BACKGROUND Tasman Aquatic Adventures Limited (TAA) is an eco-tourism business owned and run by a local community trust (the Aihe Community (AC) Trust). TAA provides dolphin encounter activities in the Abel Tasman National Park where customers can watch and swim with dolphins and Visit fur seal colonies. In Tasman Bay, visitors can encounter the Hector's, Dusky, Bottlenose and Common dolphins along with a large number of fur seals. Their mission is to be a \"respected and environmentally responsible eco-tourism business.\" One of the trust's aims is to provide employment for the community and make enough prot to fund AC's generous support of community activities, especially for the young and the elderly. Things appeared to be going well and after a promotional campaign customer numbers rapidly increased. Soon TAA was protable enough to support a wide variety of community activities including a local children's play centre and toy library and the community hospital. Due to the initial success, the trustees decided to expand operations and built a Caf and Gift Shop (Caf & GS). They have recently expanded to include a meeting venue for conferences, corporate meetings and special events. TAA increased the number of dolphin and seal experiences on offer by customising them for four different markets: Ad hoc (referred to as Drive-up), Pre-booked, School, and Tour Group customers. With the new meeting venue, they are also considering a corporate customer segment. Signicant investment has been made in buildings, landscaping and information and communications technology (ICT) and TAA now has capital employed of $5 million. The number of visitors has continued to grow. The AC Trust Director, Humphrey Tohora, is concerned about the recent nancial performance of TAA and fears that the heavy investment in property and equipment is pulling down the overall protability of the business and limiting the contribution it makes to its community objectives. This decline in performance was expected initially, but given their market diversication and increasing visitor numbers, but Humphrey thinks TAA should now be making more money, rather than less. TAA employs around 30 permanent staff 'om the local community (with more employed on a seasonal basis). It has a strong management team. Although a medium-sized business, TAA has not considered it necessary to develop a divisional structure for performance measurement purposes even though there are several responsibility areas, TAA's performance is managed based on aggregated gures for the whole business. The management team is as follows: Tianna Dusky - Managing director. Mateo Dusky Finance manager. Aria Leopard - Sales and marketing manager. Sophie Pilot - Eco-tour manager. James Hector - Cafe and gi shop (GS) manager. Vasa Seal - Environmental and risk manager. You - Accountant. Based on her previous experience as a manager at an NZX tourism company, Tianna, the Managing Director, has implemented a simple bonus scheme whereby all managers are rewarded when TAA achieves an overall target return on capital employed (ROCE) of 10%. There is no bonus scheme for any staff below manager level in the organisation. TAA'S UNIQUE CUSTOMER STRATEGY Tianna has always stressed the importance of providing an exciting but safe experience for customers. She only employs qualied staff and provides enough ongoing training to keep them up to date \"nth the latest techniques and safety procedures. She believes that to be successful over the long term TAA must focus on delivering high levels of customer satisfaction and develop a strong relationship with all customers (and the guests they send on tours), so that Drive-up and Pre-booked customers (or guests) always want to come back a second (and third) time and Schools and Tour Group customers get such glowing reports from their own guests2 that they will place more bookings with TAA. Tianna says: "Customer retention levels are key. Churn is a dirty word. Whatever the type of customer, we believe it costs ve times more to nd a new customer than to retain an existing one. We want to put our marketing qforts into attracting the 'right' customers, that means long-term customers that will be loyal and stay with uszr many years to come. Moreover, we want our customers to become enthusiastic 'Promoters ' that openly refer TAA to their friends. " Mateo is more than a little sceptical when Tianna talks about high levels of customer satisfaction. He thinks that all this talk about long-term relationships and customer loyalty is 'an expensive luxury'. Mateo feels obliged to point out that TAA has invested heavily in recent years and needs to make an adequate return on that investment to enable AC to adequately support the community. 2 TAA managers distinguish between 'cuatomers' and 'glrests'. Customers include School customers and Tour Group customers. m individuals um these customers and m TAA as called guests (see Tlhle 4). Pre-bonbd and Drive-up Cummm can also be referred in as guests. TAA - PROFITABILITY ANALYS To date, TAA has produced a protability analysis based on its three key service lines of Dolphin Tours, Seal Tours and the Caf & GS. However, for sales and marketing purposes, TAA's customers are segmented into four main groups: School customers, Pre-booked customers (via website, email, or phone), Tout Group customers and Drive-up customers. Currently, there are 20 School customers, 30 Tour Group customers and last year there was a total of 3,600 Drive-up and 24,000 Pre-booked customers (see Table 4). School customers contract directly with TAA to provide an agreed number of educational adventure experiences per year, each for a specied student group. The sales and marketing team, headed up by Aria Leopard, negotiate these School contracts and usually have to offer a discount on the normal per person prices. However, they try to include tailor-made additional 'special' services to enhance learning (for example, educational pre- and post-tour sessions) to push up the overall contract price. Tour Group customers are given standard tour packages for a fixed number of participants, sold to the tour agents at xed prices (on a take it or leave it basis) there is no customisation of these packages and no discounts are available. The results for the previous year were considered at a recent management meeting. Although everyone present agreed that performance had to be improved, there was little consensus on how that improvement could be achieved. The most heated discussion was when the Service Line Protability Analysis (SLPA see Table 1) was introduced by the Finance Manager, Mateo Dusky. The managers were all surprised that TAA was only achieving an 8.6% net prot margin overall, especially as it oen seems to be extremely busy. However, an inspection of the booking records did reveal that there were many days where the tours were underbooked. Consequently, if there were relatively few Drive-up customers on those days then some of the tour staff would in fact be 'ldcking their heels' with insufficient work to do. Table 1 - TAA: Service Line Protability Analysis Seal Tours Dolphin Tours Cafe and GS Total 3 S S 3 Revenue! 1,200,000 2,268,000 888,000 4,356,000 Direct costs 870,000 1,242,000 594,000 2,706,000 Contribution 330,000 1,026,000 294,000 1,650,000 Contribution margin 27.5% 45.2% 33.1% 37.9% Overhead costs Equipment 33,200 123,100 14,700 171,000 Establishment 70,000 87,500 52,500 210,000 Equipment and establishment costs 103,200 210,600 67,200 381,000 Management and adminsitration 210,000 378,000 140,000 728,000 Marketing 40,155 124,845 - 165,000 Total overheads 353,355 713,445 207,200 1,274,000 Net prot (23,355) 312,555 86,800 376,000 Net prot margin -1.9% 13.8% 9.8% 8.6% Tianna was surprised that the SLPA disclosed that the Seal Tour and Dolphin Tour service lines have signicantly different net prot margins and she was particularly dismayed by the $23,355 loss on the Seal Tour service line. She found it hard to believe that seal tours were making a loss. Moreover, she is not entirely sure how to interpret this information and hence what action to take and asks herself: "Surely TAA should not consider dropping the seal tours? " Tianna decides she needs to understand the basis on which the SLPA is prepared and therefore asks Mateo for an explanation of how the gures are produced. Mateo explains: "Revenues are obviously what we invoice customers for the tours they book. For Drive-up customers, this is at the standard tour price of $1 00 per guest for a Dolphin Tour and $70 per guest for a Seal Tour. The direct costs are mainly direct labour costs consisting of the employment costs of tour guides and boat staf The direct cost of the dolphin tour sta is $250 per tour and the direct cost of the seal tour star is $200 per tour. Thus, it is relatively easy to calculate direct costs and hence the contribution rr the Seal Tour and Dolphin Tour service lines. " "Arriving at the contribution in the Caf and Gift Shop is even easier as we know what revenues come through the tills and we know the costs of everything we sell (we work on an average mark up of100% on cost). Moreover, all direct sta are specific to that area, so we know the direct labour cost ( $ 1 5 0, 000 per annum) and hence we can calculate the contribution generated by the Caf and Gift Shop. " Mateo explains the allocation of overheads next: \"Tour equipment costs include all costs (including depreciation and maintenance) of any of the specialised equipment used by the tour guides and guests during their tour, including life jackets, boarding ladders and boat repairs and maintenance. All the equipment costs can be accurately traced to the tour service lines. Similarly, for the Caf and Gift Shop, the equipment costs (related to ovens, tills, equipment, etc.) can be specically traced to the service line. " \"Establishment costs relate to the overall costs of running the premises, including building services, maintenance and insurance. These