Budget and Aggregate Metrics
Budget and Aggregate Metrics
Budget and Aggregate Metrics
Arnoldo Hax
Alfred P. Sloan Professor of Management
The Delta Model - The Complete Framework
System Lock-
Lock-in
1. The Triangle-
Triangle- choosing
the strategic position
Total Customer Best Product
Solutions
The Business Strategic Agenda
2. The business Strategic
Agenda-
Agenda-translating Strategic thrusts
strategic positioning Managerial accountability
into execution Business Processes
Performance metrics
Aggregate Metrics
4. Aggregate Metric-
Metric- the
overall scorecard of
Measuring success in a broad
business performance
comprehensive way
5. Granular Metrics-
Metrics- de-
de- Granular Metrics & Feedback
averaging, explaining
and exploiting variability Detecting, explaining and
exploiting variability
Performance Metrics for the Business Drivers of the Delta
Delta
Model
Best Product Total Customer Solutions System Lock-In
Balanced Scorecard
Financial Perspective
How do we look
to our
shareholders?
Customer Perspective
Business Processes
How do we look
to our customers? What business
STRATEGY
processes are the
value drivers?
Organization Learning
Reference: The Balanced Scorecard- Measures That Drive Performances, Robert S. Kaplan, David P. Norton, Harvard Business Review, Jan-Feb
92.
Kaplan and Nortons Four Perspectives
As a Balanced Scorecard
Financial
To achieve Objectives Measures Targets
financially, Initiatives
how should we
appear to our
shareholders?
must we excel
at ?
Profitability measures being the most widely used: return on assets (ROA),
Profitability return on equity (ROE), return on investments (ROI), and sales margin. It is to
Measures important to observe the capability of the firm to earn a profit above its cost of
capital. These measures can be contrasted with the firms competitors to judge
the firms performance against its industry.
Risk Risk measured in terms of beta leverage (debt/equity) or bond rating, for example
Cost of capital for both debt and equity, and other meaningful weighted average
Cost of Capital
combinations of them
Gross margin 40 45 -
Less:
Marketing expenses 15 5 10
Admin. expenses 10 5 5
Research expenses 5 0 5
Division margin 10
Operating margin 35
Total strategic expenses 25
Total Market 4,032 4,994 5,822 6,722 7,820 0 9,266 11,120 13,123 16,012 19,312
Company Sales 2,083 2,568 3,002 3,316 3,799 0 4,502 5,522 6,577 8,123 9,966
Operating Cost of Goods Sold 1,789 2,138 2,499 2,771 3,165 0 3,760 4,612 5,492 6,789 8,336
Gross Operating Margin 294 430 503 545 634 0 742 910 1,085 1,334 1,630
Operating SG&A 62 103 110 121 138 0 162 199 241 295 366
Operating Margin 232 327 393 424 496 0 580 711 844 1,039 1,264
Strategic Expenses 130 165 204 213 251 0 321 396 497 626 789
SBU Margin 102 162 189 211 245 0 259 315 347 413 475
Taxes 5 18 23 27 32 0 35 43 56 70 93
SBU Net Income 97 144 166 184 213 0 224 272 291 343 382
+ Depreciation 18 21 26 32 38 0 46 56 67 82 100
Capital Investments 32 57 87 128 115 0 150 195 169 202 183
Increases in Working Capital 0 0 0 0 0 0 0 0 0 0 0
Contribution/Request of Funds to 83 108 105 88 136 0 120 133 189 223 299
the Corporation