPS
Domestic targets for Qantas International,
network Qantas Domestic and Qantas Frequent
attractiveness Flyer being exceeded. NPS targets
were not achieved by Jetstar
Domestic, however, above threshold or

above target NPS results were

achieved by other Jetstar Group
Airlines. Qantas Domestic exceeded
its on-time performance target for
2015/2016, with 89.7 per cent of flights
on-time. Qantas Domestic and Jetstar
also maintained the Group’s network
advantage in the Australian domestic
market.
Growth and Qantas 10% Management continued to grow
Strategic Loyalty: EBIT (0–15%) diversified earnings and pursue growth
Initiatives growth opportunities. Qantas Loyalty achieved
Investments its Earnings Before Interest and Tax
in Jetstar (EBIT) growth target for 2015/2016.
Airlines Earnings targets for the two key
in Asia: Jetstar Airlines in Asia, Jetstar Asia
Underlying and Jetstar Japan were exceeded.
EBIT Qantas Revenue Management System
Revenue key project milestones and review
Management benefits were achieved.
System
Milestones
and project
benefits
2015/16 STIP Scorecard 100% 160%
Outcome (0–175%)
Key:
Above target achievement against targets
Full achievement against targets
Partial achievement against targets
No achievements against targets

(Source: Qantas Airways ‘Annual Report’ 2016)
Performance Pyramid
The Performance Pyramid also known as Strategic Measurement and Reporting Technique
by Cross and Lynch 1991. They viewed businesses as performance pyramids. The attractiveness
of this framework is that it links the business strategy with day-to-day operations. The analogy of
building a house can be applied here. To build a strong house one must start with a proper
foundation in order to build a house which structurally sound and one that will last.

In the above pictorial presentation:

▪ ‘Objectives’ are shown from top to bottom.
▪ ‘Measures’ are from bottom to the top.
▪ At the top is the organization’s corporate vision through which long term success and
competitive advantages are described.
▪ The ‘business level’ focuses on achievements of organization’s CSF in terms of market and
financial measures.
▪ The marketing and financial success of a proposal is the initial focus for the achievement of
corporate vision.
▪ The above business are linked to achieving customers satisfaction, increase in flexibility and
high productivity.
▪ The above driving forces can be monitored using the operating forces of the organization.
▪ The left-hand side of the pyramid contains external forces which are ‘non-financial’.
▪ On the other hand, the right-hand side of the pyramid contains internal efficiency which are
predominantly ‘financial’ in nature.

David Otley (2005) has observed that other related frameworks exist, such as the results and
determinants framework by Fitzgerald (1991), the balanced scorecard by Kaplan and Norton
(1992) and Neely’s performance prism. A common thread in all of them is that performance
measures should:
▪ be allied to corporate strategy.
▪ include internal as well as external measures.
▪ include financial as well as non-financial measures.
▪ make explicit the trade-offs between different dimensions of performance.
▪ include all important but difficult to measure factors as well as easily measurable ones .
▪ consider measures for managers/ employees’ motivation.
Illustration
You are a paid assistant working in SBC LLP – an accounts consultancy firm. You have received
the following email from one of SBC’s senior partner:
To: DG
From: SB
Date: 22/06/20XX
Subject: PEL meeting this afternoon
As you are probably aware, we are meeting with the managers of PEL later this afternoon to
discuss several key issues, and I need you to do some research for me. I need a report that covers
the following:
Analysis of the new proposal for the period 2017 to 2019 based on
- external effectiveness and
- internal efficiency
To help you with this, I’ve attached a copy of our forecast of PEL’s financial and non-financial data
for the period 2017 to 2019. Please read it carefully and email me back as soon as possible so I
have time to prepare before the meeting.
Thanks
SB

------------------------Attachment-----------------------------
Background to PEL
Precision Engineering Ltd (PEL) specialises in engineering design and manufacture in the
automotive and motorsport industry. PEL’s design team has many years’ experience in the design
and development of engine components for the market and high performance engines. PEL has
identified a number of key competitors and intends to emphasis on close co-operation with its
customers in providing products to meet their specific engineering design and quality
requirements. Efforts will be made to improve the effectiveness of all aspects of the cycle, from
product design to after-sales service to customers. This will require data from a number of
departments in the achievement of the specific goals of the new proposal. Efforts will be made to
improve productivity in conjunction with increased flexibility of methods.
Forecast of PEL’s Financial and Non-Financial Data
Particulars 2017 2018 2019
Total Market Size ( `lacs) 110 115 120
PEL Sales (`lacs) 18 21 23
PEL Total Costs ( `lacs) 14.10 12.72 12.55
Production Achieving Design Quality Standards 95.5% 98.0% 98.5%
Returns from Customers (% of Deliveries) 2.0% 1.0% 0.5%
Cost of After-Sales Service ( `lacs) 1.3 1.1 1.0
Sales Meeting Planned Delivery Dates 85% 90% 95%
Average Cycle Time (Customer Enquiry to Delivery) (weeks) 5.0 4.5 4.0
Components Scrapped in Production (%) 6.5% 4.0% 1.5%
Idle Machine Capacity (%) 9% 5% 1%
Required
Draft the email as requested by the partner.
Solution
To: SB
From: DG
Date: 22/06/20XX
Subject: Re: PEL Meeting this afternoon
Please find below my analysis of the points you wished me to examine for PEL. Please let me
know if you wish to discuss any of these points in more detail.
Kind regards
DG

External Effectiveness- The marketing success of the proposal is associated with the
achievement of customer satisfaction. The success will need an efficient business operating
system for all aspects of the cycle from product design to after-sales service to customers.
Customer satisfaction is linked with Improved quality and delivery.
Quantitative measures of these factors are as follows:
▪ Quality is expected to improve. The percentage of production achieving design quality
standards is expected to increase from 95.5% to 98.5% between 201 7 and 2019. In the same
period, returns from customers for replacement or rectification should drop from 2% to 0.5%
and the cost of after-sales service should drop from `1.3lacs to `1.0lacs.
▪ Delivery efficiency improvement that is expected may be measured in terms of the rise in the
percentage of goods achieving the planned delivery date. This percentage rises from 85% in
2017 to 95% in 2019.
Internal Efficiency- The financial success of the proposal is linked to the achievement of high
productivity. This should be helped through reduced cycle time and decreased levels of waste.
Quantitative measures of these factors are as follows:
▪ The average total cycle time from customer enquiry to delivery should drop from 5 weeks in
2017 to 4 weeks in 2019.
▪ Waste in the form of idle machine capacity is expected to drop from 9% to 1% between 201 7
and 2019. Also, component production scrap is expected to drop from 6.5% in 2017 to 1.5%
in 2019.
The Building Block Model
Fitzgerald and Moon proposed a Building Block Model which suggests the solution of performance
measurement problems in service industries. But it can be applied to other manufacturing and
retail businesses to evaluate business performance. Variants of the building block model are
currently used in Australia in the regulation of electricity transmission and distribution, gas
transmission and distribution, railways, postal services, urban water and sewerage services,
irrigation infrastructure, and port access.

Standards. These are the measures used, i.e. the KPIs, should have the following characteristics:
Equity- Performance measures should be equally challenging for all parts of business. Relaxation
given to one part of the business leads to perception of unfair treatment which hinders productivity.
Ownership- Performance measure should be acceptable to everyone. Employees should be got
involved in the identification of measures rather than being imposed on them. Ownership means
here is responsibility for the results.
Achievable- Performance measure should be realistic. Ex, using actual results for the competitors
to set as target. Employee will not be motivated to achieve targets if consider them impossible.
Rewards- To ensure that employees are motivated to meet standards, the standards need to be
clear and linked to controllable factors. Reward schemes should possess following characteristics:
Motivation- Rewards scheme should be set in manner which motivates employees to achieve the
business goals. If sales growth is desired than bonus can be linked to performance measures, like
increase in number of units sold than previous year.

Clear- Rewards scheme should be clearly communicated to employees in advance. What kind to
performance will be rewarded and how their performance will be measured ?
Controllability- Employees should only be reward or penalized of the result over which they
some control or influence.
Dimensions- Dimensions are the goals for the business, i.e. the CSFs and suitable measures
must be developed to measure each performance dimension. They are further divided into two
sub-categories.
Determinants-These are performance areas which influence the results. These are.
▪ Quality- It is the ability to deliver goods and service with consistency. Quality should be
judged from eyes of the customers. Quality is the level of benefits customers expects from
the product. Quality should be enough for a product price paid.
▪ Flexibility- It is the responsiveness to change in the factor influencing the business
performance. Ex, ability to cope with sudden increase in sales demand.
▪ Innovation- Ability of the business to devise new products and new ways of doing things. Like
packaging of products with environment friendly (recyclable) material.
▪ Resource Utilization- It is the ability to use resources to achieve business objectives.
Business assets should be used for the proper purpose and in most efficient way. Ex, using
delivery vans to its maximum capacity only by carrying authorized goods.
Results- It reflects the success or failure of determinants identified above.
▪ Financial Performance- Financial performance gives an indication of overall business at a
glance in monetary terms. These can be used to identify areas of strengths and weaknesses.
It may also highlight other areas previous identified which may be critical to business
success.
▪ Competitive Performance- How they stand in comparison to its competitors? How are
the different from their competitors? Ex, offering of products of higher quality than competitors
and products having distinct features than rival products.
The Results and Determinants Framework
Dimensions of Types of Measures
Performance
Competitiveness ▪ Relative Market Share and Position
▪ Sales Growth
▪ Measures of the Customer Base
Results
Financial ▪ Profitability
Performance ▪ Liquidity
▪ Capital Structure
▪ Market Ratios

Quality of Service ▪ Reliability

▪ Responsiveness
▪ Aesthetics/appearance Communication
▪ Cleanliness/tidiness
▪ Comfort
▪ Friendliness
▪ Courtesy
▪ Competence
Determinants
▪ Access
▪ Availability
▪ Security
▪ Communication
Flexibility ▪ Volume Flexibility
▪ Delivery Speed Flexibility
▪ Specification Flexibility
Resource ▪ Productivity
utilization ▪ Efficiency
Innovation ▪ Performance of the Innovation Process
▪ Performance of Individual Innovations
(Source: Fitzgerald, 1991)
Performance Prism
Performance Prism creators Andy Neely and Chris Adams mentioned that the better-known
Balanced Scorecard framework only focuses on two sets of stakeholders: shareholders and
customers. The Performance Prism is an approach to performance management which aims to
effectively meet the needs and requirements of all stakeholders. This is in contrast with
the performance pyramid which tends to concentrate on customers and shareholders and is also in
contrast with value based management, which prioritizes the needs of shareholders.
▪ It takes stakeholder requirements as the start point for the development of performan ce
measures rather than the strategy of the organisation.
▪ It recognises the need to work with stakeholders to ensure that their needs are met.
There are five ‘facets’ to the Performance Prism which lead to key questions for strategy
formulation and measurement design:
Stakeholders Satisfaction: The organization needs to focus on who are the stakeholders? What
are the needs and wants of the stakeholders.

Strategies: What are the strategies required by the organization to fulfill the wants and needs of
the stakeholders?
Processes: What are the necessary processes required for satisfying the above strategies ?
Capabilities: What capabilities does the organization needs for operating and enhancing the
process?
Stakeholders Contributions: It further takes into account what contribution does the
management needs from its stakeholders?
Comprehensiveness of Performance Prism
(Source: Neely, 2002)

The Performance Prism allows organisations to develop strategies, business processes and
measures geared to the specific needs of all important stakeholder groups. By taking a broad
stakeholder perspective that includes regulators and business communities, the PP enables an
organisation to more directly address the risks and opportunities in its business environment .
Using the PP to develop measures for each relevant stakeholder facilitates the communication and
implementation of strategy.
Performance Measures – Benefits
Berry, Broadbent and Otley (1995) suggest that the following benefits can be derived from the use
of performance measures:
▪ Develops agreed measures of activity.
▪ Clarifies the objectives of the organization.
▪ Greater understanding of process.
▪ Helps facilitate comparison between divisions.
▪ Promotes accountability to stakeholder.
▪ Helps in setting of targets for managers.
▪ Helps facilitate comparison between different organizations

Performance Measures – Problems

Problems that may develop from the use of performance measures by an organization are as
follows:
Undue focus on
measurements to the
Tunnel Vision
detriment of other
areas
Focus on one
Sub-optimization measurement to the
detriment of others
Focusing too much on

short-term measures
Myopia
and not looking long-
Performance term
Measurement –
Problems
Not presenting the data
Misrepresentation
correctly
Misinterpreting the
Misinterpreting
data
Keeping of out of date

Ossification
measures
BENCHMARKING SCHEMES
Benchmarking, technique for continuous improvement was originated in Japan during the early
1960s due to Japanese curiosity and fondness for achieving the best of best. Various forms of
benchmarking have been used in industry for years. After 1980s with th e advent of worldwide
competition in key industries benchmarking come of age. Xerox, Motorola, Ford and other leading
companies pioneered a much broader forms of benchmarking. These companies found
benchmarking a valuable means of improving their competitiveness and effectiveness. It became
an integral part of their continuous process improvement programme.
Benchmarking is a technique for continuous improvement in performance. It involves comparing a
firm’s products, services or activities against other best performing organisations, either internal or
external to the firm. The objective is to find out how the product, service or activity can be
improved and ensure that the improvements are implemented. It attempts to identify an activity
such as customer order processing needs to be improved and finding a non-rival organisation that

is considered to represent world class best practice and studying how it performs the activity. It is
a performance measure that provides the driving force to establish high performance and means to
accomplish these goals. It is thus a component of a wider improvement process such as business
process reengineering or quality improvement.
The benchmarking is a versatile tool that can be applied in a variety of ways to meet a range of
requirements. The distinct types of benchmarks have been evolved over a period of time. Each
has its own benefits and shortcomings and therefore each one is appropriate in certain
circumstances then others.
The Benchmarking is of following types:
▪ Competitive Benchmarking: It involves the comparison of competitors products, processes
and business results with own. Benchmarking partners are drawn from the same sector.
However, to protect confidentiality it is common for the companies to undertake this type of
benchmarking through trade associations or third parties.
▪ Strategic Benchmarking: It is similar to the process benchmarking in nature but differs in its
scope and depth. It involves a systematic process by which a company seek to improve their
overall performance by examining the long term strategies .It involves comparing high level
aspects such as developing new products and services, core competencies etc.
▪ Global Benchmarking: It is a benchmarking through which distinction in international culture,
business processes and trade practices across companies are bridged and their ramification
for business process improvement are understood and utilised. Globalisation and advances
in information technology leads to use this type of benchmarking.
▪ Process Benchmarking: It involves the comparison of an organisation critical business
processes and operations against best practice organisation that performs similar work or
deliver similar services. For example, how do best practice organisations process customers’
orders.
▪ Functional Benchmarking: This type of benchmarkingis used when organisations look to
benchmark with partners drawn from different business sectors or areas of activity to find
ways of improving similar functions or work processes. This sort of benchmarking can lead to
innovation and dramatic improvements.
▪ Internal Benchmarking involves seeking partners from within the same organisation, for
example, from business units located in different areas. The main advantages of internal
benchmarking are that access to sensitive data and information are easier; standardised data
is often readily available; and, usually less time and resources are needed. There may be
fewer barriers to implementation as practices may be relatively easy to transfer acr oss the
same organisation. However, real innovation may be lacking and best in class performance is
more likely to be found through external benchmarking.
▪ External Benchmarking involves seeking help of outside organisations that are known to be
best in class. External benchmarking provides opportunities of learning from those who are at
the leading edge, although it must be remembered that not every best practice solution can
be transferred to others. In addition, this type of benchmarking may take up more time and

resource to ensure the comparability of data and information, the credibility of the findings
and the development of sound recommendations.
The benchmarking can be categorised into:
(i) Intra-Group Benchmarking: In intra group benchmarking the groups of companies in
the same industry agree that similar units within the cooperating companies will pool
data on their process. The processes are benchmarked against each other at or
operational level. ‘Improvement task forces’ are established to identify and transfer best
practice to all members of the group.
(ii) Inter-Industry Benchmarking: In inter-industry benchmarking a non-competing
business with similar process is identified and asked to participate in a benchm arking
exercise. For example, a publisher of school book may approach a publisher of
university level books to establish a benchmarking relationship. Although two publishers
are not in direct competition but there are obviously many similarities in their business
with respect to sources of supply, distribution channels. Each will be able to benefit
from the experience of other and establish ‘best practices’ in their common business
processes.
Goals of Benchmarking
Benchmarking can deliver significant performance improvements and returns based on efficiency,
cost savings and new revenues. Benchmarking projects typically target cycle times, productivity,
customer service, quality and production costs. They also can be part of an effort to shift the
culture of a company to be more customer oriented and results focused.
Process of Benchmarking
The process of benchmarking requires a Company to identify the areas i.e. processes, activity etc.
which are central to its business and then selects the top-performing companies in those areas. By
analyzing how that excellence is achieved, the company learns lessons to apply to its own
processes.
The benchmarking process is comprised of following stages. These stages are:
Collection of Data Analysing the

