Solution manual cost management measuring monitoring and motivating performance 1st by wolcott ch16

16.2 Four potential perspectives for a balanced scorecard are financial, customer-related, learning and growth, and internal business processes.. These are related because success in le

Chapter 16 Strategic Performance Measurement

LEARNING OBJECTIVES

Chapter 16 addresses the following questions:

Q1 What is strategic decision making?

Q2 How are financial and nonfinancial measures used to evaluate organizational

performance?

Q3 What is a balanced scorecard?

Q4 How is a balanced scorecard implemented?

Q5 What are the strengths and weaknesses of the balanced scorecard?

Q6 What is the future direction of cost accounting?

These learning questions (Q1 through Q6) are cross-referenced in the textbook to individual exercises and problems

COMPLEXITY SYMBOLS

The textbook uses a coding system to identify the complexity of individual requirements in the exercises and problems

Questions Having a Single Correct Answer:

No Symbol This question requires students to recall or apply knowledge as shown in the

textbook

e This question requires students to extend knowledge beyond the applications

shown in the textbook

Open-ended questions are coded according to the skills described in Steps for Better Thinking (Exhibit 1.10):

 Step 1 skills (Identifying)

 Step 2 skills (Exploring)

 Step 3 skills (Prioritizing)

 Step 4 skills (Envisioning)

QUESTIONS

16.1 Financial measures provide information measured in dollars or ratios of dollars

Examples are ROI, operating margin, total sales, and so on Nonfinancial measures provide performance information about activities that cannot be measured in dollars Examples would be defect rates, market share, and employee retention rates

16.2 Four potential perspectives for a balanced scorecard are financial, customer-related,

learning and growth, and internal business processes These are related because success

in learning and growth and internal business processes should increase customer

satisfaction and finally financial performance

16.3 Financial perspective: Operating margin, Cost per mile per ton transported

Customer perspective: Customer satisfaction surveys, market share, growth in return

customers, growth in new customers

Internal business perspective: Percent on-time deliveries, number of complaints about

food damage from loading and unloading

Learning and growth perspective: Driver safety records (number of tickets or accidents),

driver training hours, number of process improvements annually

16.4 Core competencies are the organization’s strengths relative to competitors The vision is

the purpose of the organization The strengths should support the purpose and values of the organization

16.5 The sales force may increase satisfaction by reducing car prices, or directing potential

customers to another dealership with lower prices to keep satisfaction ratings high This would hurt financial performance In addition, sales representatives might not apply pressure to close a sale when it might be appropriate to do so, because they may worry about the customer satisfaction ratings

16.6 To implement a balanced scorecard, first clarify vision, core competencies, and

strategies Then these strategies are translated to the four perspectives of the balanced scorecard: financial, customer, internal business, and learning and growth The scorecard

is refined as it is communicated throughout the organization to link department and overall organizational strategies and objectives At the department level, performance targets and action plans are established Data is collected over time and performance is monitored using the performance measures selected by departments Employees are rewarded after results are analyzed The scorecard is refined for the next period

16.7 Strategic decision making relates to decisions about the types of goods and services that

organizations produce and the long-term methods that are developed to better compete Strategic decision making relies on developing strategic operating plans and budgets that take advantage of an organization’s core competencies The balanced scorecard provides

a more formal method for managers to incorporate mission, vision, and core

competencies into their strategic decision making

Our vision is to be the quality leader in everything we do

Our Core Values

Our organization has a strategic vision focused on these core values:

Quality - Freshly-made products and superior service are our passion; consistent excellence is our goal

Integrity - We keep our promises All actions are guided by absolute honesty, fairness and respect for every individual

Leadership - We lead by example and encourage leadership qualities at all levels Everyone has a role to play

People Focus - We believe our people are key to our success We value all members

of our diverse family for their individual contributions and their team achievements

Customer Satisfaction - Satisfying internal and external customers is the focus of everything we do

Continuous Improvement - Continuous improvement is how we think; innovative change provides competitive opportunities

