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CMA Final · Strategic Performance Management and Business Valuation · Introduction to Performance Management

Kaveri Textiles Ltd's plant manager is judged on a cost variance that he cannot influence because raw cotton prices are set nationally by market forces. Which design principle of performance measurement is being violated?

The principle violated is controllability. Managers should be evaluated on results they can influence, and a plant manager cannot affect nationally determined cotton prices. Holding him accountable for that variance gives a distorted picture of his performance and weakens motivation, regardless of goal alignment.

  1. AGoal congruence
  2. BControllabilityCorrect
  3. CComparability across industries
  4. DMateriality of disclosure

Explanation

A sound performance measure should reflect only items the manager can influence. Judging him on uncontrollable cotton prices breaches controllability. Goal congruence concerns alignment with organisational goals, which is a different issue here.

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