are traced to each service line based on the oor area of the rooms (including storage areas) dedicated to Seal Tours, Dolphin Tours and the Cafe' and Gift Shop. The costs of any shared areas (like reception) are allocated in the same overall proportion, on the basis that all service lines benet from such areas. " "Management and Admin costs relate mainly to the costs associated with sales and marketing sta and admin staff (including salaries and their o'ice costs). These are a bit tricky to allocate accurately The Cafe' and Gift Shop is relatively easy as they have dedicated management and admin sta the manager, James Hector, plus one purchasing clerk so their costs can be specically traced to the service line. Clearly, Sophie '5 costs are specific to the tour service lines. \" \"The remaining Management and Admin costs are then apportioned between the Seal Tour and Dolphin Tour service lines in proportion to the number of tour star - the admin staff always claim to spend more of their time on issues relating to the dolphin tours because there are more dolphin tour sta'asla'ngfor their help! Therefore, the remaining Management and Admin costs are allocated in the proportion of 35. 72% to Seal Tours and 64.28% to Dolphin Tours. " "Finally, the marketing expenditure (mainly advertising) is incurred in large chunks relating to various advertising initiatives. It is very diicult to accurately trace marketing costs to service lines and it seems unfair to charge marketing to the Cafe' and Gift Shop as we mainly advertise the tours. Therefore, we simply allocate marketing expenditure in proportion to the contribution of each tour service line. \" Tianna is not sure she fully understands Mateo's explanations and she is concerned that there is a large amount of 'allocation' going on. She remembers 'om a 'finance for non-nancial managers' course that cost 'allocan'ons' could be misleading especially if they were on an arbitrary basis. She begins to recognise that TAA's activities have become more diverse and complex over the years and yet the costing system has remained relatively simplistic. Maybe TAA needs a more sophisticated costing system that will provide more useful information to managers? Tianna shares her thoughts with the other managers: " We have had the same costing system for ages. It was probably accurate enough when we only dealt with 'Drive-up' customers and oered everyone the same tours on a 'take it or leave it' basis. However, we have developed customised packages for our School customers and Tour Group customers. Shouldn 't our profitability analysis zcus on the same customer segments as our sales and marketing team focus on? " Mateo is unsure how to answer these questions. However, before he can collect his thoughts Aria poses an additional question: "Why are we still 'allocating' overhead costs on the basis of 'ability to bear ', Mateo? Didn 't you ask us to send you to that course on activity-based costing last year? If I recall correctly, the rationale for sending you was that we needed a much more accurate costing system, particularly as our overheads have grown to 32% of our total operating costs. " Mateo quickly agrees that it would be timely to apply what he learned on that activity-based costing (ABC) course. He suggests that he talks to each manager about key activities and cost drivers at TAA and offers to come up with some sort of customer segment protability analysis (CSPA) for the next meeting. One week later Mateo proudly presents a CSPA (Table 2) and explains that the principles used in arriving at the contribution are exactly the same as for the SLPA (Table l), as explained previously. The only difference is that customer segments are the cost object instead of the service line. Mateo explains the basic principles of ABC and the ABC methodology he used to trace overheads to customer segments and its ability to produce reliable and accurate customer protability gures that take all costs into account. \"I've previously explained how the equipment costs were specically allocated to Seal and Dolphin service lines It then makes sense to trace the equipment costs to customer segments based on usage. That is, the number of guests from each customer segment undertaking each type of tour. \" Table 2 - TAA: Tour Customer Segment Protability Analysis (CSPA) School Tour Group Pre-bnoked Drive-up Total $ 3 3 $ 5 Seal tour revenue 108,000 360,000 600,000 132,000 1,200,000 Dohahin tour revenue 193,200 655,200 1,260,000 159,600 2,268,000 Tm! tour revenue 301,200 1,015,200 1,860,000 291,600 3,468,000 Seal tour direct costs 78,300 261,000 435,000 95,700 870,000 Do ' tour direct costs 105,800 358,800 690,000 87,400 1,242,000 Total direct costs 184,100 619,800 1,125,000 183,100 2,112,000 Seal tour contribut'xrn 29,700 99,000 165,000 36,300 330,000 D0 hiniour contribution 87,400 296,400 570,000 72,200 1,026,000 Total tour contribution 117,100 395,400 735,000 108,500 1,356,000 Contrisution margin % 38.9% 38.9% 39.5% 37.2% 