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Chapter 3—Measuring Performance in Operations
Multiple Choice
1. _____ is the act of quantifying the performance of organizational units, goods and services,
processes, people, and other business activities.
a. Measurement
b. Forecasting
c. Fulfillment
d. Deployment
2. Which of the following is NOT a financial performance measure at an organizational level?
a. Labor and material costs
b. Revenue and profit
c. Return on assets
d. Earnings per share
3. Which of the following is a quality performance measure at an operational level?
a. Customer ratings of goods and services
b. Customer retention
c. Service representative courtesy
d. Product recalls
4. Which of the following is an example of innovation and learning performance measure?
a. Employee satisfaction
b. Earnings per share
c. Design flexibility
d. Product-related litigation
5. _____ measures the degree to which the output of a process meets customer requirements.
a. Frequency
b. Depreciation
c. Variability
d. Quality
6. Which of the following is NOT a key dimension of service quality?
a. Conformance
b. Tangibles
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c. Empathy
d. Reliability
7. It takes fifteen minutes to complete a drilling operation using a lathe. The duration of this
operation is known as _____ time.
a. delay
b. queue
c. processing
d. standard
8. Dell’s ability to provide a wide range of customized computer hardware to accommodate
customers’ needs best describes _____.
a. volume flexibility
b. design flexibility
c. cycle time
d. queue time
9. The ability to respond quickly to changes in the volume and type of demand is called _____.
a. learning
b. service quality
c. demand variability
d. volume flexibility
10. Which of the following statements on organizational performance measures is FALSE?
a. The five dimensions to assess service quality are empathy, assurance, responsiveness,
reliability, and tangibles.
b. Learning refers to the ability to create new and unique goods and services that delight
customers and create competitive advantage.
c. The two types of performance measures related to time are the speed of doing something
and the variability of a process.
d. Flexibility is the ability to adapt quickly and effectively to changing requirements.
11. When Bill Gates stated that “Microsoft is always two years away from failure,” he was
emphasizing the importance of _____.
a. innovation and learning
b. productivity
c. design flexibility
d. speed
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12. _____ is the ratio of the output of a process to the input.
a. Productivity
b. Flexibility
c. Variability
d. Reliability
13. Which of the following expressions is used to measure productivity?
a. Quality of output/Quantity of input
b. Quality of input/Quantity of output
c. Quantity of output/Quantity of input
d. Quantity of input/Quantity of output
14. A manufacturer of paint has two factories located in France and Spain and due to economic
conditions must close one of them. The factory productivity data is as follows:
Gallons of Paint Total Costs
Produced (1,000s) (millions $)
Factory (Spain) 4,600,000 $5,250,000
Factory (France) 4,000,000 $3,500,000
Based on the productivity analysis of both the factories, which of the following statements is
true?
a. The factory in Spain is more productive than the factory in France.
b. Based solely on this productivity analysis, the factory in Spain must be closed.
c. Based solely on this productivity analysis, the factory in France must be closed.
d. Both factories have identical productivity levels. So, other criteria must be used to make this
decision.
15. Using the information provided in the table below, the percentage change in productivity
from 2009 to 2010 is _____.
2009
2010
OUTPUTS
Units
110,000
150,000
INPUTS
Direct Labor Costs
$250,000
$310,000
Energy Cost
$ 6,000
$ 5,800
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Raw Material Cost
$ 40,000
$ 42,000
a. less than or equal to 10%
b. more than 10% and less than or equal to 15%
c. more than 15% and less than or equal to 20%
d. more than 20% and less than or equal to 25%
16. Airline revenue per passenger mile and hotel revenue per full-time employee are examples
of _____.
a. reliability
b. value of a loyal customer
c. sustainability
d. productivity
17. _____ is the ability to provide goods and services to customers with minimum waste and
maximum utilization of resources.
a. Operational efficiency
b. Volume flexibility
c. Reliability
d. Sustainability
18. The triple bottom line (TBL or 3BL) refers to the measurement of sustainability in all of the
following areas EXCEPT:
a. economic area.
b. social area.
c. technological area.
d. environmental area.
