Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 41

Objective and Subjective Performance Measures

A common method of measuring performance in accounting courses is to combine objective measures (test scores, for example) with subjective measures (class participation measures, for example). These scores are weighted and combined to determine a final grade.

Required

a. Write a memo that discusses the advantages and disadvantages of using multiple measures of performance, including some that are objective and some that are subjective.

---

b. Can you identify a situation in which you would prefer to be evaluated using a purely objective measure (exam scores)? A purely subjective measure (class participation)?

Step 1 of 3

Business strategy

It is an approach used by a company for deploying its resources, assets and capabilities to provide maximum returns to its investors and meeting customer expectations. It is component of high-level strategy plan and defines value preposition.

Objective performance measures

Objective performance measures can be calculated and it does not lead to any doubts or ambiguity related to results. For example, increase in sales by 10%, reduction in labors hours by 5% etc. Most of the measures objective so that it becomes easy to understand and satisfies the appraisee and appraiser.

Subjective performance measure

These measures can not be calculated and based on the best judgement of the appraiser. For example, rating the hard and dedication of an employee on a scale of 1 to 5, customer rating products quality on a scale of 1 to 10. Subjective measures are not very clear and convincing to all and are based individual’s own judgement.