39.1% Overhead costs Equip & establishment - Seal 9,288 30,960 51,600 11,352 103,200 Equ'p & establishment - Dolphin 17,940 60,840 117,000 14,820 210,600 27,228 91,800 168,600 26,172 313,800 Customer relationship management 73,200 109,800 183,000 - 366,000 Customer administration 19,200 64,800 120,000 18,000 222,000 Specific marketing 23,400 55,000 20,000 0 98,400 General marketing 5,760 19,440 36,000 5,400 66,600 Tm! overhead ma 148,788 340,840 527,600 49,572 1,066,800 Net profit or loss for Tours (31,688) 54,560 207,400 58,928 289,200 Related net prot for Caf & GS 7,507 25,336 46,919 7,038 86,800 Customer segment prot or loss (24,181) 79,896 254,319 65,966 376,000 Customer Prot Margin -8.0% 7.9% 13.7% 22.6% 10.8% The calculations of cost drivers are shown in Table 3 below, and Mateo continues to justify his choices: "I was unsure how to deal with Management and Admin costs until I discussed these with the sales and marketing team and our administrators. It is now clear two separate activities are involved Firstly, customer relationship management (CRM) that involves looking aer School and Tour Group customers. Secondly, customer administration: manning reception, issuing tickets and helping guests from whatever customer segment) whilst they are at TAA. I have apportioned the relevant salary costs of sales and marketing sta" and admin star between these two activities and I have determined that the appropriate cost drivers are CRM days or customer relationship management) and the number of guests (for customer administration). The details of cost drivers and burden rate calculations for the CSPA are shown in Table 3. \" Table 3:Ar.1|vites and activity late for CSPA Activity cost Cost driver Number oi Activity (burden) transactions rate 5 5 Equipment and Establishment Dolphin tours 210,600 Number of dolphin tour guests 32,400 6.50 Seal tours 103,200 Number of seal tour guests 12,000 8.60 local 313,300 44,400 Management and administration (mludlng Cafe E 65} Customer relationship management 366,000 CRM days 400 915.00 Customer administration 111,000 Number of guests 44,400 5.00 lanai 580.0\") 44,800 Marketing Specic 98,400 Not applicable Specic allocation to sment General 55,600 Number of guests 44,400 1.50 Total 165,0W Tiarma is getting a little lost and hence poses a question: \"What about marketing? Is that classed as an 'activity '? We spent $165, 000 on marketing last year, how do we deal with that cost? " Mateo responds: \"Some of our marketing is entirely specific to individual customer segments. Last year we spent $23,400 on advertising targeted at potential School customers, $20,000 on advertising targeted at getting customers to pre-book tours using the online booking system, and $55,000 focused on Tour Groups. It 's just a matter of putting the adverts in the right industry magazines or on the type of websites these customers visit. The remainder of our marketing expenditure ($66,600) is more general and relates to the TM brand. It is dticult to know how to allocate this to customer segments, but I believe it is best to focus on the results of the marketing. So general marketing has been allocated based on the number of guests am each customer segment that ends up taking a tour. \" Aria is surprised by the cost of specic advertising and therefore asks: \"Advertising expenditure of $55, 000 per annum targeted at Tour Groups. That seems rather high. Is that gure correct? " Mateo answers: \"The gure is correct, but you are right that that is not the normal annual expenditure. If you think back a few months we discussed where best to focus our efforts to acquire new customers and we decided to target Tour Groups. So we spent about $35, 000 more than usual in order to place some special adverts. That has resulted in us picking up a few new Tour Group customers. Interestingly, we also picked up quite a few new Drive-up customers as a result of those special adverts. " Finally, Mateo explains how the overhead costs are arrived at using the activity (burden) rates (Table 3) and the appropriate number of transactions caused by each customer segment (Table 4). Table 4: Data on number of transactions by customer segment School Tour Group Pre-bocked Drive-up Total Number of customers 20 30 24,000 3,600 27,650 CRM days 80 120 200 - 400 Number of dolphin tour guests 2,760 9,360 18,000 2,280 32,400 Number of seal tour guests 1,080 3,600 6,000 1,320 12,000 Total number of guests 3,840 12,960 24,000 3,600 44,400 Tianna is pleased with the detail Mateo has been able to provide, but not so pleased with what the gures disclose. She wonders whether the gures are accurate, but keeps quiet about that for the moment and thinks to herself - are these the true 'costs to serve' each customer segment? In particular, she wonders what TAA should do if the CSPA gures are in fact accurate. Should they start 'ring' all their School customers? Would they be $31,688 (Table 2) better off if they completely stopped selling to the School customers? She