Enterprise Performance Management

Economic Value Added (EVA) is a financial performance measure that calculates the value created by a company above its cost of capital. It is used to determine the profitability of an investment or project by deducting the cost of capital from the net operating profit after taxes. EVA helps in evaluating the effectiveness of a company's management in generating returns for its shareholders. It is a widely recognized metric in finance and is used by investors and analysts to assess the financial health and performance of a company.

Performance appraisal is the process of assessing an employee's current or past performance in relation to the performance standards set for their role. It involves evaluating their achievements, skills, and areas for improvement. This process helps in identifying the employee's strengths and weaknesses, providing feedback, and determining their overall contribution to the organization. Performance appraisal is an important tool for performance management and can be used for various purposes, such as determining promotions, identifying training needs, and making decisions about rewards and recognition.

Performance management is believed to have originated in the USA. The concept of performance management emerged in the early 20th century in the United States as a way to improve employee productivity and performance. It was influenced by various management theories and practices developed by American scholars and practitioners. The USA has been at the forefront of developing and implementing performance management systems in organizations, making it the most likely country of origin for this concept.

Du-pont analysis is a method of calculating return on assets that takes into account the importance of sales, profit margin, and asset turnover. It breaks down the return on assets into these three components, allowing for a more detailed understanding of the factors driving the overall return. By analyzing the sales, profit margin, and asset turnover individually, companies can identify areas for improvement and make more informed decisions about their assets and operations. The Altman model, the Gordon model, and the sales method are not specifically related to this type of analysis.

If capital expense is recorded as revenue expense, it means that a long-term investment or expenditure is being treated as a short-term expense. This would lead to an incorrect calculation of net profit because net profit is calculated by subtracting total expenses, including capital expenses, from total revenue. By recording a capital expense as a revenue expense, the total expenses would be lower than they should be, resulting in an inflated net profit figure.

Transfer price is the term used to describe the value assigned to the goods or services sold or rented from one unit of an organization to another. This refers to the internal pricing mechanism used within a company to determine the cost of goods or services transferred between different departments or divisions. It helps in assessing the profitability of each unit and facilitates decision-making regarding resource allocation and performance evaluation.

Economic value added (EVA) is a measure of operating performance that indicates how successful the firm has been at increasing its MVA in a given year. EVA takes into account the firm's after-tax operating income and subtracts the cost of capital to determine the value created for shareholders. By comparing the EVA to the MVA, it can be determined if the firm has been successful in generating value for its shareholders.

Return on Assets (ROA) and Return on Investment (ROI) are both financial ratios that measure the profitability of a company. ROA calculates the company's ability to generate profit from its assets, while ROI measures the return on the company's investments. Therefore, both ratios fall under the category of Profitability Ratios, which assess the company's ability to generate profits relative to its assets or investments.

Performance management is the process of ensuring that all stakeholder requirements will be met. This involves setting objectives for staff, monitoring their performance, providing feedback, and taking corrective actions when necessary. By aligning individual and team goals with organizational objectives, performance management helps to improve overall performance and productivity. It also helps in identifying and addressing poor performance through appropriate measures, such as training, coaching, or disciplinary actions. Compliance with HR requirements is important, but it is not the primary purpose of performance management.

The Balanced Scorecard is a strategic management tool that helps organizations measure and track their performance in four key areas: financial, customer, internal processes, and learning and growth. Marketing and advertising, although important aspects of a business, are not explicitly mentioned as one of the generic perspectives in the Balanced Scorecard framework. The focus of the Balanced Scorecard is on evaluating and improving the organization's overall performance and effectiveness, rather than specific marketing and advertising activities.

The correct answer is 2 & 3. Capital expenditures are expenses incurred to acquire or improve long-term assets, such as machinery or vehicles, that will benefit the business over an extended period. In this case, the purchase of a machine for business use and the payment of road tax and insurance premium for a delivery van are both examples of capital expenditures. The purchase of a car for sale, however, would typically be considered a current asset or inventory and not a capital expenditure.

The correct answer is "Market price." When an intermediate market exists, the optimal transfer price should be set at the market price. This is because the market price reflects the current supply and demand dynamics and is considered a fair value for the goods or services being transferred between divisions or entities. Setting the transfer price at market price ensures that both the selling and buying divisions are treated fairly and that the overall profitability of the organization is maximized.

The Malcolm Baldridge Quality Award is a prestigious award given to organizations that demonstrate excellence in quality management and continuous improvement. It is based on a framework that includes various basic elements such as leadership, planning, service orientation, information and analysis, employees and workplace climate, process management, and excellence levels and trends. This award recognizes organizations that have successfully implemented these elements and achieved outstanding results in terms of quality and performance.

In capital budgeting, the Accrual Principle is not followed. This principle states that revenues and expenses should be recognized when they are earned or incurred, regardless of when the cash is actually received or paid. However, in capital budgeting, the focus is on cash flows rather than accruals. Cash flows are the actual inflows and outflows of cash related to an investment project, and they are used to determine the financial viability of the project. Therefore, the Accrual Principle is not applicable in this context.

Kaplan and Norton recommend that an organization should include 20-30 measures when using the balanced scorecard approach. This range allows for a comprehensive assessment of various aspects of the organization's performance, including financial, customer, internal processes, and learning and growth perspectives. It strikes a balance between having enough measures to capture the key performance indicators and avoiding an overwhelming number of measures that may lead to confusion and inefficiency in tracking and managing performance.

The term 'performance management' first came into wide use in the HR field in the 1990s. This suggests that it became popular and widely recognized during this decade. The other options, such as 1970, 1980, and 2000, do not align with the given information and are therefore incorrect.

An investment center is a responsibility center where the manager is responsible for the profitable use of assets and capital. This means that the manager has control over the allocation and utilization of resources to generate a return on investment. The performance of an investment center is evaluated based on the profitability and efficiency of its operations, as well as the return on the assets and capital employed. Therefore, an investment center is the correct answer in this case.

A post-completion audit refers to a formal comparison of the actual costs and benefits of a project with the original estimates. This process involves evaluating the project's performance and determining whether it achieved the expected outcomes and if the costs were justified by the benefits. It helps in identifying any deviations from the initial plan and provides insights for future decision-making and project improvements.

An increase in the equity multiplier means that a company is using more debt financing to fund its assets. This increases the financial leverage of the company, which can result in a higher return on equity (ROE). ROE is calculated by multiplying the return on assets (ROA) by the equity multiplier. Since the equity multiplier is increasing while all else is constant, the ROE will increase. However, the ROA is not directly affected by the equity multiplier, so it will not increase. Therefore, the correct answer is "Increase ROE but not ROA."

Responsibility reports for cost centers include only controllable costs. This means that the report focuses on costs that can be directly influenced or managed by the manager of the cost center. Controllable costs are typically those that can be adjusted or changed through the decisions and actions of the manager. By including only controllable costs in the responsibility report, it provides a clearer picture of the manager's ability to control and manage costs within their area of responsibility.