Vincent opened a successful drive-through coffee business called "The Cappuccino Express" near a local park. Within three years, a second location was added. Vincent wants to measure site manager performance but profitability alone may not be accurate due to external factors impacting each location differently. Alternative measures like customer satisfaction, product quality, and employee turnover may better reflect a manager's performance. Of the suggested alternatives, customer satisfaction would be the best single performance measure for Vincent to use.

1. Andrew Ding
Joseph Salim
Major Zhang
Charlie Zhu

2.  Vincent was an accountant offered a job as a bookkeeper
($30,000 per year), with limited advancement potential
 Declined the offer and decided to open his own coffee
establishment, via parent’s financing.
 Opened “The Cappuccino Express”, a drive through coffee
business near a local park, selling only two types coffees -
cappuccino and decaffeinated
 “The Cappuccino Express” was well received and within
three years, another store had been added
 Management left to store manager,Vincent concentrated
on the entire enterprise
 Hired assistant to do record-keeping activities and other
chores

3.  What factors can be expected to have a major
impact on the success ofThe Cappuccino
Express?Which factors can be influenced by
Vincent himself and why?

4.  Critical success factors include:
• Location
• Cost of producing each coffee
• Quality of coffee
• Competition level
• Production rate
• Type of Coffee
 Two types of factors – External and Internal
Vincent is only able to influence internal factors:
• Location
• Quality of coffee
• Production rate
• Type of Coffee
 External factors are dependent on the economic environment and
specific circumstances.

5.  What major tasks doesVincent have to
undertake in managingThe Cappuccino
Express? Can he do all tasks by himself?

6.  The major tasks to be undertaken include:
• Ensuring the business is profitable
• Evaluating and maintaining product quality and
service
• Supervision of employees
• Overseeing/Planning the construction of new outlets
• Deciding how the business will promote it’s products
• Maximising employee performance
 Vincent could delegate some tasks specific to each
site to the relevant site manager, as to take on all this
by himself is not efficient.

7.  What are the major costs of operating “The
Cappuccino Express”? How might the figures
be different from the expenses as reported in
the financial statements?

8. Major costs of operation:
 Expenses are explicit costs with a material value
 Direct material, direct labour and overhead
 Land and labour costs would be the largest
 Operating expenses: insurance, licensing, marketing (i.e. advertising),
purchase of equipment and other expenses
 Government rates, taxes, levies etc.
Difference from expenses reported in the financial statements:
 Opportunity cost
 The time spent running “The Cappuccino Express” foregoes time spend
elsewhere
 Being a bookkeeper with a wage of $30,000/a (assumed to be the second best
option)
 Therefore, creates an economic profit or loss
 The value of “The Cappuccino Express” (which is unknown) in comparison with
being a bookkeeper

9.  Vincent would like to measure the
performance of each site manager.
Profitability is one measure, he could use but
what might cause a problem here? Do you
think alternative performance measures such
as employee turnover, service and product
quality and customer satisfaction would
reflect managers performance more
accurately?

10. Company Analysis
- A unique drive-through coffee establishment
- In operation forThreeYears
-Total of two outlets (one in the industrial park area in town, another North ofTown)
General performance measurement - Profitability (potential problems underlined)
 ROA (Return On Assets)
 ROE (Return On Equity)
 Ratios are meaningless if:
 not compared with other company in the same industry
 not compared with past values
 Target profits
Internal Factors affecting profit generation
 Location of the establishment &Target market
 One establishment opening later than the other
 Generating new customerVs. keeping regular customers
 These uncontrollable factors affect each individual establishment in generating profits. As
such, profitability as a tool to measure performance does not give a fair rating to each site
manager

11. Performance measurement is:
“The process of assessing the proficiency with which a
reporting entity succeeds, by the economic
acquisition of resources and their efficient and
effective deployment, in achieving its objectives.”
~CIMA OfficialTerminology, 2005
 Service and product quality
 Customer satisfaction

12.  Looking at the performance measures
suggested in Q4, which of these should
Vincent select if he could use only one?

13. Perks of good performance in:
 Profitability
 Good income for current/next period
 Product & service quality
 Exclusivity and competitive edge in industry
 Customer Satisfaction
 Likeliness of retaining customers

14.  Suppose that last year, the original site had
yielded total revenues of $146,000, total costs of
$120,000, hence a profit of $26,000. Also assume
thatVincent had judged this profit level to be
satisfactory. For the coming year,Vincent
expects that due to factors like increased name
recognition and demographic changes, the total
revenues for the site will increase by 20% to
$175,200.What amount of profit should he
expect from the site?What actions can a site
manager take to increase his/her site’s
profitability?

15.  Expectations of profit:
 Theoretically: if revenue increases to $175,200 and expected overall cost
remain the same,Vincent is expected to generate a total profits of 55200.
 However: expenses often increase along with profit.
As a result,Vincent’s overall profit would be less than 55220 due to increase in
expense.The total profit would be in between 26,000 and 55200 as long as the
overall cost will not excess total revenue.
 An increase in total revenue does not guarantee an increase in overall profit 
profit depend on both revenue and expense.
 By only accessing the limited information provided  unable to estimate the
value ofVincent’s coffee shop without make assumptions.
 Actions to increase profitability :
 Better quality control on good and service
 Establish role of regulations to organise labour, plants and other resources in a
more effective and efficient way
 Interpreting customer’s feedback into decisions makings to meet their needs
are most likely to increase profit within the field of site managers