decides that the management team will need time to digest these gures and asks you (the accountant) to provide her with a report that covers both the reliability of the gures and the action that managers should take in response to this highly detailed analysis. QUALITY, ENVIRONMENTAL AND INVENTORY MANAGEMENT At the management team meeting, James, the Cafe & GS manager, raises what he considers to be an urgent issue: "We have a problem in the Caf due to our market customisation/diversification strategy; some days I run out of the fresh zod we prepare that morning, but then there are other days when I have heaps of food leftover. I keep asking Sophie and Aria to tell me what School and Tour Groups and other customers we have booked in so that I can cater accordingly, but they never seem to get around to letting me know early enough so I can do something about it. Of course, some of the food doesn '1 go to waste as we take it down to the local community centre and hospital, but it is so frustrating. \" James continues: "Further, I have the opposite problem with some of my pre-packaged products such as potato chips, chocolate bars and biscuits. I always seem to order far too many and have to throw some of them out as they have reached their 'best before ' date. \" James highlights that this lack of inventory control is also an issue in the Gi Shop which stocks a range of souvenir items. Mateo (the nance manager) suggests that James may like to use a mathematical formula he learnt about when he was at university - the EOQ model. He goes on to explain this. \"For example, take our popular dolphin sculptures range we sell 4500 of these per year, but as our business has a seasonal component, sales can be as few as 300 or as high as 450 per month. When an order is placed for these sculptures, they generally take one month to arrive from our international supplier. I also know that the per order cost is $15.00 (including transport, insurance, handling and inspection cosm), while the cost of storing each dolphin sculpture is $2.00. \" Mateo suggests that TAA could use this EOQ model to decide how much to order and at what point James should reorder his Gi Shop inventory. He finther suggests that TAA could use an online automated supplier management system to do this. James thinks this is a great idea: "That means we would never run out of inventory and more importantly we would never have to dump our unsold items at the local transfer station. Just think if the EOQ system works we will also be able to use it to solve our zod wastage problems in the cafe' as well. But how will I know when to place a new order, especially when it takes longer than a month to arrive om overseas? " Vasa (environmental and risk manager) disagrees: \"Given that we are a seasonal business with more customers in the summer, and we only have a rough idea of how many guests we are going to get each month, I am not sure how you can use the EOQ model. Demand for our items is seasonal and, as James has mentioned, the time our items take to reach here is not always the same. Then there is the issue of perishable goods! Maybe we should investigate more contemporary ways of managing our inventory and consider the value our suppliers provide to us. " Recently Mateo has attended a business seminar about inventory management. The presenter, Professor Saunders, suggested that inventories are a wasted physical and nancial resource, which adds no value to the rm and conceal inefficiencies and defects. He argued that: \"It is a good idea to reduce inventory levels to a minimum or ideally zero so as to expose production ine'iciencies and (Meets and reduce storage and obsolescence costs. He called it a Just-inTime approach and stated that it had been successfully used in many manufacturing organisations, including some in New Zealand. Others however, have had issues due to delays in the supply chain. Mateo suggests that they should investigate this approach with a View to implementing it at TAA, He also agrees with Vasa that they need to consider the value TAA's suppliers provide but is unsure how he would measure that value. Vasa then raises another major concern: \"What are we going to do about the amount of C02 missions from our boats, vehicles and other activities? Maybe we need to account fully for our impact on the environment, especially as we promote ourselves as an eco-tourism business and consider restricting guest numbers. \" Aria (sales and marketing manager) is also not happy any restriction in guest numbers will impact her growth strategy and the four different markets in which TAA has been investing. Tianna is more concerned about a recent drowning death during a 'swim with the dolphins' and the negative publicity that TAA received as a result: \"We don't need to worry about the C02 emission levels as this accident will aect our reputation for safety and lower our guest numbers It's not the rst time it's happened remember we had a medical incident last year that was