In reply to Christopher Cullan.

For a good overview on how Cisco does Application Response time, take a look at our Doc Wiki here: http://docwiki.cisco.com/wiki/AVC:AVC_Tech_Overview#Application_Response_Time

Application Response Time
Application Response Time (ART) is an engine which reports approximately 30 performance metrics for TCP traffic.
Application Response Time (ART) engine inspects TCP headers and performs internal timestamping of packets. By inspecting the TCP header sent by client or server, it is able to differentiate request and response messages which are part of each transaction within a TCP connection. It also uses the internal timestamp information and TCP sequence number to calculate various latency metrics such as response time, transaction time, network delay, and application delay. Users can use these metrics to proactively monitor the performance of critical TCP applications and to troubleshoot and isolate problems between network and application.

Figure 12. Application Response Time metrics breakdown.
Images do not show up in comments: http://docwiki.cisco.com/w/images/8/85/Avc-tech-overview-figure-10.jpg

Total Delay corresponds the total response time experienced by the end users. This includes the time to deliver the request to the application servers, the time to deliver the response back to the clients, and time for application servers to process the transaction. By providing these latency metrics broken down into Network Delay and Application Delay, users can determine if the impact to application performance, as an increase to Total Delay, is due to the increase in Network Delay or Application Delay. In addition, since the ART engine inspects traffic between client and server, it can also further separate the Network Delay into the Client Network Delay (CND) and Server Network Delay (SND). This allows further isolation of potential network problem into the client or server side. If the ART engine is enabled on the branch router such as ISR G2, CND approximates LAN delay while the SND approximates WAN delay, and vice versa if ART engine is enabled on the headend router.