Question

Ann Jacobson's supervisor has asked her to list any concerns she might have about the proposed development of standards to measure performance and to reward superior performance in her department. Ann's department handles customer calls, directing customer questions and complaints to the appropriate individuals within the firm. The company has never used any performance measure nor paid any performance-related bonuses. It hopes to install a simple but effective system to achieve its twin goals of cost control and performance measurement. Develop the list for Ann based on the information above.

Answer 1

The company is planning to develop a simple and effective system for performance measurement and cost control. Now the concerns which might be taken into account can be by Ann :

WITH RESPECT TO PERFORMANCE MEASUREMENT SYSTEM are :

1) It requires some level of motivation : At some level , there will always be some facet of " why should I do this ? " for workers. There must be a personal level benefit involved for those working to achieve the standards that have set forth in order for this to be successful process.

2) It is still judged through subjectivity : Though performance measurement system may help in reducing subjectivity but there is still certain human element that is part of process. If a manger does not like someone, they might create a negative evaluation for that person's performance even if metrics are being reasonably met. Emotional decisions can also disrupt the data collection process, which can lead people to reach false conclusions.

3) It can lead to decreased leves of output : Top performers may feel that the implementation of a performance measurement system is unfair to them. It may also require unskilled or untrained workers to reach metrics that are unattainable at their current level of training. The end result is de-motivation instead of output improvements.

4) It can make communication difficult : If people will not understand what is being asked to them then they may shut down the system leading to communication breakdowns. Thus metrics must be defined by certain key terms & processes.

5) It can lead to lack of commitment : Any negative commitment to the process may disrupt the metrics for others, which can then create a trickle down effect for other teams. Thus it creates conflicts between individuals & teams. Thus everyone on the team must be " all-in" for the process to work.

WITH RESPECT TO COST CONTROL  SYSTEM are :

1) System requires regular revisions : The business conditions keep changing thus system can only get standarized when organization work more or less under stable conditions.

2) Limitations of budgetory control also apply in case of cost control : Budgets are made considering all pros and cons of organization thus system is required to get adhered with this limitations.

3) Based on estimation : Cost accountant estimates the future standard costs by their past costing records which makes the costing strategies not correct always. Estimation can be helpful for the organization or not. But sometimes , it is not correct.

4) Expensive : Though simple but still it increases the cost overall of the company thus care must be taken continously to not let increase in expenses.

5) Complexity increases : Cost control system requires various steps like cost ascertainment, cost reduction, cost control, ascertaining the proft thus all these steps make accounting little complex.