Planning
and Information Findings
Monitoring and
Recommendations
Reviewing

Planning
(i) Determination of benchmarking goal statement: This requires identification of areas to be
benchmarked. In practice, one should start with the identification of those areas which have
to be really good to be really successful. One should start with the areas which account for
most of the expenditure or which tie up the most of cash. One should remember that one
cannot benchmark own performance until one have reliable and efficient systems of
measurement in its own organisation. This applies irrespective of whether our benchmarking
partners are internal or external, in parallel or in totally different business sectors. Fo r
identification of areas to be benchmarked the following criteria are used:
▪ What would make the most significant improvements in our relationships with our
customers.
▪ What would make the most significant improvements to our bottom-line.
Benchmarks important for customer satisfaction may include:
▪ Consistency of product or service.
▪ Process cycle time.
▪ Delivery performance.
▪ Responsiveness to customer requirements.
▪ Adaptability to special needs.
Benchmarks important for direct impact on the bottomline may include:
▪ Waste and reject levels.
▪ Inventory levels.
▪ Work-in-Progress.
▪ Cost of sales.
▪ Sales per employee.
(ii) Identification of best performance: Once the benchmarked goal statement are defined, the
next step is seeking the best of the breed or best of the best. Since practically to arrive at the
best is both expensive and time consuming therefore it is better to identify company which
has recorded performance success in a similar area.
(iii) Establishment of the benchmarking or process improvement team: Ideally this should include
the persons who are most knowledgeable about the internal operations and will be directly
affected by changes due to benchmarking.
(iv) Defining the relevant benchmarking measurement: Relevant measures will not include the
measures used by the organisation today but they will be refined measures that comprehend
the true performance differences. Developing good measurement is key to successful
benchmarking.

Collection of Data and Information

The data gathering for benchmarking could be done through national/international clearing houses,
mail surveys, suppliers, company visits, telephone, interviews etc. In recent years national and
international clearing houses have been set up.
The collection of data and information involves following steps:
▪ Compile information and data on performance. They may include mapping processes.
▪ Select and contact partners.
▪ Develop with partners, a mutual understanding about the procedures to be followed and, if
necessary, prepare a Benchmarking Protocol.
▪ Prepare questions and agree terminology and performance measures to be used.
▪ Distribute schedule of questions to each partner.
▪ Undertake information and data collection by chosen method for example, interviews, s ite-
visits, telephone, fax and e-mail.
▪ Collect the findings to enable analysis.
Analysing the Findings
The analysing of finding of above step requires following:
▪ Review the findings and produce tables, charts and graphs to support the analysis.
▪ Identify gaps in performance between our organisation and better performers.
▪ Seek explanations for the gaps in performance. The performance gaps can be positive,
negative or zero.
▪ Ensure that comparisons are meaningful and credible.
▪ Communicate the findings to those who are affected.
▪ Identify realistic opportunities for improvements. The negative performance gap indicates an
undesirable competitive position and provide a basis for performance improvement. If there is
no gap it may indicate a neutral position relative to the performance being benchmarked. The
zero position should be analysed for identifying means to transform its performance to a level
of superiority or positive gap.
Recommendations
This involves:
Making recommendation: This requires:
▪ Deciding the feasibility of making the improvements in the light of the conditions that apply
within own organisation.
▪ Agreement on the improvements that are likely to be feasible.
▪ Producing a report on the Benchmarking in which the recommendations are inc luded.
▪ Obtaining the support of key stakeholder groups for making the changes needed.

▪ Developing action plan(s) for implementation.

Implementing recommendations:
▪ Implement the action plans.
▪ Monitor performance.
▪ Reward and communicate successes.
▪ Keep key stakeholders informed of progress.
Monitoring and Reviewing
This involves:
▪ Evaluating the benchmarking process undertaken and the results of the improvements
against objectives and success criteria plus overall efficiency and effectiveness.
▪ Documenting the lessons learnt and make them available to others.
▪ Periodically re-considering the benchmarks for continuous improvement.
Pre-requisites for Successful Benchmarking
Irrespective of the type and scope of benchmarking, it will be important to ensure that:
▪ Senior manger’s support benchmarking and are committed to continuous improvements;
▪ The objectives are clearly defined at the outset;
▪ The scope of the work is appropriate in the light of the objectives, resources, time available
and the experience level of those involved;
▪ Sufficient resources are available to complete projects within the required time scale;
▪ Benchmarking teams have a clear picture of their organisation’s performance before
approaching others for comparisons;
▪ Benchmarking teams have the right skills and competencies;
▪ Stakeholders, particularly staff and their representatives, are kept informed of the reasons for
benchmarking.
Difficulties in Implementation of Benchmarking
▪ Benchmarking is a time consuming and at time difficult. It has significant requirement of staff
time and company resources.
▪ Benchmarking implementation requires the direct involvement of the senior manager etc.
The drive to be best in the industry or world cannot be delegated.
▪ It is likely that there is resistance from employees.
▪ Companies can become preoccupied with the measures. The goal becomes not to improve
process but to match the best practices at any cost.
▪ The key element in benchmarking is the adaptation of a best practice to tailor it to a
company’s needs and culture. Without that step, a company merely adopts another
company’s process. This approach condemns benchmarking to fail.
▪ Companies often waste time in benchmarking non-critical functions.

Benchmarking Code of Conduct

Benchmarking - the process of identifying and learning from the best practices anywhere in the
world - is a powerful tool for continuous improvement. To contribute to efficient, effective, and
ethical benchmarking, individuals agree for themselves and their organization to be abide by the
following principles for benchmarking with other organizations:
The following is a suggested Benchmarking code of conduct:
▪ Principle of Legality: Avoid discussions or actions that might lead to or imply an interest in
restraint of trade: market or customer allocation schemes, price fixing, dealing arrangements,
bid rigging, bribery or misappropriation. Do not discuss costs with competitors if costs are an
element of pricing.
▪ Principles of Exchange: Be willing to provide the same level of information that you request,
in any benchmarking exchange.
▪ Principle of Confidentiality: Treat benchmarking interchange as something confidential to
the individuals and organizations involved. Information obtained must not be communicated
outside the partnering organizations without prior consent of participating benchmarking
partners. An organization’s participation in a study should not be communicated externally
without their permission.
▪ Principle of Use: Use information obtained through benchmarking partnering only for the
purpose of improvement of operations within the partnering companies themselves. External
use or communication of a benchmarking partner’s name with their data of observed
practices requires permissions of that partner. Do not, as a consultant or client, extend one
company’s benchmarking study findings to another without the first company’s permission.
▪ Principle of First Party Contact: Initiate contacts, whenever possible, though a
benchmarking contact designated by the partner company. Obtain mutual agreement with the
contact on any hand off of communication or responsibility to other parties.
▪ Principle of Third Party Contact: Obtain an individual’s permission before providing their
name in response to a contact request.
▪ Principle of Preparation: Demonstrate commitment to the efficiency and effectiveness of the
benchmarking process with adequate preparation at each process step; particularly, at initial
partnering contact.

PERFORMANCE MEASUREMENT IN THE NOT FOR PROFIT SECTOR

It is important to understand the nature of not-for-profit organisation in order to appreciate the
dynamics of performance evaluation in such organisations. Not-for-Profit organisations are
generally formed for social causes (like healthcare, education, infrastructure development etc),
environmental causes, charitable causes etc. They are also formed for rendering services to the
members and operate on a no-profit and no-loss basis. Examples include professional bodies,
societies formed for maintenance of residential complex, political parties etc. (Not-for-profit
organisations are also referred to as NGOs, Charitable organisations, Voluntary organisations etc.)
As the name suggest, unlike in the case of a for-profit organisation, the underlying objective of
these organisations is not to earn profits and distribute dividends to its members. The for-profit
organisations have an ultimate objective of shareholder’s wealth maximisation and hence the
performance can be measured using financial measures like profitability, return on net assets,
economic value added, residual income etc. Since a not-for profit organisation is focused on
certain causes and is not focused on financial returns, performance measurement can be tricky.
The not-for-profit organisations are formed for certain specific mission and objectives. For e.g. an
organisation formed to provide free education to poor children is formed with a specific mission to
provide access to education to those who are deprived. These organisations also need funds to
achieve the mission and objectives which are contributed by donors and members. The
organisation, thus, has fiduciary responsibilities to those contributing funds and must ensure that
the funds are deployed to meet the intended mission and objectives. Thus, though the not-for-
profit organisations are not focused towards earning profits, the financial measures are equally
important as non-financial measures to measure their performance.
Why do we need performance measure in Not-for-Profit Organisations?
As discussed earlier, a not-for-profit organisation does not exist for earning profits but for
achieving certain social or charitable cause. The activities carried out by such organisations must
be measured to give a confidence to the donors/ members that the resources contributed are
being utilised efficiently and effectively.
However, performance measurement in such not-for-profit organisations is not easy. The following
are key challenges for measuring performance in not-for-profit organisations –
Benefits cannot be Benefits may accrue over a

quantified longer term
Key Challenges
Measurement of utilisation
Multiple objectives
of funds & expenditure

Benefits cannot be quantified

A large part of benefits derived from the activities of these organisations are not quantifiable. For
example - if a not-for-profit organisation is formed for providing free education to poor students,
the benefits derived by the students cannot be quantified. In some cases, an organisation might
spend money to provide better ambulance services to its patient. The benefits of saving lives of
patients cannot be measured in financial terms. Hence, it is difficult to evaluate performance of
not-for-profit organisations using financial measures.
Benefits may accrue over a longer term
The expenditure incurred in one year may yield benefits over several years. A hospital may invest
in creating ICU (Intensive Care Units) facility, the benefit of which will be obtained over multiple
years. Such benefits cannot be measured reliably.
Measurement of utilisation of funds & expenditure
Some not-for-profit organisation spend out of their fixed budget and do not earn any revenue. The
assessment of whether the spending have been appropriate is a key challenge. The organisations
may resort to rampant spending simply to meet the expenditure targets. Many organisations get
additional funds if they achieve the expenditure targets and this could be a motive for increase
spending.
Multiple objectives
Many not-for-profit organisations are formed for multiple objectives. The prioritisation of objectives
can be a challenging task.
Performance Measurement
Despite the challenges highlighted above, it is imperative that the performance measurement is
carried out for not-for-profit organisations. This helps the members, donors and other stakeholders
to get a comfort that the organisation is working towards desired objectives and mission.
Value for Money (VFM) Framework
A framework which can be used for measurement of performance in not-for-profit sector is the
Value for Money framework. Not-for-profit organisations are expected to provide value for money
which is demonstrated by:

Economy
Efficiency
Effectiveness
▪ Effectiveness: Whether the organisation has achieved its desired mission and objectives?
▪ Efficiency: Whether the resources and funds available to the organisation has been utilised
efficiently i.e. maximum output has been obtained with minimum input.?
▪ Economy: Whether the desired output has been obtained using the lowest cost? It must be
noted that use of lowest cost approach should not compromise quality.
Example
Charitable School
Let’s consider a case of a school which provides free education to children w ho come from BPL
(below the property line) families. The school also provides free lunch to the students to
encourage daily attendance.
A measure of effectiveness is whether the school has been able to provide quality education
to desired number of students. The performance of the school can be measured using the
metrics of number of students dropping out of school year-on-year. Another measure of
performance could be the number of students who have successfully completely the 12th
exams and joined college. It is important to note that the measures might not be wholly within
the control of the school. A student might drop out even after best efforts by the school. T his
makes the performance measurement a challenging task.
A measure of efficiency could be the number of students trained per hour spent by teachers or
the students to teacher ratio. In case of schooling a lower student to teacher ratio is always
preferred.
A measure of economy would be the amount spent on maintaining the school premises,
amount spent on remuneration to teachers etc. The amount spent can be compared against the
budgeted expenditure or sanction amount.

If performance is measured based on cost incurred, the school might as well decide to cut
necessary expenditure to meet the expenditure budget. For example, the school might not
spend adequate amount to upkeep the library or computer equipment. This can be detrimental
in the longer run. Hence, it is important to balance the financial measures with non-financial
measures.
Adapted Balanced Scorecard

Kaplan developed the ‘Adapted Balanced Scorecard’ for measuring performance at NGOs. The
main assumption of this adapted scorecard is that mission statement and not profits is the main
point to be met. The following four perspectives are suggested in the adapted balanced scorecard:
Customer Satisfaction of
beneficiary and other
Perspective stakeholder’s interest
Financial Fund raising, funds

growth and funds
Perspective distribution
Adapted Balanced
Scorecard
Internal efficiency,
Internal Processes
volunteer development
Perspective
and quality
The capability of
Innovation and Learning organisation to adjust to
Perspective the changing
environment
It is important to note that the positioning of financial perspective and customer perspective is
switched. This is due to the fact that achieving financial success is not the primary objective for
these organisations. Instead, nonprofit organisations should be primarily concerned with how
efficiently and effectively they meet the needs of their beneficiaries and donors/ members.
Other Performance Measures
▪ The ability to raise funds to meet the objectives efficiently.
▪ Submitting periodic reports to the stakeholders in a transparent manner.
▪ The best use of financial as well as non-financial resources to achieve desired objectives and
mission.
▪ The long- term impact (benefits) of the activities of the not-for-profit organisations.
▪ The quality of services provided by the organisations.

