Outline
 Introduction
 Designing Accounting-based Performance Measures
 Moral hazards
 Conclusion
Designing Accounting-based
Performance Measures
 Measuring the performance of activities provides a
scorecard to report how well improvement efforts are
effective.
 These measurements are an integral part of continuous
improvement.
Designing Accounting-based
Performance Measures
 Q 23.2, Pg. X :
 What are the six steps in designing accounting-based
performance measures?
1. Choose performance measures that align with top management's financial goals
2. Choose the time horizon of each performance measure in Step 1
3. Choose a definition of the components in each performance measure in Step 1
4. Choose a measurement alternative for each performance measure in Step 1
5. Choose a target level of performance
6. Choose the timing of feedback
Moral Hazards
 Q23.10, Pg 848
 Describe moral hazard.
Moral hazard describes contexts in which an employee
prefers to exert less effort (or report distorted
information) compared with the effort (or accurate
information) desired by the owner because the employee's
effort (or validity of the reported information) cannot be
accurately monitored and enforced.
Moral Hazards
 For Example, in some repetitive jobs, the supervisor
can monitor the workers’ actions and the moral-hazard
problem may not arise.
 However, a manager’s job is to gather and interpret
information and to exercise judgment on the basis of
the information obtained. Monitoring a manager’s
effort is more difficult.
Conclusion
 There are six steps in designing accounting-based
performance measures which are integral for the
continuous improvement of the company.
 Moral hazard appear when employee prefers to exert
less effort or report less accurate information and it is
common when the employee's effort cannot be
accurately monitored.