CHAPTER 19: Balanced Scorecards and Non-Financial Performance Measures

1. Which of the following is not a benefit of decentralized organization

a. By delegating day-to-day problem solving to lower-level managers, top
management
can concentrate on bigger issues, such as overall strategy.
b. Empowering lower-level managers to make decisions puts the decision-
making
authority in the hands of those who tend to have the most detailed and up-to-
date
information about day-to-day operations.
c. By creating more layers of decision making and approvals, organizations can
respond
more quickly to customers and to changes in the operating environment.
d. Empowering lower-level managers to make decisions can increase their
motivation
and job satisfaction.
ANS: (c) One of the benefits of Decentralized organization is the the layers of
organization diminish in order for smooth decision making by the lower management
and the higher management. Most organizations fall between the two extremes of
centralized and decentralized. In the decentralized organizations most of the decision
making is analogous to compartmentalized departments

2. Which of the following is a benefit of a decentralized organization

a. Lower-level managers may make decisions without fully understanding the big
picture.
b. If lower-level managers make their own decisions independently of each other,
coordination may be lacking.
c. Lower-level managers may have objectives that clash with the objectives of
the entire
organization.
d. Empowering lower-level managers to make decisions can increase their
motivation
and job satisfaction.
ANS: (d) One of the benefits of having a decentralized organizations is that the lower
level managers get empowered. Their decisions transition faster than those of a
centralized government.
3. When a manager increases the capacity of the bottleneck
a. Bottleneck relief
b. Capacity unoverload
c. Relaxing the constraint
d. Constraint removal leverage
ANS: (c) When the manager increases the capacity workload of a long term action that
bottle necks an operation is called “Relaxing the constraint”
4. What are the common characteristics of a balanced scorecards?
I. financial
Ii. customer
Iii. internal business processes
Iv .learning and growth
a. I,ii&iii b. ii, iii & iv c. I & ii d. I,ii,iii & iv
ANS: (d) Performance measures used in the balanced scorecard approach tend to fall
into the four. All of the following are included in the performance measures of a
balanced scorecard

5. Which of the following is correct?

i. Balanced scorecard consists of an integrated set of performance measures that

are derived from and support a company’s strategy
ii. A strategy is essentially a planning about how to manage the organization’s
goals.

a. I & ii are correct c. I is correct

b. Ii is correct d. I & ii are both false
ANS: (c) it is true that balanced scorecards consists of an intergrated set of
performance that measures that are derived from and support a company’s strategy.
Strategy is essentially a theory of how to achieve the organizations goals.

6. Which of the following is correct?

i. If the balanced scorecard is correctly constructed, the performance measures

should be linked together on a cause-and-effect basis.
ii. Step Two of creating a balanced scorecard is to draft the scorecard.

a. I & ii are correct c. I is correct

b. Ii is correct d. I & ii are both false
ANS: (a) Balanced scorecard is relevant to the performance measures and are actually
directly correlated. The first step of creating balanced score cards is to know the internal
controls of the the company

7. Cause and effect relationships are important in establishing a Balanced Scorecard. The
direction of causality is:
a. mission  vision  strategy
b. vision  strategy  mission
c. strategy  vision  mission
d. none of the above

ANS: (d) The right order is vision, mission and strategy. Any order is incorrect since a
proper vision must be first prepared before any plans are laid out and any tactics are
employed.
8. Which of the following are potential measures for the customer perspective?
a.customer satisfaction
b.customer retention
c.market share
d.(a) and (b)
e.all of the above

ANS: (b) Customer satisfaction does not absolutely correlate if the customer will be
loyal and market share does not correspond to actual performance on customer
aspect. Customer retention is one of the potential measures since it can be
interpreted that the customer is wiling to show constant

9.. An organization’s value proposition is:

a. the price charged for goods or services.
b. the unique mix of price, service, image, product attributes, and relationships that an
organization offers to customers.
c. a proposal submitted to shareholders about valuation of the company.
d. none of the above

ANS: (b) A value proposition is a promise of value to be delivered and acknowledged

and a belief from the customer that value will be delivered and experienced. A value
proposition can apply to an entire organization, or parts thereof, or customer
accounts, or products or services. Price alone is not a value proposition and proposal
submitted to shareholders about valuation is not a value proposition

10. The internal perspective of a Balanced Scorecard might include a focus on the following:
a. operating processes
b. customer management processes
c. employee capabilities
d. (a) and (b)

ANS: (d) The internal business perspective is closely related to the customer perspective.
Employee capabilities is relevant to business processes.
11. The learning and growth perspective of a Balanced Scorecard might include a focus on the
following:
a. information capabilities
b. organizational alignment
c. skills and education
d. all of the above

ANS: (d) all of the above might be included in the focus of balance scorecard. Recognize
common pitfalls in implementing the Balanced Scorecard and suggest ways to avoid the pitfalls.

