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Balanced Scorecard:
Performance Measures
Performance measures used in the balance scorecard approach tend to fall into the four groups illustrated above, financial,
customers, internal business process, and learning and growth. Internal business processes are what the company does in
an attempt to satisfy customers. For example, in a manufacturing company, assembling a product is an internal business
process. The basic idea is that learning is necessary to improve internal business processes; improving business process is
necessary to improve customer satisfaction; and improving customer satisfaction is necessary to improve financial results.
In the balanced scorecard approach a particular object, such as of profit of $10 million, is not emphasized but a continual
improvement is encouraged. In many industries, this is a matter of survival. If an organization does not continually improve,
it will eventually lose out to competitors that do. A wide rang of performance measures are used by companies in their
balanced scorecard. Most of the performance measure used by companies are self explanatory. However we need to
understand three important performance measures. These three measures are:
KHALID AZIZ
0322-3385752
ICMAP STAGE 3, Q 3 CMAPA WINTER 2010
As shown in above example, the throughput time or manufacturing cycle time is made up of, inspection time, move time,
and queue time. Process time is the amount of time work is actually done on the product. Inspection time is the amount of
time spent ensuring that the product is not defective. Move time is the time required to move materials or partially completed
products from workstation. Queue time is the amount of time a product spends waiting to be worked on, to be moved, to be
inspected, or to be shipped.
Only one of these four activities adds value to the product and that is process time. The other three activities (inspecting,
moving and queuing) add no value and should be eliminated as much as possible.
MCE Formula: Manufacturing Cycle Efficiency (MCE) = Value added time ÷ Throughput (manufacturing cycle)
time
If the MCE is less than 1, then non value added time is present in the production process. An MCE of 0.5 for example,
would mean that half of the total production time considered of inspection, moving, and similar non value added activities. In
KHALID AZIZ
0322-3385752
ICMAP STAGE 3, Q 3 CMAPA WINTER 2010
many manufacturing companies, the MCE is less than 0.1 (10%), which means that 90% of the time a unit is in process is
spent on activities that do not add value to the product. By monitoring the MCE, companies are able to reduce non value
added activities and thus get products into the hands of the customers more quickly and at a lower cost. To provide an
example of these measures, consider the following data for Novex company.
Example:
Novex company keeps careful track of the time relating to orders and their production. During the most recent quarter, the
following average times were recorded for each unit of order.
Days
Wait time 17.0
Inspection time 0.4
Process time 2.0
Move time 0.6
Queue time 5.0
Required:
COACHING CLASSES
ICMAP, CA, PIPFA, BBA, MBA, ACCA, CAT, MA-ECONOMICS, O/A LEVEL, B.COM &
I.COM.
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0322-3385752
ICMAP STAGE 3, Q 3 CMAPA WINTER 2010
Solution:
1. Throughput time = Process time + Inspection time + Move time + Queue time
2. In this example, only process time represents value added time; therefore, manufacturing cycle efficiency would be
computed using the following formula:
Thus once put into production, a typical unit is actually worked on only 25 % of the time.
3. Since the MCE is 25%, the complement of this figure, or 75% of the total production time is spent in non-value-added
activities.
4. Delivery cycle time = wait time + Throughput time
COACHING CLASSES
ICMAP, CA, PIPFA, BBA, MBA, ACCA, CAT, MA-ECONOMICS, O/A LEVEL, B.COM &
I.COM.
KHALID AZIZ
0322-3385752
ICMAP STAGE 3, Q 3 CMAPA WINTER 2010
KHALID AZIZ
0322-3385752