Quality and time-related indicators in inceptive plans: Study case

Key performance indicators (KPIs) relating to quality issues and turnaround time have become an integral part of incentive systems. The data often serves beforehand for planning purposes in costing systems, e.g., for Activity-based Costing (ABC). The case elaborates on related transfer pricing issues across production departments. This leads to discussion about the incentive structure of department heads, who are overly financially incentivized, and start showing dysfunctional behavior that is not in the interest of the owners. Students can use the open questions to discuss improvements.