MANAGING QUALITY AND PERFORMANCE

MANAGING QUALITY AND PERFORMANCE

1. THE MEANING OF CONTROL

   • organizational control
     • The systematic process through which managers regulate organizational activities to make them consistent with expectations established in plans, targets, and standards of performance.
   • The Balanced Scorecard
     • A comprehensive management control system that balances traditional financial measures with measures of customer service, internal business processes, and the organization’s capacity for learning and growth.

2. FEEDBACK CONTROL MODEL

   • Steps of Feedback Control
     • 1. Establish Standards of Performance
     • 2. Measure Actual Performance
     • 3. Compare Performance to Standards
     • 4. Take Corrective Action
   • Application to Budgeting
     • Expense Budget
       • A budget that outlines the anticipated and actual expenses for a responsibility center.
     • Revenue Budget
       • A budget that identifies the forecasted and actual revenues of the organization.
     • Cash Budget
       • A budget that estimates and reports cash flows on a daily or weekly basis to ensure that the company has sufficient cash to meet its obligations.
     • Capital Budget
       • A budget that plans and reports investments in major assets to be depreciated over several years.
         • top-down budgeting
           • A budgeting process in which middle- and lower-level managers set departmental budget targets in accordance with overall company revenues and expenditures specified by top management.
         • bottom-up budgeting
           • A budgeting process in which lower-level managers budget their departments’ resource needs and pass them up to top management for approval.

3. FINANCIAL CONTROL

   • Financial Statements
     • balance sheet
       • A financial statement that shows the firm’s financial position with respect to assets and liabilities at a specific point in time
     • income statement
       • A financial statement that summarizes the firm’s financial performance for a given time interval; sometimes called a profit-and-loss statement.
   • Financial Analysis: Interpreting the Numbers
     • Liquidity Ratios
       • A financial ratio that indicates the organization’s ability to meet its current debt obligations.
     • Activity Ratios
       • A financial ratio that measures the organization s ’s internal performance with respect to key activities defined by management.
     • Profitability Ratios
       • A financial ratio that describes the firm’s profits in terms of a source of profits
     • Leverage Ratios
       • Leverage refers to funding activities with borrowed money. A company can use leverage to make its assets produce more than they could on their own

4. THE CHANGING PHILOSOPHY OF CONTROL

   • Hierarchical versus Decentralized Approaches
     • Hierarchical control
       • The use of rules, policies, hierarchy of authority, reward systems, and other formal devices to influence employee behavior and assess performance
     • Decentralized control
       • The use of organizational culture, group norms, and a focus on goals, rather than rules and procedures, to foster compliance with organizational goals.
   • Open-Book Management
     • Sharing financial information and results with all employees in the organization.

5. TOTAL QUALITY MANAGEMENT

   • An organization-wide commitment to infusing quality into every activity through continuous improvement.
     • TQM Techniques
       • Quality Circles
         • A group of 6 to 12 volunteer employees who meet regularly to discuss and solve problems affecting the quality of their work.
       • Benchmarking
         • The continuous process of measuring products, services, and practices against major competitors or industry leaders.
       • Six Sigma
         • A quality control approach that emphasizes a relentless pursuit of higher quality and lower costs.
       • Reduced Cycle Time
         • cycle time The steps taken to complete a company process.
       • Continuous Improvement
         • The implementation of a large number of small, incremental improvements in all areas of the organization on an ongoing basis.

6. TRENDS IN QUALITY AND FINANCIAL CONTROL

   • New Financial Control Systems
     • Economic Value-Added (EVA)
       • A control system that measures performance in terms of after-tax profits minus the cost of capital invested in tangible assets.
     • Market Value-Added (MVA)
       • A control system that measures the stock market’s estimate of the value of a company’s past and expected capital investment projects.
     • Activity-Based Costing (ABC)
       • A control system that identifies the various activities needed to provide a product and allocates costs accordingly.
     • Corporate Governance
       • The system of governing an organization so the interests of corporate owners are protected