widely reported " Vasa explains: "Our tours are governed by strict compliance procedures to ensure safety. However, they are not without risk and to manage this risk we require that participants have a moderate level of tness, especially if they are planning to swim with the dolphins. If the guide(s) on the day have any doubt about a customer 's fitness they can ask them to prove it by completing a fitness test. " Aria states that she has personally contacted the victim's family to express TAA's deepest sympathy and to offer nancial compensation. Sophie is however concerned about the impact of these incidents on TAA's staff. She asks: "What are we doing for them? Now we have Maritime New Zealand investigating the incident and the sta are understandably on edge! " Mateo (nance manager) is not sure where this conversation is heading. He mentions that Vasa has just developed a new environmental policy that states: "At TAA, environmental protection is a kg; goal. We continually strive to operate in a manner that minimises our negative impact on the environment, and where possible, increases our positive environmental impacts. " Vasa explains that his next task is to implement an environmental management system (EMS) that among other things measures environmental nancial and non-nancial performance and its costs and benets, and then gain ISO 14001 certication. Aria asks: \"Why worry about our environmental impacts and costs we need to focus on getting more guests to provide employment for and better support to our community. " James is concerned by this attitude: \"Environmental impacts are important - aren 't we meant to be protecting the environment for tture generations of the community? " Mateo (nance manager) decides it is time to show support for Vasa and the new environmental policy and tables a document that illustrates the current environmental costs of TAA's activities and the cost of the environmental initiatives planned (Table 5) prepared by his department. Vasa jumps in again: "We really have little or no option when it comes to compliance with best environmental practices given the growing amount of legislation and the activities of environmental activists that put our business practices under constant scrutiny. We can 't aord to look the other way! Besides, as part of the Aihe Community, our key stakeholders look up to us to care about and nurture our ecu-system as one of their key values of priority as reported in a recent independent third-party conducted survey ". Table 5 - Environmental cost items Environmental cost 5 Compensation to guest's family for accidental death and medical incident 180,000 Environmental measures and targets for EMS 35,000 Environmental training for TAA staff 23,000 Excessive electricity usage charge in the Cafe and Gilt Shop 19,000 Inspection for damage to ace-systems 66,000 Liability regarding environmental non-compliance incidents 53,000 Planned ISO 14001 implementation 26,000 Qualmark and Outdoorsmark annual audit 50,000 Recycling of paper and waste 65,000 Replacement and maintenance of safety equipment 35,000 Testing of safety equipment 45 ,000 Total environmental cost 597,000 TAA's total operating cost 3,980,000 The management team consider the above costs and continue the discussion around TAA's environmental activities. James suggests that as TAA are planning to implement ISO 14001, maybe it would be a good time to look at gaining other certications such as ISO 9001, Enviro-Mark Certication and carboNZero certication. Currently, TAA carries both the Outdoorsmark and Qualmark endorsement. Under these endorsements, all their tour experiences have passed independent audits. Furthermore, in New Zealand, tour staff are meant to be trained to the highest industry standards for this type of work. Sophie exclaims: "Why do we need more certications they cost money and just don '2 work. Just look at the issues we have had lately around the management and measurement of quality. I have received many complaints regarding the quality of the tour guides and the overall experience. I don 't know what is going on! " Tianna looks at the environmental cost information provided and notices that the environmental costs appear to be similar to what she considers as quality costs. She comments: "It seems to me that there is not much dWrence between what constitutes a quality cost and what constimtes an environmental cost. I wonder if the two concepts are related and whether we can use that information to gain a competitive advantage? " You (the accountant), have been listening quietly to the conversation, and state: "It seems to me we have some things to look at. Our inventory control process could do with some improvement along with our environmental management and possible quality management practices. I will investigate these and incorporate them into the report I promised to write on the customer, activity and profitability analyser above. " PERFORNIANCE MEASUREMENT TAA's overall nancial performance