Advanced: EVA ${ }^{(\mathrm{TM})}$, key performance indicators for critical success factors, JIT, kaizen costing and zero defects. Iron Chicken (IC) is a multinational business which manufactures commercial building control systems. Building control systems include heating and air-conditioning systems, lighting controls, power and water monitoring and security systems (e.g. keypad access, alarms and CCTV). IC's manufacturing takes place at a number of factory sites where some products have a long product life and are simple and mass-produced while other products are complex and have a short product life due to changing technologies. IC's mission statement is 'to create value for shareholders through control products which improve productivity, save energy and increase comfort and safety'.
A new chief executive officer (CEO) has been appointed to address a decline in IC's share price in the last three years. This CEO has identified that the business has grown through acquisition and as a result she stated, 'Senior management have focused on making corporate deals and not making control systems.' The CEO has declared that the business must focus on optimizing its value generation rather than just getting larger through acquisitions.
You are a performance management expert within IC. The CEO has tasked you with aiding her in aspects of her improvement programme. First, she wants your views on the use of EVA(TM) as the key performance metric at IC. You have been supplied with the current EVA ${ }^{(\mathrm{rM})}$ calculation (Appendix 1) but there is some doubt about whether the junior management accountant who has done this work was sufficiently trained in the method. So, the CEO needs you to evaluate its accuracy and the assumptions which form part of the calculation.
Second, the CEO believes that the poor performance of the company can be addressed by ensuring that the mission statement flows down into the performance management of the business. To that end, the following critical success factors (CSFs) have been identified and the CEO wants you to suggest additional key performance indicators (KPIs) for these.
Required:
Write a report to the CEO of Iron Chicken to:
(a) evaluate the accuracy of the $\mathrm{EVA}^{(1 \times)}$ calculation and the assumptions in Appendix 1. Advise the CEO on your results, providing calculations as needed.
(b) for each of the three critical success factors at IC, briefly explain a weakness of the current KPI associated with that CSF and then provide a justified alternative KPI.
(c) explain what the three improvement projects are, how they will help to meet the CSFs at IC and comment on the impact of each project on the existing three KPIs.
(d) assess the impact of the proposed, new information system on the three improvement projects.
Professional marks will be awarded for the format, style and structure of the discussion of your answer: