Chapter 18: Managing Quality and Performance

Chapter 18: Managing Quality and Performance

1. Organizational control refers to the systematic process of regulating organizational activities to make them consistent with the expectations established in plans, targets, and standards of performance.

2. Steps of Feedback Control

   • Establish standrads of performance
   • Measure actual performance
   • Compare performance to standards
   • Take corrective action

3. Budgeting

   • Budgetary control, one of the most commonly used methods of managerial control, is the process of setting targets for an organization’s expenditures, monitoring results and comparing them to the budget, and making changes as needed.
     • t An expense budget includes anticipated and actual expenses for each responsibility center and for the total organization.
     • A revenue budget lists forecasted and actual revenues of the organization. I
     • The capital budget lists planned investments in major assets such as buildings, heavy machinery, or complex information technology systems, often involving expenditures over more than a year.

4. Financial Control

   • Financial statements provide the basic information used for fi nancial control of an organization. Two major fi nancial statements—the balance sheet and the income statement—are the starting points for fi nancial control.
     • The balance sheet shows the fi rm’s fi nancial position with respect to assets and liabilities at a specifi c point in time.
     • The income statement, sometimes called a profi t-and-loss statement or P&L for short, summarizes the fi rm’s fi nancial performance for a given time interval, usually one year.
   • Analysis
     • s A liquidity ratio indicates an organization’s ability to meet its current debt obligations. For example, the current ratio (current assets divided by current liabilities) tells whether the company has suffi cient assets to convert into cash to pay off its debts, if needed.
     • An activity ratio measures internal performance with respect to key activities defi ned by management.
     • Managers analyze a company’s profi ts by studying profi tability ratios, which state profi ts relative to a source of profi ts, such as sales or assets. One important profi tability ratio is the profi t margin on sales, which is calculated as net income divided by sales.
     • 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.

5. The implementation of total quality management involves the use of many techniques, including quality circles, benchmarking, Six Sigma principles, reduced cycle time, and continuous improvement.

   • . Benchmarking is defi ned as “the continuous process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders to identify areas for improvement.
   • Six Sigma is a highly ambitious quality standard that specifi es a goal of no more than 3.4 defects per million parts.
   • Cycle time refers to the steps taken to complete a company process, such as making an airline reservation, processing an online order, or opening a retirement fund.
   • continuous improvement, or kaizen, is the implementation of a large number of small, incremental improvements in all areas of the organization on an ongoing basis.

6. New financial control systems

   • Economic Value-Added (EVA)
   • Market Value-Added (MVA)
   • Activity-Based Costing (ABC)
   • Corporate Governance

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