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HA2011 Management Accounting Assignment Help

Your group is required to prepare a report to comment on the suitability of BSC for a ASX listed company of your choice (your firm's client).

The report should cover the followings:

a) A description of your firm's client

b) A description of the BSC and its features

c) In what ways BSC is different from traditional performance measurement systems

d) A discussion on whether the BSC is suitable to your firm's client

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Introduction

This research assignment is intended to work upon the possibility of applying the principles of balanced scorecard to the chosen form ( Wes farmers limited) and how the same might have a positive impact on the workings of the company and how the same might be sued to evaluate the performance of the company over the next few years. As Balanced scorecard is still a new framework which is being implemented at a rapid pace by many large and smaller organization to determine how effectively the management and the manpower is using the resources to improve the returns, utilize the limited manpower and how effectively the learnings of the plans being implementedis used to increase productivity across product platforms. The learning approach is critical for a company like Wes framers limited because the company is engaged in the market as one of the largest employers in Australia and thus increasing productivity is one of the desired concerns (ANTHONY A ATKINSON, 2012). It would also be likely to be explored if the BSC would fit in with the current work environment of the firm and if the same would be helpful in increasing the financial and non-financial aspects of operating the business of the company like Wesfarmers limited in the long run.

Body of the Report

a) A description of your firm's client

Wesfarmers Limited happens to be one of the leading Australian firms which have its headquarter in Perth, WA. Wesfarmers has been predominantly in both Australia and New Zealand and deals in products like cement, fertilizers, chemical products, coal mining, and industrial safety products and household items.

Wesfarmers is currently listed in ASX with the ticker symbol of WES. CEO Robert Scott has been successfully steering the company's work since 2017. WesfarmersLimited has a no of good subsidiarieswhich includes the Coles limited (listed in ASX) and Bunnings and Kmart Australia etc. Wesfarmers currently has a 15% stock holding in Coles group which primarily deals with retailing of a fresh food item, household goods, and liquor items both in offline andonline platforms. Cole group is a top 30 company in ASX in terms of market valuation (Anthony A. Atkinson, 2012).

WesfarmersLimited has generated revenue of $69.9 billion in 2018 and grew by 4.5% over 2017. EBIT for the year 2018 was $5259 million while the same for 2017 was higher slightly at $5352 million.

Key financial data 2018 2017 Results from continuing operations¹ Revenue $m 66,883 64,913 Earnings before interest, tax, depreciation and amortization $m 5,259 5,352 Earnings before interest, tax, depreciation and amortization (excluding significant items)² $m 5,565 5,352 Earnings before interest and tax $m 4,061 4,177 Earnings before interest and tax (excluding significant items)² $m 4,367 4,177Net profit after tax $m 2,604 2,760

Net profit after tax were $m 2,904 for 2018 and $m2,760 2017. Basic earnings per share in cents were 230.2 for 2018 and slightly higher 244.7 cents in 2017.

Divisional performance of the Wesfarmers limited

b) A description of the BSC and its features

the industry executives of today fully understand that the performance measurements like the ROE, ROA, and EPS,etc. are misleading for a majority of the investors and other stakeholders as they don't fully identify the pace and effectiveness with which an organization undertakes innovation and brings in continuous improvement. In many cases, these traditional indicators can be toomisleading for executives as well. These traditional measures were seemed to have worked very well in the era of industrialization in the early 1980s but with the advent of complex business mechanisms and putting of huge assets and resources into innovationand R&D , the same has become out of steps with the type of skills the firms of today are trying to encompass in their manpower(Anthony & Govindarajan, 2007).

Managers of today have bene emphasizing not only on the simple financial perspectives but also the strategy has shifted out to new things such as improving the operationalaspects of the business on a continuous basis, for example , the reduction of the defective rates in manufacturing has been seen to be ableto reduce operational costs significantly. It is widelybelieved that if the operationalaspects of the businessare targeted and improved then the financial results would automatically improve. It can be noted operationalaspects would include increase in productivity, learning from mistakes and reducing defects, producing more products at a shorter product cycle and the same would automatically reduce overall costs and improvebottom-line. This would also make sure the assets are better utilized and manpower is made more skillful by the end of each annual cycle to reduce defects and increase efficiency (Atkinson, Kaplan, Matsumura, & Young, 2016).

The balanced scorecard is important for most business because it is able to bring in both financial and non-financial perspectives into focus. Business managers are fully aware that a single measure can't be able to capture the organization-wide performance and hence itwould be needed to shift focus to critical areas of businessoperation which are not financial in nature. Managers have been targeting a more balanced presentation of all the non-financial measures such as customer satisfaction along with the traditional financial perspectives (Drury, Cost and Management Accounting: An Introduction, 2010).

