# Performance measurement Harvard Case Solution & Analysis

## Performance measurement Case Solution

1. Create a budget for the three months from 1stJuly 2016 to 30th September 2016 for your organization. Use any applicable cost headings but do not use your employing organizations’ actual figures.

For the calculation of budget, the financial report of the assumed company Arla is used. The budget is made using the moving average method. The average for each element of the statement is calculated using the formula ((Current period-historic period)/historic period). In this way average growth ratios are calculated. The annual data was then converted to the monthly data so that budget can be made for July, August, and September separately. Using the average growth rates, budget is made as:

 (EURm) July August September Revenue 889 924 961 Production costs -673.91 -696 -718 Gross profit 215 229 244 Sales and distribution costs -145 -158 -172 Administration costs -32 -29 -27 Other operating income 1 1 0 Other operating costs -14 -31 -70 Share of results after tax in joint ventures and associates 2 2 3 Earnings before interest and tax (EBIT) 31 30 28 Specification: 0 Earnings before interest tax depreciation and amortization (EBITDA) 64 66 67 Depreciation. amortization and impairment losses -33 -38 -43 Earnings before interest and tax (EBIT) 31 30 28 Financial income 3 9 26 Financial costs -6 -5 -4 Profit before tax 28 27 27 Tax -4 -5 -5 Profit for the year 24 24 23 Minority interests -2 -3 -7 Company's share of profit for the year 23 22 21

1. Identify and calculate three prime performance measures which you would use to monitor performance for this budget period
.

Production cost

The production cost is an important performance measurement category. High proportion of expenses is related to this activity. Almost 78% of the sales revenues are used for production cost compensation. In other words, production cost is about 78% of sales. The company can measure performance, based on the increase or decrease in this cost and the growth over time.

As per the budget, the performance is expected to improve by 3%, as the ratio is calculated to be 75%.

Sales and distribution cost

Sales and distribution cost is another major expense of the company. It is related to the activities sought to generate sales and other supporting activities. As per the calculation, this activity costs the company about 15% of net sales. Performance measurement shows that this activity cost will probably increase and as per calculation based on the budgeted figures, the ratio will go up to 17%.

Revenue growth

Revenue growth is an essential and key performance indicator for an organization. This shows how well the company has been growing. As per the historical data, the growth rate was 2%; while as per the budgeted data, the growth rate will improve to 4%. Therefore, this performance measure shows a positive result for the company.

1. b)Performance measures
2. Calculate three performance measures which you would deem important to the organization in order that they can monitor their performance throughout the year.
3. In addition, justify your choice of performance measure for the chosen charity.

Revenue growth

The major performance measurement factor for a company is its revenues. The company tries to achieve revenue growth in the long term. This translates how the company is progressing. The company’s revenue has decreased as compared to the previous year. However, average growth rate is in positive figure.

EBIT

Earnings or profit before interest and tax is another potential key performance indicator. The company can analyze how much of its revenues are converted into the profits after all operating costs are account for. The ratio has improved as compared to the previous year. This shows that the company has achieved efficiency and used the shareholders money in an effective way...........................

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