Performance Measurement Process

The performance measurement process typically starts with identification of the overriding
objectives and mission of the not-for-profit organisation. This includes evaluating the mission,
vision and strategy on a continuous basis. This stage typically defines the problem being solved
and the stakeholder which would be addressed by the organisation. The various objectives/mission
of the organisation are broken down and mapped with key strategies: Stakeholder (Customer),
Financial, Internal Process and Learning & Growth. In other words, the objectives are mapped with
various perspectives of the balanced scorecard. The performance measures/ key performance
indicators of each of the perspectives is defined. The actual outcome is measured and evaluated
against the performance measures defined. Any changes which are required to the performance
measures are carried out after analysis of the outcome on a periodic basis.
PERFORMANCE REPORTS
Responsibility Accounting is implemented by issuing performance reports at frequent intervals that
inform responsibility centre managers of the deviations from budgets for which they are countable
and required to take action. Performance reports are useful for not only comparing budgeted
results to actual results, but for also showing managers the effects of activity changes and how
well these changes are controlled by management. Note that the reports start from the bottom and
move upward with each manager receiving information on the operations of the unit for which he is
directly responsible and summary information on performance of other lower level managers under
their direct or indirect control. No matter how much authority and autonomy is given to
responsibility managers, performance reports are needed to evaluate the performance of the
managers at all operating levels of the organization. At bottom levels, it helps in determining what
all corrective measures are required in their segments. At top management level, these reports
keep them top managers informed on the performance of all segments.
SUMMARY
▪ Responsibility Accounting is the collection, summarization, and reporting of financial
information where individual managers are held accountable for certain costs, revenue or
assets of the firm.
▪ Linking CSFs to KPIs and Corporate Strategy –
o Critical Success factors – Critical Success Factors are elements tied to the strategy of
business and they represent objectives that businesses are trying to achieve, as a
corporation, as a department, or as a business unit.
o Key Performance Indicators are a consequence of critical success factors – they represent
the ‘how’. Having outlined ‘what’ businesses want to achieve, a company must
subsequently define sets of measures and associated targets in such a way that achieving
those targets will translate into successful completion of a CSF.

o Each critical success factor should have a KPI associated with it. A single Critical Factor
can also have more than one KPI, if need be. The objectives, CSFs, and KPIs together
represent a chain of links that together deliver a company’s strategic goal, by breaking
down that strategic vision in to a set of quantifiable targets.
▪ Pure financial performance measures are Return on Investment, Residual Income, Residual
Income, Economic Value Added and Shareholder Value Added.
▪ Triple Bottom Line (TBL) – TBL expands traditional accountancy reporting systems, looking at
social and environmental performance, rather than simply financial performance.
▪ Non – Financial Performance Measures like quality, reliability, flexibility, etc . are also required
to be measured to access the success of any department or organisation apart from costs,
revenues and profits.
▪ Integration of Financial and Non- Financial Measures –
o Balanced Scorecard – Balanced Score Card is a set of financial and non-financial
measures relating to a company’s critical success factors. It is an approach which provides
information to management to assist in strategic policy formulation and achievement. It
emphasizes the need to provide the user with a set of information which addresses all
relevant areas of performance in an objective and unbiased manner. As a management
tool, it helps companies to assess overall performance, improve operational processes and
enable management to develop better plans for improvements. It offers managers a
balanced view of their organization upon which they can base real change.
Major Components of Balanced scorecard – Customer Perspective i.e how do customers
see us, Internal Perspective i.e. what must we excel at, Innovation and Learning
Perspective i.e. can we continue to improve and create value, Financial Perspective i.e.
how do we look to our shareholders.
Process of Creating a Balanced Scorecard – Identify Vision i.e. where an organisation is
going, Identify Strategies i.e. how an organisation is planning to go there, Identify CSFs
and Perspectives i.e. what we have to do well in each perspective, Identify Measures which
will ensure that everything is going in the expected way, Evaluate i.e. ensuring what we are
measuring is right, Create Action Plan, Follow up and Manage i.e. what should be the
structure of the reports and who should have the authority to look at it.
o Performance Pyramid – The Performance Pyramid is also known as Strategic
Measurement and Reporting Technique. They view businesses as performance pyramids.
The attractiveness of this framework is that it links the business strategy with day-to-day
operations.
Benefits of Performance Pyramid – Develops agreed measures, clarifies the objectives of
the organisation, greater understanding of process, helps in comparison between
departments, promotes accountability to stakeholders, helps in setting targets, measures
the effectiveness of the organisation.
Problems Performance Pyramid – Tunnel Vision i.e. undue focus on measurements, Sub-
Optimisation i.e. focus on one measurement, Myopia i.e. focus on short term measures,

Misrepresentation of Data, Misinterpretation of Data, Ossification i.e. representing out

dated data.
o Building Block Model – Fitzgerald and Moon have developed an approach to performance
measurement in business services that is based on the three building blocks of
dimensions, standards and rewards.
Dimensions are the goals, i.e. the CSFs for the business and suitable measures must be
developed to measure each performance dimension and include Competitiveness,
Financial Performance, Quality of Service, Flexibility, Resource Utilisation, Innovation.
CSFs could be relative market share, in case of Competitiveness, turnover growth in case
of Financial Performance, product reliability in case of Quality of Service, etc. Standards
Set, i.e. the KPIs, should have ownership, availability, awareness and Rewards should be
motivating base on clarity of standards set and linked to controllable factors.
Advantages of building block model – All the key determinants of success are measured,
Targets are set in such a way that staff are engaged and motivated.
o Performance Prism – The Performance Prism is an approach to performance management
which aims to effectively meet the needs and requirements of all stakeholders. This is in
contrast with the performance pyramid which tends to concentrate on customers and
shareholders and is also in contrast with value based management, which prioritizes the
needs of shareholders.
Features – Starts with stakeholders rather than strategies of the organisation, recognises
that stakeholder satisfaction is the key to organisation success.
Steps of Performance Prism – Focus on who are the stakeholders and what are the needs
and wants of the stakeholders, plan the strategies required to fulfill the wants and needs of
the stakeholders, identify the processes required for satisfying the above strate gies,
identify the capabilities for operating and enhancing the process and take into account
what contribution does the management needs from its stakeholders.
Benefits of Performance Prism – Allows organisations to develop strategies, business
processes and measures geared to the specific needs of all important stakeholder groups,
enables an organisation to more directly address the risks and opportunities in its business
environment, facilitates the communication and implementation of strategy relative to each
stakeholder.
▪ Disadvantages to Non-financial Performance Measures – Multiple measures create conflict in
the short term can also be time consuming, unlike accounting measures, non-financial data
are measured in many ways, there is no common denominator.
▪ Benchmarking Schemes – Benchmarking is a technique for continuous improvement in
performance. It involves comparing a firm’s products, services or activities against other best
performing organisations, either internal or external to the firm. The obj ective is to find out how
the product, service or activity can be improved and ensure that the improvements are
implemented.

o Types of Benchmarking – Competitive Benchmarking involves the comparison of

competitors products, processes and business results with own, Strategic Benchmarking by
examining the long term strategies, Global Benchmarking through which distinction in
international culture, business processes and trade practices across companies are
bridged and their ramification for business process improvement are understood and
utilised, Process Benchmarking involves the comparison of an organisation critical
business processes and operations against best practice organisation that performs similar
work or deliver similar services, Functional Benchmarking look to benchmark with partners
drawn from different business sectors or areas of activity to find ways of improving similar
functions or work processes, Internal Benchmarking involves seeking partners from within
the same organisation, for example, from business units located in different areas, External
Benchmarking involves seeking help of outside organisations that are known to be best in
class.
In intra group benchmarking the groups of companies in the same industry agree that
similar units within the cooperating companies will pool data on their process. The
processes are benchmarked against each other at or operational level. ‘Improvement task
forces’ are established to identify and transfer best practice to all members of the group. In
inter-industry benchmarking a non-competing business with similar process is identified
and asked to participate in a benchmarking exercise.
o Goals of Benchmarking – Performance improvements and returns based on efficiency, cost
savings and new revenues, effort to shift the culture of a company to be more customer
oriented and results focused.
o Process of Benchmarking – Planning, Collection of Data and Information, Analysing the
Findings, Recommendations, Monitoring and Reviewing.
o Pre-requisites for Successful Benchmarking – Senior management support, clearly defined
objectives, appropriate scope of work, availability of sufficient resources, clarity of
organisation picture among the benchmarking teams, right skills and competencies of the
benchmarking team, reasons for benchmarking are informed to all the stakeholders.
o Difficulties in implementation of Benchmarking – Time Consuming, delegation of authority
not possible, resistance from employees, costly, non-identification of necessary
improvements may result in wastage of time and resources.
o Benchmarking Code of Conduct – Principle of Legality, Principles of Exchange, Principle of
Confidentiality, Principle of Use, Principle of First Party Contact, Principle of Third Party
Contact and Principle of Preparation.
▪ Performance Measurement in NFPs–
o Value for money is interpreted as providing an economic, efficient and effective service (3
E’s).
o Multiple and diverse objectives – NFP organisations are unlikely to have an objective of
maximisation of shareholder wealth. Instead they are seeking to satisfy the particular
needs of their members or sections of society, which they have been set up to benefit.

TEST YOUR KNOWLEDGE

Return on Investment (ROI)
1. BYD Alloy Ltd. first opened its door in 1990 for business and now it is a major supplier of
metals supporting over a dozen different industries and employs experts to support each
industry. These include Wood & Panel Products Manufacturing, Hearth Products , Site
Furnishings, Commercial and Residential Construction etc. It has grown through devotion to
its customers, dedication to customer service and commitment to quality products. The
company has two divisions: Division ‘Y’ and Division ‘D’. Each division work as an investment
centre separately. Salary of each divisional manager is `720,000 per annum with the addition
of an annual performance related bonus based on divisional return on investment (ROI). A
minimum ROI of 12% p.a. is expected to be achieved by each divisional manager. If a
manager only achieves the 12% target, he will not be rewarded a bonus. However, for every
whole 1% point above 12% which the division achieves for the year, a bonus equal to 3% of
annual salary will be paid subject to a maximum bonus of 20% of annual salary. The figures
belonging to the year ended 31 March 2019 are given below:
Division ‘Y’ (‘000) Division ‘D’ (‘000)
Revenue 29,000 17,400
Profit 5,290 3,940
Less: Head Office Cost (2,530) (1,368)
Net Profit 2,760 2,572
Non- Current Assets 19,520 29,960
Cash, Inventory, and Trade Receivable 4,960 6,520
Trade Payable 5,920 2,800
Manager Responsible HAI FAI
During the financial year 2018-19, FAI manager of Division ‘D’ invested `13.6 million in new
equipment including an advanced cutting machine, which will increase productivity by 10%
per annum. HAI, manager of Division ‘Y’, has made no investment during the year, even its
computer system needs updation. Division ‘Y’’s manager has already delayed payments of its
suppliers due to limited cash & bank balance although the cash balance at Division ‘Y’ is still
better than that of Division ‘D’.
Required
(i) For each division, COMPUTE, ROI for the year ending 31 March 2019. Justify the
figures used in your calculation.
(ii) COMPUTE bonus of each manager for the year ended 31 March 2019.
(iii) DISCUSS whether ROI provides justifiable basis for computing the bonuses of
managers and the problems arising from its use at BYD for the year ended 31 March
2019.

Economic Value Added (EVA)

2. X Greetings is a Korean company based in Seoul committed to supplying the highest quality
stationery, greeting cards, gifts, and children’s products, which are sourced from all over the
world. Company also distributes Sunday Paper – Korean made eco-friendly stationery
designed and manufactured in Seoul. X’s home currency is the KRW. It is also listed on the
KRX for last 20 years and its current share price is KRW 23.25.
You are a Management Accountant of the X Greetings and directors have asked you to study
X on value-based management which is a different approach to the performance
management. The directors have heard about this method considering it a way of focusing on
shareholder’s interests and in the present economic scenario, they think it to be useful for the
growth of X.
Conventionally earnings per share (EPS) and share price were being used to assess
performance. The proposed changes ar important and the directors require you to have the
implications of the new analysis and also want to convince the major investors for the future
benefits.
Financial data for X Greetings
Particular 2018-19 2017-18
KRW in million KRW in million
Profit after interest and tax 55.55 65.38
Interest 15.60 8.00
Opening capital employed 273.58 198.40
Closing capital employed 329.13 273.58
Debt to Equity Debt to Equity
Capital structure 40:60 40:60
% %
Costs of capital
Equity 14.20 11.50
Debt (pre-tax rate) 8.00 6.00
Tax rate 30 30
Stock market information:
Average number of shares in issue 3.2 million 3.2 million
Stock market all-share index 1,985 2,561
Retailing sector index 1,155 1,408
X Greetings (share price) KRW 22.50 KRW 24.40

Required
ASSESS the performance of X Greetings using Economic Value Added and ANALYSE the
result relative to those of earnings per share (EPS) and share price. Assumptions, if any,
should be clearly stated.
3. Water Utilities Services (WUS) is a parastatal company established with an aim for supply
and distribution of water in Mumbai as well as supply of water to the various local authorities
for distribution to villages and other small cities adjacent to Mumbai. This involved planning,
operating, treating, maintaining, and distributing water resources in the country’s urban
centres and other areas mandated by Maharashtra Government. Its mission is “To provide
sustainable water in a cost effective and environmentally friendly manner to the economy”.
The government ensures that WUS does not take advantage of its monopoly position in the
regional area by increasing prices. The government controls majority of services through its
water regulatory body which determines an acceptable margin level (ROCE) and ensures that
the pricing of WUS within these areas does not break this level. The remaining work i.e. a
water bottle operation (WBO) is not regulated by government and WUS charges a market rate
for water supply in bottle. The regulator compute return on capital employed (ROCE) of WUS
based on its own valuation of the capital assets which are used in operation and the profit
from those services.
Acceptable level of ROCE set by the regulator is 7.00%. If WUS breach this level, then the
company would be penalized. WUS board is trying to improve the performance for the benefit
of the shareholders. In order to communicate the objective of maximizing shareholders’
wealth, the directors have decided to consider economic value added (EVA) as the key
performance indicator.
Compute EVA of WUS based on the following information for the year ending 31 March 2019:
Particulars Water Distribution Water Bottle Total

Operation (WDO) Operation (WBO)
` in Crore ` in Crore ` in Crore
Revenue 555.00 186.00 741.00
Less: Operating Cost 460.00 119.00 579.00
Operating Profit 95.00 67.00 162.00
Less: Finance Charges 46.00
Profit Before Tax 116.00
Less: Tax at 30% 34.80
Profit After Tax 81.20
Capital Employed 2018-19 2017-18
` in Crore ` in Crore
Audited Accounts 1,616.20 1,495.00
Determined by the Regulator (for WDO Only) 1,558.00 1,422.00

Notes
1. Operating Costs includes:
Particular 2018-19 2017-18
` in Crore ` in Crore
Depreciation 118 114
Provision for doubtful debts 4 1
Research and Development 24 –
Other non-cash items 14 12
2. Economic depreciation is `166 Crore in 2018-19. In FY 2017-18, economic and
accounting depreciation were assumed to be the same.
3. Current year tax paid is (`18crore) and deferred tax provisions of `1.50 crore has been
adjusted. There was no deferred tax balance before 2018-19. The provision for doubtful
debts was `9 crore in the 2018-19 balance sheet.
4. Research and development has been non-capitalized. It belongs to a new project that
will be developed over five years and is expected to be of long-term benefit to the
company. 2018-19 is the first year of this project.
5. Cost of Capital
Equity 14%
Debt (Pre-Tax) 6%
6. Gearing of WUS
Equity 45%
Debt 55%
Required
(i) EVALUATE the financial performance of WUS using EVA.
(ii) ASSESS whether WUS comply with its acceptable ROCE level
(iii) Advise on how to improve profitability.
4. Beta Control (BC) is a global leader in manufacturing of commercial building control systems
with over 250 distributors and many thousands of installations in more than 50 countries.
Control systems involve air conditioning systems, facility management, energy and water
management, access control and security controls etc. At BC, manufacturing is done at a
number of factory sites where some products are easy and largely produced and have a long
life while other products are intricated and have a short life due to changing technologies.
BC’s mission statement is ‘to keep you ahead through control systems that improve
productivity and save energy’.

A Newly appointed chief executive officer (CEO) is anxious about declining share price of BC
in the last two years. She identified that the business has grown through acquisition and
senior management have focused on making corporate deals but not on making control
systems. She announced that the BC’s focus must be on optimization and upgradation of its
value generation rather than just getting bigger through acquisitions.
Assuming yourself as a performance management expert of BC, the CEO has asked you to
aid her in her improvement programme. Firstly, she wants your views on the use of EVA as
the key performance metric at BC. You are given the current EVA computation (Annexure1)
but there is some suspicion about whether the assistant who has done this work is sufficiently
well trained about this method. So, she requires you to examine his accuracy and the
assumptions forming part of the calculation.
Required
Write a report to the chief executive officer to EVALUATE the accuracy of the EVA calculation
and the assumptions.
------------------------------------------------------------------------------------------------- -------------------------
Annexure 1
NOPAT
Particulars Year ended 31 st March 2019
` in Lacs (L) Notes
Operating Profit 1,102.80
Add:
Non-Cash Expenses 30.20
Marketing Expenditure Capitalised 46.20 7
Less:
Tax 269.60 9
Lost Tax Relief on Interest 48.96
Net Operating Profit After Tax (NOPAT) 860.64
Capital Employed
` in Lacs (L) Notes
From the Statement of Financial Position 4,802.00 10
Add:
Marketing Expenditure Capitalized 46.20 7
Adjusted Capital Employed 4,848.20

WACC = (1/2 × 15%) + (1/2 × 7·8%)

= 11.40%
EVA = NOPAT – (WACC × Capital Employed)
= `860.64 L – `4,848.20 L × 11.40%
= `860.64 L – `552.69 L
= `307.95 L
Assumptions and Notes
1. Debt/Equity 1:1
2. Cost of Equity is 15.00%
3. Cost of Debt (pre-tax) is 7.80%
4. Tax Rate is 30.00%
5. Interest charged in the period was `163.20 L.
6. In current fiscal year, BC spend `80.00 L in Training and Development by leveraging the
latest digital technologies including virtual classrooms to deliver highly relevant training
to staff at the point of need.
7. Marketing Expenditure has been `46.20 L each year for the last two years to build the
long- term brand.
8. The total R & D spending was `20 L during this year for in- depth study of the TCP/IP
protocols. The TCP/IP based products have not been launched yet.
9. BC has paid Tax of `260 L while the tax charged per the accounts was `269.60 L.
10. Capital employed during the Period (from the statement of financial position):
Opening 4,564.00 L
Closing 4,802.00 L
Balanced Scorecard
5. Your Bank Ltd., was established on the 30 th September, 1940 under the provisions of Co-
operative Societies Act by the eminent professionals to encourage self-help, thrift,
cooperation among members. Bank was issued Banking License under Banking Regulation
Act, 1949 on October 25, 1986 to carry out the Banking Business within the national capital
and since then the Bank has been growing continuously. At present, Bank has large number
of membership of individuals from different sections. The Bank has 12 branches in the NCT of
Delhi. Bank offers ‘traditional counter service’. Opening hours are designed to coincide with
local market days.
Board of Directors were worried from growing popularity of new style banks. These banks
offer diverse range of services such as direct access to executive management, a single point

of contact to coordinate all banking needs, appointment banking to save time, free online
banking services 24/7, free unlimited ATM access etc.
It has now been decided that the bank will focus on “What Customers Want” and will use a
balanced scorecard to achieve this goal.
Required
PRODUCE, for each of the three non-financial perspectives of a ‘Balanced Scorecard’, an
objective and a performance measure that the bank could use with appropriate reason.
6. Standard Telecom Ltd. is a leading cellular service provider having a global presence. It aims
to be the most innovative and trusted telecom company in the world. To achieve this aim, it is
constantly working on its overall functioning. It is trying to adopt best managements practices
in the world. Following are some information related to the company’s performance for a
particular period:
Particulars Current Base Target
Year Year
Operating Ratio 60% 54% Reduce it to 50%
Average Revenue per user `225 `210 Increase it to `250
Unresolved Consumer Complaints 27,500 25,000 Reduce it by 20%
Customer Relationship Centres 280 200 Take the total to 250
Employee Coverage under Training 10% 8% At least 15%
Programme
Required
ANALYSE the performance of the company using Balance Scorecard approach.
7. Healthcare hospital provides medical care to patients to all strata of the society at nominal
cost. Hospital has been operating for the last 15 years. It gets grant from the government that
helps it sustain its operations. Each year an annual report is submitted to the officials in the
health ministry that is in charge of giving out grants to hospitals. Each year over the last 15
years, grants given to the hospital has been increasing. This increment was found necessary
to meet the increase in operational costs due to inflation. While operations have been
moderately successful in the recent years, the grants committee is of the opinion that the
hospital can manage its funds better.
To benchmark performance, performance of Healthcare hospital is being compared with the
performance of another government funded hospital within the same city, Lifeline hospital.
Both hospitals have similar scale of operations and get the same amount of gr ant. Given
below are some of the parameters that are tracked at both hospitals:

Healthcare Lifeline
Operational Parameters Hospital Hospital
Budget Actual Actual
Total inpatients 1,10,000 96,000 1,00,000
Delay in admission due to unavailability of beds
Number of inpatients waiting for more 1,100 2,880 500
than 1 week
Number of inpatients waiting for more - 960 -
than 2 weeks
Total outpatients 90,000 95,000 93,000
Delay in appointment due to unavailability of
medical staff
Number of outpatients waiting for more 900 1,900 465
than 1 week
Number of outpatients waiting for more - 475 -
than 2 weeks
Number of emergency admissions 400 600 500
Delay in providing medical care to emergency - 5 -
admissions
Number of medical staff shortages 3 5 1

(positions not filled for more than one month)
Cancelled or delayed operations (due to non-clinical 5 20 6
reasons)
Number of complaints received related to medical 500 1,350 600
care
Number of complaints resolved within 15 days 500 1,080 550
Number of deaths post operation (all inpatients) 4,400 2,880 2,000
Number of medical negligence case that the 2 5 -
hospital lost
Number of errors in prescription of drugs 15 45 10
Number of infection outbreaks within the hospital - 2 -
Bed occupancy rate 90% 85% 94%
Average patient stay (days) 4 6 5

Operating theatre utilization rate 95% 90% 95%

Revenue including government grant (in crores) 15 13 16
Operating expenses (in crores) 12 12 12
ROI 8% 5% 9%
Staff Training sessions (hours) 500 500 600
Research publications 5 3 6
- Both hospitals have 50 wards with 10 beds in each ward.

- Each hospital has 50 doctors from various specialties and 75 nurses.
- Both hospitals were open all days of the year.
Required
(i) The grants committee wants to ANALYZE performance of both hospitals with respect to:
- Access to services
- Clinical performance
- Efficiency of operations
- Financial management
- Innovations
(ii) While preparing the balanced scorecard, how will you CATEGORIZE the above
performance measures?
Fitzgerald and Moon Model
8. Learning Horizons is an educational institute that conducts courses for students in
accounting, law and economics. The institute is partially funded by the government. The
institute aims to provide quality education to students of all backgrounds. The institute admits
students who can fund their education privately as well as those who get sponsorship f rom
the government. Knowledgebase is another educational institute in the same city providing
courses similar to Learning Horizons. It is entirely private funded college where students
arrange to pay for their own fees. It can be taken as a peer institution for comparison
purposes.
Information about their operations for the year ended March 31, 201 9 are as follows:
(1) Both Learning Horizons and Knowledgebase offer their courses that last the entire
year. All of them are regular classroom lectures conducted through the week.
(2) Budget and actual fee rate structure for the year are the same. Information about the
fees for each course are as follows:

Budget and Actual Fees in `
Learning Horizons Knowledgebase

Privately Government
Course Type Funded Funded Privately Funded
Accounting 1,20,000 75,000 1,00,000
Law 1,20,000 90,000 1,50,000
Economics 80,000 60,000 1,00,000
(3) Salary details for lecturers and administrative staff are as follows:
Salaries in `

Staff Type Budget Actuals Actuals
Lecturers 5,00,000 5,50,000 6,00,000
Administrative staff 3,00,000 3,00,000 4,00,000
(4) Budgeted costs for the year based on 8,500 students per annum for Learning Horizons
are as below:
Costs Amount ` Variable Cost % Fixed Cost %

Tuition Material 40,00,00,000 100% ---
Catering 10,00,00,000 75% 25%
Cleaning 1,00,00,000 25% 75%
Other operating costs* 5,00,00,000 25% 75%
Depreciation 1,00,00,000 --- 100%
* includes cost of freelance staff
(5) Actual costs (other than salary costs) incurred during the year:
Costs Learning Horizon Knowledgebase

Tuition Material 42,00,00,000 40,00,00,000
Catering 10,00,00,000 13,00,00,000
Cleaning 1,00,00,000 1,50,00,000
Other Operating Costs* 6,00,00,000 5,00,00,000
Depreciation 1,00,00,000 1,50,00,000
* includes cost of freelance staff

(6) Keeping in line with latest technological developments, the management of

Knowledgebase is introducing on-line tuition support by its lecturing staff. Learning
Horizons on the other hand offers distance learning course. A general feedback from
prospective students has revealed that some students would like weekend courses since
during the week they focus on their regular jobs. Also, some students have requested for
intermediate qualification, in the event that they discontinue the course halfway due to
inability to complete the course or for other personal reasons.
(7) Both Learning Horizon and Knowledgebase have a policy to have a lecture staff of 50
throughout the year. When there is a shortfall in teaching staff available, instead of
recruiting a fulltime lecturer, Knowledgebase substitutes the requirement with freelance
staff for lectures. The cost of freelance staff is much lower than regular staff.
(8) Appendix with further details:
Sundry Statistics
For the year ended 31st March 2019
Particulars Budget Actuals Actuals
Number of students:
Accounting 4,000 3,800 4,100
Law 2,500 2,550 2,500
Economics 2,000 1,500 1,200
Total students 8,500 7,850 7,800
Student mix (%) for each course:
Privately funded 80% 70% 100%
Government funded 20% 30% 0%
Number of enquiries received:
Accounting 4,500 4,500 4,600
Law 2,800 2,700 3,050
Economics 2,200 1,600 1,225
Total enquiries 9,500 8,800 8,875
Number of lecturers employed during the
year 50 50 50
Number of lecturers recruited during the
year:
Accounting 2 4 1

Law 1 3 -
Economics 1 3 -
Total recruitment 4 10 1
Number of administrative staff 12 12 9
Pass Rate:
Accounting 95% 99% 93%
Law 95% 98% 90%
Economics 95% 95% 95%
Overall Pass rates for the courses 95% 97% 93%
Days in a year when freelance lecturers
were used - - 30
Number of new courses under
development - - 6
You are the management accountant of Learning Horizons. The results for the year are
to be reviewed next week by the management. To assess performance, you want to
prepare the report as per the Fitzgerald and Moon model.
Required
(i) Using the “Results” dimension of performance as per the Fitzgerald Moon model
prepare a variance ANALYSIS of Learning Horizons actual and budgeted financial
performance. Also, based on the information given in the problem, collate the
actual financial figures for Knowledgebase, use it as a basis to prepare ANALYSIS
of competitiveness of Learning Horizons and Knowledgebase.
(ii) Using the “Determinants” dimension of performance as per the Fitzgerald Moon
model EXPLAIN
(a) Quality of service
(b) Flexibility
(c) Resource utilization
(d) Innovation
(iii) Course fees set by the government for various subjects cannot be increased
beyond an average of `75,000 per student. If the costs are maintained within this
budget, the government can provide more sponsorship or grants in future. ADVISE
a method that the management of Learning Horizons can use to resolve this.


9. Caregiver Ltd. is a multi-specialty hospital in a mid-sized town. A 300+ bedded facility offers
treatment across all medical disciplines of Cardiac, Oncology (Medical, Surgical and
Radiotherapy), Neurosciences, Urology, Nephrology, Kidney Transplant, Aesthetics and
Reconstructive Surgery, and other ancillary services. Most of the community members have
their livelihood linked with the hospital. Many of them are directly employed at the hospital as
doctors, nursing staff, lab technicians or as other support staff. While, others are indirectly
related as suppliers of medical devices or drugs to the hospital, catering or housekeeping
contractors etc. for the hospital. Hence, existence of the hospital is vital to the community.
Growing awareness about sustainable business prompted the management to identify areas
that can help the hospital operate in a sustainable manner that would be mutually beneficial
to the organization as well as the town that depends on it. Therefore, it has identified the
initiatives that have been put in place to create a sustainable business. Information captured
from various departments are being considered to prepare the Triple Bottom Line (TBL)
report that is for the consumption both to internal and external stakeholders.
Required
IDENTIFY, which of the following aspects need to be reported in the TBL report and under
which of the three categories. Provide reasons for classifying the aspect under a specific
category, if applicable.
(i) Medical staff conduct charity camps every month. Open to all members of the
community, who are provided with consultation free of charge.
(ii) Prompt and accurate tax payments based on records maintained without errors or fraud.
(iii) Caregiver, with the help of traffic police, has implemented a "green corridor" for
ambulances that carry donor organs for transplantation. Organs harvested from the
donor at one hospital can reach another hospital with the recipient patient at the earliest.
(iv) Medical waste is discarded at a landfill in a nearby dumpsite. Some of the waste are not
bio-degradable.
(v) During review of the supplier for housekeeping service, it was observed that the service
provider resorted to child labor to keep cost of operations lower.
(vi) Training and professional development programs doctors and nurses.
(vii) Lab reports are being made available online within the hospital computer system. This
would reduce printing costs and storage space needed to maintain older records.
(viii) Caregiver has a good track record of having no medical negligence litigation cases filed
against it.
(ix) The hospital is planning to market medical check-up packages so that facilities in its out-
patient department can be utilized better.
(x) The number of inpatient hospital deaths decreased 8%, from 776 in 2017 to 715 in 2018.
Assume all aspects are material enough to be reported in the TBL report.

Benchmarking
10. PHL, South Asia's premier express air and integrated transportation & distribution firm, offers
a wide range of innovative supply chain services including Express Distribution, 3PL and
Consulting. PHL offers innovative logistics solutions to its customers, enabling them to focus
on their core competencies. The firm adds maximum value to businesses at every level, right
from providing world-class warehousing support to ensuring time-definite deliveries of goods
anywhere in Country ‘X’. The following information is available:
(1) Each warehouse of PHL is solely responsible for all customers within a specified area. It
collects couriers from customers residing within ambit of its own area for delivery both
within the specific area covered by the warehouse and elsewhere in India.
(2) After collections of couriers, a warehouse forward them for delivery outside its own area
to the warehouses from which the deliveries are to be made to the customers.
(3) Therefore, each warehouse must integrate its deliveries to customers to include:
(i) couriers that it has collected within its own area; and
(ii) couriers that are transferred to it from other warehouses for delivery to customers
in its area.
(4) Each warehouse’s revenue is based on the invoice value of all couriers collected from
customers in its area, irrespective of the location of the ultimate distribution warehouse.
(5) Each warehouse costs consist its own operating costs plus some allocated proportion
including centralised administration services (i.e. salary, legal & professional fees etc.)
and distribution centre costs.
(6) The management team and all employees of each warehouse are paid incentives which
remains payable quarterly. The bonus is based on the achievement of a series of target
values by each warehouse.
(7) Internal benchmarking is used at PHL as to provide sets of absolute standards that all
warehouses are expected to achieve.
(8) The Annexure exhibit the target values and the actual values achieved for each of a
sample group of four warehouses situated in City SG, City HK, City NY, and City NZ.
The target values consist of:
(i) Warehouse revenue and profitability;
(ii) Courier delivery services and customer care; and
(iii) Credit period control and administrative efficiency.
Incentives are based on a points system. It is also used as a stimulus for each
warehouse improving the operational effectiveness. One point is awarded in case where
the target value for each item in the Annexure is either achieved/ exceeded, and a zero
point where the target is not achieved.

Annexure
Revenue and Profitability
Revenue Profit
Target Actual Target Actual
Particulars `million `million `million `million
Company Overall 300 360 45 48
Warehouse
City SG 24.00 22.50 3.60 3.45
City HK 21.00 27.00 3.15 3.60
City NY 18.00 21.00 2.70 3.30
City NZ 27.00 33.00 4.05 4.20
In order to calculate points of each warehouse, actual profit as a % of actual revenue
must exceed the target profit as a % of target revenue.
Courier Delivery Services and Customer Care
Actual
Particulars Target %
SG % HK % NY % NZ %
Measure (% of total):
Late collection of couriers 3.00 2.85 3.15 2.70 3.60
Misdirected couriers 6.00 6.30 5.85 4.95 7.65
Delayed response to complaints 1.50 1.05 1.35 1.20 1.80
Delays due to vehicle breakdown 1.50 1.65 2.10 0.45 3.00
Measure (% of revenue):
Lost items 1.50 0.90 1.35 1.20 2.85
Damaged items 3.00 2.25 3.60 2.25 2.70
Credit Control and Administration Efficiency
Actual
Particulars Target %
SG % HK % NY % NZ %
Average debtor weeks 5.50 5.80 4.90 5.10 6.20
Debtors more than 60 days (% of 5.00 ? ? ? ?
total)
Invoice queries (% of total) 5.00 1.50 1.40 0.80 2.70
Credit notes as a % of revenue 0.50 ? ? ? ?

Other Information
(‘000)
Particulars SG HK NY NZ
Debtor Aging Analysis (extract)
Less than 30 days 1,950.00 2,250.00 1,770.00 3,000.00
31–60 days 481.50 199.50 229.50 828.00
Value of Credit Notes raised during the
period 67.50 54.00 42.00 198.00
Note: PHL operates all year round.
Required
Prepare a report for the directors of PHL.
(i) ANALYSE the comparative performance of the four warehouses.
(ii) ASSESSE PHL from perspective of financial performance, service quality, resource
utilisation, flexibility, innovation, and competitiveness; and
(iii) EVALUATE the performance measurement system at PHL.
Performance Measurement in the Not-for-Profit Sector
11. West Coast community operates Homelessness Services (HS) on a not-for-profit basis as a
local solution to local housing needs. The primary objective is to meet the accommodation
needs of persons within its locality targeting those living in the low/middle income groups and
senior citizens. Accommodation is basically furnished; it consists of a small house, with
kitchen, bathroom, bedroom/(s), and a sitting room. HS manages 450 such houses across
various localities. Exclusive Services (ES) is a profit-seeking organisation which provides
rented accommodation to the public. ES manages 200 such houses across localities similar
to HS’ operations.
Income and Expenditure accounts for the year ended 31 st March 2019 were as follows:
HS (`) ES (`)
Rent Received 1,02,98,600 1,09,98,000
Less:
Employee Costs 24,00,000 38,00,000
Planned Maintenance and Substantial Repairs 34,19,500 10,41,000
Running Repairs 23,91,600 6,38,000
Miscellaneous Operating Costs 15,27,500 11,75,000
Insurance, Property Taxes, and Interest etc. 13,15,500 18,75,000
Operating (Deficit)/ Surplus (7,55,500) 24,69,000

Operating Information in respect of the year ended 31 st March 2019 was as follows:
House and rental information:
Size of House Number of Houses Rent per Week (`)
HS ES HS ES
1 Bedroom + 40 20 400 750
2 Bedrooms + 80 40 450 800
3 Bedrooms + 250 140 500 1,175
4 Bedrooms + 80 Nil 700 N.A.
HS had certain houses that were unoccupied during part of the year. The rents lost as a
consequence of unoccupied properties amounted to `18,17,400. ES did not have any
unoccupied houses at any time during the year.
Employees were paid as follows:
Number of Staff Salary per Staff Member (`) per annum
HS ES HS ES
1 2 3,00,000 5,00,000
2 2 2,50,000 3,00,000
4 11 2,00,000 2,00,000
8 - 1,00,000 -
Planned maintenance and substantial repairs undertaken:
Nature of Work Number of Houses Cost per House (`)
HS ES HS ES
Miscellaneous Building Work 10 - 12,500 -
Sanitary Fittings (Kitchen + Bathroom) 45 5 26,100 52,200
[all are the same size]
AC Upgrades/ Replacements 8 - 15,000 -
Replacement of Wooden Structure for 50 13 40,000 60,000
3-Bedroomed Houses
Running Repairs Information:
Classification of Number of Repair Undertaken Total Cost (`)
Repair HS ES HS
Emergency 480 160 6,72,000
Urgent 990 376 11,28,000
Non-urgent 560 102 5,91,600

Each repair undertaken by ES costs the same irrespective of the classification of repair.
Required
(i) Critically EVALUATE how the management of Homelessness Services could measure
the ‘Value for Money’ of its service provision during the year ended 31 March 201 9.
(ii) IDENTIFY, 2 performance measures in relation to Flexibility and Service Quality
(dimensions of performance measurement).
(iii) ANALYSE, 3 performance measures relating to ‘Cost and Efficiency’ that could be
utilised by the management of Homelessness Services when comparing its operating
performance against that achieved by Exclusive Services.
ANSWERS/ SOLUTIONS
1. (i) ROI
Division ‘Y’
Controllable Profit = `5,290K
Net Assets = `19,520k + `4,960K – `5,920K = `18,560K
ROI = 28.5%
Division ‘D’
Controllable profit = `3,940K
Net Assets = `29,960K + `6,520K – `2,800K = `33,680K
ROI = 11.7%
In computation of ROI of both division, controllable profit has been taken into
consideration. The reason behind this is that the Head Office costs are not controllable
and responsibility accounting considers that managers should only be held responsible
for costs over which they have control. The assets figures being used also depend on
the same principal. Figures of current assets and the current liabilities have been taken
into consideration as they are such items over which managers have complete control.
(ii) Bonus
Bonus to be paid for each percentage point = `7,20,000 × 3% = `21,600
Maximum Bonus = `7,20,000 × 20% = `1,44,000
Division ‘Y’
ROI = 28.5% (16 whole percentage points above minimum ROI)
16 × `21,600 = `3,45,600
Therefore, manager will be paid the bonus of `1,44,000 (max.)

Division ‘D’
ROI = 11.7% (Zero, percentage point above minimum)
Therefore Bonus = NIL
(iii) Discussion
FAI will not receive any bonus since he has not earned any point above minimum
percentage. This is due to the large asset base on which the ROI figure has been
computed. Total assets of Division ‘D’ are almost double the total assets of Division ‘Y’.
The major reason behind this is that Division ‘D’ invested `13.6 million in new equipment
during the year. If this investment were not made, net assets would have been only
`20.08 million and the ROI for Division ‘D’ would have been 19.62% resulting in
payment of a bonus `1,44,000 (7 × `21, 600 = `1,51,200; subject to maximum of
`1,44,000) rather than the nothing. FAI is being penalized for making decisions which
are in the best interests of his division. It is very surprising that he decided to invest
where he knew that he would receive lesser bonus subsequently. He acted in the best
interests of the BYD altogether. On the other hand, HAI has taken benefit from the fact
that he has not invested anything even though it was needed for computer system
updation. This is an example of sub-optimal decision making.
Further, Division ‘Y’’s trade payables are over double those of Division ‘D’. In part, one
would expect this due to higher sales (almost 66% more than Division ‘D’) and low cash
levels at Division ‘Y’. Higher trade payable leads to reduction in net assets figures. The
fact that BYD is rewarding HAI with bonus, even though relationships with suppliers may
be badly affected, is again a case of sub-optimal decision making.
If the profit margin (excluding head office cost) as percentage of sales is calculated, it
comes to 18.24% for Division ‘Y’ and 22.64% for Division ‘D’. Therefore it can be seen
that Division ‘D’ is performing better if capital employed is ignored. ROI is simply making
the division ‘D’’s performance worse.
FAI might feel extremely disappointed by getting nothing and in the future, he may opt to
postpone the investment to increase the bonus. Non- investing in new technology and
equipment will mean that the BYD will not be kept updated with industry changes and its
overall future competitiveness will be affected.
Briefly, the use of ROI is resulting in sub-optimal decision making and a lack of goal
congruence i.e. what is good for the managers is not good for the company and vice
versa. Fortunately, Division ‘D’’s manager still seems to be acting for the benefit of the
BYD but the other manager is not. The fact that one manager is receiving a much bigger
bonus than the other is not justifiable here and may result in conflict in long run. This i s
disappointing for the company especially in the situation when the divisions need to work
in unison.
2. The performance of X Greetings has gone down since earnings per share is down by 15.03%
(W2) from last year. This indicates the company being not in the favor of investors. However,

the share price seems up with a decline of only 7.79% relative to fall in retailing sector of
17.97% and the stock market down by 22.49% (W3). The sector comparison is more material
for the performance of X as stock market all-share index (KOSPI) is composed of data from
financial, manufacturing and other industries whereas retailing sector comparison is specific.
This implies that the market views X as one of the better prospects within the retailing sector
that will encourage the shareholders to continue to hold their shares in the company .
In addition, X Greetings has generated positive EVA for 2018-19 KRW 37.03 m (W1). EVA
of FY 2018-19 has fallen from 2017-18 but still it is remained positive and so the company
continues to create value for its shareholders even in the bearish market. It is therefore a
good investment option even in a falling market.
Working Note-1
EVA calculations for the periods given are:
2018-19 2017-18
Particulars KRW in million KRW in million
Profit after interest and tax 55.55 65.38
Add Back: Interest (net of tax at 30%) 10.92 5.60
Net operating profit after tax (NOPAT) 66.47 70.98
Opening Capital employed 273.58 198.40
Assumptions
– There are no non-cash expenses to adjust the profit.
– Economic depreciation and Accounting depreciation are equal.
– No lease exists for capitalisation.
Cost of Capital
WACC 2018-19 = 0.60 × 14.20% + 0.40 × 5.60%
= 10.76%
WACC 2017-18 = 0.60 × 11.50% + 0.40 × 4.20%
= 8.58%
EVA = NOPAT – Capital Employed × WACC
EVA 2018-19 = 66.47 m – 273.58 m × 10.76%
= KRW 37.03 m
EVA 2017-18 = 70.98 m – 198.40 m × 8.58%
= KRW 53.96 m

Working Note-2
Particulars 2018-19 2017-18 Change
EPS KRW 17.36 KRW 20.43 -15.03%
Working Note-3
Particulars 2018-19 2017-18 Change
KOSPI (capitalization-weighted
index of all common shares) 1,985 2,561 -22.49%
Retailing sector index 1,155 1,408 -17.97%
X share price KRW 22.50 KRW 24.40 -7.79%
3. (i) Computation of NOPAT
Particulars ` in Crore
Operating Profit 162.00
Add:
Non-Cash Items 14.00
Accounting Depreciation 118.00
Doubtful Debts 4.00
Research and Development 24.00
Less:
Economic Depreciation 166.00
Tax Paid 18.00
Tax Saving on Interest (`46 × 30%) 13.80
NOPAT 124.20
Computation of Capital Employed
Particulars ` in Crore
Capital Employed as on 31.03.2018 1,495.00
Add:
Provision for Doubtful Debt as on 31.03.2018 5.00
Other Non-Cash Items (incurred in 2017-18) 12.00
Adjusted Opening Capital Employed 1,512.00
WACC = 0.45 × 14% + 0.55 × 6% × (1 – 30%)) = 8.61%
EVA = NOPAT – (WACC × Capital Employed) = – 5.98 Crores

Evaluation
Presently, WUS is distorting value as it is not able to meet the economic cost of its own
capital. This put the company into the question of perpetual succession and lead the
company against shareholder’s interest. The reason could be a higher cost of equity for
WUS. The investing risk should be low since 75% of the services that the company
renders are important for the economy and demand is guaranteed in future. Optionally,
WUS needs to either increase its NOPAT enough for break even on economic value
added or slash its capital employed by selling unutilized or under-utilized assets.
(ii) Regulatory ROCE: Target 7.00%
 OperatingProfit 
ROCE =   ×100.00%
 Capital Employed 
 95 
=   100%
 1,422 
= 6.68%
The ROCE is within the acceptable ROCE of 7.00%.
(iii) Operating Margins
Water Distribution Operation = 17.12%
Water Bottle Operation = 36.02%
Advise
Operating margin from WBO is 36.02% compared to 17.12% (WDO). WUS may use the
WDO activities as a trusted source of cash profit to reinvest in expansion of the WBO.
Expansion through acquisition of appropriate non-regulated businesses using the cash
generated by the regulated activities might be a good decision.
Further, WUS may improve profitability by controlling costs within WDO activities
through performance measurement. The regulatory body cannot argue that the company
is overcharging its customers to increase profit margin. This is possible through strict
observance of expenses and using cost savings techniques through efficiency
improvements. In order to control cost within WDO, targets should be based on minimal
variances and adopting cost cutting methods.
Overall, In WDO, there is only a limited scope for increase in the operating profit since
the maximum operating profit allowed is `99.54 crore i.e. 7.00% of `1,422 crore of
capital employed. Thus, WUS should go to expand its WBO as this is producing higher
operating profit margins.

4. Report
To: CEO, Beta Control
From: Performance Management Expert
Date: 31st May 2019
Subject: Evaluation of EVA at Beta Control
EVA provides a link between decisions, performance measures and rewards, which focuses
managers on performing better. Incentive schemes based on EVA provide better quality
information and motivation in making decision which in turn maximise shareholder’s wealth. In
other words, EVA links the operating returns to the assets that were used to generate those
returns. The learning which flows from EVA analyses can be perceptive and can allow the
manager not only to identify areas of weakness in performance but also to easily find
solutions. BC is a multiproduct company having number of factory sites. EVA can help to
appraise divisional contributors to, or detractors from, overall profitability. Thus, managers
may be educated through EVA and pursue such objectives that improve operating profits
investing more capital.
In addition, this report deals with evaluation of the accuracy and assumptions used in the
calculation of BC’s EVA. There are many errors in the present calculation of EVA. These
have been discussed below and revised calculations are enclosed.
▪ Non-Cash Expenses have been correctly added back to the profit as these are
expenses which do not affect the cash flow of a given period.
▪ Addition back of Marketing Expenditure is also correct as spending contributes to future
value-creation. For the same reason, the prior year spending is also added in to capital
employed.
▪ Training and Development Expenses should be capitalised. Training and Development
Expenses have been treated as an expense in the income statement, they should be
added back to profit, and added to capital employed (at the end of the year).
▪ Research and Development (R & D) Expenses should be treated as marketing
expenditure for long period.
▪ The tax expenses in the EVA calculation should be the tax paid with adjustment for lost
tax relief on interest and not the adjusted amount of tax charged in the accounts.
▪ The WACC is incorrect because it should be based on post-tax cost of debt.
▪ Generally, a company takes, at least, a year’s time to earn a return on investment. Thus,
the capital employed figure should be based on the beginning numbers.

NOPAT
` in Lacs
Operating Profit 1,102.80
Add:
Non-Cash Expenses 30.20
Marketing Expenditure Capitalised 46.20
Training & Development Expenses 80.00
R & D Expenses 20.00
Less:
Tax 260.00
Lost Tax Relief on Interest 48.96
Net Operating Profit After Tax (NOPAT) 970.24
Capital Employed
Particulars ` in Lacs
From the Statement of Financial Position (Starting) 4,564.00
Marketing Expenditure Capitalized 46.20
Adjusted Capital Employed 4,610.20
WACC = (1/2 × 15%) + (1/2 × 7·8% × 70%)

= 10.23%
EVA = NOPAT – (WACC × Capital Employed)
= `970.24 L – `4,610.20 L × 10.23%
= `498.62 L
The recomputed EVA has increased from `307.95 Lacs to `498.62 Lacs which shows a
positive position for BC as it adds up the shareholder’s wealth.

For calculating NOPAT, following most common adjustments to accounting profit as
remarked by the Stern Stewart has been considered.
▪ For Advertising, Research and Development Items expensed, Staff Training
- Impact on Profit: Increase CY’s profit, deduct economic depreciation on PY’s EVA
adjustment.

