How Standards Are Developed
Historical experience, engineering studies, and input from operating personal are three potential sources of quantitative standards. Although historical experience may provide an initial guideline for setting standard, it should be use with caution. Often, processes are operating inefficiently; adopting input-output relationships from the part thus perpetuates these inefficiencies. Engineering studies can deter-mine the most efficient way to operate and can provide very rigorous guideline; however, engineered standards are often too rigorous. They may not be achievable by operating personnel. Since operating personnel are accountable for meeting the standards, they show have significant input in setting standards. The same principles governing participative budgeting pertain to setting unit standards.
Price standards are the joint responsibility of operation, purchasing, personnel, and accounting. Operations determine the quality of the inputs required; personnel and purchasing have the responsibility of acquiring the input quality requested at the lowest price. Market forces, trade union, and other external forces limit the range of choices for price standards. In setting price standards, purchasing must consider discounts, freight, and quality; personnel, on the other hand, must consider payroll taxes, fringe benefits, and qualifications. Accounting is responsible for recording the price standards and preparing reports that compare actual performance to the standard.