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Dear Tutor,
I was taking a look at the product life-cycle and life-cycle costing.
So my understanding is as follows:Strategy of the company –> objectives –> Targets/standards –> perf. measurement
So, when assessing the performance of a manager (e.g.), due consideration should be given to where the product is found in its life-cycle. And I can also say that this is partly controllable by the said manager.
Am I correct on the above? Thanks
Correct.
For example, in the growth phase of the product, strategy is likely to put emphasis on achieving high market share and keeping competitors at bay. Targets and performance measurement should reflect that.
Later, in the mature phase, emphasis is likely to tern of keeping costs low as this is the phase where there is usually price competition. Targets and performance measurement then will be focused on efficiency and costs.
Dear Tutor,
Thank you for your reply.
I have also been looking at other concepts, like ABC/ABM, I understand that by using those tools/techniques, the company will be able to achieve their strategy/objectives (e.g. adding more value to their products/service).
However, I find it hard to understand how it will affect performance management. Is it correct to say that manager will be assessed on the activities for which he is responsible – e.g. has he been able to add more value/to lead to a more effective and efficient activity/to result in reduced costs for this activity?
Meanwhile, we do not need to do this link, all the time as it will depend on the question requirements. Am i right?
Please help to confirm the above.
Many thanks.
Kny
To use ABC the organisation has to understand what activities drive costs. This of itself will help them to improve performance.
ABC should then allocate costs more accurately to products. The use of ABC should therefore allow:
Cost savings to be made on production. For example, if batch set-up costs are a very large part of a product’s cost, try to reduce that eg by increasing batch size so that a set-up cost covers more units.
More accurately pricing (ie the selling price should cover the price + a margin).
Whether or not this can be used in a question will depend on the information in the question.
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