12. Nonprofit organizations have difficulty applying the Balanced Scorecard because:
a. the scorecard is relevant only to for-profit enterprises.
b. nonprofit organizations lack the skills necessary to use the scorecard.
c. nonprofit organizations often have ill-defined strategies.
d. all of the above

ANS: (d) Scorecard for the profit organizations are implementable since for-profit
organizations are more organized than nonprofit organizations. Nonprofit organizations
are established to benefit the general public, stakeholders, etc and their success can be
defined by their accomplishment of the programs. Compared to for profit organizations
that are revenue oriented.

13. The authors identify several principles important in implementing a Balanced Scorecard.
Which of the following are included?
a. operationalize strategy
b. align the strategy to the organization
c. make strategy everyone’s job
d. all of the above
e. (a) and (c)

ANS: (e) The authors cite 5 principles important in Balanced Scorecard implementation.
1. Translate the strategy to operational terms
2. Align the organization to the strategy
3. Make strategy everyone’s job
4. Make strategy a continual process
5. Mobilize leadership for change
14. Pitfalls in Balanced Scorecard implementations include the following:
a. using too many measures, resulting in a diffusion of management attention
b. failure to link drivers for the internal perspective with customer outcomes
c. poor organizational processes for scorecard development and implementation
d. all of the above

ANS: (c) There are a number of pitfalls to be avoided in Balanced Scorecard implementation:
1 . Use of too many measures diffuses management’s focus; it’s better to focus on a smaller
number of measures that can have a real impact.
2 . Too few measures are a problem as well. Too few measures provide an incomplete (and
perhaps distorted) picture.
3 . Full commitment by senior management is required. As in virtually all management
initiatives, support from the top is a necessary but not sufficient condition for success.
4. A Balanced Scorecard is an organization-wide effort, not a task for a single manger or
small group.
5 . Scorecard responsibilities must filter down to middle managers and lower level workers.
15. The best scorecard implementations:
a. are undertaken by a single senior executive who is thoroughly committed to the
organization’s goals.
b. exclude lower level employees, since they are irrelevant to the achievement of strategic
objectives anyway.
c. are undertaken as a systems project.
d. none of the above

ANS: (d) A single senior executive is not enough to implement a balance scorecards. It
would be highly efficient not to utilize a team. Lower level employees need to be
included since they are relevant. Balance scorecard is not only a systems prohect

16. Which of the following is correct?

i. Balanced scorecard consists of an integrated set of performance measures that

are derived from and support a company’s strategy
Ii. A manufacturing cycle efficiency (MCE) of greater than one is impossible.
a. I & ii are correct c. I is correct
b. Ii is correct d. I & ii are both false

ANS (d) Balance scorecard consists of performance measures

17. Which of the following is correct?

i. Inspection Time is generally considered to be value-added time.

Ii. A manager would generally like to see a trend indicating an increase in setup time.
a. I & ii are correct c. I is correct
b. Ii is correct d. I & ii are both false

ANS (d) Inspection tie is not added in the value added time, it brings no tangible effects
to the product. A manager can analyze trends but a manager would not likely want to
see setup time increase since it would bottleneck the operation
18. Which of the following is correct?

i. If a favorable variance is recorded in the accounting records, it will be recorded as a credit

Ii. If standard costs exceed actual costs, a credit entry would be made in the appropriate
variance account to record the variance.
c. I & ii are correct c. I is correct
d. Ii is correct d. I & ii are both false

ANS (d) Favorable variance when recorded is a debit. If standard costs exceed actual costs,
a debit entry would be made in the appropriate variance account to record the variance

19. To measure controllable production inefficiencies, which of the following is the best basis
for a company to use in establishing the standard hours allowed for the output of one unit of
product?
A) Average historical performance for the last several years.
B) Engineering estimates based on ideal performance.
C) Engineering estimates based on attainable performance.
D) The hours per unit that would be required for the present workforce to satisfy
expected demand over the long run.
ANS: (b) The best basis that we could use is the one provided by the expert. Experts could
establish the industry standard. Estimates based historical. Attainable and hours
per unit to satify the demand in the long run is not substantial and would not
suffice
20. Poorly trained workers could have an unfavorable effect on which of the following
variances?

Labor Rate Variance Materials Quantity Variance

A) Yes Yes
B) Yes No
C) No Yes
D) No No

ANS: (c) The labor rate would not decrease. Poorly trained workers deal with abnormally
wasted materials and wasted materials. The material is one of the computation of
material quantity variance.