19. _____ is the quantitative modeling of cause-and-effect relationships between internal and
external performance criteria.
a. Learning
b. Strategic planning
c. Interlinking
d. Forecasting
20. As time-on-hold waiting decreases, customer satisfaction rating increases. This is an example
of _____.
a. productivity index
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b. interlinking
c. value of a loyal customer
d. flexibility
21. A coffee shop’s average transaction price is $4, and the contribution margin is 60 percent. A
typical customer makes a purchase once a week or 52 weeks per year, and the management
estimates the value of the loyal customer over the buying life cycle as $520. The customer
defection rate is _____.
a. less than or equal to 0.10
b. more than 0.10 and less than or equal to 0.15
c. more than 0.15 and less than or equal to 0.20
d. more than 0.20 and less than or equal to 0.25
22. A coffee shop’s average transaction price is $4 and its contribution margin is 60 percent. A
typical customer makes a purchase once a week or 52 times per year, and the management
estimates the value of the loyal customer over the buying life cycle as $720. The customer
defection rate is _____.
a. less than or equal to 0.10
b. more than 0.10 and less than or equal to 0.15
c. more than 0.15 and less than or equal to 0.20
d. more than 0.20 and less than or equal to 0.25
Problem for #23 and #24
A retail store sells a popular cosmetic called Devine and the store manager is given $300,000 by
the corporate office to improve store performance any way she thinks best. The “base case”
information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate
of 20%, and a repurchase frequency of 3 times a year. If these improvement funds could be used
to either (a) increase the contribution margin to 0.60 or (b) reduce the customer defection rate
to 12% or (c) increase the repurchase frequency to 4 times per year, what is the best way to
spend these improvement funds? (Assume all other variables remain at the base case level for
each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the worksheet below to help organize your computations and answer of
the multiple choice question(s).
Improvement
Option
Contribution
Margin
Repurchase
Frequency
Defection
Rate
VLC in $
Base case
0.50
3
20%
(a)
(b)
(c)
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23.The value of a loyal customer (VLC) for improvement option (a) is _____.
a. more than $100 and less than or equal to $150
b. more than $150 and less than or equal to $200
c. more than $200 and less than or equal to $250
d. more than $250
24. Which of the following is the best way to use the $300,000 in improvement funds?
a. Do nothing (stay with base case).
b. Improve option (a).
c. Improve option (b).
d. Improve option (c).
Problem for #25 and #26
A retail store sells a popular cosmetic called Rochelle and the store manager is given $100,000
by the corporate office to improve store performance any way she thinks best. The “base case”
information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate
of 17%, and a repurchase frequency of 3 times a year. If these improvement funds could be
used to either (a) increase the contribution margin to 0.58 or (b) reduce the customer defection
rate to 15% or (c) increase the repurchase frequency to 4 times per year, what is the best way to
spend these improvement funds by answering the next two multiple choice questions? (Assume
all other variables remain at the base case level for each of the three improvement options.) VLC
= P*CM*RF*BLC
You may want to use the table below to help organize your computations and answer.
Price &
Improvement
Option
Contribution
Margin
Repurchase
Frequency
Defection Rate
VLV in $
$30 (base case)
0.50
3
17%
$30 (option a)
$30 (option b)
$30 (option c)
25. The value of a loyal customer (VLC) for improvement option (a) is _____.
a. less than or equal to $100
b. more than $100 and less than or equal to $200
c. more than $200 and less than or equal to $300
d. more than $300 and less than or equal to $400
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26. Which of the following is the best way to use the $100,000 in improvement funds?
a. Do nothing (stay with base case).
b. Improve option (a)—increase the contribution margin to 0.58.
c. Improve option (b)—reduce the defection rate to 15%.
d. Improve option (c)—increase the repurchase frequency to 4.
e. Two improvement options have equal VLC dollars, so split the funds between the two tied
improvement options.
27. A manufacturer of business copier workstations has a 75 percent customer retention rate.
Their accounting department estimates the incremental contribution to profit and overhead as
40 percent. Customers purchase the workstations every three years at an average cost of
$1,500. The average value of a loyal customer is _____.
a. more than $200 and less than or equal to $300
b. more than $300 and less than or equal to $400
c. more than $400 and less than or equal to $500
d. more than $500
28. A computer manufacturer currently has a 15 percent customer defection rate. Their
accounting department estimates the incremental contribution to profit and overhead as 30
percent. Customers purchase computers every four years at an average cost of $1,200. In an
effort to reduce the defection rate, the company is improving both the quality of its computers
and its post-sale service. Determine the value of a loyal customer if the defection rate drops to 5
percent.
a. Less than or equal to $500
b. More than $500 and less than or equal to $1,000
c. More than $1,000 and less than or equal to $1,500
d. More than $1,500 and less than or equal to $2,000
29. A family rents videos from a local video store. On an average, they spend $80 a month. The
store’s contribution margin is 45 percent and the average customer defection is 40 percent.
Determine the value of a loyal customer.
a. Less than or equal to $500
b. More than $500 and less than or equal to $1,000
c. More than $1,000 and less than or equal to $1,500
d. More than $1,500 and less than or equal to $2,000
30. A guest at Raphael’s Four-Star Italian Restaurant generally spends $150 on a meal. Most of
Raphael’s customers are from nearby localities and eat at the restaurant twice a month. If the
restaurant’s margin is 60 percent, and a loyal customer is estimated to be worth $4,000,
determine the average defection rate.