Community Involvement - Giving back is our heritage We actively participate and invest in the communities where we do business

Commitment to Stakeholders - We serve all stakeholders and, through balancing our responsibilities to all, we maximize value to each of them

Wendy’s also publishes ―Standards of Business Practices,‖ a 58-page document

describing company guidelines for ethical behavior

1 Source: www.wendys-invest.com/main/plan.php The ―Standards of Business Practices‖ can be downloaded at www.wendys-invest.com/corpgov/wenstandards.pdf

Information from MCDONALD’S web site as of September 2004 (vision, mission, core values, or similar attributes):

Our Values2

McDonald's People Promise

For McDonald's to achieve our goal of being the world's best quick service restaurant experience, we must have the best experience for all McDonald's employees So we formalized our beliefs into our People Vision and our People Promise

McDonald's People Vision Our People Vision defines what we strive to be as an employer

Simply put, we aspire to Be the Best Employer in Each Community Around the World

McDonald's People Promise

To the 1.5 million people who work at McDonald's in 119 countries around the world, and to all future employees, we want you to know that:

We Value You, Your Growth and Your Contributions

This is our People Promise

McDonald’s Corporate Responsibility

Corporate responsibility is an important part of McDonald’s heritage We have a long track record of industry leadership in community involvement, environmental protection, diversity, opportunity, and work with our suppliers to help improve their practices We are committed to do still more to earn the trust of our customers and everyone else affected by our business

Note: McDonald’s publishes an annual corporate responsibility report

McDonald's Diversity

McDonald's is the world's community restaurant We are proud of our long-standing commitment to a workforce that is diverse We believe in developing and maintaining a diverse workforce that will strengthen the McDonald's system

McDonald's World Children's Day

Participating McDonald’s restaurants in more than 100 countries worldwide are gearing

up for World Children’s Day at McDonald's 2003, an annual global fundraiser benefiting Ronald McDonald House Charities® (RMHC®) and local children’s causes

McDonald’s also publishes ―Standards of Business Conduct: The Promise of the Golden Arches,‖ a 24-page document describing company guidelines for ethical behavior

2 Sources: www.mcdonalds.com/corp/values.html,

www.mcdonalds.com/corp/values/ppromise/people_promise.html, and

www.mcdonalds.com/corp/values/ppromise/people_vision.html The corporate responsibility report can be

downloaded at www.mcdonalds.com/corp/values/socialrespons/sr_report.html The Standards of Business Conduct can be downloaded at www.mcdonalds.com/corp/invest/gov/standards_of_business.html

Similarities between McDonald’s and Wendy’s vision, mission, and core values:

Both companies focus heavily on people—employees, customers, and community Both companies also mention diversity and leadership In addition, both companies post standards for ethical conduct Another similarity is that both companies’ statements are quite broad; they describe overall corporate goals and values

Differences between McDonald’s and Wendy’s vision, mission, and core values: A

difference is that Wendy’s presents formal statements labeled ―mission,‖ ―vision,‖ and

―core competencies.‖ McDonald’s does not present any statements having these titles Instead, it refers to its ―People Promise,‖ ―Corporate Responsibility,‖ and ―Diversity.‖ Another difference is in the focus on quality Wendy’s mission, vision, and core values all emphasize the company’s focus on quality McDonald’s does not refer explicitly to quality In addition, McDonald’s mentions its work to improve the practices of suppliers, whereas Wendy’s does not mention its suppliers

16.9 Student answers to this question will vary depending on the companies chosen Here is

an example of a response for Best Buy and Circuit City The information shown below is taken from each company’s 2004 annual report This source was chosen because each company provided information in its annual report about the past year’s successes and goals for the following year This was the only source of information found on Circuit City’s web site about its strategies Best Buy provided additional information about its strategies under ―Frequently Asked Questions‖ (FAQs) and under ―Presentations‖ in the Investors Relations section of its web site Not surprisingly, companies do not always provide significant information about their strategies For example, Best Buy stated in its FAQs that its marketing strategy could not be publicly disclosed because it is a

competitive secret

Information about major strategies from BEST BUY’S 2004 annual report:3

Fiscal 2004 Key Wins:

Our company capitalized on many opportunities to increase shareholder value in fiscal 2004 Store, field and corporate teams worked closely together to get the right products to the stores and to sell them successfully As a result, we gained market share and increased revenue and earnings We also returned value to our shareholders

by instituting our first cash dividend and reactivating our share buyback program We are very optimistic about the continuing opportunities we see in fiscal 2005

We achieved revenue growth of 17 percent, to $24.5 billion, by opening 78 new stores and increasing comparable store sales by 7.1 percent

We increased earnings from continuing operations by 29 percent through a

combination of higher revenue and growth in the operating income rate This

achievement brings the 10-year compound annual growth rate in earnings from

continuing operations to 34 percent

3 Source: Best Buy, ―Fiscal 2004 Annual Report.‖

Cost savings from our efficient enterprise initiative and gross profit rate gains helped fund the development and testing of our innovative customer centricity strategy in 32 lab stores

Our customer satisfaction rating rose and we gained overall market share, driven by share growth in key product areas including computers, digital televisions, digital imaging products and entertainment software

Closer teamwork among our store, field and headquarters employees and the positive attitude of our workforce helped drive exceptional results throughout the year

Goals for 2005:

Build our revenue by 11 to 13 percent through opening approximately 70 new stores and garnering strong comparable store sales gains; increase diluted earnings per share from continuing operations by 15 to 20 percent

Implement customer centricity in up to 110 additional stores in order to improve our service to our best customers; in addition, transform our corporate and field support teams to enable customer centricity

Increase efficiency by expanding our direct sourcing capability and re-engineering our supply chain and customer contact centers to be much more customer-driven

Expand the value-added services we can offer to customers, principally through the roll out of Geek Squad’s® rapid-response, in-store and in-home computer support task force to a total of approximately 45 markets

Create exclusive entertainment content for our customers and offer any format they prefer for enjoying that content

Enhance our capability to let customers enjoy their favorite content throughout their homes, cars and offices Upgrade and renovate existing stores in key markets to ensure that we remain competitive in customer experience over the next decade

Information about major strategies from CIRCUIT CITY’S 2004 annual report: 4

Fiscal 2004 Accomplishments

Superstore openings We relocated 18 stores, bringing to 38 the number of

relocations over the past four years We also built eight new stores, giving us a total

of 50 incremental stores built over the past four years Our new stores are easier to shop, with powerful and informative product displays, logical product adjacencies, greater product availability and shopping carts on the sales floor, as well as banks of cash registers for fast checkout They are in vibrant shopping areas with broad

consumer bases and high levels of consumer electronics expenditures

4 Source: Excerpts from Management Letter, ―Building a New Circuit City,‖ Circuit City Stores, Inc Annual Report 2004

Sale of the finance operations We completed the sale of our bankcard finance

operation to FleetBoston Financial and announced the planned sale of our label finance operation to Bank One Corporation We expect that the two sales

private-together will generate net cash proceeds totaling more than $600 million, simplify the investment analysis for our shareholders and remove the earnings volatility of these operations We expect the Bank One relationship will generate an ongoing earnings contribution Under the terms of a multi-year agreement, Bank One will offer private-label and co-branded credit cards to both new and existing customers In addition to special financing programs for qualified customers, we expect to jointly develop and introduce new features, products and services

Growth at circuitcity.com Sales originating from circuitcity.com grew strongly

throughout the year These results reflect in part the tight integration between our Web site and our stores We expect to take advantage of opportunities that would allow us to further grow Web sales We took a step in that direction in early fiscal

2005 when we signed an agreement to acquire the assets of MusicNow, Inc

MusicNow gives us the chance to deliver exciting digital content to Web customers

Cost and expense reductions We also made structural changes focused on bringing

costs and expenses in line with our revenues Through workload elimination,

consolidation of activities, process improvements, purchasing enhancements,

outsourcing and a variety of other actions, we are making fundamental changes that will allow us to compete profitably

Building a New Circuit City

Driving sales Over the next several years, many of our resources will go towards

building stores that can support an industry-leading shopping experience Since the beginning of fiscal 2001, we have relocated, fully remodeled or newly constructed

131 stores We believe that approximately one-third of our remaining stores would produce stronger returns if moved to better locations and that we can build

approximately 100 stores in newly developed trade areas We are committed to

building in prime real estate locations With that in mind, we expect to open 60 to 70 new or relocated Superstores during fiscal 2005

We also will continue to refine our merchandise assortment and displays In fiscal

2004, we refixtured 222 stores, adding space for new video technologies The flexible fixtures in these stores will facilitate the introduction of new products, as well as other merchandise assortment adjustments At the end of fiscal 2004, we began to introduce exclusive, private-label merchandise brands, sourced by us directly from the manufacturers On March 31, 2004, we announced that we signed a definitive agreement to acquire InterTAN, Inc., a leading retailer of both private-label and internationally branded products with headquarters in Canada, in a cash tender offer for $14 per InterTAN common share We believe this transaction will bring to Circuit City a management team with extensive sourcing experience for private-label

merchandise and creative in-store merchandising capabilities and enable us to

accelerate the offering of private-label merchandise to our customers It also allows

us to enter Canada with a company that already has a proven retail format We also

believe the combination of the two companies will create inventory purchasing

synergies for both

In fiscal 2004, we continued the move in our Superstores to compensation and

staffing models that are consistent with the shopping behavior of today’s consumer Our new operating model enables consumers to browse the store and shop on their own or receive assistance if they want it It also helped generate approximately $130 million in labor savings from comparable stores, further positioning us to compete in today’s climate On the other hand, it meant that our store Associates worked through major changes during the fiscal year In fiscal 2005, our focus will return to execution and the consistent delivery of outstanding customer service

For many consumers, the Web is an integral part of the shopping experience Based

on a mix of industry research, we believe that in calendar 2003 the percentage of consumer electronics sold online outpaced the average percentage of all retail

products sold online We are redesigning circuitcity.com in fiscal 2005, introducing even better navigation tools, improved merchandise presentations and more Web-tailored promotions

Circuit City is changing, and we want consumers to know Our research shows that our results are hampered by consumer perception of our stores In fiscal 2005, our advertising will continue to emphasize the values and solutions we offer In-store signage will mirror this focus

Improving operating margins Although we are focused on increasing our sales, we

also are developing cost and expense structures that we believe will support

reasonable profitability at current sales levels As we grow revenues, the operating margin would benefit further from these reduced costs and expenses

We believe that efforts such as the introduction of private-label brands, including those available through InterTAN; increased accessory sales; purchasing via reverse auctions and direct imports; and a continued strong focus on the efficiency of our service and distribution organizations will contribute to a more stable gross profit margin We believe that the structural actions I mentioned earlier can help reduce expenses significantly We will relentlessly pursue these and other improvements in fiscal 2005

Similarities between Best Buy and Circuit City strategies: Both companies describe

strategies to increase sales and decrease costs They both plan to increase sales through opening new stores, offering new products/services, improving customer services, and increasing sales at individual stores To reduce costs, both companies plan to increase their gross profit margins and shift to more direct sourcing

Differences between Best Buy and Circuit City strategies: Best Buy’s strategies focus

more on incremental improvement to existing operations, while Circuit City’s strategies appear to represent shifts in company vision and core competencies For example, Best Buy is implementing new strategies to improve its profitability from individual customers and to reduce costs through greater company-wide teamwork Circuit City is focusing on

moving stores to better locations, selling its finance operations, consolidating work activities, outsourcing, enhancing its online store, and improving the flexibility of its merchandise offerings

16.10 As the business environment becomes increasingly competitive and dynamic, demand

will increase for relevant and useful information to help organizations succeed

Accountants will need to conduct research using many different sources of information from web sites, libraries, journals, other people, and others They will also need to

develop new internal sources of information that managers can use for decision making

16.11 Accounting techniques continuously evolve Sometimes new methods are developed,

such as the Balanced Scorecard for strategic management, and sometimes new

accounting rules are implemented, such as those issued by the Financial Accounting Standards Board (FASB) Other times technological developments facilitate accounting practices For example, prior to 1990 very few businesses used the reciprocal method (Chapter 8) to allocate support department costs because computers required a great deal

of time and memory to perform linear programming Several spreadsheet programs now offer linear programming capabilities, so now the reciprocal method is commonly used

It is also likely that new accounting techniques will be developed to match technological advances over time Accountants need to understand their industry and new technologies

to help their organizations choose the most efficient accounting and production methods

EXERCISES

16.12 China Express

From the data given, the following measures could be used for the financial perspective:

Operating margin = $522,510 Return on investment = ($10,450,200 – $9,927,690)/$4,180,080 = 12.5%

Residual income = $522,510 – (0.15*$4,180,080)

= $522,510 - $627,012 = ($104,502) Economic value added = $391,883 – (0.12*$4,180,080) = $109,727

16.13 Financial and Nonfinancial Measures

16.14 Flowing Wells High School

A Customer satisfaction because parents are considered the customers and school

administrators are measuring how satisfied parents are with the high school’s

performance

B This is an internal business related measure because it measures the performance of the high school

C Customer satisfaction related because the administrators could consider future employers

as customers Changes in employment rate after graduation measures (with noise) the satisfaction of employers with Flowing Wells students Economic conditions and other factors affect this rate, so it is an imperfect measure

D The administrators could consider employers as customers, and their satisfaction surveys would then reflect a potential measure of the customer perspective

E This is not a customer perspective measure because it reflects many other factors in addition to satisfaction of employers with graduates

F This measure reflects the performance of the high school but not the customer

perspective, even though customers are probably interested in this rate

G This measures internal performance

H This measures internal performance

I This measures the learning and growth perspective

B Following is an example of an objective Students may have thought of others

Objective: To increase new drugs that have been developed, patented, tested and are no on the market compared to drugs in the first phase of research

C Two measures are:

The number of new drugs that are on the market divided by total number of drugs researched

The trend (growth rate) in number of new drugs that are on the market

16.16 Balanced Scorecard Measures

B Below are examples of advantages and disadvantages for each measure Students may think of others

Tracking volunteer hours per week:

Advantages: This measure is easy to track If students are putting in good effort,

funds are likely to increase as hours increase Volunteers have incentives to put in more hours if they know that measure is being tracked

Disadvantages: Students could spend lots of hours raising funds, with little

results They may count activities that are only peripherally connected to fundraising as part of their hours spent Does not provide incentives to increase the overall amount of funds raised

Dollars collected per volunteer hour:

Advantages: This measure focuses on the amount of funds raised instead of the

time spent in fund raising, so students have incentives to focus on projects that result in more funds being raised Students would be less likely to count peripheral hours as time spent on fund-raising activities, so the measure might

be more accurate

Disadvantages: This measure does not track the amount of time students spend in

fund raising activities, and so they may minimize time spent, but maximize dollars per hour, but spend very few hours fund raising It does not provide incentives to increase the overall amount of funds raised

C Learning and growth measures should reflect both organizational and employee efforts to increase knowledge and develop skills It is likely to be more difficult to find activities that might increase these within volunteer organizations because student time is limited and measuring changes in knowledge and skills are also difficult Tracking hours

students spend at workshops would be easy to measure and monitor and would not

involve the organization’s time to set up A disadvantage is that the quality of the

workshops and the effort of students attending the workshop affect the benefits that the organization receives It could be possible that some of the workshops address issues that are not relevant to Students Care

16.18 University of California, Berkeley, Cashier’s Office

A and B Below are possible answers to these questions; students may think of others

1 Injury/illness rate:

Calculation: The injury/illness rate may refer to the absolute number of injuries

or illnesses or to the number of injuries or illnesses as a percent of employees, employee-days, or hours worked Data for this measure might be available from payroll records, which would indicate the number of employees, hours worked, and days taken off for injury or illness Alternatively, it could be measured as the percentage of time lost because people are away from work due to illness or injury