- Impact on Capital Employed: Increase capital employed at the end of the year,
increase capital employed in respect of similar add backs of PY’s investments not
treated as such in financial statements (net of economic depreciation).
▪ For Depreciation
- Impact on Profit: Add accounting depreciation and subtract economic depreciation.
- Impact on Capital Employed: Alter value of non-current assets (and capital
employed) to reflect economic depreciation not accounting depreciation.
▪ For Non- Cash Expenses
- Impact on Profit: Add back to profit.
- Impact on Capital Employed: Add to retained profits at the end of the year.
▪ For tax charge, this will be based on ‘cash taxes’ rather than the accruals based
methods used in financial reporting.
Further, the revised calculation of EVA is largely based on the following assumptions:
▪ There is an implicit assumption that accounting depreciation (included in operating
profit) is equivalent to economic depreciation (which should be used for EVA
calculations). This assumption is doubtful, although there is no information for more
accurate calculation.
▪ For Additional Marketing Expenditure, no estimation of economic life (expected period
during which an asset remains useful) in building the brand and corresponding
economic depreciation has been considered in the above calculation.
▪ No amortisation on the R & D Costs is required to be recognised as the product has not
been introduced yet. This is in line with the accounting treatment of such items. There
was no Research & Development expenditure in the previous year.
5. Internal Business Process Perspective

Objective: Cross-sell Products
Measure: Products Purchased per customer
Reason: Cross-selling, or encouragement customers to purchase additional products e.g.
insurance, forex etc. is a measure of customer satisfaction. Only if a service is perceived as
highly satisfactory the service would be repeated/ additional products or services would be
accepted.
Learning and Growth Perspective
Objective: Increase the Number of New Products or Services Sold
Measure: Number of Customers Buying the New Products/ New Services
Reason: Long term financial success requires bank to create new products / services (e.g.
internet banking, ATM access) that will meet emerging needs of current / future customers
such as 24/7 banking.
Customer Perspective
Objective: Increase Customer Loyalty

Measure: Number of Accounts Closed or Closure Request Received

Reason: Customer loyalty describes the extent to which bank maintains durable relations to
its customers. The share of existing customers should have a high importance as it indicates
about image and reputation. Closure request is not a good sign for bank. Bank should
investigate reasons for the same and take appropriate actions to improve services offered to
retain customers.

Other Objectives and Measures are also possible but they must relate to the bank’s Goal.
6. The balanced scorecard is a method which displays organisation’s performance into four
dimensions namely financial, customer, internal and innovation. The four dimensions
acknowledge the interest of shareholders, customers and employees taking into account of
both long-term and short-term goals. The detailed analysis of performance of the company
using Balance Scorecard approach as follows:
(i) Financial Perspective: Operating ratio and average revenue will be covered in this
prospective.
Company is unable to achieve its target of reducing operating ratio to 50% instead it
has increased to 60%. Company is required to take appropriate steps to control and
manage its operating expenses. Average revenue per user has increased from `210 to
`225 but remains short of targeted `250. This is also one of the reasons of swelled
operating ratio. Company can boost up its average revenue per user either by
increasing the price of its services or by providing more paid value added services.
(ii) Customer Perspective: Service complaints will be covered under this perspective.
The company had set a target of reducing unresolved complaints by 20% instead
unresolved complaints have risen by 10% [(27,500-25,000)/ (25,000) × 100]. It shows
dissatisfaction is increasing among the consumers which would adversely impact the
consumer’s general perception about the company and company may lose its
consumers in long run.
(iii) Internal Business Perspective: Establishing customer relationship centres will be
covered under this perspective. Company has established 80 relationship centres in
the current period exceeding its target of 50 (250-200) to cater to the needs of existing
consumers as well as soliciting new consumers. This shows the seriousness of the
company towards the consumer satisfaction and would help them in the long run.
(iv) Learning and Growth Perspective: Employee training programmes are covered
under this perspective.
Company had set a target to cover at least 15% employee under its training
programmes but covered only 10%. This could hurt capabilities of the employees
which are needed for long term growth of the organisation necessary to achieve the

objectives set in the previous three perspectives. People or the human resource of the
company is one of the three principle sources where organisational learning and
growth comes.
7. (i) Analysis of Performance with respect to:
Access to Services
Access to services is an indicator of whether patients are able to get medical care when
they need it. Better access to medical service will improve chances of recovery for the
patients. Given the information in the problem, this can be assessed using the following
parameters:
(a) Delay in admission to inpatients due to unavailability of beds.
(b) Delay in appointments to outpatients due to unavailability of medical staff.
(c) Delay in providing medical care for emergency admission.
(d) Number of medical staff shortages.
(e) Cancelled or delayed operations.
The hospital should aim at reducing the delay and shortages in order to provide patients
with better access to medical services.
(a) Delay in admission to inpatients due to unavailability of beds:
As per the hospitals’ policy, patients who need admission have to be
accommodated within 1 week to get access to services. Any delay beyond this
period is tracked by their information system. For delays, due to unavailability of
beds, the hospitals are tracking two time lags, delay by more than a week and
delay by more than 2 weeks. Unavailability of beds shows that there are constraints
in the capacity of patients to whom the hospital can provide service.
Healthcare Lifeline
Total inpatients 1,10,000 96,000 1,00,000
Delay in admission due to unavailability of
beds
Number of inpatients waiting for more than 1
week 1,100 2,880 500
Number of inpatients waiting for more than 2
weeks - 960 -
Percentage of inpatients denied access to
service
by more than 1 week 1.00% 3.00% 0.50%
by more than 2 weeks 0.00% 1.00% 0.00%

As can be seen, Healthcare hospital has a target to provide admission within a

week to 99% of inpatients, delay beyond a week may happen only in 1% of cases.
Delay beyond 2 weeks should not occur. However, actual performance indicates
that Healthcare hospital could provide admission within a week only to 96% of
inpatients. There has been a time lag of more than a week in providing admission
to 3% of the inpatients. This is already 2% more than the target. Further, time lag
beyond 2 weeks in providing admission has occurred in 1% of inpatients.
Therefore, 4% of the inpatients had to wait for more than a week, in some cases
more than 2 weeks, to get admission. In contrast at Lifeline hospital, only 0.5% of
inpatient faced time lag of more than a week in getting admission to the hospital.
There were no instances where patients requiring admission had to wait more than
2 weeks.
This shows that Lifeline hospital provides better access to services as compared to
Healthcare hospital.
(b) Delay in getting appointment due to unavailability of medical staff:
Healthcare Lifeline
Total outpatients 90,000 95,000 93,000
Delay in appointment due to unavailability of
medical staff
Number of outpatients waiting for more than
1 week 900 1,900 465
Number of outpatients waiting for more than
2 weeks - 475 -
Percentage of inpatients denied access to
service
by more than 1 week 1.00% 2.00% 0.50%
by more than 2 weeks 0.00% 0.50% 0.00%
As per the hospitals’ policy, outpatients should be able to get appointment within a
week to meet the medical staff. Delay beyond a week is tracked by the hospital ’s
information system as delay beyond a week and delay beyond two weeks.
Healthcare hospital targets to provide appointments to meet medical staff within 1
week to 99% of the outpatients. Delays due to unavailability of medical staff can
occur only in 1% of the cases. However, actual appointment schedule indicates
that 2% of the outpatients had to wait for more than 1 week and 0.5% of the
outpatients had to wait for more than 2 weeks to meet the doctor. This, indicates
that Healthcare hospital has not been able to meet its target. To improve

performance, the reason for unavailability of medical staff has to be understood. It

might indicate that more hiring is needed or high medical staff turnover.
In comparison, Lifeline hospital has provided better services to outpatients, only
0.5% of the patients had to wait beyond a week to get appointment with the doctor
(c) Delay in providing medical care to emergency admission patients:
In the case of Healthcare hospital, there were 5 instances when medical car e could
not be provided to emergency admission patients immediately. The hospital aims
never to have such instances however this target has not been met. In case of
emergencies, medical care is required urgently, any delay may impact recovery of
the patient. Reasons for the delay in providing medical care to such patients ha ve
to be investigated. Lifeline hospital has been able to provide medical care
immediately to all its emergency admission patients.
(d) Medical staff shortages:
The hospital should have enough doctors and nursing staff at any point in time to
be able to provide good quality of medical care to patients. If there are vacancies,
the existing staff have to bear extra patient load. This could lead to delays, some of
which have been outline above. This results in patients getting lesser access to
medical services when they need it. Healthcare hospital has 5 medical staff
vacancies that have been vacant for more than a month, as compared to the target
of 3. There are lesser resources available to provide patient care. In comparison,
Lifeline hospital has only 1 position that was vacant for more than a month.
(e) Cancelled or delayed operations due to non-clinical reasons:
When operations are cancelled or delayed are cancelled due to non -clinical
reasons, it indicates that there are administrative issues that deny patients access
to medical care. Possible reasons could be unavailability of operation theaters,
unavailability of medical staff or unavailability of required instruments or medicines.
Compared to an expected 5 such instances, the actual cancellations or delays have
been 20 in the case of Healthcare hospital. This is a huge variation that needs to
be investigated. Given in the problem that operation theaters are used only to 90%
of their availability. Possibly cancellations are not due to unavailability of operation
theaters. It could be due to medical staff shortage or unavailability of instruments.

Reasons have to be investigated to take appropriate action. Comparatively, such

instances are fewer in the case of Lifeline hospital.
Clinical Performance
Clinical performance can be evaluated by looking at the quality of actual work
performed. The parameters to look at are:
Healthcare Lifeline
Number of complaints received related to
medical care 500 1,350 600
Number of complaints resolved within 15 days 500 1,080 550
Number of deaths post operation (all inpatients) 4,400 2,880 2,000
Number of medical negligence case that the
hospital lost 2 5 -
Number of errors in prescription of drugs 15 45 10
Number of infection outbreaks within the hospital - 2 -
(a) Number of complaints received related to medical care:
As can be seen from the table, the number of complaints received by Healthcare
hospital is more than twice the expected volume. Only 80% of these have been
resolved within the time frame of 15 days. Comparatively, Lifeline hospital gets
fewer complaints also the complaint resolution rate within the given framework is
much higher at 92%.
(b) Number of deaths post operation:
The actual deaths post operation are much lesser. While this is a good indication of
quality, the objective of the hospital should be to keep this as low as possible.
Lifeline hospital has a lower mortality than Healthcare. Good quality medical care
can contribute towards preventing deaths post operation.
(c) Number of medical negligence case that the hospital has lost:
The fact that the hospital has lost a case of medical negligence shows that the
quality of clinical care provided is questionable. In this case of Healthcare hospital,
the number of such cases lost is 5. This is in excess of an expected loss of 2
cases. This indicates that quality of clinical care is found wanting at Healthcare
hospital. Lifeline hospital has not lost any case of medical negligence implying that
quality of medical care is better than Healthcare.
(d) Errors in prescription of drugs:
Prescription of drugs to cure an aliment should always be accurate. Any errors
could be disastrous to the patient’s health. Compared to the expectation,

Healthcare has three times the number of prescription errors. This shows that
medical staff have been negligent in providing their service. Again, Lifeline hospital
has a better record comparatively.
(e) Infection outbreak in hospital premises:
Outbreak of infection within hospital premises indicates that proper standards of
hygiene are not being maintained at Healthcare hospital.
Efficiency of Operations
Operating efficiency can be assessed using the following parameters:
Healthcare Lifeline
Bed occupancy rate 90% 85% 94%
Average patient stay (days) 4 6 5
Operating theatre utilization rate 95% 90% 95%
(a) Bed occupancy rate:
Bed occupancy is a factor that is dependent on the number of inpatient admissions.
While this factor cannot be controlled by Healthcare, it is important to track this
ratio to look at capacity utilization. The bed occupancy rate is lower than the
expected rate. If this persists over a longer period, the hospital may want to explore
the option of scaling down the number of wards and beds. The space freed up can
be utilized for some other productive purpose.
However, as explained in point (a) above, 4% of the inpatients at Hea lthcare
hospital are being denied admission due to unavailability of beds. This is a
contradiction that needs to be investigated. Possible reasons could be
administrative ones like inability to get the room and bed on time once the previous
patient vacates. Else there may be mis-communication between the department
discharging patients and the department admitting patients. Bed occupancy may
not be tracked on real time basis due to which these delays in admission have
occurred.
Lifeline hospital has an occupancy of 94% that shows that it has just the sufficient
number of beds to meet demand.
(b) Average patient stay (days) in the hospital:
On an average a patient is staying in the hospital for 2 days more than the target of
4 days. While this factor is dependent on the type of ailment, lower the patient stay
the higher can be the bed occupancy rate. That means more patients can utilize
the same resources if patient stay is shorter. This may be needed when there is a
constraint on the beds available, which is not the scenario in the current case.

However, before taking action to improve bed occupancy rate, a hospital should
ensure that quality of medical care given is not compromised.
In the given problem, bed occupancy is only 90% at Healthcare hospital. Therefore,
the hospital can afford to have longer patient stay. Lifeline hospital has 1 lesser
patient stay day, only marginally different from Healthcare’s record. In both cases,
since there is no constraint on bed occupancy, higher average patient stay can be
managed without any constraint.
(c) Operating theater utilization rate:
Utilization of operating theater is subject to the nature of treatment, something that
cannot be controlled by a hospital. However, it is necessary to track this parameter
since it shows whether the facilities that are currently in place are sufficient and are
utilized properly. Again, at 90% Healthcare hospital has a lower operating theater
utilization rate compared to the expected usage. If this continues in the long run,
the number of operating theaters can be reduced to make resources available for
other uses.
Lifeline hospital has a higher utilization rate at 95%, indicating more efficient use of
resource.
(d) Medical staff shortage:
Medical staff is the most important resource at a hospital. Higher vacancies could
imply higher staff turnover. A possible reason could be dis-satisfaction with the
employer. Healthcare should understand the reason for have 5 positions that it has
not been able to fill in within 30 days. Since this reduces the number of staff
available, efficiency of the hospital will suffer. Comparatively, Lifeline makes better
use of its medical staff since only one position was vacant for more than a month.
Financial Management
Healthcare hospital has an actual surplus of `1 crore compared to a budget of `3
crores. (Surplus = Revenue – Operating expense). ROI of 5% is below the target of 8%.
The grants committee feels that there is a wastage of funds at the hospital. Therefore,
areas of wastage should be identified such that operating expenses can be controlled
better. Lifeline hospital has a surplus of `4 crores. Since there are other hospitals like
Lifeline that are vying for grant, Healthcare has to make itself competitive in this respect.
Therefore, it has to be more efficient, effective and economical in its operations.
Innovations
Research publications indicate that newer discoveries have been made in fields that can
further the horizons of knowledge. Therefore, research publications are an important
indicator of innovation.
While staff training is not directly related to innovations, they do keep the experts up to
date in their subject area of expertise.

