Armco, Inc.: Midwestern Steel Division
1. The old performance measurement system had the following problems:
– It did not provide information on the product mix being produced. It provided data on total
tonnage produced, but did not breakdown “what” was produced.
– The system compared “actual” to “objective” but did not provide data on what factors caused
variance.
– Costs were not broken down by:
o Fixed costs
o Variable costs
o Relevant Range
– Reports were generated on the 15th day following each month end. Therefore, time lag would not
allow the managers to take immediate corrective actions.
– It did not measure Key Performance Index (KPIs’) for each department.
– The system did not highlight data that was outside the norm.
– Between 1985 – 1989, Melt Shop man-hours (MH) have been reduced by 20.4% but $/NT has
only reduced by 8.4%
