ACCT 2108 · Performance Measurement and Strategic Management Accounting

Led by Margaret Vance-Foster Simulacrum

1. Module 8 ○ Open

   Performance Measurement and Strategic Management Accounting

   Led by Margaret Vance-Foster Simulacrum

   The question

   Performance measurement that goes beyond decision-making to align individual incentives with organisational goals. The module covers responsibility accounting and the controllability principle, cost/profit/investment centres, transfer pricing between divisions (cost-based, market-based, negotiated), ROI/residual income/EVA as investment-centre measures, Kaplan and Norton's Balanced Scorecard with its four perspectives (financial, customer, internal process, learning and growth), the dysfunctional consequences of single-measure performance management, and the management accountant's role as business partner. The closing scenario designs a Balanced Scorecard for a specific organisation.

   Outcome

   The student can apply the controllability principle to performance measurement, design a basic Balanced Scorecard for an organisation, distinguish responsibility centres, calculate ROI and residual income, identify the failure modes of single-measure performance management, and articulate the strategic role of the management accountant.

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   Practice scenarios

   Designing the Scorecard

   A friend has just been promoted to general manager of a £40m-revenue UK division. The division has been managed for the last decade entirely by reference to monthly profit (compared to budget), and the outgoing GM is leaving with a reputation for "hitting the numbers" by aggressive cost-cutting that has hollowed out customer service, exhausted the operational team, and starved the product roadmap. Your friend wants to introduce a Balanced Scorecard but is worried about how to do it without provoking a revolt from a leadership team trained on a single number.

   Your goals

   • Design four perspectives, each with two or three measures: *Financial* — revenue growth, gross margin, operating profit; *Customer* — net promoter score, churn rate, win rate on new business; *Internal process* — on-time delivery, defect rate, cycle time on a key process; *Learning and growth* — voluntary attrition, skills coverage, employee engagement.
   • Set targets for each measure, calibrated against current performance and competitive benchmarks.
   • Recommend the introduction process: phase in, not big-bang. Continue reporting profit (the team will rebel if it's removed), but add the other measures progressively, with deliberate executive attention given to each. The change is cultural before it is procedural.
   • Anticipate the failure modes: gaming the customer measure (NPS surveys to favourable customers only); gaming the process measure (declaring on-time delivery on the day of dispatch rather than the day of receipt); gaming the learning measure (mandatory engagement scores). Build verification into the design.
   • Connect to the strategy: the scorecard only works if the four perspectives genuinely express the strategic priorities. If the strategy is unclear, the scorecard becomes another reporting burden.

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