(ii) Performance Measures Categorized into the Balance Scorecard

- Customer Perspective would include availability of service measures and clinical
performance measures.
- Internal Processes Perspective would include measures used to determine
efficiency of operations.
- Financial Perspective would include details of the surplus generated and ROI.
- Learning and Growth Perspective would include staff trainings and research
publications.
Combined with other parameters that the grant committee finds important the balanced
scorecard can benchmark the hospital’s performance with its own targets and the
performance of Lifeline hospital. Decision to extend grants and its quantum can be
decided on this basis.
8. (i) Analysis of the “Results” dimension of performance as per the Fitzgerald and Moon
model
Financial Performance of Learning Horizons and Knowledgebase
The original budget had been prepared for 8,500 students, while actual enrollments are
7,850 students. At the very onset, reasons for lower enrollments have to be found and
analyzed. For comparison of actual and budget, the budget of Learning Horizons has to
be flexed to scale. Hence the budget needs to be scaled down to 7,850 for preparing a
variance analysis.
Particulars Number Amount ` Number Amount ` Number Amount `
Revenue
(a) Private Funded
Accounting 2,955 35,46,00,000 2,660 31,92,00,000 4,100 41,00,00,000
Law 1,847 22,16,40,000 1,785 21,42,00,000 2,500 37,50,00,000
Economics 1,478 11,82,40,000 1,050 8,40,00,000 1,200 12,00,00,000
subtotal (a) 6,280 69,44,80,000 5,495 61,74,00,000 7,800 90,50,00,000
(b) Government Funded
Accounting 739 5,54,25,000 1,140 8,55,00,000 --- ---
Law 462 4,15,80,000 765 6,88,50,000 --- ---
Economics 369 2,21,40,000 450 2,70,00,000 --- ---
Subtotal (b) 1,570 11,91,45,000 2,355 18,13,50,000 --- ---
Total Revenue (a)+(b) 7,850 81,36,25,000 7,850 79,87,50,000 7,800 90,50,00,000

Expenditure
Salaries
Lecturers 50 2,50,00,000 50 2,75,00,000 50 3,00,00,000
Administrative staff 12 36,00,000 12 36,00,000 9 36,00,000
subtotal of 62 2,86,00,000 62 3,11,00,000 59 3,36,00,000
salaries
Tuition Material 36,94,11,765 42,00,00,000 40,00,00,000
Catering 9,42,64,706 10,00,00,000 13,00,00,000
Cleaning 98,08,824 1,00,00,000 1,50,00,000
Other Operating 4,90,44,118 6,00,00,000 5,00,00,000
Costs
Depreciation 1,00,00,000 1,00,00,000 1,50,00,000
Total 56,11,29,413 63,11,00,000 64,36,00,000
Expenditure
Net Profit 25,24,95,587 16,76,50,000 26,14,00,000

(1) Original revenue budget is for 8,500 students. Actual enrollments are 7,850
students. For comparison, the budgeted revenue has also been adjusted to 7,850
students. The mix between private and government funded students is 80:20 as
per the budget. The adjusted student strength is allocated between the courses
based on the original budget student strength.
For example, out of the total strength of 7,850 students, based on the budget
ratio, 80% are taken to be privately funded. This works out to 6,280 students. The
strength for flexible budget for accounting course will be = (6,280 × 4,000/8,500) =
2,955 students. Likewise, the strength for flexible budget for other courses is
calculated in a similar manner.
(2) The budgeted expenses are for 8,500 students. Actual students are 7,850. For
comparison, variable costs in the budget have been adjusted for 7,850 students.
Fixed costs remain the same. For example, tuition material has a budget of `40
crore for 8,500 students. This is 100% variable, therefore adjusted budget for
7,850 students would be `40 crore /8,500 × 7,850 students. The total budgeted
cost for 7,850 students is therefore 37 crore.
Semi-variable costs in the budget, are separated as fixed portion and variable
portion for the purpose of recalculation. For example, catering cost is ` 10 crore
for 8,500 students, of which `2.5 crore is fixed. The balance `7.5 crore is for
8,500 students are is variable. The budgeted cost per student is therefore `8,823.
For 7,850 students, the variable cost works out to `6.93 crore. Adding the fixed
cost, the total budget for catering for 7,850 students is `9.43 crore.
Likewise, the budgeted cost for cleaning and other operating expenses is
calculated in a similar manner.

Analysis of Actual Financial Performance with respect to Budget

(a) Originally the student strength was expected to be 8,500 in comparison to an actual
number of 7,850. The reason for this shortfall in enrollment should be analyzed by
looking into non-financial performance measures.
(b) On the revenue side, actual revenue of `80 crore is marginally lower than the
adjusted budget of `81.4 crore. Since the budget and actual course fee rates are
the same, the reason for this difference is on account of the mix between the
private and government funded students. Actual enrollments had a greater ratio of
government funded students, for which the fees are lower. As per the flexed
budget, government funded students were expected to be 1,570 versus an actual
of 2,355, higher by 50%. Reasons for the change in student mix from a budget of
80:20 to actual mix of 70:30 has to be analyzed.
(c) On the expenditure side, actual costs of `63 crore is 12% more than the
corresponding budget of `56 crore. The increase for salaries over budget is
because a higher market rate that has to be paid for a lecturer. Given that
Knowledgebase also pays a higher rate, the budget may need to be amended to
reflect a more realistic salary rate. The other major variance is on account of the
tuition materials procured for the students. While the budget for 7,850 students is
only `37 crore, the actual expenditure is `42 crore. Reasons for this large variation
has to be analyzed. Reasons could reflect the quality of education imparted. If in
reality better quality study materials costs more, the management has to decide
whether they would be willing to incur this additional cost. This might have a further
impact on the fees charged to privately funded students and the management may
also want to ask for increase in the government sponsored fee rate.
(d) Overspend is noticed in other operating costs as well, actual cost is `6 crore
versus `4.9 crore budget. As mentioned in the problem, 75% of this cost is fixed in
nature, amounting to `3.75 crore (75% of `5 crore original budget). This portion of
the cost should remain the same irrespective of variation in student enrollments.
The remaining portion of the budget `1.15 crore is variable. The actual spend is `6
crore, of which ideally `3.75 crore would be fixed. If there is any variation in fixed
cost, it should be looked into. If justified, future budgets need to be adjusted to
reflect the higher cost. The remaining variable portion should also be analyzed to
understand the reason for the higher spend.
(e) Overall, the impact of lower revenue and higher cost, has resulted in a shortfall of
`8.48 crore (34% shortfall) as compared to the adjusted budget for 7,850 students.
Action should be taken by further studying other parameters like competitor’s
performance and other non-financial factors like quality of education, pass rate,
innovation.

Competitive Performance of Learning Horizons and Knowledgebase

The average revenue and cost per student for Learning Horizons and Knowledgebase
are as below:
Average Revenue and Cost per student
Particulars Learning Horizons Knowledgebase

Total revenue (`) 81,36,25,000 79,87,50,000 90,50,00,000
Number of students 7,850 7,850 7,800
Revenue per student (`) 1,03,646 1,01,752 1,16,026
Total cost (`) 56,11,29,413 63,11,00,000 64,36,00,000
Number of students 7,850 7,850 7,800
Cost per student (`) 71,481 80,395 82,513
The cost per student at Learning Horizons is marginally lower than Knowledgebase.
However, the revenue per student at Knowledgebase is much higher. Analyzing the
components further:
(a) Student Mix: Knowledgebase has higher revenue by more than 10 crore, almost
13.3% higher compared to Learning Horizons. Reasons could be on account a
higher fee rate structure at Knowledgebase as compared to Learning Horizons,
where part of the fee structure is government funded at a lower rate.
(b) Course Rate: Learning Horizons charges `1,20,000 per year for its accountancy
course which is higher compared to Knowledgebase’s rate of
`100,000 per year. This might be a reason for a higher enrollment at
Knowledgebase of 4,100 students compared to Learning Horizons enrollment of
3,800 for the same course. The management has to verify if this higher ra te is
sustainable.
(c) Course Rate: Learning Horizons charges `120,000 for its law course compared to
`150,000 at Knowledgebase. However, despite being lower, the enrollment for the
course is almost the same. The management has to look at non-financial
parameters related to quality, in order to improve enrollments for this course.
(d) Course Rate: Learning Horizons charges `80,000 for its economics course
compared to `100,000 at Knowledgebase. Consequently, it is able to have higher
enrollment for its economics course.
(e) Compared to Learning Horizons, Knowledgebase is incurring `2 crore lesser on
tuition materials. As pointed out earlier, Learning Horizons must try to find out
reasons for its higher cost and try to economize on this expense, if required .

(f) Knowledgebase has been using freelance staff for 30 days in a year to keep its
expenses lower. Therefore, although it has a higher pay scale for its lecturers, it
uses a lower cost resource to meet its teaching staff requirements. Compared to 1
new recruitment by Knowledgebase, Learning horizons has 10 new recruitments
during the year. Knowledgebase has substituted any shortfall in teaching staff by
hiring freelancers during the year. At the same time, non-financial aspects like
quality of education need to be assessed while using the service of freelancers.
(g) The other indicator of competitive performance, the take up rate, the rate of
conversion of enquiries from prospective students into enrollments for the course.
Reference to the budget here is the original budget prepared for 8,500 students,
which represents the capacity that Learning Horizons wants to achieve.
Learning Horizons Knowledge.
Particulars Budget Actual Actual
Accounting - number of students 4,000 3,800 4,100
Number of enquiries 4,500 4,500 4,600
Take up rate 89% 84% 89%
Law - number of students 2,500 2,550 2,500
Number of enquiries 2,800 3,050
2,700
Economics - number of students 2,000 1,500 1,200
Overall - number of students 8,500 7,850 7,800
The take up rate is lower for accounting course at Learning Horizons as compared
to Knowledgebase. As explained in point (b), this may be attributed to the higher
rate that Learning Horizons charges privately funded students. The higher rate
should be justifiable.
The take up rate for law is higher compared to Knowledgebase. As explained in
point (c) this could be due to the lower fee rate. Higher enrollment could indicate
the popularity of the course. At the same time the comparative pass rate may have
to be looked into to judge the quality of the course.
The take up rate for economics is marginally lower than Knowledgebase. However,
overall enrollment for this course is much higher compared to Knowledgebase,

possibly to the substantially lower rate offered for the course. The management
could look at better publicity to improve the take up rate.
(ii) Analysis of the “Determinants” dimension of performance as per the Fitzgerald and
Moon model
Quality of Service
The pass rate for each course indicates the quality of course offered. Summarizing from
the problem:
Pass rate
Accounting 95% 99% 93%
Law 95% 98% 90%
Economics 95% 95% 95%
Overall Pass rates for the courses 95% 97% 93%
The targeted pass rate of 95% has been met in all courses, thereby it indicates that a
satisfactory level of education is being imparted. In comparison with Knowledgebase the
pass rate for all courses is higher, which is a good indicator. This could be a reason to
justify the use of full time staff instead of substituting it with freelancer staff.
In the case of accountancy, the management can use the higher pass rate to justify the
higher course rate, which may lead to better enrollments for the course. In the case of
law, it has the potential of becoming a very popular course, lower course fee with higher
pass rate. This can be used to improve enrollments. In the case of economics, the pass
rates are at par. The management may use the lower course fee to attract students else
may find other ways to make the course more attractive to have higher enrollments.
Feedback from current students and the institute’s alumni also provide value information
about the quality of the courses and opportunities to improve.
Flexibility
The management of Learning Horizons has to consider the feedback from current and
prospective students in order to bring in flexibility to their services. While long distance
learning offers some flexibility, the management has to look at alternate channels of
delivery like online lecture support by faculty similar to the model that Knowledgebase
has developed. Also, offering weekend courses could help improve enrollments.
Providing the option to get an intermediate degree gives flexibility to students who are
not able to cope up with the course. While this cannot be a main objective of the
institute, it still can maintain its motto of imparting quality education for students of all
backgrounds.

Resource Utilization
The main resource of an educational institute is its staff. Management of Learning
Horizon has to look at the teacher student ratio and compare it to benchmarks of peer
institutes. Learning Horizons is having a higher recruitment of 10 lecturer s for the year
as compared to a budget of 4 recruitments for the year. Reasons for the same need to
be looked into. One reason could be a higher turnover ratio among lecturers due to
lower salary paid in comparison to the market rate. In comparison, Knowle dgebase has
a more stable staff, having a recruitment of only 1 lecturer during the entire year. This
might be due to the use of freelance teaching staff. Learning Horizon can explore
options of using freelance teaching staff to meet its teaching needs, without
compromising quality of education.
Innovation
From the information provided, Learning Horizons has a better quality of service in terms
of pass rates. However, Knowledgebase planning to offer 6 new courses in the future.
Learning Horizons has to explore options to improve on its current course offerings in
order to maintain its market share.
(iii) There is a limit to fees sponsored by the government. Currently, government funded
revenue is `18 crore, almost 23% of the total revenue of 80 crore. Aver age actual cost
per student, referring to the table above, is `80,395. Since, the government is unwilling
to spend more than `75,000 per student, the management could look at target costing
methods to resolve this issue. This reduction of `5,395 per student can be achieved by
identifying opportunities to economize on costs. If feasible, the cost per student can be
calculated for each of the courses, to identify where these economies can be achieved.
This drive should encompass the administration and support services too. Thus, using
target costing approach, the cost can be reduced below `75,000 to make government
funded education profitable, within reasonable limits.
9. Aspects that need to be reported in the TBL report:
S.N. Aspect Category on the TBL Report
(i) Medical staff conduct charity camps every Social bottom line, as it benefits
month. Open to all members of the community, the local community.
who are provided with consultation free of
charge.
(ii) Prompt and accurate tax payments based on Economic bottom line, since tax
records maintained without errors or fraud. payments impact an organization’s
bottom line and money flow.
(iii) Caregiver, with the help of traffic police, has Social bottom line, since green
implemented a "green corridor" for ambulances corridor would unable the
that carry donor organs for transplantation. ambulance to transport harvested
Organs harvested from the donor at one organs between the hospitals at
hospital can reach another hospital with the the earliest this would be beneficial
recipient patient at the earliest. for patients in need of critical care.

(iv) Medical waste is discarded at a landfill in a Environmental bottom line, as it

nearby dumpsite. Some of the waste are not affects the ecological surroundings
bio-degradable. of the town.
(v) During review of the supplier for housekeeping Social bottom line, since
service, it was observed that the service employing child labor leads to
provider resorted to child labor to keep cost of exploitation of children within the
operations lower. community.
(vi) Training and professional development Social bottom line, since it

programs doctors and nurses. contributes towards employee
development.
(vii) Lab reports are being made available online Environmental bottom line, since
within the hospital computer system. This paper, cartridge and storage
would reduce printing costs and storage space requirement would be lower. This
needed to maintain older records. preserves environmental
resources.
(viii) Caregiver has a good track record of having no Social bottom line, since this is
medical negligence litigation cases filed an indicator of the quality of
against it. services provided to patients.
(ix) The hospital is planning to market ‘medical Not relevant to TBL report. This is
check-up packages’ so that facilities in its a marketing strategy to improve
outpatient department can be utilized better. profitability.
(x) The number of inpatient hospital deaths Social bottom line, since hospital
decreased 8%, from 776 in 2017 to 715 in mortality rate measures the clinical
2018. quality.
10. Report
To: The Directors of PHL
From: Management Accountant
Subject: Warehouse Performance
Date: 11th May 2019
(i) NY has achieved the best performance with (12) points. SG and HK have given a
reasonable level of performance with (8) points each. NZ is under performed earning
only (4) out of the twelve points.
NY is the only warehouse which has achieved both increased revenue and increased
profit over targets.
In the courier delivery services and customer care, NY has achieved all (6) of the target
standards, SG (4); HK (3). The data of NZ indicates, the need for investigation due to
achievement of only (1) out of six targets.

