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Refer to Exercise 13.13. Suppose that Mandy communicates the following weights to her CEO: Perspective: Financial, 40%; Customer, 20%; Process, 20%; Learning & growth, 20% Financial objectives: Profits, 50%; Revenues, 25%; Costs, 25% Customer objectives: Customer satisfaction, 60%; Market share, 40% Process objectives: Defects decrease, 40%; Supplier selection, 30%; Redesign process, 30% Learning & growth objective: Training, 100% Mandy next sets up a bonus pool of $100,000 and indicates that the weighting scheme just described will be used to determine the amount of potential bonus for each perspective and each objective. Required: 1. Calculate the potential bonus for each perspective and objective. 2. Describe how Mandy might award actual bonuses so that her managers will be encouraged to implement the Balanced Scorecard. 3. What are some other ways that Mandy can encourage alignment with the company’s strategic objectives (other than incentive compensation)?

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 13, Problem 14E
Textbook Problem
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Refer to Exercise 13.13. Suppose that Mandy communicates the following weights to her CEO:

Perspective: Financial, 40%; Customer, 20%; Process, 20%; Learning & growth, 20%

Financial objectives: Profits, 50%; Revenues, 25%; Costs, 25%

Customer objectives: Customer satisfaction, 60%; Market share, 40%

Process objectives: Defects decrease, 40%; Supplier selection, 30%; Redesign process, 30%

Learning & growth objective: Training, 100%

Mandy next sets up a bonus pool of $100,000 and indicates that the weighting scheme just described will be used to determine the amount of potential bonus for each perspective and each objective.

Required:

  1. 1. Calculate the potential bonus for each perspective and objective.
  2. 2. Describe how Mandy might award actual bonuses so that her managers will be encouraged to implement the Balanced Scorecard.
  3. 3. What are some other ways that Mandy can encourage alignment with the company’s strategic objectives (other than incentive compensation)?

1.

To determine

Calculate the potential bonus for each perspective and objective.

Explanation of Solution

Strategic alignment: Creating and implementing strategy are two important factors for the success of balance scorecard. The balance scorecard is designed to induce “organizational change” and for this change to get implemented employees should be completely informed about the strategy, employees should share ownership of measures, targets, objectives and initiatives.

Calculate the potential bonus for each perspective:

PerspectivePercentage of allocationBonus poolPotential bonus
Financial40%$100,000  $40,000
Customer 20%$100,000  $20,000
Process 20%$100,000  $20,000
Learning and growth 20% $100,000 $20,000

Table (1)

Calculate the potential bonus for each perspective

Financial
Objectives

Percentage of allocation

(a)

Potential bonus of perspective

(b)

Potential bonus for objective

(a×b)

Profits 50% $40,000 $20,000
Revenues 25% $20,000 $10,000
Costs 25% $20,000 $10,000

Table (2)

Customer
Objectives

Percentage of allocation

2.

To determine

Describe the manner in which Person M might award actual bonuses.

3.

To determine

Explain the manner in which revenue growth strategy can be tested, discuss the role of lead and lag measure, targets and double-loop feedback.

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Chapter 13 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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