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a. Less than or equal to 0.15
b. More than 0.15 and less than or equal to 0.20
c. More than 0.20 and less than or equal to 0.25
d. More than 0.25
31._____ provide the basis for decisions at the level at which they are applied—the value chain,
organization, process, department, workstation, job, and service encounter.
a. Contribution margins
b. Actionable measures
c. Smoothing factors
d. Standard deviations
32. Of the four models of organizational performance, which two focus on the “big picture” of
organizational performance rather than on the operational-level framework?
a. Baldrige Performance Excellence framework and the value chain model
b. Balanced scorecard and the Service-Profit Chain
c. Baldrige Performance Excellence framework and the balanced scorecard
d. The value chain model and the Service-Profit Chain
33. Which of the following categories of the Malcolm Baldrige National Quality Award Program
examines how an organization fulfills its ethical, legal, and societal responsibilities, and supports
its key communities?
a. Leadership
b. Strategic planning
c. Customer focus
d. Results
34. Which of the following categories in Baldrige model of organizational performance
addresses how an organization designs, manages, and improves its work systems to deliver
customer value?
a. Leadership
b. Workforce focus
c. Customer focus
d. Operations focus
35. Which of the following performance perspectives in the balanced scorecard model measures
the ultimate value that a business provides to its shareholders?
a. Financial perspective
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b. Internal perspective
c. Learning perspective
d. External perspective
36. Identify the performance perspective in the balanced scorecard model that includes
measures like intellectual and research assets, employee satisfaction, and skills development.
a. Financial perspective
b. Customer perspective
c. Innovation and Learning perspective
d. Internal perspective
37. Which of the following performance perspectives in the balanced scorecard model includes
measures like productivity, flow time, and asset utilization?
a. Financial perspective
b. Customer perspective
c. Innovation and learning perspective
d. Internal perspective
38. _____ have the primary responsibility to design and manage the processes and associated
resources that create value for customers.
a. Operations managers
b. Testers
c. First-line supervisors
d. End users
39. In the value chain model, efficiency, cost, and cycle time are related to _____.
a. management processes
b. inputs
c. value-creation processes
d. outputs and outcomes
40. In the Service-Profit Chain model, which of the following is viewed as an external
performance?
a. Customer satisfaction
b. Volume flexibility
c. Cycle time
d. Employee productivity
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41. Which one of the following statements is true of the models of organizational performance?
a. The theory of the Service-Profit Chain model is that employees, through the service delivery
system, create customer value and drive profitability.
b. The five performance perspectives of the balanced scorecard model are cost, time, quality,
flexibility, and innovation.
c. The external perspective in the balanced scorecard model includes value-creation and support
processes.
d. The strategic planning category of Baldrige model focuses on reviewing data and using the
results to improve the performance of an organization.
42. Identify a true statement about models of organizational performance.
a. The theory of the balanced scorecard states that leadership drives the system that creates
business results.
b. The Service-Profit Chain model focuses on learning, internal business, customers, and
financial performance.
c. The five performance perspectives of the balanced scorecard model are cost, time, quality,
flexibility, and innovation.
d. The Service-Profit Chain model is based on a set of cause-and-effect linkages between internal
and external performance.
43. The Service-Profit Chain model focuses on _____.
a. employees
b. costs
c. volume flexibility
d. equipment utilization
True/False Questions
1. Return on assets is normally classified as a productivity measure at an organizational level.
2. Budget variance is a financial performance measure at an organizational level.
3. Customer ratings of goods and services are quality performance measurements at an
operational level.
4. Employee satisfaction and employee turnover are examples of flexibility measures at an
organizational level.
5. Order fulfillment time is an example of productivity and operational efficiency measurement.
6. Good customer satisfaction measurement systems are designed to provide information about
a customer’s future buying behavior.
7. Quality measures the degree to which the output of a process conforms to the management’s
expectations and requirements.
8. Service-quality measures are based primarily on human perceptions of service collected from
customer surveys, focus groups, and interviews.
9. Reliability is the ability to perform a service dependably and accurately.
10. Assurance is the willingness to help customers and provide prompt recovery to service
upsets.
11. Empathy is the caring attitude and individualized attention provided to customers.
12. The five dimensions of service quality measurement pertain to behavioral characteristics,
which are easier to measure than physical and technical characteristics.
13. Errors in service creation and delivery are sometimes called service upsets.
14. Service measures should be closely linked to customer satisfaction so that they can form the