In respect of the credit control and administrative efficiency, HK and NY have achieved
all (4) standards and SG has achieved (3) of the four standards. Once again, NZ is the
‘bad performer’ and achieved only (2) of the four standards.
(Refer points table)
(ii) The terms mentioned in the question might be seen as representative of the dimensions
of performance. The analysis of dimensions may be translated into results and
determinants.
Results are the outcome of decisions and actions taken by management in the past.
Measurement of the results may be done by focusing on financial performance and
competitiveness. Financial performance may be measured in terms of revenue and profit
as shown in the points table. The points system shows which warehouses have
achieved or exceeded the target. Besides, liquidity is another criterion for the
measurement of financial performance. The total points in table showed that HK and NY
warehouses appear to be the best performer in aspects of credit control.
Competitiveness may be assessed in terms of sales growth or in terms of market share
or increase in customers etc.
The determinants are the factors which may be seen to contribute to the achievement
of the results. In other words, Determinants refer to the forward-looking dimensions of
Fitzgerald and Moon model, for example- what areas of future performance are most
important for PHL to achieve positive financial and competitive results? Quality,
resource utilization, flexibility and innovation are the determinants of future success and
they are also the contributors to the achievement of competitiveness and financial
performance.
In PHL a main quality issue seems to be courier delivery services and customer care.
Points table shows that the NZ warehouse has a major problem in this area and
achieved only (1) point out of the six available.
Resource utilisation for PHL is critical to its financial success and may be measured by
effective and efficient use of drivers, vehicles, and financial resources. To some extent,
such measurement can be seen in the data relating to courier delivery services and
customer care. For example, the reason of late collection of couriers from customers
may be a shortage of vehicles and/or drivers. Such shortages might be due to sickness,
staff shortage, problems of vehicle availability, vehicle maintenance etc.
Flexibility may be an issue like varied range of service as to meet different segment of
customer is unavailable. Possibly, a short-term sub-contracting of vehicles or collections
or deliveries may help in overcoming late collection problems.
The points table i.e. ‘target vs actual’ may be considered as an example of innovation by
PHL. This gives a comprehensive set of measures providing an incentive for
improvement at all warehouses. The points table may demonstrate the extent of
achievement or non-achievement of PHL strategies for success. For instance – the firm
may have a customer care commitment policy which identifies factors that should be
achieved on a continual basis. For example, timely collection of couriers, misdirected

couriers re-delivered at no extra charge, prompt responses to customer claims and

compensation for customers.
(iii) The performance measurement system used by PHL is simple to use. However, it may
be looked upon measuring the right things since the specific measures used in points
table encompass a range of dimensions designed to focus the organization on factors
essential for PHL’s success and not restricted to traditional financial measures.
At PHL, internal benchmarking has been used to provide sets of absolute standards that
all warehouses are expected to achieve. This will help to ensure a continuous focus
upon the adoption of ‘best practice’ at all warehouses. Benchmarks on delivery
performance give importance to quality of service whereas benchmarks on profitability
i.e. target profits focus solely upon profitability.
Incentive schemes have been used at PHL, linking the achievement of firm targets with
rewards. It might happen that the profit incentive would act as a booster to each
warehouse management team. However, what is required for the prosperity of PHL is a
focus of management on the determinants of success rather than the results of success.
Workings
Warehouse – Points Table
for the year ended 31 March 2019
SG HK NY NZ
Revenue and Profit
Revenue 0 1 1 1
Profit (see note below) 1 0 1 0
Total Points earned …(A) 1 1 2 1
Ranking II II I II
Courier Delivery Services and Customer Care
Late collection of couriers 1 0 1 0
Misdirected couriers 0 1 1 0
Delayed response to complaints 1 1 1 0
Vehicle breakdown delays 0 0 1 0
Lost items 1 1 1 0
Damaged items 1 0 1 1
Total Points earned …(B) 4 3 6 1
Ranking II III I IV
Credit Control and Administrative Efficiency
Average Debtor weeks 0 1 1 0
Debtors more than 60 days 1 1 1 1
Invoice queries (% of total) 1 1 1 1

Credit notes (% of revenue) 1 1 1 0

Total Points earned …(C) 3 4 4 2
Ranking II I I III
Total Points …(A)+(B)+(C) 8 8 12 4
(a) Profit Points Calculation
Actual Results e.g. SG = 3.45/22.50 = 15·3% (1 point); HK = 3.60/ 27.00 = 13·3% (0 point)
(b) Debtors more than 60 days (% of total)
Particulars SG HK NY NZ
Revenue (’000) 22,500 27,000 21,000 33,000
Debtor weeks 5.80 4.90 5.10 6.20
∴ Debtors …(A) 2,510 2,544 2,060 3,935
Less than 30 days …(B) (1,950) (2,250) (1,770) (3,000)
31–60 Days …(C) (481.50) (199.50) (229.50) (828.00)
More than 60 days …(A) - (B) - (C) 78.50 94.50 60.50 107.00
Debtors in more than 60 days (% of total) 3.13 3·71 2·94 2·72
(c) Value of credit notes raised as a % of revenue e.g. SG = `67,500/ `2,25,00,000 = 0·30%
11. (i) For commercial enterprises, generating profits is a very important objective. Likewise,
not-for-profit enterprises have certain cultural, social or educational objectives for which
they are created. Regardless of the type of organization, it is important to know whether
the internal operations meet certain performance benchmarks, that will ensure that the
organization achieves its objectives in a better manner. Moreover, even if the
organization does not operate for profits, it is important for it to be “c ost effective”.
Resources (including money) should be used optimally to achieve intended outcomes.
For example, HS can use this benchmarking tool to look into the following questions:
(a) Does the organization function in an efficient and cost effective manner?
(b) Does the estate management make best use of the buildings to achieve the
objectives of the organization?
(c) Does the estate management function manage upkeep of buildings in terms of
repairs and improvements in an effective manner?
(d) Are the tenants satisfied with the service provided by the estate management and
the suitability of the accommodation for their needs?
“Value for Money (VFM)” is an assessment made based on the criteria of economy,
efficiency and effectiveness.
Economy involves minimising resource consumption while meeting specified
requirements of quality and quantity. Minimize the cost of resources / required inputs
(implies to spend less) while ensuring that the desired quality of service is achieved. For

HS, inputs could be purchases made for maintenance and repair work like sanitary
fittings, AC, wooden structure for the houses etc., while resources could be the labour
employed to carry out these services. HS should aim at purchasing required quality of
inputs at the least possible price. Skilled labour needed for this job should be procured
at the lowest pay scale possible. Procuring these at lower cost leads to savings for HS.
At the same time, HS should ensure that cost cutting / saving does not come at the cost
of quality. Lower quality, implies inferior service levels, which ultimately will compromise
HS’ social commitment to provide quality housing to needy members of its community.
Efficiency involves maximising the ratio between resources (input) and the output of
goods, services or other results.
The focus of efficiency is on the process of rendering service. The objective of efficient
operations is to maximize output using minimum resources. Improved productivity
means that resources procured are used in an optimal way (implies spending well).
In the case of HS, one of the resources is the labour employed for repair and
maintenance work. Efficiency (productivity) measured would be the relationship between
the employees available and the repair work performed by them. If the pool of
employees do more repair work than the benchmark set, productivity is higher. This also
closely ties up with economy (cost) of operations. If the given pool of employees
(resources), who are paid optimum salary (cost), cater to more repair and maintenance
work, economy of operations is achieved due to higher productivity of operations. In
case these activities are outsourced, efficiency and economy can be achieved by calling
for tenders. Select the tender that provides maximum work for least cost.
In addition, HS may explore options for efficiencies from business process
improvements, shared services as well as further efficiencies with in assets
management.
Effectiveness involves ensuring that the outcome achieves the desired policy aims and
objectives. Have the objectives been achieved, how does the impact of the actual output
/ service compare with its intended impact? (implies to spend money wisely to achieve
desired objectives). In the case of HS, effectiveness could be assessed b ased on the
following questions
(a) Are the housing needs of the targeted community members met?
(b) Are the tenants satisfied with the accommodation?
(c) Given its social cause, are the staff friendly, courteous and hospitable to the
customers?
(d) Do the housing accommodations comply with safety standards and other legal
requirements?
Each measure is inter linked with the other. For example, HS has replaced sanitary
fittings in the kitchen and bathroom in 45 houses for `26,100 each, costing a total of
`11,74,500. Compared to ES that has spent `52,200 on each house for sanitary fitting
replacement. For the cost of `11,74,500 ES could have replaced fittings in only 22
houses (`11,74,500 / 52,000) as compared to HS’ ability to replace fittings in 45 houses.

Therefore, HS’ decision has been economical, getting more work done for same cost. A t
the same time, this does not indicate whether the fittings replaced by HS are of similar
or better quality as compared to ES. ES could have used better quality fittings that last
longer, enhance customer experience, safety etc. The spending by ES could h ave been
more effective than HS because it helps achieve the desired objective of customer
satisfaction, safety and lesser running cost for maintenance. Therefore, to achieve
economy, HS may have compromised on effectiveness.
Benchmarking is a good method of measuring performance it enables a comparison of
the process, costs etc. with those of a close competitor. Services will be expected to use
benchmarking information to learn from best practice, change procedures and processes
to achieve enhanced methods of working, and reduce unnecessary expenditure.
However, benchmarking of performance against ES is not ideal. The performance of HS
can be better measured by adopting benchmarking against similar charities whose
primary objective is the provision of accommodation to the communities in which they
operate.
Thus, HS must have permanent membership of the House Benchmarking Organisations,
which helps social housing property-owners to compare the costs of service delivery,
resources, and key performance indicators across all areas of the business. For
example, the management of HS can enquire about a norm in respect of the repair
charges, sanitary charges or wood structure replacement charges etc. of similar non -
profit seeking organisations.
Further, benchmarking should be conducted annually to analyse all areas of the
business and is used to identify high performing, low cost services. Using the annual
benchmarking exercise results, the HS can plan to target those areas that are low
performing and high cost.
Overall, HS should have strong commitment to value for money, which needs to be
reflected in the business plan and in service-delivery plans. By applying these principles
HS would be able to achieve the optimum utilisation of resources, which will in turn lead
to extra capacity and allow HS to provide better services.
(ii) The Building Block Model proposed by Fitzgerald and Moon, gives six dimensions of
performance measurement including service quality and flexibility.
Service Quality
Service quality is the measurement of how well a delivered service conforms to the
customer’s expectations. As a not for profit organization, HS provides housing services
to cater to the needs of lower and middle income groups as well as senior citizens in the
local community. Although service is provided at a concessional rate compared to its
commercial peer ES, quality of HS’ service needs to be judged based on certain
parameters that were promised by the organization to its tenants. These could be used
as parameters to assess service quality. Some of them could be:
▪ Behaviour, attitude, proactivity of staff employed by HS.

▪ Quality of basic amenities provided.

▪ Availability of on-site service for the residents
▪ Safety within and around the residential unit
Data for assessment of quality can be collected from feedback of tenants, analysing the
number and nature of complaints made by tenants, tenant retention rate/loyalty etc.
Feedback form tenants can be taken on specific issues or could be general in nature.
Flexibility
Flexibility is the ability of the organization to adapt to customers’ requirements. This can
be measured through service delivery time, promptness in responding to customer
requests, ability of employees to perform different kinds of work etc. In the case of HS,
the following performance measures can be used to assess the flexibility:
▪ The average waiting time for a tenant for a house to become available. Lower the
wait time better the flexibility as it indicates that there are sufficient housing units
available for rental accommodation.
▪ Following change in requirements, ability to meet the tenant’s request for another
house of a different size. This indicates whether the range of housing units offered
is sufficient (flexible) to cater to the tenants’ changing demand.
▪ Waiting time for undertaking repairs of an emergency nature, once notified by a
tenant. Lower the waiting time during emergencies indicates the availability of
appropriate personnel to carry of the repairs on short notice.

Students are only required to provide two performance measures. These others have
been given for completeness.
(iii) The management of HS could use the following performance measures

An organization should aim at achieving results with maximum efficiency at the least
possible cost. Efficiency measures the relationship between the input resources utilized
and the output service achieved. Few of the measures that HS could use to compare
performance with ES are:
The Average Employee Cost per week per house
Here, the resource (input) are the employees, which is 15 in case of both HS and ES.
The employees at HS cater to 450 houses as compared to 200 houses catered by ES.
Therefore, HS is more efficient as compared to ES.
Likewise, cost of resources to HS is the employee cost, for which the pay structure and
remuneration policies are different in both the organizations. HS has the ability to hire
most of its resource at an annual salary of `100,000, which is the least level in the pay
structure. Comparatively, ES also hires cheaper labour but at a slightly higher pay level

of `200,000 annual salary. Therefore, the total cost of labour is higher by `14,00,000
(58%) for ES as compared to HS.
To compare the figures on a common factor, the employee cost can be c alculated per
week per house.
HS ES
The Average Employee Cost per week per house `102.56 `365.38
[`24,00,000^/ (450@ × 52)] and [`38,00,000^/ (200@ × 52)]
^ Employee cost from the income and expenditure table
@ Number of houses (given): HS = 450; ES = 200
The average employee cost per week per house of ES is `365.38 (2.46 times) more
than of HS. It can be concluded that HS is both efficient, in terms of being able to cater
more houses with same number of employees, as well as cost effective due to the use of
cheaper labour.
The Average Day to Day Repair Cost per week per house
Here, the resource (input) is measured in terms of the cost spent on repairs to maintain
the rental houses. Running repairs are generally do not add much value to the rental
houses. Therefore, lesser the repairs, higher the efficiency. From the income and
expenditure table, it can be seen that HS has spent `23,91,600 as running repair cost
for 450 houses versus ES that has spent `6,38,000 for 200 houses. To compare them
on a common factor, the average repair cost per week per house has been calculated.
HS ES
The Average Day-to-Day Repair Cost per week per house `102.21 `61.35
[`23,91,600^/ (450@ × 52)] and [`6,38,000^/ (200@ × 52)]
^ Running repair cost from the income and expenditure table
@ Number of houses (given): HS = 450; ES = 200
The average day to day repair cost per week per house for ES is `40.86 less than that
of HS (-40%). This may be due to the fewer repairs required and the fact that there is no
extra cost required for emergency and urgent repairs. The cost of repairs whether
emergency, urgent or non-urgent to ES is the same, `1,000 [`6,38,000/ (160 + 376 +
102)] whereas the cost of emergency repairs to HS is `1,400 (`6,72,000/480), urgent
`1,139 (`11,28,000/990) and for non-urgent repairs it is `1,056 (`5,91,600/560).
ES’s low cost of repairs (which is identical for all types of repairs – emergency, urgent
and non-urgent) may have been achieved through entering into a contractual agreement
for repairs. HS should also think of entering into such contracts in order to save money.
Percentage of Rent Lost
Occupancy of rental houses indicate whether the capacity (in terms of houses rented) is
being optimally utilized. Lesser the vacancy better the efficiency in terms of capacity
utilization. This represents opportunity cost of not letting out the property.

HS ES
Percentage of Rent Lost (= Rent Lost / Gross Rent) 15% ---
[(`18,17,400/ `1,21,16,000]
Gross Rent = Rent Earned + Rent Lost
= `1,02,98,600 + `18,17,400 = `1,21,16,000
ES did not have any unoccupied properties at any time during the year; it has 100%
occupancy. This shows that ES’s properties are in high demand. On the other hand, HS
has lost rent worth `18,17,400 through un occupied properties; this is about 15% of the
gross rent receivable.
The management of HS should identify the reasons why the houses remained
unoccupied when the occupancy rate is 100% for an organisation like ES, a peer
organisation should be used to benchmark the performance.

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8

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Functional Organizational Structure

Divisional Organizational Structure

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DIVISIONAL PERFORMANCE MEASURES

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Residual Income (RI)

Other Measures Building Block Model

The Performance Prism

Triple Bottom Line (TBL)

Return on Investment (ROI)

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EVA = NOPAT – WACC × Capital

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(ii) Interest paid is `13.48 lakhs.

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© The Institute of Chartered Accountants of India

also leading indicators of future financial performance from current actions.

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

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(Source: CGMA Strategy Mapping Tool)

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Balanced Scorecard in Practice

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above target NPS results were

Full achievement against targets

Partial achievement against targets

No achievements against targets

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In the above pictorial presentation:

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Quality of Service ▪ Reliability

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(Source: Neely, 2002)

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Performance Measures – Problems

Focusing too much on

Keeping of out of date

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Collection of Data Analysing the

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Collection of Data and Information

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▪ Developing action plan(s) for implementation.

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