is currently assessed mainly in relation to a ROCE target of 10% per annum, which is not currently being achieved. The director and key managers participate in a bonus scheme that rewards them when TAA achieves the target ROCE of 10%. Some doubts have been expressed about whether ROCE is the appropriate measure for monitoring nancial performance given TAA's objectives and strategies. Some staff have also asked whether the 10% target is too high, given the eco-tourism nature of the business. Clearly, the bonus system is not going to be very effective for motivating staff if the target ROCE is believed to be unachievable. Tianna receives a considerable amount of data each month. This includes nancial data from Mateo, such as income statements, balance sheets and cash ow statements for TAA as a whole. Mateo also produces a monthly analysis of variances between budget and actual and a whole page full of nancial ratios, most of which Tianna does not really understand. Aria produces some customer-related statistics such as sales growth and market share gures. Other managers produce a page of measures related to their department, except Vasa, he produces two pages of measures! Tianna feels she is drowning in key performance indicators they can't all be key! How can she decide which measures are really helpful to the management team in order to help them make the key decisions that are obviously necessary if they are going to improve the performance of this business? Now they also have the CSPA which looks quite disturbing - will that help? Tianna is not even sure whether the focus on ROCE is correct and exclaims: \"I'm not convinced that ROCE is the right measure to use and anyway, just 'watching' the figures does not provide the information we need to actually help us to improve them! \" At the next management meeting Tianna asks: \"If we are going to improve ROCE, perhaps we need to cut down on our training expenditure. Our guides surely know what they are doing by now and every additional training day is a lost opportunity to have our guides leading extra tours and generating more revenue. \" Vasa argues that TAA needs to provide regular environmental and risk training to keep up safety standards and to ensure that guests are provided with excellent customer service. Tianna, playing devil's advocate, responds: \"We know how much we have spent on training, but do we know how eective it has been? Does the training actually lead to more satised customers do we know whether our customers are good promoters that help us market the business? \" Vasa answers: \"I'm not sure about that, Mateo provides some customer data, but whenever I have talked to him about including data on things like customer complaints and customer satisfaction in the monthly management reports he claims that such measures are the responsibility of the sales and marking team and nothing to do with management accounting. Aria has talked about 'maybe' conducting a customer survey but claims to be too busy "selling\" to nd time for this. \" Tianna is somewhat concerned by this discussion: \"I think Mateo is sometimes too focussed on short-term nancial performance. We know we must be more protable, but we need more help understanding how to achieve that. We know we need to understand and meet customer 's needs. We need to nd out what makes some customers defect to our competitors - do we even know who our competitors are, ar Tour Group customers for instance? We also need to know what makes some customers stay loyal to us and place repeat orders. The most critical issue is that we need a performance measurement system that will help us grow the business in a way that will improve overall protability. \" Aria highlights that TAA's environmental and quality performance is likely to be a key aspect bearing on customer (and guest) satisfaction for many customers and she argues for more visibility of key environmental and quality measures in TAA's management reports. Aria also stresses the importance of measuring inventory management performance. Vasa confnms the importance of environmental measures for TAA's new environmental policy and associated EMS. He explains that TAA's current operating and other practices focus on ensuring compliance with relevant environmental rules, regulations and standards. In addition, as part of the ISO 14001 requirements, in the future, a 100% compliance target will be set for the Caf & GS and the tours. Compliance will be measured quarterly and then reported and discussed at management meetings. Vasa plans to visit each TAA activity area and talk to staff to help them choose other appropriate environmental measures for their area. You (the accountant) realise that you can help TAA develop a balanced performance measurement system suitable for a company like TAA. You mention this to Mateo, and he agrees that you should also include this in the report you are preparing for Tianna on protability and quality, inventory and environmental management