Answer to Question #159970 in Management for Prince

Question

Subject : Business Performance Measurement

1.Discuss in detail importance of economic value added in measuring corporate performance?(please give at least 10 points for importance)

2."The downside of throughput accounting against activity based costing, however is that it may offer less insight to those charged with making strategic decisions regarding production practices and costs." Comment? (please answer in 200 to 250 words)

3." A performance measurement system attempts to address the needs of different stakeholders of the organization by creating a blend of strategic measures." Comment? (please answer in 200 to 250 words)

Answer 1

1.Discuss in detail importance of economic value added in measuring corporate performance?(please give at least 10 points for importance) 

Economic value added to a company is based on the concept that a company gets its value by creating wealth to the business and the shareholders. That means that a business must preform above its cost of capital. That way, shareholders get value and the business creates added value to the society.  

2."The downside of throughput accounting against activity based costing, however is that it may offer less insight to those charged with making strategic decisions regarding production practices and costs." Comment? (please answer in 200 to 250 words) 

Throughput accounting is focused on the general cost of production whereas activity-based accounting is based on cost that are associated with every specific unit cost of the business. The result is that in throughput accounting, it becomes difficult to apportion costs to specific costs units. As a result, it is difficult to establish the units that are experiencing ineffectiveness so that the responsible unt can work on reversing that. The activity-based accounting is very good on this respect, using this approach every activity is normally apportioned a particular cost. That way, it becomes easier to identify areas that are experiencing inefficiencies and corrective measures to be taken. 

 

3." A performance measurement system attempts to address the needs of different stakeholders of the organization by creating a blend of strategic measures." Comment? (please answer in 200 to 250 words) 

A performance measurement system is used to address the needs of different stakeholders in an organization through a mixture of strategic measures. An organisation has different types of stakeholders. In broad categories, stakeholders are divided into internal and external stakeholders. For infernal stakeholders, some of the important groups include owners, managers and workers. In regards to performance measurement, these groups are the most important. An efficient performance management system therefore must include the measurement systems of owners. Owners need to establish how much profits the business is making in order to assess its performance. They also need to assess the returns to capital of the business. Business owners need to establish the returns on capital for their businesses. Similarly, employees need to understand their roles and the key performance indicators. That way, they will be always in a position to perform as per their expectations.