Vollmann, T. 1990. Changing manufacturing performance measurements. Proceedings of the Third Annual Management Accounting Symposium. Sarasota: American Accounting Association: 53-62.

Summary by Scarlet Detjen
Master of Accountancy Program
University of South Florida, Fall 2000

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In this paper Vollman identifies several problems with traditional performance measure systems and the phases, or stages involved in creating more effective measurement systems.

Problems with current systems

1. Traditional accounting methods for measuring performance are obsolete.
   
2. External reporting is not appropriate for decisions and control.
   
3. High quality/low cost is the ante to play the game – winning requires rolling out new products faster, higher quality, more knowledge work by all employees.
   
4. Traditional accounting measurements create a bias to accumulate inventory.
   
5. Cost accounting is a frustration that has to be put up with.
   
6. Subject to wide latitude (e.g., computer manufacturers could change gross profit as much 
   as 20% by changing how overhead was allocated.)
   
7. Cost is a follower, not a driver – like a tail wagging behind a dog.
   
8. Need real-time information. Info one week after month end is too late to make effective adjustments.

Phase I – Tinkering with Costs Systems

1. Tinkering with cost systems (e.g., more overhead cost pools) alone does not solve problems.
   
2. An hour of capacity lost at a bottleneck is an hour of capacity lost to the entire system.
   
3. Encouraging full utilization of workers is the enemy of production (e.g., it increases WIP at the bottlenecks).
   
4. Accounting systems perform three separate, incompatible activities – one system cannot be used:
   
1. Financial reporting – this system is not broken, do not try to fix it.
   
2. Cost modeling (special studies) – e.g., what will happen if an investment is not made?
   
3. Feedback and control – should be real time.
   
5. Need to focus on managing resources – not costs.

Phase II – Cutting the Gordian Knot

1. One firm gave up absorption costing for internal reporting.
   
2. High tech companies have begun to abandon the concept of direct labor – employees should continually increase their knowledge base.
   
3. Focus on knowledge of workers and understand if their time is being put to the best use.
   
4. Financial people must buy in – in the US, the accountant often has the clout to make or block changes.
   
5. Well articulated strategy – use questionnaires at all levels.
1. Identify ineffective areas.
2. Assess performance factors against long run importance.
3. Pick performance measures being used to evaluate performance.

Phase III – Embracing Change

1. Determine necessary changes in performance measures to create change in the organization's strategic direction.
   
2. Changes must be both top down and bottom up.
   
3. Eliminating performance measures can be as useful adding them.
1. McDonalds needs only volume per time period to measure performance.
2. JIT eliminates many standard measures.
   
4. Benchmark against the best – in any industry, any country.