Advantage: An advantage of tracking this rate is that patterns may be discovered over time and actions might be taken to reduce the number of incidents, especially for injuries For example, there may be more injuries when students first return to school because the department is much busier

Disadvantage: A disadvantage is that injuries and illnesses are different, and if the measure tracks both at once, managers may not understand the relationship between injuries and congested work conditions, or some other cause of injuries

2 Expenditures as a percent of budget:

Calculation: Expenditures as a percent of budget would be the cashier department’s actual costs divided by budgeted costs This information should

be readily available in the University’s financial accounting system If this ratio = 100%, the department’s costs exactly equaled its budget

Advantage: An advantage of this measure is that managers will know at the end

of the period whether costs are in control relative to the budget

Disadvantage: A disadvantage is the lack of incentive to come in under budget by improving processes

3 Percent of days that the office balanced within $1:

Calculation: This measure assumes that a daily cash reconciliation is prepared, which includes a comparison of calculated cash on hand with actual cash on hand If this reconciliation is prepared every work day, then the balanced scorecard measure is simply the percent of days in which the difference between actual and expected cash on hand is less than or equal to $1 This measures the accuracy of cash handling and cash recordkeeping If cashiers are receiving and giving out correct amounts and are recording transactions accurately, their tills will always balance

Advantage: This measure is important from a control standpoint, as well as from

a customer satisfaction standpoint For control, it would be more difficult for cashiers to steal small amounts of cash when this measure is monitored For customers, receiving the correct change is an important part of being satisfied with cashier services

Disadvantage: A disadvantage is that two tills could be off by similar but opposite amounts, and it would appear that no problem had occurred

4 Customer satisfaction survey:

Calculation: This measure assumes that a survey had been designed and that customer responses have been obtained If the survey includes numerical ratings of customer satisfaction, then the measure could be a simple average

of the customer responses The ratings could also be broken down by individual survey question

Advantage: An advantage is that managers can learn quickly whether a customer satisfaction problem exists Also, this is a direct measure of customer

satisfaction—customers are asked about their experiences with the cashier’s office

Disadvantage: A disadvantage is that the sample of customers who complete the survey might not be representative of the average customer Also, the survey might not be designed to elicit the best information

16.19 University of California, Berkeley, Physical Plant Director’s Office

A and B Below are possible answers to these questions; students may think of others

1 Injury/illness rate:

Calculation: The injury/illness rate may refer to the absolute number of injuries

or illnesses or to the number of injuries or illnesses as a percent of employees, employee-days, or hours worked Data for this measure might be available from payroll records, which would indicate the number of employees, hours worked, and days taken off for injury or illness Alternatively, it could be measured as the percentage of time lost because people are away from work due to illness or injury

Objective: Improve employee health and safety The illness and injury rate would directly relate to employee health and safety

If the director wants to improve health and safety, the performance target can

be a lower injury/illness rate than the current rate However, injuries and illnesses are different, and if the measure tracks both at once, managers may not understand the relationship between injuries and congested work

conditions, or some other cause of injuries, and not be able to improve performance

2 Turnover rate:

Calculation: Turnover rate could be measured from departmental payroll records

as the percent of employees who leave the department compared to the total number of employees at the beginning or end of the year

Objective: Meet and maintain staffing needs

If the staff is satisfied with the working environment and the appropriate employees are employed each position, turnover rates should be low and the organization should be able to meet and maintain its staffing needs The proportion of employees who leave may provide information about the quality

of the work environment, the competitiveness of pay rates, and the opportunities for individual growth and advancement Monitoring this

measure can improve these factors, which in turn can improve employee satisfaction and performance, and also reduce turnover In addition, monitoring this measure could encourage human resources recruiters to hire the person who best fits each position so that the probability of employee retention and the quality of work are higher However, this measure does not provide information about the reasons why employees leave, which weakens its value as a performance measure The requirements for some positions could change so that the fit between the employee and position is no longer appropriate