Balanced scorecard links the measures as follows:

The customer perspectivesare thenonfinancial perspectives which let the organizationrealize how the customer perceives the quality of the products and services on offer.

The internal perspective is the non-financialperspectives ofhowthe organization can improve further and what it would need to fo to excel in what they offer to the market?

The innovation and learning perspective evaluates the methods which are used to improve product quality, increase the pace of goods and service development, how to bringing more refinement and increase efficiency. It lets the managers know if this perspective has been used to increase productivity and reduce costs. Whether the manpower is able tolearn quickly and be ableto provide better quality goods and services to the market and satisfy the customers better by providing higher value for the money(Drury, Cost and management accounting : an introduction, 2006 ).

The last perspective under the BSC parameters is that of the financial perspective which measures the value createdforthe shareholders in terms of net margins, ROE, and ROA etc. this things measure the returns for the shareholders andhow the same is beingusedto create value forthese group who has been taking all the risk and putting their hard-earned money into the business?

BSC does not intend to focus on a huge no of measures and the focus is to look at the most critical performance measures which satisfy these four different perspectives as these were interlinked by measures undertaken and results achieved(Horngren, Datar, & Rajan, 2015).

One of the first benefits of using the balanced scorecard is that it brings distant elements together in the form of a single report. This enables the company management to have a competitive look at the operational efficiency and actual results compared with previous years and targets. The BSC report allows the adopting firm to be more oriented towards customer needs; it helps the management to reduce the response time to issues mentioned, allows the management to plan better teamwork, reduces the defects and improves the overall quality of the goods.

The second benefit of the BSC use is that it prevents sub optimization of the resources which are varied in nature. For example,a different division is grouped together for analysis under four perspectives and it is necessary to know if one of the department or divisions has been able to improve at the expense of the other departments. Objectives might have been achieved but not in the desired manner. Thus it would be necessary to look into developing all the division in a coordinated manner and not to let one of the divisions behind in terms of quality development (Langfield-Smith & Thorne, 2016).

c) In what ways BSC is different from traditional performance measurement systems

The Balanced Scorecard (BSC) has been developed to address the shortcomings which were detected under the traditional system of performance measurements. Importantly the BSC has proceeded to include a few non-financial perspectives into the performance measurement systems to let the overall measurement as more balanced (Anthony & Govindarajan, 2007).

(Langfield-Smith & Thorne, 2016) defines BSC as a system which reflects thenecessarychanges in the modern business environment faced by the business firm and which considers the intangible assets andresources that a firm possesses to create major market-oriented competitive advantages.

Customer perspectives

While the traditional perspective is only able to measure financialperformance, the BSC is able to focus on customer requirements more urgently. The Customers' concern usually falls under four different categories such as time, quality, performance and service, and cost. The time measures the time frame needed for the business to meet the client's requirements and whether thesame confirms to the desired lead time. The Quality components often are able to measure the level of defectives and how the same is viewed b the clients. Quality aspectsalso measurethe timelydelivery of the products by the managers of thefirmand how accurately the managers are able to forecast the demand. Both the service quality and product performance is able to judge as to how the products are able to create value for the firm's clients. All the above aspects are not included in the traditional measurement system (Kaplan & Norton, 1996).

Internal Business Perspective:

While the traditional methods do notmake any attempt to make sure they incorporate any aspects of customer expectations, the BSC in facts makes it a point to pinpoint internal processes to excel in what the customers want. Excellence is customer perspectives are matched by processes which are organized a developed, decision taken after considering the whole gamut ofinformation and actions are justified by managers as to why they were taken. Managers are compelled to take a shift to focus on the internal processes which are needed to be made more robust to fight inefficiencies in order to meet the client expectations. These internal measures are derived and expected to be derived from existing processes and a thorough understanding of the same would enable the managers to make necessary changes to make them work. Managers at the Wesfarmers limited are aware that in order to generate robust growth they must focus of delivering quality products at the doorstep of the clients and developing a good product mix was critical for long term success. The same was prioritized by investing in a diverse nature of product setups and creating a product universe which is diverse and satisfactorily meets the needs of the customers (Kaplan & Norton, 1996).

