Acct2220 Zeigler: Capsim Round One Summary Review

H/W#6 Commentary –Round 1 Balanced Scorecard Questions:

NOTE: Information about the Balanced Scorecard is available two separate ways:

a) For Actual results of completed rounds, login and choose “Reports” on the left hand side of your “Dashboard” screen. Select “Balanced Scorecard”.

b) For Pro-forma (projected) Balance Scorecard results relating to next-rounddecisions, enter your decisions and then go to “Proformas”. Select “Balanced Scorecard”.

Required: Use whatever approach is necessary to address the following questions:

1) What are the four “criteria” areas of the “Balanced Scorecard” (in the order shown)?

  • FinancialPerspective (i.e. Financial Stmts, ROA & ROERatios, Cash Flow Mgmt, etc.)
  • Internal Business ProcessPerspective (Internal processes, CM, Automation, Efficiency)
  • Customer Perspective (Product quality, Customer retention, Market share, Timely delivery)
  • Learning and Growth Perspective (Human focus, Training, Job Satisfaction, Turnover)

Since its introduction in 1992, the Balanced Scorecard approach to enterprise management has enjoyed a rapid rate of adoption in a variety of industries. More than just a grouping of financial measures, it is a strategic assessment tool that can accurately portray a business unit's strategic progress. The Balanced Scorecard asks managers to consider their business from the four perspectives listed above. The idea is to evaluate the company as a whole by looking at many different aspects that drive growth, learning and success of the firm (and mgmt team).

This analysis is therefore useful for management performance evaluation purposes.

Note: Only oneBalance Scorecard category focuses on financial metrics. The implication: Focusing on financial assessments of performance alone is not enough for organizational success over the long-run.

2) Under which of the four criteria areas is the “Customer Awareness” metric listed? What is your Round One Customer Awareness percentage? How much “awareness” is required to earn full credit?

Found in the “Customer” perspective category. Greater than 90% Customer Awareness is required to earn full credit. This is accomplished by spending enough each year on the promotion budget to “get the word out” about your firm. Potential customers that have not heard of you cannot buy from you!

3) Under which of the four criteria areas is the “Leverage” metric listed? What is your Round One leverage, how is it computed and what “range” earns full credit for this component? Clearly explain.

Leverage is listed under the “Financial” perspective category. It is computed as Assets divided by Equity. It represents the amount of a company’s assets that are funded with equity vs. debt.

For example, leverage of 3.5 would mean that for every $3.50 of assets, there is $1.00 of equity (and $2.50 of liabilities). In this example, the firm is using debt to increase their asset base, and hopefully, earn a rate of return on these funds in excess of the cost to borrow these funds. Leverage of 3.5 indicates a relatively high risk level from an investor (certainly a creditor’s) point of view.

“Full credit” is awarded for a leverage range 1.8 – 2.8. At higher leverage, the risk for creditors to lend the company money is increased which results in higher interest rates and limits on funds available for borrowing. At lower leverage, Return on Equity will generally be lower because there are less income producing assets to generate profits. The range used in Capsim is reasonable, but by no means should this range be considered an overall benchmark in the real-world. Each industry is different!

4) When you have a “Plant Utilization” (PU) of 200%, this means you are operating at maximum capacity over two (both) shifts and using the maximum capabilities of your production facility. What is your Round One PU score and what “range” of Plant Utilization is required to earn full credit?

Next, why do you believe full credit is not awarded for a plant utilization percentage of 200%?

Full credit is awarded within a plant utilization range of 100% - 180%. Within this range, we are deemed to be working our assets productively. Above 180% utilization, workers are overworked, machinery is reaching its maximum output, maintenance may be deferred to complete production, we may lose potential sales, etc. That being said, firms may still choose to run above 180% due to lack of purchased capacity in order to meet company goals for the current period, BUTadequate capacity should then be purchased in subsequent years (rounds) to avoid such an excessive plant utilization level.

The Balanced Scorecard: A graphical representation within an Organizational Management Performance System

Source: The Senalosa Group -

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Another Detailed Graphical Representation of the Balanced Scorecard:

* Interesting Quote *: “What gets measured gets done!"