3 Evaluation of training sessions:

Calculation: This measure assumes that some type of survey or other questionnaire is used to collect evaluations of training sessions, most likely from students who attend training sessions However, evaluations could also

be collected from instructors and from employee supervisors If the survey includes numerical ratings, then the measure could be a simple average of the responses The ratings could also be broken down by individual

survey/questionnaire question

Objective: Effective training programs This measure would capture information about the perceived benefit from training, which could help the organization evaluate the effectiveness of its training programs However, respondent perceptions about the effectiveness

of training could be biased measures of the training effectiveness For example, highly entertaining sessions might receive higher ratings, but do not necessarily provide better training In addition, the sample of respondents who complete the survey might not be representative

16.21 Future Career

A The answer to this exercise will depend on the student’s planned career path The

purpose is to encourage students to tie the concepts of financial and nonfinancial

measures to their future careers They should be able to list several financial and

nonfinancial measures for any type of work

B Again, the answer will depend on students’ planned career paths Students should be able

to list methods, such as flexible budgets and benchmark targets, which would be relevant for predicting future operations for their employer or clients

C All students should list continuing professional education such as increasing the technical knowledge and ability to manipulate data using data bases and spreadsheets Some students will consider annual education needs for FASB and tax updates Others might identify learning related to skills that will become more important after the entry level, such as people management

D As technology enables organizations to quickly manipulate data, the need for innovative data collection and analysis becomes a more central part of work Bookkeeping

responsibilities are now maintained by information systems, but the integrity of the systems needs to be continually monitored and improvements continuously made

PROBLEMS

16.22 Mark Moreland

A The financial perspective is similar across organizations Because this is a service

industry, any financial measures relating to cost will likely measure the cost of clinical staff members

The customer perspective will relate to the dental patients and possibly also to insurance

companies, who pay for dental services The customer perspective is important to

dentists because return business is probably most of their business

Internal business processes would include the ease with which patient appointments are

booked, effective scheduling of staff, and effecting accounting practices, especially for billing and managing accounts receivables

Learning and growth would pertain to the dentists, who need to participate in continuing

professional education to keep their licenses and dental procedures current, and staff members such as hygienists who are an important part of the patient care team

B Patients could be surveyed either before they leave the office or by mail after the

appointment date The performance measure could be average patient satisfaction In addition, the clinic may want to use waiting time as an important measure of customer satisfaction If patients have to wait extended amounts of time, they will feel frustrated and may find a new clinic Other measures could include tracking the proportion of patients who return for additional services, the number of patient complaints, and the number of return visits for problems with the original work

C Financial perspective:

Operating margin reflects the overall profitability of the dental clinic and reflects changes in both revenues and costs Tracking operating margin will alert the dentists to potential problems with revenues or costs before the problems become too large

Bad debts or insurance adjustments Some patients may not have the ability to pay and if the percentage of patients with these types of problems increases, operating margin will fall Bad debts and insurance adjustments can also indicate problems with services or with billing processes

Customer perspective is addressed in Part B

Internal business processes:

Days in accounts receivable This measure is important because some customers may be very slow to pay, or unable to pay The clinic needs to know immediately

if there is a problem with receivables because it affects cash flows

Patient throughput, that is, the rate at which patients are treated Throughput could be measured as an average number of patients treated per day, per week, or other time period This measure reflects the use of fixed assets, such as the dental

chairs and equipment Also, staff members are likely paid by salary, so the more patients the dentist can see, the more profits the clinic receives

Learning and growth

Number of continuing professional education hours would be a good measure for the dentists, so that they can be reminded to increase hours if they fall behind Retaining licensure in this industry is extremely important

Training hours for staff members could be measured to keep staff up to date with the latest technology for this field

16.24 Dyggur Equipment (continued)

A Advantages of weekend service: Because heavy equipment is expensive to purchase,

contractors probably prefer to use it as often as possible during the week Therefore, having weekend service would be an attractive alternative for them It is possible that Dyggur will attract new customers with this strategy