Innovation and Learning Perspective

If a company is able to learn on the job, innovate to reduce costs, create new products , suitable processes and create more value for the clients on a continuous basis then the same would allow the firm to unlock huge value in the medium to long term. For example, a new product must be launched by the firm onlywhen the product suits the market and fully developed and tested. The same needs time but the same would allow the clients to sue the product without any hiccup and that way costs related to repair and warranties would be reduced. A better-prepared product and better-researched product make sure the clients are satisfied and might recommend others to buy the same. However the same can't be saidof no so good products. Putting money into more and more research and development process makes sense as it would allow the firm to create new and better products, reduce energy consumption and save money for the customers. By doing so the demand for the company's products would be enhanced and goodwill would be created and the same would lead to higher shareholders wealth (Langfield-Smith, Thorne, & Smith, 2014).

Soit is not necessary for a firm to earn higher profits alone but concentrate on many non-financial measures to be able to create sustainable growth and profitability.

d) A discussion on whether the BSC is suitable to your firm's client

The BSC is quite apt for the development of a right kind of long term growth and increasing the productive efficiency at Wesfarmers Limited. The four BSC perspectives connected to the firm are discussed as follows:

Financial performance

a) If Wes farmers undertake expansionary projects then it would be able to create a more robust product mix to meet client needs and create economies of scope and scale which ultimately would reduce costs and increase productivity. Wesfarmers management has been investing in a diverse range of business to generate higher growth and reduce the cost of operations by integrating different business processes and eliminating duplication of work. Net profit and EBIT would be expected to increase in a very long term sustainable manner (Kaplan R. S., The Balanced Scorecard: Translating Strategy Into Action, 1996).

b) Profitability aspects like ROE and ROA can be enhanced through robust growth of revenue by vertically and horizontally increasing operations across the whole continent. Higher growths can be achieved in rural areas and inthe countryside.

c) The market value of the company would be expected to increase if BSC is implemented in the right earnest and management leads the way.

Customer perspectives

a) BSC implemented immediately would make sure the customer base is expanded by 10-20% and market base would also be expanded horizontally by adding new areas.

b) More customer-friendly measures like new products at the right prices and better quality would make sure the company is able to retain more customers and create a long term brand awareness and loyalty. Rationalization of selling prices can also be considered.
Internal Business Processes

a) More automation can be brought in to make sure efficient production is done and productivity is increased.

b) Wes farmers would be able to concentrate on making the manpower smarter.

c) Wesfarmers would be able to explore the possibility of exporting into new markets such as Malaysia, China, and India, etc.
Learning & Growth

a) Workers would be allowed to learn on the job and hence productivity would increase tremendously.

b) More efficient use of resources is possible and the elimination of wastages are bound to be a reality.

c) Growth of resources would be possible as new market entries can be explored.

d) As wastes are reduced and eliminated, the same would lead to reduced costs and creating more value for the clients. Sales prices would be possible to bring down further to make sure sales growth in sustainable in the long term (Kaplan, 2010)

Conclusion

As more and more firms in the modern business scenario have started to apply the BSC to their measurement cycle , it has become clear that it is able to bring an entirely different perspective to measure efficiency and long term performance. Firstofall, however, it must be noted that BSC to besuccessful needs the participation of all manpower in the organizationaland more so the total involvement of the top management is a necessity. Only the finance controller and financemanagerswon't be able to implement the BSC rightly. As the top management is more aware of the long term vision of the firm, their participation in the BSC implementation process is a must. Further BSC must not be implemented to find the weak spots and punish the holders of the posts responsible but to make them aware of their weakness and apprise of the ways as to how can they current those shortcomings. This is why non-financeexperts are required to be included in the BSC design process and their final implementation. BSC must not be allowed to be panned an implemented by finance managers only. Operation managers, supervisors, controllers, and resource managers must be invited to contribute to the BSC process for it to become more acceptable to the whole organization. This way the BSC process can be aligned with the long term vision and mission of the organization and adapted to suit the long term strategy. On the other hand, if the top managers proceed to design the BSC by undertaking a top-down system then it would definitely fail. BSC must be impacted in a transparent manner and with the understanding of all the manpower involved (M.Datar & Horngren, 2012).

In this aspect, the Wesfarmers management (top management) fully understands the importance of the BSC process and how the same would be beneficial for the company in the medium to long term and has been making all the possible steps to involve all the rightful managers and create an acceptable BSC process. Wesfarmers possess a very strong balance sheet and profits are growing because of the focus of the management on growing the connect with the customers and enhance shareholders return and wealth. The management of the company is consciously trying to reduce the agency problems and put back more focus on the creation of a better culture and better opportunity for the more than 225,000 strong manpower to learn on the go (Swenson, 2005).

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