{"id":231,"date":"2024-09-27T17:49:32","date_gmt":"2024-09-27T17:49:32","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/chapter\/putting-it-together-responsibility-accounting\/"},"modified":"2024-10-01T21:28:16","modified_gmt":"2024-10-01T21:28:16","slug":"putting-it-together-responsibility-accounting","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/chapter\/putting-it-together-responsibility-accounting\/","title":{"raw":"Putting It Together: Responsibility Accounting","rendered":"Putting It Together: Responsibility Accounting"},"content":{"raw":"
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Managing Performance<\/h3>\r\n
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  1. Set performance standards and goals\r\n
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    • Using Key Performance Indicators that align with and promote the organizations larger goals and objectives<\/li>\r\n \t
    • There are leading and lagging indicators\r\n
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      • Leading indicators provide information that can be acted upon and that can change results<\/li>\r\n \t
      • Lagging indicators show only historical results<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<\/li>\r\n \t
      • Measure performance\r\n
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        • KPIs should be based on controllable items for each kind of responsibility center\r\n
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          • For instance, for a revenue center that is based on sales, a KPI could be the number of sales calls made<\/li>\r\n \t
          • The purchasing department may be held accountable for negotiating the best price and measured against standard costs<\/li>\r\n \t
          • The production department may be held accountable for cost overruns due to waste measured by standard volumes<\/li>\r\n<\/ul>\r\n<\/li>\r\n \t
          • Net income is a lagging indicator of financial performance<\/li>\r\n<\/ul>\r\n<\/li>\r\n \t
          • Compare actual performance to established performance standards\r\n
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            • Management communicates KPIs to responsibility centers, departments, and other managers\r\n
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              • Each KPI should have a benchmark, target, or goal<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<\/li>\r\n \t
              • Take corrective action\r\n
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                • Managers should be held accountable for the costs and performance measures that they can control\r\n
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                  • For example, the sales manager can control the number of calls made but not the price that competitors are charging<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<\/li>\r\n \t
                  • Use information gained from the process to set up future performance standards\r\n
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                    • Setting KPIs is an iterative process, and should be constantly reviewed for effectiveness.<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ol>\r\n<\/section>Managing performance can be visualized as a circle encompassing five steps:\r\n\r\n \r\n\r\n\r\n\r\n
                      Finally, here is a quick overview of the concept: