Ch 18: Managing quality and performance

Ch 18: Managing quality and performance

1. The meaning of control

   • Organizational control
     • systematic process of regulating organizational activities to make them consistent
       • plans, targets, and standards of performance
         • action which adjusts operations to predetermined standards, and its basis is information in the hands of managers

2. Choosing Standards and Measures

   • measuring and controlling financial performance
     • need to measure other intangible aspects of performance to manage the value-creating activities
       • The Balanced Scorecard
         • comprehensive management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors
         • financial
           • short- and long-term financial performance
         • customer service
           • customer retention and satisfaction
         • internal business processes
           • production and operating statistics
         • organization’s capacity
           • how well resources and human capital are being managed for the company’s future

3. Feedback control model

   • involve the use of feedback
     • set up control systems that consist of the four key steps
       • Establish standards
         • define goals for organizational departments in specific
         • standard of performance
       • measure performance
         • reports of quantitative performance measurement
       • compare performance to standards
         • comparing actual activities to performance standards
       • Make corrections
         • changes

4. Application to Budgeting

   • Budgetary control
     • the process of setting targets for an organization’s expenditures, monitoring results and comparing them to the budget, and making changes
     • responsibility center
       • An organizational unit under the supervision of a single person who is responsible for its activity
       • expense budget
         • anticipated and actual expenses for each responsibility center and for the total organization
       • Revenue Budget
         • forecasted and actual revenues of the organization
       • Cash Budget
         • estimates receipts and expenditures of money on a daily or weekly basis to ensure that an organization has sufficient cash
       • Capital Budget
         • lists planned investments in major assets such as buildings, heavy machinery, or complex information technology systems
           • top-down budgeting
             • the budgeted amounts for the coming year are literally imposed on middle- and lower-level managers
           • bottom-up budgeting
             • budgeting process in which lower-level managers budget their departments’ resource needs and pass them up to top management for approval

5. Financial control

   • 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
       • Interpreting the Numbers
         • liquidity ratio
           • A financial ratio that indicates the organization’s ability to meet its current debt obligations.
           • activity ratio
             • A financial ratio that measures the organization s’ internal performance with respect to key activities defined by management
             • profitability ratio
               • A financial ratio that describes the firm’s profits in terms of a source of profits

6. Changing philosophy of control

   • 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 goal
           • open-book management
             • Sharing financial information and results with all employees in the organization

7. Total quality management

   • An organization-wide commitment to infusing quality into every activity through continuous improvement
   • techniques
     • quality circle
       • 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
     • 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
   • Quality control
     • ISO 9000 standards
       • A set of standards that represent an international consensus of what constitutes effective quality management

8. 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 identifi es 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